Were food prices to stay more or less where they are today, it would be a radical departure from a past in which shoppers and farmers got used to a gentle decline in food prices year in, year out.

One of the odder features of last weekend’s vote in Venezuela was that staple foods were in short supply. Something similar happened in Russia before its parliamentary election.
Governments in both oil-rich countries had imposed controls on food prices, with the usual consequences. Such controls have been surprisingly widespread--a knee-jerk response to one of the most remarkable changes that food markets, indeed any markets, have seen for years: the end of cheap food.
As reported by Economist.com, in early September the world price of wheat rose to over $400 a ton, the highest ever recorded. In May it had been around $200. As the price of one crop shoots up, farmers plant it to take advantage, switching land from other uses. So a rise in wheat prices has knock-on effects on other crops. Rice prices have hit records this year, although their rise has been slower. The Economist’s food-price index is now at its highest since it began in 1845, having risen by one-third in the past year.
Normally, sky-high food prices reflect scarcity caused by crop failure. Stocks are run down as everyone lives off last year’s stores. This year harvests have been poor in some places, notably Australia, where the drought-hit wheat crop failed for the second year running. And world cereals stocks as a proportion of production are the lowest ever recorded. The run-down has been accentuated by the decision of large countries to reduce stocks to save money.
Yet what is most remarkable about the present bout of “agflation“ is that record prices are being achieved at a time not of scarcity but of abundance. According to the International Grains Council, a trade body based in London, this year’s total cereals crop will be 1.66 billion tons, the largest on record and 89m tons more than last year’s harvest, another bumper crop. That the biggest grain harvest the world has ever seen is not enough to forestall scarcity prices tells you that something fundamental is affecting the world’s demand for cereals.
Two things, in fact. One is increasing wealth in China and India. This is stoking demand for meat in those countries, in turn boosting the demand for cereals to feed to animals. The use of grains for bread, tortillas and chapattis is linked to the growth of the world’s population. It has been flat for decades, reflecting the slowing of population growth. But demand for meat is tied to economic growth and global GDP is now in its fifth successive year of expansion at a rate of 4 percent-plus.
Higher incomes in India and China have made hundreds of millions of people rich enough to afford meat and other foods. In 1985 the average Chinese consumer ate 20kg of meat a year; now he eats more than 50kg. China’s appetite for meat may be nearing satiation, but other countries are following behind: in developing countries as a whole, consumption of cereals has been flat since 1980, but demand for meat has doubled.
Ethanol is the dominant reason for this year’s increase in grain prices. Ethanol accounts for some of the rise in the prices of other crops and foods too. Partly this is because maize is fed to animals, which are now more expensive to rear. Partly it is because America’s farmers, eager to take advantage of the biofuels bonanza, went all out to produce maize this year, planting it on land previously devoted to wheat and soyabeans. This year America’s maize harvest will be a jaw-dropping 335m tons, beating last year’s by more than a quarter. The increase has been achieved partly at the expense of other food crops.
This year the overall decline in stockpiles of all cereals will be about 53m tons--a very rough indication of by how much demand is outstripping supply. The increase in the amount of American maize going just to ethanol is about 30m tons. In other words, the demands of America’s ethanol program alone account for over half the world’s unmet need for cereals. Without that program, food prices would not be rising anything like as quickly as they have been. According to the World Bank, the grain needed to fill up an SUV would feed a person for a year.
America’s ethanol program is a product of government subsidies. There are more than 200 different kinds, as well as a 54 cents-a-gallon tariff on imported ethanol. That keeps out greener Brazilian ethanol, which is made from sugar rather than maize. Federal subsidies alone cost $7 billion a year.
Harvests can rise only if new land is brought into cultivation or yields go up. This can happen fairly quickly. The world’s cereal farmers responded enthusiastically to price signals by planting more high-value crops. And so messed-up is much of the rich world’s farming systems that farmers in the West have often been paid not to grow crops--something that can easily be reversed, as happened this year when the European Union suspended the “set aside“ part of its common agricultural policy. Still, there are limits to how much harvests can be expanded in the short term.
