- The End of the Era of Cheap Food--Subsidies in rich countries and heavy distortions in the international food market will be leveled by the recent outburst of the slow but sure suckerpunch the world just received. It's odd, I remember reading about so-called "peak grain" in an article in a Chinese magazine (粮食危机 or something to that effect) last November, and reading about the Scandinavian Seed Bank construction, and I am ashamed to say that the component that then grabbed my attention was the Seed Bank. It appears that the root problems should have been what was on my mind, but more importantly, on the minds of those responsible for addressing policies geared towards mitigating the global expression of such a structurally massive humanitarian crisis. We are now at a point higher than our past equilibrium, and while the market will (hopefully) level out at a new equilibrium, with farmers producing higher yields to respond to the current high prices, the transition will be very painful (it already is. see Haiti, just one example of the extremeness of this current debacle).
- Retroactive Effects on Poverty Reduction--According to Bobby Z at the World Bank (President, and former U.S. WTO representative), the current "food inflation" has the potential to send 100 million back where they came from-poverty. This would wipe out "all the gains the poorest billion have made during almost a decade of economic growth" (2008. 5. 19. p.33).
- Response from "Smallholder" Farmers Needed--The world is home to some 450 million so-called "smallholders," farmers in developing countries, who, individually, due not farm much in terms of acreage, only a few a piece. Supposedly a supply-side response from these small-scale farmers is desirable, and for three reasons: 1. It would serve to reduce poverty. 3/4 of them live on $1/day, live in the remote countryside, and are heavily reliant on the health of their plots and yields of their crops. 2. Environmentally speaking, this makes sense. These smallholders manage a "disproportionate share" of global water and vegetation resources. Therefore, improving their productivity and efficiency presents a better alternative to cutting down more rainforest and creating new farmlands. Invest in existing ones, improving their outputs. 3. Supporting these smallholders is more efficient. For example, the Economist cites African grain output v European grain output as an example. "In terms of returns to investment, it would be easier to boost grain yields in Africa from two tonnes per hectare to four than it would be to raise yields in Europe from eight tonnes to ten. The opportunities are greater and the law of diminishing returns has not set in." (33) There is a helpful chart in the article that I am sorry I can not include here. Just go find the issue. It's a good one.
- Input Costs Present Barrier to Scaling Up--Unfortunately, there is not a "smallholder bonanza" as of yet. Apparently, in East Africa, farmers are actually scaling down their operations because of the rising costs of fertilizers (cost rise due to oil price escalations). India, however, is not a member of this trend. Neither is South Africa. Both have had boosts in output over the past year.
- Sticky Prices--A greater trend is that of the inelastic response of supply to rise in cost of their produced goods. Farmers are not, and currently can not, respond perfectly and in a timely fashion to the spike in food prices, a phenomenon that expresses increased global demand. Agriculture is special in this way. At the very quickest, response time from farmers takes a season (several months), and in reality, crop yields and increases are contingent on multivariate factors including, technology investment (e.g. irrigation and seed engineering). These are long-run trends, and rely on persistent research and development from both private and public sectors.
- Green Complacency--Following the "Green Revolution" of the 1960s, many governments, assuming that the food crisis had been successfully hedged against and invested in, actually cut back spending on farming by half (from 1980-2004). These cut-backs set in during the 1980s/90s. This neglect has had a gradual, yet terrible effect on seed strength, infrastructure, etc...and had contributed to the lag in supply and its subsequent sluggish response to the rapidly increasing global demand for grains, rice, and meat (wheat is a value-added component of meat, as cows are grain-guzzling machines, resembling developed-world nations' automobiles).
- Shrinking Farmlands--Another crucial factor at play here is the global trend of decreasing farmland acreage. This phenomenon is taking place quite clearly in the People's Republic (of China), with strictly agricultural-use land dipping below the supposed "red line" (the base line for self-sustaining national grain production) of 120 million hectares. Grain security has clearly been compromised, as more farmlands are razed for apartment complexes.
I love the Economist.