|Ethanol Drive Will Increase Caribbean Food Prices|
April 27, 2007
The popularity of bio-fuels, more particularly ethanol, has led to an increase in corn prices which, in turn, has caused a spike in US food prices. With the Caribbean importing most of its food from the United States, this will result in a substantial rise in the region's food bill and, as a consequence, an increase in inflation.
At the end of 2005, the Food and Agriculture Organisation (FAO) placed the Caribbean's food import food bill at a little over US$3 billion. With corn now at US$4 a bushel, US farmers are cashing in and are harvesting to service not only agricultural requirements but also the growing number of ethanol plants.
According to a study commissioned by the University of Massachusetts, corn-based ethanol is a success and is set to account for 10 per cent of the US' energy supply. President George W Bush is determined to reduce US gasoline consumption by 20 per cent over the next 10 years. This has led to the construction of 80 ethanol plants. South Dakota already has 12 plants with another five more under construction. The study says that four billion bushels of corn will have to be grown this year to service a potential US$40-billion ethanol industry, as well as feed the wealthiest country on earth.
Last year, corn accounted for 10 per cent of the US$305-billion farm industry of the United States. This high demand for corn will push food bills up faster than the overall rate of inflation.
"I think the probability now is very large - for 2007 and 2008 - that price increases in the food and beverage sectors are going to outpace the general inflation rate," said economist Christopher Hurt of Purdue University.
"Energy has been the bigger component of inflation these past two years, while food helped to moderate that," he added. "Now you have a scenario where food and beverage are going to lead inflation."
Hurt is predicting that food prices in the United States will increase between five and seven per cent during this year and the next. This will undoubtedly affect prices of food imports in the Caribbean.
Already Jamaica Broilers, arguably the largest operator of its kind in the English-speaking Caribbean, has had to raise the price of chicken due to the rising cost of imported grain.
Jamaica Broilers' CEO Robert Levy attributes the fall in the group's profit margins to the significant increase in the US dollar cost of imported grain since September 2006. Over the last four periods, corn has increased in price on the Chicago Board of Trade by 50 per cent from US$2.60 per bushel to US$3.90 per bushel.
Jamaican consumers now have to pay five per cent more for chicken meat as a direct result of the increase in the cost of corn.
"It is way past our ability to absorb corn prices, and it is moving so fast that it is almost scary," said Jamaica Broilers' vice president of poultry operations, Christopher Levy. "I know it is not good news, but it is a reality that we have to face."
Exacerbating this situation is the fact that global grain stocks are at their lowest in 30 years. Some agriculturalists estimate that 30 per cent of the US grain harvest is likely to be devoted to ethanol production by 2008, up from 16 per cent in 2006.
University of Missouri economist Ron Plain said that the growth in US ethanol production will increase the price of meat, eggs and dairy by around 12 per cent by 2009.
Ethanol production is causing a major shift in agriculture, and it is not just products that use corn that will see an increase, but food that comes from animals that feed on corn. Based on the history of corn pricing, the US has reached the plateau for prices to increase, and corn will remain at around US$4 per bushel for a while.
US consumer prices increased more than expected in February as the cost of food rose at its fastest rate for two years. Climbing energy prices also helped push the Consumer Price Index up by 0.4 per cent, double January's 0.2 per cent rise. Separately, a University of Michigan report showed consumer confidence fell to a six-month low in mid-March. Food prices rose 0.8 per cent and energy prices increased 0.9 per cent last month. The bottom line is US inflation is not going down, and that will undoubtedly affect the Caribbean.
Speaking on World Food Day in October 2005, St Lucia's minister of agriculture at the time, Ignatius Jean, said: "In St Lucia and the wider Caribbean, there is a significant imbalance in what we grow and what we eat. Much of what we eat comes from imported foods, leading to a US$3-billion food import bill. Research carried out by the Caribbean Food and Nutrition Institute (CFNI) indicates that a great proportion of the imported foods we consume indeed contribute to the many illnesses and diseases affecting our peoples and development."
The increase in corn prices as a result of the demand for ethanol is all the more reason for the Caribbean to reduce its food import bill and rely more on home-grown agricultural products.
Dominica relies on home-grown produce
The premier of Nevis, Joseph Parry, noted that Dominicans are increasingly becoming dependent on local produce and foods and are the better for it.
"The people of Dominica, who use their local food more extensively than we do, have an average lifespan of two to three years more than the Nevisian and the Kittitian," he said.
"It is clear that this phenomenon can be aligned to our relative consumption patterns. I am making this point to say to the people of Nevis that we need to return to the soil and the people need to return to consuming what we grow and what we produce locally. We insist on eating out of these tins and plastics and perhaps we should follow the people of Dominica and eat out of the soil where we produce our good food on Nevis."
Earlier this year, Selwyn King, spokesman for the Trinidad-based Caribbean Agricultural Development Institute, expressed concern regarding the increase of genetically modified food products that are appearing more frequently in grocery stores across the Caribbean. Grenada has now taken measures to address this situation and has set up a body to develop safety standards and encourage locally grown produce.
Trinidad & Tobago has already seen the devastating impact of rising food prices on inflation. Data released by the Central Statistical Office in Trinidad in November 2006 revealed that inflation hit the 10 per cent mark in October of that year with food prices registering an increase of 26.5 per cent for the month of October. The twin-island republic is now making a concerted effort to reduce its dependency on imported food and look to more Trinidadian agricultural goods (see related story on this site ).
According to the Statistical Institute of Jamaica, from January to December 2006 Jamaica spent US$616.8 million on imported food, signifying a small increase on the US$602.9 million spent in the previous year.
Putting these figures in their proper context, during the calendar year 2006, Jamaica imported goods amounting to US$5.650 billion, representing a 19.2 per cent increase on the previous year.
The minister of finance, Dr Omar Davies, underscored the importance of the local agriculture sector to the reduction of inflation during his contribution to the 2006/2007 budget debate.
"The rate for the calendar year 2006 was 5.8 per cent and the rate for the fiscal year was 6.6 per cent. The calendar year figure of 5.8 per cent was the lowest in over 30 years," said Davies. He informed the House that a major factor impacting this sharp reduction in inflation was the recovery in agriculture.
"The truth is, we built a programme for 2006/2007 around a projected inflation of 9.5 per cent," said Davies. "Given the extent to which domestic food plays a role in the basket of goods and services, the recovery in agriculture was the major factor in bringing inflation down, as was the relative stability in international oil prices."
The world's poorest nations are devastatingly affected by spikes in food prices and most of the Caribbean comes under that category. A study by C Ford Runge and Benjamin Senauer of the University of Minnesota concluded that the rush into ethanol threatens to divert corn and other food crops into bio-fuels.
The study said: "Resorting to bio-fuels is likely to exacerbate world hunger. Several studies by economists at the World Bank and elsewhere suggest that caloric consumption among the world's poor declines by about half of one per cent whenever the average prices of all major food staples increase by one per cent."
If, all other things being equal, the prices of staple foods increased because of demand for bio-fuels, the number of food-insecure people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods. That means that 1.2 billion people could be chronically hungry by 2025, 600 million more than previously predicted.
The study was of the view that the bio-fuel craze could push up corn prices 20 per cent by 2010 and 41 per cent by 2020. This could well affect other crops such as rice or wheat, since farmers are converting their fields to corn or other plants more profitable because of their potential for ethanol.