During
the eighteen months after January 2007, cereal prices doubled, setting
off a world food crisis. In the United States, rising food prices have
been a pocketbook annoyance. Most Americans can opt to buy lower-priced
sources of calories and proteins and eat out less frequently. But for
nearly half of the world’s population—the 2.5 billion people who live
on less than $2 per day—rising costs mean fewer meals, smaller
portions, stunted children, and higher infant mortality rates. The
price explosion has produced, in short, a crisis of food security,
defined by the Food and Agriculture Organization (FAO) as the physical
and economic access to the food necessary for a healthy and productive
life. And it has meant a sharp setback to decades-long efforts to reduce poverty in poor countries.
What we are witnessing is not a natural disaster—a silent tsunami or a perfect storm. . . . [The food crisis] is a man-made catastrophe, and as such must be fixed by people.
-Robert Zoellick, The World Bank (July 1, 2008)
The
current situation is quite unlike the food crises of 1966 and 1973. It
is not the result of a significant drop in food supply caused by bad
weather, pests, or policy changes in the former Soviet Union. Rather,
it is fundamentally a demand-driven story of “success.” Rising incomes,
especially in China, India, Indonesia, and Brazil, have increased
demand for diversified diets that include more meat and vegetable oils.
Against this background of growing income and demand, increased global
consumption of biofuels and the American and European quest for energy
self-sufficiency have added further strains to the agricultural system.
At the same time, neglected investments in productivity-improving
agricultural technology—along with a weak U.S. dollar, excessive
speculation, and misguided government policies in both developed and
developing countries—have exacerbated the situation. Climate change
also looms ominously over the entire global food system.
In
short, an array of agricultural, economic, and political connections
among commodities and across nations are now working together to the
detriment of the world’s food-insecure people.
* * *
Cereals
form the core of the global food system. In 2007 the world produced a
record 2,100 million metric tons of grain. Most of these cereals were
consumed in the countries in which they were produced. Some 260 million
metric tons, or about 15 percent of production, were traded
internationally. Food aid was about 6 million metric tons, about 0.3
percent of production. Although only 15 percent of production is traded
in global markets, conditions in those markets have a large direct and
indirect impact on cereal prices and demand in every country.
A world with oil at $125 per barrel, gasoline at $4 per gallon, and corn at $6 per bushel seemed unthinkable five years ago.
World
grain production was exceptionally strong in 2007, and had actually
grown in five of the eight years prior to 2007. Despite this success,
demand exceeded supply in six of those years. This excess demand was
met by drawing down global reserves. When, in 2007, the
reserve-to-usage ratio dropped to a near-historic low, buyers and
sellers reacted in ways that rapidly pushed up prices. Nonetheless, the
current crisis of food security is not a result of some absolute shortage of basic staples. If all the cereals grown in 2007 had magically been spread equally among earth’s 6.6 billion persons and used directly as food, there
would have been no crisis. Cereals alone could have supplied everyone
with the required amounts of calories and proteins, with about 30
percent left over. (Children would have also needed some concentrated
calories and proteins, because of the bulkiness of cereals and their
inability to consume sufficient quantities of them.)
Of
course, food is not distributed evenly across the globe. Average income
levels as well as income inequalities vary by country and are major
determinants of access to food. And because cereals and oilseeds can be
used in multiple ways, not only for food, competition for these
commodities spans many different firms and households. These pressures
on supply and price are powerfully exemplified by the case of corn,
whose price dramatically affects the broader structure of global food
markets.
Corn is quintessentially American. It is the
country’s largest crop in terms of area: in 2007, 94 million acres
produced a record 330 million metric tons of grain. How is it possible
that a record U.S. corn crop was centrally involved with the current
high food prices? The answer lies mostly in corn’s versatility. It
provides about half of the 18 million metric tons of sweeteners that
Americans consume annually, much of it in the ninety-six gallons of
beer and soda they drink per capita. Some 46 percent of the crop went
to feed livestock to produce the 270 pounds of pork, poultry, and beef
the average American consumed in 2007, and about 19 percent went for
exports. Ethanol, which had taken only a tiny fraction of corn output a
few years earlier, took a full 25 percent.
