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Food prices: don’t turn a drama into a crisis

We could challenge the food crisis by calling on governments to remove the bizarre barriers to producing more food.

Rob Lyons
Columnist

Topics Politics

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‘Food prices rise at the fastest rate on record’, declared the UK Daily Telegraph, with more gloomy news about food inflation. The prices that food manufacturers charge supermarkets were up 11.4 per cent in August 2008 compared with the same month a year ago (1). This news followed on from a BBC report suggesting that food prices in the shops had gone up by 8.3 per cent since January this year (2). While this is depressing news for consumers in the short term, a little perspective is required about just how bad things are.

We’ve got used to food becoming relatively cheaper over the past few years. Food and non-alcoholic drinks made up 21 per cent of household expenditure in 1971, falling to 12 per cent in 1991 and just nine per cent in 2005/06, according to the UK Office for National Statistics (3). The current price rises have reversed that trend. For those on reasonable incomes, these rises mean having to forego other activities, but will probably have limited impact on the kinds or amounts of food eaten. For those on low incomes, rising prices make the business of survival considerably trickier.

The situation is far worse in many parts of the developing world. In countries like Bangladesh and Nigeria, buying food accounts for 60 per cent or more of income. Rising prices globally will mean people in these countries having less to eat than before. Where there are already problems with food supply, as in the drought-hit Horn of Africa, the inability to turn to the world market to make up shortfalls in domestic supply mean many people are threatened with starvaton. UN humanitarian chief John Holmes noted after a recent visit to Ethiopia that ‘the crisis remains very severe, and the numbers of people affected are continuing to rise’ (4). Just to add to the misery, the high cost of food means food aid budgets for international agencies don’t go nearly as far as before.

There has been much discussion about what has caused this rise of prices. The truth is that a number of factors have coincided. One is a long-term trend towards increasing wealth in the developing world, particularly China and India. Not only has demand for food generally risen, but consumption of meat and dairy products has risen – and that means more grain has to be diverted to animal feed. However, this increase in wealth cannot really explain recent events, because it has been happening fairly steadily. This is reflected in changes in the UN Food and Agriculture Organisation (FAO) Food Price Index, which compares the prices of six different groups of commodities, balanced for their relative share of exports. The index rose by 38 per cent between 2000 and 2006. However, in the last year or so, the index has almost doubled, peaking in June 2008 (5).

So, what’s new? While there have been a number of short-term factors, the finger of blame is generally pointed at the way the US government has subsidised maize production for conversion into ethanol as a ‘biofuel’. About one third of the US maize harvest went for this purpose last year. Given that the US is overwhelmingly the world’s largest exporter of maize, this has had a knock-on effect on alternative cereals like wheat or rice. This has combined with relatively poor harvests in some major exporters like Australia, while in Egypt, Ukraine and India the authorities placed restrictions on trade earlier this year so as to protect prices domestically, further exacerbating rising prices for importing countries.

One final factor worth considering is speculation. With stock markets apparently going nowhere, and huge amounts of money being lost on property and mortgage investments, the financial markets have looked for alternative investments. Money has piled into commodities as a result, pushing up the price of food both directly, and the price of things necessary to food production, particularly oil. Oil prices seem to have peaked for the time being, dropping from a high of $147 per barrel to around $100 per barrel today. Food commodity prices now seem to be heading down, too. The export bans have been lifted, and the threat of recession leading to falling demand has made commodities less attractive to investors.

But all of this has taken place despite the fact that more than enough food is produced to feed the world; in fact, we’ve had record harvests. Where did it all go wrong, and what can be done to prevent it happening again?

When food prices have fallen in recent years, there has been little incentive to invest in producing yet more food. Farmers have been complaining constantly about prices. In the UK, many farmers have relied on all sorts of non-farming activities, from providing accommodation to setting up quad-biking areas, in order to make ends meet. Others have taken European Union subsidies to stop farming, becoming environmental stewards of the land instead, or have even left the industry altogether. If that situation is reversed, and farmers are confident enough to start producing much more, then prices will come down a little while growing demand will be met.

This could be a good time to tackle subsidies in the European Union and the US. Paying farmers to grow food, then paying them again to export it, has a devastating effect on markets in the developing world. How can relatively unproductive, small-scale farmers in the South compete against food which is effectively dumped, below cost, from Europe or America? Scrapping subsidies would give poor farmers a fighting chance and provide them with an incentive to invest more in production.

Scrapping backward agricultural policies in Africa would help, too. In a speech this week to the British Association for the Advancement of Science, the UK government’s former chief scientific adviser, Sir David King, noted how the policies of Western governments and aid organisations had prevented Africa from developing in the same way as other parts of the world:

‘[A] big part has been played in the impoverishment of that continent by the focus on non-technological agricultural techniques, on techniques of farming that pertain to the history of that continent rather than techniques that pertain to modern technological capability. Why has that continent not joined Asia in the big green revolutions that have taken place over the past few decades? The suffering within that continent, I believe, is largely driven by attitudes developed in the West which are somewhat anti-science, anti-technology – attitudes that lead towards organic farming, for example, attitudes that lead against the use of genetic technology for crops that could deal with increased salinity in the water, that can deal with flooding for rice crops, that can deal with drought resistance.’

By focusing minds on a range of policy problems, and by providing an incentive to farmers to expand production, the current period of high food prices may have long-term benefits for food security. But that also demands some proper action by governments on cutting subsidies, promoting modern agriculture methods and reducing restrictions on new technologies like genetic modification. Above all, it means not listening to the small-is-beautiful advocates who think a retreat from mass food production is the answer.

Western governments seem to be in a state of disarray, however, totally lacking any great principle about how to move forward with a long-term vision of the future, hoping that the market will just sort things out. And big corporations seem to be just as risk-averse as governments when it comes to investing in research, for example. This possibility of political and corporate paralysis, not an inability to grow food, seems to be the biggest danger of all.

Rob Lyons is deputy editor of spiked and is speaking at the debate ‘Food Prices or Food Crisis?’ at the Brighton Food Festival tonight.

Previously on spiked

Rob Lyons said, in relation to the food price crisis, that the world is not on the brink of starvation. He observed out that many are using reports of a crisis to scaremonger about everything from population growth to modern technology. Brendan O’Neill pointed out that the flooding of Somalia with aid in the 1990s effectively destroyed the country’s agricultural industry. Justine Brian celebrated the freedom provided by mass food production. Or read more at spiked issue Food.

(1) Food prices rise at the fastest rate on record, Daily Telegraph, 8 September 2008

(2) UK food prices show 8.3% increase, BBC News, 4 September 2008

(3) Social Trends 38, table 6.2, Office of National Statistics

(4) Food security in drought-stricken Ethiopia at alarming levels, warns UN, UN News Centre, 8 September 2008

(5) Food Prices Index, FAO, August 2008

(6) Green activists are ‘keeping Africa poor’, The Times (London), 8 September 2008

To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.

Topics Politics

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