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It's the government, stupid

By David Leyonhjelm - posted Thursday, 22 March 2012


Most experts agree that the world's population will level out at around nine billion by 2050. It is also accepted that over three-quarters of the population will be concentrated in urban areas and that current economic growth trends will deliver higher real incomes for many, leading to a change in diets with increased demand for animal products.

Whether the world is capable of feeding that many people, not just for survival but to meet their food preferences, is a question that occupies many minds. It was also the topic of one of the sessions at this year's ABARES Outlook conference in Canberra.

Among the seminar speakers was Dr Mark Rosegrant of the International Food Policy Research Institute (IFPRA), who listed the key drivers of food demand and supply. What the list showed was how important government policies will be in determining the number of people still at risk of hunger in 2050 and the quality of the diet of billions of others.

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Indeed, while technology will play a part and innovation is clearly essential, models of future food supply developed by the IFPRA clearly show that the main drivers of future food availability and prices are in the hands of governments. How well the world eats in 2050 is up to them.

Some examples illustrate the point. On the demand side, governments will determine how much, and for how long, agricultural production is diverted into biofuels and other forms of bioenergy. From Europe to the US, Brazil and Australia, it is only government subsidies and rules mandating use of biofuels that keep them in business. If the government were to abandon these, a lot more production would be committed to food.

The same applies to greenhouse gas mitigation and carbon sequestration policies. Plenty of governments, including Australia's, encourage the planting of trees as carbon sinks, the retention of certain types of vegetation, and modifications to the diets or other husbandry of livestock, all of which have an impact on food production.

This also applies to conservation and biodiversity. We all know about Europe, where farmers are paid to leave certain areas unfarmed in order to preserve conservation values or promote biodiversity. For similar reasons, and also to gain control over water rights, the Australian government has spent tens of millions acquiring huge farms which are taken out of production.

In fact, government policies governing water and land availability are a critical determinant of food security. While there is obviously no more land being created, there is plenty of land on which food could be produced but is kept out of production due to government policies. The same is true of water – maintaining environmental flows and keeping the mouth of the Murray open, for example, will be at the expense of water that could be used for food production further up the river.

Another big influence on food availability and prices is the cost of energy, which is subject to almost universal government intervention. The IFPRA has modelled the impact of a 50% real increase in energy prices by 2050, not at all unrealistic, and showed it would lead to a significant rise in the price of cereals and meat and expose many more to the risk of hunger.

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Even when there is an energy market based on supply and demand, it operates in a context determined by policies such as taxation (including Australia's carbon tax), renewable energy, attitudes to coal, oil and gas extraction, limits or prohibitions on nuclear energy, and environmental regulation. In a free market the most efficient low-cost suppliers of energy would out-compete the others, but this is impossible with energy. Food producers around the world are compelled to rely on inefficient sources of energy and to pay higher prices for energy intensive inputs such as fertilisers.

Policies towards agricultural research and development also play a part, although probably not as much as government-funded researchers would like us to believe. The main source of productivity-enhancing innovation over the last several decades has actually been the private sector. But the private sector will obviously sit back if the government makes it unattractive or invests in the same field itself. If productivity is to increase enough to avoid the expansion of food production into areas that are not currently cultivated, innovation is absolutely vital.

Equally, government policies towards the adoption of new scientific knowledge are also crucial. The US government's now abandoned policy of limiting the accuracy of civilian GPS services, for example, played a role in restricting its application in precision agriculture. Numerous countries, Australia included, have either prohibited or severely restricted the adoption of genetically modified crops, which are almost invariably more productive than their conventional alternatives.

About 900 million people in the world are currently at risk of hunger. A couple of billion who would have been at risk two or three decades ago can now afford to eat more of what they like, mainly beef, chicken, pork and dairy foods, because their governments abandoned central planning of their economies and allowed markets to operate more freely.

But agriculture remains a highly regulated industry with enormous government intervention. There is a long way to go before it can operate freely to meet the world's food needs. As one of a small number of countries with the capacity to significantly contribute to meeting those needs, Australia has a vital interest in the decisions made by politicians and policy makers everywhere.

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This article was first published on FarmOnline.



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About the Author

David Leyonhjelm is the Liberal Democrat Senator for NSW.

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