With the world currently experiencing a food shortage, the effects are starting to be felt across Australia. While we are fortunate enough to avoid famine, the implications of the global food crisis has other consequences for our agricultural industry, especially food exports.
Globally, food consumption has outstripped food production and, for the first time since the 1970s, the world is facing a food shortage. This is at the crux of what is described as the global food crisis.
For many Australians, a slight dent in the hip pocket at the supermarket checkout has been the most evidence we have seen of any food shortage. The shelves are still fully stocked and the choice of produce is extensive. Indeed, some economists are not calling it a crisis.
With Australia’s reputation for quality and efficient food production and the nation’s history of producing more food than we can consume, many may think this is a blip on the radar. But the reality is the world is facing unprecedented change and there are many challenges ahead for the world’s food producers to ensure ongoing food security for all.
While Australia, to date, has been relatively unscathed, the reaction around the globe to food shortages has been dramatic. In a July 2 statement, the World Bank acknowledged that more than 40 countries had lost between three and 10 percent of their GDP since January 2007 as a result of rising prices, and more than 30 countries had experienced food riots. “These numbers translate into broken lives and stunted potential,” World Bank president Robert Zoellick says.
The Bank predicts record oil and food prices are threatening to drive another 100 million people into extreme poverty. Andrew Stoeckel, the founding chairman of the Centre for International Economics, says when demand exceeds supply, prices increase—as we are seeing. On average Australians spend about 15 percent of their income on food compared with up to 80 percent for the world’s poorest. “It’s particularly severe for poor people and poor countries,” Stoeckel says.
But what does it all mean for Australia’s agribusiness and value-added food exporters? Is this an opportunity or a threat, and how should it be handled? The answer is complex and the possibilities varied.
While the recent price hike, which has mostly been associated with grains, has the potential to spur the world’s food producers into action, there are many other factors compounding the issue. Ultimately the world’s population is increasing, with estimates it will blow out from about 6.7 billion today to nine billion by 2050.
Terry Sheales, acting deputy executive director at the Australian Bureau of Agriculture and Resources Economics says the population growth is further compounded by higher incomes in the developing world. With more wealth, people are expanding their diets. “They’re demanding higher quality food with more animal products in their diets,” Sheales explains. “In order to produce those animal products, you have to feed [the animals] grain.”
With more mouths to feed, the pressure on supply is going to be exacerbated and so will prices. According to Stoeckel this is the natural way of things. Let demand push the prices up and suppliers will respond by growing more. He argues this will also cause a natural shift in the supply chain with consumers increasing their demand for more affordable alternatives and food producers will gravitate towards those products. Market forces, if left to their own devices, will sort the problem out.
Already this is being seen in some areas. Sheales says the global market for grains and commodities is very healthy and Australian crop farmers have responded. “At the moment we’re looking at quite a substantial increase in the size of our harvest this year.” But he is quick to point out it is all weather dependent. “If we can get decent sorts of average rain when we’d normally expect to get it, we’re looking at a very large wheat harvest: about double last year’s.”
Graeme Robertson, director of Muresk Institute, Curtin University’s School of Agriculture and Environment, agrees the price hike for grain and commodities is good news for the nation’s farmers. There has been a general downward trend in food prices over the last few decades and he says food has become too cheap to produce in the quantities the world needs. “[Price rises are] changing the direction of the trend and it probably has to happen if farmers worldwide are to produce more food.
“In Australia I think the price of some of our food products for several years has been at or below the cost of production and there hasn’t been much incentive to do more.”
This is at the heart of Stoeckel’s argument to allow market forces to play their role. The danger, he says, is when governments intervene by introducing subsidies, tariffs and trading restrictions: “That is the biggest risk we face in all of this: governments get in there and try to fix things.”
This protectionist attitude can be seen in countries around the world. In Europe and the United States, farmers are protected with government subsidies, Argentina put a tax on its food exporters so they couldn’t take advantage of higher world prices and force food prices up at home; some countries banned the export of rice and, in other regions, governments have subsidised fuel, keeping the cost artificially low. “Subsidies on fuel to shield consumers from the price rise means there’s no incentive to use less,” Stoeckel says.