A world with
oil at $125 per barrel, gasoline at $4 per gallon, and corn at $6 per
bushel (fifty-six pounds) seemed unthinkable five years ago. A new
constellation of market forces has drastically altered price levels and
the correlations among them. In particular, the enormous growth in the
use of corn for fuel now links corn and gasoline prices in profoundly
important ways.
The current corn-petroleum price
connections in the United States arguably can be traced to the 2005
environmental regulations to eliminate methyl tertiary butyl ether
(MTBE) as a gasoline additive because of environmental and health
risks. Corn-based ethanol has since become the preferred additive,
offering the same octane ratings and beneficial properties as MTBE.
Ethanol is typically used in the form of a 10/90 mixture with gasoline,
and consumers pay for this ethanol as they fill their cars with fuel at
the pump. As gas prices rise, so does the potential value of corn
ethanol. Most of the ethanol now produced—some 6.5 billion gallons from
the 139 plants in operation in 2007—was used as an oxygenate for the
142 billion gallons of fuel used by Americans last year.
China
imported an incredible 34 million metric tons of soybeans for its pigs,
poultry, and farmed-fish sectors and also its expanding urban
population.
The sudden burst in demand explains the
rapid increase in the portion of the corn crop being used for fuel.
That demand might be expected to level off, as the market for additives
will largely be supplied by 2009. But the United States is now poised
on the brink of a second phase of ethanol use.
Ethanol can
also be used in place of gasoline, even though it provides only about
two-thirds the energy of gasoline on a volume basis. In other words,
rational consumers would pay about 65 percent of the price of gasoline
for their ethanol, since their cars would go about 65 percent as far on
a tank of fuel. Because ethanol must be shipped and stored separately,
only with substantial new infrastructure could ethanol be a large-scale
choice for fuel. And cars would require so-called “flex” technology to
use fuel containing high percentages of ethanol.
Whether
more than 25 percent of the corn crop is used for fuel in the future is
critically dependent on the price of oil and also on the politics of
biofuels. The latter include mandatory minimum levels of ethanol
production and the explicit and implicit subsidies contained in various
pieces of agricultural and energy legislation. Senators McCain and
Obama both expressed strong support for ethanol in the politically
important Iowa caucuses.
The ethanol-production mandate
for 2008 is 9 billion gallons. That number will grow to 15 billion
gallons in 2015 and 36 billion (total renewables) in 2022. Rescinding
these increased mandates would likely stabilize demand for corn-based
ethanol. (High enough oil prices, coupled with low enough corn prices
could, of course, make ethanol economical even at 65 percent of the
efficiency of gasoline.) But if the higher mandates are indeed imposed,
then an increasing portion of the U.S. corn crop will be fed to cars,
rather than to animals or people. Consumers of corn tortillas in poor
countries will find themselves increasingly in competition with S.U.V.
owners in rich countries. At the margins that matter, corn prices would
be linked to gasoline prices, and the entire price structure for
cereals would adjust accordingly.
In
addition to mandates, current legislation also provides for credits
(subsidy) of $0.51 per gallon to blenders and a $0.54 per gallon tax on
imported ethanol plus a 2.5 percent additional duty on its value. Thus,
in the United States, the economics of ethanol are fundamentally linked
to specific legislative provisions. And what Congress has given,
Congress can also take away.
Whether the mandates should
be waived, the tariff on imported ethanol dropped, and the blender
credits modified are all matters of intense debate. Corn farmers and
investors in some 200 bio-refineries (on-line or under construction)
are pushing for higher mandates; others believe that corn-based
ethanol, however well-intended, is the wrong way to promote U.S. energy
independence because of ethanol’s effect on food prices. The stakes are
huge. The United States is by far the largest corn exporter in the
world. Further reductions in exports resulting from greater ethanol use
would greatly amplify price instability in corn and other global food
markets.
Many technical experts have argued that corn is
not the appropriatecommodity for use in biofuels. However,
industrial-scale production from sources other than corn (and sugar) is
as yet unproven. Although the chemistry for alternative feedstocks has
been developed, credit-worthy business plans, including supply chains,
have not. Proponents of other crops tend to overlook the extensive
experience the corn industry has had with enzyme technologies that
derive from its twenty-five-year history making corn sweeteners. As a
consequence, and for better or worse, larger biofuel mandates mean a
corn-dominated ethanol industry for at least the next five years,
accompanied by the inevitable price pressures on food.
