Population Matters

A Global “Food Fight”

January 27th, 2011

The 2011 food crisis is quickly turning into a global food fight.  The U.N.’s Food and Agricultural Organization (FAO) this month issued a new report (“Guide for Policy and Programmatic Action at Country Level to Address High Food Prices”) that urges countries to refrain from export bans and other actions that could exacerbate the current food crisis.  The FAO’s advice, however, is being widely ignored.

During the 2007-8 food crisis, major grain exporters, like Argentina and Vietnam, imposed export bans that led to even higher prices.  And it’s happening all over again. 

Last year, Russian and Ukraine imposed export bans on wheat in an effort to control domestic food prices.  In India, where food prices are rising at a rate of nearly 20 percent a year, the government has banned exports of onions and other food products.  After the collapse of the government in Tunisia, Algeria and other governments in North Africa are now buying large amounts of grain and building up grain reserves in an effort to stave off potential domestic strife over higher food prices.  In Ethiopia and other least developed countries, governments are imposing prices controls, even though such practices hurt local farmers.

From the standpoint of global food prices and long-term agricultural development such actions may be counterproductive, but politically they are proving irresistible, particularly to countries in the Middle East that are concerned about popular uprisings.

The hope is that stronger harvests in the year ahead will take some of the pressure off global food prices and countries will lift their export bans, but if the past four years are any indicator, food inflation is becoming a chronic problem.  A growing population and the rising demand for meat products are boosting the world’s demand for grain, while water shortages, rising energy prices, loss of arable land, and extreme weather are depressing the supply of grains and other food stuffs.

Part of the problem is that prices for non-food agricultural products, like cotton and biofuels, are rising even faster than the price of many food products.  While corn and wheat prices have gone up about 50 percent in the past year, cotton prices have nearly doubled. 

The larger problem, however, is that farmers simply can’t keep pace with rising demand.  It’s used to be said that the best cure for high food prices is high food prices. But higher prices are no longer generating the kind of boosts in food production needed to moderate food prices.  Demand, quite simply, is outstripping supply.  

A report issued today by Universal Ecological Fund (Fundación Ecológica Universal FEU-US), a non-profit, non-governmental organization, suggests that the gap between supply and demand could widen dramatically in the decade ahead.  The report (“The Impacts of Climate Change on Food Production: A 2020 Perspective”) indicates that if existing trends in fertility and climate do not change, major shortfalls will develop:

Under the current distribution patterns, global food production would not be enough to fully meet the food requirements of 7.8 billion people estimated to inhabit the world in the next decade –about 900 million additional people. 

By 2020, when considering the impacts of climate change and population growth, global wheat production will experience a 14 percent deficit between production and demand; global rice production an 11 percent deficit; and a 9 percent deficit in maize (corn) production. Soybean is the only crop showing an increase in global production, with an estimated 5 percent surplus.

The assumptions contained in the report are probably unduly pessimistic, but if this scenario were to play out, the number of hungry and malnourished people in the world would soar.  Earlier today Indonesian President Susilo Bambang Yudhoyono warned the World Economic Forum in Davos that the “next economic war” could be over scarce resources if problems of rising food prices, poverty and population growth are not addressed.  Back at home in Jakarta, Indonesia’s Minister for National and Development Planning, Armida S. Alisjahbana,  says that climate change and severe weather could pose a serious threat to national food security in 2011.  In Indonesia, the price of chili peppers, a basic food staple, has soared by 120%, and high rice prices are forcing many families to reduce their rice consumption.

In the short term, it’s important that countries follow the FAO’s recommendations and refrain from policies, like food export bans, that could push global food prices even higher.  In the longer term, the only way to avoid a global “food fight” is to deal with the structural causes of the growing gap between supply and demand. 

Posted by Robert J. Walker, executive vice president

Return of “Dr. Gloom”

January 26th, 2011

 The World Economic Forum convened today in Davos, Switzerland, and “Dr. Gloom” returned.  His appearance was not a surprise.  With commodity prices surging on a broad front, Nouriel Rubini’s assertion that the global economic recovery is in some trouble was hardly a stunner.

