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Rising food prices are a threat to many; they also present the world with an enormous opportunity For as long as most people can remember, food has been getting cheaper and farming has been in decline. In 1974 -2005 food prices on world markets fell by three- quarters in real terms. Food today is so cheap that the West is battling gluttony even as it scrapes piles of half- eaten leftovers into the bin. That is why this past year's price rise has been so extraordinary. Since last spring, wheat prices have doubled and almost every crop under the sunmaize, milk, oilseeds, you name it- is at or near a peak in nominal terms. In real terms, prices have jumped by 75% since 2005. No doubt farmers will meet higher prices with investment and more production, but the higher cost of food is likely to persist for years. That is because "agflation" is underpinned by longrunning changes in diet that accompany the growing wealth of emerging economies- the Chinese consumer who ate 20kg (44lb) of meat in 1985 will scoff over 50kg of the stuff this year. That in turn pushes up demand for grain: it takes 8kg of grain to Fproduce one of beef. Expensive food has the capacity to do enormous good and enormous harm. It will hurt urban consumers, especially in poor countries, by increasing the price of what is already the most expensive item in their household budgets. It will benefit farmers and agricultural communities by increasing the rewards of their labour; in many poor rural places it will boost the most important source of jobs and economic growth. Although the cost of food is determined by fundamental patterns of demand and supply, the balance between good and ill also depends in part on governments. If politicians get policy right, they can help increase the wealth of the poorest nations, aid and minimize the harm to the rural poor and rescue farming from subsidies and neglect. Higher market prices make it possible to reduce subsidies without hurting incomes. A farm bill is now going through America's Congress. The European Union has promised a total review (not yet reform) of its farm-support scheme. The reforms of the past few decades have, in fact, grappled with the rich world's farm programs- but only timidly. Now comes the chance for politicians to show that they are serious when they say they want to put agriculture right. Cutting rich- world subsidies and trade barriers would help taxpayers; boosting the world economy; and, most important, it would directly help many of the world's poor. Three- quarters of the world's poor live in rural areas. The depressed world prices created by farm policies over the past few decades have had a devastating effect. There has been a long term fall in investment in farming and the things that sustain it, such as irrigation. The share of public spending going to agriculture in developing countries has fallen by half since 1980. Poor countries that used to export food now import it. The government is really needed to help. The World Bank believes that if you free up agricultural trade, the prices of things poor countries specialize in (like cotton) would rise and developing counties would capture the gains by increasing exports. And because farming accounts for two thirds of jobs in the poorest countries, it is the most important contributor to the early stages of economic growth. According the to World Bank the really poor get three times as much extra income from an increase in farm productivity as from the same gain in industry or services. In the long term, thriving farms and open markets provide a secure food supply. However, there is an obvious catch- and one that justifies government help. High prices have a mixed impact on poverty: they hurt anyone who loses more from expensive food than he gains from a higher income. And that means over a billion urban consumers, many of whom are politically influential in poor countries. Given the speed of this year's food price rises, governments in emerging markets have no alternative but to try to soften the blow. The government can help by subsidizing the incomes of the poor, rather than food itself, because that minimizes price distortions. Where food subsidies are unavoidable, they should be temporary and targeted on the poor. So far, most government interventions in the poor world have failed these tests: politicians who seem to think cheap food is part of the natural order of things have slapped on price controls and export restraints, which hurt farmers and will almost certainly fail.
Over the past few years, a sense has grown that the rich are hogging the world's wealth. In Poor countries, widening income inequality takes the form of a gap between city and country: incomes have been rising faster for urban dwellers than for rural ones. If handled properly, expensive food is a once in a generation chance to narrow income disparities and to wean rich farmers from subsidies and help poor ones. The ultimate reward, though, is not merely theirs: it is to make the world richer and fairer. |
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