News - January 13, 2011

Food is only getting cheaper

Astrid Smit

Global food prices have never been so high, reported the world food organization FAO early this month. In one year, food prices have gone up by almost 25 percent. What is going on? Agricultural economist Niek Koning:

'The high food prices are a result of unstable agricultural markets. Prices fluctuate like mad. They were high in 2008, then they were low - in 2009 a lot of European farmers made a loss - and now they are high again. That is caused by the liberalization of the agricultural policy. The EU and the US used to stockpile a big buffer, which they would release in times of scarcity. But they have cut down on those buffers, and without them it only takes a couple of poor harvests at the same time to create price fluctuations on the world market. Speculation then exacerbates the price rises, as investors can at that point earn more from commodities than from currencies.
I do not have a clear overview of food prices from day to day; I look more at the overall trend. And the trend up to now is that food prices are going down. Food is getting cheaper and cheaper. There are now people who say: that trend is going to go into reverse and we'll get rising prices, due to the growing world population and the climate problems. I do not rule that out but I do not think the current prices have anything to do with that. The world population is not growing as fast now as it did in the second half of the twentieth century. The same goes for meat consumption. And agricultural productivity can still increase in many parts of the world. In the long term the shortage of fossil fuels can lead to a huge demand for biomass for energy. That is a new development that could have a massive influence on food prices. If we want to generate ten percent of our projected energy requirements in 2050 from biomass, we shall need an amount equivalent to the entire current food supply. At the same time, reserves of land and water are running out. Looking at the long term, we have to invest in new technology to raise production. The annoying thing is that the current unstable agricultural market discourages these investments. It's all or nothing on the market.