Still, when this New York University economist speaks, the world now listens.   Having so accurately predicted the collapse of the housing bubble and the Great Recession that followed, he commands great attention.  Rubini today expressed concern that rising commodity prices could help fuel inflation in China and India, and destabilize developing countries and economies. 

This time around, Dr. Gloom is not alone.  A growing number of economists and market analysts are fretting over “resource limitations” and the relentless rise of commodity prices for oil, copper, tin, cotton, and a wide range of basic food stuffs.  Indeed, the Global Risks 2011 report that was released at this week’s meeting in Davos devoted a full chapter to what is described as the “water-food-energy nexus.”  The report warned that, “Water security, food security and energy security are chronic impediments to economic growth and social stability.” 

The Global Risks 2011 report stressed the interconnectedness of these challenges, noting that “food production requires water and energy; water extraction and distribution requires energy; and energy production requires water. Food prices are also highly sensitive to the cost of energy inputs through fertilizers, irrigation, transport and processing.”

The report also emphasized that demographics challenges are part of the mix:

For certain developing countries, the population size and growth rate are creating intense and rising pressure on resources, public institutions and social stability. In countries where rapid population growth is combined with weak institutions, lack of economic opportunities, fragile ecosystems, gender inequality and severe urban crowding, the potential for large numbers of disaffected youth engaging in resource-based conflict is a real risk. The Forum’s Global Agenda Council on Population Growth has identified 14 countries encompassing 450 million people where high population growth is combined with water and other resource stresses. Such “population cluster bombs” could send myriad shock waves to neighbouring countries and regions.

The Davos conference will likely focus on the immediate threats to the world economy, but if the global economy is struggling with “resource limitations” today, when it is still recovering from the Great Recession, what does that portend for the longer-term?  With the anticipated expansion of the world economy, and population likely to increase by about 40 percent over the next 40 years, how will the world ever meet the rising demand for food, energy and water?  And what will be the impact on the world’s urban poor, who are already struggling to put food on the table?  What happens to them if food and energy prices continue to soar? Those are the real challenges that need to be addressed at Davos.  

As urgent as our current problems are, we cannot overlook the needs of future generations. Over the past half century, the world has made notable gains in reducing severe poverty, curbing global hunger and reducing maternal and infant mortality in the developing world, but unless more is done to address the food security and human needs of the developing world, those gains could easily be erased in the next half century.  

Posted by Robert J. Walker, executive vice president

Don’t Blame the Speculators

January 25th, 2011

Blame the speculators.  That, in essence, is what French President Nicolas Sarkozy told the world yesterday when he vowed to use his leadership of the G-20 to confront the current food crisis.  Rather than acknowledging that demand for food is outstripping the supply of food and shrinking global food reserves, he blames the problem on financial speculation and a lack of precise data on farm production and reserves.

There is, of course, a lot of ‘speculation’ in food commodities.  Speculation is what commodity markets do.   Investors in food commodities regularly sift through crop reports and weather forecasts to ‘speculate’ if the prices of wheat, corn, and other staples will be higher or lower in the months ahead.  Futures, as they are called, allow producers and purchasers to hedge their bets, and are essential to the smooth functioning of global markets.  

Scarcity, quite naturally, increases speculation.  When there’s a large crop failure or a drop in world grain reserves, prices become more volatile and speculation increases.  And because the demand for food is relatively inelastic, even small changes in crop forecasts can produce large swings in food prices when reserves are low.  And there’s little that Sarkozy and the G-20 can do about that. 

Similarly, requiring the Food and Agriculture Organization or some other international institution to gather more accurate information is not likely to help much.  Full and rapid disclosure of crop failures or shrinkage of grain reserves is not going to ease food inflation and it will do little, if anything, to moderate volatility.

World leaders, including the G20, could do something to mitigate the damage wrought by the current food crisis.  They could dissuade countries, like Russia, from banning food exports when there is a bad harvest.  Restricting food imports to keep domestic food prices artificially low only exacerbates the global food crisis.  But if recent experience is any guide, domestic concerns generally trump international concerns.  During the 2007-8, several nations, even relatively affluent countries, imposed export bans.  And that’s not likely to change in the current food crisis.

