Concern about climate change and the standoff between the pan-blue and pan-green camps mean that changes to commodity prices frequently intensify worries about inflation. If household incomes are divided into five 20-percentile groups, it would be shown that expenditures for households in the lowest quintile would mostly go toward food, water, electricity and gas. That means that whenever the prices of these items go up, low-income households acutely feel the price rise.
However, volatile flows of investment capital caused by relaxed currency policies in the spring last year have received much attention and central banks in many countries are now ready to fight the resulting price fluctuations. Some leading countries have also restrained their monetary expansion policies to relax the demand for economic growth.
As a result, wholesale prices began to drop early last month. For example, New York crude oil spot prices have dropped by as much as 15 percent. As summer arrives, agricultural areas will enter harvest season. It is therefore likely that wholesale prices will fall rather than rise in the second half of the year.
Ever since the financial boom entered its final stage in the first half of 2008, global commodity prices have been relatively stable. During this period, the global price index has only increased by half the average increase in the previous years and just one-third of the increase in recent high-growth years.
In 2007, some developing countries banned the export of grain for national security reasons. It was a panic response to the rising wholesale prices at the time. In the Philippines, lack of preparation even led to victims of natural disasters looting grain storage units.
Long-term analysis by the UN shows that the trend over the past decade was for global harvest volumes to constantly increase. Stored wheat and corn has now reached 30 percent of annual global demand, while stored rice has reached 20 percent of annual demand. In addition, subsidies for green energy crops and biodiesel are gradually being canceled. This implies that people will no longer have to fight over using farmland for green energy crops or food.
Although people in developing countries often suffer the most, this is mostly a result of war or corruption. Judging from global trends, it is unlikely that agricultural trade will spin out of control. The trade system is capable of dealing with the short-term impact caused by climate change. Unless world population growth skyrockets, agricultural trade is expected to be healthy and prices will remain stable.
Therefore the government should set higher goals for its agricultural development policy. In the future, Taiwan should focus on agricultural trade and value-added products. The nation’s geographical features should be utilized, along with its social and natural environment, to promote tourism and environmental ecology. The nation should extend the value chain of agricultural products by increasing operations in high-end neighboring markets.
Taiwan’s population has tripled in the past half-century, but the area and efficiency of paddy rice production have declined greatly. This means that reaching even one-sixth of the nation’s past food self-sufficiency rate would be difficult. The agricultural development policy should not be based on food self-sufficiency or other meaningless measures.
Recklessly treating this as a national security issue and implementing policies that use subsidies as incentives will only make it even more difficult to control the fiscal burden and upgrade the agricultural industry.
Lu Hsin-chang is a professor at National Taiwan University’s Department of International Business.
TRANSLATED BY EDDY CHANG
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