Tulip prices and food crisis

Tulips are not food. Both tulips and food are commodities, however, and commodity prices are notoriously cyclical as demonstrated during the tulip mania of the early 17th century in Holland, when a single bulb of a prized variety could fetch as much as eight times the average annual income of a Dutchman.

Price is a function of supply and demand, sometimes spiced by marketplace speculation. If we want food prices to return to their previous “acceptable” levels - when food was generally affordable except, let us not forget, for the 800 million people the Food and Agriculture Organization (FAO) defined as poor and hungry - we need to do something about either supply or demand or both.

Demand is a tough one. Population is growing. And in many countries, developed and developing, prosperity is driving meat consumption up. Each carnivore among us consumes not just more meat but indirectly much more grain than a vegetarian. A kilo of beef can take 8 kilos of maize to produce. So, on the demand side, we could reduce the world’s population. We could all become vegetarians. We could just all stop eating! Hmmm. Or we could look at the supply side of the equation.

The world can produce ample supplies of cheap food assuming we have cheap labour, cheap energy, cheap fertiliser (based on cheap natural gas), plentiful water, good predictable climates, co-operative pests and diseases, and a robust agricultural research system to supply farmers with reliably productive crop varieties.

Houston, we have a problem

Cheap energy? Lots of water? Great climate? We don't have any of these things, except perhaps for cheap labour, a dubious blessing at best. Indeed, many of these situations are getting worse, as we have repeatedly warned in Crop Diversity Topics, beginning with issue number one when we spoke about water availability for agriculture.

Two stories from different parts of the world reveal more about the long-term trend in food prices than most analyses:

• For some 30 years, Saudi Arabia has tapped into a deep, large, ancient aquifer (non-replenished by rain or streams) to irrigate its wheat fields. Now the aquifer is running dry. Quickly. In eight years the Kingdom will be forced to stop growing grain and a largely grain self-reliant country will become one of the largest importers in the world. Imagine the impact on demand in the global market, and prices.
• China is also struggling with water shortfalls of some 40 billion cubic meters annually. This supply-demand gap could be bridged through desalinisation, but that would require 3 per cent of the world's oil output. The more likely scenario - and the prediction of experts - is that China, recently a major exporter, will be importing the equivalent of 40 per cent of US maize exports in just two years.

Only one conclusion can be drawn from these and dozens of other similar stories hidden in the back pages of newspapers around the world: prices, while cyclical, are likely to trend higher. Demand backed up by foreign reserves is rising. And on the supply side, Argentina, Cambodia, China, Egypt, India, Thailand and Vietnam have all installed export controls. More money will be chasing less grain in international markets. Unless someone somehow picks up the slack, prices will rise.

Usually, the cure for high prices is … high prices. In the medium term, and perhaps even sooner, the marketplace will probably work its magic and prices will subside. Already, there are reports from the US, Canada, Europe, Thailand and Vietnam that farmers are responding with increased plantings. Astonishingly, the UK's Independent tells us poppy growers - as in opium - are shifting to wheat in some areas. If you ever needed evidence that farmers respond to price signals, there it is!

But, in the long term we cannot solve agriculture's production problems by shifting out of one crop and into another or even by cutting down trees to create more cropland. We will not solve agriculture's energy and water problems by building bigger pumps when the real problem is what's left at the bottom of the well. And we will not have the luxury of ignoring pests and diseases or climate change. Prices are going to fluctuate up and down, but mostly up it seems.

The long-term solution lies in addressing the underlying causes of today's high prices and tomorrow's higher prices.

The clear and present danger isn't just high food prices. It's that the first cyclical downturn in prices will be greeted with cries of relief and a rush to the door as politicians and commentators declare this crisis yesterday's news and move on to the next crisis.