The cost of surviving

Food prices and commodities prices have gone up. For many of us, the cost of living has gone up. But for many others, it is not merely a cost of living but rather the cost of surviving has gone up.

Many in the West blame China and India for the price increases as they say the increase in consumption by the people of these 2 prospering countries lead to the increase in food and commodities prices. I have always doubted this as the main cause. . Now, the latest issue of Far Eastern Economic Review has an article which argues that this is not the main reason, but rather, the increase of oil prices has indirectly contributed to the increase in food prices.

I think they have a very valid point, and as such, I am posting the article below for readers to judge for themselves:

The Cost of Surviving

by Jikun Huang, Scott Rozelle, Bharat Ramaswami and Uma Lele

As G-8 leaders gather in Japan this week, one of the main points of discussion will be the extraordinary rise in the international prices of agricultural commodities. The rise in commodity prices has mirrored food price hikes throughout the developing world, including in China and India. Increased prices are impacting the lives of millions of poor, contributing to overall inflationary pressures and risking political unrest.

 Moreover, press reports of statements by U.S. President George W. Bush and Secretary of State Condoleezza Rice that rapid economic growth in China and India is causing the rise in world food prices has led to an uproar among Chinese and Indian politicians and the Asian media in general. The recent world food summit in Rome did little to illuminate the issues further, with representatives of major producing countries mostly using the summit to justify the agricultural policies of their governments.

And yet the increasing prices raise some important questions: Did China and India, with their growing demand for energy and other commodities, contribute to the recent food price increases? Or are higher prices the result of U.S. crops going toward biofuel production? Who is affected and what are the lessons? Research shows that if food consumption by the one billion poor in Asia and Africa shows genuine improvement, further food price increases can be expected. Clearly, it is time for a more informed debate and more focused action on fronts where it matters most.

Since World War II we have seen a steady rise in food supplies and decline in real world food prices (exceptions include the steep spike in 1974-75). A genetic revolution led developing countries in Asia to expand investments in agricultural research and extension, irrigation and fertilizer use causing major supply shifts. Concurrently, their import dependence declined. For most of the past 25 years, China has been a net food exporter. India too has joined the ranks of net food exporters. So how could they be causing prices to rise?

Previous spikes in international food prices were the result of major drops in production in exporting countries. In contrast, the Food and Agricultural Organization’s data indicate that the current spike was preceded by three near bumper crops, although droughts in Australia did tighten wheat supplies temporarily and recent rice price increases are being blamed on the export bans of rice exporters in developing countries.

A shift in global demand for energy and derived demand for agricultural crops explains the price hikes and that shift is unlikely to be temporary. With rising energy prices and use of crops as feedstock for biofuels, crop prices will continue their steep rise. Spot and future prices reflect the difference in expectations. Future trading prices for 1976 were considerably lower than spot prices in 1974 as were future prices in 1997 relative to spot prices in 1995. In contrast, future commodity prices in 2010 and 2011 are considerably higher than spot prices in 2008.

China’s grain and livestock production has been rising steadily for the past 30 years and has not fallen since 2004, with the exception of a small 3.5% decline in meat production Indeed at 500 million tons in 2007, grain production reached the highest level China has witnessed since 2000.

Nor has there been an abrupt increase in China’s domestic food demand over the past years. Although income growth in recent years has put upward pressure on meat prices, the consumer demand shift due to changes in diets from staple grains to meat has experienced a steady increase over the last two decades. Researchers have established unequivocally that China’s rising demand for most food commodities has been met almost fully by an increase in domestic production. Moreover, the rise in food imports in China is matched by its rise in exports.

Rising demand in India does not fit the picture either. Although production growth of basic staples such as rice and wheat has slowed in the last decade after the impressive gains of the Green Revolution, so has demand. Numerous studies have demonstrated a sustained decline in per capita calorie consumption in India during the last 25 years mainly because of lower cereal consumption.

Again counter-intuitively, while the decline has been the largest among the economically better off households—perhaps due to consumption of more milk, fruits and vegetables, as well as more fats—the decline in calorie consumption has been noted throughout the entire household income ranges. There has been neither decline in real incomes, nor any increase in the real price of food over the last 25 years in India until recently. Experts hypothesize that the caloric decline may be explained by the decline in manual work and improvements in health indicators.

This does not mean Indians are adequately nourished. To the contrary, anthropometric indicators of nutritional status both in the case of adults and children in India are among the worst in the world. If India’s growth becomes more broad based and contributes to food price increases, it would be a measure of success of Indian economic policies.

