Why the Era of Cheap Food Is Over

By Peter Ford, Christian Science Monitor. Posted January 7, 2008.

Food prices worldwide hit record highs in 2006, and all the signs are that they will go on rising this year, and for the foreseeable future. The era of cheap food, the experts say, is over and we are going to have to get used to it. This is easier said than done for millions around the world, as evidenced by protests in Mexico over the cost of corn tortillas, and in Italy last September about the price of (wheat) pasta. Here's a look at why.

What is behind the increases in food prices?

Certainly not bad harvests. Although a drought hit the traditionally bountiful Australian wheat harvest this past year, world cereal harvests hit 2.1 billion metric tons, a record production level, according to the UN Food and Agriculture Organization (FAO).

Two major trends have been pushing prices up faster than they have risen for more than 30 years. One is that increasingly prosperous consumers in India and China are not only eating more food but eating more meat. Animals have to be fed (grains, usually) before they are butchered. The other is that more and more crops - from corn to palm nuts - are being used to make biofuels instead of feeding people.

At the same time, the world is drawing down its stockpiles of cereal and dairy products, which makes markets nervous and prices volatile.

The result, says Joachim von Braun, who heads the International Food Policy Research Institute (IFPRI) in Washington, is that "the world food system is in trouble. The situation has not been this much of a concern for 15 years."

How big a factor is the biofuels boom?

It is significant enough for the FAO to be warning about the dangers of turning too much food into fuel, and for the Chinese government, for example, to ban the construction of new refineries that use corn or other basic foods. In fact, earlier this month Beijing announced tax breaks and subsidies to encourage the use of cellulose, sweet sorghum, and cassava (nonfood crops in China) for biofuels.

Some analysts estimate that as much as 30 percent of the US grain crop will go toward producing ethanol this year, a doubling from 2006. IFPRI forecasts that if the world sticks to current biofuel expansion plans, the price of corn will go up 26 percent by 2020, and the price of oilseeds (such as soybean, sunflower, rapeseed) by 18 percent. If governments double efforts to produce this alternative fuel source, corn prices are expected to go up 72 percent and oilseeds by 44 percent in 12 years' time.

Who gets hit hardest? Does anyone benefit?

As usual, it is the poorest people in the world who suffer most, because food takes up a bigger share of their daily shopping bill than it does for richer people. A family in Bangladesh, for example, living on $5 a day, typically spends $3 of that on food. The 50 percent rise in food prices the world has seen in recent years takes a $1.50 chunk - nearly 30 percent - out of the family budget.

Even farmers are not immune. On the whole, small-scale farmers in developing countries buy more food than they sell, so they, too, are net losers. Relatively few peasants have holdings large enough to benefit from price increases.

Big farmers in the rich countries, however, are doing well: US corn farmers have seen the price their crop fetches jump by 50 percent since 2000. Other net food exporters, such as India, Australia, and South Africa, will also do well out of rising prices. Major dairy producers, such as New Zealand, have done well as consumption of milk, yogurt, and cheese rises in Asia. As a result, while property values in New Zealand are generally expected to soften, flat rural land, where cows can graze, is expected to continue to rise in price, according to a survey by Massey University in New Zealand.

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Peter Ford is a staff writer for The Christian Science Monitor.

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