Science - August 16, 2012

'Agricultural politics, not climate, is causing high food prices'

Food prices are very high this summer. Owing to the persistent drought in the US and Russia, the harvest forecasts for grains, corn and soya have been revised downwards and food prices are edging towards the record levels of 2008 and 2010, when food riots broke out.

'Yes, the extreme climate conditions are the immediate cause of today's high food prices,' says agricultural economist Niek Koning. 'But I know of no studies that show that the more extreme climate is causing more failed harvests. Failed harvests are nothing new, but governments used to set aside food reserves, like the EU butter mountain. These reserves were scrapped when agricultural policy was liberalized, so now failed harvests are triggering higher prices.'
Apparently in the US one-third of the corn harvest is being used for biofuels.
'That's right. The impact of biofuels on food prices is being widely debated. Ideally, corn would be processed to produce ethanol when corn prices are low. And when the price of corn rises, ethanol production would stop, so that food prices don't skyrocket. But the ethanol industry is not halting its production because it has invested in factories and incurred fixed costs.'
And speculation?
'Many NGOs are pointing the finger at speculators, saying they are driving up prices. I'd say there is some truth in this. Speculators are not the cause of high prices, but they do exacerbate price fluctuations.'

But prices are high, aren't they?
'On average food prices are at a higher level than they were ten years ago. One cause of this is being overlooked: the policy reforms which led to low prices between 1980 and 2007. As a result of this, too little has been invested in agriculture. Take the EU for example. We started taking land out of production and replacing price support with income supplements, and income supplements did not boost production like price support. As a result, production growth was greatly retarded. This is why we now have a permanent shortage. The high prices are already prompting more agricultural investments in Brazil and Africa. This leads me to believe that food prices will start to drop in five years' time.'

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