gm crops best answer to food price inflation

Genetically modified crops best answer to food-price inflation
Monday, March 24, 2008
The Post Monitoring

Throughout your lifetime, whether you are 25, 40 or (like me) 50 years old, the price of food has been falling, bit by bit, year by year. This fall has been more striking in proportion to your income: less and less of our money is being spent on food.

The only exception occurred in 1974-75 when the oil shock sent fertiliser prices rocketing, and supply shortages made food prices rocket, too. We are now in another exceptional period, one that is affecting consumers all over the world, is making the UN's food-aid programme costlier, and is making life much harder for central bankers concerned about controlling inflation. The difficult question is: how long will this exceptional period last?

In dollar terms, the food-price index published by The Economist has risen by more than 60 per cent in the past year. For anyone using currencies that have appreciated against the dollar during that time, such as the euro, the rupee and other Asian currencies, the rise in food prices has been up to 10-15 per cent less, but it has still been painful. In the past, sudden rises in food prices have been caused either by bad harvests or by a factor such as war, which breaks up the global supply system. Neither of those is relevant this time. The global crop of cereals last year was a record 1.66 billion tonnes, 5.5 per cent higher than in 2006. Instead, the rise in food prices has two main causes.

The first reason is that demand for grains in China and other emerging economies has risen rapidly as a wealthier population starts to eat more meat, which requires more grain as animal feed. But that should cause a gradual rise, not sudden. It is much more true of China than of India, where demand for grain has been slower to rise. The second reason explains the suddenness: oil prices at $100 a barrel, along with a flood of subsidies, especially in the US, have caused a rise in demand for maize to be converted into ethanol for use as a substitute for gasoline. The US expanded its ethanol subsidy programme in 2005, encouraging farmers to switch to maize from other crops. Other countries have also provided incentives, but none with such dramatic effect.

The first of those factors is likely to continue. High food prices may slow down the rise in demand for meat in China, but it will not reverse it unless China's economy hits major problems. The second factor depends on decisions about ethanol subsidies and on whether oil prices stay high, encouraging more motorists to switch to ethanol. In a presidential election year in the US, no candidate is going to promise to cut ethanol subsidies.

Instead, the duration of this period of rising food prices will depend on three sorts of action. The first is by farmers. In response to high prices, they are planting more crops than ever before. The weather will determine how successful those farmers are, but with plantings increasing in many countries, the overall supply of food is sure to rise.

The second action will take longer. Governments and private investors need to devote more money to building infrastructure in rural areas in the poorest countries. That is where the most potential for increasing the amount of land devoted to farming exists. But India shows the problem: its demand for meat is increasing, but its farmers are barely benefiting. The reason is that their crops cannot get to market because of poor roads, and their other produce perishes, thanks to a lack of refrigeration and secure warehousing. Political opposition to allowing modern retailing is one problem. Misdirected rural subsidies and a lack of public funds for infrastructure is another. Hence the tinkering by Finance Minister P Chidambaram with rural incentives in his recent Budget.

The third action holds more potential, but depends on public opinion in Europe. In the past, farmers achieved bigger harvests by using new technology: better seeds, insecticides and fertiliser. A new technology, genetic engineering, could hugely increase crop yields using less insecticide and fertiliser. But public fears about food safety have had governments slow down development of genetically modified crops. As Europe is such a big food consumer, its qualms have discouraged other countries for fear their goods will be excluded from Europe.

The best response to food-price inflation would be for Europeans to relax those barriers to innovation in farming that are represented by genetic modification. This would require a new public debate and new efforts by scientists to persuade us that GM foods are safe, which would take time. But it could have a big effect over even just a five-year period. The choice is stark: pay higher prices, or let the innovation begin.

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