food prices

Long period of rising food prices forecast
By Javier Blas in London

Published: January 21 2008 22:45 | Last updated: January 21 2008 22:45

Scarcity of water and arable land means that the boom in food prices could last longer than most expect, a new study has warned.

The report, to be published on Tuesday by the UK-based consultants Bidwells Agribusiness, said the boom – until now fuelled by rising demand from emerging countries and the biofuels industry – would be exacerbated by supply constraints.

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Wheat and soyabean prices have surged to records, corn prices hit a 12-year high this year and rice prices have doubled in the past year to levels not seen since the mid-1990s. Meat, poultry, eggs and dairy products prices have also increased sharply.

Instead of focusing on the current factors behind rising food prices, such as growing populations, increasing income levels and new demand from the biofuels industry, the report for the first time examines the limitations faced by farm production in the medium term.

It said water and land scarcity, together with slow improvement in agronomics, would be key factors shaping food production.

“Sustainability will ultimately be defined by food production per area of land and quantity of water used, as these are the obviously limiting factors.”

Arable land, in particular, could only be increased at the cost of “massive destruction of forest and habitats and extreme pressure on biodiversity and carbon sequestration capacity”.

“Balancing environmental sustainability against the needs of an ever larger and increasingly hungry population may well prove to be the biggest challenge of the 21st century,” the report said.

For the past half century, the world has been able to increase output thanks to rising productivity boosted by genetic advances, such as cereal seeds resistant to drought, and better agronomics, such as the wider use of irrigation, fertilisers and pesticides.

But Mr Warburton said that “yields gains have already plateaued” after more than doubling from 1.1 tonnes per hectare in 1950 to 2.7 tonnes per hectare in 2000. “It is unquestionable...that constraints on [farm] production are tightening,” the report said.

In addition to land scarcity, lack of water would hamper agriculture. China and India, the world’s two most populous countries, would be forced to provide more water to their rapidly growing urban populations rather than to their farmers, which would cut agricultural output.

Water was also an issue in highly productive areas such as California and southern Spain, the report said.
Copyright The Financial Times Limited 2008