Why Your Grocery Bill Is about to Hurt

Why Your Grocery Bill Is about to Hurt

After five years watching the cycles of feast and famine in West Africa, Margie Morard had some clearly formed ideas about what drives food prices in her part of the world. War, floods, droughts - these are the things that used to determine the cost of bread in Freetown or Timbuktu, says the representative for British Oxfam, who monitors food security in 10 countries lying southwest of the Sahara Desert. That and myopia. In sub-Saharan Africa, boom harvests tend to result in cash-hungry farmers flooding street markets with cheap corn and rice, while lean years see brokers ruthlessly hoard grain in anticipation of a big payday. The extremes can produce heartbreaking scenes of deprivation, says Morard; widespread begging, gaunt children with distended stomachs, families on the move in search of food. But at least they tend to be predictable.

Then, last summer, a dynamic took hold that neither fickle weather nor the greed of cynical middlemen could adequately explain. In the dust-blown streets of Mauritania, the cost of a bag of wheat flour doubled within a few short weeks. In Niger, a country already riven by poverty and rebellion, the price of staples like corn and soya sailed into the stratosphere, as they did in neighbouring Mali and Burkina Faso. Odd, because it hadn't been a particularly poor harvest year. And hunger quickly fermented into anger. By November, food riots were breaking out in Nouakchott, the Mauritanian capital, as residents found themselves priced out of basic supplies. "This is putting people in a very tight bind," said Morard from her office in Dakar, another city that saw street protests, also over food, in November. "It's affecting all of West Africa."

West Africa, it turns out, and the rest of the world. With the global supply of cereal grains falling to 40-year lows, and with consumption trending ever upward, the earth's supply of food is suddenly under pressures unknown in half a century. Two weeks ago, wheat prices hit an all-time high of US$18.53 a bushel, while corn, driven in part by demand from the biofuel industry, climbed to $5.34 a bushel, more than double the average price before 2007. The political repercussions have been swift, and in some cases violent. In Mexico, about 70,000 people hit the streets to protest the doubling and tripling price of tortillas. Chinese officials are warning that rising rice and corn prices could lead to civil unrest in rural areas. Even the food-rich West is starting to feel the pinch. In September, rising pasta prices, a direct function of the soaring value of wheat, sent Italians flooding city squares in Rome, Milan and Palermo to demonstrate. In the United States, the skyrocketing cost of chicken and cattle feed is hitting the pocketbooks of consumers at all points of the economic spectrum. Milk, eggs and filet mignon are all going up. So is Kraft Dinner.

This escalation has been sudden enough to start a heated debate about exactly how much cause there is to panic. Is the recent price bump due, as some argue, to passing or localized phenomena, like Australian droughts or the biofuel fad? Or is it rooted in longer-term forces that augur sustained and potentially distastrous shortages? After all, many of the conditions necessary to make the food armageddonists' predictions come true are now upon us. Water is scarce, fossil fuels are prohibitively expensive, fish stocks are near collapse and the world adds 80 million people every year. To that, you can now add GLOBAL WARMING, which agronomists say is drying up vulnerable countries where farmlands depend on rain.

And then there's China. With ever greater purchasing power, Asian consumers are moving toward the higher-protein, better-tasting, meat-laden diet westerners have enjoyed for decades. Producing all that beef, pork and eggs requires vast quantities of grain that might otherwise be used to feed people. "On the amount of grain fed each year to cattle in the United States, you could feed 850 million people as vegetarians," says David Pimentel, a Cornell University agricultural scientist who studies the global food economy. "That's not a value judgment. It's a fact."