Truth is, when it comes to a global food crisis, there are not many good options. As Hafez Ghanem, the Assistant Director of the FAO, has concluded, “As long as the demand for food continues to rise faster than yield growth, markets will remain tight and prices will remain high and volatile.”

If Sarkozy and the leaders of the G-20 want to address the real problem, they should read a relatively unsung government report issued yesterday on the other side English Channel.   The report, which was issued by the U.K.’s top government think tank, raises profound questions about the longer-term food picture.  Here’s what it said:

The global food system will experience an unprecedented confluence of pressures over the next 40 years. On the demand side, global population size will increase from nearly seven billion today to eight billion by 2030, and probably to over nine billion by 2050; many people are likely to be wealthier, creating demand for a more varied, high-quality diet requiring additional resources to produce. On the production side, competition for land, water and energy will intensify, while the effects of climate change will become increasingly apparent. The need to reduce greenhouse gas emissions and adapt to a changing climate will become imperative. Over this period globalisation will continue, exposing the food system to novel economic and political pressures.  Any one of these pressures (‘drivers of change’) would present substantial challenges to food security; together they constitute a major threat that requires a strategic reappraisal of how the world is fed.

The study (Final Report of the Foresight Global Food and Farming Futures Project) also raised important questions about the sustainability of current food production practices and their impact on the global environment:

Without change, the global food system will continue to degrade the environment and compromise the world’s capacity to produce food in the future, as well as contributing to climate change and the destruction of biodiversity. There are widespread problems with soil loss due to erosion, loss of soil fertility, salination and other forms of degradation; rates of water extraction for irrigation are exceeding rates of replenishment in many places; over-fishing is a widespread concern; and there is heavy reliance on fossil fuel-derived energy for synthesis of nitrogen fertilisers and pesticides. In addition, food production systems frequently emit significant quantities of greenhouse gases and release other pollutants that accumulate in the environment.

The U.K.’s study warned that:

Unless the footprint of the food system on the environment is reduced, the capacity of the earth to produce food for humankind will be compromised with grave implications for future food security. Consideration of sustainability must be introduced to all sectors of the food system, from production to consumption, and in education, governance and research.

World leaders, including Sarkozy, are right to be concerned about the current food crisis.  The topic will certainly be addressed at the upcoming Davos World Economic Forum. With riots breaking out in half a dozen countries and food prices still rising, every effort must be made to ensure that food assistance is given to those most in need, particularly the world’s urban poor.  But the real challenge, the one that should have world leaders working overtime, is the longer term food challenge.  Unless more is done to boost sustainable food production in the developing world, eliminate food waste, reduce meat consumption, and expand voluntary family planning, the current food crisis may be a harbinger of far worst things to come.  And there’s nothing that Sarkozy and the G-20 can do about it.

Living on the Edge

January 19th, 2011

In reading Lester Brown’s  new book, World on the Edge: How to Prevent Environmental and Economic Collapse, I am reminded of how the late Congressman Mo Udall once described a small town in Arizona.  He said, “It’s not the end of the world, but you can see it from there.”

As he has done for years, Lester Brown presents a powerful and disturbing vision of where we are headed.   He warns that a looming food crisis—driven by climate change, population growth, rising meat consumption, water shortages and other factors– could prove the undoing of human civilization, and while we’re not there yet, you don’t have to look hard to see it coming.  

Brown, who heads up the Earth Policy Institute, sent his book to the publishers in October of 2010.   In that short period of time we have come a lot closer to the kind of devastating food crisis that Brown envisions in his book.  Since October of 2010:

  • Devastating floods have broken out in Australia, Brazil and Sri Lanka.
  • High temperatures and drought have severely damaged crops in many parts of South America.
  • Food prices have soared to a new record high according to a commodity food index published by the U.N.’s Food and Agricultural Organization, and the FAO has warned that another major food crisis could be on the horizon.
  • After the FAO’s announcement, the US Department of Agriculture revised its crop forecasts downward, sending wheat and corn prices still higher.
  • Major food riots have broken out Algeria and Tunisia and are now breaking out in other parts of North Africa and the Middle East.
  • In an effort to stave off a domestic food crisis, China has ramped up its purchases of soybeans and other food commodities.
  • Oil has surged to more than $90 a barrel, raising the costs of producing and transporting food.
  • Soaring demand for cotton and biofuels has displaced more food production.
  • Security analysts have warned that higher food prices could be very destabilizing for poor countries that are heavily dependent on food imports for survival.

