Sunday, August 07, 2011

the truth about global demand for food

Guardian | As it happens, FAO food balance sheets show that both direct and indirect demand for grain in China and India barely increased between 2000 and 2007, and cereal imports were actually lower. Why this has been happening, and why the economic growth has not translated into more aggregate demand for grain, is obviously a fascinating question on its own and one that deserves more study. It is likely that the worsening income distribution in both countries may have had something to do with it, so that increased demand from high-income groups is counterbalanced by reduced demand from poorer sections. But this needs to be explored further.

The relevant point is that it is not increased demand from China and India that is driving up grain prices. This does not mean that there are no other demand forces at work, however. Financial speculation in commodity markets is clearly significant, but it is also true that even such speculation must be based on some assessments of changing global balances. What could that be based on?

The report from the FAO has a convincing response to that as well: it notes that the biofuel boom has had a major impact on the evolution of world food demand for cereals and vegetable oils. According to page 32 of the report "there is a real acceleration of non-feed uses boosted by biofuel development. Excluding use for biofuel, the growth rate for non-feed use is stable compared with the 1990s and markedly inferior to its historical performance. Without biofuel, the growth rate of world cereal consumption is equal to 1.3% compared with 1.8% for biofuel".

This massively increased demand from biofuel is largely determined by the very large subsidies provided in many western countries, which have, ironically, been increasing their subsidisation of biofuel at the same time that they have reduced subsidies on food cultivation. Aside from a few producers, such as Brazil and Cuba, biofuel production in most locations would be completely unviable without these large subsidies.

The impact of these on diverting production and affecting price has been even more significant in the case of edible oils. The report shows that "the use of vegetable oils for food slowed down between the 1990s and the 2000s (from 4.4% a year to 3.3%), but industrial use of vegetable oil soared, pushed by the booming European biofuel industry. As a result, the share of industrial use in world consumption of vegetable oils jumped from 11% to 24% between 2000 and 2010".

The surprising conclusion from all this is that, leaving out the impact of the biofuel boom of the 2000s, global consumption of both cereals and edible oils is actually slowing down. All the more tragic, then, that speculative forces are still allowed to run amok in global commodity markets and global food prices are kept so high as to increase the deprivation of the millions of hungry people in the world.