The high cost of eating

 

Higher food prices will be the new normal —  but that doesn't have to be a bad thing

By Alex Binkley
True North Perspective

Higher food prices are here to stay and they could be the key to feeding the world.

After nearly three decades of relative stability, prices for grain products and livestock are on the rise because of bad weather and production shortfalls. In countries where people spend much of their income on food, it’s a recipe for political turmoil.

The G20 finance ministers meeting in Paris recognized the problem but for the moment plans to wait for high level studies on the issue. The G20 agriculture ministers will revisit the issue in June.

Tom Scott, President and COOof Informa, an economic forecaster, says the price pressures will likely ease. “We’re probably at the high end of international grain prices and we’re not going to see a big backdrop (to previous lower levels).”  In a presentation to the Canadian Federation of Agriculture, the country’s largest farm group, he said the world has entered an era where the new normal is higher world food prices.

On one hand, they raise the prospect of farmers in developing and emerging countries being able to make enough money to improve their operations and feed more people. At the same time, costs of seeds, fertilizer and fuel are also on the rise will challenge farmers everywhere, he added. “Agriculture has never experienced the pressure of higher prices and production costs like it is now.”

The squeeze means farmers have to become focused on closely managing their operations, he suggested. “Agriculture needs to have a much greater business sense than ever before.”

Good business skills are essential if farmers are to make the most of new technology and production practices that will enable them to continue to grow more food from the same land base.

The amount of land in production around the world has remained largely the same since 1980 but the output from that land has almost doubled, he added. That increase indicates “we’re nowhere near the upper limit of what we can produce.”

Considering all the doom and gloom about the ability of the world to feed a population expected to reach 9 billion by the middle of the century, farmers need to tell the world “that we have a lot more productive capacity.”

At the G20 meeting, the ministers expressed concern “about the consequences of potential excessive commodity price volatility and asked our deputies to work with international organizations and to report back to us on the underlying drivers and the challenges posed by these trends for both consumers and producers and consider possible actions.”

While much of their concern centred on energy prices, which affect the cost of food production and distribution, the ministers said governments had to pay close attention to the volatility of food prices and supplies. “Long-term investment in the agricultural sector in developing countries is required.”

The ministers will wait for an interim report on food security currently being prepared by international organizations such as the U.N. Food and Agriculture Organization (FAO) before deciding on any futher recommendations to governments.

In advance of the meeting, a plethora of international groups, including FAO, the International Monetary Fund and the World Bank warned that international food prices were spiking upwards because production wasn’t keeping pace with population growth and demand.

The groups generally agreed the most practical solution lay in encouraging small farmers in developing and emerging countries to expand production. In the past, these producers have been hampered by local prices often caused by food aid and dumping by industrialized countries, pimarily by the United States and the European Union.

“Policy-related solutions are also required to increase the longer-term resilience of global agriculture to allow greater levels of supply to markets as demand grows,” says FAO Senior Economist Jamie Morrison, in a speech distrbuted by the U.N.

“Particular attention is needed to increase smallholder productivity growth and to their increased integration into markets,” he noted. In many countries, small farmers often don’t produce enough food to be self sufficient.

“Support to ensure more farmers are willing and able to generate marketable surpluses will be critical in meeting increased demands in the future,” he added. “To achieve this, increased investment is paramount.”

Public sector investment was needed to establish the basic conditions for productivity growth, Morrison. Governments in developed countries could supply more aid to Third World farmers “but most of the needed investment will have to come from the private sector in national economies.”

David Nabarro, coordinator of the U.N.’s High-Level Task Force on Global Food Security, has cited under-investment among four challenges in the overall food security situation, along with soaring prices, weather-related disasters such as droughts, floods and fires, and political changes and instability that are disrupting food supply chains.

In a text distributed by the U.N., Nabarro says, “A point that we’ve been maintaining now for the last 30 years is that there is systematic and serious under-investment in agriculture and food security and that’s a problem now, but it’ll be a much greater problem as we move toward 2015."