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Panic in world food markets
published: Thursday | April 24, 2008
John Rapley
World food markets have been seized with panic. Prices on many basic commodities go ever higher, and countries are starting to cut their exports of staple crops.
The International Monetary Fund has warned that food riots, which have already toppled a government official in Haiti, could potentially destabilise the entire world economy. And here at home, the Government has proposed growing cassava as an alternative to expensive wheat imports.
A good time for leadership
Leadership is sometimes defined as the ability to keep cool while all about is panic. This is certainly a good time for leadership. It is not yet clear that world food prices will remain at the levels they are at now indefinitely. Policy decisions based on assumptions that the sky is falling might look foolish if things hold up. The key challenge will be to keep things holding up.
There is a growing school of thought that world energy prices may have risen on to a permanently higher plateau, owing to the structure of the oil industry, the availability of resources, and the fundamental drivers of demand. However, agricultural markets are different. Rising energy prices are partly to blame for rising food prices, due both to the cost of energy inputs and the shift out of food production to feed ethanol demand.
However, food riots and spreading hunger are pressuring First-World governments to shift their policy courses away from subsidising ethanol production. Not many politicians want to take the blame for starving poor people in order to be able to run SUVs more cheaply. At this summer's G8 Summit in Japan, the world's leading industrial countries will have world food prices on their agenda for the first time in decades.
Meanwhile, there are already signs that world food production is ramping up to take advantage of higher prices. Global agricultural markets are a good deal more flexible and responsive than world oil markets, and some analysts are predicting that by the next set of harvests, global prices will begin coming back down.
Prices at high levels
It's not a foregone conclusion. Good policy decisions will hasten the shift back to cheaper food, and one should never assume that the economically sensible decisions will be the most politically palatable ones. Moreover, food prices may remain at higher levels than they were before the recent surge.
Crop production
Nonetheless, it is possible that investments in such things as cassava production will lead to an increase in the production of crops for which - when the harvest comes - there will be limited demand. The money may well be wasted.
The more appropriate course of agricultural policy would be not to substitute local production for imports, but rather to invest in those crops and technologies in which we enjoy comparative advantage. We could then export more, take advantage of rising prices, and use the increased revenues to pay for our imports. That way, we'd continue generating returns even after prices have come back down.
Surging world food prices are a threat. But they may also contain an opportunity for some of our farmers. However, if we are to reap the potential benefits, we will need strategic thinking and long-term vision. Encouraging people to eat cassava has been tried before, with mixed success. Elsewhere in the world, strategies of import substitution have had largely uneven results. It's also worth remembering that the last time the world saw a surge in food prices like these, in the 1980s, subsequent bumper crops drove prices back down to record lows.
It's not that a strategy of "eating our own" can't work. It's just that as enunciated, it seems less like a strategy than like a set of anxious tactics. John Rapley is president of Caribbean Policy Research Institute (CaPRI) an independent think tank affiliated to the UWI, Mona.
published: Thursday | April 24, 2008
John Rapley
World food markets have been seized with panic. Prices on many basic commodities go ever higher, and countries are starting to cut their exports of staple crops.
The International Monetary Fund has warned that food riots, which have already toppled a government official in Haiti, could potentially destabilise the entire world economy. And here at home, the Government has proposed growing cassava as an alternative to expensive wheat imports.
A good time for leadership
Leadership is sometimes defined as the ability to keep cool while all about is panic. This is certainly a good time for leadership. It is not yet clear that world food prices will remain at the levels they are at now indefinitely. Policy decisions based on assumptions that the sky is falling might look foolish if things hold up. The key challenge will be to keep things holding up.
There is a growing school of thought that world energy prices may have risen on to a permanently higher plateau, owing to the structure of the oil industry, the availability of resources, and the fundamental drivers of demand. However, agricultural markets are different. Rising energy prices are partly to blame for rising food prices, due both to the cost of energy inputs and the shift out of food production to feed ethanol demand.
However, food riots and spreading hunger are pressuring First-World governments to shift their policy courses away from subsidising ethanol production. Not many politicians want to take the blame for starving poor people in order to be able to run SUVs more cheaply. At this summer's G8 Summit in Japan, the world's leading industrial countries will have world food prices on their agenda for the first time in decades.
Meanwhile, there are already signs that world food production is ramping up to take advantage of higher prices. Global agricultural markets are a good deal more flexible and responsive than world oil markets, and some analysts are predicting that by the next set of harvests, global prices will begin coming back down.
Prices at high levels
It's not a foregone conclusion. Good policy decisions will hasten the shift back to cheaper food, and one should never assume that the economically sensible decisions will be the most politically palatable ones. Moreover, food prices may remain at higher levels than they were before the recent surge.
Crop production
Nonetheless, it is possible that investments in such things as cassava production will lead to an increase in the production of crops for which - when the harvest comes - there will be limited demand. The money may well be wasted.
The more appropriate course of agricultural policy would be not to substitute local production for imports, but rather to invest in those crops and technologies in which we enjoy comparative advantage. We could then export more, take advantage of rising prices, and use the increased revenues to pay for our imports. That way, we'd continue generating returns even after prices have come back down.
Surging world food prices are a threat. But they may also contain an opportunity for some of our farmers. However, if we are to reap the potential benefits, we will need strategic thinking and long-term vision. Encouraging people to eat cassava has been tried before, with mixed success. Elsewhere in the world, strategies of import substitution have had largely uneven results. It's also worth remembering that the last time the world saw a surge in food prices like these, in the 1980s, subsequent bumper crops drove prices back down to record lows.
It's not that a strategy of "eating our own" can't work. It's just that as enunciated, it seems less like a strategy than like a set of anxious tactics. John Rapley is president of Caribbean Policy Research Institute (CaPRI) an independent think tank affiliated to the UWI, Mona.