Demand eats supply

The Baltimore Sun

When food prices rise, the problems are usually of supply - disruptions because of foul weather or violence in war-torn regions meaning people have to pay more for scarce goods.

But with the globe coming off the largest grain crop on record, one main culprit for rapid price spikes not seen for a generation is the flip side of the Economics 101 equation: unprecedented demand.

The effects of this global food crisis are being felt from the poorest African nations to rich countries such as the United States.

Economists and other experts say the large emerging middle classes in China and India want more meat and dairy products, which require huge amounts of grain to produce.

Record-high oil prices, they say, have driven a push for ethanol, a biofuel made from enormous quantities of corn, including 20 percent of the 13 billion bushels grown in the United States last year.

Demand for wheat has skyrocketed as it has become a substitute for less- available corn.

"It's a classic example now of how, in our global system, once a few things start to go wrong, it's a snowball effect," said Robert Lawrence, director of the Center for a Livable Future at the Johns Hopkins Bloomberg School of Public Health.

A convergence of these factors - and others, from drought in Australia, to the high costs of transportation and petroleum-based fertilizer being built into prices, to some of the largest rice exporters banning export of their crop - is pushing some of the poorest people in the world closer to starvation and causing food riots and protests.

The prime minister of Haiti has resigned. Rice is being rationed in the Philippines. There have been protests over tortilla prices in Mexico, pasta prices in Italy.

"We haven't seen a big run-up in food prices like this since the '70s," said Jeff Werling, an economist at the University of Maryland, College Park. "It has been very dramatic in a very short period of time. This is a worldwide crisis."

The effects are also being felt in some of the world's richer nations. In the United States, sticker shock at the gas pump is now being joined by sticker shock in the grocery store as the cost of bread, milk, eggs and other staples has climbed in recent months. Middle-class Americans are being faced with inconveniences, as grocery bills cut into discretionary spending. The poor find their food stamps don't go as far, and some have difficulty paying for these more expensive basics.

At the Maryland Food Bank, CEO Deborah Flateman said food donations have been down in recent years and the money the agency has to spend on food doesn't go as far as it did even weeks ago. All this as caseloads have risen by 25 percent, she said.

"This is a prevailing condition and in fact it's getting worse," she said. "Our ability to help people who need help is getting strained more every day."

The problem in Maryland parallels problems with worldwide food aid. The money the United States has spent on food aid has stayed steady over the past several years, while what that money buys has slipped from 6.3 million metric tons of food in 2001 to 1.5 million metric tons last year.

At the same time, United Nations Secretary-General Ban Ki Moon has asked donor nations for an additional $750 million in emergency funding and yesterday put together a task force to address the crisis.

The U.S. Senate is talking about increasing food aid, and this month President Bush directed the Agriculture Department to release $200 million in commodities to address the crisis. Some are calling for more flexibility when it comes to sending aid overseas.

Currently, under the U.S. farm bill's commodities program, much of what is sent abroad is grown in the United States and then shipped halfway around the world, adding to its cost. Lawrence said sending the money to Africa to support indigenous agriculture would be a better system in the long run.

Food prices, experts said, may be approaching a plateau but are not expected to fall for three to five years.

"It is not a blip," said Lisa Kuennen-Asfaw, a food aid expert at Baltimore-based Catholic Relief Services.

In some instances, adjustments can be made to what is being grown - in wealthier countries, land left fallow while food prices were low can be put back into production quickly. But several specialists said agricultural improvements - such as work on raising crop yields - have been largely ignored during bad economic times for farmers and need an influx of investment now that demand is strong.

"On a global scale," Werling said, "it takes time to improve."

Another solution could come if the U.S. rethinks its commitment to ethanol production, some say. Benjamin Senauer, professor of applied economics at the University of Minnesota, said that when corn was less than $2 a bushel a few years ago and corn was stacked up in Iowa parking lots, using food for fuel seemed like a good idea.

In early April, corn broke $6 a bushel, making some question whether it is really a cheaper alternative to gasoline.

"Do we really want to be using food for fuel when that's adding to the number of hungry people in the world?" Senauer said. "It takes about 400 to 500 pounds of corn to make enough ethanol to fill a 25-gallon tank of an SUV. That's enough calories to keep a person alive for a year."

Last year, 20 percent of the U.S. corn crop went to biofuels. Next year, he said, it will be up to 25 percent, then as much as 35 percent in a few years. "This is an entirely new demand," he said.

There is a domino effect. With corn prices high, some farmers have switched wheat fields to corn production and are planting wheat on more marginal land. As supplies of wheat tighten, its price has doubled and tripled. In some parts of the world, demand for rice has risen as wheat has become too expensive, setting off problems with that staple.

Both India and Vietnam - the No. 2 and No. 3 rice exporters in the world - have halted exports to make sure they have enough supply at home.

Starvation isn't the only risk should food prices stay high or even go higher. John Hoddinott, a senior research fellow at the International Food Policy Research Institute based in Washington, said he sees long-term social problems that are likely to emerge as those in poor countries are forced to find ways to pay for staples.

He foresees girls being pulled out of school so they can cook for their families while their mothers go out to work, or 6-year-olds being asked to care for 2-year-olds 12 hours a day while their mothers work.

Global economics could conspire to ease the crisis just as they caused it. Should the U.S. economic slowdown spread to other parts of the world, that could lessen the demand for meat coming from India and China. If oil prices come down from $118 a barrel (up in just 18 months from $55 a barrel), that could pull down food prices.

The Center for a Livable Future's Lawrence said lifestyle changes may be necessary in the long term, including eating less meat. There are 6.7 billion people in the world. "We are producing enough food globally to probably feed 7.5 billion people if it were equitably distributed at 2,400 calories per person," he said.

But much of that food - in the form of grains - is being used to feed cattle, pigs and chickens instead of directly feeding people. It takes 7 tons of grain, for example, to produce 1 ton of beef. In the U.S., 65 percent of protein consumed is animal protein; the figure is 30 percent worldwide.

In many low-income countries, he said, more than 50 percent of income goes toward food, a figure that has been rising by the day. In the U.S., the number is much lower - on average, 10 to 11 percent of disposable income. That figure is heading toward 15 percent, he said.

"At some point, particularly given the current prices of grain, taking 7 tons of grain to make 1 ton of beef is not going to look like such a good idea," he said. "That's just not sustainable."

Copyright © 2020, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad