Even small price rises can hit the poor hard
The world economy has many problems but none more pressing than what is happening to food prices.
There have been food riots in Haiti, the Philippines, Ethiopia, Indonesia and several other nations.
Twenty thousand desperate textile workers in Bangladesh went on a rampage, giving rise to fears of wider instability, since the garment industry accounts for three-fourths of the country's exports.
Global food prices have been rising over the last three years; but in the last few months they have spiralled out of control.
Over the last 12 months the average price of food has risen by 56%, with wheat rising by 92% and rice, the staple of half the world, by 96%.
This has given rise to the spectre of famine; and the crisis is being made worse through misdiagnosis.
Some commentators have remarked how this is all a matter of supply and demand and if governments do not interfere in trade, the price rise will bring a supply response, which will cause prices to level out.
If the state can bail out Bear Stearns, it surely can help poor consumers stave off famine
Sure, demand and supply play a role, but there is much more to the current crisis. Understanding this is not easy since we have not seen a food-price surge like this in 30 years.
There is no doubt that demand for food is rising as the world's population increases and there is new prosperity in India and China. Moreover, as people switch to greater meat consumption this causes greater demand for grain, since rearing cattle and poultry is a particularly grain-intensive activity.
There is also the increase in the production of biofuels in industrialized nations. This has caused over 20% of corn and rapeseed production in developed countries to be diverted away from food.
But all these changes have occurred over a long time and cannot explain the price spiral of the last few months.
Egyptian police prepare for trouble at a protest against food inflation
A more proximate cause is the severe drought in Australia and shortfall in the production of staples in Ukraine and Kazakhstan. These are, however, not big enough to explain the large inflation.
To understand the latter we have to analyse how these small triggers have caused speculative moves and given rise to a complex brew of corrective measures.
India, Argentina and other food-exporting nations have, in response to global inflation and in order to protect their own consumers, imposed restrictions on exports.
This is an understandable move, but it exacerbates inflation in food-importing countries.
Moreover, the policy of holding prices down for the benefit of consumers can dampen farmer incentives. In Pakistan this year farmers have used about 600,000 tonnes of fertiliser, which is a drop of about 50% from earlier levels. This is bound to mean less on wheat production.
In thinking about global policy, we have to distinguish between the short and the long run.
Bangladeshis gather for subsidised rice
In the immediate scenario there is no escape from massive government and international agency intervention in the form of aid from rich nations and subsidies to at-risk consumers.
If the state can bail out Bear Stearns, it surely can help poor consumers stave off famine.
Many economists will tell you that the ideal intervention to help the poor is to simply give them money (a negative income tax) - that shores up their income - rather than directly controlling prices. In general, this is correct advice; but not in this case.
Suppose we collect $1000 from the rich and hand this out to the poor. Since the rich spend a tiny fraction of their money on food and the poor a large fraction, this transfer will cause food prices to rise.
In general, this would not matter since the price was being driven up by the greater purchasing power of the poor. But in the present precarious situation, the risk is that if the negative income tax does not reach all the poor, then the ones who are left out will see their position deteriorating as prices rise further.
In the Bangladesh famine of 1974, it was the government's success in protecting the urban poor from food shortages that exacerbated the problems of the rural population.
Therefore, in a crisis like the present one, there is no escape from holding consumer prices down. Ideally, we should drive a wedge between the price that producers get and the price that consumers pay.
None of this can be a long-run policy, since it will cause food production to decline and governments to go bankrupt. Long-run policy has to be more market-oriented, creating incentives for producers to increase output and boosting the incomes of the poor.
Relative price fluctuations are an unavoidable part of an efficient economy. This becomes worrying when some people are so poor that a small rise in price becomes a life and death question for them.
This crisis therefore should also be a reminder that the level of inequality that prevails in the world today is untenable.
Send your views in the form below this selection of comments.
You mentioned about rise in food prices as a result of lower production level in the food industry - due to unforeseen natural calamities...etc. That is fair.
But what about food waste? How many of us waste food - look at the USA and how much food they throw away in the bin? Look at restaurants in the UK, supermarket, many households - when some food have reached their sell by date, they are thrown out. WHile this is safe to do, is it the right thing? Have food reaching their expiry date completely gone bad? WHy do the supermarkets not have better control over comestible expiries? Are people educated enough to know that some food that have reached expiry date could still be eaten but need to be checked first?
