Recent Items

Martin Wolf on Reforming Agriculture

Posted on by

In a bit of synchronicity, food worries are getting prominent billing tonight in the media. The Financial Times” Martin Wolf sketches out some dimensions of snowballing agricultural problems and possible solutions.

Wolf’s piece endeavors to cover a lot of ground, which means of necessity it gives short shrift to depth. It touches on the central yet only-now-meriting-discussion fact that high productivity agricultural production is energy intensive. It mentions only in passing that scarcity of potable water is also increasingly an issue, and as Australians know full well, agricultural uses often compete with household needs. And creating water for human consumption out of low quality water is often energy intensive (desalination reportedly is, membrane-based technologies far less so). While there are no easy answers, looking at problems in isolation is sure to lead to suboptimal solutions.

It also (an increasing pet peeve) fails to mention that the ag problems is a population and diet problem, and does not consider addressing those issues. Weirdly, there is an assumption that people can’t/won’t change their diets. Yet convention and social norms are very powerful forces. In US, but no one here is talking about the need for people in advanced economies to eat less meat and fish protein (as mentioned, it take roughly 10 grain calories to produce one food calorie). Note that does NOT mean becoming vegan, but shifting the proportions in one’s diet (I’m amazed when I go to restaurants how big the piece of protein is relative to everything else). Will this happen quickly? Unlikely, but not talking about it as part of a program will assure it doesn’t happen at all.

From the Financial Times;

Of the two crises disturbing the world economy – financial disarray and soaring food prices – the latter is the more disturbing….

The recent price spikes apply to almost all significant food and feedstuffs (see charts). Yet these jumps are themselves part of a wider range of commodity price rises. Powerful forces are linking prices of energy, industrial raw materials and foodstuffs…..

So why have prices of food risen so strongly? Will these higher prices last? What action should be taken in response?

On the demand side, strong rises in incomes per head in China, India and other emerging countries have raised demand for food, notably meat and the related animal feeds. These shifts in land use reduce the supply of cereals available for human consumption.

Furthermore, rising production of subsidised biofuels, further stimulated by soaring oil prices, boosts demand for maize, rapeseed oil and the other grains and edible oils that are an alternative to food crops. The latest World Economic Outlook from the International Monetary Fund comments that “although biofuels still account for only 1½ per cent of the global liquid fuels supply, they accounted for almost half of the increase in consumption of major food crops in 2006-07, mostly because of corn-based ethanol produced in the US”.

Meanwhile, aggregate production of maize, rice and soyabeans stagnated in 2006 and 2007. This was partly the result of drought. Also important, however, have been higher prices of oil, since modern farming is so energy-intensive. With weak growth of supply and strong increases in demand, cereal stocks have fallen to their lowest levels since the early 1980s. Declining stocks undermine the widely shared belief that speculation has driven the rising prices, since stocks would be rising, not falling, if prices were above market-clearing levels.

Vastly more worrying than speculation is the weak medium-term growth of supply. The rapid increases in yields of the 1970s and 1980s, at the time of the “green revolution”, have slowed. Given the stresses on water supplies, longer-term supply prospects would look poor even if diversion of land for production of biofuels were not adding to the pressure.

Are prices going to remain high? Two opposing forces are at work. The first is the market, which will tend to bring prices back down as supplies expand and demand shrinks. But the latter is also what we want to avoid, at least in the case of the poor, since reducing their consumption is not so much a solution as a failure. The second force is the current intense pressure on the world’s food system. This is true of both demand and costs of supply. Prices are likely to remain relatively elevated, by historical standards, unless (or until) energy prices tumble.

This, then, brings us to the big question: what is to be done? The answers fall into three broad categories: humanitarian; trade and other policy interventions; and longer-term productivity and production.

The important point on the first is that higher food prices have powerful distributional effects: they hurt the poorest the most. This is true both among countries and within them. The Food and Agricultural Organisation in Rome recently listed 37 countries in substantial need of food assistance. Moreover, according to the World Bank, soaring food prices threaten to make at least 100m more people hungry.

Increases in aid to the vulnerable, either as food or as cash, are vital. Equally important, however, is ensuring that the additional supplies reach those in greatest difficulty…..

Now turn to the policy interventions. Protection, subsidies and other such follies distort agriculture more than any other sector. Alas, the opportunity to eliminate protection against imports offered by exceptionally high world prices is not being taken. A host of countries are imposing export taxes instead, thereby fragmenting the world market still more, reducing incentives for increased output and penalising poor net-importing countries. Meanwhile, rich countries are encouraging, or even forcing, their farmers to grow fuel instead of food…

Finally, far greater resources need to be devoted to expanding long-run supply. Increased spending on research will be essential, especially into farming in dry-land conditions. The move towards genetically modified food in developing countries is as inevitable as that of the high-income countries towards nuclear power. At least as important will be more efficient use of water, via pricing and additional investment. People will oppose some of these policies. But mass starvation is not a tolerable option.

The food and fuel crisis of 2008 is a cry for our attention. Nobody knows how long these shocks will last. But they demand rapid policy changes across the globe. We must choose between fragmenting world markets still further and integrating them, between helping the poor and letting even more starve and between investing in improving supply and allowing food deficiencies to grow. The right choices are evident. The time to make them is now.

