Just as the surge in oil prices and the boost to petrol prices has brought forward all sorts of scary forecasts, the record prices for a host of foodstuffs is also bringing out the alarmists and doomsayers.
I suppose you could call some of them the “peak foodists” in honour of the “peak oil” believers who reckon we have found all the oil we can and it’s all downhill from now on. With a big international conference in Rome starting this week on food, we are going to be flooded with all sorts of dire predictions.
Take little notice of the extremists and understand that there will be enough food. The foodies ignore than 22% drop in world food prices from the peaks of February-April: rice, soybeans, corn, sugar (off 15% in May alone), wheat (down around 50%) and others have all seen prices ease.
That’s despite oil prices rising by more than 20% since February and over 39% for the year so far. Like the doomies on oil, the sky is falling, as we saw at the weekend with this forecast from news.com.au:
Australian food prices could double within a few years on the back of global shortages and soaring fuel prices.
The drought, a shortage of water and agricultural land, insatiable demand from China and India and a lack of investment in research have combined with high oil prices to create a grim future for Australian families.
Australia has had its worst rice crop in more than 80 years and rice, wheat and corn prices have more than doubled in the past two years as a result of the drought.
University of Technology Sydney science professor Julian Cribb said fuel was the main input to agriculture, serving farm machinery and producing fertiliser.
Australia also had the added problem of having to transport its food over vast distances.
“That’s all going to impact on the consumer at the supermarket checkout, so you could easily see food prices doubling in Australia over the next few years,” he said.
Well that might very well be the case, but it could also be the case that food prices remain high for the next decade, but don’t increase significantly from current levels, let alone double.
If food prices double in Australia, then they will increase for our exports: just like our energy exports, many doomies fail to understand that we are a net food exporter and a net energy exporter, so any move to record prices for commodities gives us a net boost to national incomes.
That boosts the value of the Australian dollar, which in turn trims the impact of our more expensive food and energy imports. But don’t take my word for an expectation that food costs, like oil and energy, won’t run out of control.
The Organisation for Economic Co-Operation and Development (OECD) late last week released the fourth annual Agricultural Outlook: over the next 10 years it sees a rise in food prices, compared to the 2007 forecast.
The nub of this year’s report is: agricultural commodity prices should ease from their recent record peaks but over the next 10 years they are expected to average well above the mean of the past decade. So, in effect, they will be high, but not at recent record levels, and there will be enough food because the only way for food prices to be moderated is by higher output.
“The way to address rising food prices is not through protectionism but to open up agricultural markets and to free up the productive capacity of farmers, who have proven repeatedly that they will respond to market incentives,” said OECD Secretary-General Angel Gurría at the Outlook’s launch in Paris on Friday. “Governments can also do more to foster growth and development in poor countries, so as to improve the purchasing power of the most vulnerable food buyers.”
In comparing averages of the coming decade with those of the past, real prices, (nominal prices corrected for inflation) are projected to increase in a range from less than 10% for rice and sugar, under 20% for wheat, around 30% for butter, coarse grains and oilseeds to over 50% for vegetable oils.
Prices may also become more volatile because of low world stocks and as some of the demand for agricultural commodities becomes less responsive to price changes climate change, too, may affect crop production and supply in unforeseen ways.
The report says that more permanent factors such as high oil prices, changing diets, urbanisation, economic growth and expanding populations, are also behind the expectation of higher average prices in the coming ten years than over the past decade.
And growing demand for biofuel is another factor contributing to higher prices. World fuel ethanol production tripled between 2000 and 2007 and is expected to double again between now and 2017 to reach 127 billion litres a year. Biodiesel production is seen to expand from 11 billion litres a year in 2007 to around 24 billion litres by 2017. The growth in biofuel production adds to demand for grains, oilseeds and sugar, so contributing to higher crop prices.
This is perhaps the biggest policy blunder in world agriculture, outside of course the European and US farm support programs which not only subsidise the production of foodstuffs that no longer need support, but allow valuable agricultural ground to go unused.