THERE is much hue and cry over rising agricultural commodity prices and food costs. Apparently it has been so long since grain prices were at profit-making levels for farmers that many people seem unprepared for the ramifications.
First of all, the idea that profits for grain and oilseed farmers might result in higher food costs has been rather inexplicably greeted with surprise. Yet this is a natural result of farmers finally receiving a decent piece of the food production pie.
The public must also bear in mind that despite reports of record spring wheat futures prices of $25 per bushel, and other agricultural commodities at similarly high historical levels, the farmgate reality is more modest. Much grain was sold earlier in the year at lower prices, limiting the amount that can be sold at higher values.
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Today’s higher agricultural commodity prices are mainly the result of low global stocks, high fuel prices and infusions of investment shifted from the bond and stock markets. Though farmers are among the recipients of resulting higher prices, their influence on the factors creating the surge is minimal.
Low stocks are a result of poor growing conditions in many parts of the world, combined with larger populations, greater demand for livestock feed and the influence of the biofuel industry.
High fuel prices are driven by supply and demand, politics and other global influences that most of us are hard-pressed to fully understand. Fuel costs play a role in virtually every stage of food production, so the effect of any fuel cost increase on food costs is magnified.
The investment fund community’s interest in agricultural commodities is a relatively new phenomenon. These speculators see the profit possibilities, given low supply and high demand, and their activity tends to excite the market and further increase prices.
All of these factors combine to raise food prices. The United Nations reports that the food price index rose by nearly 40 percent over a one-year period in 2007. The previous year’s increase was only nine percent.
The ramifications? Here are a few:
Higher commodity prices are good for farmers, assuming food price increases trickle down to the farmgate, notes the UN Food and Agriculture Organization. “Since farming is the major source of income in most developing countries, higher prices could help alleviate poverty and improve access to food.”
In developed countries including Canada, higher commodity prices encourage increased production. They also foster investment in farming operations and infrastructure, leading to higher production levels in the future.
Low grain stocks, a growing population and trends toward higher meat consumption and its related need for livestock feed will prompt more research into higher yielding, lower input crops. That will mean more development and adoption of genetically modified crops.
Prices may encourage farmers to reintroduce marginal land to their cropping operations. Though this will increase food production, it could result in degradation related to erosion, fertility and loss of wildlife habitat.
Higher commodity prices have an adverse effect on international food aid. There are already concerns about food dollars buying less volume, which could contribute to higher levels of malnutrition, starvation, and unrest in food-short countries.
Concerns over domestic supply are leading many countries to either restrict exports or reduce tariffs on imported commodities. Though this might address the short-term problem, it might also prevent farmers in those countries from increasing production in response to global shortages. That, in turn, could prolong the shortage.
The higher cost of food has shone the spotlight on biofuel production that uses food crops for source material. Further scrutiny on biofuel’s contribution to climate change mitigation is the likely result. So is further research into other sources of feedstock.
Low global supplies of some commodities (the UN estimates the world will have only a 12-week supply of wheat at the end of 2008, for example) will ensure that global weather events will have an even greater effect on commodity markets.
There are many other possible ramifications, but suffice it to say that it is a whole new world for today’s farmers – one filled with possibility and potential peril. They’re used to that.
As a final note, one statistic might serve to put food costs into perspective for Canadian consumers. According to Statistics Canada, 10 percent of Canadians’ average household income was spent on food in 2006. It was the lowest-ever proportion of total spending on food.
That realization should be part of any debate on the cost of food and the role farmers play in it.
Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Ken Zacharias collaborate in the writing of Western Producer editorials.
