April 14, 2008 | posted by Michael Baxter in Climate change, commodities, developing world |

Wheat prices are up 181 per cent in three years.  Rice has risen by 70 per cent over the last year, and it is hurting.  Sure, it is hurting in the developed world, where rising food prices are creating inflationary pressures; it is hurting in Italy, which saw a one-day pasta strike last year; but in other parts of the world, it is really hurting.

According to the World Bank, in some countries the poor spend as much as 75 per cent of their income on food.  And, as World Bank President Robert Zoellick said last week, “In Bangladesh a two-kilogramme bag of rice…now consumes about half the daily income of a poor family.”

“This is not just about meals foregone today or about increasing social unrest,” said Mr Zoellick. “This is about lost learning potential for children and adults in the future, stunted intellectual and physical growth. Even more, we estimate that the effect of this food crisis on poverty reduction worldwide is in the order of seven lost years. So we need to address this not just as an immediate emergency but also in the medium term for development!”

To take a specific example, the World Bank says that in the case of Yemen, estimates show that the doubling of wheat prices over the last year could reverse all gains in poverty reduction achieved between 1998 and 2005.

So what can be done about it?

For one thing, the World Bank wants to see the international community make up the $500 million food gap, recently identified by the UN’s World Food Programme, to meet emergency needs. 

Zoellick has proposed that sovereign wealth funds around the world allocate US$30 billion – one per cent of their US$3 trillion assets – to investments for African “growth, development, and opportunity.”

But the World Bank itself is doubling agricultural lending to sub-Saharan Africa over the next year to US$800 million to substantially increase crop productivity.

The crisis is being made more serious because some exporting countries are introducing export bans, which lead to price spikes in importing countries.  The World Bank also said high levels of trade tariffs and subsidies in the developed world are distorting markets.

Critics of globalisation will of course see all this as yet another example of the evils of growing world trade.    But the truth is that it is anti trade measures, subsidies in the west and export bans that have really hit the markets so hard.    The problem surely is not that globalisation is a bad thing, it is that too many developed countries are only half-heartedly taking to it.

Calls for tariffs and subsidies in the US, for example, probably pose the single-biggest threat to the global economy today.

A part of the problem is that eating meat is not very efficient.  It takes up far more energy to grow food to feed livestock which we then eat, than it does to grow food we eat directly.      As India and China develop, demand for meat is growing.

This poses an interesting and somewhat alarming question.

Back in 1798 , the economist Thomas Malthus published one of the most important and controversial, and possibly the most-debated, theories in the history of economic thought.   He argued that any technological advances and the benefits they bring lead to a rise in population, so that that the benefits from that advance are cancelled out by the rising population. In other words, the human race can expect to always exist at subsistence levels.

His theories were later dismissed by what was seen as empirical evidence which disproved his argument.   In Britain during the Industrial Revolution, absolute poverty levels fell, while the population rose.    It appears that as family wealth rises, the birth rate starts to fall.  Improving medical and nutritional standards mean infant deaths are lower, and as a result a lower birth rate is required.   In the past, large families were seen as providing a pension to parents.  As wealth and health improved, the families didn’t need so many children.  Finally, emancipation of women has led to lower birth rates.

Malthus has been accused of giving economics a bad name, of earning it the nickname of the dismal science, but it does seem he may have a point after all.

It is all very well dismissing his theory because for a couple of centuries a small percentage of the world enjoyed rapid rises in per capita wealth, but it has never been proven that the world can cope with true mass industrialisation.   

It may also seem as if the world is in something of a race.    Eventually, the rate of population growth will slow in the developing world – the question is, can food output rise to sufficient levels while the population is still rising?

Now that over a billion people are joining the developed world, it is becoming debatable whether there are indeed enough natural resources to supply all the food and energy the world needs.   It is this push on supply that is the true reason why food and oil have been rising so high in price.

But, talking about increasing investment to aid crop productivity, the World Bank has hit the nail right on the head.    What the world needs now is greater agricultural productivity, and more energy – but both have to be produced in more-sustainable ways.

This is why the media hysteria related to GM crops is potentially very damaging.    GM food is potentially the saviour of the worldwide food crisis.  And we need a reasoned debate based on facts.

Similar arguments apply to sustainable energy, such as solar and wind power.