In general, says a new report by the International Food Policy Research Institute (IFPRI), which is financed by governments and development banks, the response tends to be sticky: a 10 percent rise in prices yields a 1-2 percent increase in supply.
In the longer run, plenty of new farmland could be ploughed up and many technological gains could be had. But much of the new land is in remote parts of Brazil, Russia, Kazakhstan, the Congo and Sudan: it would require big investments in roads and other infrastructure, which could take decades. Big gains could be had if genetically modified foods were brought into production or if new seed varieties were planted in Africa. But again, that will take time.
It is risky to predict long-run trends in farming, but most forecasters conclude from these conflicting currents that prices will stay high for as much as a decade.
Because supplies will not match increases in demand, IFPRI believes, cereal prices will rise by between 10 percent and 20 percent by 2015. The UN’s Food and Agriculture Organization’s forecast for 2016-17 is slightly higher. Whatever the exact amount, this year’s agflation seems unlikely to be, as past rises have been, simply the upward side of a spike.
If prices do not fall back, this will mark a break with the past. For decades, prices of cereals and other foods have been in decline, both in the shops and on world markets. The IMF’s index of food prices in 2005 was slightly lower than it had been in 1974, which means that in real terms food prices fell during those 30 years by three-quarters.
In other words, were food prices to stay more or less where they are today, it would be a radical departure from a past in which shoppers and farmers got used to a gentle decline in food prices year in, year out.
It would put an end to the era of cheap food. And its effects would be felt everywhere, but especially in countries where food matters most: poor ones.

Although the dearth of opportunities in agriculture has pushed high numbers of rural Ghanaians to migrate towards the cities, more than 1 million of the countryÕs 22 million inhabitants still make their living from free-range or semi-intensive poultry rearing.

This weekend an award will be presented to the best farmer in Ghana in recognition of the pivotal contribution that agriculture makes to the economy of this West African country.
National Farmers’ Day was inaugurated in 1984, when sorely-needed rainfall ensured a much better harvest than the drought-affected previous year.
While nobody could begrudge the country’s hard-pressed farmers their December celebrations, some Ghanaians believe a more fitting tribute would be to introduce policies that would genuinely benefit the agricultural sector.
It appears ironic, then, that the preparations for the event should coincide with the arrival of a European Union (EU) delegation in Accra, determined to clinch a deal that will lead to an economic partnership agreement (EPA) being signed with the Ghanaian government in the coming days or weeks.
A recent study by Realizing Rights, an ethical globalization body set up by the former UN commissioner for human rights and former Irish president Mary Robinson, forecasts that an EPA could harm the country’s development prospects by narrowing its scope to create more and better-paid jobs.
“I’m very concerned about the way in which the EPAs are being approached by the European Union,“ Robinson told Ipsnews.net. “We know that in Ghana the impact will be negative. And Ghana is by no means the poorest the country in Africa.“
In particular, anti-poverty activists fear that the new trade accord will spell disaster for agriculture, which employs 60 percent of Ghana’s workforce.
“Farmers should be rewarded with the right policies, rather than selecting a few that are then given awards,“ said Mohammed Isaah from the Social Enterprise Development (SEND) Foundation of West Africa.
The SEND Foundation is a non-governmental organization, based in Accra, which promotes development and public participation. Under proposals put forward by the EU, most of the tariffs that Ghana levies on agricultural imports will be removed after an EPA has been signed.
According to Isaah, this would reinforce the inequalities between Europe and Africa, as Ghanaian farmers would be unable to compete with an avalanche of subsidized imports which would sell at considerably cheaper prices than domestic produce.
Although the EU has promised to reciprocate by allowing Ghana enter the Union’s markets free of duties or quotas, Isaah contends that the country can’t derive a benefit from this. “The basic infrastructure that would support (agricultural) communities to produce more is not in place,“ he told IPS.
Ghana’s tariffs on imported food have already been set at low levels as a result of moves to liberalize the economy which the International Monetary Fund (IMF) and World Bank have pressed for since the 1980s.
A tariff of 20 percent applies to poultry and rice, for example, with efforts by the government to raise these taxes in 2003 abandoned after it came under pressure from the European Commission and the IMF.
