WORLD

Why the World Can’t Afford Food

And why higher prices are here to stay
By jackson dykman

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Worldwide production of cereals has
not kept pace with demand as
droughts and bad weather have hit
key exporting regions. As stocks
dwindled, some countries placed
export restrictions on food to protect
their own supplies. This in turn drove
up prices, punishing countries—
especially poor ones—that depend
on imports for much of their food.
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Food costs closely track energy costs.
As the price of oil spikes, the cost of
running a farm jumps too. Petroleum
is a key ingredient in the making of
some types of fertilizer, which is
increasingly essential to agriculture
in the developing world. Then there’s
the added cost of gas to run
equipment and higher transportation
expenses to get food to market.
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Expensive oil creates more demand
for alternatives, like biofuels made
from corn or other plants. Driven by
government subsidies, U.S. farmers
are devoting more land to corn at the
expense of other crops and turning
more of the corn they grow into
ethanol. It’s a double whammy: both
corn and grain for food become
scarcer, further driving up prices.

WORLDWIDE 2.2 PRICE PER $122 $120 WORLDWIDE 15

CEREAL BBL. OF OIL BIOFUEL
PRODUCTION West Texas PRODUCTION Ethanol
Edible grains Intermediate Crude, 100
Billions of gallons 10
such as 1.8 a widely used
wheat, rice, benchmark
corn, barley 80
and sorghum, 5
in billions of
tons 1.4 60 Biodiesel
’00 ’02 ’04 ’06 ’07 Price adjusted
for inflation 0
40 ’00 ’02 ’04 ’06 ’07
WORLDWIDE 700
CEREAL 20 U.S. CORN PRODUCTION USED FOR ETHANOL
STOCKS 600 Spot price 1997 2002 2007
In millions 5% 10% 24%
of tons 500 0
’00 ’02 ’04 ’06 ’08
400 130

300
’00 ’02 ’04 ’06 ’07
2006
average
¤ÔÈ
120

2005 average
¤¤È
M?ËwaˬÁ‰Wjˉ™ajÞË A monthly measure of price changes in major food commodities traded internationally (1998 to 2000 = 100)
Jan. July Jan. July
2005 2006

34
 March ÔÔå ÝË͆ÄjˬÁ‰WjĈ‰ÍË
†”jˉ™Ë͆jË2±.±
Food prices are a key factor
pumping inflation in the
U.S., and wages aren’t
210 keeping pace. Here’s how
some prices have risen in
supermarkets:
CHANGE IN PRICE
SINCE 2003

200
Wonder

s
-jWÁaË bread
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ݝÁa݉aj
190
Boneless
center-cut
pork chop
¤Ô|°

Farmland
™WÁj?ĉ™~Ëaj”?™a^Ë 180 Skim Plus
jĬjW‰?ßˉ™Ë
†‰™? milk
The fast-growing economies of Ïo°
China and India are enabling more
people to buy pricier food like fruit Arnold
and meat rather than less expensive stone-ground
170
staples like rice. Chinese meat wheat bread
consumption has more than doubled ÏÉ°
since 1980, and milk consumption
has tripled. With such growing
demand, more grain is diverted to CHANGE IN Rib-eye steak
WORLD PRICES
feeding livestock rather than people. 160 SINCE MAY 2007 É|°
2007 average Meat 12%
ANNUAL PER CAPITA MEAT ¤yÈ Dairy 24% Carr’s water
CONSUMPTION IN CHINA
Cereals 89% crackers
2007
110 lbs. Oils and fats 77% Ϛ°
1980 150
Sugar 40%
44 lbs.
Birds Eye
One year ago frozen
¤|| sweet corn
Ôo°
140

Bananas
8‰Ë¬Á‰WjÄËW”jËaÝ™· |¤°
The short answer: not anytime soon.
A World Bank report projects that
Birds Eye
food prices will remain high for at
frozen
least another year before increases in baby peas
supply take hold in the market. But
that report also says prices are likely Ô¤°
to remain “well above 2004 levels”
for the foreseeable future because
other pressures—costly oil, demand Diet Coke
for biofuels and protectionist trade ¤å°
policies—probably won’t abate.
Sources: United Nations
PHOTOS, FROM LEFT: ISTOCK; PAUL EDMONDSON—GETTY; ISTOCK; REUTERS Food and Agricultural Organization;
Agriculture Department; Energy Information
Administration; International Fertilizer Industry
Jan. July Jan. Association; World Bank; International Food Policy
2007 2008 Research Institute; Bureau of Labor Statistics

time May 19, 2008  35