Surging Food Prices — Globalization’s Downside

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Globalization is often said to be good for the poor. The jury is in fact still out. But for certain, many of the poor are now being hit by rising global food prices — FAO’s food price index was up 37% in 2007, on top of the 14% increase in 2006 — and globalization is the cause.

How so? Asia’s demand for food is surging along with robust economic growth and urbanization. And with oil close to $100 a barrel — again due to strong global growth — the world’s farmers are turning land over to corn and sugar for ethanol. The New York Times summarises it all here.

Folk are getting worried. Over on the ODI blog Simon Maxwell reports from Davos that World Bank President Robert Zoellick and World Food Programme (WFP) Head Josette Sheeran are both running initiatives to highlight the ‘forgotten MDG’ (No.2 — Halve, between 1990 and 2015, the proportion of people who suffer from hunger).

Anxious governments are keeping a close watch over food inflation; it’s politically dangerous — especially to authoritarian states. The urban poor may join street protests organized by political dissidents. And the rural poor often can’t produce enough to eat (if they are farmers) — while the poorest are often labourers without any land at all. Rural discontent is a big worry for the Chinese government (many rural people have not shared in China’s globalization-driven economic boom). Food riots have now taken place in Indonesia and Pakistan (See the FT report here).

Some governments are stepping up price controls; China, Russia and Thailand have all capped basic food staples. Malaysia is planning to stockpile basic foods. Venezuela is threating to expropriate food companies that hoard.

We have been here before; the 1970s saw the widespread adoption of price controls (that then create black markets, and decrease producer incentives, thereby exacerbating shortages) and large government subsidies to contain the consumer price of food (fiscally ruinous unless you have generous oil revenues). Governments often swear that these measures are temporary — but they are politically very difficult to remove once in place. For the poor, better measures are social protection and targeted nutrition interventions (consumer food subsidies often benefit the rich more than the poor since the rich consume more food — especially meat, including animals fed with subsidized bread).

Eventually food output should rise to dampen at least some of the price rise (although this effect could be muted by the switch of crop land to corn for ethanol). But the chronically poor have very few means to cope: being largely unskilled they find it hard to get compensating wage increases when food prices rises; many are women with young (and hungry) children; and many are too old or too sick to find work. So even if production does rise eventually, the chronically poor could get badly squeezed by rising food costs. They can’t wait.

This is not just a problem for the poor world. The US government buys surplus food for distribution through food banks such as America’s Second Harvest — but these purchases are now at a 26-year low as farmers switch to biofuel crops. So the food banks face shortages — at a time of rising unemployment and a stalling economy.

Here in Britain we have much the same story. Except now its got caught up with another debate about food quality (see our recent post about the history of British food).

Talking chicken, a free-range bird costs £6, while one eking out its miserable life in a battery-farm goes for 3 quid. But many poor families can afford only the latter. And they get berated by middle-class foodies for not feeding their families well. Jay Rayner in The Guardian worries that “We have managed to confuse our foodie obsessions – a set of lifestyle choices for the affluent – with a wider and much more serious debate on public nutrition that affects the very poorest in society”.

Of course you can go vegeterian (a good idea in itself), but British bread prices are up following a 15% rise in the price of flour (a standard loaf cost 52p in 2000; now its nearly £1). There is no escape.

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