As we come to and pass the seven billion mark in world population, we face some critical questions regarding the mechanisms by which food production and distribution will evolve to meet the needs of all people throughout the world. Well over 90% of population increases anticipated in the next few decades will occur in the poorest countries and regions of the world; places which presently are least capable of organizing agricultural and business activity sufficient to support a humane outlook.
In the first rumblings of the coming, potential crisis, we already see the evidence of entrepreneurial activity increasing. But unlike the past, countries are taking on the business roles heretofore considered the domain of the individual and/or organized business entities. For instance, when global food supplies fell into temporary shortage last year due to a host of converging forces (like the prolonged drought in Australia and increasing bio-fuel production reaching a tipping point of total crop removal from the food chain), food-vulnerable countries began to act to mitigate a disaster and consequent political instability. For thousands of years, countries gained access to an expanded resource base by simply invading other countries and taking them. In the modern era, trade has offered the possibility of acquiring additional resources with both nations and/or all the trading partners being better off.
In the most recent food crisis, these countries’ short-run strategies, such as barring exports of key foodstuffs (more than 40 countries worldwide banned exports of certain food grains and meat) only increased the problem. Banning exports drove prices higher as hoarding removed even more food from the market-based distribution process and helped create a food panic.
Speculators entered the fray to arbitrage the mounting food price disequilibria between countries and regions and this as well, temporarily drove food prices higher. However, these high prices served to unblock some of the frozen channels as incentives to move grain to high priced areas increased to the point they were exploited.
The longer term strategy has been for food-insecure nations to begin reaching out into the world to buy land and water rights from other nations as well as rights of access to other critical future resource needs (such as energy
supplies) to help shore up their own coming resource exhaustion. Much of this focus has been in Africa, where oil-rich/food-poor nations and rapidly developing nations such as China have acted through various companies to purchase land and/or strike deals for closed, regional supply chains dedicated to future food production (which includes water availability and access) as well as access to commodities associated with construction and economic growth, like oil, the raw materials for steel production etc., ahead of the future crises.
One of the consequences of this activity, as well as trade with countries capable of producing food at lower prices, has been to undermine the prices received by local producers of the same foodstuffs but with a higher cost of production. This is actually one of the beneficial pressures of trade, since the market is calling high-cost producers in various countries to engage in other productive business activity where they may have a comparative advantage, and export to balance national payment accounts. Ultimately, this saves global resources and makes all countries better off. The problem of course, is these high-cost food producers are often situated in corrupt and mismanaged regions where transitioning to alternate productive activity (even within agriculture) is systematically thwarted. Low education, the large family strategy of the rural poor and the inability to organize alternate productive activity, results in a migration to cities in staggering numbers. This often overpowers sanitation systems and other critical city services such as utility provision, while also contributing to an explosion of crime and pollution.
The key questions are, at what level will market mechanisms be allowed to solve these problems; and to what degree will governments act both independently and in concert to manage the coming crisis through joint policy actions? While there are many impediments to realizing the efficient solutions that markets might bring to bear on these problems, the chief impediment is corruption and excessive government management of market activity.
Reasonable and limited regulation is required to establish the market space and prevent fraud, but focusing joint policy action on corruption and setting the stage for efficient market action with limited regulation would go a long way to averting the coming crises.
Moving societies back to high-cost, localized supply chains by limiting trade and managing output and consumption choices for people through a lattice-work of tax penalties will assure that limited global resources are more quickly exhausted. As this happens, the entrepreneurial activity most effectively conducted by individuals and business, will continue to accelerate the colonialization of resource-rich but education-poor nations with limited liberty by other world governments. If that fails, we are back to the tried and true resource acquisition strategies of the past: wars.
Editor’s Note: Dr. Dennis DiPietre is a swine consultant in Columbia, Missouri. His monthly commentary is sponsored by Elanco Animal Health. For more information, go to: www.elanco.com
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