The result has been a lesson in the interconnectedness of the modern food economy. In Canada, where the soaring loonie has cushioned the effect of climbing costs, the price of bread is still up nearly 10 per cent over last year, while flour has doubled in value since last summer. In Britain, grocery prices are up 6.6 per cent over 2007, and Europe has seen similiar inflation - pasta prices have climbed 20 per cent and more expensive grain is making it difficult for dairy farmers to make ends meet. Even those entrusted to keep an eye on food supplies appear to have been caught off guard. Just 18 months ago, the Food and Agriculture Organization of the United Nations (FAO) was dismissing concerns about the world's grain reserves plunging to near-historic lows, telling Canada's National Farmer's Union "the global supply and demand balance is not in danger." By Jan. 11, the agency had performed the PR equivalent of a flat-wing spin, declaiming an "unforeseen and unexpected" decline in supply that created a "very serious risk that fewer people will be able to get food."

The question now for the developed world is whether we're seeing a permanent end to an era of relatively cheap food - a shift that could force wrenching change in households across the western world. For others, the challenge is more pressing, the stakes much higher: can we avert a disastrous food shortage in places where needing a few dollars more represents the difference between dining and going hungry?

If the global food supply is indeed sailing toward calamity, Darrin Qualman will at least have the comfort of knowing he wasn't standing on the deck, admiring the icebergs. As research director for the National Farmers Union, Qualman spends a lot of time combing global agricultural statistics. Two years ago, while poring over bellwether indexes produced by the U.S. Department of Agriculture, he noticed a disturbing trend: in five of the previous six years, the global population had eaten significantly more grains than farmers had produced, and the plunge in the stock-to-use ratio was steeper than it had been in generations. During that period, global stocks had drawn down to 69 days, from 116 in 2000 and 128 in 1987. Today, that figure stands at 53 days. In other words, if every farmer stopped producing grain tomorrow, the world would have enough under current consumption levels to keep ourselves in bread for about 7½ weeks.

That wasn't all that caught Qualman's eye. Statistics on the FAO's database showed the amount of arable land had increased less than one per cent over the past decade, while per capita cropland was fast diminishing. So he began wondering why no one at the FAO, or anywhere else, had sounded an alarm. "The decline in food supplies we're seeing now is steeper than any time since the Second World War," he says, "maybe in the past century." So he and his boss, NFU president Stewart Wells, drafted a letter to FAO head Jacques Diouf and Kofi Annan, then secretary general of the United Nations, urging it to make its assessments public. They went so far as to suggest a summit of world leaders to discuss the matter. The response that arrived two months later amounted to a three-page pat on the head. "Low stocks are a concern," wrote David Harcharik, an FAO official in Rome. "But in our view the world cereal market fundamentals have undergone major structural changes over the past decades." The potential growth of production in the former Soviet bloc, along with the recent revisions concluding that China had for years been underestimating its grain reserves, invalidated Qualman's analysis, Harcharik said. "For this reason, if stocks fall to a three-decade low, it may not necessarily be cause for alarm."

Why the agency has now changed its mind isn't clear (Maclean's requests for an interview with Diouf went unanswered), but it wasn't long before the warnings started coming from closer to home. At the headquarters of the UN World Food Programme, also located in Rome, executive director Josette Sheeran spoke last summer of a "perfect storm" for the world's hungry, citing the elements of global warming, Asian demand and rising fuel prices. Her view broke not only with that of a fellow UN agency, but with numerous experts, governments and aid organizations who still thought the world's food situation was improving. "I remember thinking I'm a bit out on a limb here," she acknowledged in an interview. "But the changes in the agricultural market took the world quite by surprise. We've reached the point where we can say with some assurance that it's not a temporary blip. I think we're looking at a long-term issue." Throughout the fall, NGOs and governments fell in line with the WFP's message. By Christmas, financial analysts were forecasting that agricultural commodities prices would remain high for months, if not years, to come.

For those anxious to assign blame, the U.S. biofuels industry has made a particularly juicy target. With US$6 billion worth of annual subsidies going into the ethanol industry, critics say, the dream of making America more energy independent has inverted an equation that held for millennia - namely, that you increase food production by putting more energy into it (in the post-industrial age, energy means tractor fuel and nitrogen fertilizer). Now, farmers are being blandished with government money to convert food into energy. Pimentel, the Cornell agricultural scientist, has dubbed it the "biofuel boondoggle": fully 20 per cent of the U.S. corn crop went into creating ethanol last year, yet it provided only one per cent of the country's fuel needs. "So it's not making us energy independent at all, and it's driving up the price of everything else," he says. "You're taking corn away from feeding livestock, and sure enough, here in the States, the price of meat, milk and eggs has gone up 10 to 20 per cent. The price of other grains that you can use as substitutes is going up, because they're in short supply, too."

