Wednesday, February 16, 2011

NYT's Room for Debate: The Uncut Version on Why we have High Food Prices

This blogger is proud to have been invited to participate in the NYT's opinion feature "Room for Debate." It was interesting that I was the only female in the group of seven and I was humbled to be in the company of the world expert, David Dawe, of the United Nations whom I highly regard. The question posed to us invited to the forum was "What is driving high food prices and is Krugman right about climate change causing food shortages?" The challenge in answering this was putting it into 300 words.

They titled my submission "Corn's Domino Effect." Here are the NYTs links:
When I sat down and composed my original answer it was far too lengthy. Below, is the original version which was greatly revised during the cutting process. The final version focused on corn supplies, while the one below is a more comprehensive overview.

And one more thing. Since the NYTs required my real name, I will from now on be using Kay McDonald instead of Kalpa. This is somewhat sad to me, as my chosen internet name has been Kalpa for six years. This marks the end of that era.

High food prices are caused by government policies, supply and demand, rising energy prices, speculation, unsustainable population growth, the USD's value, and inflation rates which vary by nation.

Current annual food inflation rates are nearly 10% in China, 18% in India, 17% in Egypt, 18% in Iran, 8% in Saudi Arabia, 15% in Vietnam, 16% in Indonesia, and over 10% in South Korea, to name a few. These rates result from overall growth rates and currency strength (or weakness) of these individual nations as well as national policies which affect food prices.

Prices are not as high for the food staples most important for human consumption as they were in 2008. The important human food staples are rice, wheat, and corn. In the 2007/08 food price crisis, rice and wheat supplies became dangerously low and their prices surged. This time around, the foods which have caused the FAO food price index to rise are primarily sugar, corn, and oils.

Rice, the most important food for 50% of the world's population is in ample supply. Wheat stocks are near a ten-year average level.

Annual weather conditions determine grain production. Some geographies are normally more vulnerable to droughts or floods. For example the Russian and Ukraine region which had a third of their wheat crop fail last summer due to drought is a geographically risky area which experiences droughts two out of every five years, on average. Climate change may exacerbate problems in some areas, but it may increase grain production in other areas. It is too early to know how agricultural production will be affected by climate change as there are a multitude of factors involved.

Energy costs of diesel, fertilizer, pesticides, equipment, processing, manufacturing, refrigeration, storage, transport and infrastructure costs are embedded in our modern agricultural system. While our industrial system of grain production is extremely efficient and uses machinery over labor inputs, it is dependent upon fossil fuels every step of the way. While the world's many subsistence farmers are less affected by this, they are affected by the total output of global grain production and the humanitarian aid programs.

Government policies are extremely important in determining agricultural output, choice of crops, and global prices. Corn burning for ethanol while using coal and natural gas to distill the product is a political policy under a faux guise of "green" to support corn prices. This policy is currently a driver of global high food prices since productive corn acres are not being used to produce food. Furthermore, corn is chosen as a crop over wheat and soy. High corn prices cause higher meat, dairy, wheat, and soy prices for consumers.

The corn ethanol policy is currently a driver of global high food prices. More than 15% of global corn production and a total of 35 million acres are devoted to U.S. ethanol. In response to Krugman's blaming the Russian wheat failure for high food prices, to help put this into perspective, the global wheat production was reduced by 34 million tonnes in 2010 due to less planting and weather failures. This compares to the U.S. using 125 million tonnes of corn a year to make ethanol. The U.S. is the largest exporter of corn, but we use twice as much corn to produce ethanol as we use it for food export.

The global agricultural landscape is also being changed because of large productive areas throughout the world becoming owned and operated by large corporations, sovereign nations seeking food security, and many investor vehicles. This has the potential to increase production through industrial farming methods.

It is too early to know whether we will have low stocks of rice, wheat, corn, and other food staples a year from now since one cannot accurately predict weather, policy decisions, or macro economic conditions. The USDA has predicted that high food commodity prices are here to stay throughout the coming decade.

Two of my top concerns facing agriculture are 1) higher energy and input costs for the producers and 2) the need for government policy program choices showing smart foresight in planning to meet the challenges of future agricultural production. In working towards the goal of future global food security, policy-makers must start promoting farming methods that use fewer fossil fuel inputs. Those who think that vegetarianism is the answer need to understand the science of the natural world's symbiotic relationship between plants, soils and animals.

If the only question ever asked is "how can we increase production to meet the Earth's growing population?" then, we will fail. If we ask the question how can we promote food security at the same time we farm using sustainable practices, encourage family planning, and reduce fossil fuel use in agriculture, then we will have a better chance for a secure future. I'm optimistic that the surprises that lie ahead in feeding the world are not all bad ones.

Kay McDonald