Friday, April 25, 2008

The Real Economic Crisis - Food

Whilst the West worries over rising petrol prices and the scarcity of mortgages, the developing world faces a threat to the most basic necessity of life - enough food to eat.

After decades of abundant food supplies, recent years have seen a marked increase in the price of food. In the west, this just about reaches our attention as we note the price of bread passes £1. But, for those living on $1 - $2 a day or less, the increased food prices can be devastating, leaving many below the poverty line.

Why Food Prices Have Increased?

Increasing Demand has come from:

  1. Economic growth in China and India. Increased living standards mean people are consuming more food and also more land intensive foods. For example, as incomes rise people buy more meat. Meat is more land intensive, because you need both land for the livestock and also crops to feed the livestock.
  2. Growing Population. -The world's population is currently 6.5 billion this is forecast to grow up to 9 billion in a couple of decades.
  3. Demand for Biofuels. As the west look for alternatives to oil, governments are encouraging the use of biofuels which are supposed to provide an 'environmentally friendly' alternative to oil. However, the increased demand is pushing up prices.

Problems with Supply.

  1. Environmental problems. Global warming is contributing to desertification of former arable areas. Therefore, some countries are experiencing declines in available agricultural areas. In western countries, it has proved difficult to increase productivity of arable land. Increased use of fertilisers e.t.c has reached a point of diminishing returns.
  2. Inelastic Supply. Another problem related to agriculture is the time lags involved in growing crops. Most crops can only be grown once a year. It can take even longer to prepare land for more crops. Therefore, the high prices have not been able to encourage more supply; eventually the high prices may encourage more supply, but, by then it may be too late contributing to the volatility of food prices.
  3. Restrictions facing Local Farmers. In many developing countries agriculture is characterised by small scale farmers, who lack the ability to invest in new technology and enable more efficient farming. Basically, despite the rise in prices, there is little that many farmers can do to increase supply.

How To Deal with the Food Shortages?

To deal with food shortages is not straightforward. There are many issues to consider.

In the short term aid is necessary to deal with chronic shortages. But, at the same time, food aid needs to be carefully managed to avoid hurting local farmers. Aid will at best provide short term relief. A long term solution is to investigate ways to boost the productivity of agriculture, especially in developing countries where poverty is at its highest.


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