World Food Prices

My Lords, I declare an interest as an east Yorkshire farmer who, three years ago, was happy to sell my wheat for £65 a tonne and recently has been selling it at £175 a tonne. It is one of the ironies of farming that when everyone else is suffering farmers do well, and vice versa. On the radio yesterday morning, a pundit, when asked where to put her money, thought for about 10 seconds and said, ““Into agricultural land””. That is where we are at present. There have been many deep differences on the issue of food supplies in the world over the past 50 years. Until recently, the problem was for many years not a Malthusian one but rather the fact that, while there was plenty of food about, it was in the wrong places: chronic surpluses in the European Union and North America; chronic shortages in parts of Africa and elsewhere. The priority over those years should have been to increase production in those poorer countries, where farmers have been unable to compete with surpluses dumped on their markets by Europe and the Americans; where farmers cannot afford the science and technology available to their richer competitors; where the tiny farm structure—although it is actually reducing in Africa—means that it is impracticable to employ the modern farm technology of the West; where it is impossible to borrow to invest because the asset base is so small; where, at the same time, some farmers, especially in east Africa, find it profitable to supply European and American markets with out-of-season fruit, vegetables and flowers; and where, as a last resort, the United Nations provides the most desperate regions with food, either free or heavily subsidised. Today the escalating cost of food is creating entirely new situations, but the same questions and arguments continue. Rather than a problem of food surpluses, there is now a problem of food shortage, caused mainly, as we heard earlier, by rising demand and tight supplies, unfortunate weather circumstances and the rise of biofuels. Fifteen countries are already restricting exports because of domestic unrest about food prices, but that action further inflates global food prices and hits big food-importing countries such as Egypt and the Philippines particularly hard. There is some uncertainty about the scale of the problem. Speculative buying has undoubtedly played a part in pushing up prices. Indeed, I suspect that consumers may not yet have seen the worst. Many farmers like me sold forward into the markets for much lower prices than today’s prices reflect. When those contracts run out, as they surely will in the next few months, I fear that consumer prices will have to rise further. The immediate short-term priority is to raise food production to meet demand, thereby reducing prices. Over the next two to three years I suspect that that will happen; more land will be brought into production, the growth of renewable energy crops will probably slow or reverse and the speculators will probably burn their fingers, with a resultant collapse in food prices and, I suspect, oil prices. We have to remember that relatively small changes in food supply have a dramatic impact on prices, upwards and downwards. Increasing agricultural output in the developing world is not easy, though. The so-called and somewhat misnamed ““green revolution”” that happened in the West in the 1960s, 1970s and 1980s has not happened in many regions of the world. Farms are often too small, equipment is often wholly inadequate and agriscience is supplied only spasmodically. The current high cost of fertilisers might actually reduce outputs and yields because poor farmers cannot afford to borrow to buy them. The noble Lord, Lord Taverne, has powerfully made the case to promote rather than resist the application of modern science in the developing world, but it is also important that modern technology, machinery and infrastructure, as the noble Earl, Lord Selborne, commented, should be made available in these regions. Such countries need the high-speed automated equipment that carries out the work in the West before the weather intervenes and which enables more land to be brought into production. Those countries need the infrastructure that enables farmers to preserve water to store crops and even to move crops from the farm to the markets. For all that to happen, farms have to get bigger, with fewer people employed. However, many NGOs are strongly opposed to that argument; they believe that present farm structures—in Africa, as small as half a hectare and declining—are adequate and that a rural status quo should be the desirable and practical objective. Some even argue that a largely organic system of farming will meet the farms’ needs. That is desirable but not realistic. I disagree with both propositions. The rural status quo is a mirage and unachievable. The flight from the land to the cities started in the 19th century in Britain and has continued remorselessly ever since. France promoted the common agricultural policy post-war in order to stop that exodus from the countryside. It failed; despite those subsidies, the exodus has accelerated. In China, India and Africa, this flight from the land continues inexorably. Shortly, for the first time, the majority of the world’s population will be urban rather than rural. It is foolish and Canute-like to refuse to recognise these realities. However bad urban poverty may be, rural poverty is far worse. Fifty years ago I was brought up in rural Ireland where people, such as an employee of my father, raised nine children in houses with three rooms. People had one objective in the Irish countryside in those days: to get out and come to Coventry to work, however awful it was. The objective in policy must surely be to ensure that when rural migrants move into the towns and cities they have decent wages, decent conditions and decent housing. We need to manage these changes, not deny them. If the world’s agriculture went 100 per cent organic, Malthus’s dire prediction of two centuries ago would probably be realised in a matter of months, not years. The contentious issue of luxury food exports to Europe from poor countries in Africa and Latin America may be less relevant in today’s world as affluent consumers are deterred by high prices—see Marks & Spencer’s food business yesterday, which is one sign that this is already happening—and as farmers in the developing world find that higher prices in their domestic markets make it more attractive for them to serve those markets. That export trade should be properly regulated for environmental, health and social reasons, but it should nevertheless be allowed to continue, because it brings economic benefits to these poorer regions. In the short term, the most immediate responsibility of rich Governments is to ensure that the UN’s food programmes are fully funded. I trust that, at the G8 meeting next week in Japan, the rich countries will ensure that that happens. I note in this morning’s Herald Tribune that Robert Zoellick, the president of the World Bank, says that he needs $10 billion in order to make that happen. My final point relates to whether there should be more or less free, but fair, global trade in food. In an economic crisis it is understandable that frightened people are inclined to become protective. Both Barack Obama and President Sarkozy are already making protectionist noises. Some British farmers are jumping on to the protectionist bandwagon, arguing for more home-produced food. This is understandable but quite wrong. Protectionism was the world’s disastrous reaction to the great depression of the 1920s and 1930s, with awful economic and political consequences, whereas the remarkable growth in global prosperity over the past 60 years was significantly stimulated by the reduction of trade barriers under the GATT and, more recently, WTO agreements. In the short term, we must ensure that those countries desperately short of food can make purchases in a fair and open global market, not one distorted by export restraints and taxes. There should be a Doha agreement, but I am not optimistic that it will happen, especially if the new American Administration are ambivalent. In the medium term, as I have suggested, this sudden escalation in food prices is likely to reverse as farmers bring more land into cultivation and as demand for renewable energy crops is dampened down by Governments and the markets. In the longer term, however, the Malthusian threat may re-emerge as climate change impacts on agriculture across the world and as the world’s population is set to grow by 40 per cent. Some areas will suffer, such as north Africa, Australia and the Middle East, but others will benefit, such as many parts of northern Europe, Siberia and Canada. In these circumstances it is even more important that food moves easily and fairly from regions in surplus to regions in deficit. It is even more important that farmers in the developing world are able to enjoy the full benefits of modern science and technology and that research and development in agricultural science and technology are stepped up rather than resisted. In my lifetime, the world’s population has quadrupled, but the world’s farmers have also quadrupled their output—a remarkable achievement. Against that background, a further increase of perhaps 50 per cent to 100 per cent in output over the next 30 to 40 years should be achievable, but only if those who argue for responsible science and free trade win the day.