Innovating out of food shortages
World food prices up about 60 percent during the past year
By COLIN A. CARTER and HENRY I. MILLER
Carter is a UC Davis Professor of Agricultural and Resource Economics. Miller is a Physician, Scholar at The Hoover Institution and FDA Official in the Reagan Administration
Higher food prices worldwide are big – and bad – news. The head of the International Monetary Fund warned recently of mass starvation and political instability in developing countries if the price trend continues. The director-general of the United Nations' Food and Agriculture Organization observed that with world food prices up about 60 percent during the past year, "the reality is that people are dying already," and he predicted that "people won't be sitting, dying of starvation [but]they will react," by demanding food and perhaps even rioting.
Price hikes at the supermarket are an inconvenience to consumers in rich countries who are faced with spending more for their milk, eggs, meat and breakfast cereal, but few actually go hungry or are malnourished. In poor countries, however, the doubling of grain prices that has led to an increase in food prices of 60 percent to 70 percent during the past year has been cataclysmic. If a family's income in Africa is a few dollars per day, a grain price shock results in skipped meals and children going hungry.
Food prices have risen relatively faster in poor countries because their populations eat a simpler diet rich in staples – that is, they consume more grains directly, so there are few links in the food-supply chain that can absorb price increases.
The last time grain prices spiked this fast and this high was in the early 1970s when the Club of Rome, a high-profile global think tank, predicted a worldwide catastrophe due to food shortages. They were mostly concerned that shortfalls in densely populated countries like China and India would elicit widespread panic.
Predictions of a catastrophic global famine underestimate the resilience derived from technological innovation in agriculture and farmers' response to profit incentives. Technological innovation and the adoption of improved techniques in agriculture will offset the 2008 food crisis.
Skyrocketing grain prices are partly due to wrong-headed policy choices in the United States and Europe, where irrational exuberance about biofuels has led to the diversion of vast amounts of cropland from growing food into inefficient fuel production. In December 2007, the U.S. government passed the Energy Independence and Security Act, which raised the mandated volume of renewable fuels (mostly corn-based ethanol) for 2008 from 5.4 billion to 9 billion gallons, a huge increase over a short time. Because the law of supply and demand trumps anything the Congress can produce, we should not be surprised that the price of corn has risen by about 50 percent since December.
A whole bushel of corn yields 2.8 gallons of ethanol, so that to meet the congressional mandates, this year the United States will need to devote more than a quarter of its corn crop to ethanol production. Generous government subsidies for ethanol and mandatory minimum use of so-called "renewable" fuels have removed from the world marketplace a quarter of U.S. corn, which is by far the largest source of this commodity in world markets. Moreover, the price increases caused by politicians' intoxication with corn-derived ethanol has spilled over to wheat and other crops that can substitute for corn.
Some blame consumption in China for the recent boom in grain prices, but, in fact, China continues to export some of its surplus rice and corn. China does, however, hold the trump card that could burst the grain price bubble: namely, the commercialization of gene-spliced (aka "genetically modified," or GM) food crops. The cultivation of gene-spliced crops – which boast increased yields and lower required inputs (of pesticides and water) – has grown by double-digits worldwide for decades, but unscientific, burdensome regulatory obstacles and the relentless opposition of NGOs have slowed the diffusion of the new technology to developing countries. China has already approved several minor food crops and cotton but has held back on commercializing gene-spliced crops on a large scale.
What does the future hold? The IMF's prophecy of mass starvation will undoubtedly go the way of the earlier prophets of gloom and doom. A medium- and long-term benefit of high commodity prices may be that the governments in poor countries will be able to justify the testing and commercialization of critical gene-spliced food crops such as rice and wheat. Countries like China have this new technology ready to go, and the licensing of gene-spliced rice and wheat will quickly boost yields, and because of better insect, disease and weed control, reduce the costs of production.
Gene-splicing has been grossly overregulated and underused because of antagonism from national regulators (especially in Europe, Japan and developing countries) and U.N. agencies. In spite of a two-decades-old consensus that gene-splicing is an extension, or refinement, of less precise methods for genetic improvement, and that it is at least as safe as other techniques, it has been subjected to discrimination and obstruction.
As an illustration of the extraordinary naiveté among politicians, consider this from Al Gore: "The most lasting impact of biotechnology on the food supply may come not from something going wrong, but from all going right. My biggest fear is not that by accident we will set loose some genetically defective Andromeda strain. Given our past record in dealing with agriculture, we're far more likely to accidentally drown ourselves in a sea of excess grain." Too bad there's not a Nobel Stupidity Prize.
Thus, although American and European ethanol subsidies are injurious to consumers at large, farmers in countries like China and India will ultimately benefit from them. Such subsidies have helped to create an artificial food crisis that will spur innovation, including greater use of gene-splicing for the development of improved plant varieties. That, in turn, will boost farm incomes in developing countries and moderate the price of food worldwide.
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