Marcos Fava Neves

There are alternative solutions for the food crisis

By Marcos Fava Neves (chinadaily.com.cn)
Updated: 2011-02-09 09:47

My first article published on China Daily (July 7th, 2009), almost 20 months ago, addressed the food crisis debate ("The Food Crisis will be Back"). The article ideas came from previous research and were then further developed and published in two important academic journals (I can send to China Daily readers upon request).

At the moment of the article, we had comfortable food commodity prices and I explained that the 2007/08 crisis was serious and structural, caused by nine factors, with different levels of responsibility (effect). Let's get back to them: use of grains and agricultural land for biofuels; population growth effects (220 thousand new stomachs per day); strong income increase and distribution in emerging economies (with not accurate consumption data); urbanization of population (megacities); local governments income support programs; high oil prices; production shortages (due to climate, not sustainable water usage, plagues and diseases, low prices and other factors); dollar devaluation and investment funds speculation.

Related readings:  Sarkozy appeals for G20 moves on food prices, tax  China to face food supply pressures over next 5 yrs: Report  Castro urges to produce food instead of bio-fuels  Agricultural efficiency crucial for food security: researcher

It was not difficult to anticipate another food crisis, since we were facing a new era in consumption. Just to illustrate, global consumption of wheat is growing (3 years average) 10 million tons per year, corn almost 30 million tons/year and soya, 20 million tons/ year. Meat had a consumption growth of almost 20% in 9 years. In essence, people are having access to food.

Food commodities prices raised 40% in one year, and non food commodities almost 94%. This price increase is bringing back inflation, hunger and political disturbs in some developing countries where population spends 30-50% of their incomes with food and are net importers of oil.

And where does President Sarkozy come into this story? As the G20 leader, he is worried with the food prices and proposing a strategy for the G20 to intervene in some matter trying to lower the prices, with more regulation for financial markets of commodities and even building global stocks. We must remember that food commodities chains face all types of interventions and distortions, from US$ billions spent in subsidies, high import taxes with an historical damage to several agricultural export- based economies of developing nations. It is very relevant his preoccupation, but I think we could move in another and more positive long term direction, acting with the causes of the problem.

At that same 2009 article, I pointed 10 solutions to deal with the food crisis, trying to bring more equilibrium basically promoting a shock in the offer (production) and efficiency, which is a "win-win" strategy. These solutions were: sustainable horizontal expansion in food production using new available areas in South America and Africa where water is not scarce; vertical expansion increasing productivity; reduction in food taxes, other market protections and barriers that increases costs and inflate food prices for the final consumers; investment in global logistics to reduce waste and costs for food transport; use the best sources for biofuels production that don't compete with food chains (ethanol from sugar cane is the best example here when compared to corn for feed); investments towards a reduction in transaction costs that occur in all food chains; new generation of cheaper and innovative sources of fertilizers (today they represent a high cost to farmers); sustainable supply contracts to farmers for more balanced margins allocation; spreading innovations (GMO's, nanotechnology and others) and, finally, consumer behavior changes to avoid losses and even overconsumption of food (obesity). President Sarkozy and other global politicians and strategists could expand their ideas and further policies with this 10 points list.

To stimulate a policy of global stocks and controls in prices as they are now proposing will make food commodities markets even more artificial and these policies were already studied by important economists of OCDE showing that the intervention did not work. Other interventions like contingencies of exports and high export taxes may have an immediate positive result to control inflation in local markets, but they produce damage in the middle term, since they all reduce farmers' incentive to increase production and productivity.

Famers for a long time suffered due to subsidies for production in some specific countries, that brought lower commodity prices and less incentive to grow production and promote income distribution in the world. It is now time to change. Farmers worldwide, but mostly in emerging nations and Africa need price incentives, technology, credit and buying contracts (market access) in order to invest and grow production to a level that will be able to face the increasing food demand in the next 10-20 years, and solve the food crisis.

If United Nations, FAO and the G20 are worried in the coming months with food prices, let's immediately reduce taxes over food and even supplement lower income people with a temporary Governmental support and move towards these ten points of development proposed.

We will need to double food production in ten years, and the world has areas, technology, water and farmers to do it. Let's move toward the right direction: incentives for the sustainable growth in global farm production and trade, generating welfare, inclusion and peace.

The author is professor of strategic planning and food chains at FEARP School of Economics and Business, University of Sao Paulo, Brazil (www.favaneves.org – email: mfaneves@usp.br) and international speaker.