On account of it being exam session, I didn’t write up a blog post this week. The following is an article that I wrote a couple of months ago. Back then the high food prices were getting a lot of media coverage. The amount of media coverage has waned since then but the prices have not.
Average worldwide food prices are higher today than they were at any time during the 2007-2008 food crisis. In fact, prices have not been higher since Food and Agriculture Organization records began in 1990. With one-seventh of the world’s population already chronically malnourished, this latest development is set to make an already terrible situation much worse. Sugar has seen the most dramatic price increase, almost doubling from June 2010 to the beginning of this year. In that same period, edible oils like palm oil increased in price by an average 65 percent, while the price of cereals rose by 60 percent. The price rises have been attributed to crop failures, subsidies for bio-fuels, high oil prices, and financial speculation.
A contraction in the supply of food has taken place due to harsh weather conditions around the world. Drought has affected food production in Russia, China, and elsewhere, while heavy rains have done the same in Indonesia, Canada, and other countries. Some governments have resorted to measures such as export bans to stabilize prices at home, further leading to the shortening of supply and rise in prices globally.
The continuing use of land to grow crops for bio-fuels rather than for food has also contributed to the supply shortfall. Production of bio-fuels consumes more than 6% of the world‘s grain and 8% of the vegetable oil. The last half-decade has seen bio-fuels obtain a high place amongst alternatives to conventional oil. However, the support they have received, most significantly in the form of subsidies from some governments, is now seen to have been misguided. The competition they create for land that could otherwise be used to grow food is extremely worrying, as is the fact that their “green” credentials have been found to be lacking.
The price of oil has a large impact on the cost of food because the resource is an essential input in the production and transportation of food. The price of crude oil has more than doubled since the beginning of 2009 and is now more than US$100 a barrel.
Supply and demand alone do not explain the spectacular rise in prices. Financial speculation in commodities futures markets is also adding to the food price hikes. Not only are the climbing oil prices attributed in part to speculation, but unprecedented amounts of speculative capital now trades in food as well. Although futures markets are an important tool in facilitating the trade of commodities, speculators not interested in the actual commercial trade of food seem to be overwhelming the markets by injecting massive amounts of liquidity into them.
For the foreseeable future the FAO maintains that food prices will remain vulnerable to dramatic swings. Medium and long term mitigation measures to address the problem will require correcting historical trade injustices between the developed and the developing world, taking away support for bio-fuels, regulating financial markets to restrict non-commercial speculators from taking a large part in them, and providing incentives for farmers to adopt better agricultural practices, such as reducing waterlogging and growing drought resistant crops. Canadian citizens interested in helping improve the situation should focus their energies, in large part, on reforming Canadian policies, such as subsidies to agribusiness and inaction in the face of climate change, which are disallowing poor countries from achieving food self-sufficiency.