Hi Everyone,
Below is an excerpt from the article "Rumblings of Social Unrest" by Lester R. Brown (President of the Earth Policy Institute) from The Straits Times 22/04/2008 (!Earth Day!), which I thought explained the reasons for the food crisis well:
"This chronically tight food supply is driven by the cumulative effect of several trends that are affecting both global and demand and supply.
"On the demand side, the trends include the continuing addition of 70 million people per year to the world's population, the desire of some four billion people to move up the food-chain and consume more grain-intensive livestock products as well as the sharp acceleration in the use of grain to produce ethanol for cars in the United States.
"Since 2005, this last source of demand has raised the annual growth in world grain consumption from 20 million tonnes to 50 million tonnes.
"Meanwhile, on the supply side, there is little new land to be brought under the plough unless it comes from clearing tropical rainforests in the Amazon and congo basins and in Indonesia, or from clearing land in the Brazilian cerrado, a savannah-like region south of the Amazon rainforest.
"Unfortunately, this has heavy environmental costs: the release of sequestered carbon, the loss of plant and animal species as well as increased rainfall runoff and soil erosion. And in scores of countries, prime cropland is being lost to industrial and residential construction and to the paving of land for roads, highways and parking lots.
"New sources of irrigation are even more scarce than new land to plough. During the last half of the 20th century, the world's irrigated area nearly tripled, expanding from 94 million ha in 1950 to 276 million ha in 2000. In the years since, there has been little, if any, growth. So irrigated area per perosn is shrinking by 1 per cent a year.
"Meanwhile, the backlog of agricultural technology that can be used to raise cropland productivity is dwindling. Between 1950 and 1990 the world's farmers raised granland productivity by 2.1 per cent a year. But from 1990 until 2007 this growth rate slowed to 1.2 per cent a year. And the rising price of oil is boosting teh costs of both food production and transport while at teh same time making it more profitable to convert grain into fuel for cars.
"Beyond this, climate change presents new risks. Crop-withering heatwaves, more destructive storms and the melting of teh Asian mountain glaciers that sustain the dry-season flow of that region's major rivers are combining to make harvest expansion more difficult.
"In the past, the negative effects of unusual weather events was always temporary; within a year or two things would return to normal. But with teh climate in flux, there is no norm to return to.
"The collective effect of these trends makes it more and more difficult for farmers to keep pace with the growth in demand."
In summary, here are the following points for changes in demand and supply for grains:
- Demand for grains has increased/the demand curve for grains experienced a rightward shift
This is mainly due to:
1. Increase in global population
> 70 million people are added to the world population each year
> With more people, comes more demand for food (especially grains, a staple food)
2. Growing affluence in economic juggernauts China & India
> Around 4 billion people from China & India who've been lifted from poverty, are demanding to consume more livestock
> This increased demand for livestock drives up prices for livestock, which in turn increases the supply of livestock
> However, as livestock such as pigs consume grains too, the increased livestock production means that more grains have to be diverted to feeding these livestock
> This contributes to an increase in the demand for grains to feed those livestock (this can also be looked at as a "supply side" reason coz' the grains are diverted to feeding those livestock instead of feeding humans, thus reducing grain supply for us)
3. Rising cost of fuel
> With the cost of fuel soaring in the past several months, demand for bio-fuels have risen
> This has resulted in higher demand for ethanol (commonly used as bio-fuel)
> Increased demand for ethanol results in increased demand for grains, which is used to produce ethanol
Therefore demand for grains has risen.
- Supply for grains has decreased/the demand curve for grains experienced a leftward shift
This is mainly due to:
1. Climate Change
> Crop-withering heatwaves, more-destructive storms and the melting of Asian mountain glaciers that sustain the dry-season flow of the region's major rivers affect harvests
> Reduces grain supply
2. Rising cost of fuel
> With increased food production and transport costs due to increased fuel costs, it is more profitable to convert grain into fuel for cars
> Many farmers, especially in the United States, have turned to using their grains to produce ethanol
> This means less grains for human consumption
3. Low availability of new farmlands
> Little new land to be brought under the plough unless this means clearing forests & plains, which will negatively impact the environment
> This is coupled by the fact that there is little/no growth in the world's irrigated area as new sources of irrigation are even more scarce
> These contributes in restricting efforts to increase grain supply
Therefore supply of grains has decreased as a whole.
In conclusion, the simultaneous increase in demand and decrease in supply results in a higher equilibrium price for grains, resulting in today's food crisis.
Side note: With increased prices for grains + decreased grains supply, it is ultimately the lower income groups around the world that will be heavily disadvantaged as a result - which can (and has in many places) lead to social unrest over food.
Cheers, =)
Jian Wei
