The World Bank (TWB), which calculates its own world food price index, claims that food prices rose by 15% in just the short time frame of October 2010 to January 2011. In fact, TWB’s latest report says food prices are up 29% compared to a year ago, and tens of millions of people are moving into the poverty category as a result.
Most of the run-up in prices can be attributed to world wheat prices following the drought in China (the world’s number-one wheat producer) and flooding in Australia, both of which have combined to raise world supply concerns. But there are a whole host of other factors driving global prices.
Corn prices, for instance, are up 73% since June, which is bringing ethanol subsidies under increasing scrutiny. In just a two-year period, the percentage of corn going into ethanol production has risen from 31% to a projected 40% in 2010-2011.
If it weren’t for relatively cheap rice prices, the cost of food around the world would be skyrocketing.
While most folks are favorably predisposed toward farmers and ranchers earning a fair living, agricultural subsidies are becoming harder for some folks to justify in the face of a declining standard of living. Food is a necessity, and consumers are much more sensitive to its supply and affordability than they are to energy prices.
If steak becomes so expensive that it’s only consumed on special occasions, then it’s the beef industry’s problem. But if the average U.S. household is forced to rearrange its budget to be able to afford hamburger, it will soon become Washington’s problem.
We have such an abundant and cheap food supply that it’s difficult to imagine food prices becoming a major political issue in this country. However, with the world’s population expected to increase by some 3 billion people over the next few decades, don’t be surprised if food prices and food production policy increasingly become center-stage issues.
The environmental movement has labeled the U.S. as a major culprit because of its use of fossil-based fuels in pursuit of a higher lifestyle. Already there are indications the U.S. will soon be branded the major contributor to global hunger and economic hardship by way of a biofuels policy that increasingly places energy production over food production.
Corn wins the battle when it is corn farmers pitted against livestock producers, but corn loses the battle when it is corn vs. the world’s starving people. Ethanol is here to stay in the short term, but its survival in the long term depends on how the politics of food production play out.
The debate will be framed by discussions over sustainability, land use, profitability, environmental impact, standard of living and the public welfare. No one is expecting food policy to be a major topic in 2012, but don’t be surprised if it hasn’t surpassed climate change in the global consciousness in the next 10-15 years.