The imperatives of a global food crisis

By: Bikram Lamba July 1, 2008 12:00 AM - The global economy is being buffeted by one issue after another. The global food price rise and food shortage has sent alarm signals and the recent FAO summit in Rome took stock of this man made disaster.  This disaster is imputed to diverse factors like increased use of bio fuels, diversion of land from grains to commercial crops, change in dietry habits and wealthy nations spending billions of dollars on farm subsidies, excess food consumption and arms. "The excess consumption by the world's obese costs $20 billion annually, to which must be added indirect costs of $100 billion resulting from premature death and related diseases," said FAO Director-General Jacques Diouf. The World Bank and aid agencies estimate soaring food prices could push as many as 100 million more people into hunger. About 850 million are already hungry. Ban estimated the "global price tag" to overcome the food crisis would be $15-20 billion a year and that food supply had to rise 50 per cent by the year 2030 to meet climbing demand.
This is grim news. When you compare wheat and rice prices with the prices four years back, the price rise in oil seems too trivial. This problem is not going to be easily resolved because the world faces the double threat of a long-term trend of rising demand in conditions of tightly constrained supply. There are already limits to the availability of arable land and severe pressures on water supplies, and climate change seems to be exacerbating both. The world is heading into a perfect storm.  The price movements tell the story. Soybean prices in the United States have jumped from $5.72 in 2004 to $10.60 now. Wheat sold for $3.01 a bushel in 2004 and is now over $24.
Food prices hit record levels this year. A third of the increase, estimates the International Food Policy Research Institute in Washington, DC, is due to increasing demand in the US for maize to make ethanol for fuel. The IFPRI says this should stop. There should be a moratorium on using food for fuel, it says, as world food production is already barely enough to feed us all. There are just not enough crops to make our fuel as well. The U.S. Department of Agriculture reported that U.S. farmers were cutting their plantings of cotton and sugar in order to take advantage of the higher prices for wheat, corn and soy.
World grain reserves are at their lowest levels since records were first kept back in 1960, and the U.S. stockpile had not been this low since 1948. The markets worldwide face severe constraints from government manipulation of prices. Sometimes, like the U.S. subsidies for biofuels, this is done with the best of intentions, to cut U.S. dependency on imported fossil fuels. But government action can have severe effects. The European Union sharply restricts the use of new genetically modified crops, which many agricultural scientists see as the technological way forward. Genetically modified organisms can be tailored to grow on marginal land and survive drought, to need less fertilizer or to survive saltwater flooding. There are few easy choices. GMO crops remain controversial. And while one fast way to increase food production would be to increase the acreage under the plough in countries like Brazil, that would also mean further erosion of the rainforest and tougher environmental problems in the future.
The problem is further compounded by the increased stress on biofuel. Biofuel from plants could be a solution to the looming depletion of cheap oil, but making it out of food crops poses problems that are brought into sharp resolve by the current food crisis. One way around this problem is to use the tough inedible plants, or parts of plants, to produce fuel, but this is currently an expensive, multistage process.That could change though, says one expert, if we produced genetically engineered fuel plants that make their own cellulose-digesting enzymes – a bit like oil that refines itself into petrol.
But is biofuel the easy way of oil issue? Even if the US turned its entire annual maize crop into ethanol, says geologist Ron Oxburgh, it would barely supply 15 per cent of its current petrol consumption. One long-held dream is to make ethanol from cellulose, the main component of plant cell walls, which humans cannot digest. The planet produces 180 billion tonnes of cellulose per year, making it earth's biggest reservoir of carbon fixed into energy-rich organic molecules. Much of the biomass we produce on farms is rich in cellulose – rice straw alone accounts for half of the world's farmed biomass – and other potential sources such as switchgrass can be grown on land that will not grow food.
Whatever the cause, the perceived food shortage and high prices have caused a reaction all over. Many countries have either limited exports or banned the exports, thus further extenuating the problem.  This distorts markets and forces prices even higher.
