Recently, there are a lot of news headlines about rising food prices and food-related riots and unrest. As this news article, Food inflation, riots stir concern reported,
Finance ministers meeting in the US to grapple with the global financial crisis have also struggled with a problem that has plagued the world periodically since before the time of the Pharaohs: food shortages.
Surging commodity prices have pushed global food prices up 83 per cent in the past three years, according to the World Bank – putting huge stress on some of the world’s poorest nations.
Is this a fairly recent phenomenon? In February and July last year, we touched on this looming food crisis in Corn as food or as fuel? and Prepare for more food price inflation respectively. Finally, in October last year, we had identified three macro-themes about this looming food crisis in Why are food prices rising?. So, you can see that this food problem has been in the makings for quite a long time already. It is only recently that it has received great attention in the media.
We have been thinking about this food problem for quite a long time, wondering whether there is a root reason for this slow-motioned tragedy. As we read the news media about this problem, the reasons seemed to be quite fragmented. Somehow, our intuition tells us that there must be an underlying force behind all these reasons. So today, we will attempt to come out with a theory to explain how it comes about, while hoping that we do not fall into the narrative fallacy that we talked about in Mental pitfall: Narrative Fallacy.
Today’s journey will begin in China. At the end of 2006, China’s rural population stood at around 737 million. From 1990 till today, we estimated around 230 million rural peasant Chinese migrated from the countryside to the cities (source: China’s rural population shrinks to 56% of total). Our guess is that the majority of the rural migrants are males. Over the past couple of decades, it is this mass migration that provided the vast quantity of labour to propel China’s rise as a major economic power. It is China’s economic power in manufacturing that enabled the debt-induced over-consumption and low inflation of the West, especially in the English-speaking nations (look at the US’s mighty trade deficits). Compared to Western standards, China’s peasant farming is not as efficient and productive per capita. Now, if around 230 million rural peasant Chinese (mostly males, and the males do most of the farming) migrated to the cities’ manufacturing related jobs, it is clear that Chinese farm output has to fall significantly. Also, China as a whole is getting wealthier than before and as a result, consumes more meat, which in turn consume grains for livestock, thus competing against the demand for human-consumed food. Therefore, to feed China’s vast population with significantly reduced farm output, food imports have to rise significantly, which puts upward pressure on the world’s food prices.
Next, China’s rise over the decades raises the consumption of commodities greatly, including energy. As we said before in The Problem that can throw us back into the age of horse-drawn carriages,
In summary, supplying environmentally sustainable energy indefinitely at a rate fast enough is a colossal global problem that must be solved. If not, the latter generations will not live better than the current generation.
With rising energy costs, the US embarked on a foolhardy ethanol program in the name of energy ‘independence’ (see Prepare for more food price inflation). This program resulted in even more diversion of more food production resources into fuel making, reducing the food supply even more.
In the more affluent Western nations, food production takes on a more capital-intensive form. These capitals requires energy. With rising energy costs, food prices have to rise because of the increasing cost of production and distribution.
To make matters even worse, food is tend to be much less income and price elastic, especially for the poor. That is, no matter what, people have to eat even if their income falls or if the price rises. This is unlike the more discretionary items like clothing whereby people can reduce demand in response to falling income or rising prices. As a result, any increase in the cost of producing food is easily passed on to the consumers in the form of higher prices.
When the effects of climate change and drought get thrown in, the situation becomes even more serious.
The more we look at it, the more we feel that the global economic growth of the past decade is not sustainable without serious environmental, food, energy and commodities repercussions. That is why we see that a severe global recession is a necessary evil. Otherwise, more sufferings and permanent damage will occur even for the future generations.
