Wednesday, 21st May 2008
A Fresher’s Guide to Food Price Rises
Food price increases have long been a hallmark of traditionally volatile world agricultural markets. What is peculiar about this recent food crisis, however, is its sheer global scale. Whereas food crises are usually localised with respect to particular countries or regions, this crisis has been truly global in its scope; in April 2008 the World Food Programme declared rising food prices to be a ‘silent tsunami’, threatening the lives and livelihoods of millions of people around the world.
The reasons for consistent rises in food prices reflect both supply and demand considerations. On the demand side, rising demand for foodstuffs is a direct result of rapid population growth rates, particularly in Asia. Increasing demands for food are also related to income levels, however, and not just population growth rates. As emerging economies grow richer, so does their appetite for foodstuffs, even in cases with minimal population growth.
Supply side considerations have also played an integral part in pushing up the price of foodstuffs. The provision of agricultural produce remains a notoriously difficult sector to manage, for two main reasons. Firstly, agricultural yields are highly vulnerable to unpredictable events, not least the weather. Rainfall deficiencies in 2006 slashed Australia’s grain exports from 25 Million to 9 Million tonnes, leading, in turn, to consistent rises in the price of grain. Even when the weather goes according to plan, however, the agricultural sector still suffers from an inherent lack of control over output. Stocks are decided months in advance, with famers unable to simply ‘step up’ production in times of crop failure; having to wait, instead, for the next season to start. The relatively fixed nature of agricultural production, therefore, means that farmers can only, at best, reap what they sow – literally.
Satisfying this increased demand for foodstuffs has been easier said than done. Though farmers in emerging and developed countries alike have slowly come round to expanding agricultural output, their efforts have been held back by a number of factors. Generous – and some argue, unnecessary – ethanol subsidies mean that it is more profitable for famers to grow corn for ethanol production, rather than for human consumption and livestock feeds. Secondly, the supply of agricultural products has been stifled by a lack of technological innovation and research into the development of newer crops with higher yields. Thirdly, the rise in the price of other commodities – particularly oil – has also fed into food price rises, as a result of farmers having to shell out more money for tractor fuel, fertilisers, and animal feeds.
Given time, the market for world foodstuffs will adjust, not least in the form of higher food prices. There is a vital role, therefore, to be played by state authorities in dampening the effects of these price increases. In times of rising prices – or inflation, as it is more commonly known - the first to feel the pinch are those on the lower rungs of the income ladder. This calls for an important role for state economic and social policy. In the first instance therefore, social protection programmes need to be reinforced, allowing those at the lower end of the income scale to manage when the prices of staple foodstuffs rise.
The state must also invest encourage research and development into agricultural technologies, by means of incentives for further research into new crops and production techniques. Governments around the world would also do well to review those policies that have, these past five decades, done much to distort agricultural markets in the first place. Moreover, there needs to be a concerted effort by all parties involved to constructively re-invigorate the debate on genetically-modified foods. The overly emotive discourse inherent in the current debate has done much to divert attention – and resources - away from important avenues of agricultural research, some of which have very little to do with GM foods in the first place.
When it comes to the local scenario, the Maltese economy has certainly not been spared the effects of rising food prices, given Malta’s dependence on all things imported. Imported inflation (which occurs when foreign price increases seep into the local economy as a result of imported goods) has meant that foreign food price increases have, as expected, caused domestic prices to increase. The degree of openness of our economy means that the price of Maltese staples foodstuffs such as bread, for example, is now as affected by Australian grain prices or the price of Venezuelan oil as it is influenced by economic policy decisions taken in Castille.
This is not to say, however, that state authorities have no part to play with respect to managing price increases in the first place. On the contrary, there is a vital role to be played not just by policy makers but by NGOs, academics, and the population in general. Self-sufficiency is not an option for our tiny island – and even if it were, it would still not shelter us from events occurring a few miles beyond our shores. There are various ways of dampening increases in food prices and price increases in general. Reducing Malta’s dependence on fossil fuels by switching to cleaner, more efficient sources of energy is just one way of softening the impact of imported inflation. Liberalising markets also helps keeps price increases low, by allowing market participants to source the cheapest possible prices.
