The end of cheap food?

09 August 2010

shoppingbasket Is this the end of cheap food production? With wheat prices jumping last week after the failure of the Russian harvest fears of an imminent food shock have once again emerged. OK so things aren’t as bad as they seem in the short term as the steep jump in prices is temporary. However the long term outlook is very different.

A number of factors are going to contribute to the rise in food prices in the long term. The number of mouths requiring food such as regions where a booming population exists and arable land is scarce. These two issues combined spell very real problems that if not addressed could have a detrimental affect on populations.

Russia has suffered one of worst droughts as a result of the hottest July for 130 years. With one-fifth of its wheat crop destroyed Russsia has taken unprecedented action in a bid to prevent further damage being done by imposing a ban on its wheat exports. Huge swathes of already drought damaged fields are now alight due to raging wildfires sweeping accross the region. Russia however is not the only country to be on the recieving end of mother natures severe weather. Pakistans harvests have also fallen victim to severe weather as the recent floods have illustrated. As result of the deluge 15% of Pakistan's crops have been destroyed.

However as with any states misfortunes there are always going to be some beneficaries; China and the United States where production is going strong and is therefore able to compensate for the problems currently in Russia and Pakistan. Hence Chinese and American farmers will inevitably profit from their counterparts misfortunes. Althugh some argue that these issues are only going to have a temporary effect on the markets and world food production in general the long term outlook appears less rosy.

At the moment there are just under 7bn mouths to feed around the world. The United Nations (UN) believes there will be more than 9bn people by 2050. In fact, the UN's Food and Agriculture Organisation (FAO) forecasts that total world demand for agricultural products will jump 60% between now and 2030 – rising much more rapidly than the population. This rapid increase is because the areas of the world where the population is rising the fastest are also the areas of the world that are moving out of poverty. Demand for grain in emerging markets increases more than the population because of one simple fact – richer people eat more meat. This increases demand for grain feeds for livestock over and above that used for human consumption.

The two areas most likely to experience the worst effects of this are Asia and the Middle East. Asia is the world’s largest food supplier but the possibility of dramatic increases in supply may prove somewhat limited. The main explanation being that there is little land to spare and production is already quite intensive although producing good yields. The Middle East on the other hand has the opposite problem. Studies carried out by the FAO have shown that the region imports more than 50% of its consumed calories every year. This is expected to rise still further as population numbers increase. The primary reason that the Middle East has to import such large quantities of food stuffs is due to a lack of water. It may be aresource rich region in terms of oil– but it does not have a lot of water.

Therefore people should be prepared for a hike in food prices wherever they are in world as the effects of Globalisation take hold. Although one may be more worried for the occupants of an increasingly gentrified Asia and Middle East who it appears will struggle more than most when it comes to an increase in food prices.