The combined effects of the financial crisis, increased protectionist policies, continued rich country subsidies, and climate-induced changes in patterns of agricultural production are likely to hit developing countries hardest.

Thanks to the confluence of these factors, a long-term solution to the global food crisis has not been reached, experts agreed at two recent summits on agriculture.

With agricultural commodity prices at or recovering from their lowest levels in recent years, experts say that agricultural producers are getting conflicting signals. High prices made headlines early last year (see Bridges Weekly, 23 April 2008, http://ictsd.net/i/news/bridgesweekly/11073/), but prices have since plummeted and are now slightly above their pre-peak levels.

But producers in some poor countries that lack strong links to the international market may not yet be feeling the full effects of that price drop. In some cases, particularly in Sub-Saharan Africa, prices remain high for key staples.

Expectations of production

Many analysts, including some at the UN Food and Agricultural Organization, blamed much of last year’s high prices on a decline in food stocks.
 
Though the situation has improved slightly, the FAO predicts that yields for cereals in 2009 are likely to be below last year’s levels. For example, winter wheat harvests are expected to fall by 50 percent in Argentina and some parts of China. At the global level, though, more cereal will be produced than will be consumed. World cereal stocks are expected to return to levels not seen since 2002, possibly providing a cushion against volatility.
 
Wheat played a key role in driving prices up last year. Droughts in Australia, Canada, and other ‘bread baskets’ led to lowered levels of production, causing prices to skyrocket and triggering panic in the market for wheat. According to Josef Schmidhuber of the FAO, among other causes, “the price rise for wheat played an important role for price rise in the rice market. It first led to a perceived then to an actual scarcity which was reinforced by export restrictions and export taxes…”

This year, with minor producers struggling, analysts say that total global output of wheat will largely hinge on the success of crops in major exporters such as Canada, Argentina and Australia. At this point, though, experts predict wheat output for 2009 will be down from last year, which saw a record high.

Droughts in South American planting regions and increased planting costs are helping reduce the expected output of maize.

Rice, which witnessed an unprecedented price spike in 2008 and which played an important role in drawing attention to the issue of food prices, is expected to have an increased output for the coming year. The boost in rice production could help dampen price volatility, since only seven to eight percent of rice consumed is ever traded internationally.

Long-term trends in demand and supply

Long-term production patterns are changing. As incomes rise and populations increase, the demand for food will grow, but perhaps not as dramatically as food prices spiked last year. Meanwhile, agriculture in some rain-fed areas may become untenable due to water scarcity or an increase in the frequency of droughts.

Although changes in crop production patterns cannot be directly attributed to climate change, experts such as Schmidhuber believe that the “droughts last year maybe a harbinger of changes to come.”

Others, such as Nobel-Prize winning economist Paul Krugman, speaking at the Forum for the Future of Agriculture in Brussels, have observed that although “world population growth has slowed,” the world could “really use another green revolution.” Schmidhuber predicts that “average production potential may increase with moderate climate change but will decline if temperatures rise beyond 2°C - 2.5°C.” However, “swings in production and thus in prices are likely to rise even in an environment of moderate climate change.”
 
Krugman further cautioned that “shifts in existing patterns of agricultural productivity,” will hit poorest countries hardest.

On the demand side, in fast-growing countries such as China, consumption of milk has grown seven-fold, olive oil six-fold, and vegetable oil two-fold. Consumption of animal protein such as poultry and beef has also risen substantially. Additionally, some niche products such as wine have quadrupled in consumption.
 
Such drastic increases cannot be met by current productive capacity. Land, crop production, and other inputs for farm goods are unlikely to double or quadruple in the near future. But barring changes in consumption patterns, demand for such agricultural products is expected to grow.
 
”I would never tell you that agriculture is recession-proof…I will tell you that most people intend to continue eating” said Monsanto Executive Vice President Brett Begemann at a Reuters summit in Washington DC, whose company has set high growth targets despite the slumping economy.

Trends in trade policy

Restrictive trade policies have also been blamed for contributing to high food prices.
 
Managing Director of the World Bank, Ngozi Okonjo-Iweala, at the Reuters Summit, challenged developed countries to resist the temptation to impose protectionist measures, maintaining that the world must keep borders open and “trade our way out of the crisis.”
 
The World Bank recently issued a study warning that protectionist policies were increasing amid the global financial crises. According to the report, 17 members of the Group of 20 leading financial powers have taken steps to restrict trade since November, when the group vowed to resist such policies. Additionally, according to the FAO, nearly 67 countries, including the EU, implemented new measures by the end of 2008 to restrict trade in agriculture so as to limit the impact of high food prices.

”Developing countries see developed countries putting in measures to protect their own agriculture and producers, it is very difficult to then argue that those same developing countries shouldn’t do the same,” said Okonjo-Iweala of the World Bank.

The study also reported that China has banned imports of certain European agricultural goods. Ecuador raised tariffs on nearly 600 goods by between five and 20 percent. Indonesia is now requiring that all food items, as well as some other goods, pass through five designated ports and airports.

The EU, even in the face of scathing criticism from agricultural exporters in recent months, has introduced new subsidies for certain dairy exports. Developing countries such as China and India have also increased the support prices they pay farmers of certain crops, but the scale and effect of such measures pale in comparison to those implemented by the largest subsidisers.

A developing country exporter optimistically observed that although “the US has withdrawn workers visas and India has imposed safeguard duties to prevent a flood of imports… in general the temptation to restrict trade has been avoided.” He went on to note that “Chinese and Indian [agricultural] production has increased” and that “if prices in agriculture hadn’t increased then investment in agriculture wouldn’t have increased.”

At the summit in Brussels, Franz Fischler, former EU Agriculture Commisioner, drew attention to the need for global food security and environmental protection. He noted that Europe is “clearly self sufficient” and that the EU has a responsibility to help reduce the number of starving people in the world, who number close to one billion. Paul Krugman warned that “primary exporting countries have been hit worse in many ways than the industrial countries. This is not good for anybody but it may be particularly bad for agriculture.”

ICTSD reporting; “Food price crisis not over: World Bank,” REUTERS, 19 March 2009; “Green shoots,” THE ECONOMIST, 19 March 2009; “Monsanto sees robust demand despite recession,” REUTERS, 19 March 2009; Interviews from the Forum for the Future of Agriculture at Blogactiv.eu.