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Wednesday, February 20, 2008

Global food crises looms as climate changes, fuel prices rise and economies boom

Thoughtless ethanol subsidies, rising consumption of meat products that accompany the growing incomes in emerging economies and climate change could herald the end of affordable food globally. For the world’s most vulnerable, especially in Africa, food could soon be prized out of reach.

In an unanticipated and unprecedented shift, the world food supply is dwindling rapidly and food prices are soaring to historic levels. The International Food Policy Research Institute (IFPRI) predicts that cereal prices will rise by between 10 % and 20 % by 2015. In 2007, developing countries collectively spent $50billion importing cereals, up 10% from 2006.

On the supply side, there is a shift away from grain production for human consumption to crops for biofuels. Maize grain is a primary feedstock for United States ethanol. In 2007, farmers in the United States produced an extra 30million tonnes of maize for ethanol to run automobiles. Mr. Bush has urged steep rises in ethanol as part of America’s efforts to reduce demand for fossil fuels by 20% by 2017.

The competition for grain between 800 million motorists around the world, who want to maintain their mobility, and its 2 billion poorest people, who are simply trying to survive, is emerging as an epic issue. To fill up an SUV’s fuel tank with ethanol requires as much maize as is needed to feed a person for a year.

Demand for grain is increasing with the world population, and more is diverted to feed cattle as the population of upwardly mobile meat-eaters grows in emerging economies. It takes about 8kg of grain to produce one of beef and three of pork. Farmers now feed between 200-250m tonnes more grain to their animals than they did 20 years ago.

The food crisis will be compounded by climate change and land degradation, especially in the developing world. According to the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report, yields from rain-fed agriculture could be reduced by up to 50% by 2020 in some African countries. IPCC further projects that by 2080, arid and semi-arid land will increase by 5-8% in Africa. This would adversely affect food production by reducing the acreage of arable land.

Nor less important, is the fact that high oil prices are likely to depress the use of oil-based fertilizers, which have been responsible for the increase in grain production during the past fifty years. Furthermore, higher oil prices will make transport more expensive, and at the same time make it more profitable to expand production of grain-ethanol and other biofuels.

High food prices present both a challenge and an opportunity. It will hurt the urban poor and the rural landless in developing countries. Soaring prices for basic foods are beginning to lead to political anxiety. High food prices are known to increase inflation. Governments often act by imposing price controls and export restraints.

In poor countries, food accounts for more than half of the consumer price index. There have been tension and political unrest related to food markets in a number of developing countries in the recent past; including Mexico, Morocco, Senegal and Mauritania.

High food prices have the potential to benefit agricultural communities in rural areas by increasing returns to their labour. In many poor rural areas, it will expand employment and boost earnings. If managed judiciously, high food prices have the potential to narrow the widening income inequality between urban and rural areas.

In Africa, big investments will be needed to rehabilitate and expand roads, railway lines and port facilities to deliver necessary inputs and provide access to commodity markets, both local and external. Bold policy reforms will be needed to remove the structural, institutional and capacity barriers that influence fertilizer demand and supply. Reforms will also be needed in the financial service sector to provide affordable credit to farmers.

In some African countries such as Kenya and Zimbabwe, painful agrarian reforms will be necessary to permit appropriate modernization of the agricultural sector to achieve even modest levels of efficiency and productivity.

Innovative policy and technical approaches will be needed for climate risk management. Properly established financial instruments will be needed to provide novel avenues to simultaneously protect the poor from climate risk while communicating risk through commodity prices.

But expanding food production in rural areas may come at a great cost and harm to the environment. For instance, new land in rural Africa will mean conversion of high-value conservation land such as forests, wetlands and savannas. In South America, soybean farmers and ranchers are encroaching on the Amazon, and palm oil plantations are continuing an alarming expansion across large swaths of virgin forests in Southeast Asia.

Higher food prices would make possible to reduce subsidies in the west, remove trade barriers, help revive the stalled Doha round of talks and boost world economy. Higher food prices have the potential to make the world richer and fairer. But will it?

The good news is that the use of grain-ethanol could decline in the medium to long-term. Similarly, the demand to expand biofuel production to agricultural land high-value conservation areas may not persist for long.

Recent research shows that next generation of biofuel crops, derived mainly from fast-growing grasses and trees, will be produced with little water or fertilizer on degraded soils, and may have far superior benefits to even the best sugarcane ethanol. This development is likely to reduce the volume of maize from the United States currently sold to make subsidized ethanol, with the long-term prospect stabilizing prices.

How countries cope, especially poor countries with large numbers of low income consumers will depend on innovations in the search of alternatives to fossil fuels, climate adaptation, agrarian reform and economic policies.

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