The trillion dollar grocery bill
Farming is an industry, but there are limits to how closely you can compare it to other sectors. Livestock production is fairly predictable, but farmers can never be certain of how well their crops will grow. It’s as if you started an auto production line without knowing for sure how many cars would roll off the end, or what size they’d be. And with a fair chance that floods or fire would destroy the whole factory.
This unpredictability is one of the reasons food commodity prices have been so volatile over the past year. For instance, the latest FAO Food Outlook expects world cereal production to contract by 2% although only a few months ago the FAO predicted a 1.2% increase.
As a result, world cereals stocks are expected to shrink by 7%, with barley plunging 35%, maize 12% and wheat 10%. Prices will rise, with the global bill for food imports topping a trillion dollars, a level not seen since prices peaked in 2008.
That may be good news for producers, but food import bills for the world’s poorest countries are predicted to rise by 11% in 2010 and by 20% percent for low-income countries with food deficits.
The weather is partly to blame, with droughts and fires hitting Russia and other important growing zones this year, but there are other reasons too. An OECD contribution to last month’s meeting of the Committee on World Food Security looks at a number of factors affecting food price spikes.
This year, export restrictions and exchange rate fluctuations had a big impact. This kind of influence can be reversed quickly, but increased use of agricultural feedstocks for biofuels and the growing demand for food and animal feed from emerging economies put more permanent pressure on prices.
The impacts of other factors are uncertain, for instance climate change or water scarcity. Declining investment in research could prove costly too. Moreover, lack of infrastructure means that a lot of food is destroyed before it can be eaten, as Indians discovered during last summer’s monsoons, with CNN reporting that a third of the country’s reserves were rotting in the open.
The most controversial issue is speculation. An OECD working paper rules out financial market speculation as the cause of the price bubble in agricultural futures markets in 2007-08. However, at the meeting of agriculture ministers at the OECD earlier this year, different views were expressed about the role of speculation.
At the end of this month, the OECD Global Forum on Agriculture will bring together government representatives, along with agricultural experts from intergovernmental organisations, NGOs, producer groups and agribusiness, as well as researchers toidentify ways governments can accelerate agricultural development and tackle the twin problems of poverty and food insecurity.