Kevin Leung, UK
Do you want to feed the hungry and clothe the naked?
Alfred Cioffi, USA
the world now is over populated and the poor are themselves to blame.refusing to control the size of their families cause hunger to their children.the world can no longer support the growth that is at breakneck speed.who will help them if they donot want to help themselves.how can one give if one has not enough for oneself?act now or you will regret.
stephen wang, guinea ecuatorial
Isn't the main problem of everything today stemming from overpopulation? A simple solution would be to have decreased birth rates for many years in a row. This would open up niches and jobs for many people. Consumption of resources would go down, etc. Point and case: too many people on the planet, from an ecological perspective.
Dante, United States
Yes well it seems rather futile to keep feeding a world that continues to breed past beyond it's own resources. The West sends more food, they keep breeding and asking for more food. Start with controlling populations or else this is just going to get worse as our species swells!
Perhaps we should look for the root causes behind the problems we are facing. One is simply overpopulation. The other is too many cars. Divert food for fuel? How crazy can we get?
Mario Kossatz, Brazil
If everyone cut out or down on meat consumption we wouldn't have this problem.
Jason Lalonde, Canada
There is enough food for everyone in the world, the issue that needs to be solved is distribution/transportation and storage, as well as reduction in the waste of food of course.
christine chardonnens, switzerland
Global food crisis hinges on the absence of peace and stability across the world. Political conflicts and instabilities paralyse agricultural production as well as other economic activities. People are always running up and down to save their lives from the venomous fangs of insecurity. We should not forget the hauntintg reality so far prevailing in middle East, DR Congo, Sudan, Somalia and Ethiopia etc. Every human mind knows that peace is an important ingredient of sustainable development. So world leaders should bring their heads under one thinking to bring peace and solve food crisis.
Rugaba Benon, Uganda
this article is very fine. it show the picture of food crisis of indian sub continent. indian govermant should take some major steps in this matter. the crisis is not only in india but it is around the world. the population of our planet increasing every minute in lakhs but we limited place for living.
i think all developed and developing together fight for this cause.
kamal verna, india
The food crisis also underlies the problem of developing countries fail to balance between industrialisation and the development of farming techniques. The current farming techniques practised by farmers in developing countries has not evolved much over the generations. These inefficient techniques cannot keep the output up with the global population growth, and further cripples the global output with increasing number of farmers in developing worlds shifting away from the low return farming and joining the higher paid manufacturing industry.
Zita Yu, Hong Kong
Excellent write up. The author has properly diagonosed the crisis.The surplus food producing countries under Un initiative must provide iimmediate food support to crisis prone countries to avert probable famine.Wonder how India which is also in some c short of food crisis is spending huge money for twenty twenty cricket carnage. Cricket must divert some earnioings for millions of hungery Indians.
No more cultivable land in troubled countries may be utilised for crops to produce bio fuels.The world must divert major attention for oil production from algae.We must also try to restrict continued price rise of oil. This is also indirectly affecting food production and transportation.
Saleque Sufi, Australia
When we read that 27,000 people a day are starving to death, it really puts our western problems into perspective.
I hope politicians in the UK and overseas will start to take real action to resolve this crisis, rather than just applying another sticking plaster.
Mark Downing, United Kingdom
Your article states that in the long term governments need to create "incentives for producers to increase output". Do you really think we can go on increasing output indefinately?
In another article you report how in the Punjab the so called "Green revolution" was short term - farmers are now needing more pesticides and fertiliser, and still their land is yielding less. In addition the increased use of pesticides seems to be causing cancer.
It seems that in the long term we need to be concerntrating on making the best use of limited resources. This includes reducing our consumption of meat and our dependancy on comercial oil-based fertilisers.
It is naive to say that increasing output can solve this crisis. With global warming, the growing realisation that oil is running out, increased affluence in developing nations and an ever-increasing global population, encouraging this sort of thinking will not improve matters.
We need to change the way we view the earth and its resources, because we are uterly dependent on them, and we cannot continue to expect more and more.
Hazel Brickhill, UK
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