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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] Food and the Spectre of Malthus
  • Date: Fri, 29 Feb 2008 08:49:32 -0700

Food and the Spectre of Malthus
By Mark Thirlwell
The Financial Times
Tuesday 26 February 2008

http://www.ft.com/cms/s/0/eb66fbb0-e489-11dc-a495-0000779fd2ac.html

February has been the month for revisiting old and unpleasant
economic concepts. Last week, financial markets experienced that
1970s feeling, as a combination of rising inflation and unemployment
in the US triggered unwelcome memories of the decade of stagflation
that ended the postwar golden age and the Keynesian consensus. Then
came this week's report that the United Nations' world food programme
might have to ration food aid. Set against a backdrop of rising food
prices worldwide - global food prices have now risen by more than 75
per cent since their lows of 2000, jumping more than 20 per cent in
2007 alone - the news revived fears from a much earlier era,
conjuring up the Reverend Thomas Malthus.

Soaring food prices have also revived some more contemporary worries.
When China's annual inflation rate spiked to an 11-year high in
January on the back of an 18 per cent increase in food prices,
China-watchers found themselves casting their minds back to the food
price rises of 1988 and the social disturbances, protests and civil
unrest that followed. Inflation is often cited as one of the factors
behind the major demonstrations in 1989.

This rise in prices is a consequence of both demand and supply
trends. On the demand side, the key factor has been the strong
consumption growth in emerging markets, which in turn has been
powered by those countries' impressive income gains. China, for
example, has accounted for up to 40 per cent of the increase in
global consumption of soyabeans and meat over the past decade. At the
same time, a series of supply-side disruptions in key commodity
markets ranging from drought to disease have been at work.

Perhaps the most important drivers of price gains over the past year
are developments in world energy markets. High oil prices have
encouraged a policy focus on biofuels, including lashings of generous
financial support. Production has responded quickly to these
incentives: the World Bank reports that the US has used 20 per cent
of its maize production for biofuels and the European Union 68 per
cent of its vegetable oil production. This change in usage has
boosted prices, reduced the supply of these crops available for food
and encouraged the substitution of other agricultural land from food
to biofuel production.

This is not the first time in modern economic history that the
Malthusian spectre of global food shortages has stalked the world
economy. Surges in food prices in the 1970s and then again in the
mid-1990s both prompted warnings that agricultural capacity was
failing to keep pace with a growing world population. Each time, the
prices jumped it proved to be temporary as supply responded. There
are good reasons for believing that this latest bout of market
disequilibrium will ultimately reach the same resolution. That said,
however, there are two important caveats to set against such an
optimistic reading of current circumstances.

First, the lag in supply response to the stimulus provided by higher
prices may prove to be of greater duration than its predecessors, to
the extent that the current changes in world energy markets - and
hence the associated demand for biofuels - are likely to be lasting
ones. With climate change and environmental degradation threatening
agricultural capacity in several key regions, the elasticity of past
supply responses may prove to be a poor guide to the future.

Second, during the extended period in which supply continues to lag
behind demand there are likely to be significant social and economic
costs. Three in particular stand out.

Most important, a period of protracted higher food prices will be bad
news for many of the world's poorest people and its poorest
economies. While the share of food in the consumption basket of a
rich country such as the US is relatively low, at about 10 per cent,
it averages about 30 per cent in China and more than 60 per cent in
sub-Saharan Africa. Those countries that are most vulnerable are the
low-income net food importers. Higher food prices add more strain to
import bills that have often already been stretched by higher energy
prices. Several of the poorest economies fall into this category and
are heavily dependent on food aid to meet their needs. But the
worldwide volume of such aid has stagnated for the past two decades
and, what is worse, the quantity of aid delivered tends to fall as
prices rise, given that a large proportion comprises a fixed annual
dollar amount.

Next, there are important social strains to be managed. These may be
particularly problematic for those emerging markets that are already
struggling to deal with the consequences of growing inequality.
Granted, higher food prices are something of a two-edged sword here,
since higher agricultural earnings could reduce rural-urban income
disparities. But the big losers are likely to be the urban poor,
typically a politically volatile group, while many of the rural poor
will also suffer.

Finally, higher food prices will call for tighter monetary policy.
Given the disparity in the share of food in consumption baskets, and
the fact that rich country central banks tend to exclude food prices
from their core inflation measures, the policy reaction will tend to
be greater in developing economies. Authorities may also be tempted
by price controls and other direct measures. However, rich country
central banks will also have to keep a close watch on any spillover
effects that tighter monetary policy could have on non-food prices.

The writer is director of the international economy programme at the
Lowy Institute for International Policy in Sydney




  • [Livingontheland] Food and the Spectre of Malthus, Tradingpost, 02/29/2008

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