Everyone hates naysayers. Consider Thomas Robert
Malthus. When he published An Essay on The Principle
of Population with its scenario of long term food
scarcity — unchecked population growing in geometric
progression while food supply increasing
arithmetically — Malthus was reviled as a
hard-hearted prophet of doom and an enemy of the
Fast forward 170-odd years to the Club of Rome’s
1972 best-seller, Limits to Growth, which modelled
the consequences of a rapidly growing world
population facing finite resource supplies. It was
lambasted as "a piece of irresponsible nonsense",
and repeatedly pooh-poohed by magazines such as The
Economist as meaningless fear mongering. Indeed,
until a few years ago, The Economist took the lead
in treating global warming as unsubstantiated
blather of bleeding-heart greenies.
Without being Malthusian, here’s a sobering
hypothesis: “With high probability, the world will
witness a fairly long cycle of food price inflation.
There could be peaks and troughs; but prices will be
trending up, with more rather than less inflation.”
Before explaining why, here are some facts from the
World Bank. Between August 2007 and February 2008,
low and middle income countries have seen:
• 28 per cent increase in the weighted price of all
• 38 per cent increase in the price of food.
• 49 per cent increase in the price of fats and
• 51 per cent increase in the price of grain.
Over the same period, global price of coconut oil
has risen by 54 per cent; groundnut oil by 42 per
cent; soybean oil by 57 per cent; maize by 47 per
cent; rice by 42 per cent; US wheat by 71 per cent;
bananas by 55 per cent; and sugar by 38 per cent.
The list is long.
Is this the beginning of a longer trend? While the
sheer extent of the current food price inflation may
be high, the trend is clearly one of hardening
prices. There are good reasons why this is so, and
why we can expect it to persist.
First, substantial growth in per capita income over
the last 15 years, especially in China and India, as
well as other sizeable low-to-middle income
countries has led to growing demand for food.
Moreover, rising incomes have led to
disproportionate increase in demand for ‘better’
food — what economists call food ‘luxuries’ rather
than ‘necessities’. It has taken varying forms in
different countries. For instance, the Chinese spend
more on sweets (cold drinks, confectionary) than
before; they have also started consuming wheat in
the form of bread and cakes; and their consumption
of meat has gone up substantially. In 1993, only the
top 15 per cent of India’s rural population spent
more on milk, fruit, vegetables, eggs, fish and meat
than on cereals and pulses. In 2004, this had risen
to over 30 per cent.
In the case of China, rapidly growing demand for
food ‘luxuries’ has translated to severely hardening
prices. The price of foodstuff in January 2008 was
23 per cent higher than a year earlier. The price of
meat and poultry surged by 45 per cent, of which
pork rose by 63 per cent; that of fresh vegetable
rose by 46 per cent; and oil and fat by 41 per cent.
Second, like it or not, agricultural productivity
takes time to increase. In agriculturally advanced
countries it can take up to a decade. In north
India, where ground water was depleted alarmingly
and the soil is leached, it will take longer. Till
yields increase, the only way to raise global
agricultural output is to grow the area under
cultivation. To be sure, area under crops vary
according to relative price movements. However,
there are severe constraints to the total cultivable
area — the more so if one takes long term
environmental and forestation needs into account.
Ask yourself this question: Where will the extra
grain come from to feed more of the pigs that meet
the burgeoning demand for Chinese pork? Hence,
expect to see general conditions of excess demand.
Third, policy distortions have hurt supplies.
Consider the subsidy-driven fetish for alternate
bio-fuels, which is diverting sugarcane and maize to
ethanol production. The more this happens, the less
will be the available area under food.
Higher per capita incomes; greater demand for food;
lower acceleration of agricultural productivity;
limitations to cultivable area; and food-diverting
subsidies. Why shouldn’t you expect hardening food
prices in the future? Now think of its political
consequences. That’s giving Dr. Singh and Mr.
Chidambaram the heebie-jeebies.
Published: Business Standard, March 2008