The so-called demand-side arguments for increases in food prices - that consumption, especially consumption of meat and dairy has gone up in China and India - ignore a crucial point. While it's true that changes, sometimes significant changes, have occurred in the diets of the middle class of both of those countries, the middle class in each constitutes a small minority. Other segments of the population, especially in India, often consume less than they have historically and suffer from chronic malnutrition. According to the Indian economist Jayati Ghosh, both China's and India's per capita grain consumption have been more or less constant for the past 20 years. With this in mind, it seems unlikely that the dramatic rise in prices has anything to do with increased demand.
There are other factors not directly related to speculation that have no doubt played a role. For developing countries, these factors include International Monetary Fund policy "advice" to reduce or eliminate grain reserves, the elimination of tariffs on food coming from Europe and the United States and the removal of subsidies for fertilizer and other agricultural inputs, and at the behest of the IMF and World Bank.Since about 1960, global food production has been transformed from a primarily local activity, albeit with the import and export of luxury foods, to a primarily global business.
International trade rules reward those who produce their goods for export over those who produce for local consumption. Though farmers in British Colombia and California both grow tomatoes in the summer, it is more profitable for them to ship those tomatoes over the border than to sell them domestically. Aside from the obvious ludicrousness of the situation, the increased transportation costs of shipping goods by truck across vast distances adds even more expense.
In Asia, Latin America, North America and some parts of Europe, small farmers are becoming increasingly rare. The industrialization of agriculture through monocropping and over-reliance on chemical fertilizer and pesticides has effectively created economies of scale such that it is almost impossible for small farmers to succeed. Genetic modification of seeds adds yet another layer to that industrialization, ensuring that large agribusiness companies including Monsanto, Archer Daniels Midland, and Cargill continue to post record profits.
A solution that some countries have already begun implementing is to de-liberalize their agricultural sectors. So far this has mostly been done in a knee-jerk and unplanned way, which is understandable given the circumstances. So India has banned the export of certain crops, while eliminating some export tariffs; China has introduced some price controls and increased its tariffs on some grains to discourage exports. More than 25 countries and the European Union, which has temporarily suspended import duties, have taken similar measures.
These measures are necessary, but they are not solutions. They may lessen the impact of soaring food prices, but they will do nothing to reverse the trend.
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The so-called demand-side arguments for increases in food prices - that consumption, especially consumption of meat and dairy has gone up in China and India - ignore a crucial point. While it's true that changes, sometimes significant changes, have occurred in the diets of the middle class of both of those countries, the middle class in each constitutes a small minority. Other segments of the population, especially in India, often consume less than they have historically and suffer from chronic malnutrition. According to the Indian economist Jayati Ghosh, both China's and India's per capita grain consumption have been more or less constant for the past 20 years. With this in mind, it seems unlikely that the dramatic rise in prices has anything to do with increased demand.
