World Crisis in Food Prices: Green and Protectionism Causing World Hunger?

More people are undernourished today despite increases in world food production.

During 2007-2008, the world experienced a rapid rise in the price of crude oil that had a ripple effect on the world’s economy. It lead to a world crisis in food prices as food prices more than doubled in a year’s time. Expatriates living abroad began to feel the pinch as food prices rose. But the ones who were the most affected were the world’s poor. And oddly enough, it seems that many of the fundamental problems behind the crisis are being caused by the wealthier nations of the world – rather the poor ones.

According to the UN’s Food and Agriculture Organization, prior to the Food Price Crisis nearly 923 million people were undernourished on the face of this planet. Today, estimates are that over a billion people are now undernourished because of their inability to pay for the high cost of basic foods. Despite wonderful achievements in agricultural technology and increases in food production, the world seems to have moved backwards with regard to its ability to feed the poor.

Although prices have come down a bit since the worst in 2008, prices still remain much higher than they were in 2006. For example, in January 2006 the price of one metric ton of rice was $284 (USD). In May 2008, the price peaked at $1,009 (USD). This was a 255% increase in the price of rice in less than three years. For the world’s wealthy, it was an inconvenience. But for many the world’s poor, this cut deeply into their ability to purchase food and an increase in the number of undernourished people is the result.

Since the worst in 2008, prices have come  back down, but seem to have stabilized at around $600 (USD) per metric ton of rice. This still represents more than a 100% increase over prices in 2006 and a problem for the poorest people on earth who were already struggling at 2006 prices. This price increase was not just for rice but affected the prices for corn and wheat, spilled over into price increases for meats (beef, pork, lamb) and poultry, and more luxury items such as coffee, cocoa, and sugar whose prices are still climbing upwards.

The world’s poor does not only include only the typical starving and malnourished bodies that you will see on television shots of Africa. It includes nearly 40 million Americans who live below the poverty level. This translates into 18% of Americans under the age of 18 who live in poverty and nearly 10% of senior Americans (over the age 65) who live below the poverty level.
The World Bank and individual countries found themselves scrambling to avert major problems associated with the rise in food prices. In some countries, where actions were too slow, major public unrest and rioting broke out. In a valiant effort, the World Bank and other international agencies have brought several billion dollars in aid to try to avoid major social unrest and a deepening of the undernourishment problem. Individual countries have also sought solutions, but the fact remain the same that more people are undernourished today than three years ago.

Causes of the World Food Price Crisis

Energy Prices:

In 2007, the price of crude oil began a sharp upward climb, rising in price from $56/barrel to $133/barrel in July 2008. This sharp and rapid increase was one of the principal triggers for the rise in food prices in 2007-2008. Energy is widely used by the major food producing countries for farm machinery, fertilizers, pesticide, transportation, storage/refrigeration and processing of farm produce.

The price of corn more than doubled in less than 2 years.

However, by late 2008 the price of oil began to fall, dropping from the high of $133/barrel to about $65/barrel in July 2009. Although food prices declined somewhat, they have not followed the trend and have remained higher in price if oil prices were the only cause of the rise in world food prices. Clearly, in addition to the rising price of oil, there were other factors at work that affected world food prices.

Rising Demand for Agricultural Products:

Another major factor behind the rise in food prices has been the rising demand for agricultural products around the world. Although the typical image that many have, is of poor countries with rapid population growth causing the problems of hunger from overpopulation, most of the recent research suggests that the problem with the rising demand for food is coming from the wealthier nations.

Although hotly debated, a World Bank report suggests that the large increase in biofuels production in the United States and Europe is the primary cause of the world’s increase in food prices. As an environmental conscious America moved towards more use of ethanol in lieu of oil, American farm production has shifted production away from food to production for biofuels. The sad reality is that one tankful of biofuel for a typical SUV will require as much corn as a typical African will need for an entire year.

One tankful of gas for this vehicles requires an amount of corn that could help feed a person for an entire year.

At the same time, the countries in Asia that have demonstrated the most rapid industrial growth have begun to experience a shift in the dietary habits of their populations. Much of the shift has been away from basic grain foods towards more meat and poultry in their diets. The laws of energy dictate that for every pound of beef produced, nearly seven pounds of grain will be consumed. As a result, as the world’s middle class grows with an appetite for more meat and poultry, a greater proportion of the world’s grain supply will be diverted to other animals in the food chain.

Protectionist Trade Policies:

What seems to have made the problem worse has been protectionist policies that have distorted the biofuel market by subsidizing the production of biofuels. As a result American farmers have shifted to the production of corn for fuel rather than for food. How big is this shift? Today, more than a quarter of corn production is for biofuels rather than food. At the same time, the US and Europe use of tariffs to block biofuels from countries like Brazil derived from sugar cane and helped to artificially raise food prices.

Similar trade policies require Japan to import almost 800,000 tons of rice from the US and other countries. As a result Japan actually produces a surplus of rice each year, that it cannot export to other countries. So while mouths were going hungry in parts of Asia and Africa, Japan had to sit on a large rice surplus.

More radical theorists go as far to say that the wealthier countries with modern agricultural technologies coupled with subsidized agriculture have also imposed on the world more liberal trade policies that have actually caused small farmers in developing countries to be unable to produce food profitably. As a result, developing nations become increasingly dependent on wealthy nations for “artificially cheap” imported food, lose their ability to be self-sufficient in food production, and increase their vulnerability to sharp fluctuations in world food prices.

Part of the problem of poverty in developing countries then may be that small farmers are being forced out of business by world trade policies designed to encourage “free trade” in a world market that has major price distortions caused by wealthier countries subsidizing their own food production. As world food prices rose, these countries were unable to increase their own domestic food production because of a dependence on foreign imported food from the wealthier countries like the USA.

As the world food crisis deepened, some countries that traditionally exported food also began to block the export of foods overseas to protect their own domestic markets, which contributed to shortages and rising prices on the world market.

The World Crisis in Food Prices: Summary

It seems that the 2007-2008 World Crisis in Food Prices was triggered by a sharp rise in oil prices. Since then the price of oil has come back down, and although the price of many food commodities have also come down, they have not declined as much as the price of oil.

It appears that food prices remain high (in comparison to 2006 food prices) in part because an increased demand for biofuels and changes in the diets of wealthier countries. The problem seems to be further magnified by various protectionist types of trade practices that create artificial shortages, inflate food prices, and discourage domestic food production in poor countries.

In the mid-1900’s it was quite common to blame world hunger on overpopulation and rapid population growth in the developing countries of the world. Today, we see a slightly different picture. Despite increases in food production that exceed population growth rates, the world is also seeing an increase in the number of people going hungry.

This is not limited to the Third World. The problem exists in America as well among the 40 million Americans who live in poverty. It is a reality for many seniors who retire on small pensions as well as the poor in developing countries. And it is another reality that it seems that the domestic policies and trade practices of the wealthier nations may actually be making the problem worse.

It may be time for our political leaders to put aside the rhetoric, finger pointing and name calling and to seriously analyze problems and seek solutions for a better world rather than to continue to pursue their narrow political self-interests and learning how to lead rather than spending most of their time trying to get re-elected.

(Photos by: M. Mayerle and Outreguin)

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