Long-term solution to food crisis essential

Posted by Daniel Palmer on 11th June 2008

Governments around the world should resist the temptation to resort to protectionist measures in food markets if they are to help their populations through the current spike in food prices, according to the Rural Industries Research and Development Corporation (RIRDC).

A new research report, ‘High Food Prices: Causes, Implications and Solutions’ – funded by the RIRDC, provides an analysis of food price rises and says government intervention could only make the problem worse.

The exception occurs where immediate humanitarian concerns outweigh fears about market distortions.

In the past 18 months, the world price of rice has tripled, maize has increased by two-thirds and wheat has doubled. Grain is a major input into meat and dairy production and these prices have also risen significantly. While higher prices have been welcomed by Australian farmers, they have led to food riots in at least 23 countries and increased poverty in some developing countries.

The report finds that supply side factors causing the food price increase are:

* weak recent production growth relative to demand that has seen reductions in stocks
* rapid growth of real agricultural input prices, most notably oil and fertilisers
* below average harvests in major exporting nations in recent years
* government restrictions on production and trade in food.

It also highlights demand factors such as rising global population, increased wealth boosting demand for meat and dairy products, and government policies to encourage biofuels.

RIRDC Managing Director, Dr Peter O’Brien, said the report establishes that governments trying to find short-term solutions to the problem of rising food prices could cause more damage in the long-term. “High food prices send signals to millions of farmers around the world to increase production and stimulate investment in capital and research and development,” he said. “The report argues that protectionist policies in the developed world that drove down food prices in the 1980s and 1990s led to a reduction in R&D that is now resulting in slower productivity growth.”.

Dr O’Brien also added that introducing tariffs to help lower local prices will merely discourage farmers in the future. “Similarly, taxes or other restrictions on exports also reduce domestic prices – which may produce short-term benefits for consumers, but will act as a disincentive for farmers leading to less production in the longer-term,” he claimed. “The report suggests that with food stocks low, political pressure for barriers to exports intensifying and no change expected to biofuels policies, high food prices are likely to last another year or two. However if government’s remain calm and think long-term, the market will right itself.”