Wheat, rice, poultry, tomatoes, milk and sugar are the country’s major food imports. With the exceptions of wheat and sugar, these are all also produced within the country.
Trade analysts say there has been an exponential growth in certain imports over the past decade. Tomato paste imports rose from 3,269 tons in 1998 to 24,740 tons in 2003. During the same period, Ghanaian tomato growers saw their share of sales stagnate and in many cases drop.
A similar picture has emerged with chicken. Kingsley Ofei-Nkansah from the General Agricultural Workers’ Union of Ghana says that imports of chicken have skyrocketed in recent years.
Data indicates an increase from 26,000 tons in 2002 to 40,000 tons in 2004. These imports consisted in large part of chicken parts from European countries where the agro-industry receives lavish subsidies.
Although the dearth of opportunities in agriculture has pushed high numbers of rural Ghanaians to migrate towards the cities, more than 1 million of the country’s 22 million inhabitants still make their living from free-range or semi-intensive poultry rearing.
These would obviously be at risk from a further reduction in tariffs, yet farm lobbyists point out that they would not be the only ones. As most of the country’s small farmers produce maize, often for feeding chicken, they too would be imperiled. Some 70 percent of those farmers are women.

The Bank of England rarely moves interest rates in December. But on December 6th the central bank, under Mervyn King, its governor, broke with habit and brought down the base rate by a quarter-point, from 5.75 percent to 5.5 percent.
Shortly afterwards, the European Central Bank (ECB) kept its benchmark interest rate unchanged at 4.0 percent. The contrasting decisions reflected differing worries in Britain and the euro area about the balance of risk between slowing GDP growth and rising inflation, reported AP.
Both central banks faced a dilemma. On the one hand, the credit crunch resulting from the worldwide financial turmoil of the past few months will slow growth next year. New forecasts from the OECD suggested that growth in Britain would slow from 3.1 percent in 2007 to 2.0 percent in 2008; in the euro area from 2.6 percent to 1.9 percent.
On the other hand, recent sharp rises in oil and food prices are likely to push up inflation. In a statement accompanying the decision, the Bank of England said that higher energy and food prices were expected to keep inflation above the 2.0 percent target (it is currently 2.1 percent) in the short-term. The central bank’s monetary policy committee (MPC) gave warning that “upside risks to inflation remain“.
However, its decision to cut rates was based on its concerns about a slowdown in growth, where it worried about “downside risks“ caused by deteriorating conditions in financial markets and a tightening in the supply of credit to households and businesses.
Two recent pieces of evidence had underlined the risk of an abrupt slowdown. On Wednesday a survey of the big services sector reported an unexpectedly sharp drop in business activity, which weakened in November to its lowest level since May 2003. Arguably, the CIPS survey highlighted the central bank’s dilemma, since it also showed a pick-up in price pressures. But it came on the same day that the housing market became enveloped in yet more gloom. House prices fell by 1.1 percent in November, according to the Halifax index compiled by HBOS, a bank. It was the third month running that prices had slipped.
The clearest signs of deteriorating financial conditions have been in the money markets, where banks lend to each other. The three-month interbank rate is normally a bit higher than the base rate. At the height of the financial crisis in September, it rose to 6.9 percent. It then dropped a bit, but more recently rose again, to 6.6 percent.
This three-month rate is an important benchmark for much lending, especially to companies, thus monetary conditions have tightened since the MPC’s November meeting. This is likely to make firms trim planned investments. But the biggest threat is probably from slower consumer spending, the mainstay of the sustained economic expansion of the past decade.
Over the past few years rising house prices have emboldened consumers to save much less than usual. The danger is that a downturn in the housing market will prompt a sudden change of heart as consumers become thriftier and spend less. The sharper the downturn, the more spending will slacken. In 2005, when house prices stalled for a few months, consumption growth slowed to 1.5 percent and the economy grew by only 1.8 percent. If house prices fall next year, the damage is likely to be greater.
Financial economists are now expecting the Bank of England to follow through with more rate cuts next year. The ECB is in no mood to follow suit.