Tuesday, January 11, 2011

FOOD PRICE WORRIES ARE SO 2008


The UN has recently warned that food prices are again heading to record levels, a warning those with a decent short-term memory may find familiar. A food price index based on the wholesale price of fifty-five different products (including staples such as rice and wheat) reached a record 214.7 in December, surpassing the previous record of 213.5 set in June 2008, when food price increases were causing riots and civil unrest in numerous countries.

The increases are largely due to droughts, floods and other weather-related causes. 2010 was dismal for grain crops in Canada, Russia and the Ukraine, and an Argentian drought and an Australian flood have lowered the annual wheat haul even further. Wheat prices jumped up by 17% in December, while corn prices increased 11%: both reaching two year highs.

The relation to weather isn't always entirely clear. Economists often pay attention to food prices in India and China, due to their rapid-clip economies and immense population sizes. Food prices have inflated by 18.3% in India, causing officials to scrap import taxes for onions, banning their import and ordering low-priced sales at government run shops. Inflation in China has also been widely discussed lately, with 75% of that inflation due to higher food prices (in 2008, food prices pushed inflation past 8%), but without the same domestic food production problems that occurred in 2008. Wealthier citizens in both countries are part of the blame, with greater demands for former luxury items such as meat, poultry and milk. It's for that reason that analysts keep close watch over what the central banks in both those countries do to address it.

With all the advances of modern technology and past experience at hand, you'd think that more could/would have been done to address food crises like this, but it's all a complicated and increasingly pricey onion to peel. Two years ago, the New Yorker's James Surowiecki wrote a great piece with an easy-to-understand explanation: it's all about the market, silly.

Or, not entirely. Though deregulation is often vilified (depending on what end of the political spectrum one lies in), the intensive government infrastructures that agriculture has generally moved away from over the past few decades were, as Surowiecki puts it, "undoubtedly costly and often wasteful," with the private market concentrating production of certain staples around the world to create certain efficiencies.

However, that efficiency has created certain vulnerabilities, and that's the worrisome part of these food price crises. While it doesn't completely explain the increase in food prices, it does provide an explanation as to how crippling these increases are relative to inflationary price increases for other things. As Surowiecki explains:
The problem is that, while this system is undeniably more efficient, it’s also much more fragile. Bad weather in just a few countries can wreak havoc across the entire system. When prices spike as they did [in spring 2008] (for reasons that now seem not entirely obvious), the result is food shortages and malnutrition in poorer countries, since they are far more dependent on imports and have few food reserves to draw on. And, while higher prices and market reforms were supposed to bring a boom in agricultural productivity, global crop yields actually rose less between 1990 and 2007 than they did in the previous twenty years, in part because in many developing countries private-sector agricultural investment never materialized, while the cutbacks in government spending left them with feeble infrastructures.
Read Surowiecki's piece here.

Joe.
the clutterer Web Developer

1 comment:

  1. It doesn't even have anything to do with your political standpoint, it has to do with your human rights standpoint.

    Calling systems that only work to increase financial profitably as "efficient" is sociopathic. An "efficient" food industry would put food in the mouths of the starving, ongoing. They would have reserves, just like a first world country, so that a single flood would not spiral entire populations into fatal starvation.

    Once you put a price tag on human rights like food, water and health care, bringing them into capitalist systems, then there are ALWAYS populations who do not have access to these basic human rights. There has to be for capitalism to work as you can find throughout history, in every single case.

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