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Public Investment to Avert Food Crisis

 

Chronic poverty, high food prices and economic crises have led to a sharp increase in the number of hungry people in the Horn of Africa, larger than the combined populations of the United States, Canada and the European Union. Some argue that that the sharp increase in global hunger is not the result of poor harvest or natural disasters. Instead, they attribute it to artificial factors such as high food costs, growing unemployment, and declining incomes.

The food price crisis is linked to short and long-term problems, on both the supply and the demand side. Grain inventories, trade and investment regulations, and speculation on commodities markets all affect this relationship.

However, the principal cause of food price inflation on world markets remained the rapid increase in the production and use of biofuels. The expansion of biofuel production created significant new demand for agricultural commodities, which in turn had important knock-on effects on the prices of other commodities. Biofuel demand increased global commodity prices, particularly that of vegetable oils including palm oil, soybeans, and rapeseed, and cereals such as maize. Estimates of how big this impact projects it about 70pc.

Speculative demand had also a major effect on the run-up in prices. On the supply side, persistent drought and other weather related problems in some of the major producers for world markets shrank supplies just as demand was taking off. But neither of these factors alone was enough to trigger the crisis.

The World Bank Group (WBG) and the International Monetary Fund (IMF), notwithstanding the powerful countries behind them, are also responsible for the current situation of global food crisis. Before the global food system was broken, the idea of setting a timetable for the eradication of hunger was tabled at the UN. It was strongly rejected by the US, the European Union, Canada, Japan, New Zealand and Australia. Along with the rejectionists, the two institutions were advocates of structural adjustment programmes (SAPs), which pushed for the elimination of public engagement in agricultural services, including the provision of extension services, marketing and distribution systems, credit and other inputs, in the 1980s. Their theory was that the private sector could take over.

In most developing countries, however, there was not enough profit to be made or adequate capital in the first place to establish a viable private alternative for the public services that had been provided by the state.

Many governments had done a poor job of providing extension and distribution services, keeping prices low for farmers to keep food prices down for urban consumers. Too often, corruption and poor marketing channels also undermined the services provided. In some places, however, the private sector was ready and able to step in and improve farmersí income.

At the same time, the World Bank and IMF conditions attached to SAPs pushed developing countries to abandon local and regional reserves of grain. Advocates of this policy insisted that globalisation had reduced the need for local inventories because there would always be a supply somewhere in the world.

Nevertheless, in practice, the expansion in productive capacity in some successful countries, driven by public investment in agriculture and agricultural research, has outpaced growth in demand for the last 30 years. Especially in grains, oilseeds and livestock, has grown significantly in countries where public investment remained large: industrialised countries, and in a handful of developing countries such as Brazil and India.

A good number of other developing countries also improved their productive capacity through investment but this has not been the dominant pattern overall. During the last decade, the economies of China and India enjoyed a period of unprecedented expansion. While they were experiencing an extraordinary period of income growth, they were simultaneously investing in the productive capacity of their agricultural sector.

Yet, the contribution of rising demand in these two countries in the run up of food prices has been overplayed in much of the analysis of the crisis.

Another significant long-term trend prevailing in the agricultural sector is the increase in demand for livestock products and the consequent increase in demand for feed. The globalisation of the food distribution and delivery system is driving a convergence in the diets of middle and upper income households in developing countries, especially the richer countries but even in the poorest, towards the diet of high-income countries.

The shift to increased consumption of meat is an area of special concern, as it is directly linked to the use of land for the production of animal feed. The increased pressure to produce meat increases the share of agricultural land allocated to the production of feed crops and the demand for grazing land.

Decades of low prices have discouraged investment, both public and private, in developing countries agriculture. Low prices have also limited the ability of the sector to generate adequate income and economic activity for the 2.5 billion people that depend on agriculture to survive worldwide. Depressed global prices have undermined production and markets at every level, local through global. For example, cheap rice exports from Japan and Thailand into West Africa have depressed not just local rice production but also production of traditional staple foods such as millet.

Whatever the reason may be and whoever is responsible, high price of agricultural commodities would be good news for underdeveloped countries such as Ethiopia. It would be a blessing for countries in which agriculture still provides more than half of employment opportunities. It should be good for countries whose agriculture sector has been neglected and where potential productivity gains are considerable. It would be good for redressing some of the inequity between urban and rural areas that has emerged with globalisation, by redistributing some wealth into rural economies.

Exceptionally, it would be excellent for Ethiopia as it has abundant arable land and cheap labour with diverse climate. It is good for it as agriculture provides more than 80pc of the employment.

To maximise the agricultural production, EPRDF is doing great by investing in a massive infrastructure that is crucial for agricultural development, distribution of inputs and provision of extension services. Public investment is also tailored at establishing marketing channels, facilitating credits, and encouraging agro-processing.

Since natural resources are largely fixed, the level of public investment in infrastructure is a viable indicator of how the productive capacity of the sector is likely to evolve. Certainly, high prices of agricultural commodities would also attract private investment into the sector.

Regardless of the efforts, however, the challenge of the global food crisis demands aggressive involvement of the government in the sector. No doubt, good days are ahead.

BY  ZERUBABEL KIBEBE

Zerubabel Kibebe has received a BA degree in marketing management from Jimma University and an MSc degree in software engineering from the University of South Africa. He is the founder of Skylife Export House, and can be reached at onezerubabel@gmail.com

 
 
 
 
 
 
 

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