With oil heading back to $100+ a barrel, food prices are also rising. That makes sense, fuel and fertiliser from oil are major food production costs. The global food price index is now higher than it was in 2008. In New Zealand, we’re supposed to celebrate high food prices but the reality is it means starvation and social unrest around the world.
As with oil, food production may be about to peak. Global production capacity has not risen as fast as demand, leaving a smaller and smaller cushion of extra supply. That makes even small shocks to the system more important because it only needs small interruptions to create shortages.
The Russian drought that slashed its grain exports, while the Queensland floods will reduce the amount that it produces too. Higher oil prices raise the cost of producing any food, especially when the land is enriched with artificial fertilisers derived from crude.
The UN reports that its global food index is now higher than in 2008, when there was major unrest over food prices in a number of developing countries. This time round, the reaction has not yet been so bad, partly because the food price index is in US dollars which has been falling, so prices in other currencies aren’t yet at those record levels. But trouble is already brewing – 13 people died in protests in Mozambique after the government tried to rise the subsidised price of bread.
We’re lucky that, so far, the price of rice – stable to half the world – has remained relatively low but that may be about to change with a poor harvest predicted for Thailand. If rice prices surge too, expect unrest to spread.
All these prices are telling us is that there isn’t enough to go around.
The rational thing to do would be for Westerners to stop feeding their cows grain or turning it into biofuel to decrease demand (from memory, a third of the world’s grain crops go to feeding animals and biofuels is a rising percentage). Instead, demand will be decreased by pricing the world’s poor out of the market, at which point they starve. Globally, severe malnutrition has skyrocketed since the Great Recession began and it will only get worse. Fortunately, many third countries subsidise the price of a staple grain for their population (ignoring the dictates of the WTO and IMF that they let the market decide) but there’s a limit to how much poor countries can afford to subsidise while prices rise.
Peak oil, along with a myriad of problems like desertification, climate change, and nutrient loss, are making it very difficult for global food output to expand, yet there are world’s population keeps growing at 200,000 a day.
There are solutions and it comes down to making sure the world’s poor get fed before the animals destined for the wealthy’s dinner tables. Perhaps a global grain dole – paid for collectively by the world’s governments at market price – that ensures everyone can get their needs of these staples. That way, you preserve the price signal to encourage more growing while not pricing humans out of the market and into starvation, resulting in a healthier, more peaceful population. Hell, it worked for the Romans.
Btw, as a food producer that doesn’t feed its livestock on grains, this is good for New Zealand as a whole despite the higher food prices we face – as long as a the profits from farming remain in New Zealand. Yet another reason not to sell our most basic asset – good farmland – overseas.