Global Policy Forum

What's the Real Driver of High Food Prices and Hunger?

The media coverage of the US drought and increase in food prices is welcomed but it perpetuates false ideas about the main causes and solutions to these problems. The Alternet article criticizes coverage that attributes price increases mainly to an increase in meat-based western diets in developing countries. While this is certainly a part of the explanation, it misses two problems underlying price volatility - ̶  financial speculation and the lack of publicly held food reserves. It also downplays the impact of biofuels. While dietary patterns change slowly, the use of biofuels can be quickly and decisively changed through government policies.

By Timothy Wise

September 6, 2012

Coverage of the US drought and the run-up in corn, soybean, and wheat prices has been extensive and welcome. It has also been prone to the repetition of falsehoods and the perpetuation of myths about the causes of the food crisis – and the solutions. A recent Guardian article, “The era of cheap food may be over,”  is a case in point. Specifically, it perpetuates the myth that the main driver of food price increases is demand for meat in fast-growing developing countries. This effectively downplays the full impact of biofuels and ignores two problems underlying price volatility: financial speculation and the lack of publicly held food reserves.

Give Larry Elliott credit for posing the issue in terms of the difficult policy choices the world faces. He’s certainly right to pose the challenge. “The current assumption seems to be that the world can have a rising population, ever-higher per capita meat consumption, devote less land to food production to help hit climate change targets and eschew the advances in science that might increase yields” he writes. “This is the stuff of fantasy.”

It sure is, but so his framing of the problem. First of all, the trend toward meat-based western diets is certainly worth resisting, for health and environmental reasons. But it’s been pretty clearly shown that rising demand for meat-based protein, particularly in India and China, is not the main cause of recent price increases. An FAO study documented conclusively that cereals demand rose more slowly since 2000 than it had in previous decades. So demand in India and China may have grown, but it did not create a “demand shock” that precipitated more recent price surges.

What is the demand shock that has occurred since 2000? The dramatic expansion of biofuels production, under a range of government incentives, particularly in the US with corn-based ethanol and in the EU with biodiesel. This has truly been a shock to tight commodity markets. US ethanol consumes 40% of the country’s corn, fully 15% of global corn production. Estimates vary widely on the impacts, but the National Academy of Sciences concluded that 20-40% of the price increases in 2008 were due to biofuels expansion.

That impact couldn’t be clearer than in today’s looming food crisis, triggered by the widespread drought in the US. Corn output is down dramatically, but ethanol refiners keep gobbling up the corn, driving global prices to new records. Elliott for some reason discusses this as a supply-side issue, but it’s pure demand, created by government programmes that seemed good at the time, as he points out, but are now a disaster. Or, more to the point, a set of recurring disasters as the world suffers its third price spike in five years.

To be sure, there has been one other demonstrable boost in demand since 2000, and it does implicate the rising demand for meat-based diets. Chinese demand for soybeans has jumped dramatically, mostly to feed its own growing meat production. This puts pressure on agricultural land and certainly contributes to rising food prices. But not on the order of magnitude accounted for by biofuels expansion in general and US ethanol expansion in particular.

As Elliott points out, it is not easy to reduce the rising demand for meat-based diets in developing countries. And he calls on the west to “reassess the wisdom of biofuels”. That should be a priority in the current price crisis. Unlike changing global dietary patterns, it is an area in which government policy can have a quick and decisive impact. The biofuel boom began largely as the product of government policies.

Stop the further expansion of biofuels and you’ve saved millions of tons of grain for food and feed.

Reverse its recent growth, by introducing more flexible mandates that are triggered by tight supplies, and you’ve placed people over cars in the great global food chain.

Elliott’s solutions ultimately focus on the false choice between hi-tech industrial farming to produce more meat or having the world eat less meat so we can live from what he says are “lower yields” from organic agriculture. We can feed the world, even China’s growing number of meat-eaters, and increasing agricultural R&D is an important part of the solution. But first we should stop putting food into our cars.

We should also consider four other straightforward and proven policies:

1. Expand food reserves – US reserves are virtually non-existent thanks to government policies to just let the market do its magic. The market’s magic has given us three price spikes in five years, and the absence of food reserves has left us no flexibility to handle a drought as severe as the current one.

2. Regulate financial speculation in commodity markets – The financial sharks are circling as prices spike, hungry to play the volatility for their benefit. Regulations are still not in place to get them out of our food. Governments can act to reduce speculation-driven food price volatility.

3. Address waste – An astonishing one third of food is wasted all along the food chain. Public investments – in water systems, storage, roads, and markets – can save more food for the hungry. The impact would be even greater than reducing biofuels use. (So, too, would the related goal of more equitably distributing the food we produce.)

4. Expand sustainable smallholder food production – The current consensus recognises that the “yield gaps” are greatest among small-scale farmers, and that they can expand their food production through “sustainable intensification” .

Elliott puts his finger on the urgent crisis facing the global community in the ongoing food crisis, but he misses the mark on his diagnosis and the cures.


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