In both countries greater pressure on government supplies and government stocks since the recent price hikes to control domestic inflationary pressures, together with tightening of global supplies, have set off a number of policy responses including export bans. But they reflect marginal supply shortfalls. Indeed as importers of soya and palm oil, India and China are victims of the biofuel boom.

The Real Causes of International Price Increases

Contrary to some studies, biofuels are not only driving the rise in prices of crops used as feedstock in fuel production but of other crops that compete with the feedstocks for land and other resources. The U.S. and Brazil produce more than 90% of the world’s ethanol and have more than 90% of the ethanol market. Both have ambitious plans to expand production. Twenty-percent of U.S. corn production in 2007 went into ethanol, up from only a small fraction several years ago, and equal to half the amount traded on the global market in 2000. With ambitious U.S. plans to produce 15 billion gallons of biofuel by 2010—and double that by 2015—up to half of the U.S.’s corn crop will be used for biofuels.

In Brazil, ethanol is produced largely using sugarcane and feeds a large domestic energy market. Brazil’s expansion of the domestic soybeans production has come mainly from accelerated deforestation in the Amazon, setting off international alarm bells on global warming. Other countries, such as Indonesia and Malaysia, are getting into the act because profitability of biofuels is directly related to the price of energy.

In short, the price of food in the world is rising because it is closely tied to the rise in the global price of oil. A fundamental deepening linkage between the forces affecting the supply and demand for agricultural commodities is taking place through energy markets in a way never before experienced.

Meanwhile, investment in food and agriculture in developing countries, including external aid to agriculture, dropped dramatically. Since 2004, investment has begun to pick up but remains nowhere near necessary levels. Increased reliance on energy in agriculture through the increased use of fertilizers, electricity, water and transport to globalized markets further increase dependence on energy.

Implications for the Future

The good news is that increased international prices should help developing countries focus on food and agriculture. Donors, and hopefully countries, will invest more, not just in international agricultural research of the CGIAR, but in national research, extension, soil and water management, and do so in ways that involve the poor.

Elimination of agricultural subsidies by the U.S. and OECD countries for food and energy production is long overdue but is unlikely to happen any time soon. The least the OECD countries can do is to greatly increase assistance to developing countries in science and technology so that not just large corporations but the world’s small farmers can participate in the agricultural boom and create employment for the poor.

Mr. Huang is director of the Center for Chinese Agricultural Policy. Mr. Rozelle is a professor of international studies at Stanford University. Mr. Ramaswami is a professor at the Indian Statistical Institute. Ms. Lele is a former senior adviser at the World Bank and a visiting professor at the University of Maryland.


16 Comments (+add yours?)

  1. Petyew
    Jul 08, 2008 @ 17:06:49

    Dr Hsu,

    To a layman, his problem is that of the shrinking ringgit and his inability to service his recurrent expenses and fixed loans. The interest earned from his savings, if any, cannot catch up with the faster increase in the rising cost. His pay, which has to meet the usual annual inflation of 3-5%, has now to suddenly meet the additional rise in food and energy cost caused by speculative fuel prices. Calling it cost of living or cost of surviving means nothing to a person who finds his income and savings diminishing to the point that he can no longer assure his family a safe future.

    What can he remove from the items he regularly spends on? Tuition fees? Going for cheaper and less nutritious food? Forego car maintenance? Avoid seeing a doctor when ill? Wear clothings longer? Drink plain water instead of Milo? No more birthday cakes for the kids? To the marginalized families who still have loans to pay off, this is a very difficult time. I wonder if the BN government really really know how bad the problems are for these people.

    The present fuel crisis will not last forever. It may pass in a year or less I’m sure. What the poor people want is an umbrella for the moment. If I am the Finance Minister I will give a flat RM1000 rebate off every taxpayer, rich and poor. The taxpayer who typically pays RM1000 tax now pays nothing. This is subject to annual review until the problem go away. I don’t mind if the government earn less income from taxes because I am helping the people tide over a hard time. This is their social responsibility to help every Malaysian of all backgrounds.

    I will met the hardship of my people with cash reserves of the nation. Use it when people need it and not save it to make the nation look good. Do we keep a fire extinguisher in a showcase in the event of a fire?


