SINGAPORE — In India, a potentially huge economic and social crisis is in the making, involving extensive rewriting of recipe books to exclude a favorite ingredient. Onions are in short supply and their prices have risen by 80 percent, too expensive for many Indians to afford as part of their daily diet. India’s food inflation is 20 percent.
Comedians might make jokes about the lachrymose characteristics of onions — and indeed, it is more a crying than a laughing matter. It’s not just onions that are costing more and it’s not only India feeling sharp spikes in food prices. Many places — from Algeria (food riots), to China (imports of wheat and corn), Russia (grain imports to feed cattle and a ban on wheat exports), and Australia, Brazil and Canada (crops damaged by floods) — are facing food shortages or price rises.
International organizations, including the United Nations, the World Bank and the U.S. Department of Agriculture (USDA), report that food prices globally have risen scarily close to or above the record levels of 2008. Prices of wheat, sugar, corn, soybeans, rice and barley, have all risen.
Other food production problems loom, including maverick weather patterns, rising population demands, use of grain to fuel motor vehicles, soil erosion, loss of farmland to industry and urban life, waste of water and drying up of aquifers, and reaching a plateau in many areas of technology. Some agronomists fear that without investment and brave political action the world will see bouts of famine.
The immediate problem of food shortages and rising prices is wrapped in a larger longer-term problem of how to increase global food production to match an increasing population and rising expectations of a better diet from richer people in rapidly developing countries.
In September, Oxfam reported that the number of hungry people in the world had fallen below a billion after two years of good harvests, but warned global leaders meeting in New York that they needed to develop an action plan to stay on top of the problem. There were lots of fancy speeches, but little action in New York.
Gloomy crop news continues. The USDA this month predicted a corn deficit worldwide of 20.1 million tons, and said that wheat consumption is likely to exceed production by 19.4 million tons at the end of this season. Fears of famine are increased because inventories of many crops are tight. The rising price of oil could also play a damaging role by increasing the cost of inputs of everything from fertilizers to tractor fuel. Economists also fear the double whammy effects of inflation and speculation, which could make a bad situation worse.
The immediate prospect is tight supplies, rising prices and pockets of famine. The continuing problem is world population rising at 80 million a year or 219,000 a day. Conventional wisdom about world food supplies is that they are sufficient for now and into the foreseeable future, given proper management, good economics and forward-thinking politics. Those of course are the key questions.
In a research report last year Nomura Securities predicted: “another multiyear food price rise, partly because of burgeoning demand from the world’s rapidly developing — and most populated — economies, where diets are changing toward a higher calorie intake. . . . The supply side of the food equation is being constrained by diminishing agricultural productivity gains and competing use of available land due to rising trends of urbanization and industrialization, while supply has also become more uncertain due to greater use of biofuels, global warming and increasing water scarcity. Feedback loops also seem to have become more powerful: The increasing dual causation between energy prices and food prices, and at least some evidence that the 2007-08 food price boom was exacerbated by trade protectionism and market speculation.”
Where Nomura is more pessimistic than most analysts is in estimating massive extra demand for food caused by income inequality. As poor people become richer, they spend more on food. A 10 percent increase in income triggers a 6 percent increase in demand for grains until income is about $3,000 equivalent and then it levels off; income elasticity for food starts to decline at $12,000 and above. It calculated that 2.2 billion people in Asia outside Japan have incomes below $2,985, not the 1.5 billion that the World Bank estimates. This is a crucial difference of 700 million people, or more than twice population of the United States.
But at $4,000 and above people begin to demand a richer diet of meat and dairy products, not plain vegetables. The Hong Kong Monetary Authority estimated last year that a 10 percent increase in household spending per capita is associated with a 1.1 percent increase in spending on meat in the U.S.; but in China, the same increase in spending saw an 11.5 percent increase in spending on meat. According to the U.N. Environment Program, producing a kilogram of meat takes on average 3 kg of grain and 16,000 liters of water.
By 2050, 86 percent of the 9.1 billion people on Earth will live in today’s developing countries. People in these countries are on average much younger than those in the developed world, and younger people tend to have better appetites, again increasing the demand for food. The median age in 2010 in Japan was 44.3 years, Germany 42.3, the U.S. 36.6, China 34.2; but in Brazil it was 29 years, Indonesia 28.2, India 25, Bangladesh 24.5 and Nigeria a mere 18.6 years.
In recent years, there has also been wasteful diversion of food crops to make biofuels. Apart from Brazil’s sugar cane to make ethanol, production of biofuels is not economically viable without subsidies. Biofuels are also environmentally unfriendly. U.S. annual ethanol production for cars could feed 350 million people. Nevertheless, biofuels production is forecast to increase from 89 billion liters a few years ago to 200 billion by 2019, from 1 percent of road transport fuels in 2005 to 25 percent by 2020.
On the supply side, there are the greatest problems with a lack of new investment, faltering productivity, particularly of cereal production, and increasing pressures on land.
The situation is not completely hopeless. Tackling the immense problems of wastage of water and crop losses on the way to market could add 30 percent to food supplies in some places. Robert Zoellick, the World Bank president, recently suggested a raft of small measures, such as better weather forecasting and monitoring; greater help for smallholder farmers; exemption of humanitarian food from export bans; food stockpiles in disaster-prone and infrastructure-poor places; fast- disbursing support to badly affected farmers rather than export bans.
But even these sensible palliative measures need global political action, and there is no sign yet of the imagination of leaders to climb out of their constricting national boxes to understand the wider and longer-term problem. It would be a tragedy if it were to take the Black Horse and food riots to bring world leaders to their senses.
Kevin Rafferty, a Hong Kong-based journalist, is editor in chief of PlainWords Media.
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