The latest wave of international food price increases started in the middle of last year. IMF data show that global wheat prices doubled from June last year to January. During the same period, corn prices rose by seven times, while soybean prices quintupled. Price increases for rice stopped at a relatively modest 15 percent. The UN’s Food and Agriculture Organization (FAO) also caught international attention when it announced that its monthly global food price monitor has reached its highest point since its inception in 1990.
There are many reasons behind this latest wave of rising food prices, but the main reason is the narrowing gap between supply and demand. Recent extreme weather conditions have had an impact on major producers such as Russia, Australia, the US, Brazil and China. Global grain production was estimated at 2.229 billion tonnes last year, while global demand reached 2.26 billion tonnes. Because supply and demand for grain is affected by falling inventories, international prices for some of the most important grains rose sharply in the last few months.
Another reason is the rapid growth of emerging economies such as India and China, which has boosted consumer spending in these countries. This has led to increased demand for meat products, which in turn has led to an increased consumption of grain for animal feed. Other factors that have had an influence on the recent food price increases are speculation by investors, the use of economic crops such as corn, sugarcane and soybeans as raw materials for bioenergy production and hoarding as a result of public expectations of rising prices.
Judging from the data at hand, the upward pressure on international prices for agricultural products remains in the short term. In particular, a continuation of extreme weather conditions would mean a tightening of the supply of several grains. The FAO and the Organisation for Economic Co-operation and Development have said that even if the prices of agricultural products over the next 10 years remain below the peak of the last food crisis in 2007-2008, the public must be prepared for the fact that they will be higher than average prices for the 10-year period from 1997 to 2006. The impact will be particularly hard on low-income households, and this is something the government must pay attention to.
Currently, Taiwan’s general food self-sufficiency rate stands at 32 percent. Self-sufficiency for rice stands at 97 percent, and for vegetables and fruit, it is above 80 percent. The problem is that Taiwan relies on imports for more than 90 percent of its economic crops such as corn, soybeans and wheat and is thus affected by fluctuations in international prices. The government must work harder to stop price manipulation by individuals. Because Taiwan is not entirely reliant on food imports like Hong Kong or Singapore, there is no need to get too worried about the situation.
The government has taken several steps to increase Taiwan’s self-sufficiency rate in food. It has revitalized large pieces of fallow land and encouraged farmers to plant cash crops such as mixed grains to lower the nation’s reliance on imported food. It has also encouraged the public to eat more rice to improve domestic grain store safety and increased inventories from 470,000 tonnes to 670,000 tonnes. These moves are for the most part correct, but the majority of them will only have a short-term effect.
Since there are no signs that global warming is slowing down and the frequency of extreme weather conditions is likely to increase, food price fluctuations could become the norm. As such, the government needs to adopt more forward-looking plans. First of all, it must have a complete food safety warning mechanism and response measures in place. After all, these problems cannot be solved by the agricultural sector alone.
Once it has a standard crisis management process in place, it has to continuously put it to test to ensure that it is not only a stop-gap solution and that it will work if a crisis hits. This is the only way to truly ease public worries. It should also expand its definition of foodstuffs to include aquatic products, because oceans are also an important source of food not only for Taiwan, but all around the world. As economies continue to grow, humankind will demand and spend more on aquatic products.
To deal with climatic and environmental changes, Taiwan should move away from the current traditional outdoor farming modes and start to promote intelligent agriculture such as plant factories and indoor super-intensive breeding modes. Furthermore, establishing an effective social security network can help in assuring that the basic food demands of low-income earners are met.
Taiwan also needs to learn how to effectively protect its prime farmlands and to maximize incentives for farmers to plant more mixed grains. In this regard, it can learn much from how Japan used a direct payment method to encourage this. These are all things the government has to start planning right now.
Lee Wu-chung is a professor of agricultural economics at National Taiwan University.
TRANSLATED BY PERRY SVENSSON AND DREW CAMERON
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