Food prices on the way up, so grow your own - World Bank

By Dilshani Samaraweera

The World Bank says prices of food are on an upward trend and developing countries like Sri Lanka will have to increase domestic agricultural production to meet demand for food.

The World Bank’s World Development Report 2008: Agriculture for Development report released recently does not bode well for net food importers like Sri Lanka.

The report points out that declining natural resources and agricultural linkages to energy markets are reducing the supply of food, while growing populations is increasing the demand for food. This supply and demand mismatch is pushing up prices of agricultural goods.

This is already happening. Prices of food items such as maize, wheat, edible oils and dairy products are already unusually high. The bad news is that this trend of increasing food prices is expected to continue into the longer term, even if energy prices were to reduce.

It’s supply and demand
The World Bank report identifies oil price increases as the main reason for increases in prices of food, in the short term.
“In the short term, the increase in food prices is mainly due to the linkages with energy. When petroleum prices go up, the demand for bio fuels increase. So farmers allocate more land for bio fuels. Now, because a large share of the maize harvest has gone into the bio fuel market, and because of the drought in Australia, the supply of food has reduced. So this has increased prices of food,” explained a World Development Report team member, Paula Savanti, at a press conference in Colombo.

“Also, agriculture uses a lot of petroleum products. For instance, in the transport of goods, as fuel for farm tractors and as fertiliser, which are anyway affected by increased oil prices. So what happened is that the price of food increased when the price of oil increased,” said Savanti.

Market adjustments in the long term are also not expected to bring about a declining trend of food prices.
“We tend to think the market would adjust over time. But there are some other structural problems that could work against price reductions,” said Savanti.

Increasing populations and changing lifestyles, particularly in Asia, will increase demand for food faster then the supply.
“The problem is the shortages of natural resources like land and water. The demand for food is increasing but we are facing shortages of resources like water and land. As you know agriculture consumes a lot of land and water. So this is a longer term problem,” said Savanti.

This is the first time since the 1960’s that price reductions in agricultural goods are not predicted for the future.
“From 1960 to recent times, agricultural prices were declining. This is the first time that the IFPRI (International Food Policy Research Institute) and the FAO (Food and Agriculture Organisation) are not projecting price declines in agricultural goods. So there is reason to believe that prices will probably continue upwards,” said Savanti.

Nothing to worry
World Bank officials visiting Colombo denied that the world could be facing a global food crisis.
But, the World Development report, while not directly saying so in so many words, hints at a gloomy future for the world with more poverty, hardship, food and water insecurity and environmental degradation, particularly among poorer countries.

Says the report: “High energy prices combined with more bio fuels’ production from food crops could lead to large food crop price increases through effects on both supply and demand. Global warming could occur faster than expected and add to water shortages, hitting irrigated agriculture with lower yields and increasing risk in rainfed agriculture.”

“Rapid income growth in Asian countries with limited land and water resources could lead to a surge in food imports that, combined with higher energy and fertilizer prices, drive up food prices. Or, all three could happen together. Interdependence also implies likely tradeoffs between poverty, food security, and environmental sustainability,” says the report.

Opportunity spotter
Despite the potential damages, the World Bank says the volatile markets for essential food items, is actually an opportunity to reduce poverty.
According to the World Bank, the increase in food prices is an opportunity for poor countries to increase agricultural production, because incomes from agricultural goods would be higher. This in turn, would increase incomes and help reduce poverty.

“Countries like Sri Lanka have three ways to deal with this. First, raise the production of staple crops including plantation crops, second take advantage of new markets and third, raise productivity in rural non-farm sectors,” said Dr Derek Byerlee, co-director of the 2008 World Development Report.

Due to limitations on land and water, the World Bank says developing countries should increase productivity through science and technology, and research and development.

“If you look at the world markets there is a big shift towards higher value, life style products. So you need to diversify production and invest in research and development to take advantage of new markets like meat, milk, horticulture and lifestyle products,” said Byerlee.

What the World Bank is not so clear about, is where small countries like Sri Lanka are expected to speedily find the large amounts of cash needed to invest in technology and research. In response the World Bank says it is committed to increasing lending for agriculture.