Very
poor consumers in low-income countries rarely consume meat of any sort,
and for them [cereal] cutbacks may be an encouraging sign: their best
hope is more grain available on world markets.
An
additional oil-corn connection is also important for farmers. The high
oil prices that help drive the demand for biofuels also raise the
energy costs of growing corn. Corn prices that have risen from less
than $3 per bushel in 2005 to over $7 per bushel in 2008 have been a
boon to farmers. Yet farmers (sometimes on their way to the bank!) are
quick to point out that high oil prices are strongly and negatively
affecting their businesses. Iowa State University maintains farm
records that indicate the total cost for growing an acre of corn was
$450 in 2005. By 2008, these costs had risen to more than $600 per
acre. Seed and chemical costs have accelerated sharply and now
constitute some 45 percent of total costs, including land-rental
charges. Nonetheless, with rising yields and corn prices that have more
than doubled, corn-based farm enterprises seem clearly better off in
2008 than in 2005.
Ethanol, then, is the beginning of the
corn story, but far from the end of it. Corn’s other linkages to
soybeans, wheat, and meat illustrate why it is the keystone in the food
system. Midwestern farmers produced the record corn crop in 2007 in
anticipation of high prices. But the focus on corn implied a series of
acreage decisions that reverberated around the world. The more than
15-million-acre increase in corn planting came mainly at the expense of
soybeans, which saw a decline of twelve million acres, or 16 percent of
total soybean acreage. The United States consequently played a reduced
role as a soybean exporter. Brazil, another major exporter, picked up
some of the slack. Nonetheless the world’s production of soybeans
declined in 2007 while three of the four largest countries in the
world—China, India, and Indonesia—registered very strong economic
growth. China imported an incredible 34 million metric tons of soybeans
(45 percent of total world trade), which it used to produce soybean
meal for some of its 600 million pigs and its large and rapidly growing
poultry and farmed-fish sectors and also vegetable oil for its
expanding urban population. In India and Indonesia, oilseed demand was
driven less by livestock-feed requirements and much more by human
demand for vegetable oils. India, for example, is one of the world’s
largest users and importers of cooking oils.
The
tightened supply of vegetable oils and the accelerated Asian demand for
oilseed crops—soybeans, rapeseed, and palm oil—explain some of the
price increases. For example, during the period July 2006 to June 2008,
oil palm prices tripled. But as with corn, the use of oilseed crops in
the production of fuel—about 7 percent of global vegetable oil
production went to biodiesel—was another significant factor. Most of
the latter was driven by biodiesel policies in Europe, using rapeseed
(canola) as the main feedstock.
Prospects for lowered
vegetable oil prices in the short run, like those for corn, are not
obvious. U.S. farmers rebalanced their plantings in 2008, in part
because of a late spring and in part because soybean prices had risen
to $13 per bushel, making it again an economically attractive crop for
farmers. Brazil continues to expand soybean acreage in several states
as well, but, interestingly, the most likely sources of greatly
increased vegetable oil supplies will come from Indonesia and Malaysia.
Palm oil has long been among the cheapest sources of vegetable oil, and
Indonesia has been planning a major expansion of area devoted to oil
palm production. This expansion is complicated, however, by the
potentially high environmental costs of clearing tropical forests, and
because palm trees take up to three years before they yield economical
harvests. Indonesia had originally planned the oil-palm expansion for
biodiesel production for European and domestic fleets; however, the
food value of vegetable oils has been so high that it does not pay to
make biodiesel. So the expansion goes forward, but with food in mind
more than fuel. As a consequence, supply/demand balances for oil palm
may change appreciably in five years, although it is not at all clear
that near-term supplies of vegetable oil can be accelerated very much.