  2. monsterball
    Jul 08, 2008 @ 18:50:58

    For such an important issue…..involving all human beings…leave it to Bush….to sensibly and logically…explain… is asking too much.
    This lover of wars and a rouge President of USA is not that stupid……but like Mahathir…is a devil in disguise. Bush idiotic act…is welknown to rob oil for his country. In that sense…he is a true loyal American. Mahathir is a real corrupted devil??
    Back to the subject….any sensible person….will trace …the root cause……and not simply blame this or that country. Blaming China and India are clear signs….either Bush is an idiot ….or love.. playing dirty politics.
    And why not…he and the likes of him…..are filthy rich. When have they gone hungry or can feel the pains of people….dying out of hunger?
    Root cause……is always the starting point…to trace any problem. Any one wants to manage..even a simple business…needs to have this little commonsense.
    Money problem..root cause is mismanagements and corruptions.
    Poor productivity from staffs..root cause is having the wrong person. Find out who.
    Lost in factory productions…root causes are..wrong production manager….or out-dated machineries.
    The list can go on and on.
    And surely..the root cause of global sufferings… is oil prices …. higher and higher…….creating… a chain reactions…for any finished product…transportations…services…right up to the doorsteps… of the consumers.
    Leave it to simplify things or talk simple..and logically…to …educate simple people…is near impossible….even in Malaysia.
    Even economists can be political…than professionals.
    However….blogging have given laymen….like me… to voice our opinions. So many others will agree or disagree….and this will give readers….opportunities to think and conclude themselves..without…simply believe what others may say.
    Root cause is always..the main reason…and that leads to natural resources…not on country’s actions and reactions.
    Bush is insignificant now. Don’t listen to him…simply waste of valuable time.


  3. monsterball
    Jul 08, 2008 @ 19:08:51

    But when I say….due to natural resources…our country is trully blessed with oil surplus.
    So to increase such steep oil prices by UMNO….falls under mismanagements and corruptions.
    That is 100% accurate.
    Then..why…with such root cause known to all… ..still millions…wanting a sick and corrupt government?
    Root that… UMNO have planted into the mind and bodies of the Malay race…with their race and religion dirty politics..that such a doctrine have successfully brainwashed so many millions of Malays….to believe that..without UMNO…their rights and claims are all lost….no more future for them.
    Concerning personal benefits and losses…are powerful dirty medicine to corrupt weak minds. That’s how Insurance companies are so successful too….aiming at personal benefits. but insurance is totally sincere to human beings.
    UMNO is totally …a liar and a cheater..of their own race.


  4. jeff
    Jul 08, 2008 @ 22:59:42

    “This is their social responsibility to help every Malaysian of all backgrounds.” Dream on! See the 5 PR states, federal fund is getting cut, punishment for voting opposition. Why want to use our nation reserve for benefit of the people where it can be used to finance umnoputra lavish life style in palatial residential,office, high salary, private jet n etc…. ?It ‘s outright stealing from the nation instead of mismanagement like some think.


  5. steven
    Jul 08, 2008 @ 23:39:32

    Bush administration make up by butch of war lovers, who worship saudi royal family like God. It is unfortunate for USA to elect such a “cowboy” into white house, costing them 4000 life in Iraq and many more in other disaster area within the country.His policy has caused so much disruption to world order contributed to our present ever rising energy cost n commodity prices.


  6. sumseng
    Jul 09, 2008 @ 00:33:17

    Bush n Rice contention of China n India are the caused of rising commodity prices are just “blame diversion” tactic, their twisted new world order in middle east is the main cause of energy n commodity prices increased worldwide, couple with maintaining saudi arabia dominance in that region, their action had resulted so many low income people to suffer in so many countries.


  7. monsterball
    Jul 09, 2008 @ 07:45:01

    Doc…Go read Mahathir long list….proving he is not a dictator.
    Does Marcos have to say..”hi I am a dictator”
    Mahathir wrote so much….his usual one sided .twisted half truths…to his advantage…leaving out ISA and Operation Lallang….jailing hundreds…for those who dare to speak out against him.
    He is sooooo smart to control the police and lawyers…acting the refine and righteous gentleman role….to steal and plunder the country’s wealth.
    Even now….he blames everyone…and think he is so popular. This old man can never change. He has developed the art and craft of …twisting and be the most perfect…dirtiest politician…and having tasted success for 22 years….from that art and craft….he still thinks is is so important.
    But we must keep battling him..or else..the famous mind control method… ..keep saying same thing….everyone will believe it…one day.
    So he keeps saying same things…and we must keep exposing him.
    You guess it!! He never talk about corruptions. He always talk about himself…unfairly treated by his own kind. He even have the cheek to say…Chinese supports him….at the last election..ignoring the fact…Chinese have no choice..since DAP partnered PAS.
    That was Lim Kit Siang’s greatest mistake.
    Mahathir can really twist everything to his advantages…with his half truths. This is really the most cunning dirty politician..ever produced in Malaysia….making the whole world stood see….how smart UMNO crooks can be.


