EMAIL DETAILS

Farmers and food prices
Dare to grow more
High food prices are not all bad news

Dec 2nd 2010 | from PRINT EDITION

-
-

ANY conversation on the streets of New Delhi turns easily to the cost of
living, particularly that of eating. Stuck in an ocean of honking traffic in
the city centre, Babu Lal complains about the exorbitant rent on his
two-room flat, hard to afford on his earnings as a driver. But at least the
rent does not vary from month to month. Food prices, on the other hand, have
been climbing steadily. Mr Lal now has to fork out Rs110 ($2.40) for a kilo
of dal, his main source of protein—a third more than he was paying only a
few weeks ago.

Hundreds of millions of people, across India and the world, have similar
worries. India’s central bank has raised interest rates six times since
January in an attempt to tame double-digit inflation. In China politicians
are worried that galloping food prices could cause another round of unrest
among the country’s factory workers. The world is not yet in the midst of a
food crisis comparable to that of the autumn of 2008. But since the middle
of the year there has been a steep rise in the price of most agricultural
commodities, including food crops (see chart). And the UN’s Food and
Agriculture Organisation reckons that prices are unlikely to fall back to
their pre-food-crisis levels in the next decade.

Yet a prolonged period of high prices may not be bad news for everyone. In a
report to be released on December 6th, the International Fund for
Agricultural Development (IFAD), another UN agency, says higher prices could
give farmers, particularly in poor countries, a boost; earning more cash
from their produce should spur farmers to lay out more capital on things
like irrigation.

In the decade before the 2008 food crisis, when prices were generally low,
such impetus was lacking. As a consequence, farmers in poor countries, where
agricultural investment had been neglected, could not react quickly when
prices shot up. Cereal production in those lands increased by only 1%,
compared with 12% in rich countries. To feed a global population that is
expected to reach 9 billion by 2050, food output will have to rise by 70%,
IFAD says. Not all of that can come from rich countries.

But as things now stand, it is far from sure that farmers in poor countries
will be able to take advantage of higher prices. The main problem, says
IFAD, is that growers cannot cope with the high risk of producing extra
crops. The upfront investment for seeds and fertilisers is high, whereas
returns are uncertain. Changing weather and market fluctuations can quickly
make an investment unprofitable.

To avoid all that, farmers often retreat into subsistence growing or look
for alternative livelihoods. A recent World Bank study of poor-world farmers
found that many of them engaged with markets only marginally. Yet such
caution carries a cost; research has shown that risk-avoidance can depress
farm incomes by as much as 20%. It also means that there is less food on
world markets.

So governments should help farmers face up to risk, argues IFAD. One
familiar instrument, successfully used in Indonesia and Vietnam, is minimum
price floors. But other approaches, not usually associated with agriculture,
may work better. In both Africa and India, for instance, text-message
services provide farmers with price data from markets in their region,
allowing them to offer their produce at the most profitable time and place.
Index-based crop insurance, linked to the weather, can also reduce
uncertainty. For a poor farmer, assuming risk can seem like courting
disaster; but properly managed, it need not be a show-stopper.

International


Sent from my iPa