Record prices for rice, wheat and corn have triggered conflict over the supply of basic foodstuffs in countries around the world. What are the reasons for this development and what options do we have to contain rising costs and safeguard the supply of food to the global population in the long term?
The current discussion concerning the rise in food prices first highlights one thing: the growing awareness that food does not just fall from heaven.
To a certain extent, the Western industrialized nations have little understanding any more of how agricultural produce is made. The fact that the industrialized nations can purchase fruit and agricultural produce from around the world at reasonable prices, regardless of the season, has become too much a matter of course. This perception is fed by the fact that food prices have dropped by some 75% since the 1970s, as a result of progress in productivity. In Europe, we have even promoted organic agriculture, which on average means that twice as much land has to come under the plough than in conventional agriculture.
The tables began to turn in 2005. In a three-year period, prices have risen by 75%. Rising food prices are first of all the straightforward result of a surplus in demand coupled with a limited supply: An increasing number of people have to be fed from an area of land that is, at best, remaining constant. While the area of land that is suitable for agriculture cannot, in principle, be extended without intervening in protected nature reserves, the population is increasing annually by some 80 million people. By 2050, only one-third of the arable land that we had per person in the 1950s will be available to feed the world population.
The additional demand for biofuels has definitely had an impact on food prices.
While biofuels certainly make a contribution to meeting the increasing global demand for energy and simultaneously lowering greenhouse gas emissions, they also compete with food crops for the limited amount of land available. That’s why we would be well advised to promote approaches that do not lead to competition in food growing. I believe that the second generation of biofuels based on biomass and plant residue will play an increasingly important role here. However, in our view, there is a clear principle here: Food production takes priority.
That’s why we at Bayer, for example, are conducting research into the jatropha plant which flourishes on ground that is not suitable for food production.
Another crucial factor is the greatly increased energy costs in recent years. The constant increase in mineral oil prices has made farmers’ production costs considerably more expensive. This has an effect, for example, on the operation of agricultural machinery, the transport of production materials and harvests, and air-conditioned storage facilities. The use of artificial fertilizers, the manufacture of which is extremely energy-intensive, also makes a considerable contribution to the rising cost of production. Machinery and energy factors make up a total of approximately 60% of the overall production costs in wheat growing in Europe. As a comparison: Only 6% goes towards seeds and 8% for crop protection agents.
There has been a high level of correlation between energy costs and the prices of agricultural raw materials in the past eight years. Since 2000, the prices for crude oil, on the one hand, and wheat, corn, rapeseed and soya, on the other, have developed largely in parallel. The spiralling rise in prices for agricultural raw materials since 2007 is certainly also the result of a certain amount of speculation in the capital markets. In the first quarter of 2008, for example, some $30 billion was put into agricultural commodities and related investment vehicles.
Furthermore, in the past two years in particular, other factors have also had an impact on pricing, including weather-related harvest losses, for example, due to the worst drought in a century in Australia.
Given the current trends in the agricultural markets, we must also expect the level of food prices to remain high over the coming years. This will have a particular impact on emerging markets and developing countries.
However, India can play an important role in mitigating the current high food prices. On the one hand, it has to meet the requirement of its growing population. On the other hand, India also has to contribute to the world food supply as one of the principal foodgrain producers. India can strengthen the supply in a sustainable manner by investing more heavily in research, technology and the agricultural infrastructure to achieve the advances in productivity that are necessary for the long term.
This has to be coupled with a holistic approach that employs optimized crop rotation and watering techniques as well as the development of new crop protection solutions and seeds with greater yield potential. Already today, according to the report of Indian Parliament’s standing committee on chemicals, the loss of crops due to pest and disease is about Rs900 billion per year. This is primarily because barely 20% of the cultivated area is covered by adequate crop-protection measures. With climate change, the total crop loss rate might deteriorate even further in the future.
An important element that can contribute to major advances in productivity in future is plant biotechnology. According to estimates by the Consultative Group on International Agricultural Research, biotechnology could further increase global yield potential by some 25% over the coming years.
These kinds of technologies offer viable solutions to enhance productivity and provide solutions to address the current flagging growth momentum in agriculture.
We must not continue to close our eyes to the opportunities inherent in genetic engineering. We need a new green revolution.
Friedrich Berschauer is chairman of the board of management of Bayer CropScience AG. Comment at email@example.com