Global Economics Research Explains Food Scarcity Challenges

By Tyler Klein

In a world where there are one billion people who are starving and one billion people who are obese, one might turn to economics to solve the problem of global food scarcity. Global economics can explain why some countries are having trouble obtaining enough food for their populations while others are enjoying too much food.

"Food scarcity has to do with the access that humans have to food. That doesn't mean only the quantity that's there, it means the economic access to food," said Lilyan Fulginiti, a University of Nebraska-Lincoln professor in the Department of Agricultural Economics. Fulginiti's area of emphasis is growth issues in developing countries.

To keep up with the rising demand, agricultural producers must increase production by at least 70 percent before the year 2050. They must achieve this level while at the same time conserving natural resources, Fulginiti said.

"The research that I do tries to discover what the rate of innovation, or productivity, or efficiency change is in the use of resources to maintain the planet in a healthy, sustainable growth path, but still produces the 70 percent more that we need," she said.

"What we do here at UNL- we look at countries that potentially will have the land, the water, where production agriculture is going to be possible in the next 30 to 40 years," said Fulginiti. "We figure out what was the rate of innovation in the past, and what is the potential for the future rate of innovation in these areas."

Agricultural innovations critical; investment needed

New technologies will be crucial in increasing agricultural efficiency in the coming years. During the past 50 years, productivity in the use of resources such as land, labor and capital have improved due to the introduction of new technologies.

"But if you traced the changes in resources such as labor, capital and land in agriculture, they don't explain the big increases in yields. The big increases in yields come from new technologies and practices developed by humans," Fulginiti said.

"Most of these advances in agriculture productivity growth in developing countries have a lot to do with investments in research and development originating in the developed world," she said.

But these public investments have been dwindling over the past few decades.

Decreasing public investments in research and development can already be correlated with decreasing productivity in developing countries, Fulginiti said.

Public investment in infrastructure also must be maintained in order to generate enough supplies to meet demand. Infrastructure is a country's basic physical system, including roads, access to water, and utilities. Infrastructure also includes basic community needs, such as schools and the many kinds of businesses that support one another.

"The same way that public investment in research and development is essential for innovation, public investments in infrastructure is essential to get your crops out," said Fulginiti. "If we see a reduction in that, we will see an immediate reduction in growth."

Difference between food prices, commodity prices

The recent increases in commodity prices have led some to believe they are the direct cause of high food prices.

"One has to differentiate between commodity prices and food prices," Fulginiti said.

Commodities are the basic units that are grown by producers, such as corn, soybeans and wheat. Their prices are determined in the international market due to world supply and demand. An individual producer is too small to influence the price of commodities.

"Food prices are a little bit different because they are determined at the supermarket," Fulginiti said. For example, "the impact of the price of corn on the price of cornflakes is very small. There are a lot of other costs that go into the production of cornflakes, which leads to the price that you pay at the supermarket."

This does not mean commodity prices and food prices are completely unrelated. There is a connection between the two, but that connection is more obvious in developing countries than in developed ones, she said.

"This [impact] occurs for two reasons. One, in the developing world, on average, people spend a lot more of their budgets on food."

With a higher percentage of income spent on food, a rise in the price of commodities would lead to an even higher share of income devoted to food.

"The second reason why it is important in the developing world to look at the connection between food prices and commodity prices is that food are not as processed as in the industrialized countries. Cornflakes are not what you eat, but maybe you eat corn mush. There is less packaging, there are less proportions of other inputs that are not the commodity itself entering the cost of food directly," Fulginiti said.

As a whole, food prices have been relatively low because supply has outpaced demand, due mainly to increases in productivity, until recent years.

"There was a period from 2005 to the end of 2008 which I call the 'perfect storm.' There was a huge increase in prices, oil prices went to $145 per barrel and corn went to $8 per bushel by the middle of 2008."

This scenario can be attributed to many factors, she said.

"There were a number of droughts, for example in Australia, that affected supply. India and China were growing at a fast pace, increasing the demand of protein. All of that, plus the price of oil going through the roof caused these huge increases in the prices of commodities like corn, soybeans, and wheat," Fulginiti said.

After oil prices came back down at the end of 2008, commodity prices stayed high due to the population and income growth. Innovation will be critical in order to again reach the point where supply outpaces demand, she added.

Accessibility to food and nutrients

Not only is it important that there is a large enough quantity of food available, accessibility is another important component in the challenge of addressing food scarcity concerns. Accessibility affects every mode of exchange, from entire countries to individual households.

"An important difference across countries is the policies they implement affecting trade in agricultural products. In my opinion, the single most important trade instrument is the exchange rate policy," Fulginiti said.

The exchange rate is the price of one country's currency in terms of the currency of another country. For example, the price of one United States dollar is approximately 81 Japanese yen.

"If your policy affects the exchange rate so that your currency is very strong, then you won't export much because it costs another country a lot to buy your currency, and this makes exports expensive."

This means that if a country's currency is undervalued, its exports are cheap in terms of the currency of the trading partner. Countries will manage their monetary policies to keep the exchange rate low, and in this way, increase their exports and improve their trade balance.

"A lot of people think that food security means selfsufficiency. Food security is not being self-sufficient because self-sufficiency means closing your borders to food produced more efficiently elsewhere. This can only lead to very expensive food," said Fulginiti. "As an economist, I look at where you can produce the same product relatively cheaper, using less resources. That's where we should be producing it, then trading it, to feed more people."

Income distribution is another factor that contributes to food insecurity and scarcity issues and is one that is directly related to the political will of a country.

"We still have people that are nutritionally deficient or that are food insecure because, even if the supply of food is adequate, their material access to it is inadequate. Famine is not the result of lack of food supply, it is the result of political conflict."

Political conflicts not only are an impediment to countries' growth and therefore to the ability of some groups in the population to generate enough income to buy food, but they also impede food aid from getting to the people that need it at the time they need it.

"These circumstances can only be changed by human will through the political system," she said.

Going forward, Fulginiti believes that a crucial factor in food security is supply growth led by innovation, but innovation in a sustainable way.

"This requires not only that we and our trading partners grow sustainably, but that we, as humans, implement policies directed at distributing fruits of this growth in a way in which all have what is needed to survive and live healthy lives."