No one is suggesting yet that the current food crisis will be the end of civilization as we know it.  It’s certainly not the end of the world.  But if you look really closely at the areas that have been devastated by floods and drought in the past year, and take a closer look at countries, like Tunisia, that have been thrown into political turmoil by higher food prices, you can almost see it.  It doesn’t take a lot of imagination.

Fortunately for us, the end of civilization is not inevitable.  As Lester Brown has been pointing out for years, there’s much that we can do to avert global catastrophe:  reforestation, water conservation, reducing our consumption of fossil fuels through higher taxes, keeping girls in school longer, and providing family planning and reproductive health services to the women who want them.  And the price tag is not enormous.  All we need, according to Brown, is an investment of about $200 billion a year.  In a world of trillon dollar bailouts that’s small change.

The problem, the one that Lester Brown has been struggling with for years, is that not enough people are listening and even fewer are willing to do what’s needed. 

In the meantime, we are all living on the edge, but none more so than the world’s urban poor who go hungry when the prices of basic staples–like corn, wheat, sugar and cooking oils–rise beyond their meager means.

Posted by Robert J. Walker, Executive Vice President

Another Food Fight?

January 10th, 2011

The FAO’s announcement last week that food prices have reached a new all-time high has renewed what Andrew Revkin at the New York Times calls the “eternal food fight.” In his blog he has set up a debate between Lester Brown of the Earth Policy Institute on one side and Vaclav Smil, a risk analyst at the University of Manitoba, on the other side. 

Brown insists that there is a long-term rising trend.  He notes that “Grain and soybean prices, and food prices more broadly, are moving up,” and concludes that, “There is not anything in sight to reverse this trend.” 

In response, Smil doesn’t contest that food prices are rising, but he insists that “Any food shortages are 95%+ a matter of poor or no governance, not any “extreme” climate and “gunwale inching.”   This, of course, is just a variation of the old “there’s plenty of food to go around” argument, which holds that we simply need to eliminate waste and improve governance to solve any “food crisis.”

Smil’s response reminds me what my Dad always said when I proposed some harebrained scheme. He would say, “Yes, when pigs fly.”  Of course, if you could reconfigure the DNA of pigs enough, I suspect that they could fly. But they don’t fly and they won’t fly, because it’s not in their DNA and won’t be, if ever, without millions of years of evolution.

Waste occurs in a free market economy because for many people, particularly those with high disposable incomes, the “marginal cost” of preventing waste is much higher than the cost of wasting food.  Higher food prices may discourage food waste, particularly among low-income households, but it has had little or no effect on the behavior of most American households.   And concerns about grain shortages notwithstanding, when incomes rise people tend to eat more meat. Similarly, we can look at tyrannical or badly managed governments, such as in Zimbabwe, and suggest that the food situation would improve with better governance, but Mugabe has been around a very long time, and he doesn’t seem inclined to leave anytime soon.

Looking decades ahead, is it really likely that “better governance” alone will overcome the impact of population growth, rising temperatures, intensified drought and flooding, increasing shortages of arable land, higher costs for fuel and fertilizer, and loss of topsoil?  Hardly. With a rising global middle class, is it likely that meat consumption will fall so that others might eat more grain?  Not likely. 

The simple truth is this:  when—for whatever reason–food prices for basic commodities go up 50 or 100 percent, people living in urban areas on less than a $1.25 a day are at the cruel mercy of food prices, and they must eat less.  All the wishing and theoretical constructs in the world will not help them in time.  They live in the real world, and so must we.  Sorry, Mr. Smil.  Get real.  Unless we do more to expand voluntary family planning, and invest far more heavily in agricultural development, tens of millions of people living in severe poverty may be battling malnutrition and potential starvation in the decades ahead.  There’s nothing wrong with “better governance” or reducing global meat consumption, but don’t bet the farm on it.  Pigs still don’t fly.

Posted by Robert J. Walker, Executive Vice President