Print Friendly
Twitter0DiggReddit0StumbleUpon2Facebook0LinkedIn0Google+0bufferEmail

13 comments

  1. zak822

    While I do have a lot of empathy for the worlds poor, I am a bit more interested in how the food crisis will affect me here in the US. Both as a consumer and as an investor.

    What do you think, Yves? How will this impact the US?

    As a sidebar, a huge piece of protein and large portions in general are serious competitive issues in the food service industry, especially in sit-down resturants.

    A call for smaller protein portions will be taken as a call to commit business suicide by the middle level of the resturant trade.

  2. Anonymous

    Conventional Ag is yet again, hoist on their own petard. The main argument against Organic Ag, from the conventional blogs, is that there is not enough manure to go around to make Organics a viable alternative to chemical farming. Yet here we are with record high prices for energy and suddenly with record high commodity prices the cost of farming with chemicals to becoming too expensive to be profitable.

    Organic George

  3. zak822

    Anon, I like your comment about “not enough manure to go around”.

    The problem is not a lack of manure, but the simple fact that it’s not collected and used for this purpose. I think someone is going to notice that there’s a lot of profit to be made.

    The real reason it’s not being used is because it’s more labor intensive than chemical fertilizer. And I wonder if there’s not a certain stigma to using manure. Even though it’s been demonstrated over and over again that profits can be increased by using organics instead of chemicals, most farms stick with chemicals. It takes a lot to get people to avoid making more money. That may change now.

  4. macndub

    Organic George, India and China have and use plenty of organic fertilizer, but they simply can’t feed their populations without the chemical version. Organic is a luxury good, and suggesting that the world’s poorest eat like Alice Waters is a demand that they eat cake in the absence of bread.

    Regarding your question in a previous post, Yves, about the sustainability of fertilizer resources, there is plenty of mineral, but bottlenecks in extraction.

    Nitrogen (fixed as urea or ammonium nitrate) is the easiest: it’s made from natural gas, water, and thin air. Since gas has increased from $2/Mcf (thousand cubic foot) in the 90s to $12/Mcf today, it means that fertilizer plant economics were hideous over the past decade. Now, restarting or rebuilding this capacity will take time and effort.

    Potash, the source of potassium, is mined in Canada. Potash Corp of Saskatchewan is now the most valuable company in Canada, with a market cap exceeding $60 billion. They have plenty of reserves, but, again, bottlenecks in production. Just 4 years ago, they were shutting down mines. The good news is that Canada is the Saudi Arabia of potash; therefore, the free market will provide. Eventually.

    The ethanol lobby and the politicos who supported it have a lot to answer for. Middle school algebra can show that turning natural gas into corn to turn into fuel is batshit crazy when the alternative is to use natural gas as fuel.

  5. Richard Kline

    It is not inevitable, as Wolf blithely riffs off, that either genetically modified cultigens or nuclear power will increase. Change is inevitable; those changes are not. We have a long history of hybridization efforts (twelve millennia, but who’s counting) that suggest that monocroping and narrow seed types prove more vulnerable in the near term and lead to yield crashes. Rather than genetically modified mono-Frankencrops, we more than ever need mixed crops, crop rotations, and micro strategies such as local manure production. Agriculture is squeezed at both ends, though minimal efficiency in subsistence agricultural regions and narrow mass processes in agribusiness areas. We need to expand the middle with more options.

    Regarding which, one of the main problems with falling calorie supplies is that we are overinvested, culturally and industry-wise, in not the most efficient grains. Wheat and rice take a lot of effort. Much of the discussion revolves around doing what we already do ‘better,’ i.e. with higher yields. Food is too important to innovate wildly, so an inherent conservatism in approach is understandable. We need broader approaches, not more of the same. Why is it, pray tell, that we don’t grow more peanuts if the goal is to keep folks alive and eating adequate protien? They grow in poor soils, and are a great source. . . . We eat what we know, but maybe we should learn some new tricks at the dinner table.

  6. Richard Kline

    It is not inevitable, as Wolf blithely riffs off, that either genetically modified cultigens or nuclear power will increase. Change is inevitable; those changes are not. We have a long history of hybridization efforts (twelve millennia, but who’s counting) that suggest that monocroping and narrow seed types prove more vulnerable in the near term and lead to yield crashes. Rather than genetically modified mono-Frankencrops, we more than ever need mixed crops, crop rotations, and micro strategies such as local manure production. Agriculture is squeezed at both ends, though minimal efficiency in subsistence agricultural regions and narrow mass processes in agribusiness areas. We need to expand the middle with more options.

    Regarding which, one of the main problems with falling calorie supplies is that we are overinvested, culturally and industry-wise, in not the most efficient grains. Wheat and rice take a lot of effort. Much of the discussion revolves around doing what we already do ‘better,’ i.e. with higher yields. Food is too important to innovate wildly, so an inherent conservatism in approach is understandable. We need broader approaches, not more of the same. Why is it, pray tell, that we don’t grow more peanuts if the goal is to keep folks alive and eating adequate protien? They grow in poor soils, and are a great source. . . . We eat what we know, but maybe we should learn some new tricks at the dinner table.