In
addition to fuel and oils, wheat prices, which went off the charts in
2008, are closely tied to the corn economy. Corn and wheat are both
used by the animal-feed industry, and, in some years, one quarter of
the wheat crop is fed directly to animals. As the cost of using corn
for feed rose in 2007, producers of livestock products looked to other
grains. Since the feed value of wheat is slightly higher than that of
corn, it is not surprising that their prices initially moved in tandem
as livestock producers moved among markets to find the cheapest rations
for their animals.
The wheat market has several
distinguishing features. For example, soft wheat is used primarily for
pastries (and feed), whereas hard wheat is preferred for bread. In the
United States, the market for hard-red spring wheat was especially
volatile. Prices doubled between February 2007 and February 2008,
although new supplies from this year’s harvest have begun to ease
prices.
Wheat contributes less than 10 percent of the cost
of a typical loaf of bread in the United States. Nevertheless, its
sharp price increase triggered broad increases in the prices of baked
goods to cover the rising costs of raw materials, packaging, and
distribution. For poor consumers in developing countries who get many
of their calories from wheat products, the rising prices of bread,
wheat tortillas, chapatis, and naan had immediate and profound
nutritional consequences.
Two other disruptive forces were
at work on the wheat crop overseas. The continuing drought in
Australia, a major wheat-exporting country, was one of the few
instances of supply failure in 2007. Exports from Australia fell by
half, and since Australia traditionally supplies about 15 percent of
global wheat exports, the drop added to rising bread prices around the
world.
Second, one of the most ominous issues for the
longer-run is the outbreak of a new wheat rust, Ug99. As the name
suggests, this rust was discovered in Uganda in 1999, and its spores
then spread by wind into North Africa and the Middle East. The rust has
serious consequences for wheat yields. While actual losses to date have
been rather small, future losses could be immense. Virtually none of
the world’s wheat varieties are resistant to the rust. Especially
worrisome is its spread into South Asia where tens of millions of poor
people depend directly on wheat for the bulk of their calories. The
perception of a Ug99 threat has already had significant food-policy
consequences in India (a point we return to later).
Finally,
livestock products are part of this story about connections among
commodities. In part, they help to push prices up. The growing pork
sector in China, for example, exerted substantial upward pressures on
world soybean markets. Most livestock producers in the United States
and Europe, however, struggled to accommodate high-priced corn and
other feeds. (One important exception took the form of distillers
grains, a co-product of ethanol production. This residual is high in
protein, and, if hauled in “wet” form directly from plants to dairies
and feedlots, it provides cost advantages significant enough to
transform feed rations, and potentially, to alter the geography of beef
feedlots in the United States.)
In developed nations such
as the United States, shrinking margins on livestock production are
creating cutbacks. For example cattle have long gestation and
maturation periods, and many cowherds are now being culled. Available
meat on the market will increase in the short run, but a smaller supply
of meat will eventually push prices up. Such price hikes will be felt
mainly by middle- to upper-income households. Very poor consumers in
low-income countries rarely consume meat of any sort, and for them the
cutbacks may be an encouraging sign: their best hope is more grain
available on world markets, rather than used as livestock feed or fuel
in rich countries.
Governments that cannot provide their constituents food at affordable prices are often overthrown.
Much
more could (and should) be said about individual commodities and about
how recent macroeconomic trends have influenced the structures of
markets. The expanded role of large hedge funds in commodity markets
has increased price volatility for agricultural goods such as corn and
wheat. For example, the number of corn contracts traded on the Chicago
exchange has grown from 1 million in January 2002 to nearly 6 million
in January 2008, leading some observers to conclude that there has been
excessive financial speculation in these markets. The dollar has also
depreciated rapidly during the past several years, virtually mirroring
the rise in the price of oil. The dollar/euro price ratio is now only
about 55 percent of what it was in 2000. If all commodity prices were
quoted in euros, the price rises we have witnessed over the last two
years would have been less steep. This obvious but important point
underscores the central role that exchange rates play in both the
world-food and oil economies.
* * *
The story
thus far has focused on commodities and their market connections. But
food is much more than an economic commodity. It is also a political
commodity and the foundation for human survival. Governments that
cannot provide their constituents food at affordable prices are often
overthrown. And for those that remain in power during times of high
prices, particularly in poor countries, the challenge of feeding a
growing hungry population looms. Food riots, politics, and new policies
have all been on the forefront of the current crisis. As of April 2008,
eighteen countries had reported food riots, from Bangladesh to Egypt,
Haiti to Mexico, Uzbekistan to Senegal. About the same number of
countries, including India, Argentina, and Vietnam, erected trade
barriers on food to protect their domestic constituents.
