Food Crisis

Global food crisis


Overview of World Food Crisis

During 2007–2008 food prices rose dramatically worldwide, creating a global food crisis and causing political and economic instability and social unrest in both poor and developed nations.

Food-crisis-handsSystemic causes for the worldwide increases in food prices continue to be the subject of debate. Initial causes of the late 2006 price rises included unseasonable droughts in grain producing nations and rising oil prices. Oil prices further heightened the costs of fertilizers, food transport, and industrial agriculture. Other causes of the food crisis may be the increasing use of biofuels in developed countries, and an increasing demand for a more varied diet, meat in particular, across the expanding middle-class populations of Asia. These factors, coupled with falling world food stockpiles have all contributed to the dramatic worldwide rise in food prices. Long-term causes of the food crisis remain a topic of debate. These may include structural changes in trade and agricultural production, agricultural price supports and subsidies in developed nations, diversions of food commodities to high input foods and fuel, commodity market speculation, and climate change.

Between early 2006 and 2008, the average world price for rice rose by 217%, wheat by 136%, maize by 125% and soybeans by 107%. In late April 2008, rice prices hit 24 cents a pound, twice the price that it was seven months earlier.

Various factors contributed to the rising food prices. Analysts attributed the food price rises to a perfect storm of poor harvests in various parts of the world, increasing biofuel usage, lower food reserves, the US Federal Reserve decreasing interest rates so that money is no longer a means to preserve wealth over the long term, as a result people invest in food commodities which causes an increase in demand and therefore price, growing consumer demand in Asia, oil price rises, and changes in the world economy. Agricultural subsidies in developed nations are another long-term factor contributing to high global food prices.

Causes of global food crisis

Rising food prices

At the beginning of 2007 and early 2008, the prices of some of the most basic international food commodities increased dramatically on international markets. The international market price of wheat doubled from February 2007 to February 2008 hitting a record high of over US$10 a bushel. Rice prices also reached ten year highs. In some nations, milk and meat prices more than doubled, while soy (which hit a 34 year high price in December 2007) and maize prices have increased dramatically.World Food Crisis - Food Prices

Overall food import bills rose by an estimated 25% for developing countries in 2007. Researchers from the Overseas Development Institute have suggested this problem will be worsened by a likely fall in food aid. As food aid is programmed by budget rather than volume, rising food prices mean that the World Food Program (WFP) needs an extra $500 million just to sustain the current operations.

To ensure that food remains available for their domestic populations and to combat dramatic price inflation, major rice exporters, such as China, Brazil, India, Indonesia, Vietnam, Cambodia and Egypt, have imposed strict export bans on rice. Several other nations, including Argentina, Ukraine, Russia, and Serbia have, as well, either imposed high tariffs or blocked the export of wheat and other foodstuffs altogether, driving up food prices still further for net food importing nations while trying to isolate their internal markets. Finally, North Korea, is also suffering from the food crisis to such extent that a North Korean official was quoted in June '08 with saying "Life is more than difficult. It seems that everyone is going to die". This nation however is solely relying on food assistance to cope with the food crisis.

Effects of food for fuel

Global Food CrisisOne systemic cause for the food price rise is held to be the diversion of food crops, maize in particular, for making first-generation biofuels. An estimated 100 million tonnes of grain per year are being redirected from food to fuel, while total worldwide grain production for 2007 was just over 2000 million tonnes. As farmers devoted larger parts of their crops to fuel production than in previous years, land and resources available for food production were reduced correspondingly. This has resulted in less food available for human consumption, especially in developing and least developed countries, where a family's daily allowances for food purchases are extremely limited. The food crisis can be seen, in a sense, to dichotomize rich and poor nations, since, for example, filling a tank of an average car with biofuel, amounts to as much maize, which is Africa's principal food staple, as an African person consumes in an entire year.

