Anoma Abhayaratne

K. M. G. A. Kasturi

Introduction

During the last year and particularly in last few months, the world witnessed a dramatic unprecedented rise in food prices. From January to March in 2008, US wheat export price rose by 17 percent. Key grain prices have risen by 40 percent to 130 percent in the last year. The World Bank points out that global food prices have risen by 80 percent since 2005, while wheat prices have increased by 200 percent. The costs of other staples such as rice and soybeans have also hit record highs, while corn is at its most expensive in 12 years. The increasing prices of grains are also pushing up the price of meat, poultry eggs and diary products. If prices keep rising, more and more people around the globe will be unable to afford the food they need to alive, and without help they will become desperate.

According to the United Nations World Food Programme increasing prices of food is currently the biggest crisis in the world. The rising food prices have led spreading poverty and hunger in developing countries and have triggered food crisis in 36 countries, all of which will need extra help. As the World Bank says, the threat of malnutrition is the forgotten problem.

Several factors have contributed to the rising food prices. These include inadequate production of food, rising demand from emerging countries and growing populations, escalating oil prices and shifting lands from food cultivation to bio fuels.

Factors contributed to the rising food prices

Inadequate production

Several distinct weather and climate related incidents have caused disruptions in food production during last few years. Parts of China, Australia, Canada and New Zealand among others experienced droughts, while large areas of China, Myanmar, Bangladesh and Sri Lanka faced floods. Weather condition reduced the wheat crop in Canada by 20 to 25 percent. Milk production in New Zealand fell drastically and rice production in Australia fell significantly.

Last year Australia, the second largest exporter of wheat experienced its worst drought for over a century and saw its wheat crop shrink by 60 percent and rice harvest fell by as much as 98 percent. Heat wave in California in 2006, which killed a large number of farm animals, unseasonable rains in Kerala in 2008 which destroyed a large amount of grain, cyclone Nargis in Burma which destroyed rice harvest are among the other events that have negatively affected food production.

The rise in global temperature caused by pollution is also beginning to disrupt food production in many countries. According to the United Nations, an area of fertile soil the size of Ukraine is lost every year because of drought, deforestation and climate instability.

Sharp rise in oil prices

A major factor contributed in rising food prices is the sharp rise in oil prices during the last few months which pushed the cost of agriculture production considerably and increased transportation costs for all foods. The high cost of oil means increasing costs in the use of machinery, higher costs of fertilizer, insecticides and chemicals used in the cultivation of crops, raised the cost of food production.

According to the World Bank, fertilizer prices have risen 150 percent in the last five years. This has had a major impact on food prices, as the cost of fertilizer contributes over a quarter of the overall cost of grain production in the United States, which is responsible for 40 percent of world grain exports.

Sharp rise in oil prices in the recent past can be seen as follows.

Oil prices during 2008

Increasing use of grains for production of bio fuels.

Rising oil prices and concerns over global warming have turned attention of many countries in the production of bio fuels. During the last few years, a large amount of grain had been used for the production of bio fuels. It has been projected that in 2008, ethanol distilleries would use 114 million tons of grain (28 percent of projected US grain harvest) in the production of bio fuels.

With rising oil prices and global warming we can expect the demand for bio fuels to increase in the future. Increase in production of bio fuels will push food prices up by increasing demand for grains and displacing land use for normal agricultural activities. By now, 16 percent of US agricultural land formerly planted with soya bean and wheat are been used for growing corn for bio fuels.

According to the recent analysis by United Nations, there is an accelerating demand for bio fuels. The global drive for a new green fuel to power cars, lorries and planes is worsening world food shortages and threatening to make billions go hungry.

The United States, United Kingdom and other European countries have enthusiastically encouraged production of bio fuels as the solution to escalating oil prices and global warming.  But now experts are warning that this could all be a disastrous mistake. Converting large amounts of land to crop for producing bio fuels is reducing food production just when the world needs to increase it. According to the World Bank, this is putting pressure on countries’ precarious food supplies. There are plans by more than 20 countries to boost production of bio fuels over the next decade. However, it is very hard to imagine how we can see the world growing enough crops to produce renewable energy and as the same time meet the enormous demand for food.

Increasing demand for food from emerging countries.

Another main reason for rising world food prices is the increasing demand for food from the two large emerging countries of Asia, China and India due to both increase in population and rises in per capita incomes with high economic growths.

Though the growth rates of population in these two countries, particularly in China are low, with their huge populations, the annual increase in population in each is above one million. With the increases in per capital incomes their demand for food has increased considerably.

With the increases in per capita incomes, a new middle class of more than 600 millions in China and India has increased consumption of more quality food significantly. People who have become relatively rich are changing their eating habits consuming more meat and chicken. Average meat consumption of a Chinese consumer has increased from 20 kg a year in 1985 to over 50 kg a year in 2007. This places a huge demand for grains as production of more meat requires more feed to raise more animals. According to the estimates of Paul Krugman, it takes 700 calories worth of animal feed to produce a 100 calories piece of beef. Therefore, increasing demand for meat creates an extra demand for grain.  

In addition to China and India, there were also increases in demand for food from oil exporting countries in the Middle East and from Russia and Eastern Europe due to economic growth in these countries. The demand for meat from all developing countries has doubled since 1980.

The impact of the rising food prices on developing countries

Currently, the world food production is not adequate to feed its population. Constraints in supply and increasing demand from emerging economies would ensure high prices of food. This food crisis will affect developed and developing countries in two different ways. In developed countries, this would appear as high prices of food while it would be shortages of food in addition to high prices in developing countries. In developing countries, a majority of the population spend a large proportion of their income on food. With rising prices of food they would not be able to afford the minimum daily requirements of food. This would push more people into poverty, malnutrition and hunger.

Spreading of hunger and malnutrition could be aggravated by the fact that many developing countries that receive food aid will not receive the same amount. Aid agencies fear that they can no longer afford to feed the same number of mouths unless they get some emergency funding. The World Food Programme which feeds 73 millions of the Worlds most destitute each year, says they are already coping with 55 percent rise in food aid costs.

Some experts predict that world food markets will be locked into an inflationary spiral for at least four years. But some others predict that this could last for a decade or more. According to Powell, this is a step increase, not a peak to be followed by a trough. We are seeing the end of the era of cheap food.

The only people who could benefit from rising price of food are the farmers. Increase in farm incomes could reduce poverty and ensure food security at household level. However, this is possible only if the real incomes of the farmers are increased.

What are the solutions?

It will not be an easy task to find solutions to this problem as several factors have contributed to the problem.

Can the world food production be increased? Land and other resources needed to increase production are scarce. With growing population, more and more land is being used for houses and roads. Further, clearing land for agricultural activities can contribute to global warming. Other option is increasing productivity of food production. This needs to use oil based inputs that will increase production cost and hence food prices. There are suggestions that productivity can be increased by planting genetically improved plants. However, there are oppositions from the environmentalists that they are not environment friendly.

Halting the production of bio fuel would be a solution as more and more agricultural land are converted to production of grains for bio fuel production. Countries like the US that backed bio fuels by providing subsidies have invested largely on this. It would not be easy to reverse the process now.

Finding a way to control rising oil prices would help reducing food prices. One possible way to do this is to look for alternative energy sources.

It would not be possible to find a global solution to this crisis. But each country could look for the solutions that match with their resource availability and their needs.