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The Global Food Crisis: Causes, Severity and Outlook

This paper discusses the various factors that have been identified as responsible for the current global crisis in the availability of food and for the rise in prices of cereals. It argues that the crisis is different from the ones in the 1960s and 1970s in that there is now likely to be a permanent upward shift in real prices. It is important that developing countries place renewed emphasis on self-sufficiency to ensure food security, since they are unlikely to be able to afford expensive food imports.

REVIEW OF AGRICULTUREEconomic & Political Weekly EPW june 28, 2008115The Global Food Crisis: Causes, Severity and OutlookRamesh ChandGlobal food prices witnessed a very sharp increase in 2007 and they are continuing to rise. Initially it was thought that the increase in food prices was a part of their cycli-cal nature, aggravated by the adverse impact of weather on production in some parts of the world. However, the continuing surge and the high level of global food prices seen so far in 2008 make it abundantly clear that the recent trend cannot be attri-buted to any volatility of international prices (Figure 1, p 116), and there are fears that food prices may stay at these levels or may rise even more. This is causing worldwide concern. The severity of the problem can be seen from the fact that food prices based on the International Monetary Fund (IMF) food price index increased by 9.5 per cent between April 2006 and April 2007 and by 45.6 per cent over the next 12 months. The increase has been particularly very sharp for staple foods. Rice prices doubled in the five months between November 2007 and March 2008, wheat prices increased more than twofold in the 12 months after March 2007 and maize prices doubled in one and half year after August 2006.These increases in prices of staple foods have led to emergencies and rationing in a large number of countries and there are frequent reports of food riots from various parts of the globe. The picture is turning gloomier day by day. The factors being held responsible for high food inflation are (a) diversion of foodgrains for biofuel, (b) adverse weather and climate change, (c) increase in crude oil prices, (d) dietary shifts in China and India following an improvement in income and living standards, and (e) neglect of agriculture for a long time, etc. That food prices are staying at a very high level after a dramatic escalation is a clear pointer to the emerging global food crisis. The crisis has generated renewed interest in prophecies made in the past (but often proved wrong) such as the “resource exhaus-tion” hypothesis of the Club of Rome and the old population spectre of Malthus. There is no comprehensive and analytical study of why the food situation took a dramatic turn after 2005 and what the prospects are for the future. The present paper analyses the severity and causes of the emerging food crisis and also ventures to look at future food scenarios. The paper mainly concentrates This paper discusses the various factors that have been identified as responsible for the current global crisis in the availability of food and for the rise in prices of cereals. It argues that the crisis is different from the ones in the 1960s and 1970s in that there is now likely to be a permanent upward shift in real prices. It is important that developing countries place renewed emphasis on self-sufficiency to ensure food security, since they are unlikely to be able to afford expensive food imports.Ramesh Chand (rc@ncap.res.in)is at the National Centre for Agricultural Economics and Policy Research, New Delhi.Table 1: Trend in Per Capita Cereal Production during 1961 to 2007(Kg)Period WheatRice/MilledMaizeTotalCereals1961-65 6750772711966-70 7454872951971-75 9056813081976-80 9858903241981-85 104 63 93 3341986-90 104 64 90 3271991-95 100 64 94 3171996-2000 100 66 101 3192001-05 95631043102003-07 9465108314Source: FAOSTAT and FAO Food Outlook, various issues.
80 180 280 380 480 580 Wheat Maize Rice US GDP Deflator
300 310 320 330 340 Total cereals Cereals net of ethanol use in US
55 65 75 85 95 105 1971-75 1976-80 1981-85 1986-90 1991-95 1996-2000 2001-05 2003-07 Wheat Maize Rice/milled
1700 1800 1900 2000 2100

