Probably the most striking thing about the discussion of rising food prices is that it is transparently wrong.
The most common explanation for the surge in food prices is that developing countries are becoming more populous and more affluent. A spectre of the Chinese and Indians devouring food like locusts is routinely conjured up. It should be apparent that such images, apart from being insulting, are fundamentally flawed.
If it was simply the case that rising demand could push up food prices then they would constantly increase. Humanity has grown steadily in population, affluence and meat consumption since at least the Industrial Revolution. Yet over the past two centuries the trend is for food prices to plummet in real terms rather than to rise. Indeed, it is an achievement that, for the first time in history, large sections of humanity are not threatened by famine. The 45% increase in food prices since the end of 2006 cannot be explained in relation to long-term trends (see graph, page 29).
It is necessary to examine supply in relation to demand. Rising demand is not a problem if it can be counter-balanced by an increase in supply. The reason the Malthusian nightmare of mass starvation has failed to materialise is precisely that food supply has outstripped rising demand in the longer term (see 1st box below). Despite a steadily rising world population the amount and quality of food consumption per head has risen.
Of course the more sophisticated proponents of the threat of imminent food shortages acknowledge that supply plays a role. They talk about such factors as adverse weather, worsened by climate change, and land shortages. But even here there is a tendency to exaggerate rising demand and understate the potential to increase supply.
To understand the trend in food prices it is vital to take a systematic approach. Short-term and long-term factors must be separated. The reasons prices have surged are not necessarily indicative of the secular trends in food production and consumption. It is then necessary to examine the interaction between the supply and demand of food, rather than simply consider each in isolation. Finally, it is worth questioning why the popular view on the food crisis emphasises consumption in such a one-sided way.
Friday, May 16, 2008
Food Crisis: Rising affluence and rising demand or inefficient use of food grains
There has been a lot of buzz about the rising affluence and rising demand of food from the emerging economies, particularly India and China as causes for the rising food prices. Is this true? Well, Daniel Ben-Ami argues that the real culprit is inefficient use of grains in biofuel production and weakening dollar. He argues that we should not be alarmed by rising demand, which can be taken care of by improving infrastructure and bolstering technology development. Read the full article here.