Governments
have reacted to the crisis in different ways, and these policy
responses can have far-reaching effects in the world food economy.
India, in particular, played a pivotal role in shaping the current
crisis when its national food authority placed restrictions on staple
cereal exports in October 2007. Higher prices in the international
wheat market, coupled with the escalating threat of Ug99 and poor
weather conditions within India’s main cereal producing regions,
triggered the new policy. Faced with less domestic wheat for public
distribution and costly wheat imports, the government moved to
guarantee supplies of its other main staple crop, rice, for its
constituency. Bans were placed on exports of non-basmati varieties of
rice, wheat, and wheat flour, and wheat imports were restricted for
disease control. The move was geared in part to electoral politics—the
upcoming 2009 elections—yet it had echoes, linking rice to the
seemingly disconnected biofuels sector in the global commodity market.
Rice
has historically carried great political weight in Asia. Unlike wheat
and corn, which are much more freely traded in international markets,
rice is consumed largely in countries where it is produced, and is
exchanged to a great extent through government-to-government contracts.
Although private sector investment and trade have expanded in recent
decades, rice trade accounts for only 6 to 7 percent of total
production, and Asian governments continue to keep a close eye on
prices and availability for the sake of political stability.
Given
India’s role as the world’s second largest rice exporter—in recent
years supplying about five million metric tons or one-sixth of the
world market—its export ban sent a shock to the system. The
international rice price immediately jumped from about $300 to $400 per
ton for standard grade rice and continued to soar to unprecedented
levels as other countries reacted to the change. Shortly after India
placed restrictions on rice exports, Vietnam, China, Cambodia,
Indonesia, and Egypt followed suit. Meanwhile the Philippines—the
world’s largest importer of rice—began to place open tenders in the
world market (bids for imports at any price) in April 2008 in a
desperate act to secure adequate stocks of rice for its citizens. At
this point, the price of rice rose to $850 per ton, and soon surpassed
$1,000 per ton in May with additional tenders. But still the
Philippines struggled to secure sufficient rice at even this high
price.
Other countries fared even worse. Bangladesh
suffered a major tropical storm in November 2007 that killed 3,400
people, left millions homeless, and demolished large tracts of
agricultural land. The country lacked the financial reserves needed to
import rice, even though India made an exception to sell limited
quantities of non-basmati rice at $650 per ton. Similarly, Sub-Saharan
African countries, which import on average 40 percent of their rice
consumption (in southern African countries the number is as high as 80
percent), had no access to their usual supplies of Indian rice, and
could neither find nor afford other sources of rice in the market.
Reduced cereal imports triggered price increases in regionally grown
crops such as millet and sorghum. Although farmers who produce a
surplus of those crops have benefited, the poorest households that
consume more than they produce have had to go with less, and have no
doubt suffered increased malnutrition.
We
are only beginning to understand the toll of price increases on the
world’s least developed and low-income food-deficit countries, many of
which are in Sub-Saharan Africa. The Food and Agriculture Organization
estimates that the 2008 food-import bill for these countries will rise
up to 40 percent above 2007 costs, after rising 30 and 37 percent,
respectively, the previous two years. The cost of annual food imports
for these regions is now four times what it was at the beginning of the
decade, even though import volumes have declined. The World Bank
predicts that with these rising costs, declining imports, and
increasing domestic prices of agricultural commodities, millions of
people will fall quickly into chronic hunger.
Cameroon has
experienced some of the worst strife as a result of high consumer
prices. Roughly 1,600 protesters were arrested and 200 were sentenced
in the first few weeks after riots broke out in February 2008. In an
attempt to extend his quarter-century run in office, President Paul
Biya’s government not only clamped down on riots but also cut import
duties and pledged to increase agricultural investments and
public-sector wages.
