WorldView: The era of cheap and stable world food prices typical of the last generation is coming to an end,writes Paul Gillespie.
The evidence is all around us, but has not yet penetrated public consciousness in developed countries like Ireland. This will change as the effects are more widely felt.
The supply and price of food and energy throughout the world have become directly associated because fossil fuels have peaked and are now in decline. Substitute biofuels compete for land with maize and grain crops to drive up food prices. Climate change arising from our use of fossil fuels is enormously reinforcing this trend. So is economic development in China and India, where vast new middle classes are shifting from vegetable-based diets to ones that contain more meat and dairy products.
Global maize and corn prices have increased by 60 per cent over the last 12 months and wheat by 50 per cent. Hugh Friel, chief executive of Kerry Group, one of Ireland's major exporters, told a company meeting this month that the knock-on effects of a dramatic shift in land use for biofuels rather than food, drought in parts of the world and soaring demand for dairy products in Asia will mean more frequent pricing reviews with its customers. It should be remembered that Ireland's grass-based dairy and beef production is unusual, since most world output is based on grain - 85 per cent of it in the case of pork and chicken.
Writing in these pages on September 12th, Paul Kelly of Ibec said the days of stable food prices may well be over for consumers. But otherwise, he says, a sustained increase in the value of food products is a major plus for the Irish economy as the property and construction boom comes to an end. The European Commission has lifted the set aside arrangements in place for nearly 20 years as from 2008 because wheat stocks are at rock bottom - to the consternation of ecologists, who say it will disrupt these new wildlife habitats.
The head of the UN's Food and Agriculture Organisation (FAO) has warned of increased social conflict in poorer parts of the world as these trends intensify. The price of food aid has increased by 20 per cent this year, hitting attempts to increase its volume. The FAO calculates that demand for biofuels will grow by 170 per cent in the next three years.
In February, there were large protests in Mexico against a quadrupling of tortilla prices. In Italy, increased prices for pasta recently led to a week of protests. German consumers are furious over increased milk prices blamed on growing Chinese demand and so are the French over bread prices. China stopped the plantings of corn for ethanol after pork prices increased by 42 per cent last year.
Lester Brown, president of the Worldwatch Institute in Washington, told the Guardian recently that "the competition for grain between the world's 800 million motorists, who want to maintain their mobility, and its two billion poorest people, who are simply trying to survive, is emerging as an epic issue."
The most dramatic changes in comparative demand are seen in the US corn belt following US president George Bush's decision this year to increase its targeted output of biofuels from 7.5 billion gallons in 2012 to 35 billion in 2017. This year, 40 per cent of highly-subsidised US maize will be sold as fuel rather than food or feed and has increased in price by 50 per cent, soybeans by 30 per cent. The OECD says replacing 10 per cent of US motor oil with biofuels would need about one-third of the total cropland devoted to cereals, oilseed and sugar crops. The trend is being replicated in India, Brazil, southern Africa and Indonesia. As a result, the world price of maize has doubled in 10 months.
The effects of biofuels on reducing carbon emissions is, however, dubious. Prof Peter Hazell told the Institute of European Affairs this month that there are cheaper ways of doing this; biofuels will still only amount to 5.75 per cent of total transport fuels in the EU by 2010, although the figure has reached 40 per cent in Brazil. Reducing dependence on foreign oil and bringing carbon emissions down are two different things. We need to wait for second and third-generation technology before judgments are made. But as the transition is made, there is no denying the potentially huge consequences for the world's poorest people as food and fuel compete with one another.
According to Alan Matthews, professor of agricultural economics in TCD, who addressed the National Forum on Europe this week on the future of the European model of agriculture, it is too early to say if the cheap food era is at an end.
This may be a price spike on the steadily reducing trend of world food prices since the late 19th century, which was driven by technological innovation in agriculture food production and the opening up of new lands for production. More of these could be on the way, whether from GM crops, drought-resistant ones or new biofuel technologies. Argentina, Poland, Ukraine and Kazakhstan can grow more food for export as US output declines.
But the link between food and energy futures is here to stay. The final reports from the UN's Intergovernmental Panel on Climate Change (IPCC) and the forthcoming negotiations on renewing the Kyoto accord in Bali will clarify how food, energy and climate could interact over the next generation. One major worry is the growing shortage of water in the world's major food growing regions, as underground sources dry up and are not replenished because of climate change. One IPCC prediction says rain-dependent agriculture could be halved by 2020 because of climate change. That is perilously near.
With a much more unified world economy, the time has come to think through more systematically how these issues can be governed effectively and with justice. Existing forums and structures are inadequate to the task.