    Oh and I couldn’t agree more that corn + $ = fuel is one of the stupider ways to lose money in an era abounding in such pursuits. All this was _ever_ about was getting fat off public subsidies—so cut ‘em off the public teat.

  7. russell1200

    Best questimates are that world population peaks at $10 billion before plateauing.

    We aren’t there yet.

  8. Anonymous

    Modern farm is a mimi chemical industrial site with all the side effects one can imagine. Technology has reached its limits or close enough given the side effects to the environment of trying to create large amounts of food quickly and inexpensivly both here and abroad. At some point in time the ability to use unlimited amounts of chemical fertizers/pesticides/potash, to feed the world’s population will reach the end game and maybe we are beginning to see the tipping point within our lifetime. The use of technology in AG has provided lower cost food production on a massive scale but the imputs necessary to keep the system working are getting scarce and expensive and we havn’t even began to discuss the problems related to water availability.

  9. Lune

    Agriculture in the U.S. is controlled tighter than steel production in Soviet 5-year plans of yesteryear. This is one area of the economy where U.S. policy would make former Soviet politburo members proud.

    I believe that much (although not all) of the current conundrums we face in agriculture are due to the counterproductive incentives and policies we have in place. The fact that it’s cheaper to fatten cattle with corn rather than grass in the U.S. suggests that corn is still plentiful. With a change in policies that make such appalling practices economically viable, we might get back to a more rational and efficient food chain.

    Furthermore, I agree wholeheartedly with you, Yves, that eating habits can be changed with the right incentives. In almost the entire world, except the U.S., meat costs more per pound than vegetables. In the U.S., the opposite is true. It’s even worse in poor areas of the country (e.g. inner city areas), where there is a paucity of grocery stores at all, and many people must therefore decide between eating fast food at the local McDonald’s, junk food from the 7-Eleven down the street, or pay for a bus ride to a different neighborhood, and maybe a taxi ride home, to shop at a real grocery store and buy real food. Is it any wonder that poor people in the U.S. have poor diets (and the resulting staggering rates of diabetes and heart disease)?

    At any rate, I do see some hope in this matter. Agriculture policy used to be considered a backwater only relevant to farm-state senators and Congresspeople. But health policy-types and urban planning-types are finally realizing that you can’t talk about the nation’s health without involving yourself in the nation’s food supply, and you can’t talk about land utilization in America without talking about farm policy.

    While health and urban planning advocates are neophytes to the byzantine game of agriculture policy, they did get heavily involved in last year’s omnibus bill (much to the chagrin of the traditional players), and I hope they continue to get experience and finally do battle with the ranchers and industrial farmers that misdirect our agricultural policy to fatten their profits rather than provide the nation with nutritious, healthy, and tasty food.

  10. Juan

    I’m not sure that Wolf is necessarily correct to say that declining stocks undermine a speculation argument since the two can operate together.

    There have been instances (e.g. India) this decade of official, i.e. govt, stocks falling as result of large trading companies cornering supplies with consequent lack of availability promoting greater futures market speculation and prices above what would have been market clearing.

    Overall stocks can fall in an effective if not actual sense. I’ve a tendency to believe that widespread small scale hoarding can have same effect and would like to know whether his data sources take either/both into account.

    Which is not to say ‘no shortages’ but question the degrees.

  11. Peripheral Visionary

    One additional point that never gets brought up in the discussion on food supplies is the issue of alcohol. Fuel alcohols are an inefficient use of land, but alcohols for consumption are also inefficient. Unfortunately, the wine fad has resulted in large amounts of otherwise prime real estate getting converted into producing substances that are not net positive contributors to diet, and much the same can be said for the other drinking alcohols. While I realize Americans and Europeans love their drinks, this is another area, in addition to meat consumption, where difficult adjustments may have to be made.

  12. Kim McDodge

    Socialists, Capitalists, Communitarians, those of us who eat and most farmers know little of the biology under all of our feet.

    Once one has a clue of the following AND can demonstrate it, one can make suggestions for resiliency. That will take a while but will lift us all out of the mess we are in:

    http://www.soilfoodweb.com/03_about_us/approach.html
    and
    http://www.timberpress.com/books/isbn.cfm/9780881927771

    Do not blow off the work of soil scientists over the last 30 years!
    or think that some -ism or -ology will cure this arrogance. Hitting bottom might.

    It does not matter who and in what system this is learned. It changes all consciousness toward resiliency.

  13. Anonymous

    Kim, the soilfoodweb idea is a scam made large. It is a religion. There is no long term solution except learning how to really compost (decompose not burn) organic matter. As long as the “financial” controls (not serves) the “real” there will be no solutions.

    The current problems are caused by a speculative free for all. Until the Government steps in to jail a few birds and re-establish a Republic for the “General Welfare”, the Earth will continue downward on all fronts.

    It is interesting that Russia, not the USA, is the leader in these areas among the largest nations. USA jail more people than anyone but seldom some of the right birds (and how the money boys in Britain & America hate V. Putin for doing that).

Comments are closed.