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The current food shortages abroad and price spikes here raise awkward questions that will affect everyone’s way of life
According to G7 finance chiefs and International Monetary Fund bosses a potential food crisis promises to blow a bigger whole in global stability than the credit crunch. That the scale of the implied threat came just before another year of record profits from supermarket Tesco were roundly applauded by City analysts seems to sum up the dichotomy between financial markets and normal people.
Tesco’s figures were quite remarkable when you think about them. The £2.84 billion reported for 2007 works out at almost £325,000 every hour. Profit, not revenue, you understand. Put another way, if all of Tesco’s profits were paid in £50 notes, and a single person could count one note per second, it would take two people, working 24 hours a day, seven days a week for the whole year to keep pace with the amount of profit flooding through Tesco’s tills. To tot up the revenue, that is another kettle of fish entirely. Counting Tesco’s £51.8 billion top line would take a small army of about 40 people counting a £50 note every second of every day, for the entire year.
As Brits prepare to weather the multiple storms of electricity and gas price hikes, spiralling inflation, mortgage repayments and more expensive fuel we are, along with many countries, developing and developed alike, also fighting the spectre of food inflation. In the past few weeks we have witnessed countless headlines that proclaim riots, deaths and considerable disquiet as food shortages and food price spikes haunt countries as far afield as Africa, Asia and Latin America. The squeeze is starting to impact the developed world too.
Recently Greggs, the baker, admitted to having to up the price of its pasties and cakes, while bread maker Premier Foods has seen its profits crash in spite of upping the price of its loaves.
Reading between the lines of some of the bleaker news coverage and you might believe we’ll be turned into a nation of Oliver Twists, soup bowl in hand begging for more. You can almost picture the scene, with huge crowds snaking along the length of your local supermarket, round the corner and down the road, a bit like a clip from a 1950s US anti-communist propaganda movie.
Joking aside, we may have to take some pretty bold steps if many of the basic food stuffs we all now take so readily for granted are not to become luxuries, because this is a global problem that the UK will find increasingly difficult to sidestep otherwise.
According to California-based policy think tank the Oakland Institute, world food prices rose 39% between February 2007 and February 2008, with the real price of rice soaring to a 19-year high in March after a near 50% spike in just two weeks. The real price of wheat has hit a 28-year high. Various causes for this crisis are being cited in policy circles, including increased demand from China, India and other emerging economies, rising fuel and fertiliser costs, and climate change. The World Economic Outlook just released by the IMF, holds biofuels responsible for almost half the increase in the consumption of major food crops in 2006/7.
Last weekend’s Financial Times carried a graphic illustration, a harrowing picture of a Filipino woman, her face contorted in concern about the prospect of rice shortages. Elsewhere, a possible corn shortage is causing a wave of concern about tortilla availability in Mexico, and British pig farmers are deeply troubled about the implications of feed cost increases for the production of pork.
Everyone’s staple diet, irrespective of its regional variety, appears to be under threat in this new food shortage frenzy that has, at least partly, come about by virtue of the fuel scarcity answer caused by ethanol production on a large scale. World Bank President Robert Zoellick has called for a co-ordinated global response to combat increasing food prices that endanger the world’s poor and vulnerable communities.
But what can and should be done? Firstly, where possible, market-distorting mechanisms that directly or indirectly contribute to the high cost of food must be eliminated. Improved market access for agricultural produce from developing countries is what’s needed since artificial pricing structures kept in place by trade-distorting subsidies are now a problem for developed nations. Second, a clear understanding has to take root in the developed world that it is in its interest to pursue trade liberalisation for agricultural product markets. Any thoughts that a food crisis is something that is happening to poor people somewhere else is folly in the extreme. Third, we need a more considered analysis of the efficacy of biofuels as a clean-energy source against the impact on food access and
inflation.
What remains clear is that this is probably the era of ‘peak food’, a potentially explosive place to be if we draw reasonable similarities in supply/demand bottlenecks in the oil price. Oil has has risen roughly five-fold in just a few years, and pretty much doubled in less than two. Similar patterns in the price of basic food stuffs will severely undermine any hopes for stability and calm in commodity, or indeed, any financial market.
Penetrating policy debates must start to counter a phenomenon that can easily become a global security issue if poorer populations feel a renewed sense of marginalisation by virtue of being excluded from basic commodities in a world of peak food. While not every financial market crisis impacts significantly on how we go about our daily lives, the reverse is true, with seismic shifts that unsettle our day-to-day routine certain to weigh heavily on financial markets. The consequences of not recognising this could be catastrophic.