Since late 2007, "Agflation," caused by the increased diversion of maize harvests to biofuels, the tying of maize to rising oil prices by commodity traders, and a resulting price rise, has caused market substitution, with price rises cascading through other commodities: first wheat and soy prices, then later rice, soy oil, and a variety of cooking oils.

Brazil, the world's second largest producer of ethanol after the U.S., is considered to have the world's first sustainable biofuels economy and its government claims Brazil's sugar cane based ethanol industry has not contributed to the 2008 food crisis. A World Bank policy research working paper released in July 2008 concluded that "...large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices", and also stated that "Brazil's sugar-based ethanol did not push food prices appreciably higher". A economic assessment report also published in July 2008 by the OECD agrees with the World Bank report regarding the negative effects of subsidies and trade restrictions, but found that the impact of biofuels on food prices is much smaller.

World Food Crisis - USA Ethanol ProductionA report released by Oxfam in June 2008 criticized biofuel policies of rich countries and concluded that from all biofuels available in the market, Brazilian sugarcane ethanol is "far from perfect" but it is the most favorable biofuel in the world in term of cost and GHG balance. The report discusses some existing problems and potential risks, and asks the Brazilian government for caution to avoid jeopardizing its environmental and social sustainability. The report also says that: “Rich countries spent up to $15 billion last year supporting biofuels while blocking cheaper Brazilian ethanol, which is far less damaging for global food security."

German Chancellor Angela Merkel said the rise in food prices is due to poor agricultural policies and changing eating habits in developing nations, not biofuels as some critics claim. On April 29, 2008, U.S. President George W. Bush declared during a press conference that "85 percent of the world's food prices are caused by weather, increased demand and energy prices", and recognized that "15 percent has been caused by ethanol". On July 4, 2008, The Guardian reported that a leaked World Bank report estimated the rise in food prices caused by biofuels to be 75%.

Second- and third-generation biofuels such as cellulosic ethanol and algae fuel, respectively may someday ease the competition with food crops, as non food energy crops can grow on marginal lands unsuited for food crops, but these advanced biofuels require further development of farming practices and refining technology; in contrast, ethanol from maize uses mature technology and the maize crop can be shifted between food and fuel use quickly.

Biofuel subsidies in the US and the EU

The World Bank lists the impact of biofuels as an important contributor to higher food prices. The FAO/ECMB has reported that world land usage for agriculture has declined since the 1980s, and subsidies outside the United States and EU have dropped since the year 2004, leaving supply, although sufficient to meet 2004 needs, but vulnerable when the United States began converting agricultural commodities to biofuels. According to the United States Department of Agriculture, global wheat imports and stocks have decreased, domestic consumption has stagnated, and world wheat production has decreased from 2006 to 2008.Food-crisis-corn

In the USA, government subsidies for ethanol production have prompted many farmers to switch to production for biofuel. Maize is the primary crop used for the production of ethanol, with the United States being the biggest producer of maize ethanol. As a result, 23 percent of United States maize crops were being used for ethanol in 2006-2007 (up from 6 percent in 2005-2006), and the USDA expects the United States to use 81 million tonnes of maize for ethanol production in the 2007-2008 season, up 37 percent. This not only diverts grains from food, but it diverts agricultural land from food production.

Nonetheless, supporters of ethanol claim that using corn for ethanol is not responsible for the worst food riots in the world, many of which have been caused by the price of rice and oil, which are not affected by biofuel use but rather by supply and demand.

However, a World Bank policy research working paper released in July 2008 says that biofuels have raised food prices between 70 to 75 percent. The study found that higher oil prices and a weak dollar explain 25-30% of total price rise. The "month-by-month" five year analysis disputes that increases in global grain consumption and droughts were responsible for price increases, reporting that this had had only a marginal impact and instead argues that the EU and US drive for biofuels has had by far the biggest impact on food supply and prices. The paper concludes that increased production of biofuels in the US and EU were supported by subsidies and tariffs on imports, and considers that without these policies, price increases would have been smaller. This research also concluded that Brazil's sugar cane based ethanol has not raised sugar prices significantly, and suggest to remove tariffs on ethanol imports by both the US and EU, to allow more efficient producers such as Brazil and other developing countries to produce ethanol profitably for export to meet the mandates in the EU and the US.