In Argentina, a different form of
food riot broke out against the newly elected President Cristina
Fernandez de Kirchner when she raised export taxes on soybeans and
implemented new taxes on wheat and other farm exports in order to hold
domestic food prices down. Four months of nationwide protests by farm
groups eventually persuaded the government to revoke these tax
increases in mid-July, but political tension remains.
Governments
thus walk a thin line between consumer- and producer-oriented
incentives. Export restrictions in times of high world prices may help
consumers, but they prevent agricultural producers from realizing
economic gains. Interventions of this sort may help in the short-term,
but they are extremely hard to retract. For example, many Asian
countries implemented trade restrictions on rice in the mid-1970s in
response to high prices, short supplies, and political unrest, and
these policies remained in effect for over two decades. It is clear
that policies designed to stabilize domestic prices often destabilize
international ones. And advocating international cooperation as a
solution is naïve, as evidenced by the repeated (and recent) failure of
World Trade Organization negotiations over the topic of coordinated
agricultural policies.
* * *
The
international community is addressing the mounting crisis in different
ways. The United Nations World Food Program (WFP) received $2.6 billion
in contributions for the first six months of 2008—almost as much as it
received for the full year in 2007, but still below the amount needed
to feed the growing number of starving people worldwide. Food aid
deliveries in 2007 fell to their lowest levels since 1961, and the
outlook for 2008 remains sobering.
The United States has
earmarked about $2 billion for food aid through its Public Law 480
program, more than any other country. However, only about 40 percent of
this amount is spent on food; the rest goes to transportation and
administration to meet Congressional mandates that U.S.-produced
commodities committed as aid must be shipped to their destinations on
U.S.-flagged vessels. With energy prices soaring, the cost of shipping
food aid over long distances has increased by more than 50 percent
during the past year, and the actual amount of food aid has decreased.
An increasingly embarrassing cycle has evolved whereby U.S. food aid is
reduced when costs are high and food is most needed by the poor (see U.S. Food Aid Shipments and Grain Prices, 1980-2007).
The
food system is indeed global, yet the principal actors are national
governments, not international agencies. The latter can help with
solutions, but fundamental improvements require more enlightened
national policies.
Canada and the European Union,
meanwhile, have followed the WFP strategy by providing food aid in the
form of cash to relief agencies in needy countries. The agencies then
purchase supplies regionally, a practice that reduces transportation
costs and boosts local agricultural markets. A proposal to endorse this
strategy in the United States fell flat in the Congress and was
countered in the Senate by a bill that would spend $60 million over
four years to study the idea.
Food assistance, however, is
a band-aid, not a cure, especially because it may provide major
disincentives for agricultural development in poor regions. Ironically,
the United States, the largest donor of food aid, is one of the
smallest donors (relative to GDP) of international development aid.
Agricultural development has been largely eliminated from the agenda of
the U.S. Agency for International Development in recent decades and the
agency has lost most of its agricultural expertise. (When polled,
Americans believe that up to one-quarter of the U.S. federal budget is
spent on foreign aid, when in fact the share is less than 1 percent. If
voters had the numbers in better perspective, perhaps they would push
for an increase in assistance.)
Over the longer run, only
sustained growth in agricultural productivity can reduce the
vulnerability of all countries to the chaos created by food crises.
This conclusion is especially true for poor countries where over half
of the workforce derive their principal income from agriculture, and
the farm sector accounts for a sizeable share of GDP. But even rich
countries such as the United States require continued investments in
agricultural productivity—a point made clear by the fact that a large
share of the corn crop now goes to fuel American gas tanks.
Unfortunately, growth in public-sector investments in agricultural
productivity research has slowed in many countries, rich and poor,
although China, India, and Brazil have been clear exceptions.
Private-sector agricultural investments have been more robust but have
been focused mainly in rich countries and have resulted in the
proliferation of biotechnology patents that have kept innovation
largely out of public hands. The gap between the “haves” and
“have-nots” of agricultural research is thus widening.