1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08

90 130 170 210

1980-81 1984-85 1988-89 1992-93 1996-97 2000-01 2004-05

0 40 80 120 160 200 1980 1984 1988 1992 1996 2000 2004 2008 Food Crude oil
0 100 200 300 400 500 1950 1958 1966 1974 1982 1990 1998 2006 Mar 08
0 100 200 300 400 500 600 1950 1958 1966 1974 1982 1990 1998 2006 Mar 08
0 50 100 150 200 250 1950 1958 1966 1974 1982 1990 1998 2006 Mar 08
0 200 400 600 800 1000 1200 1400 1960 1966 1972 1978 1984 1990 1996 2002 Wheat Rice Maize 2005
0 10 20 30 40 50 Food (Domestic) Food (International)
REVIEW OF AGRICULTUREjune 28, 2008 EPW Economic & Political Weekly122Notes1 During this period crude oil prices increased from $ 28.85 to 91.92 – 218 per cent increase. 2 High meat consumption in China is not reflected in cereal use as soybean is used as a major feed for livestock in China. China’s imports of soybean increased from about two million tonnes during 1990 to more than 22 million tonnes during 2000 and 2004.3 Malthus (1826) and more recently Lester Brown (1975), Paul Ehrlich (1968) and the Club of Rome [Meadows et al 1972] predicted that the growth of demand for food was outpacing the growth of supply, and that this would result in an upward trend in prices of food and similar agricultural commodities. However, this view has been refuted by the dynamics of demand and supply. 4 Prebisch (1950) and Singer (1950) showed that prices of primary commodities declined relative to prices of manufacturing throughout the first half of the 20th century. Johnson (1998) showed they declined in the second half of the century.ReferencesBaffes, John (2007): ‘Oil Spills on Other Commodi-ties’, Development Prospects Group, August 2007, WPS 4333, The World Bank, Washington DC.Brown, Lester R (1975): ‘The Next Crisis Food’,Foreign Policy, No 13 (Winter).Chand, Ramesh and L M Pandey (2008): ‘Fertiliser Growth, Imbalances and Subsidies: Trends and Implications’, NPP Discussion Paper 02/2008, National Centre for Agricultural Economics and Policy Research, New Delhi. ERS (2008): ‘Corn Prices Near Record High, But What About Food Costs?’, Amber Waves, The Economics of Food, Farming, Natural Resources and Rural Poor, Economics Research Service, USDA, February, p 5. Ehrlich, Paul R (1968):The Population Bomb, Ballen-tine, New York.FAO (2008): Crop Prospects and Food Situation, No 2, Food and Agriculture Organisation of United Nations, Rome, p 1, April.Johnson, D Gale (1998): ‘Food Security and World Trade Prospects’, American Journal of Agricul-tural Economics, 80(5), pp 941-47, November.Malthus, Thomas Robert (1826): An Essay on the Principle of Population, John Murray (6th edition), Library of Economics.Meadows, Donella H, Dennis L Meadows, Jorgen Randers and William W Behrens III (1972): The Limits to Growth, A Report for the Club of Rome, Universe Books, New York.Prebisch, R (1950): The Economic Development of Latin America, United Nations, New York.Singer, H W (1950): ‘The Distribution of Gains between Investing and Borrowing Countries’,American Economic Review, papers and proceedings.World Bank (2007): ‘Agriculture for Development’, World Development Report 2008, Washington DC.population is rising by more than 1.15 per cent a year, which contributes to a net addition to the demand for food and which reduces available resources for food production. Similarly, as many extreme predictions are being made about crude oil prices, the pressure to use grain for biofuel as an alternative to hydrocarbon energy is going to increase. The increase in crude oil prices, which nobody is doubting, would keep pushing up the cost of production and also make transport of food to distant places veryexpensive. From all available indications it appears prices are not going to return to their earlier (pre-2006) level. There would be some fall in prices as a result of an improvement in supply, for some time, but long-term trends seem to indicate high and rising prices. Just like the experience of 1973-74, the future trend in food prices in nominal terms would have a much higher intercept as compared to the trend during 1976-2005. However, what causes major concern is that unlike the post-food crisis years of early 1970s, this time food prices are not likely to decline in real terms. On the contrary, there is a strong likelihood that prices in the foreseeable future would increase in real terms.Predictions about food prices rising faster than other prices and food supply increases falling behind growth of population were made even in the past but they were proved wrong3 and prices of food during the entire 20th century followed a downward trend in real terms notwithstanding the occasional price spikes.4 But it seems difficult this time to prove Malthus and others, who made such predictions, wrong. Besides the green revolution, another major factor in bringing food prices down after 1973-74, was the decline in crude oil prices in real terms. This fact is rarely acknowledged. With energy prices now moving up in real terms, it would not be possible to bring down food prices to their pre-2006 levels with the present methods of farming. The world would require technologies that make very efficient use of inputs and give higher returns to energy and water resources. Such technologies alone can check the rise in food prices and food shortages. However, they are not visible as yet. High food prices are seen as an opportunity in some quarters to improve the income of farmers and to stimulate food produc-tion. Such an increase in production – contingent upon high prices – would keep food out of reach of a large segment of the population. Therefore, to deal with the harsh reality of high food prices and its effects on poverty and nutrition, the global commu-nity has to work out an appropriate strategy to cope.Some of the ways possible to reduce the magnitude and impact of the price rise are shift towards a vegetarian diet and reduced intake of meat products, alternatives like organic farming could also reduce the impact of rising prices of fertiliser on food prices. The world may also be forced to embrace geneti-callymodified food crops, which can give higher output per unit of input. Further, as the global market becomes less dependable and freight charges become too high, food self-sufficiency would become crucial for food security, particularly in developing countries, which would not be able to afford costly imported food.SPECIAL ISSUEBUDGET 2007-08April 7, 2007Fiscal Adjustment: Rhetoric and Reality – M Govinda RaoDeft Draughtsmanship sans Broader Vision – Pulin B NayakBudgetary Policy in the Context of Inflation – Prabhat PatnaikDividend Taxation Revisited – Amaresh BagchiEducation, Agriculture and Subsidies: Long on Words – Mala LalvaniImplications for Education – Anit Mukherjee No ‘New Deal’ for Farm Revival – S Mahendra DevFor copies write to: Circulation Manager Economic and Political Weekly,320-321, A to Z Industrial Estate, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013.email: circulation@epw.in
REVIEW OF AGRICULTUREEconomic & Political Weekly EPW june 28, 2008123

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