  8. Jeff
    Jul 09, 2008 @ 08:24:08

    Whoever dare to expose Dr M dirty trick is jailed immediately, all the leaders of the people are detained indefinitely resulted in only the silence minority able to walk freely in Malaysia, heavy handed use of intimidation, torture and threat are used consistently on dissenters while incarceration, best example is DSAI, nearly being poison to death while in jail for trump up charges.


  9. FROG
    Jul 09, 2008 @ 18:27:21

    Why DS Anwar dare not swear by Koran and instead asks Saiful to produce 4 witnesses to prove sodomy allegation? Don’t hide behind the Syariah law. Let the law of the country ie. civil or common law,applies.


  10. monsterball
    Jul 09, 2008 @ 21:10:22

    Frog….Read and understand.
    Anwar did the right thing.
    As the sodomy involves two muslims..he filed a complaint to the muslim religious court against Saiful.
    In the muslim religious court…Saiful has to produce 4 witnesses … back up his complaint.
    And Anwar is right… ..this sodomy charges brought up by Saiful is targeting him …on the muslims populations in Malaysia…..for their opinions and conclusions.
    Other faiths are more open minded and believers are actually finding this charges ..amusing and sickening.
    Short of being raped….sex acts are each…. their private matters.
    10 years ago….Mahathir did that…and in his cabinet….I dare say…….except his hypocritical secretive life….all should be charged too.
    But he made the low class excuse…a future PM should not do sodomy.
    You see….such kind of sickening low class logics appeals to some..simple muslims.
    But after 10 years…with so much filths and pirated sex DVD bought by muslims themselves…it is “what you see……is what you are”….just like..all saw jeans from movies…love to wear jeans….and thus became “westernized”.
    In the whole world…the muslims are the biggest hypocrites of them all.
    They gamble in casinos at Cairo……… throw parties…drinking …whiskey/brandy….puka pusa is always a party…love to have sex with whoever they want..with no fear. All these are welknown by the biggest hypocrites…the Arabs of.. Saudie Arabia….and in Malaysia too.


  11. jeff
    Jul 09, 2008 @ 21:45:09

    Froggy, read what monsterball wrote, in case you still want to accuse DSAI hiding behind syariah rule, you are too uneducated and no clue what you are writing, a while he is a “puppet”, now he is coward, why take it such a big deal of “so-do-me” sandiwara, don’t you think it is such a laughable offence? are you muslim? what 2 persons did is their business and nobody should put their nose into.


  12. A true Malaysian
    Jul 09, 2008 @ 22:45:13

    I am looking forward to meet you.


  13. monsterball
    Jul 09, 2008 @ 23:18:20

    Most welcome.


  14. romerz
    Jul 10, 2008 @ 03:14:20

    Hey FROG,

    Don’t be so simplistic unless you’re one of them. This sodomy issue is a lot more than meets the eye. The reality is no one knows the truth because those that know are not speaking.

    The most we can do is come to our own conclusions with what we know and make our own opinions based on our tainted beliefs.

    Definitely not enough to say with a fact that you know for sure unless you are/were an active participant/witness.

    And if you are, the choices that confront you now is to be rich beyond your means but with a nagging conscience or be the hero of millions of Malaysians who might let you down when your security is threatened but knowing you did your part for the country?

    I’m surprised the women of Muslim Malaysia have not jumped on this since the ‘elevated’ Syariah laws of this country means that there is no way a victim can ever be ‘convicted’ of rape or sodomy.

    DSAI is a sly one one indeed!!!

    So why this elevation of a non-functional law? Is it to appease and to appeal to those who think from the religious heart and not the functional mind?

    Which are you FROG?


  15. steven
    Jul 10, 2008 @ 04:25:33

    Accusation of another muslim is handled by islamic affair authority, it is common in Malaysia;.
    not because he is hiding behind this or that, but because it is not the juridiction of civil court. If you do not understand, see your PM for explaination. Never know anyone call himself Malaysian has no knowledge about it.


  16. petestop
    Jul 10, 2008 @ 17:15:58

    Right, a strapping young lad of 23 years old, allows a 63 years old grandfather to sodomise him not once, but 8 times….

    Went running to the DPM to mengadu nasib, just days before making the accusation.

    How many of us have the luck to call up DPM at any time of the day ?

    Very smart guy wrote the script, eh ?

    But us public so dumb ah ?

    At the end of the day, whatever DSAI sexual preferences is his own private biz.
    The big question is that whether he can walk his talk ?

    At this stage, I rather give chance to a suspected sodomiser than a suspected murderer.


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