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The Food Crisis – The Future Now

OCTOBER 2008

Over the early months of 2008, food riots in various parts of the world such as Bangladesh and Haiti were reported. Egyptian food riots resulted in the army being brought in to bake bread. The reason for this turmoil was the escalation in food prices. Adjusted for inflation, food prices were the highest in 30 years. In addition, current economic forecasts indicated that prices would remain high. This swell in prices was led by vegetable oil with an increase in price for the first 3 months in 2008 of 97%, followed by grain at an increase of 87%, and then dairy products of 58%, and rice of 46%1.  Experts who track and forecast food commodities have been warned about the lack of world food supply of items such as rice and wheat. This is stark contrast to general opinion that the Green revolution would end starvation and lack of food. Today, 800 million people suffer from hunger1.

Urgent help is required now for those adversely affected by the food crisis. In certain countries, 70 to 80% of a family’s income goes to buying food. With rising food prices, starvation will increase. A compounding problem is that additional money required for purchasing food will mean less available money for health and education1. A significant concern is lack of food security could develop into unstable and violent situations in places of the world.

Many people ask the simple question of: “What has caused the food crisis and what is being done to fix the problem?” Experts agree on the causes of the food crisis, but differ in their view on which causes had the most profound effect. Some of the causes are: production shortage, declining stock levels, government policy changes and exchange rates, higher fuel costs, increasing biofuels, demand changes, and financial market influences1.
  

Production Shortage

Production of cereal crops has declined in major exporting countries such as Australia and Canada1, leading to less world supplies. This decline has been due to adverse weather conditions such as a prolonged drought in Australia.
  

Declining Stock Levels

Global stock levels of cereals have been in a gradual decline of 3.4% per annum since 1995. These stocks are expected to reach their lowest level in 25 years by the end of 2008. Oil seeds and their meal by-products had their stock utilization ratio in decline. This means that the available stock declined with the same use rate, or that stocks have remained stable but use has increased1. In either alternative, the outcome is the same; demand begins to exceed the stocks of oil seeds and their meal by-products.

  
Government Policy Changes and Exchange Rates

Since the Uruguay Round Agreement, various governmental changes have occurred that have affected world stocks of food. This has included measures such as: lower reserve held by public institutions; use of less costly risk management tools; increase in number of exporting countries; high cost of storing fresh food stocks; and increase in transport and information facts. These measures in times of production shortage can lead to price volatility. The lack of a buffer in supply and stock can result in abrupt food price rise when unexpected events occur1.

A fear of food shortage and rising prices has led some countries to made short term policy changes which have resulted in panic buying.  In addition, price hikes in food commodities have caused some exporting countries to ban their food exports to protect their domestic needs. Both these decisions have caused an escalation in the supply-demand problem; consequently, food price and volatility have increased1. This factor happened in the early months of 2008 in the rice markets.

Many agriculture commodities are quoted on United States dollars. Therefore, a decrease in the value of the US dollar as compared to other currencies allowed other countries to demand more cheap US food, which altered trade patterns1.

  
Higher Fuel Costs

The higher cost of fuel has increased the expense to produce and transport food to market1. In addition, both fertilizer and seed prices have also risen which also increased the price to produce food.
 

Increasing Biofuels

Biofuels production has resulted in a new demand for food commodities. Food items such as sugar, corn, cassava, oil seeds, and palm oil are all used to produce biofuel ethanol. However at the same time, these same commodities are used for human and animal food1. Food sources have gone from filling stomachs to filling gas tanks; this is not a good trade-off for a hungry world. In addition, farmers have shifted to crops that support biofuel which has lessoned the cultivation of crops for food consumption. For example, farmers have shifted from producing wheat for food to producing corn for fuel.
  

Demand Changes

As the world population becomes more urban and has greater income, diets shift from starch based to meat and dairy based. This shift may also contribute to the gradual decline in food stocks available1. In addition, an increasing middle class in some countries has meant an increase in food consumed; rice is a prime example.
     

Financial Market Influences

Financial studies have indicated that spot markets for certain commodities may influence the business decisions of processors, traders, and farmers. In addition, the somewhat expected seasonal differentiation in future and cash prices may be weakening therefore making it more difficult to arrive at a cash price for certain food commodities1.

So with this news, what can be done? To get started, this issue must be raised to the world’s political and governing levels.