Global Food Crisis - Biofuel Cost The Renewable Fuel Association (RFA) published a rebuttal based on the version leaked before the formal release of the World Bank's paper. The RFA critique considers that the analysis is highly subjective and that the author "estimates the impact of global food prices from the weak dollar and the direct and indirect effect of high petroleum prices and attributes everything else to biofuels."

An economic assessment report also published in July 2008 by the OECD agrees with the World Bank report regarding the negative effects of subsidies and trade restrictions, but found that the impact of biofuels on food prices are much smaller. The OECD study is also critical of the limited reduction of GHG emissions achieved from biofuels produced in Europe and North America, concluding that the current biofuel support policies would reduce greenhouse gas emissions from transport fuel by no more than 0.8 percent by 2015, while Brazilian ethanol from sugar cane reduces greenhouse gas emissions by at least 80 percent compared to fossil fuels. The assessment calls on governments for more open markets in biofuels and feedstocks in order to improve efficiency and cut on costs.

Agricultural subsidies

The global food crisis has renewed calls for removal of distorting agricultural subsidies in developed countries. Support to farmers in OECD countries totals 280 billion USD annually, which compares to official development assistance of just 80 billion USD in 2004, and farm support distorts food prices leading to higher global food prices, according to OECD estimates. The US Farm Bill brought in by the Bush Administration in 2002 increased agricultural subsidies by 80% and cost the US taxpayer 190 billion USD. In 2003, the EU agreed to extend the Common Agricultural Policy until 2013. Former UNDP Administrator Malloch Brown renewed calls for reform of the farm subsidies such as the CAP.

Uncontrolled world population growth

World Food Crisis - Population GrowthGrowth in food production has been greater than population growth and food per person increased during the 1961-2005 period. Although some commentators have argued that this food crisis stems from unprecedented global population growth, others point out that world population growth rates have dropped dramatically since the 1980s, and grain availability has continued to outpace population. However, If the trend continues, the world population will have increased four times in one hundred years between 1950 and 2050. Aggregate food production per capita has risen from the 1960s to the 1980s but slightly declined since, at least for cereals. World population has grown from 1.6 billion in 1900 to an estimated 6.6 billion today. In Mexico, for example, population has grown from 13.6 million in 1900 to 107 million in 2007. Bureau figures show that the U.S. population grew by 2.8 million between July 1, 2004, and July 1, 2005.

The actual annual growth in the number of humans fell from its peak of 87 million per annum in the late 1980s, to a low of 75 million per annum in 2002, at which it stabilized and has started to slowly rise again to 77 million per annum in 2007. The world's population, on its current growth trajectory, is expected to reach nearly 9 billion by the year 2042.

April 2008 analyses from the United Nations' Food and Agriculture Organization maintained that while food consumption of grains has gone up one percent since 2006, most of this increase has gone to developed countries.

Increased demand for resource intensive food

The head of the International Food Policy Research Institute stated in 2008 that the gradual change in diet among newly prosperous populations is the most important factor underpinning the rise in global food prices. Where food utilization has increased, it has largely been in processed so called "value added" foods, sold in developing and developed nations. Total grain utilization growth since 2006 (up three percent, over the 2000-2006 per annum average of two percent) has been greatest in non-food usage, especially in feed and biofuels. One kilogram of beef requires seven kilograms of feed grain. These reports, therefore, conclude that usage in industrial, feed, and input intensive foods, not population growth among poor consumers of simple grains, has contributed to the price increases.

Although the vast majority of the population in Asia remains rural and poor, the growth of the middle class in the region has been dramatic, and is projected to continue to be so. For comparison, in 1990, the middle class grew by 9.7 percent in India and 8.6 percent in China, but by 2007 the growth rate was nearly 30 percent and 70 percent, respectively. The corresponding increase in affluence has also brought with it a change in lifestyle and eating habits, particularly a demand for greater variety and more meat in the diet, leading to greater demand for agricultural resources. This demand exacerbates dramatic increases in commodity prices, such as oil.