This
pattern of agricultural investments is a key culprit in the current
crisis, and it will continue to create serious problems for consumers
worldwide if crop-based biofuel use expands further. Globally,
agricultural productivity growth (2 percent per year from 1980-2004) is
barely outpacing population growth (1.6 percent per annum). And even
this minimal progress has not been evenly spread. Asia, and in
particular China, has dominated the positive trend, while Sub-Saharan
Africa has faltered with its grain yield at one-quarter that of East
Asia’s 1.6 tons per acre. (The industrialized world produced 2.4 tons
per acre in 2004). Fortunately, bilateral donors are now taking an
increasing interest in Sub-Saharan Africa, as are several important
private foundations (a point discussed more thoroughly in the May / June 2008 issue of Boston Review).
The
World Bank is in a position to reinvigorate agricultural development,
both financially and symbolically. What is it currently doing to help?
Fortunately, Robert Zoellick is providing international leadership on
global agriculture that has long been overdue at the Bank. Allocations
for agricultural development are now up; for example, the Bank has
pledged to double agricultural lending in Africa from $400 million to
$800 million in 2009. Yet the steady decline in the Bank’s investments
in agricultural research and development, cuts in its technical staff
on agricultural development, and reductions in overall allocations to
agriculture (from about 25 percent of total Bank lending in the
mid-1980s to 10 percent in 2000) have done little to bolster
infrastructure and agricultural capacity in the countries worst hit by
the crisis. The non-trivial issues of corruption and poor governance in
several African countries are partially to blame for this decline: Bank
leaders have argued for funding cuts on the grounds that money given
directly to governments for agricultural development never reaches
targeted projects. But the Bank’s leadership (prior to Paul Wolfowitz
and now Zoellick) also lacked vision regarding the importance of
agricultural development. The World Bank does not stand alone in this
neglect; for example, the Asian Development Bank recently decided to
omit agriculture from its lending portfolio. It is time for the
international community of aid institutions and national governments to
change direction on this issue.
* * *
It is
one thing to commit to the new forms of food aid and additional
investments in crop productivity needed to work through the current
food crisis. It is quite another to plan for what will be needed to
keep the world out of a perpetual food crisis in the face of global
climate change. With increasing temperatures, rising sea levels,
changing precipitation patterns, new pest and pathogen pressures, and
reduced soil moisture in many regions, the impact on the agricultural
sector is likely to be especially severe. How can the international
community grapple with the present challenges in the world food economy
and still keep agricultural productivity ahead of a changing climate?
Predicting
climate conditions decades in advance involves many uncertainties.
Nonetheless, some twenty global climate models (also known as general
circulation models) considered by the Intergovernmental Panel on
Climate Change broadly agree on three points. First, all regions will
become warmer. The marginal change in temperature will be greater at
higher latitudes, although tropical regions are likely to be more
sensitive to projected temperature changes because they have
experienced less variation in the past. Second, soil moisture is
expected to decline with higher temperatures and increased rates of
evapotranspiration in many sub-tropical areas. These factors will lead
to sustained drought conditions in some areas and flooding in others
where rainfall intensity increases but soil moisture decreases. And
third, sea levels will rise globally with thermal expansion of the
oceans and glacial melt, with especially devastating consequences for
small island states and for low-lying and highly populated regions.
Large
areas of Bangladesh already flood on an annual basis and are likely to
be submerged completely in the future. Moreover, the rapid melting of
the Himalayan glaciers, which regulate the perennial flow in large
rivers such as the Indus, Ganges, Brahmaputra, and Mekong, is expected
to cause these river systems to experience shorter and more intense
seasonal flow and more flooding, thus affecting large tracts of
agricultural land.
Increased temperature and drought will
pose large risks to food insecure populations, particularly in
Sub-Saharan Africa and South Asia. Research at the University of
Washington and Stanford University predicts that average growing season
temperatures throughout the tropics and sub-tropics will rise above the
bounds of historical extremes by the end of the century. Yield losses
are expected be as high as 30-50 percent for corn in southern Africa if
major adaptation measures are not pursued. Africa as a whole is
particularly vulnerable to climate change since over half of the
economic activity in most of the continent’s poorest countries is
derived from agriculture, and over 90 percent of the farming is on
rain-fed lands.
Given the inevitable changes in climate
over the coming decades, what forms of adaptation are needed, and how
can the international community help?