Neither the U.S. farm lobby nor Congress seems prepared at this stage to admit their mistake. Grains, including corn, may account for 80 per cent of the world's food, and securing their long-term supply might be more important than carrying on a failed experiment aimed at weaning the U.S. off oil. Yet U.S. lawmakers have renewed the program for another year, while other countries are joining the party. In Canada, the Conservative government is pushing for an average of five per cent renewable fuel content in gasoline by 2010, and has announced up to $1.5 billion in incentives for the industry over seven years. "It's politics and big money," shrugs Pimentel. "Science and reason just can't compete with that."

But whatever impact biofuels have had on the food supply may soon be dwarfed by the cost of fossil fuels themselves. For more than three months now, light crude has sold above US$80 per barrel, and with demand from China and India on the rise, few are predicting a significant reduction. High petroleum prices tend to have a direct and rapid impact on food prices. The cost of diesel used to power tractors, along with the trucks, trains and ships that get food to market, goes up. More critical still is the cost of natural gas, which is used in the production of nitrogen fertilizer. After holding for some time around US$8 per million cubic feet, gas is expected to follow oil's rise in the coming weeks, which has driven the cost of nitrous fertilizers to more than double on markets around the world. No surprise then, that fertilizer use has declined by roughly 17 per cent worldwide over the past decade, which in turn helps explain why food production is falling so short of the FAO estimates. "There are assumptions built into those estimates that are coming into question," says Paul Roberts, author of a forthcoming book entitled The End of Food. "They assume we'll be able to increase yields by a given percentage per year. They assume we'll bring more land into production. Well, a lot of these lands will require some pretty intensive fertilizing. So where is all that fertilizer going to come from?"

It's a safe bet that the patrons of Moon's Steakhouse aren't especially vexed about fertilizer, or the price of fuel, or the impact of U.S. farm subsidies. Each Friday and Saturday night, this downtown Shanghai restaurant fills with western expats and nouveau-riche Chinese anxious to tuck into some rib-eye amid the chic decor. The entrées hail from Australian feedlots, and the recipes are tailored to Asian tastes (Kobe beef is on the menu). But it's the sort of establishment that was hard to imagine in a Chinese city 10 years ago, when most of the country had never heard of prime rib much less considered eating it. Today, Moon's sits atop a panoply of choices for the Shanghai carnivore. At a retail plaza in the city centre, you can duck into Tony Roma's for a feed of back ribs. Pizza Hut and Taco Bell both have outlets. McDonald's plans to open another 125 across China before the end of the year.

If you view this strictly as one more battle lost to America's voracious fast-food culture, then you are missing a truly seismic shift in the global food market. In recent years, Chinese and other Asian consumers have been rapidly adding protein to their own recipes, upping the beef, chicken and pork quotients in their daily meals while boldly experimenting with western dishes. According to Beijing's own statistics, the average person in China last year consumed roughly 2.5 times the amount of meat he did in 1990, and that's still not half the North American level of 82 kg a year. Even to non-meat lovers, this looks like good news: the country where an estimated 30 million starved during the Great Leap Forward enjoying the sort of "protein renaissance" that invariably accompanies prosperity. Meat is just part of the story. With ever greater purchasing power, Chinese, Southeast Asian and Indian consumers are demanding higher quality fruits, vegetables, milk and eggs.

But what happens to the world food supply when a billion or so people suddenly acquire the means to compete for the world's food? Don't simple economics point to an inevitable set of outcomes - a period of runaway food costs, followed by some form of cataclysmic "correction" (i.e. shortage) to reduce demand?