Another issue is that rising affluence in India and China is reducing the `shock absorber' of poor people who are forced to reduce their resource consumption when food prices rise (e.g. by switching back from meat to vegetarian diet). This has reduced price elasticity and caused a sharp rise in food prices during times of food shortages. In the media, China is often mentioned as one of the reasons for the increase in world food prices, but China has to a large extent been able to meet its own demand for food. It is, however, uncertain whether this will continue to be the case in the future.

Effects of oil price increases

The rise in the price of oil has heightened the costs of fertilizers in some instances doubling the price within the six months before April, 2008, the majority of which require petroleum or natural gas to manufacture. Although the main fossil fuel input for fertilizer comes from natural gas to generate hydrogen for the Haber-Bosch process, natural gas has its own supply problems similar to those for oil. Because natural gas can serve as substitute for petroleum in some uses, for example, natural gas liquids in electricity generation, increasing prices for petroleum lead to increasing prices for natural gas, and thus for fertilizer.

Costs for fertilizer raw materials other than oil, such as potash, have themselves been increasing as increased production of staples increases demand. This is causing a boom with associated volatility in agriculture stocks.

Oil also provides most energy for mechanized food production and transport. Higher prices for liquid fuels from petroleum increase the demand for biofuels, which may result in diverting some crops from food to energy. Even though per-capita petroleum consumption among the world's poorest people is very low, what petroleum the poor do consume is disproportionately in the form of fossil fuel inputs to the food they eat, especially to any food imported from industrial agriculture powerhouses such as the United States. People who were already living at a subsistence level when oil was relatively cheap are extremely vulnerable when oil prices rise, and may simply lack the means to afford enough daily food calories to survive. Some farmers have mitigated the effect of oil on mechanized agriculture by actually using biofuels to power their farm equipment, such as tractors.

Decreased crops from natural disasters

Several distinct weather- and climate-related incidents have caused disruptions in food crop production. Perhaps the most influential is the extended drought in Australia, in particular the fertile Murray-Darling Basin, which produces large amounts of wheat and rice. The drought has caused the annual rice harvest to fall by as much as 98% from pre-drought levels. Australia is historically the second-largest exporter of wheat after the United States, producing up to 25 million tons in a good year, the vast majority for export. However, the 2006 harvest was 9.8 million. Other events that have negatively affected food prices include the 2006 heat wave in California's San Joaquin Valley, which killed large numbers of farm animals, and unseasonable 2008 rains in Kerala, India, which destroyed swathes of grain. Scientists have stated that several of these incidents are consistent with the predicted effects of climate change.

The impact of Cyclone Nargis on Burma in May 2008 caused a spike in the price of rice. Burma has historically been a rice exporter, though yields have fallen as government price controls have reduced incentives for farmers. The storm surge inundated rice paddies up to 30 miles (48 km) inland in the Irrawaddy Delta, raising concern that the salt could make the fields infertile. The FAO had previously estimated that Burma would export up to 600,000 tons of rice in 2008, but concerns were raised in the cyclone's aftermath that Burma may be forced to import rice for the first time, putting further upward pressure on global rice prices.

Stem rust reappeared in 1998 in Uganga and possibly earlier in Kenya with the particularly virulent UG99 fungus. Unlike other rusts, which only partially affect crop yields, UG99 can bring 100% crop loss. Up to 80% yield losses were recently recorded in Kenya. As of 2005 stem rust was still believed to be "largely under control worldwide except in Eastern Africa". But by January 2007 an even more virulent strain had gone across the Red Sea into Yemen. FAO first reported on 5 March 2008 that Ug99 had now spread to major wheat-growing areas in Iran. These countries in North Africa and Middle East consume over 150% of their own wheat production; the failure of this staple crop thus adds a major burden on them. The disease is now expected to spread over China and the Far-East. The strong international collaboration network of research and development that spread disease-resistant strains some 40 years ago and started the Green Revolution, was since slowly starved of research funds because of its own success and is now too atrophied to swiftly react to the new threat.

