A report recently published by Oxfam received a huge amount of attention. The report argued that world food prices will double over the next thirty years and that the only solution is ‘radical reform of the world food system’ which translates to mean extensive government controls over the production, supply and distribution of foodstuffs.
It is surprising that they are so confident as to the level of prices in thirty years time and even more surprising that they look to government given the catastrophic record of states in managing food supply – Communist China, the British Empire and the Soviet Union all managed to create famines that killed millions. However, it is history that tells us both where the authors of the report are coming from and why we should reject both their analysis and prescriptions, so long as one course of action is followed.
It is true that world food prices have risen sharply over the last three years. Indeed most of the commentary on the report states that food prices are at all time record highs. Indeed they are – in nominal terms. In real terms however grain prices are less than half the level in the 1940s and are 25% less than in the 1960s. For a comprehensive review of this see the work of California based agricultural economist Daniel Sumner at: http://blumcenter.berkeley.edu/files/blumcenter/Daniel_Sumner_Slides.pdf
The point is that food prices are volatile and short run spikes of this kind have happened many times before (as for example during the early 1970s) due to factors such as adverse weather and bad harvests, major supply bottlenecks and the like. This time a major cause is the truly insane policy of converting maize into ethanol for fuel. What matter are long term trends, ignoring short term upwards and downwards fluctuations.
However, the report argues that we are indeed seeing a long term trend caused by structural constraints such as ultimate supply limits on food production and growing demand due to rising living standards (leading people to eat more meat and so ultimately much more grain as meat production uses a large amount of foodstuffs) and rising population. Claims of this kind have been made repeatedly every time there is a spike in prices, by people such as Paul Ehrlich, Lester Brown, Donella Meadows and many others. In fact we can trace this kind of thinking right back to 1798 when Thomas Robert Malthus published the first edition of his Essay on Population. In it he put forward the basic argument of the Oxfam report and its many predecessors, that there is an inherent limit to agricultural production and the rate at which it can increase, which means that absent checks on population growth there is a long-term tendency for the demand for food to push up against the limits of production, leading to rising prices, declining living standards and ultimately famine.
Malthus was probably the worst prophet in human history – the long term trend since 1798 has been for real food prices to decline and agricultural production to go up more rapidly than population. Since 1960, for example, grain production has increased threefold without any extra land being put under the plough. However he was one of the greatest historical sociologists – as far as most of the past is concerned he was right on the money and his analysis can be used to make sense of much of human history. So why has everything been different since his time? One argument is that we are enjoying a boost to food production from the use of oil, which is now coming to an end. Leaving aside arguments about oil supply this is clearly untrue because the take off in food production started long before any widespread use of oil and oil-based fertilisers only account for a part of the huge increase in output since 1960.
The real reason is twofold – sustained innovations in production and distribution brought about by the operation of the profit motive in a competitive market and the use of markets and prices (as opposed to controls) to govern the distribution of food. Every time this has been abandoned (as with the ethanol policy of the US government) the result has been disastrous. Right now many important innovations such as GM food are blocked by weak-willed politicians influenced by lobby groups. The solution to the undoubted short term difficulty we face is a mix of the following concrete policies: abandoning agricultural protectionism by the EU and the US in particular; making it easier for small farmers in poor countries to get their products to market; removing supply side constraints such as poor storage of grain in many countries; establishing tradable property rights in fisheries and land in many parts of the world; and, above all, by allowing high prices and the profit opportunities they indicate to lead producers to innovate, produce more and so resume the long term downward trend in the price of food.