If your answer to that question is yes, then you're in the venerable if somewhat unfashionable company of Thomas Malthus, an English demographer who in the early 19th century harboured some apocalyptic ideas about food and population. A skeptic of Enlightenment-era optimism, Malthus argued that population growth would forever outstrip the earth's capacity to feed its inhabitants, resulting in recurring cycles of famine and misery. His ideas remained influential for decades, but his dystopic visions never quite came to pass. With each localized famine crisis came an advance that raised our ability to produce food - mechanized farming, irrigation technology, chemical fertilizer and, finally, the development of high-yield seed varieties that produced the so-called Green Revolution of the 1960s and '70s. The proportion of the developing world described by the World Food Programme as undernourished has fallen from 37 per cent in the '60s to 17 per cent today. More important, almost everyone's economy is now geared to the plentitude of relatively cheap food: in China, roughly 30 per cent of disposable income now goes to nourishment, down from nearly 80 per cent during the Mao years. In North America, that number stands around 10 per cent.

Still, there is no escaping the sense that the good times have come to an abrupt end, and that the impending adjustment could cause pain on a Malthusian scale. Oil prices show no sign of abating, industry observers say fertilizer prices will remain sky-high for the foreseeable future, and water is becoming the greatest worry of all. World use increased sixfold between 1990 and 2005, the majority of that going to agriculture. Australia's worst drought on record has raised questions about the influence of global warming, and water tables in important farm belts of the U.S., China and South Asia are plummeting - in India by as much as three metres a year. Factor in Asia's sudden enthusiasm for red meat and the sense of crisis only deepens: producing one kilogram of grain-fed beef requires five times the water a kilogram of cereal grain does, which helps explain why the outgoing CEO of Nestlé SA, the world's biggest foodmaker, recently raised water scarcity as one of the great challenges facing the world. "Time is still on our side, but it is running out," said Peter Brabeck-Letmathe, "just like the water is running out."

For bread-basket countries like Canada, these trends will no doubt induce mixed feelings. Soaring commodity prices have brought long-awaited relief to producers who struggled under the yoke of low income throughout the 1980s and '90s, going cap in hand to the federal government for subsidies just to stay in business, notes the NFU's Qualman. This year, Agriculture Canada's projections point to a 16 per cent increase in farm income and a 40 per cent leap in farm receipts, which in turn has driven a stock-market boom in agribusiness. But even the newly muscular loonie hasn't protected Canadians from, say, a 4.6 per cent hike in the price of bakery products since last year. In the U.S., the overall price of groceries has risen five per cent over last year; in Europe, six per cent. New Zealanders are paying $16 for a block of cheddar cheese, while in Staten Island, N.Y., a bagel that a few weeks ago cost 65 cents is approaching what one local newspaper described as the "unthinkable" - $1. Captains of the food industry are offering little in the way of hope. The CEO of Kraft Foods warned at the end of January that prices will go even higher in the coming weeks, particularly for products made with milk and wheat flour (KD lovers take note). David Mackay, the chief executive of Kellogg Co., issued a similar warning and tossed a barb at the ethanol industry. Fighting global warming is all well and good, he said, but when Corn Flakes go up at twice the rate of inflation, "it is negatively impacting those people who can least afford it."

And as for those unable to pay for a box of Corn Flakes even before the surge? Well, let's just say they won't be celebrating the good fortune of Canadian grain farmers. The World Food Programme's Sheeran warns that the price crunch has placed the so-called "bottom billion" of the world's poor subsisting on less than a dollar per day in serious danger of malnutrition, if not starvation. "In Mali, their food stocks are down 90 per cent," she says. "In Timbuktu, a loaf of bread has doubled." Worse, she says, the WFP itself buys almost all of its supplies off the open market, spending about US$1.2 billion per year on food that has gone up 40 per cent in the last year alone. On Monday, the agency said it must now consider rationing aid that feeds some 87 million people worldwide - from homeless children in Ecuador to refugees in Darfur.

