Originally published on February 22, 2012
The Rising Food Price Trend
What of the new trend toward steadily rising food prices? Food prices are about 80 percent higher than they were in 2000, reversing a long declining trend of previous decades. Nora Lustig, Professor of Economics and of Latin American Studies at Tulane University, summarized causes of the decade long trend to higher food prices, and of the 2007-8 and 2010-11 food price spikes. Some parts of the price increases reflect longer-term forces that if left unchecked will lead to higher future food prices, including diversion of food to biofuels production, increase in demand for grains through shifts to meat production due to higher incomes in China and elsewhere, a possible slowdown in productivity growth of agricultural commodities, higher energy prices affecting agricultural input costs, and running out of new land to be brought into farming. Finally there is the negative impact of climate change on developing-country food production – already having some impact years before initially predicted, with far worse impacts very likely ahead of us.
Long-term forces cannot explain the volatility, let alone the spikes. But the spikes were exacerbated by a number of unfavorable policies including various forms of interference with food prices – such as subsidies and mandates for biofuels. As Alain de Janvry, a professor of agricultural and resource economics at the University of California at Berkeley, pointed out, “the demand for energy is simply so big compared to the food market that it could completely overwhelm any price predictions that one could make if one does not take into account the way these energy policies are going to be made.”
Furthermore, there is not a large global market for food in relation to total demand. Most countries strive for food self-sufficiency, largely for national security reasons. Embargoes of food exports by such countries as Egypt, Vietnam, and Russia reflect this reluctance to allow a freer global market when it comes to food.
The World Bank reported in 2008 that growth in output per acre had been leveling off, and that prices would continue rising. In fact, as Nora Lustig pointed out, prices have increased far faster than even the World Bank had predicted. As Lustig reminded the audience, food is the “most basic of basic needs; for the poor, food has no substitutes.” She pointed out that while “food is energy for human survival,” instead, she said, “food commodities have turned into industrial commodities, energy for machines.” This result is less energy for people – at best, more expensive energy – when so many remain deprived of even a minimum of calories. Lustig’s review confirmed “a majority of studies show that those who get hurt outnumber those who benefit” when food prices increase, and in addition the “severity of poverty” impact is higher. Indeed, “in many instances rural poverty goes up as well.”
The story of the 21st century so far is one of rising food prices – and according to most projections this will continue in coming decades. In contrast, the story of the 20th Century was the opposite – with food prices falling close to 1% per year. Dr. Keith Fuglie, an economist at the U.S. Department of Agriculture, pointed out that in the early decades falling costs of shipping steered prices lower, sending food from where it was grown cheaply and abundantly to where food prices were high. In the later decades of the 20th century, rising output per acre drove prices down. Today, that yield growth is slower; but Fuglie found we are still getting gains despite smaller additions to inputs than before (especially the smaller fraction of workers in agriculture). This is a new and encouraging discovery. It should be putting downward pressure on food prices – and otherwise perhaps prices would be rising even faster. Looking ahead, these forces may continue to keep increasing food price from speeding up further. Findings like Fuglie’s help reassure us that, while new problems complicate work toward a world free of hunger, with continued commitment the goal can still be attained. But Fuglie also found that these gains were not present in Africa, where most of the increase in population is expected. And although very encouraging, his work is retrospective – it does not take into account the projected worsening of environmental stresses not only from climate change but from localized deforestation, water scarcity, falling water tables, declining soil fertility, outright erosion, salination, and other pollutants.