Soil and productivity losses

Large areas of croplands are lost year after year, due mainly to soil erosion, water depletion and urbanization. 60,000 sq km/year of land becomes so severely degraded that it loses its productive capacity and becomes wasteland, and even more are affected to a lesser extent, adding to the crop supply problem. Additionally, agricultural production is also lost due to water depletion. Northern China in particular has depleted much of its non-renewable aquifers, which now has negative impact on its crop production. Urbanization is another, smaller, difficult to estimate cause of annual cropland reduction.

Rising levels of ozone

Another possible environmental factor in the food price crisis is ever increasing background levels of ozone in the atmosphere. Plants have been shown to have a high sensitivity to ozone levels, and lower yields of important food crops, such as wheat and soybeans, may have been a result of ozone levels. Ozone levels in the Yangtze Delta were studied for their effect on oilseed rape, a member of the cabbage family that produces one-third of the vegetable oil used in China. Plants grown in chambers that controlled ozone levels exhibited a 10-20 percent reduction in size and weight when exposed to elevated ozone. Production of seeds and oil was also reduced.

Distorted global rice market

Japan is forced to import more than 767,000 tons of rice annually from the United States, Thailand, and other countries due to WTO rules. This is despite the fact that Japan produces over 100% of domestic rice consumption needs with 11 million tonnes produced in 2005 while 8.7 million tonnes were consumed in 2003-2004 period. Japan is not allowed to re-export this rice to other countries without approval. This rice is generally left to rot and then used for animal feed. Under pressure, the United States and Japan are poised to strike a deal to remove such restrictions. It is expected 1.5 million tonnes of high-grade American rice will enter the market soon.

Impact of trade liberalization

While developed countries pressured the developing world to abolish agricultural subsidies in the interest of trade liberalization, rich countries largely kept subsidies in place for their own farmers. In recent years United States government subsidies have been added which pushed production toward biofuel rather than food.

According to some theorists, such as Martin Khor of the Third World Network, many developing nations have gone from being food independent to being net food importing economies since the 1970s and 1980s International Monetary Fund free market economics directives to debtor nations and later the World Trade Organization's Agreement on Agriculture. In opening developing countries to developed world food imports which continue to be subsidized by Western governments, developing nations have become dependent upon food imports which are cheaper than those which can be produced by local smallholders’ agriculture, even in the poorest regions of the world.

Financial speculation

Destabilizing influences, including indiscriminate lending and real estate speculation, led to a crisis in January 2008, and eroded investment in food commodities. The United States, in particular, has been facing an economic crisis which is likely to lead to recession.

Financial speculation in commodity futures following the collapse of the financial derivatives markets has contributed to the crisis due to a "commodities super-cycle." Financial speculators seeking quick returns have removed trillions of dollars from equities and mortgage bonds, some of which has been invested into food and raw materials. That American commodities speculation could have a worldwide impact on food prices is reflected in the globalization of food production. It represents the concentration of wealth throughout the world which Frances Moore Lappé equates to a weakening in fundamental democracy. In a recent article for The Nation, she suggests that there is no food shortage but that "as long as food is merely a commodity in societies that don't protect people's right to participate in the market, and as long as farming is left vulnerable to consolidated power off the farm, many will go hungry, farmers among them - no matter how big the harvests.

Reduction in world food stockpiles

Previously nations tended to keep more sizable food stockpiles, but more recently, due to the pace at which food could be grown and the ease with which it could be imported, less emphasis was placed on keeping high stockpiles. For example, in February 2008 wheat stockpiles hit a 60-year low in the United States.



This article uses material from the Wikipedia article "2007-2008 World Food Price Crisis"