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That’ll Cost You Extra: Changes in Global Food Markets

By Contributor · On November 21, 2014

The founding principle of economics was never more present than in early 2008.  From Burkina Faso to Haiti, scarcity in local food markets had driven prices to unimaginable levels. As much of the developed world worried about the worsening of the global financial markets, international governing bodies began to take note of another crisis – one that now appears destined to repeat itself.  With the internationally recognized FAO Food Price Index rising 30.5% after falling from its then all-time high in 2009, there is once again cause for concern. The cause as well as the impact of rising food prices is difficult to isolate. However, both the developed and underdeveloped world will be profoundly affected if this trend continues on its current trajectory.

Inequalities in the Food Supply Chain

Inequalities across the global food supply chains are often misrepresented because large monopolies leverage their bargaining power over underdeveloped countries. More than ever, the global food supply is controlled by a select few, namely large corporations such as Monsanto, DuPont, and Syngenta AG. Global food demand is projected to increase 35% through 2025, with China and India accounting for an estimated 60% of that growth (Bruinsma).  The current global supply infrastructure is unlikely to satisfy this demand, as climate change begins to have more profuse effects on the production environment. The UN Climate Science Panel has stated that crop yields have already begun to be negatively affected by the changing agricultural conditions. Moreover, the UN suggests this trend could lead to an increase in food prices of up to 84%. Such a drastic rise would fundamentally change the way people act as consumers and companies act as producers.

 

Implications for Corporations, Governments, and Citizens

The implications of an uptick in global food prices are already becoming evident throughout large North American corporations, as seen with Chipotle Mexican Grill Inc.  After increasing 82% in value in 2013 and becoming a favorite among investors, the company has been faced with serious operational problems throughout 2014. Chipotle, whose value proposition is anchored on fresh, high quality ingredients, has been hurt significantly by the increase in global food prices. In May, the company announced significant price increases to many of its dishes. During the company’s first quarter 2014 earnings call Jack Hartung, Chipotle’s CFO, cited price increases – of their many staple food items – as one of the company’s main concerns. With expectations for avocado yields to fall as much as 30% over the course of 2014 and consumer demand continuing to rise in North America, the issue has served as a main point of discussion.  While daunting, there are certainly underlying market forces that have resulted in this upward pressure on the price of affiliated consumer products.

Just as a rise in food prices will affect consumers and companies in the developed world, it will continue to drive unrest in the underdeveloped world. The 2013 coup d’état in Egypt, ousting president Mohamed Mursi, can be traced back to several main contributing factors. One was the price of food. In the months leading up to the coup, the Mursi government was criticized for its inability to combat rising food prices, as 44.7% of households identified food price increases as a significant issue in the first quarter of 2013 (Egyptian Food Observatory , 2013). In a country where in multiple provinces (95% of the populous said their monthly income could not cover their monthly food needs) the increase in prices led to what is now known internationally as theArab Spring bread riots (Egyptian Food Observatory , 2013). Multinational banking conglomerate ING acknowledged that a further increase in food prices would lead to even more unrest in the country.

That said, there are certainly potential solutions.  Given the different influences and contributing factors of food prices across the globe, different solutions are applicable to different regions.

Market theorists have long applied so-called Pigouvian taxes to activities deemed detrimental to society, in an attempt to correct inefficient outcomes that would otherwise occur. An argument can be made for the ability of such taxes to help solve the world’s constrained food supply and price inflation problem. Meat is recognized as one of the least efficient foods from a production standpoint, only yielding 2.5% of crop inputs as consumable calories (Cassidy). Coincidently, the biggest consumers of meat are among the most developed countries in the world. If developed nations were to collectively come to the decision to impose higher taxes on meat products, the global food landscape would be distinctly altered.  More “efficient” meat would be produced, and overall food availability would be bolstered. In doing this, calories would be able to be shifted to direct human consumption, yielding significantly more efficient rates of caloric satisfaction and leading to more global availability of food. In line with this notion would be an additional fiscal policy to subsidize local sustainable farming. Sustainable urban farming projects have begun to develop throughout North America, from Detroit to California. These smaller, high-yield farms present a unique opportunity for local farming and agriculture development. These farms would lower imports for developed countries and allow greater proportions of the crop yield produced in developing countries to feed that nation’s citizens. Already, international food aid costs Canadian taxpayers approximately $330 million annually, while Americans pay approximately $1.4 billion annually (Tew).

The economic adage regarding the benefits of investment versus consumption is applicable throughout the entirety of this proposed social construct model. Similar to local sustainable farming subsidies, increased credit and micro-financing for developing countries global food infrastructure could have an equally strong impact. Lack of availability of capital resources to develop and farm land is attributed as one of the main constraints to increased food security throughout the developing world, as practically all international food aid is delivered in the form of tangible produce, meats, and other items. In order to substantiate long-term success for less developed nations, investment in the developing countries’ local food infrastructure must be emphasized by the global community. It is only when the line between developing and developed becomes less apparent that food prices as well as food security can be viewed as a singular problem.

Economist Robert Malthus proposed in the 18^th century that the earth could only feed a finite amount of people.  Increasingly it seems that, while Malthus’ foresight may not have been absolute, it certainly offers insight into one of the biggest global issues of the 21^st century.

Author: Max Townsend

Works Cited

Bruinsma, N. A. (n.d.). World Agriculture Towards 2030/2050. Rome: Food and Agriculture Organization of the United Nations.

Cassidy, P. W. (n.d.). Environmental Research Letters No. 8: Redefining Agricultural Yields. Saint Paul: Institue on the Environment: University of Minnestoa.

Egyptian Food Observatory . (2013). Food Monitoring and Evaluation System.Cairo: World Food Programme.

Tew, R. (n.d.). Food Aid: Investments to End Poverty. Bristol: Development Initiatives.