Food crisis still simmering, researcher says...

Food crisis still simmering, researcher says
GUELPH MERCURY

March 16, 2009
OWEN ROBERTS

A year ago, University of Guelph professor Alfons Weersink's phone was ringing off its cradle.

People everywhere wanted him to help make sense of the sudden global food crisis, which was marked by predictions of dire shortages and skyrocketing prices. Questions about corporate greed were raging, as the debate intensified over grain use for ethanol production and animal feed, rather than food.

Weersink, with 20-plus years of agricultural economics under his belt, rose to the occasion. He did a bang-up job of describing what some called the perfect storm that led to the food crisis. In a nutshell, he told of an intricate and unique supply and demand situation. It involved weather "shocks" in what would normally be grain exporting nations, government policies that rewarded efforts for using grain for fuel, such as ethanol, and depleted grain inventories resulting from chronically low prices and sluggish yields.

There was more to it, but basically, when the demand for grain rose, the supply was not there.

And as prices escalated, people shook their heads in amazement. Like Weersink, they remembered the spring of 2006, when tractor cavalcades were rolling down Highway 401 toward Queen's Park to protest low prices. Then, corn prices were hovering at around $2 a bushel and farmers were going broke.

But by that fall, prices had doubled. And less than a year later, they were hitting a whopping $8 a bushel.

It was part of a global trend that was sparking panic everywhere. Footage of food riots in countries such as Haiti, Mexico and Pakistan struck terror into the hearts of Canadians. When would their shelves be bare?

Then, the search for the "guilty" ensued. Were speculators driving up the price? Grain companies? Retailers? Farmers themselves?

Fortunately for Canada, it mostly dodged a bullet. Farmers get very little of the food dollar here, with the majority going to processors, manufacturers, retailers, etc. That meant despite grain prices shooting way up, the whole event caused only about a five per cent spike in food prices, at its height.

Other countries weren't so lucky. Farmers more closely linked to consumers can get up to 60 per cent of the food dollar. These situations are typically in underdeveloped countries, where food is less processed and manufactured, often going right from farmers to consumers. And as a result, price hikes go right from farmers to consumers, too. That's what sparked food riots.

But then prices started falling nearly as quickly as they had risen. It was yet another perfect storm -- the economy faltered, oil prices tumbled and ethanol production slumped, because oil was once again considered affordable. That took the heat off the competition between grain for fuel or food and feed, at least for the time being.

That could still change. Weersink told those gathered for a News@Noon public seminar at the University of Guelph last week that he expects more volatility in prices. When the economy recovers, oil prices will climb again. And then, because corn has become tied into the production of ethanol, which competes with oil, corn prices will follow oil up.

As well, when the economy improves, the demand for imported grain-fed meat by emerging economies such as China and India will also rise, once again pushing up the price of corn. That could spark a new, but likely slower, resurgence in food price increases. And the development of bioproducts, such as starch- and fibre-based materials made from the likes of corn for manufacturing, are expected to grow, too.

Research at the University of Guelph sponsored by the Ontario Ministry of Agriculture, Food and Rural Affairs helps economists such as Weersink keep an eye on the front line of emerging trends, and inform the farm community. Presently, he's watching market psychology as closely as he is prices.

"Markets are said to be driven by greed or fear, and right now they're being driven by fear," he says.

"Many factors are at play. Things are still unsettled."

Owen Roberts teaches agricultural communications at the University of Guelph.