Food prices at record highs

Food prices hit a record high in January, contributing to unrest in North Africa and stoking fears about how the world will feed itself as the population continues to explode. Europe's agricultural markets play a key role in determining supply and prices, and European leaders have made the concept of "food security" a major part of their rhetoric in the first months of this year.

An index from the UN Food and Agriculture Organization (FAO) published Feb. 3 showed that global food prices rose 3.4 percent to 231 points from December to January - the highest level since the FAO started measuring food prices in 1990. Domestically, the Federation of Food and Drink Industries of the Czech Republic reported food prices to be up 5.6 percent on the year in January, and could increase as much as 10 percent in 2011. The immediate and most obvious culprit for the higher prices was last year's bad harvests in major wheat sources because of unusually bad weather.

"It's unlikely we will have a major reduction in the global price index this year because the global stocks are being depleted," Kostas Stamoulis, FAO chief of Agricultural Sector in Economic Development Service, told The Prague Post. "The situation will stabilize, but in the meantime, we have to watch very closely what happens in developing countries, especially poor households," which he said spend up to 70 percent of their income on food. Developing nations like Egypt import around 50 percent of the food they consume.

However, beyond the natural fluctuations of crop yields is a larger debate about what else is pushing up food prices and how to address feeding the world's 1 billion hungry while taking on the forecast world population growth to 10 billion in 2050, as well as increasing demand for meat and higher quality products from large, increasingly wealthy nations like China and India while meeting demands for biofuels.

The European Commission and French President Nicolas Sarkozy, who is currently leading the G8 and G20, have been quick to point at speculative trading as the root of price hikes. That theory has been widely contested by numerous studies and food experts, some who outright deny speculation pushes prices up.

"Speculation is not the main cause. Food markets are defined by matching supply and demand," said Aurele Destrée, head of the development and food policy program at Glopolis, an independent think tank in Prague. Speculation has contributed to hikes in wheat prices, she said, but is not at the root of price increases.

Feeding Europe

The FAO has forecast that world food production needs to increase 70 percent by 2050 in order to meet food demand, but how much should Europe really have to increase production?

At the center of the debate are two views that meet on the necessity for Europe to become more self-sustaining and wean itself from high import levels on items like animal feed, 75 percent of which is imported to the EU. Many of those imports come from developing countries, which have experienced more harm than benefits from controversial "land grabs" meant to boost trade.

Where they diverge, though, is based on two conflicting yet true facts: The European Union is at once the largest importer and largest exporter of agricultural products.

"What we have in Europe is a conflict in terms of what agriculture is and what it needs to do," said Phil Newton, head of communications at the European Crop Protection Association (ECPA) in Brussels.

Newton, who supports higher crop yields in the EU, cited an FAO report that says crop yields are forecast to only grow around 4 percent in Europe, compared with 15 percent to 40 percent in other parts of the world, putting Europe's per capita productivity level "on par with sub-Saharan Africa."

"Europe will be fed on imports. European agricultural productivity is stagnant," Newton said. "I look at the direction the EU is going on agriculture, and what we have is a policy direction contained in the Common Agricultural Policy and regulatory restrictions on crops and various technologies like genetically modified seeds that's in conflict with productivity, and it's making Europe more dependent on imports. That's entirely unwarranted. They have a much greater capacity to produce their own food."

Those in line with the ECPA argument say Europe has to accept the necessity of pesticides and genetically modified (GM) crops - something the EU has historically been squeamish about, most recently releasing a draft document empowering individual member states to develop their own policies on GM crops.

It would allow pro-GM countries like the Czech Republic to go through with large-scale GM plantings while also allowing other countries like France and Italy, which are against GM crops, to legally ban them.

In contrast, others say increasing European production, and in turn exports, could be destabilizing, because it doesn't encourage development of agriculture in other regions.

"It's not Europe's problem to feed the world. We should make sure we can secure our own food sustainably and not feed the world, but make sure they can feed themselves," Destrée said.

The Czech Republic, although minor, is "playing the game of the European Commission," Destrée said, by pursuing export and competition oriented policies. "We have to think about what we want in the future."

Then, Europe can contribute to aiding developing nations.

"Before we start thinking about genetically modified technology, we need to look at the huge potential of other technologies to increase yields, potentially five times higher," Stamoulis said, including special seeds adapted to the weather conditions in developing countries as well as more basic technologies like better irrigation systems. He added that the FAO was not for or against GM crops, but that they aren't part of the immediate solution.

CAP controversy

One thing that both sides seem to agree on is that the highly contentious EU Common Agricultural Policy in its current form is contributing to the problem. The policy, which currently takes up almost 50 percent of the EU budget, provides direct subsidy payments for crops and cultivable land through price support mechanisms like guaranteed minimum prices, import tariffs and quotas on certain goods from outside the EU.

"We are exporting below our cost of production," Destrée said. By making crop production cheaper in Europe, farmers in developing nations don't stand a chance in competing in the market. "These small producers in developing nations can't face the risk of the price not meeting their investment right away."

Newton said the money used on subsidies should go to technology research.

Extensive reform for the policy after 2013 is now being discussed, and priorities in creating the policy, for which spending is expected to decrease to 32 percent of the EU budget, remain vague but include "global food security" and "moving away from market measures and focusing on environmental and climate change objectives," as well as making payments "fairer" to newer EU members.

Your land is my land

The key, experts say, is to develop strategies that address the issue of land grabbing. When the global economic crisis hit, Stamoulis said, wealthy countries became "suspicious of the world market" and chose to become more self-reliant. Their trick was to invest in large tracts of land in the developing world on which companies would produce food solely meant for export back to their own countries.

"There is nothing wrong in principle about this, but what can go wrong is in the details," Stamoulis said. "Who is working on the land? Who has traditional rights to the land?"

Although there are arguments that these foreign companies have brought with them better technology as well as encouraged improvements in infrastructure, like roads, in many cases benefits have not outweighed the local costs.

"They might provide jobs for 100 people, but what else do they provide?" Destrée said. "The question is how you make sure you engage small-scale farmers rather than just take their land. There has been talk about an international code of conduct from the G8, but there hasn't been a lot of pressure to move forward on that agenda."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com