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AGRICULTURE: Costly Prosperity

Analysis by Mario Osava

RIO DE JANEIRO, Nov 9 2007 (IPS) - Many of the people who are now complaining that biofuels are driving up agricultural prices fought in the past against the "deterioration of the terms of exchange," or the devaluation of commodities with respect to manufactured goods, as a key factor in underdevelopment.

The solution held up for escaping poverty was, decades ago, to boost industrialisation in commodity-exporting countries. Now that the tendency seems to have been reverted, people are calling for curbing the rise in food prices, to keep world hunger from expanding.

The 20th century was marked by a steady fall in commodity prices, which by 2000 had lost between 50 and 60 percent of the relative value they had compared to manufactured products up to the 1920s, according to a study by the Economic Commission for Latin America and the Caribbean (ECLAC).

The United Nations Conference on Trade and Development (UNCTAD) reported an average annual drop of 2.8 percent, between 1977 and 2001, in the real prices of 41 of 46 leading commodities important to the developing world.

The World Bank, in the meantime, found that agricultural prices declined by 47 percent, and metals and minerals prices by 35 percent, from 1980 to 2002.

The boom in commodity prices seen in the last five years has given rise to a new term, "agflation", for the phenomenon of food prices driving up consumer prices.

The most frequently mentioned causes are the sharp rise in demand fuelled by soaring economic growth in China and India, and the use of food crops, especially U.S.-grown corn, for the production of biofuels.

But there are differing interpretations of that shift.

The cost of fertilisers, rather than growing demand or biofuel production, is the main reason for the rise in agricultural prices since last year, said André Nassar, head of the Institute for International Trade Negotiations (ICONE), a Sao Paulo think tank created by Brazilian business associations in 2003 to assist the country&#39s trade negotiators, especially in the area of agriculture.

Prices of nitrogen-based fertilisers have climbed 137 percent in the United States since 2002, while prices of fertilisers at large rose 90 percent in that same period in Brazil, Nassar pointed out in a newspaper article.

But he believes that in the long run, food prices will go down again in real terms, due to rising productivity.

A joint report on the 2007-2016 outlook for agriculture released in July by the Food and Agriculture Organisation (FAO) and the Organisation for Economic Cooperation and Development (OECD) – which groups 30 of the world&#39s richest countries – says "structural changes" could keep prices high for the next 10 years.

A combination of factors, however, suggests a definitive shift in the evolution of prices. In the not-so-distant future, a scarcity of natural resources can be expected, along the lines of what is occurring with oil, the high price of which has played a role in rising costs, especially the transport of voluminous products like commodities.

Environmentalists had already been sounding such warnings. Three years ago, the World Wide Fund for Nature said humans consume 20 percent more natural resources than the earth can produce.

Millions of people around the world already have limited access to freshwater, a situation that will be aggravated by growing demand by agriculture, which already accounts for over 70 percent of global water consumption.

Another extremely serious problem is that the economically viable reserves of phosphate rock – the raw material used in the manufacture of most commercial phosphate fertilisers on the market – could be depleted, perhaps in the current century. And long before that, the scarcity would be reflected in fertiliser prices.

Phosphate is one of the three macronutrients, along with nitrogen and potassium, essential for plant growth.

Productive deposits of the mineral currently amount to 18 billion tons, two-thirds of which are in China and Morocco, according to the U.S. Geological Survey Mineral Commodity Summaries 2007.

Global consumption of the mineral stood at 147 million tons in 2005, and is projected to grow by 2.3 percent a year – a level of growth that should be further fuelled by the biofuel fever.

Known global reserves amount to 50 billion tons, but most of that cannot currently be exploited in an economically viable way.

Isaac Asimov, widely considered the father of modern science fiction writing, once described phosphorus as "life&#39s bottleneck."

Climate change factors in additional costs, by causing more extreme drought, storms and flooding, harvest losses, and a greater need for insurance and storage in the face of the growing uncertainties. And the melting of the glaciers is threatening water supplies in areas like South America’s Andes mountains.

The need to preserve biodiversity and forests, in the meantime, limits the land available for agriculture.

Conflicts over land are often violent, like in Brazil, where millions of hectares in the Amazon jungle and other fragile ecosystems are deforested every year by large-scale agribusiness producers and loggers engaged in illegal land-grabbing and land-clearing, despite growing resistance by environmentalists, indigenous people and small farmers.

Environmentalists are also calling for limits on technological advances that have led to increased agricultural productivity and lower prices in the last few decades. The so-called green revolution is not so green-friendly, because it has involved vast monoculture plantations, the intensive use of fertilisers and pesticides, growing mechanisation that has led to a loss of jobs, and most recently, genetically modified seeds.

The overexploitation of labour is another counterpart of the decline in prices, as is the displacement of millions of small farmers forced to leave their land because they cannot compete with large-scale agriculture.

Meanwhile, an estimated 850 million people in the world are going hungry – a problem that is being accentuated by the rise in food prices.

Food imports will cost 90 percent more this year than in 2000 for the 50 Least Developed Countries (LDCs), most of which are in Africa, but only 22 percent more for industrialised nations, according to FAO.

Agflation benefits large exporters of food and commodities, like Argentina and Brazil, whose hefty trade surpluses in the last few years helped them overcome economic crises. But it has a heavy impact on the numerous poor countries that are net agricultural importers.

In other words, the price changes may help redistribute prosperity in the world, but they will tend to aggravate social ills if the profit motive continues to prevail, under the new environmental restrictions fuelling the craze for biofuels.