Opinion: Food market is increasingly volatile
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Food markets have been on a gravity-defying rollercoaster ride since 2008, hurtling up the inclines but descending more slowly. One after another, the prices of rice, wheat, maize and sugar have reached new highs – this year it has been the turn of US cattle and New Zealand milk.
Higher food prices have increased poverty, destabilised governments and helped trigger revolutions, leading to a revival of fears about our ability to feed the world.
Science shows that our planet has the biophysical resources to feed 10bn people. We already produce enough to feed that many, but much food is wasted or diverted towards the rich. Nonetheless, there are reasons to believe that food prices will stay high and volatile in the decades to come. This will maintain the chronic pressure on the world’s poor, but may also generate acute crises for the more privileged.
First, the price of food is now inextricably linked to energy, not just because so many fertilisers and other farming inputs are derived from fossil fuels, but also because the biofuels industry will hoover up any surplus crops. As long as oil costs more than $100 a barrel, food prices will stay high.
Food production in some of the most intensively farmed areas is coming up against ecological limits. California’s drought – which will wipe $5bn off the state’s agricultural economy this year – is the latest example. And although there is plenty of spare land in Africa and South America, bringing it into production will be expensive. The best and most accessible land is already in use.
Climate change is the greatest long-term threat. The last report of the Intergovernmental Panel on Climate Change was relatively sanguine about the impact upon agriculture. But the 2014 update, which is being revised and leaked on a daily basis, comes to a much gloomier conclusion. Moreover, the immediate impact will be to increase the weather events that farmers worry about most – heatwaves, droughts and floods – making production more erratic.
The geography of food is also changing. If you plot population growth against land availability and climate change, it is clear that the places where more food can be grown will not be where it is most needed. For example, the population of India is set to grow to almost 1.7bn by 2050. By then there will be 400m more Indians than Chinese. And India will eventually have to cope with the limits of shrinking aquifers and land scarcity – there will be less than 0.1 hectare of arable land per person.
As a result, the global food system is expected to become more unbalanced. Of course, this would not be a problem if everyone were equally wealthy and there were free trade in food. But this is not the world we live in. The reactions to the price spikes of recent years indicate how food is becoming an important geopolitical issue.
Thirty-three countries imposed export bans or restrictions in 2008, determined to control domestic food prices even if this meant beggaring, or starving, their neighbours. Governments are encouraging companies to buy up trading infrastructure and acquire farmland abroad, in an attempt to control food supply chains. Many food-insecure countries, it seems, no longer trust the market to provide.
Avoiding a competitive scramble for food resources will require co-operation and good policy at an international level, something that is in short supply. But there are many steps that national governments can take to improve their food security.
In developing countries with large rural populations, investing in and supporting smallholder farmers will be crucial. For example, the country that made the most progress in reducing hunger between 1990 and 2013 was Vietnam. It did this by distributing land to small farmers, investing in rural infrastructure and controlling the interface with global markets. In 20 years it went from food deficit to one of the top three rice exporters in the world – all with an average farm size of half a hectare.
The changing global food system creates many opportunities for private enterprise and private capital. As demand ticks up each year, and the imbalances between regions widen, investment will be required all along the food supply chain, from farm to fork. But innovation is most urgently needed at the production end, on the farm.
Much attention has been given to closing the “yield gap” – helping less productive parts of the world attain the sorts of yields that are achieved in the US, Europe or Australia. Yet, just as important will be closing the “sustainability gap” that affects agriculture – and fishing – in countries rich and poor.
Farming can be a dirty business, polluting waterways, spewing out greenhouse gases and delivering food of doubtful nutritional value. Farming can also destroy the natural resources on which it depends, by eroding soil, depleting fertility and consuming water reserves.
The good news is that there are ways to produce food that can address both these issues. Agro-ecological systems seek to make the most of natural cycles, minimising the use of off-farm inputs. They emphasise soil health, in particular the extraordinary properties of soil organic matter. They are knowledge-intensive, exploiting the symbioses that come from diverse mix of plants and animals.
They not only reduce greenhouse gas emissions and increase resilience to extreme weather, they can also help mitigate climate change by storing carbon in the soil.
These sorts of farming systems hold a special attraction for financial investors. Profitability in farming is driven not by high yields but good margins – lower input systems that are more resilient to a fluctuating climate (and stricter environmental regulations) offer a better risk/return profile. Systems that build soil fertility and reverse degradation will also increase the value of the primary asset, the land.
The 17th-century English philosopher Francis Bacon said that “the improvement of the ground is the most natural way of obtaining riches”. This will be as true in this century as it was in his.
Paul McMahon is the author of ‘Feeding Frenzy: The New Politics of Food’ (Profile Books, 2013) and managing partner at SLM Partners, which acquires and manages agricultural land for institutional investors
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