Opening up previously sheltered markets whilst reviewing social protection programmes would help to protect those most at risk, whilst allowing for a learned and informed consumer choice to be the primary – and most important – determinant of consumption. Increasing consumer knowledge and awareness would also contribute, at the end of the day, towards a better understanding of the prices we impose on those around us, on our environment, and on future generations, as a result of our consumption decisions.
Robert Zammit is currently reading for an MA in International Relations at Warwick University, in the UK, and is a guest contributor to the Students' View Blog brought to you by www.insite.org.mt
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Comments
My comments were just to stress that economic problems such as the rise in food prices is not solely down to economic factors...but since you decided not to read them properly heres a re-cap:
Greed: - Farmers see more profit in producing bio-fuel-related crops and so lower their production of food commodities; the net result of this is that those who are still producing food put their prices up due to increased demand, but not neccesarily due to under-supply.
Hypocracy: - while encouraging 'democracy' and free market economies, Malta's membership of the UN and EU is sanctioning the totally anti-competitive Common Agricultural Policy, as well as standing idley by as Israel denies Palestine of food commodities through collective punlishment ,and the USA places a totally unjust trade embargo on Cuba.
Take the Franco-German struggle for power in the CAP, EU's refusal of GMOs, the huge delays in the Doha negotiations, the trade-distorting subsidies the US gives to its local farmers (for anything from corn to cotton) forcing 3rd world countries out of the market, the ridiculous trade restrictions developing countries place between themselves...
In the end it could well be a return to bi-lateralism and multiple FTAs: the US is already trying to negotiate deals with Colombia and Venezuela.
t's the end of cheap food: God help us!
It's good to see that your points hit the nail on its head - pity it's the nail of error.
On what basis do you relate the rise in foodstuff prices to hypocrisy and greed?
You brand Mr. Zammit's analysis as long-winded and try to portray it as if it were an extrapolation of the class notes Mr. Zammit could have taken during his university years. Well, if it were so, then I'd love to read these notes since they seem to contain one of the very few value-free analyses which I have read in the Maltese press. It contains no accusation or praise to the local government for a start and, furthermore, seeks to stay away from sweeping statements which just add emotion and degenerate debate into useless controversy.
It is high time that Maltese society reacts intelligently to the challenges it's facing and starts working towards concrete solutions as those mentioned in this piece - urgent investment in renewable energy in primis.
Finally, whilst I am inclined to acknowledge that greed and hypocrisy have much to do with all of this, simply repeating this doesn’t change a thing. Small changes, on the other hand, may just do the trick. Human beings may be greedy, at times, but I’ve known enough kind individuals know that the opposite can be just as true. And I am intent on doing my bit.
Firstly, world population has indeed risen for a long time; true. It has been rising continuously, as a matter of fact. The rate of population growth (relating to growth per annum in percentage terms) has not been constant, however. World population has not, in fact, “been increasing rapidly for a long time”. Between 1850 and 1950 world population doubled; between 1950 and 2000, it increased fourfold. Population growth has exhibited exponential, and not linear, growth. Though food production yields have increased exponentially too, they have not done so to the same extent – and the last two decades have seen drastic reduction in food yields, meaning that demand from population growth levels has indeed outstripped the supply of food (in some countries more than others).
Heres a bit of a reality check to challenge your rather long winded point Robert; Greedy farmers choosing to produce crops for bio-fuels as opposed to producing crops for foods.
Another reason, which by your introductory statement you seem completely oblivious to is the shameful and illegal trade embargoes places BY 'democracies' on other sovereign states for commodities and foodstuffs which they cannot grow themselves...Prime examples here would be Cuba and and Palestine.
Another paradox which needs to be addressed is the fact that the worlds main producers of foodstuffs; south america and asia are actually the countries in which many millions if not billions are starving themselves.
What it all boils down to im afraid is not your lecture 4, 5 or 6 economic notes from uni Robert, but plain and simply; greed and hypocracy.