I recently had a meeting with a friend who was formerly the president of the New York Mercantile Exchange. In addition to his extensive commodities trading experience, his family has been in the food processing business for many decades. He proposed over lunch that the world was running out of food - that for the first time in decades there was no surplus food in the markets and that his family business was searching the world for surplus commodities (the basis of their business) where in the past they had
always operated off of U.S. excesses. His professional opinion was that prices of food would increase substantially (3 to 5 times) in the coming years, and then he proceeded to explain the underlying relationships that would drive that upward swing, a confluence that similarly came together in the early 70s.
It was only a matter of days after that conversation that I received the following confirming post from the Global Business Network, of which I am a member.
The End of Cheap Food
By Gwynne Dyer
The era of cheap food is over. The price of corn (maize) has doubled in a year, and wheat futures are at their highest in a decade. The food price index in India has risen 11 percent in one year, and in Mexico in January there were riots after the price of corn flour (used in making the staple food of the poor, tortillas) went up fourfold. Even in the developed countries food prices are going up, and they are not going to come down again.
Cheap food lasted for only fifty years. Before the Second World War most families in the developed countries spent a third or more of their income on food (as the poor majority in developing countries still do). But after the war a series of radical changes, from mechanization to the Green Revolution, raised agricultural productivity hugely and caused a long, steep fall in the real price of food. For the global middle class, it was the Good Old Days, with food taking only a tenth of their income.
It will probably be back up to a quarter within a decade, and it may go much higher than that, because we are entering a period when three separate factors are converging to drive food prices up. The first is simply demand.
Not only is the global population continuing to grow (about an extra Turkey or Vietnam every year), but as Asian economies race ahead more and more people in those populous countries are starting to eat significant amounts of meat.
Early this month, in its annual assessment of farming trends, the United Nations predicted that by 2016, less than ten years from now, people in the developing countries will be eating 30 percent more beef, 50 percent more pig meat and 25 percent more poultry. The animals will need a great deal of grain, and meeting that demand will require shifting huge amounts of grain-growing land from human to animal consumption -- so the price of grain and of meat will both go up.
The global poor don't care about the price of meat, because they can't afford it even now -- but if the price of grain goes up, some of them will starve. And maybe they won't have to wait until 2016, because the mania for "bio-fuels" is shifting huge amounts of land out of food production.
One-sixth of all the grain grown in the United States this year will be "industrial corn" destined to be converted into ethanol and burned in cars, and Europe, Brazil and China are all heading in the same direction.
The attraction of bio-fuels for politicians is obvious: they can claim that they are doing something useful to combat emissions and global warming (though the claims are deeply suspect), without actually demanding any sacrifices from business or the voters. The amount of US farmland devoted to bio-fuels grew by 48 percent in the last year alone, and hardly any new land was brought under the plough to replace the lost food production. In other big bio-fuel producers like China and Brazil it's the same straight switch from food to fuel. In fact, the food market and the energy market are becoming closely linked, which is very bad news for the poor.
As oil prices rise (and the rapid economic growth in Asia guarantees that they will), they pull up the price of bio-fuels as well, and it gets even more attractive for farmers to switch from food to fuel. Nor will politics save the day. As economist Lester Brown of the Earth Policy Institute told the US Congress last month: "The stage is now set for direct competition for grain between the 800 million people who own
automobiles, and the world's two billion poorest people." Guess who wins.
Soaring Asian demand and bio-fuels mean expensive food now and in the near future, but then it gets worse. Global warming hits crop yields, but only recently has anybody quantified how hard. The answer, published in "Environmental Research Letters" in March by Christopher Field of the Carnegie Institution in Stanford, California and David Lobell of Lawrence Livermore National Laboratory, is quite simple: for every 0.5C (0.9F) hotter, crop yields fall between three and five percent. So two degrees C hotter (3.6F), the lower end of the range of predicted temperature rise in this century, means a twelve to twenty percent fall in global food production.
This is science, of course, so that answer could be wrong -- but it could be wrong by being too conservative. Last year in New Delhi, I interviewed the director of a think tank who had just completed a contract to estimate the impact on Indian food production of a rise of just two degrees C in global
temperature. The answer, at least for India, was 25 percent. That would mean mass starvation, for if India were in that situation, every other major food-producing country would be too, and there would be no imports available at any price.
In the early stages of this process, higher food prices will help millions of farmers who have been scraping along on very poor returns for their effort because political power lies in the cities, but later
it gets uglier. The price of food relative to average income is heading for levels that have not been seen since the early 19th century, and it will not come down again in our lifetimes.
Gwynne Dyer, Ph.D., is a London-based independent journalist and GBN Network member whose articles are published in 45 countries.