Feed the world with a smarter price approach
SOMETIMES the less obvious approaches to what may seem insurmountable problems are well worth considering.
The orthodox approach to food security, to keeping global hunger at bay, is for governments, especially in Europe and the US, to subsidise overproduction by often inefficient farmers; and for supermarket chains to engage in phony wars to keep prices down. At the bottom of the supply chain, farmers are the ones that get screwed every time, with price wars and cost increases driving more and more of them out of business. Give some thought then to a theory from a former agricultural economist with the United Nations Food and Agriculture Organisation, Andrew MacMillan, and agronomist Ignacio Trueba. Their book, How to End Hunger in Times of Crises. Let’s start now! offers a different and challenging view on how to eradicate hunger and malnutrition.
In the language of economists, they suggest a shift from supply-driven to demand-driven approaches.
By concentrating on demand rather than supply, they argue we would see the evolution of sustainable food systems rather than systems propped up by government subsidies and questionable market practices.
In an online article, MacMillan explained: “Most governments prefer to keep food prices ‘affordable’ for their people. Many subsidise their farmers’ incomes to let them make a decent living, while they sell their output for little more than it costs them to produce it. Countries justify these measures and relatively low taxes on foods as a means of preventing poor people from suffering from hunger.”
In fact, after international food prices rose sharply from 2007/8 onwards, he says that the UN’s estimate of people suffering from hunger actually fell rather than rose.
About 70 per cent of the estimated 800 million people suffering from chronic hunger live in rural areas, where food production is usually the dominant economic activity. Two factors determine the health of these economies: the volume of farm output; and the prices that the farmers get at the farm gate.
MacMillan says that, even if production remains steady, falling prices have a disastrous effect, “putting downward pressure on wages, cutting employment opportunities and discouraging new investment on farms and in
Jan Davis
rural infrastructure and services”.
He says that a deliberate rise in consumer food prices offers the prospect of reducing the incidence of hunger by creating greater rural economic prosperity.
In Australia, we spend around 10 per cent of our disposable income on food. The US figure is 6.8 per cent. In less developed countries, that can rise to more than 40 per cent. In Azerbaijan, for instance, the figure is 48.5 per cent; in Pakistan, 45.4 per cent; and in Indonesia 44.1 per cent.
According to MacMillan, most consumers in industrialised and emerging economies typically spend less than 20 per cent of their disposable income on food. They could easily absorb a substantial rise in food costs — even if they might complain loudly!
Under this scenario, primary production would become more viable for the farmers, again assuming the principles of fair trade apply. However, rising prices would also help address increasing problems of food wastage. Importantly, this would also discourage over-consumption of food and cut health costs from the obesity epidemic now affecting more than 1.5 billion people. There would have to be the safety net of income supplements to the very poor, indexed to local food prices.
Macmillan calculated that the amount of extra food needed to close the hunger gap globally was 30 million tonnes of grain per year — which is less than 2 per cent of global cereal output.
“It would still cost less than about 10 per cent of the OECD countries’ farm subsidies for which tax payers coughed up $US415 billion in 2012,” MacMillan said.
I don’t necessarily want you to pay more for your food each week, but we all need to give some thought about being prepared to pay more if it can be shown that we all benefit in the long run. Jan Davis is an agribusiness consultant and a former chief executive of the Tasmanian Farmers and Graziers Association.