"Perfect Storm" in Food Prices Caused by Many Factors
National Geographic News
|May 28, 2008|
Part one of a special series that explores the local faces of the world's worst food crisis in decades.
In Australia a struggling farmer watches another harvest shrivel under the country's worst drought on record.
Another new member of the Chinese middle-class finally has enough cash to buy his first steak.
And a U.S. agricultural executive decides to grow corn instead of wheat to take advantage of the growing demand for biofuels.
Alone, none of these events would have been responsible for today's troubled stock markets, rampant civil unrest, and increasing famine and malnourishment for the world's poor. (See a video on the world food crisis.)
Together, they've caused the world's worst food crisis in a generation.
"A convergence of factors has led to what is sort of a perfect storm for food prices," Erik Thorbecke, an economist at Cornell University in Ithaca, New York, told National Geographic News.
"I can't think of a time we've had this large an increase."
According to data from the International Monetary Fund, average global food prices have jumped nearly 50 percent since the end of 2006.
In response to the "agflation," belt-tightening has become commonplace even in affluent areas such as the U.S. and Europe.
But it's the world's poor—who already spend a disproportionate amount of their money on food—that are suffering the most.
Basic grains have shown one of the largest jumps, nearly doubling in cost since April 2007, the Food and Agriculture Organization of the United Nations (FAO) calculates.
This cuts deeply into the pockets of the approximately 2.6 billion people the UN estimates live on the equivalent of U.S. $2 or less a day.
FAO says that price increases are expected to continue for the rest of 2008, particularly for developing nations.
"Supplies are relatively strong, but demand is stronger," said Ephraim Leibtag, an economist with the U.S. Department of Agriculture's (USDA) Economic Research Service.
Food and Fuel
One of the biggest factors in the global crisis is growing economic prosperity around the globe, especially in Asia.
The expanding economies of India, China, and other countries need ever-increasing amounts of fuel and raw materials, which has sent the prices of oil and other commodities skyrocketing.
At the same time, millions there are entering the middle class and for the first time have the cash for resource-intensive "luxury" foods like meat and dairy.
Up to seven pounds (3.2 kilograms) of grain, as well as large amounts of water and fertilizer, are needed to create a single pound (0.45 kilogram) of meat.
"Clearly, the rapid improvement in diets has had an impact on world markets," said Wallace Tyner, an economist at Purdue University in Indiana.
Oil prices, meanwhile, have exacerbated the situation by driving up costs for farmers and food distributors.
In the first four months of 2008 alone, fuel prices for U.S. farmers have gone up 43 percent, feed prices 23 percent, and fertilizer prices 67 percent, according to USDA data.
Also, only about 20 percent of the cost of food for consumers comes from growing crops, USDA says. Oil-intensive labor, packaging, and transportation account for the remainder.
Adding to the supply crunch are weather-related problems. In addition to Australia's high-profile drought, unfavorable weather has hit the U.S., India, and Eastern Europe during recent harvests, cutting into food availability.
These events often occurred in line with predictions about global warming, the effects of which are expected in increase in coming years. (Related: "Warming May Cause Crop Failures, Food Shortages by 2030" [January 31, 2008].)
Many people also blame the prices on an increased use of biofuels in developed nations—in particular ethanol produced from corn—due to subsidies and changing fuel standards.
Government officials from several nations have claimed that biofuels are only a small contributor to the price increases. But critics counter that increasing food production in a time of crisis should outweigh energy needs.
Panic at Home
Those initial triggers have led to a cascade of further actions that have made the problem worse, experts say.
Markets have panicked, with countries rushing to make large purchases of grains and speculators also buying up stock in anticipation of even more price increases. Many countries have since launched efforts to stamp out hoarding and price-gouging and ensure the smooth flow of food to consumers.
"Speculators are probably betting prices are going to rise," Thorbecke said. "The whole process is feeding on itself."
Many countries have also responded by issuing export restrictions, taxes, or even outright bans on staple food items to help alleviate internal demand and keep domestic prices in check.
For example, "at the moment, only Thailand, Pakistan, and the United States, among leading exporters, are exporting rice without any constraints," FAO expert Concepcion Calpe said in a statement earlier this month.
"Net exports are going down," Thorbecke added. "In the past, there were much greater exports."
In addition, global markets are reacting quickly and uneasily to even small events, as stocks held by farmers and suppliers have dropped significantly because consumption outstripped production in seven of the past eight years.
"People got complacent," Tyner said. "So even a small shock leads to larger price jumps."
Far From Over
In the face of such high prices after years of low profit margins, farmers are rushing to return idle land to service and increase production.
Economists expect a slight increase in overall supply, moderating prices somewhat. But it's unlikely that the price of food will fall back to pre-crisis levels in coming years—if ever.
Hundreds of millions of people are expected to enter the middle class in the next decades, further pressuring fuel and food supplies.
But most of the available arable land in the world is already being used for crops.
In addition, vast areas, particularly in Asia and Africa, are expected to be lost to desertification, depletion, or pollution, and dwindling water supplies are expected to cut into usable land.
So the only answer, experts say, is to increase the amount of food grown on existing land, using more efficient methods—which will require years of research and investment.
Beginning in the early 1970s, after the last great food crisis, "there was a big and sustained increase in investment in agricultural productivity," Tyner explained.
New crop varieties and more efficient farming methods led to enormous increases in output, he said, but those gains begin to slow down in the '90s, helping to set the stage for the current crisis.
"We need to look long-term, because we've got a long-term problem," U.S. Secretary of Agriculture Ed Schafer said at a recent press briefing on food and fuel.
"If you look at how to deal with this, we need to convince other nations in this world to increase yields. And that means the use of biotechnology products. It means better water management, better fertilizer management, and precision farming methods," he said.
"If other countries do not increase yields comparable to those that we see here in the United States, people are going to go hungry. It's that simple."
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