Higher Prices Food for
LIAM HALLIGAN / The Telegraph (UK) 27jan2008
I've Gone on about inflation a lot lately — partly to counter the endless siren calls for reckless rate cuts. But I'm also genuinely worried by the rising cost of food.
Corn prices have just hit a 12-year high, wheat and rice have surged to new records and meat, poultry and eggs are also sharply up. Little wonder CPI food inflation is now 6 per cent a year.
Until last week, I put this down to the burgeoning food demands of the fast-growing, heavily populated emerging economies of the East.
That, and the needs of the bio-fuel industry.
But a thoughtful new paper from UK-based consultants Bidwells Agribusiness suggests something else is driving global food prices higher — namely an ever more pressing world-wide shortage of both fresh water and arable land.
In other words, the current food "cycle" could either be huge — with sky-high prices around for much longer than is often assumed. Or it may even be that natural limits on farm production, combined with a rapidly expanding world population, mean prices are now permanently — or "structurally" — higher.
We economists are sometimes dubbed "dismal scientists".
That label was originally an insult aimed at Thomas Malthus, who in the late 18th century grimly predicted widespread destitution as population growth exceeded the rate at which food supplies could grow.
Malthus turned out to be wrong — in part because technology produced better irrigation, fertilisers and pesticides, boosting land yields.
However, this new report says that "yield gains have already plateaued".
Perhaps "dismal scientist" will soon become a well used term once more.
Long Period of Rising Food Prices Forecast
JAVIER BLAS / Financial Times (UK) 21jan2008
London — Scarcity of water and arable land means that the boom in food prices could last longer than most expect, a new study has warned.
The report, to be published on Tuesday by the UK-based consultants Bidwells Agribusiness, said the boom – until now fuelled by rising demand from emerging countries and the biofuels industry – would be exacerbated by supply constraints.
Richard Warburton, head of Agribusiness at Bidwells, said it was impossible to know yet whether the agricultural market was facing a structural or a cyclical change. But he warned that, even if it were cyclical, “we are up against a long cycle of rising prices”.
Wheat and soyabean prices have surged to records, corn prices hit a 12-year high this year and rice prices have doubled in the past year to levels not seen since the mid-1990s. Meat, poultry, eggs and dairy products prices have also increased sharply.
Instead of focusing on the current factors behind rising food prices, such as growing populations, increasing income levels and new demand from the biofuels industry, the report for the first time examines the limitations faced by farm production in the medium term.
It said water and land scarcity, together with slow improvement in agronomics, would be key factors shaping food production.
“Sustainability will ultimately be defined by food production per area of land and quantity of water used, as these are the obviously limiting factors.”
Arable land, in particular, could only be increased at the cost of “massive destruction of forest and habitats and extreme pressure on biodiversity and carbon sequestration capacity”.
“Balancing environmental sustainability against the needs of an ever larger and increasingly hungry population may well prove to be the biggest challenge of the 21st century,” the report said.
For the past half century, the world has been able to increase output thanks to rising productivity boosted by genetic advances, such as cereal seeds resistant to drought, and better agronomics, such as the wider use of irrigation, fertilisers and pesticides.
But Mr Warburton said that “yields gains have already plateaued” after more than doubling from 1.1 tonnes per hectare in 1950 to 2.7 tonnes per hectare in 2000. “It is unquestionable...that constraints on [farm] production are tightening,” the report said.
In addition to land scarcity, lack of water would hamper agriculture. China and India, the world’s two most populous countries, would be forced to provide more water to their rapidly growing urban populations rather than to their farmers, which would cut agricultural output.
Water was also an issue in highly productive areas such as California and southern Spain, the report said.