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World Development book case study: current problems with world food supply (September 2011)

In the UK the rate of inflation, a key factor in the management of the national economy, has been higher than the 2% target set by the government for many months. When politicians and media commentators discuss the reasons for the high rate of inflation the increased cost of food is first thing most of them talk about. Household budgets have to take account of the increased cost of food and low-income households suffer the most. The high cost of food is a global issue and it affects the poorest countries much more than the developed countries. In the US, the average family spends 7% of its income on food but that figure rises to 70% for over 2 billion people in the poorest countries. The high cost of food is a distraction for most families in the developed world but a potential disaster for many in developing countries.

Q. How have food prices increased?

A. Since July 2010, prices of many crops have risen dramatically. Prices of maize increased 74%; wheat went up by 84%; sugar by 77% and oils and fats by 57%. Rice prices fortunately remain fairly stable with prices in December 2010 less than 4% higher than the previous year; meat and dairy also remained stable, but at high levels.

The UN Food and Agriculture Organization said its food price index was up 3.4% from December, marking the highest level since the organization started measuring food prices in 1990.

(Oxfam 2011)

Global food prices have always been erratic. The high prices reached in 2008 caused food riots in some countries, including Haiti and Egypt. Favourable global weather in the following year allowing record grain production and reduced demand caused by the global recession meant a short-term alleviation of the problem but global food prices again ‘spiked’ in January 2011 and have remained at record high levels. The high prices are a result of a tension between global food supply and global demand. There are different explanations for this imbalance and how global food production must change to solve the problem.

Global population growth

Although the rate of world population growth has decreased from 2% in the 1970s to 1.2% in 2010 that still means that there are an extra 80 million mouths to feed each year. Population growth and its impact on global resources and the environment is the subject of a lot of debate (see Chapter 5 of the World Development textbook) but an extra 220,000 mouths to feed every day does create additional pressure on food supply and on the ingenuity of those trying to grow the food. In 2010, the FAO estimated that there were 925 million undernourished people in the world. Despite this, the FAO says that the world produces significantly more food per head (measured in calories) than 30 years ago and there is enough food produced globally to feed the world population (2,700 calories per head).

Increasing wealth and changing dietary habits

At the same time as the population increases there has been a big change in some countries’ eating habits, particularly in China. Increased wealth and an expanding middle class have created a greater demand for meat, milk and eggs. Cattle rearing for beef is grain intensive and, as demand for meat has increased, so has the demand for corn and soya to feed the extra cattle. Grain consumption in the US is four times the level of grain consumption (per head) in India because India converts very little grain into animal protein. China now imports beef from Brazil and indirectly affects food production in that country.

Increasing demand for biofuels

In the last decade many governments have become convinced of the need to produce more fuel from crops as a way of reducing their dependency on oil. The EU has set a target of producing 10% of its fuel needs from biofuels by 2020 and the US has a 36-billion-gallon target for biofuels by 2030. Over 25% of its grain production is currently used to produce biofuels such as ethanol. In 2010, the United States harvested nearly 400 million tons of grain, of which 126 million tons went to ethanol fuel distilleries (up from 16 million tons in 2000). Brazil has been producing fuel oil from sugar cane but has increased its production in recent years and is now the second-largest producer of biofuels after the US. This demand for oil-bearing crops is not only reducing the land available to produce food crops in Europe and the US, it is also driving the clearing of rainforests in Indonesia and Malaysia for palm oil plantations. The huge increase in the use of land to produce fuel crops has caused intense debate amongst all the interested parties; politicians, development workers, farmers, oil producers, environmentalists and peasant farmers who have been displaced from their land.

The demand for biofuels is closely linked to the global price of oil, which reached $148 dollars a barrel in 2008 but has dropped more recently to around $100 dollars a barrel in 2011. The high price of oil encourages an increased demand for biofuels and exacerbates the shortage of land for food production.

Export restrictions and panic buying

When farmers began having difficulty keeping up with the increasing global demand for grain in 2007, grain and soya bean prices increased rapidly on the commodity markets and tripled by 2008. Some grain-exporting countries, such as Russia and Argentina, tried to control the rise in domestic food prices by restricting exports. Vietnam, the second-largest rice exporter, banned exports entirely for several months in early 2008. So did several other smaller exporters of grain.

Some importing countries tried to overcome the threat to their grain supply by negotiating long-term supply agreements with exporting countries. The Philippines negotiated a three-year agreement for 1.5 million tons of rice per year with Vietnam, while other countries such as China, South Korea and Saudi Arabia have bought or leased land in other countries to grow their own grain. Most of the land acquisitions are in African countries such as Ethiopia and Sudan. (see the World Development textbook, p130). In 2010, the World Bank reported that an area in excess of all the land used to grow corn and wheat in the US (140 million acres) has been bought or leased to foreign countries or companies in Africa.

These deals have drawn criticism from a wide range of groups and add to the growing tension and sense of panic that some countries feel about future global food supplies.

