Food supply shortages: not just poor countries affected

Empty threat
The Guardian 11 Jun 08;

Beware ... it isn't only poor countries that will be seriously affected if we don't rapidly address the growing problem of food supply shortages. Analysts Hardin Tibbs and Kate Bailey set out the global challenges

The rising global population means not just more mouths to feed, but more sophisticated tastes to satisfy as developing countries grow wealthier. And as demand for food increases around the world, supply capacity is struggling to keep up with these changing requirements - with potentially dire consequences for every nation.

At the three-day summit hosted by the UN's Food and Agriculture Organisation (FAO) in Rome last week, world leaders discussed the rising food prices. Without direct and effective action, the poor of the world face great suffering. In the last 12 months alone, according to the FAO, 100 million have joined the world's hungry, and 22 countries remain particularly vulnerable to chronic hunger. But in developed countries, too, the availability and cost of food will begin to carry a political, economic and social significance not seen for generations.

To help understand the implications of change for the EU and UK, Chatham House, home of the independent international affairs thinktank the Royal Institute of International Affairs, has developed four scenarios that explain possible future pictures of global food supply. These have been used to help representatives of the UK's wheat and dairy supply networks to focus on the challenges they face and the choices they may have to make:

1. "Just a blip"

Higher prices trigger a major investment in production capacity. In broadly the same timescale of two to three years, good weather allows global yields to recover. Food input costs decline as geopolitical conditions improve and the oil price drops, undercutting biofuel production. Food prices drop back, though they remain volatile because of continuing speculative investment.

This scenario demonstrates the extent to which all the main price-determining factors would have to play out favourably if food prices are to fall back to more familiar levels. As a possibility, it is considered by many in the UK food supply industry to be too complacent. There is a widely-held view that, even if some easing back in commodity prices is seen, something more akin to structural change is occurring in global food production and supply.

2. Food inflation

Global demand for food continues to grow and persistently outpaces production growth, albeit by a narrow margin. Investments in production technology ensure that global food production capacity is not overwhelmed, but the proportion of personal income spent on food ends its long-run downward trend.

The economic logic of this scenario is currently a topic of debate among investors. The world economy appears to be heading for a recession, and normally, under these conditions, commodity prices would be falling in expectation of reduced economic activity. Yet they remain high. Sustained food inflation will create a number of challenges on the domestic front and all sectors will find it difficult to access the capital investment necessary to meet raised productivity targets.

3. Into a new era

Climate change worsens and global oil supply contracts keep food supply input costs high. Per capita production falls steadily. A dramatic shift in food production and manufacturing in general becomes unavoidable; the new emphasis is on "regenerative", rather than "extractive", practices.

This scenario will require the development of new supply concepts, policies and structures, with the drive for technological innovation and the need for significant levels of agricultural investment seen as converging concerns. Whether sufficiently high yields can be achieved through an alternative production paradigm is certainly controversial, particularly as the whole concept entails change to existing models of food production and delivery. But many observers maintain that numerous pockets of innovation are already pushing in this direction.

The new, radical circumstances prevailing will require industry to develop different competitive models - ones that derive market edge from their compliance with environmental and ethical standards. Government will need to decide whether it is to be the driver or facilitator of the new supply system's development. Potentially important areas of policy making include waste and the promotion of better resource management, the expansion of agricultural and food system capacity, and investment in science and technology.

4. Food in crisis

Exacerbated by crop and/or animal diseases, serious food shortages develop. This causes universal public shock and growing political panic. The struggle, even in the developed world, is to keep people fed. With prices skyrocketing, the crisis response creates an untested set of supply arrangements. Issues such as choice and values-based purchasing assume a second order priority.

The success or failure of businesses will depend critically on their ability to secure supplies and the strength of their trading partnerships. Governments will face a series of difficult decisions on when and how far to intervene. In more strategic policy terms, there may be implications for the UK's trade and international relationships. Conflicts of interest between national and EU priorities may become a particular focus of attention.

These four global scenarios reveal significant points of debate and questions for all stakeholders across the EU/UK food supply system. The expected impacts of the circumstances presented provide a stark warning that "business as usual" models could fail or, at best, be poor preparation for the coming period. The ability to secure raw materials and the effective utilisation of resources suggest that consideration may need to be given to the current division of responsibilities between the EU and UK in a number of areas affecting food supply.

At the same time, exciting opportunities could be created for the UK to develop new competitive strengths. The initiatives that will deliver them are likely to be built around a framework that encourages innovation, waste reduction, partnership-led approaches and the acceptance of possible changes in consumption patterns. Increased investment in scientific and technological research and development, and the question of how such efforts should be funded and focused, will be critical.

Long-term planning needs to start now. A first step would be the establishment of a consortium bringing together government, supply network interests, and a range of groups, such as media, NGOs and universities. The partnership would need to undertake a proactive review of current arrangements, developing and delivering a fresh, concept-based demand and supply strategy for food.

Continuing to focus on the UK's wheat and dairy industries, Chatham House's food research is now studying in more detail the options available to the EU and the UK government. By exploring alternative futures, we are looking to encourage the better planning of food systems and to avoid short-term responses that threaten to exacerbate rather than resolve current pressures in the system.

· Hardin Tibbs, an independent strategy consultant and associate fellow at Oxford University's Said Business School, advises the Chatham House food supply project on futures research and strategy development. Kate Bailey, a senior research associate within the Food Process Innovation Unit at Cardiff Business School, leads the Chatham House food supply project's research team. More information on the four global scenarios at chathamhouse.org.uk/food

Summit pledges

The biggest UN food summit in the past decade ended in Rome last week with 181 governments pledging to address the causes and effects of soaring global food prices, which have seen the cost of most foods doubling in under three years, riots in many countries, and food export restrictions imposed by some of the biggest producers.

While nearly $3bn (pounds 1.5bn) has now been pledged by governments and banks, it is unclear if any of the money is additional to existing aid budgets.

One of the biggest donors to the World Food Programme, the UN body that distributes food aid to more than 80 countries, was Saudi Arabia, which gave $500m. Writing in the online magazine openDemocracy at the end of the conference, Simon Maxwell, director of the Overseas Development Institute in London, said: "When the price of oil goes up by, say, $30 per barrel, Saudi Arabia is gifted nearly $300m a day in extra revenue, so the gift to WFP represents the windfall profit from one weekend."

The final declaration from the talks also encouraged rich and poor countries to continue efforts to liberalise international trade in agriculture by reducing trade barriers and market distorting policies. Talks have been stalled for months, with neither Europe nor the US wanting to reduce subsidies.