Eat - But better grow first!

* World food prices skyrocket

* Food demands increase in China and India

* Barrel of crude oil hits $ 100 mark

* Farmers can take advantage

by Dhaneshi Yatawara

Last December 6th, 'The Economist' magazine stressed the fact that 'Rising incomes in Asia and ethanol subsidies in America have put an end to a long era of falling food prices.'

Prices of many staple food items in the international market have increased to the highest level in history and analysts predict that high prices will persist for a long period.

On the other hand, increasing food prices have created serious challenges as well as numerous opportunities in the agricultural sector. "The Economist's" food-price index is now at its highest since the magazine it began publications in 1845, having risen by one-third in the past year. Adding to the whole scenario the oil price hike, US$ 100 a barrel, can aggravate the food price increase.

Explaining this crucial phenomenon, Dr. R. M. K. Ratnayake Secretary of the Trade Ministry said there are three main reasons for this turning point. One would be the global climate change with prolonged droughts and global warming, the unmet demand rising from Asia-India and China in particular and other accelerating factor is the diverting food, especially grain, into bio fuels.

"China has increased the export duty by 26% and India's minimum export pay has risen to US$ 500 from US$ 200," Dr. Ratnayake added. In addition the price of wheat is now around US$ 700 per metric ton making the price of a kilo of seeds to Rs. 80 - when the costs of milling come in to the process the prices can go up much higher.

"The Economist" magazine further points out that in early September the world price of wheat rose to over $ 400 a tonne, the highest ever recorded. In May it had been around $ 200. According to the report in real terms its price is far below the heights it scaled in 1974 but is still twice the average of the past 25 years.

"Earlier this year the price of maize (corn) exceeded $ 175 a tonne, again a world record. It has fallen from its peak, as has that of wheat, but at $ 150 a tonne is still 50% above the average for 2006," the report highlights.

This year harvests were quite low in certain parts of the world, notably Australia, where the prolonged drought caused the wheat crop to fail for the second year running in addition to the low production of world cereals stocks - the lowest ever recorded. This run-down got steeper by the decision to reduce stocks to save money by large countries like America and China.

According to published news reports from all over the world the annual meat consumption per person in China has gone up to 50 kilos in 2007 from 20 kilos in 1985.

This factor pushes up the demand for grain as animal fodder - it takes 8 kilos of grain to produce one kilo of meat. Similarly the demand for cheese and butter has gone up exerting pressure on dairy product prices and again on grain prices.

Higher income levels in India and China have made hundreds of millions of people rich enough to afford meat and other foods, 'The Economist' states further. Accordingly, in 1985 an average Chinese person consumed 20 kilos of meat a year and now it has increased to more than 50 kg. In developing countries as a whole, consumption of cereals has been flat since 1980, but the demand for meat has doubled, the report further points out.

Since the late 1980s an inexorable annual increase of 1-2% in the demand for feed-grains has ratcheted up the overall demand for cereals and pushed up prices.

The farmers, seeing the changed current demand, have switched on to poultry and related productions. They now feed about 200 million to 250 million more tonnes of grain to their animals than they did 20 years ago creating a significant increase in the share of the world's total cereals crop.

"It takes three kilograms of cereals to produce a kilo of pork, eight for a kilo of beef," the magazine states. So a shift in diet is multiplied many times over in the grain markets.

The latest World Development report warns global food supplies are under pressure from expanding demand for food, feed, and biofuels; the rising price of energy; and increasing land and water scarcity; as well as the effects of climate change contributing to uncertainty about future food prices.

The report says in the emerging area of biofuels, the problem is both restrictive tariffs and heavy subsidies in rich countries, which drive up food prices and limit export opportunities for efficient developing country producers.

The report also asserts that industrialized countries that were the major contributors to global warming urgently need to do more to help poor farmers adapt their production systems to climate change.

Other factor for the price increase is turning grain into bio fuel ethanol. In 2000, America used 15 million tonnes of maize to produce ethanol and in 2007 it increased to 85 million tonnes and worldwide turning grain to ethanol is increasing. Both these demand factors will not change immediately and therefore food prices will remain high for a long time.

Reports indicate that in 2000 around 15 million tonnes of America's maize crop was turned into ethanol and this year (2008) the quantity is likely to be around 85 million tonnes. USA is the world's largest maize exporter and with this high demand for bio fuel it now uses more of its maize crop for ethanol than what it send across the seas.

The possible makeover

Experts of the field analyzing all there ups and downs states that the demand factors are strong for the price increase and therefore this is an ideal opportunity to boost the country's lagging agricultural sector - may be a blessing in disguise.

This price signal has already influenced farmers in other countries and now the resources are being directed to increase grain production.

Even the latest World Development Report calls for greater investment in agriculture in developing countries and warns that the sector must be placed at the centre of the development agenda if the goals of halving extreme poverty and hunger by 2015 are to be realized.

Argentina, Morocco, Egypt, Mexico and China have put restraints on domestic prices. A dozen countries, including India, Vietnam, Serbia and Ukraine, have imposed export taxes or limited exports. Argentina and Russia have done both. In all these places governments are seeking to shelter their people from food-price rises by price controls.

'The Economist' reports that in America, the net farm income this year will be $ 87 billion, 50% more than the average of the past ten years.

Analysts believe that since commodity prices have been falling for so long in the world market, this would be an enormous relief to places that have suffered from decline of trade.

According to Trade Ministry officials we are 90% self sufficient in rice production. Accordingly 1.9 million metric tonnes of rise is produced in the country that is with a two million metric tonne demand for rice, annually. What if we focus on trying to be self sufficient in many agri based products within our capacity.

To boost the agro economy, the government should draw up a proper plan to address fundamental issues that experts have pointed out for a long time. Issues such as land, marketing, credit and infrastructure have to be addressed and there are many proposals prepared by professionals.

Today, the main issue has been solved by the market and farmers will get higher prices and if we start production of ethanol the market condition could be sustained for many years, analysts said.

Taking advantage from this move in the world food market can be tricky. Especially, when the essential commodities for development and industries rocket. Yet turning this transition point of the world food market towards our development, development of our farmers will definitely lift the country economically and socially.

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