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The food crisis will be back

By Marcos Fava Neves (China Daily)
Updated: 2009-07-07 17:26

The food crisis, a problem that we faced in 2007 and 2008, will be back sooner than expected. This is due to several factors, arising out of the economic and financial crisis, that are generating pressure on our capacity to supply food.

First, there has been increase in areas dedicated to biofuels. Several countries are starting production of biofuels, which is taking up land used for food production. Now the tank of our car is a competitor of our stomach. Both want food. Biofuels is not the major problem, since there are very positive results, in certain areas, of biofuels being produced together with increase in food production. But biofuels as a factor should be considered.

Second, the growth of world population, expected to reach 9 billion people in 2050, creates a need for higher food production. FAO estimates that we will need to produce at least 50 percent more food in the next 15 years. Economic development and income distribution in highly populated countries such as India, Brazil, China and Indonesia are creating millions of new food consumers.

Migration and urbanization is leading to the growth of more mega cities, which is increasing food consumption. The trend is also changing consumption habits toward less grain and more protein; consumption is becoming more individual based, more sophisticated and more energy consuming. There is also a huge impact here, when you consider that in several countries, 50 percent or more of the population is still in rural areas - and moving to cities.

Third, with oil prices up again, there are economic incentives for biofuel projects and possibilities. Such incentives are increasing the pressure on land, especially land covered by corn and other grains. I expect oil to be around $70-80 a barrel. The depreciation of the dollar in recent years has also contributed in part to higher commodity prices.

Finally, farm production shortages due to lower margins, climate, droughts and diseases are a major concern. Due to the credit crunch and higher price fluctuations, we have had a downturn in prices and a huge loss of confidence. This is resulting in lower productivity, lower inventories, lower margins and farmers switching to cheaper crops. Some exporting countries will become importers, like the case in Argentine beef, wheat and other items. This year's agricultural output will be lower in several countries, and global production is expected to fall by 5 percent.

According to FAO, even with the reduction of global hunger, food prices in some countries are still 80 percent higher than they were two years ago. Here are a few key suggestions to address this oncoming food problem:

The first step is to promote horizontal expansion of production to new areas, with environmental sustainability. South America uses only 25 percent of its land capacity, but on all continents, millions of hectares are poorly used today. In Brazil, several studies by credible institutions confirm the existence of more than 100 million hectares that can be utilized for food and biofuel production, without disturbing fragile eco-systems.

Related readings:  UN: World hunger reaches 1 billion mark  Water, food shortages for 1.37m after drought  National safety system to push tainted food off shelves  China vows to ensure food safety as new law takes effect

There is a strong case for productivity expansion. Farmland in South America, in Africa, in Asia, and even in developed nations can produce more with better technology and investment.

It is important to reduce food import taxes and barriers, besides protectionism. Food prices in some countries are artificially inflated due to import taxes and protectionist measures. For example, beef in the European Union costs four or five times more than the same quality beef in an Argentine or Brazilian store of the same European retailer. The argument advanced usually is that lowering protectionist barriers will hurt agriculture in less developed countries. It must be assumed now that the new level of commodity prices may allow local agriculture to become more competitive.

The case for investment in international logistics, in order to reduce food costs, needs no overemphasis. Many grain-producing countries are hampered by extremely poor logistics. Governments should invest and society should work harder to facilitate public-private partnerships for privatization of ports, roads, and other food distribution logistical channels to make the flow faster and less energy consuming.

Transaction costs have to be reduced, since major international food chains are badly coordinated, handicapped by redundancies, and given to poor use of assets.

We should use the best sources for biofuels, but in a sustainable manner. Crops that have better yields and don't compete with food chains should be prioritized in the global development of biofuels. An illustration of this is the energy balance of sugarcane ethanol, which is 4.5 times more than that of ethanol produced from sugar beet or wheat, and almost seven times better than ethanol produced from corn. Biofuels have to be sustainable and not at the expense of food crops.

The author is professor of strategic planning and food chains at the School of Economics and Business, University of Sao Paulo, Brazil. The article is an excerpt from his speech at the Global Think Tank Summit Beijing 2009.