Heather Roy's Diary
Friday, 2 May, 2008
Old Fashioned Food Shortages and Mad Bio-fuels Disease
The economic news in New Zealand and abroad is both dramatic and difficult to understand.
New Zealand finance companies are struggling, but the problem is almost impossible for them to solve. People pull out their savings for fear that their finance company will fail; this virtually guarantees a liquidity squeeze for it and all other finance companies.
The banking sector is in difficulties in many countries. The US Federal Reserve recently decreased its lending rate to two percent overnight, a huge sum in such cautious circles. This was partly to signal that the Federal Reserve was prepared to take drastic action to avoid large scale bank failure.
All this talk is reminiscent of the Great Depression, when President Roosevelt commented that "We have nothing to fear except fear itself".
On the other hand, we have high prices for an extensive range of commodities - especially food and fuel and, given that New Zealand is a food exporting country, this has generally been to our advantage. This has also unfortunately corresponded with increased grocery bills with cheese, butter, other dairy products and bread noticeably much more expensive.
Given that the necessities of life are rising rapidly in price, it is worth asking what is going on.
Rising grocery prices reflect an international food shortage - particularly of grain. For the poorest of the poor, a doubling in the price of food means having half as much to eat - but such people are seldom in a position to cause a fuss.
The UN has called the phenomenon "The Silent Tsunami". This is a worldwide phenomenon with recent food riots in Cairo and Bangladesh, the imposition of export tariffs on rice by China and a variety of attempts to subsidise basic foods worldwide.
A quick glance at the 1960s reveals that global food shortages were once common, and commentators at the time were preoccupied by the "population explosion". But, since then, the rate of population growth has slowed and agricultural production has risen at a brisk clip. When food production was rising faster than population growth, starvation was bound to become less common.
As is often the case, the progress came from a small group of dedicated scientists. They worked on high-yielding plant varieties, beginning with Mexican wheat. So, while commentators proposed drastic solutions to over-population, the Green Revolution was quietly underway and food prices gradually fell.
Paradoxically, there were those who seemed less concerned about preventing the world's poor from starving than about the involvement of large corporations and the profits they made at the same time as curing the problem.
So what's changed? The simple answer is that demand has exceeded supply and there is a number of reasons for this.
The first is a reflection of a pleasing phenomenon. The poorest people in the world eat the cheapest foods - grains, rice, wheat and maize depending on their location. As standards of living rise, people begin to mix meat and green vegetables into their diet. But, as farm animals like cattle are grain fed through the winter in most countries, this change in diet reduces grain supply.
The second reason is that people have become sanguine after years of embarrassing food surpluses. The European Community, in particular, used to have a butter mountain that was usually sold to the Soviet Union at knock-down prices and a wine "lake" that was distilled to industrial alcohol worth a fraction of the original product. In the US, farmers were paid to set aside land that was used for growing corn in an unsuccessful attempt to reduce surpluses. People simply forgot that ever-rising food production cannot be taken for granted.
The third reason is easily remedied but, for reasons of political correctness, probably won't be. The Green lobby likes renewable resources and is mesmerised by carbon dioxide emissions. Oil is not renewable, whereas crops are. Several crops can be distilled into alcohol which, in turn, can be used as a fuel by itself or added to petrol. The Brazilians have been making alcohol distilled from sugar cane for decades to add to petrol and reduce their dependence
However, this is another diversion of grain away from food. Furthermore, reports of oil's demise as a fuel have been very much exaggerated. People have been predicting the imminent exhaustion of oil since the 1920s.
So what should New Zealand do?
Our best response to the current situation is to increase food production. Exporting food has always been our forte. The world's move to bio-fuels works to our advantage - while food is in short supply we can contribute to the satisfying the demand. What we shouldn't do is abandon food production for the production of bio-fuels. Almost as much energy is consumed in their production as they generate and food is needed more.