‘As much as 90% of Africa is under customary tenure, which means it’s held by the state on behalf of the community, who are then given the customary right to the land.’ In short, land can be seized at the whim of those in power.
— Christian Science Monitor

The impact of global business

Global food supplies are traded on the global markets and subject to the erratic nature of the global economy. Fluctuations in exchange rates and the declining value of the dollar make trading more unpredictable. There is also some evidence that billions of dollars released by the US Treasury through ‘quantitive easing’ has increased the money available to hedge funds and other investors to invest in the commodities market. The money was intended to increase domestic money supply and help the US out of economic recession. Instead some of it has been used to ‘bet’ on the future price of commodities such as food and, in the opinion of some economists, been a factor in global increase in food prices.

Severe weather events/Climate change

It is already clear that there is no consensus about the impact of climate change and there are influential groups who still deny that the process is actually taking place.

It is not possible to link specific weather events to climate change. However, most scientists agree the world will experience more unpredictable and extreme weather events as a result of climate change. In the last year we’ve seen several devastating weather-related shocks which have had dramatic impacts on food production. In July/August 2010, Russia experienced its worst drought in decades, destroying about 25% of the wheat harvest; an export ban was imposed, resulting in panic buying and a very rapid increase in prices. Floods in Australia in January 2011 dramatically damaged production in Queensland, a critical area of wheat and sugar production.
— Oxfam 2011

The increased temperatures that many countries have experienced in the recent past have had a significant impact on crop yields. Scientists estimate that a one-degree-centigrade increase above the growing season optimum temperature results in a 10% drop in crop yields. The increased temperatures also lead to increased irrigation and greater pressure on the water table. In Saudi Arabia grain production has collapsed because aquifers are depleted and it has to import grain. It is estimated that in India 175 million farmers are dependent on unsustainable use of aquifers and in China the figure is 130 million. The situation will only get worse and both countries will have to import more grain, putting even more pressure on global food supplies.

Soil erosion and land depletion

Access to technology has allowed farmers to increase crop yields but over-intensive farming has also resulted in large-scale soil erosion. Over-ploughing and poor land management, including aquifer depletion, has caused a problem that is estimated to affect the productivity of over a third of the world’s cropland. An estimated 2,240 square kilometres a year of land in northern China turns into desert each year and in Mongolia and Lesotho, grain harvests have shrunk by half or more over the last few decades because of the same problem. North Korea and Haiti are also suffering from heavy soil losses and face famine if they lose international food aid. Agricultural land is always being lost through urbanization and is particularly significant in rapidly industrializing countries such as India and China.

There are other factors that have contributed to the problems of global food supply in 2011 such as the conflict that has contributed to famine in Somalia and northern Kenya. None of these factors are easily addressed but the political turmoil that will result from continuing tensions about global food supply will be widespread and have extremely serious results for regional and global security. The situation has been recognized as serious enough for a meeting of the G20 countries and the World Bank in April 2011.

‘We have been in a period of extraordinary volatility in food prices, which poses a real danger of irreparable harm to the most vulnerable nations and people. High, uncertain and volatile food prices are the single gravest threat facing the most vulnerable in the developing world.’
— Robert Zoellick, President of the World Bank

The severity of the crisis has prompted the G20 countries and the World Bank to push forward a number of initiatives;

  • To reduce the impact of food price variability through loans. Called Agriculture Price Risk Management, the idea is to reduce farmer risk and thereby increase production of staple crops like wheat, rice, corn, and soybeans.
  • To reduce food price volatility via information sharing. Known as the Agricultural Market Information System. The initiative encourages collaboration among nations to mitigate the affects of panic buying and export bans (among others), which often exacerbate a food crisis.
  • Eliminating export restrictions for food aid programs. The G20 agricultural ministers agreed to abandon export restrictions on food aid bought by the World Food Programme.

More contentious issues were left to future meetings. These include:

  • The restriction of biofuel production. Food production advocates want subsidies eliminated for grains grown for fuel. However, the delegates were unable to reach consensus on reducing farm subsidies for biofuel production.
  • Increased regulation of commodity speculators. Derivatives markets played a major role in causing the recent recession, and policymakers around the developed world are passing legislation to mitigate their harmful impact (including on food prices).
  • Creation of an African food bank. According to The Christian Science Monitor, member African nations (and international backers) would build up a continental food reserve which could be tapped into when a supply shortage occurs.

Further reading and information

The Great Food Crisis of 2011 – Lester Brown www.foreignpolicy.com/articles/2011/01/10/thegreatfoodcrisisof_2011?page=0,3

G-20 searches for answer to food crisis – Global Envision www.globalenvision.org/topics/food?gclid=CMHZx6GEmqsCFQYLtAod8WtGhg

Global Food Security 2011-2016 www.foodsecurity.ac.uk/assets/pdfs/gfs-strategic-plan.pdf

East Africa Food Crisis – Global Issues www.globalissues.org/article/796/east-africa-food-crisis

Global Food Prices in 2011 – Oxfam www.oxfam.org/en/campaigns/agriculture/food-price-crisis-questions-answers

World Food – A Transition Needs to Begin Now. Andrew McKillop 21stcenturywire.com/2011/08/18/world-food-and-energy-transition-now/

2011 World Hunger and Poverty Statistics www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm

The New Geopolitics of Food – Lester Brown www.foreignpolicy.com/articles/2011/04/25/thenewgeopoliticsoffood?page=0,1