In 2008, three important summits, the World Food Security Summit in Rome, the Tokyo International Conference for African Development IV in Yokohama, and G8 Summit in Hokkaido have taken place to address the food crisis issue.  The current and intermediate funding to deal with the food crisis is estimated at US $30 billion1. Since January 2008, the G8 have committed US$10 billion to the food crisis3.

From these three summits and the World Bank, the following issues were discussed with some proposals made:

From the World Food Security Summit, the Food and Agricultural Organization (FAO) recommends a two fold approach to the food crisis issue. First, an establishment of safety nets for food security to those most vulnerable. This will lessen the impact on those worst affected by high food and fuel prices1. The World Bank has targeted $1.2 Billion to the immediate needs caused by the food crisis2. Secondly, establish programs and policies that encourage rural and agricultural development in the short and long term1. At present, supplies of fertilizer and seeds are required by small rural farmers.  These supplies can be achieved either by direct distribution or financial subsidies1.

In addition, the World Bank emphasized that a fast delivery system is required2. Certain countries have decreased grain import tax, while other countries have installed place price controls or subsidies to lesson the impact on the rising price of food. Short term export restriction to protect domestic supplies leads to increased price instability on a global basis. Lifting these restrictions is necessary.  Altering import restrictions coupled with tax reforms help to free up food grain stocks. However, a liberalized market may require short term support for the farmers affected (i.e. investment in rural infrastructure, and enhanced extension service etc)1.

The World Bank and the G8 leaders encourage the finalization of the Doha World Trade Organization deal to fashion a world trade market that is both just and flexible2. Altering policy toward subsidies and tariff protection for biofuel production needs to be reviewed1. Policy change is essential given in the past three years the United States has used 75 % of the increase in the global corn production to make ethanol2. Development of second generation biofuel stocks base on lignocellulose needs to be fast tracked1. This means that fuel would be made from the waste material of agriculture commodities that can not be eaten by either man or animal.  To help the problem of limited supply, more efficient agriculture production through implementation of technologies and adoption of new technologies is necessary. For example, the use of GPS’s to guide tractors in seeding and fertilization results in less fuel, seed, and fertilizer being used, resulting in a lower cost of production.

The G8 leaders acknowledged the decline in investment into agriculture3. Funding is required to continue research into enhancing food commodities productivity in a sustainable, environmentally friendly manner. For example, research into plants resistance to disease and pests need to be continued. Insects are always evolving; therefore, plants and means to protect these plants most also evolve. This takes continual funding for ongoing research. Research into better utilizing water and land resources during changing climatic conditions must also be funded in both developed and undeveloped countries. The World Bank recommends that the Consultative Group on International Agriculture Research requires their budget to be doubled from $450 million dollar per year over the next five years2.

Rice seed distribution
Fenerive Madagascar
@ FAO/Bushnell 2008

Renewed funding for extension and finance is required for producers to become more efficient. Funding for general and agriculture infrastructure is required to allow produce to reach markets in developing countries. The development of farmer-owned processing, handling, and distribution businesses are required in some countries. The ability to manage the risk of adverse climatic conditions on food supply is required for both underdeveloped and developed countries. The World Bank suggests that involvement by the private sector in improving the agribusiness sector would allow for improvement across the value chain of food production2.

Another recommendation by the World Bank was to develop global food stocks modeled after the International Energy Agency, to ensure an affordable food supply for the poor2. This idea is being investigated by the G8 leaders3.

Only a brief time ago, the world’s societies thought food shortages to be an artifact of the past; however, we have the Food Crisis of today. We need to learn, change and adapt to avoid history from continually repeating itself. The key lesson is that food should never be taken for granted and solved for future generations. Funding and support for ongoing research in sustainable food and resource development will always be necessary.

Reference

1. Food and Agriculture Organization of the United Nations. HLC/08/INF/1.   High Level Conference on World Food Security: The Challenges of climate change and bioenergy. 

2. Zoellick. R.  President of World Bank Group 2008.  A 10 point plan to the food crisis.  Financial Times. http://us.ft.com/ftgateway/superpage.ft?news_id=fto052920081408032208&page=1

3. G8 Leaders Statement on Global Food Security. July 8th, 2008.  G8 Hokkaido Toyako Summit. http://allafrica.com/sotries/printable/200807080761.html.

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