One strategy is
based on developing new crop varieties resistant to climate-induced
stresses (heat, drought, new pests and pathogens). Introducing these
climate-tolerant traits in crops will require continued collection,
evaluation, deployment, and conservation of diverse crop genetic
material, because the diversity of genetic resources is the building
block for crop breeding. In the absence of such efforts, even temperate
agricultural systems will suffer yield losses with large increases in
seasonal temperature.
Misguided domestic policies [in the U.S. and abroad] are also driving the crisis.
Additional
adaptation strategies include investments in irrigation and
transportation infrastructure and the design of climate information and
insurance networks for farmers. The creation of non-farm employment
will also help reduce climate change impacts in cases like the Sahel
(the northern section of Africa below the Sahara desert and above the
tropical zone) where agriculture may simply be unviable in the future.
All
of these strategies involve large-scale investments in “public goods”
that the private sector cannot be expected to fill. The U.S.
government, for one, needs to recognize the global consequences of
climate change and contribute to such public investments. Other
governing bodies (e.g., those of Canada, the European Union, and East
Asian countries) and international development organizations also need
to play a greater role. Promoting pro-poor investments in agricultural
productivity research and implementation—not allowing such investments
to fall off the agenda—is the key to food security in the face of
climate change. The future will look very much like a continuation of
the current crisis—or indeed much worse—without such investments.
* * *
The
complexity of the food crisis across commodities, space, and time makes
it difficult to give a precise statement of causes. That said, the
direct and indirect effects of increased ethanol production in response
to rising oil prices seem to have pushed an already tight food system
(with weak investment in innovation) over the edge. The U.S. Department
of Agriculture’s assessment that biofuels were 3 percent of the problem
completely lacks credibility, and the International Food Policy
Research Center’s estimate of 30 percent may also be too low. What
happens to future corn and vegetable oil prices, and therefore to the
entire structure of food prices, is dependent primarily on the price of
oil and on whether the new biofuel mandates for ethanol in the United
States and biodiesel in Europe are imposed or rescinded.
The
price of oil, in particular, is a fundamental factor in the overall
equation. In a world of $50-per-barrel oil, growth in biofuels would
have been more limited, with a much smaller spillover onto food prices.
But the links that have emerged between agricultural and energy sectors
will shape future investments and the well-being of farmers and
consumers worldwide.
Misguided domestic policies serving
particular groups of constituents in a wide range of countries are also
driving the crisis. Export bans on food in response to populist
pressures are likely to yield small and short-lived gains, while
producing large and long-term damage to low-income consumers in other
countries. The food system is indeed global, yet the principal actors
are national governments, not international agencies. The latter can
help with solutions, but fundamental improvements require more
enlightened national policies.
As Zoellick’s passage at
the beginning of this essay implies, much of the current crisis could
have been avoided and can be fixed over time. Individuals, national
governments, and international institutions took agriculture for
granted for twenty years, and their neglect has now caught up with the
world. Fortunately, high food prices and the resulting political
upheaval have induced national governments and such international
institutions as the World Bank to pledge greater investments in
agricultural development. Unfortunately, these pledges only came as a
response to widespread malnutrition among the world’s poorest
households.
In response to rising demand and higher
prices, some new sources of supply are emerging, including soybean
expansion in Brazil and oil palm expansion in Indonesia. However, the
environmental impacts of such expansion, particularly when it involves
clearing tropical rainforests, are potentially serious. Similarly,
efforts to increase crop yields in existing agricultural areas are
leading to greater fertilizer inputs and losses to the surrounding
environment. The trade-offs between agricultural productivity and
environmental sustainability, particularly in an era of climate change,
appear to be more extreme than ever before.
The current
food crisis has different origins than previous global food crises, and
will require different solutions. It also differs from famines in
isolated geographic areas for which food aid and other palliatives can
provide quick fixes. The present situation is instead reflected in
higher infant mortality and poverty rates over a much wider geography.
Given the underlying pressures of growing population, increasing global
incomes, and the search for oil substitutes, leaders in both the public
and private sectors in developed and developing nations need to be
serious about expanded agricultural investments and improved food
policies. Otherwise, the current situation will only get worse,
especially for the 40 percent of the world’s population that is already
living so close to the edge.
In the study, Lobell, former FSE researcher 