Price increases lead to conservation and innovation, while trade protection leads to waste and inefficiencies and no incentive to evoke change and find solutions. “The problem will not be solved by some government bureaucrat, it will be solved by the actions of private individuals in the competitive market place,” he adds.
But even if that is the case, producers are limited by the world’s finite resources. There is only so much room for expansion. The ability of farmers to respond to the food crisis is going to be impacted by climate change, land availability and land quality according to Peter Dart, a scientist at the University of Queensland’s School of Land, Crop and Food Sciences. “The land availability for agriculture is very limited in the world,” he explains. “We’re at pretty much the maximum in many situations.”
The quality of that agricultural land is also an issue. Robertson says the area of arable land is decreasing due to erosion, salinity and changing water tables. The loss of topsoil through erosion can happen very quickly, but will take 500 to 1,000 years to replenish. Dart says that once topsoil goes “we’re in trouble” and remarks that “erosion is horrific in some countries”.
In China, India and Spain, the water tables are dropping rapidly and he predicts this will impact on the ability of those countries to irrigate crops. A decade of drought in parts of Australia has already taken its toll on the nation’s production levels, but Dart says climate change is expected to create a drying effect in southern Australia, the nation’s major food producing basket. “Although the opportunity’s there, the means of responding to it are going to be limited,” he explains.
He predicts an escalation of the food crisis and a return to famines. The food crisis has been further exacerbated by peak oil and expansion of the biofuels industry. Oil prices have pushed up the cost of production. “Australia’s position to take advantage of any increased food commodity price is really limited by our agriculture’s high dependency on petroleum,” explains Jane O’Sullivan, a research fellow at the University of Queensland’s School of Land, Crop and Food Sciences.
High use of fertilisers, diesel machinery and the tyranny of long transport distances are all part of the equation. “All of those factors are going to make our agriculture products increasingly expensive and may counteract any benefits,” O’Sullivan says.
While biofuels have not been as big an issue in Australia as in other countries, the international expansion of this industry is impacting on the world’s food supplies as grains like corn are being diverted to fuel production. Stoeckel says this is a particular issue in the United States where the US government has prevented the importation of ethanol from Brazil—the most efficient producer of ethanol in the world—and are using their own crops of corn and other grains for fuel, adding to food scarcity in the global market.
It seems likely that this will become a bigger issue as the demand for alternative fuels ramps up. But there are opportunities for Australians to take advantage of the food crisis and Sheales says our efficiency and innovation is a leading factor. Our food producers are among the most efficient in the world and much research has been invested in developing agriculture in arid and challenging environments. “Some of that expertise could be exported to other countries,” he says.
There is also optimism in the seeds industry. “People here can see opportunities for both developing and exporting seed varieties that may be better suited to a changing climate.”
There is also an enormous amount of waste in food production from fruit left unpicked because it is not a high enough quality, to food rotting in fridges and portions left on restaurant plates. Many countries suffer from storage difficulties. “In Africa, 15 percent of food is eaten by pests in storage,” Robertson says. “There are certainly lots of opportunities to be more efficient in what we do.”
While Stoeckel’s model would see less demand for luxury and more expensive items as people respond to higher prices, Anni Brownjohn, founder and managing director of Ozganics, which manufactures organic processed foods in northern New South Wales, is confident being a niche food producer will help her business thrive. “We are certified organic so we’re very specialised,” she says.
Demand for organic products has skyrocketed in recent years and Brownjohn is noticing strong growth in Asia where she says people are more conscious that what they eat affects them. However, she acknowledges food security is going to be an issue in coming years and exporters will have to “keep their finger on the pulse”. “The challenge is going to be to better understand the threat of food security in your market,” she notes.
The ‘crisis’ is a mixed bag for Australia’s agribusiness and value-added food exporters. In the short term, there are opportunities to take advantage of increased commodity prices and the growing demand for luxury and niche produce.
But in the long term, climate change, water supply, land availability and land quality are likely to pose many challenges to increased production. And with the Murray Darling river system in dire straits, the nation is faced with the possibility of not being able to meet normal production levels in years to come.
But Australia is a nation of innovation and the incentives are now there to increase research and make agriculture and food production more efficient than it has ever been.