The universal dismay greeting higher food prices is understandable, but misplaced. A world hooked on cheap food is suffering withdrawal symptoms.
For poor food importing countries particularly, that means balance of payments, problems, deprivation and even riots. For all countries, it means an unwelcome upward twist to inflation. But a growing population needs higher food prices if it is to feed itself in the future.
Food prices have certainly seen a meteoric rise. The food price index calculated by the Food and Agriculture Organization, a United Nations body, shot up by 37% between December 2006 and December 2007.
The World Bank estimates that global food prices have soared by 83% in the last three years. Some markets, notably for rice, have been seriously disrupted. The increases are a special shock because real food prices have fallen over the last 30 years.
Several forces have driven prices up. Soaring energy prices have raised the cost of agricultural inputs such as fuel and fertilizers, and indirectly the price of equipment. Natural disasters such as drought in Australia have stretched markets further. Diversion of crops from food to ethanol production may have forced prices up as well.
But deeper currents run below these eddies. The world’s population is increasing and so are incomes. As people become better off, as in China, they eat more meat—an inefficient way of turning grains into protein.
The majority of people live in cities. Yet annual agricultural labour productivity growth in Asia fell to 1% at the beginning of this century, less than half its rate in the two preceding decades.
Improving farm productivity and output requires a host of measures such as more efficient irrigation, improvedagricultural credit and land entitlements, new crop varieties (including genetically-modified foods), and better ruralinfrastructure. It is also important to abolish the panoply of market distorting interventions beloved of governments the world over.
The crucial ingredient, however, is prices. In the short term, the World Bank is right to campaign to alleviate the impact of high prices on the poor. But in the longer term, the best way to reduce poverty—especially among the rural poor—and feed the world is to make sure that farming pays.