Food price increases have long been a hallmark of traditionally volatile world agricultural markets. What is peculiar about this recent food crisis, however, is its sheer global scale. Whereas food crises are usually localised with respect to particular countries or regions, this crisis has been truly global in its scope; in April 2008 the World Food Programme declared rising food prices to be a ‘silent tsunami’, threatening the lives and livelihoods of millions of people around the world.
The reasons for consistent rises in food prices reflect both supply and demand considerations. On the demand side, rising demand for foodstuffs is a direct result of rapid population growth rates, particularly in Asia. Increasing demands for food are also related to income levels, however, and not just population growth rates. As emerging economies grow richer, so does their appetite for foodstuffs, even in cases with minimal population growth.
Supply side considerations have also played an integral part in pushing up the price of foodstuffs. The provision of agricultural produce remains a notoriously difficult sector to manage, for two main reasons. Firstly, agricultural yields are highly vulnerable to unpredictable events, not least the weather. Rainfall deficiencies in 2006 slashed Australia’s grain exports from 25 Million to 9 Million tonnes, leading, in turn, to consistent rises in the price of grain. Even when the weather goes according to plan, however, the agricultural sector still suffers from an inherent lack of control over output. Stocks are decided months in advance, with famers unable to simply ‘step up’ production in times of crop failure; having to wait, instead, for the next season to start. The relatively fixed nature of agricultural production, therefore, means that farmers can only, at best, reap what they sow – literally.
Satisfying this increased demand for foodstuffs has been easier said than done. Though farmers in emerging and developed countries alike have slowly come round to expanding agricultural output, their efforts have been held back by a number of factors. Generous – and some argue, unnecessary – ethanol subsidies mean that it is more profitable for famers to grow corn for ethanol production, rather than for human consumption and livestock feeds. Secondly, the supply of agricultural products has been stifled by a lack of technological innovation and research into the development of newer crops with higher yields. Thirdly, the rise in the price of other commodities – particularly oil – has also fed into food price rises, as a result of farmers having to shell out more money for tractor fuel, fertilisers, and animal feeds.
Given time, the market for world foodstuffs will adjust, not least in the form of higher food prices. There is a vital role, therefore, to be played by state authorities in dampening the effects of these price increases. In times of rising prices – or inflation, as it is more commonly known - the first to feel the pinch are those on the lower rungs of the income ladder. This calls for an important role for state economic and social policy. In the first instance therefore, social protection programmes need to be reinforced, allowing those at the lower end of the income scale to manage when the prices of staple foodstuffs rise.
The state must also invest encourage research and development into agricultural technologies, by means of incentives for further research into new crops and production techniques. Governments around the world would also do well to review those policies that have, these past five decades, done much to distort agricultural markets in the first place. Moreover, there needs to be a concerted effort by all parties involved to constructively re-invigorate the debate on genetically-modified foods. The overly emotive discourse inherent in the current debate has done much to divert attention – and resources - away from important avenues of agricultural research, some of which have very little to do with GM foods in the first place.
When it comes to the local scenario, the Maltese economy has certainly not been spared the effects of rising food prices, given Malta’s dependence on all things imported. Imported inflation (which occurs when foreign price increases seep into the local economy as a result of imported goods) has meant that foreign food price increases have, as expected, caused domestic prices to increase. The degree of openness of our economy means that the price of Maltese staples foodstuffs such as bread, for example, is now as affected by Australian grain prices or the price of Venezuelan oil as it is influenced by economic policy decisions taken in Castille.
This is not to say, however, that state authorities have no part to play with respect to managing price increases in the first place. On the contrary, there is a vital role to be played not just by policy makers but by NGOs, academics, and the population in general. Self-sufficiency is not an option for our tiny island – and even if it were, it would still not shelter us from events occurring a few miles beyond our shores. There are various ways of dampening increases in food prices and price increases in general. Reducing Malta’s dependence on fossil fuels by switching to cleaner, more efficient sources of energy is just one way of softening the impact of imported inflation. Liberalising markets also helps keeps price increases low, by allowing market participants to source the cheapest possible prices.
Opening up previously sheltered markets whilst reviewing social protection programmes would help to protect those most at risk, whilst allowing for a learned and informed consumer choice to be the primary – and most important – determinant of consumption. Increasing consumer knowledge and awareness would also contribute, at the end of the day, towards a better understanding of the prices we impose on those around us, on our environment, and on future generations, as a result of our consumption decisions.
Robert Zammit is currently reading for an MA in International Relations at Warwick University, in the UK, and is a guest contributor to the Students' View Blog brought to you by www.insite.org.mt