And while the effects may not be readily visible, aid workers say this sort of constraint will quickly erase hard-won gains in Third World development. Many families in sub-Saharan Africa who have taken on debt to feed themselves will soon run out of credit, explains Oxfam's Morard. "Some will decide which children they'll send to school," she says. "You'll stop doing preventative medical checkups, people will just wait until things get bad. And you'll definitely change what you eat. First it will be some substitution, a food you don't prefer as much. Then you start giving up quality, buying broken-grain rice, and cassava flour instead of wheat flour, and so it goes."

In short, FOOD POLICY is shaping up to be one the 21st century's political battlegrounds - a fraught landscape on which poor countries backslide into malnourishment and wealthier ones compete for remaining pieces of the global pie. Donald Coxe, an influential analyst for BMO Financial Group, recently described this as "the greatest challenge to the world," given its capacity to pit class against class, nation against nation - greater even than $100 oil. "[The task] is getting enough food so that the new middle class can eat the way our middle does," he told investors last month during a speech in Toronto, "and that means we've got to expand food output dramatically." In December, the Washington-based International Food Policy Research Institute appealed to leaders' better angels, calling on rich governments to lift trade restrictions on products that originate in hungry countries, and to invest in agricultural infrastructure in needy countries. Tim Sulser, a research analyst at the institute, also warns against simplistic calculations blaming one region of the world for another's shortages. "You can't say advances in a country like China are causing problems in sub-Saharan Africa," he says. "The impact developed nations have on the world food supply is also strong, so you have quite a complex picture."

The question is how to restore a state of balance at a time when prices are so unstable. Sulser points out that overall food production actually is going up, it's just being badly outpaced by demand, and modifying demand is an extremely difficult thing to do. While fully 1.1 billion people in the world are "over-nourished" by World Health Organization standards, for example, there is no sign that the food inflation of the past 12 months has stopped, say, Americans from consuming their eight ounces of meat a day per person. China, too, shows little inclination to change course: far from urging people to consume less meat, thereby easing pressure on grain supplies, Beijing recently slapped a 20 per cent export duty on wheat, barley and oats and expanded subsidies to farmers in order to keep the wheels turning.

On the supply side, the most promising solutions are also most prone to organized opposition. Irrigation projects are meeting growing resistance from critics, who point to the salinization of reservoirs or the depletion of groundwater needed for human consumption as reasons to forgo sprinklers. GENETIC ENGINEERING offers the prospect of drought-resistant, herbicide-tolerant wheat and corn. But last summer, activists in France spent their days trampling biotech crops in an expression of anger toward what they see as an enormous risk to the environment and human health.

The better hope, says Vaclav Smil, a University of Manitoba professor who specializes in food production and energy issues, may lie in improving agricultural techniques - especially in countries where intensive farming is just taking root. After years of studying the use of chemical fertilizer around the world, Smil concluded that as much as 70 per cent is being wasted due to misapplication. "In the case of Chinese rice, only 30 per cent of ammonia fertilizer ever gets to the roots of the plant to be absorbed," he says. "For the Iowa corn belt, if you get 40 per cent taken up by the corn, you're whistling all the way to the bank." Consequently, Smil actually sees higher fertilizer prices as good news, believing it will force farmers to apply it more efficiently, improving yields per acre and making better use of water. It's a classic case of allowing market forces to do their work, and if it succeeds, fears that millions of lives are in jeopardy may prove unfounded.

If not, countries great and small are in for a long period of soul-searching. "For 9,950 years of civilization, one thing societies understood was that food was hard, that food was important and often scarce," muses Qualman. "There seems to have been this great forgetting in the last 50 years - a kind of hubris that told us food was easy and would perpetually be in surplus." In North America, a healthy anxiety about that assumption has finally begun to set in. But we may yet feel the humility that comes from looking across the globe at the misery of others, realizing that a lighter wallet is a lot easier to bear than a chronically empty stomach.

See also FOOD LEGISLATION; FOOD AND BEVERAGE INDUSTRIES.

Maclean's March 10, 2008