Whats Behind the soaring world food prices?
Pastor Dale Morgan
Whats Behind the soaring world food prices?*
2008-05-06 21:32:57
BEIJING, May 6 (Xinhua) -- French philosopher and writer Albert
Camus said, "Life is a sum of all your choices." His words ring
especially true as one tries to understand the reasons behind the sharp
rise in world food prices in recent years.
Last year's hike of 77 percent in wheat prices and 16 percent in
that of rice had marked the sharpest rise in food prices ever. But the
rate of increase in prices has further accelerated this year, with rice
prices soaring 141 percent and the price of one variety of wheat
shooting up 25 percent since January.
This spiraling inflation, driven by a sum of factors, have inspired
appeals for a new evaluation system that now resonate strongly in the
global market.
RISING COSTS
The rising cost of farming is the most significant among factors
contributing to the sharp increase in world food prices.
The scarcity of water and land, increased costs of fertilizers,
seeds and labor, as well as surging oil prices have increased costs for
farmers. Small farmers in many countries find themselves short of
incentives for future investment, despite the steadily rising global
food prices.
In China, agricultural production costs rose 7.7 percent in 2007,
which was higher than the increase in grain prices in the same period,
China Stock Daily said in a commentary.
However, compared with meat, cooking oil, dairy products, fruits,
and seafood, grains have experienced a much smaller price increase in
the last few years.
BIOFUEL PRODUCTION
Experts on agro-economics say biofuel production is largely
responsible for the current rise in food prices.
The crisis, according to them, is not going to end unless the rich
countries change their energy consumption patterns.
Official statistics show that about 20 percent of U.S. corn,
amounting to about 81 million tons, was used to produce alternative fuel
in 2007, accounting for almost twice the annual growth in world grain
consumption.
The European Union is implementing its own biofuel targets, planning
to have 10 percent of its fuel supplied by biofuels in 2020.
The International Monetary Fund has said that almost 50 percent of
the increased global demand for food has been triggered by wealthier
countries' craze for biofuel production.
Making 50 liters of ethanol requires 232 kg of corn, which can feed
a child for a whole year, United Nations experts reckon.
If developed nations were to stop biofuel production this year, it
would lead to a 20 percent decline in corn prices and a fall of about 10
percent in wheat prices within the next two years, according to the
International Food Policy Research Institute, a think tank in
Washington, D.C.
British Prime Minister Gordon Brown has already sounded a retreat on
biofuels.
He said that Britain would reconsider how far it was prepared to
sign proposals for a tenfold increase in the use of biofuels by 2020, in
response to fears that they are causing the global food crisis.
TIGHT DEMAND AND SUPPLY
World grain reserves last year were good for only 57 days, down from
180 days a decade ago.
Worldwide wheat stockpiles are expected to fall to 112.5 million
metric tons in the year ending May 31, the lowest since 1978, the U.S.
Department of Agriculture said last month.
"The chronically tight food supply the world is now facing is driven
by the cumulative effects of several well-established trends that are
affecting both global demand and supply," said renowned environment
analyst Lester R. Brown.
"On the demand side, some 4 billion people are already struggling to
get enough to eat," Brown said. "Meanwhile, on the supply side, there is
little new land to be brought under the plow unless it comes from
clearing tropical rain forests in the Amazon and Congo basins, or in
Indonesia or the Brazilian Cerrado."
The Earth Policy Institute founded by Brown has discovered that new
sources of irrigation water are even scarcer than new land to plow.
During the past 50 years, global irrigated land has nearly tripled,
expanding from 94 million hectares in 1950 to 276 million hectares in
2000. In other words, the amount of cultivable land is shrinking by 1
percent every year.
This view was echoed by experts working with other international
institutions.
"World agriculture has entered a new, unsustainable and politically
risky period," says Joachim von Braun, head of the International Food
Policy Research Institute in Washington, D.C.
Main rice exporters like Thailand, Myanmar, Laos, Vietnam and
Cambodia are mulling the establishment of a global rice cartel called
OREC (Organization of Rice Exporting Countries), an OPEC-style supply
and price management body, to coordinate the efforts to maintain a
supply-and-demand balance.
TRADE IMBALANCES
Many developing countries have lashed out at the U.S. and the
European Union for their high tariffs on farm imports and providing
agricultural subsidies to protect their own farmers.
In Europe, for example, import tariffs still average 23 percent,
while its common agricultural policy provides farmers with some 8
billion euros every year.
The U.S., meanwhile, grants farmers some 20 billion dollars in
subsidies annually.
Trade restrictions and protectionism have shut many farmers from
poor countries out of markets in the richer world.
France, which takes over the EU presidency in July, is now pushing
for "community preference" -- jargon for blocking food imports.
To get around world trade rules, the French are suggesting that
imports satisfy EU environmental, hygiene or animal-welfare rules --
likely to provide ample scope to rig markets.
Economists say it is time for wealthier nations to rethink their
old-fashioned programs of agricultural subsidies.
If the EU sticks to its offer in the Doha trade round, its
farm-import tariffs would drop by over half, which would do more to ease
hunger in poor countries than any foreign aid, they say.
NOT JUST A PROBLEM BUT AN OPPORTUNITY
Besides the aforementioned factors, natural disasters and the
growing world population, coupled with market speculations and rice
hoarding, have all contributed to the food crisis.
The era of cheap food is over. A new equilibrium will be
established, but through a painful process.
Last week, U.N. Secretary-General Ban Ki-moon said: "We have gone
from an era of plentitude to one of scarcity. Experts agree that food
prices are not likely to return to the levels the world has grown
accustomed to any time soon."
Also, Robert Zoellick of the World Bank warned that the run-up in
global food prices could mean "seven lost years" in the U.N.'s work on
the Millennium Development Goals.
But the world should not take only a pessimistic view of the future.
"We should consider this as not only a problem but as an
opportunity. It is a huge chance to address the root problems of many of
the world's poorest people, 70 percent of whom live as small farmers,"
said Secretary-General Ban.
"Ultimately, our task is to ensure that the virtuous cycle goeson
and its benefits extend as broadly as possible -- most especially to
those who have so far missed out. More trade, not less, will get us out
of the hole we're in," he said.