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The End of Cheap Food? | |
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THE PROGRESSIVE REVIEW - April 24, 2008
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The End of Cheap Food?
By Mary Kane
The Washington Independent
High cost of commodities will continue to hit developing
world hardest.
A sharp spike in prices for wheat, corn, rice and other
staples has sparked riots in Mexico and Egypt, marches by
hungry children in Yemen and the spectre of starving people
in Haiti turning to mud pies for sustenance. This growing
unrest is forcing the global community to focus on the
causes of higher food costs and what can be done. But it's
also raising the troubling possibility that cheap prices
for food may be gone for good, an economic relic of the
the past.
That scenario would be disastrous for the progress of
fighting poverty in poor countries - and it would threaten
to halt a long period of rising living standards in the
United States tied directly to the inexpensive cost of
food.
"Don't look now, but the good times may have just stopped
rolling," the economist Paul Krugman wrote in his New York
Times column. The Economist was more strident: "The era of
cheap food is over," it declared. World Bank President
Robert Zoellick, reaching back to policies created during
the Great Depression for inspiration to address food
inflation, is pushing a "New Deal" for global food policy,
aimed at aiding impoverished countries with income support
and help in producing crops.
The gloom-and-doom outlooks are prompted by rising prices
for commodities, which started increasing steadily in 2001
before suddenly soaring recently. Wheat prices have gone
up by 181 percent over the past three years, according to
the World Bank; food prices around the globe have risen
by 83 percent during the same period. In March, rice prices
hit a 19-year high. Corn prices recently rose from $2.50
a bushel three years ago to $6, for the first time.
Zoellick has predicted a sustained period of higher food
costs, saying he expects prices to remain elevated through
next year and stay above 2004 levels for at least the next
seven years.
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The causes are many. India and China have growing
populations and are becoming more prosperous; more people
can now afford to eat more meat, and the demand for animal
feed has grown. In the U.S. and Europe, a boom in biofuel
as alternative energy is diverting considerable amounts of
corn from the market. A severe drought in Australia has
contributed to a 25-year low in supplies. Some also blame
speculation in the commodity markets for sharp swings in
prices and availability.
While plenty of people are worried about the end of cheap
food, it's not clear yet whether that will happen, said
David Orden, senior research fellow with the International
Food Policy Research Institute. Things like the weak dollar
becoming stronger, crop shortfalls easing, energy prices
stabilizing and strong growth in the world economy are all
factors that could affect the availability of food, he
said, and no one's sure how they will play out. "We just
don't know yet," Orden said. "Before this bump in food
prices started, people were not predicting it."
What has become clear is that in a short time, soaring food
costs have shaken some long-held assumptions about food and
fuel, especially in the U.S.
Food has been cheap in America for nearly 60 years, and
Americans set aside less of their incomes for food than any
other country in the world, devoting just 11 percent of
disposable income to it, compared to double that percentage
in Europe. Keeping food costs low has been one of the great
economic achievements of the last century. The low food
costs, combined with rising incomes, "have been two of the
primary sources of prosperity for American consumers," said
John Urbanchuck, an agriculture industry analyst for LECG,
a global consulting firm.
Until now, Americans had the luxury of worrying about food
due to its abundance. Concerns have centered on childhood
obesity and an epidemic of diabetes. But new problems with
food are already surfacing, as rising prices begin showing
up at the grocery store. More expensive corn means people
pay more for eggs and poultry, and still higher meat and
milk prices are on the horizon. Record high oil prices are
adding to price pressures, since transporting food costs
more.
If prices stay high for a long time, the poor will be hit
the hardest, since they spend the largest percentage of
their incomes on food. Efforts to reduce hunger, like food
stamps and free and reduced lunch programs, will become
more costly, said Otto Doering, a professor of agricultural
economics at Purdue University in Indiana. Asking taxpayers
to pay more for them won't exactly be politically popular,
since food prices could also take a greater bite out of
middle-class budgets. And paying more for food will mean
having less to spend on things like big-screen television
sets and iPods, putting a dent in the kind of consumer
spending that has kept the economy growing for the past
two decades.
Consumers won't be the only ones feeling the squeeze.
Hog producers in the Midwest expect to lose hundreds of
millions of dollars in just the next six months due to
corn price hikes, Doering said.
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It could get far worse. Another "hidden issue" is the
scarcity of land still available for farming, he said.
In the past, the United States had plenty of farmland
to provide more crops as food demands grew. But land is
finite, and after all these years, we're beginning to
run short, Doering said. "For the first time in our
history, we're pushing up against the edge in terms of
quality land," Doering said. "We're in a somewhat fixed
box."
Because of all this, Doering said it's not clear whether
the U.S. can keep food prices low. "It's a whole new
ballgame," he stated.
The United States has endured temporary price bumps before.
A spike in commodities in the early 1970s was due mainly
to bad weather around the world, and to huge and secretive
Russian grain purchases. In 1995-96, food inflation stemmed
from a Midwestern drought, global demand for U.S. feed
grains and speculation. In both cases, prices settled back
down again.
This time around, the biofuel boom is also complicating the
question of whether prices will revert. Some one-third of
the U.S. corn crop now is devoted to ethanol production,
its growth due to a combination of high oil prices and
generous government subsidies. When corn prices were lower
a few years ago, ethanol was seen as a popular energy
alternative. Now it's a target.
Zoellick, the World Bank president, made headlines for
blaming biofuels for recent price hikes, saying earlier
this month that biofuels are a major factor in the world's
added demand for food. Biofuel mania, or speculating in
commodities by hedge fund and traders betting on corn
prices, was also responsible for shortages and price
increases, he said.
His remarks added to an already simmering debate. Last
summer Foreign Affairs magazine published "How Biofuels
Starve the Poor," which reiterated that sentiment, noting
that filling the 25-gallon tank of a sports utility vehicle
with pure ethanol required 450 pounds of corn, or enough
calories for one person for a year.
At some point, American policy-makers are going to have to
decide whether they want to live with an "expensive food
policy" that requires continuing to produce large
percentages of corn crops for biofuel and enduring higher
prices for other foods, said Bruce Babcock, an Iowa State
University economist.
The food debate will eventually break down into two camps:
Those who believe supply and demand are the problem, and
that the world can't produce enough to meet the needs of
growing economies; and those who blame ethanol production.
In the end, Babcock predicts, Washington will continue
to support ethanol production in the near term, before
imposing caps on its production.
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But the future for food prices will still remain uncertain,
because the global market is so complex. "I don't think
we've ever been where we are right now," Babcock said.
Should prices stay high, the effect will be felt most
keenly in developing countries, as the recent food riots
have shown. Impoverished families now pay 50 percent to
80 percent of their incomes for food. Continuing high
prices for oil and corn threaten to undo any gains in
reducing poverty made over the past decade, Zoellick
said.
Josette Sheeran, head of the U.N.'s World Food Program,
told The Economist that the effects of higher food prices
in poor countries will be devastating:
"For the middle classes, it means cutting out medical
care. For those on $2 a day, it means cutting out meat
and taking the children out of school. For those on $1
a day, it means cutting out meat and vegetables and eating
only cereals. And for those on 50 cents a day, it means
total disaster."
It wasn't supposed to be this way. The promise of
globalization was that it could lift living standards for
everyone. But if the world's hungry still can't be fed
because food is no longer cheap, it's an empty promise.
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