|The Independent, 23 June 2007 08:31
Leading article: We have to accept that the era of cheap food is coming
to an end
WHAT IS PUSHING UP global commodity prices? It is likely that a
substantial demand shift is beginning to affect prices
We are so used to our ultra-competitive supermarket sector keeping down
prices that it comes as rather a shock to discover that the same item we
bought a few weeks ago has become more expensive. But the shock value is
beginning to wear off. Food prices are now rising at 6 per cent a year,
twice as quickly as the general cost of living. And it is not just in
the UK that we are witnessing this trend. In India the overall food
price index is 10 per cent higher than last year. In China, prices are
up 20 per cent for some staples. A similar inflationary trend can be
discerned in America.
The immediate reason for this is that global commodity prices are
rising. Earlier this month, wheat prices reached their highest level in
10 years. Maize prices have doubled over the past year. Rice prices are
rising too. This is being passed on to the price of other foodstuffs
such as meat and eggs, as these commodities are used for animal feed.
But what is pushing up global commodity prices? Some have pointed to
several bad harvests and adverse weather. Others have blamed a spike in
farmers' fuel prices as a result of instability in the Middle East. But
it is also likely that a substantial global demand shift is beginning to
affect prices. There is a higher demand for cereals from China and
India. India has become a net importer of wheat for the first time since
1975. China is expected to become a net importer of maize by 2008.
Another factor is the increasing use of food crops as a source of
energy. The use of maize and sugar cane for biofuels has pushed up
prices. Some 16 per cent of the US grain harvest was used to produce
bioethanol last year, following President Bush's pledge to expand the
US's consumption of biofuels fivefold. It could be just the beginning.
If the fuel value of grain begins to exceed its food value, the market
could move it into the energy economy. Thus, as the price of oil climbs,
so will that of food.
All good news for farmers and the food industry. But it is bad for those
of us who shop for groceries. Rising global prices will hit poor
countries hardest. In Mexico, where the price of tortillas has risen
rapidly, tens of thousands have joined street protests. Other poor
countries will feel similar pressures if this goes on.
This does not discredit the investment by governments in biofuels as an
alternative to highly polluting petroleum. But it suggests that the US
has not adequately considered the economic or social implications of its
rapid switch to maize as an energy source. And it is yet another example
of the folly of agricultural subsidies. US grain producers are so pumped
up by subsidies that America has become a leading exporter. The US ships
more grain than Canada, Australia and Argentina combined. So what
happens to this single producer has a profound effect on world prices.
We are feeling the malign results.
Greater trade liberalisation should help to bring prices down in the
long term. It is worth remembering that the high food prices of the
1840s came to an end with the abolition of the protectionist Corn Laws
in Britain. We should stop paying European and American farmers to do
what African and Latin American nations could do much more cost effectively.
Another way to bring down food prices would be to bioengineer crops
specifically to be used for fuel to minimise the effect on the food
market. Some interesting work is being done in this area at the John
Innes Centre at the University of East Anglia. But it will take time.
And in the meantime there is no simple solution to the overall increase
in demand for food in Asia. It is not an easy prognosis to swallow, but
it seems we have little choice but to accept that the long era of cheap
food is coming to an end.