Thursday, April 10, 2008

Food Prices Spiral Out of Control in the Developing World

These days you hear a lot about the world financial crisis. But there's another world crisis under way - and it's hurting a lot more people. I'm talking about the food crisis. Over the past few years the prices of wheat, corn, rice and other basic foodstuffs have doubled or tripled, with much of the increase taking place just in the last few months. High food prices dismay even relatively well-off Americans - but they're truly devastating in poor countries, where food often accounts for more than half a family's spending.

There have already been food riots around the world. Food-supplying countries, from Ukraine to Argentina, have been limiting exports in an attempt to protect domestic consumers, leading to angry protests from farmers - and making things even worse in countries that need to import food.

How did this happen? The answer is a combination of long-term trends, bad luck - and bad policy.

Let's start with the things that aren't anyone's fault.

First, there's the march of the meat-eating Chinese - that is, the growing number of people in emerging economies who are, for the first time, rich enough to start eating like Westerners. Since it takes about 700 calories' worth of animal feed to produce a 100-calorie piece of beef, this change in diet increases the overall demand for grains.

Second, there's the price of oil. Modern farming is highly energy-intensive: a lot of B.T.U.'s go into producing fertilizer, running tractors and, not least, transporting farm products to consumers. With oil persistently above $100 per barrel, energy costs have become a major factor driving up agricultural costs.

High oil prices, by the way, also have a lot to do with the growth of China and other emerging economies. Directly and indirectly, these rising economic powers are competing with the rest of us for scarce resources, including oil and farmland, driving up prices for raw materials of all sorts.

Third, there has been a run of bad weather in key growing areas. In particular, Australia, normally the world's second-largest wheat exporter, has been suffering from an epic drought.

Full Story: http://www.nytimes.com/2008/04/07/opinion/07krugman.html?...


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