World Food Policy Volume/Issue 2-2/3-1 Fall 2015/Spring 2016 | Page 133

World Food Policy

and suddenly you’ve got a macro crisis on
your hands. That financial volatility is not
how you get investors in these countries
to take the long view they need in order
to make these long-term investments in
infrastructure, factories, and equipment.

The changing nature of economic
growth. Starting in the 1990s, China and
a number of other poor countries began
a several-decade long spurt of economic
growth that changed the nature of demand
for basic commodities: metals, coal, and
petroleum. The former chairman of the
Federal Reserve Board, Alan Greenspan,
commented in the mid-1990s, about the
“weightless” economic growth that we
saw in advanced countries. It didn’t use
any natural resources. It was all based
on new knowledge of the sort produced
in Silicon Valley. Although it needs a bit
of electricity, basically economic growth
was not resource intensive in the rich
world. But when economic growth in the
world was being driven by China, India,
Brazil, Indonesia, and other countries
that needed roads, buildings, railways,
harbors, airports, cars, and trucks—that
takes cement, copper, iron, and steel—
it takes real commodities and it takes
energy to fuel that whole expansion. So,
economic growth is no longer weightless
and the emergence of India and China
as significant drivers of global economic
growth has changed the nature of world
commodity markets. It has taken the
whole financial community some time to
get that all sorted out.

High energy prices. Actually, the
issue is high but volatile energy prices,
because oil is US$37 per barrel instead of
US$137, and the commodity bust being
experienced late in 2015 emphasize the
importance of price volatility as well

as price levels. But high energy prices
for well over a decade, especially from
2000 to 2014, was a “game changer” for
agriculture. When energy prices are
high, it makes economic sense in the
marketplace to convert food commodities
into liquid fuel: gasoline and diesel fuel.
Corn from the American mid-west can
be run through an ethanol plant and that
ethanol fuels an automobile. If we use the
entire corn crop in the United States to
make ethanol, it would provide ~15% of
our liquid fuel demand for the automobile
fleet in the United States. Of relevance to
the world food economy, Latin America
particularly responded very vigorously to
these opportunities in terms of producing
sugar-based ethanol, and by producing
more corn and soybeans for export as
feed for the livestock needed for the
dietary transition. But high energy prices
mean high food prices because bio-fuels
link food commodities to energy markets
and that turned out to be very scary. We
have some breathing space now. But we
need to stop the mandates on bio-fuels,
and I would like to see taxes on bio-fuels
made from food commodities (rather
than the subsidies that exist in many
countries). Here is a clear case where the
market is not getting it right. We’re going
to need reforms and sensible tax policy.

Climate change. There is not
time for a serious discussion of the
impact of climate change on the world
food economy, but sharply increased
instability in weather seems to be
coming—with more droughts and worse
flooding, often in the same locations in
the same year. This instability will affect
agricultural productivity—especially in
areas that need productivity growth the
most: Sub-Saharan Africa in particular.

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