The Rome summit sets the tone on food aid and subsidies for the G-8 summit in Japan in July and the concluding stages of the stalled Doha talks aimed at reducing trade distortions. Doha deal could reduce the trade-distorting subsidies that have stymied the developing world's production capacity. Of the 22 countries most affected by the food crisis, some are amongst the world's least trade integrated economies in agriculture.  The rich nations' protectionism and export restrictions are causing food. European Union should cool prices by reforming farm policies that cost consumers over 40 billion euros a year.
Rising fuel prices, as well as making agricultural supplies like seeds and fertilisers more costly, have raised interest in biofuels, blamed by many for competing with food output for grains and oilseed. The United States and Brazil, the world's biggest producer of ethanol from sugar cane, defended their biofuels.  The United States plans to channel a quarter of its maize crop into ethanol production by 2022 and the European Union plans to get 10 percent of auto fuel from bio-energy by 2020. It is interesting to note that while Washington says biofuels account for only three percent of the total food price rise while Oxfam puts it closer to 30 percent.
This scary picture  could be the breakdown of the "Goldilocks era" for global commodities – a period stretching back more than 30 years, during which the price of basic foodstuffs remained relatively constant. For most of this period, the cost of staples such as wheat, corn and soya actually fell in real terms. Food buffer stocks were at all-time lows as countries saw no need to accumulate them. Now this long period of stability is coming to an end. We may be on the cusp of a new era of volatility and rising prices which will last for some time to come.
The main losers are poor people in developing countries, who are facing higher prices for imported food on low incomes. Food riots lead to increasing political instability. The World Bank says that the high price of food could lead to developing countries missing international poverty targets. The main gainers are farmers in rich and emerging market nations like the US, Brazil, Argentina, Canada and Australia.
The growth in the world's population, which is expected to top nine billion by the middle of the century, puts pressure on a range of resources, including land, water and oil, as well as food supply. But lurking behind the headline figures for population is an even more significant factor and that is the economic miracle driving emerging economies such China and India. To put it bluntly, rich people eat more than poor people, and all this economic growth is generating a whole new tier of middle-class consumers who buy more meat and processed food. The FAO estimates that processed food now accounts for 80 per cent of food and beverage sales.
The impact of climate change is evident. Desertification is accelerating in China and sub-Saharan Africa, while more frequent flooding and changing patterns of rainfall are already beginning to have a significant impact on agricultural production.
What should be done? Here are three steps, as suggested by eminent economist Jeffrey Sachs, to ease the current crisis and avert the potential for a global disaster. He recommends as a first step to scale-up the dramatic success of Malawi, a famine-prone country in southern Africa. Three years ago a special fund was set up to help its farmers get fertilizer and high-yield seeds. Malawi's harvest doubled after just one year. An international fund based on the Malawi model would cost a mere $10 per person annually in the rich world, or $10 billion in all. Such a fund could fight hunger as effectively as the Global Fund to Fight AIDS, TB and Malaria is controlling those diseases.
Second, the U.S. and Europe should abandon their policies of subsidizing the conversion of food into biofuels. The U.S. government gives farmers a taxpayer-financed subsidy of 51¢ per gal. of ethanol to divert corn from the food and feed-grain supply. There may be a case for biofuels produced on lands that do not produce foods – tree crops (like palm oil), grasses and wood products – but there's no case for doling out subsidies to put the world's dinner into the gas tank.
Third, we urgently need to weatherproof the world's crops as soon and as effectively as possible. For a poor farmer, sometimes something as simple as a farm pond--which collects rainwater to be used for emergency irrigation in a dry spell--can make the difference between a bountiful crop and a famine. The Climate Adaptation Fund to help poor regions climate-proof vital economic activities such as food production and health care must be activated.
The present food crisis provides is not only a warning but also an opportunity. We need to invest vastly more in sustainable development in order to achieve true global security and economic growth.