Montreal, May 29, 2008 – The world has a huge reserve capacity in food production to cope with the current crisis. In a study published by the Montreal Economic Institute, Ian Irvine, a professor in the department of economics at Concordia University, states that “dismantling protectionism and increasing supply would compensate for the rise in fuel and fertilizer prices and allay the effects of ill-advised policies of support for biofuels. This reform would respond to growing food demand from emerging countries.”
Three ways to increase food supply
First, high agricultural prices provide an opportunity to dismantle protectionism, allowing for exports and stimulating food production. However, most developed economies still subsidize producers and send their surpluses onto international markets, preventing many poor countries from exporting their production or investing in their own farm sectors.
Second, the food supply could be raised by cultivating land not required for urban development in middle-income countries, especially in the former eastern bloc. These countries have seen a rise in available farmland with the higher productivity created by abandoning the collectivist economy.
Third, large-scale efficiency gains may still be quite possible by using higher-performance farm technologies, for example by making better use of fertilizers, despite their recent price rise.
Aggravating factors in the food crisis
The heavily subsidized increase in production of ethanol and other biofuels has diverted the use of corn away from animal feed and human consumption. These ill-advised policies have also brought about a reduction in land used for wheat and soybeans as well as stimulating demand and prices for fertilizers commonly used for corn.
Another explanation lies with the supply side: world grain production has fallen, due in particular to the drought that has hurt the Australian wheat harvest. In addition, world grain reserves have fallen, causing sharper price variations.
Fuels and fertilizers account for only a small increase in farm expenses in Canada, about 3% from 2006 to 2007, and thus had almost no impact on food retail prices here, but the situation is very different in less developed countries, where those factors constitute a much bigger part of food production costs.
An overestimated factor in the food crisis
Worldwide income growth, especially in India and China, is generating growth in demand and pressure on prices. But this greater wealth cannot explain the explosion in food prices seen in the last two years. Growth in demand for grain has been continuous over a 10-year period, with no substantial variation.
This Viewpoint on the world food crisis was prepared by Ian Irvine, a professor in the department of economics at Concordia University.
– 30 –
Information and interview requests: André Valiquette, Director of Communications, Montreal Economic Institute, Tel.: 514 273-0969 ext. 2225 / Cell: 514 574-0969 / E-mail: avaliquette (@iedm.org)