Air Date: Week of May 16, 2008

The hungry reach for food distributed at a religious shrine in a village in Sindh Province, Pakistan. (Photo: Raja Islam)

With the higher costs of staple foods like corn and wheat some are making record profits. Host Bruce Gellerman talks with The Economist’s John Parker about what’s causing the global food crisis and who benefits from high prices.

Transcript

GELLERMAN: Here’s a new government statistic that confirms what you already know too well: the price of food is going through the roof. Of course that’s not the technical term. According to federal statisticians, food costs five percent more than a year ago, and is increasing at a rate we haven’t seen in two decades.

And it’s worse for developing countries. The UN says thirty-seven nations are in urgent need of food, but can’t afford it, triggering fears of even more food riots like those that have rocked Egypt, Bangladesh, Somalia and Haiti. And yet, as prices soar, so do corporate profits – for some companies on the food chain. To chew over food prices, we turn to an economist – indeed, The Economist. On the line from London is The Economist magazine’s globalization expert, John Parker. John, welcome to Living on Earth,

PARKER: Hi. Thank you for inviting me.

GELLERMAN: You know, we’ve heard about a lot of factors being blamed for the escalation in food prices – the weather, biofuels, you know, India, China eating more meat, weak dollar, high oil. What do you think is driving up the price of food?

PARKER: All of those, but the two most important for me are the India and China eating more meat, and biofuels. India and China eating more meat explains like the long-run change, which is tightened supplies. The biofuels policy explains why in the last couple of years prices have suddenly spiked.

GELLERMAN: Well, why would that be? I mean, we’ve always been producing biofuels. I did stories about, you know, ethanol being produced from corn thirty years ago.

PARKER: Yeah, sure. But in 2005 the U.S. made the biofuels policy a lot more generous, and much more American maize, American corn, has gone to ethanol in the last couple of years. Now it’s something like a third of the crop goes there. Remember, you know, American maize used to be one of the world’s great cereal crops. People around the world used to eat American maize. Now you’re consuming in the form of ethanol as much as you’re exporting. That never used to be the case.

GELLERMAN: And India and China – are they really eating that much more meat?

PARKER: Well yes, I mean, they’ve been eating a little bit more over 20, 30 years, and it, you know, it mounts up. China eats about – per head this is – about three times as much pork, which is the main meat, as they did in 1980.

You don’t need a big change, but you know, like one percent a year over 30 years – it makes a huge difference. And it’s kind of inefficient in the use of grain. To produce a ton of beef requires eight tons worth of grain. So it kind of ratchets up the effect on the grain markets if you’re eating more meat.

GELLERMAN: So the U.S. taxpayer’s getting a double-whammy here. That is, they’re paying the subsidies for the ethanol production, and they’re paying higher prices at the supermarket for food.

PARKER: Well they’re not the only ones of course. The Europeans have been specializing in this particular piece of insanity for years and years and years. I mean we, in Europe, subsidize our food even more than you guys do. So you are getting hit twice over, and, sort of, so are most other rich countries. And what’s really particularly nuts is that the European countries, particularly France and Germany, are currently reacting by saying, uh oh! High prices for food. We’ve got to subsidize our farmers more.

GELLERMAN: So it sounds to me that you’re saying there are structural problems here, and cultural changes and economic changes, that aren’t gonna go away. This is not a bubble.

PARKER: I don’t think this is a bubble. Partly for those long-run changes I was talking about, you know, the Chinese and Indians and others eating more meat. The end of cheap food, which we had for 40 years, I think is over, and the world will adjust slowly.

GELLERMAN: What about the people that are making money out of all this? I was looking at the, Monsanto, Cargill, Archer Daniels Midlands – they’re making windfall profits! I mean extraordinarily high profit margins.

PARKER: Yeah, they are, but look – for me, the most important people who are making money out of this are not kind of rich, American multinationals; it’s poor peasant farmers. And if you look back over 50 years, these guys have really had a rough time. Essentially we in the West – in Europe and in the U.S. – have been kind of dumping our food surpluses on the rest of the world, and they haven’t been able to make much of a living.

Now, for the first time in, you know, living memory, food prices in, you know, upstate Bangladesh are way, way above the cost of production. And Bangladesh has been hurt quite hard because it’s got a large number of poor people in cities. But there have been celebrations out in the country because now the state is paying four times what it costs to grow rice, and the rice harvest has been good, and these very, very poor people are beginning to benefit.

GELLERMAN: If the price of oil were to come down, would that help things?

PARKER: It would a little bit, because oil’s a major component of fertilizers, and fertilizers are, you know, really, really important as an input to farmers. But I don’t think it would change the basic, sort of supply-demand balance very quickly, so I would expect it to make a marginal difference, but not, you know, it wouldn’t halve the price of wheat or something like that.

GELLERMAN: John, have you been to the supermarket lately?

PARKER: I go every weekend.

GELLERMAN: Yeah, well, I went this weekend and I got sticker shock!

PARKER: But just imagine – I don’t know how much of your weekly budget goes on food, but for me it’s not that much. Imagine if half of your salary went on food – this happens in poor countries. Imagine the sticker shock they’re getting.

GELLERMAN: Well, you work for The Economist, but I’m reading your rival magazine here, Time, a recent issue. Since 2003, they say Wonder Bread’s up seventy-four percent, pork chops up one hundred twenty-four percent, rib-eye steaks sixty-four percent, bananas forty-one percent. Can we expect prices to keep on going up in the near future?

PARKER: If I knew that I would be making large sums of money on the futures markets. But my guess is that prices will begin to stabilize later on this year. The truth of the matter is that almost everyone, including me, was surprised when prices continued to rise in the first half of this year. So I’m pretty reluctant to forecast an end to these price rises soon.

GELLERMAN: Boy this is complicated stuff, John, I’m glad we have an economist to help us sort through it.

PARKER: (laughs) Thanks very much for inviting me.

GELLERMAN: Speaking to us from London John Parker, the globalization expert for the British magazine The Economist.

 

Links

The Economist magazine on the food crisis