Oil Subsidies Impact Demand And Supply

Rising prices give food for thought

For the first time in its history, Malaysia is considering introducing food stamps for the poor. While this will help the poor, are there alternatives we can take to cope with rising food prices?

FOOD stamps for Malaysia? What an insult, some have remarked. The country doesn't have an unemployment problem and there are no starving people on the streets. So why go down that road?

Furthermore, food in Malaysia is relatively cheap. For RM2.50 to RM3, one can still get a hearty breakfast of roti canai and teh tarik or nasi lemak with kopi . Malaysians eat out all the time some have all their meals out because there is a variety of freshly cooked and affordable food.

Sure, people grumble that the price of their meals and drinks have gone up. And they complain about rising grocery bills because meat, fish, vegetables, fruits and most foodstuff cost a whole lot more now.

The Deputy Prime Minister had cited data from the Domestic Trade, Co-operatives and Consumerism Ministry which indicate that prices, especially of food products, are rising, and said that this is a global trend linked to higher fuel prices.

He also pointed out that when natural disasters like droughts and floods strike food-producing countries, there is shortage of supply, which inevitably affects prices.

Malaysia despite its good weather and fertile land is nowhere near self-sufficient in providing food for its people.

Every year, Malaysia spends about RM13bil to import fish, meat, potatoes, fruits, onions and vegetables. This makes us dependent on the outside world to feed us and we are vulnerable to price fluctuations. When Malaysia moved into manufacturing and an export-driven economy more than three decades ago, the agriculture sector was sidelined.

“When most countries go into manufacturing, the agriculture sector will provide food for the manufacturing sector so there is a balance. But this did not happen with Malaysia. When it focused on manufacturing, it chopped agriculture tremendously, so now our import bill for food is very high,” says concurs, saying there has been a lack of focus and investment in agriculture in the country.

He notes that public development in agriculture fell from 22% in 1980 to a mere 3.8% in 2007 and the agriculture sector's contribution to GDP dropped from 22.9% in 1980 to 7.7% in 2007.

The truth about the global demand for food » TripleCrisis

A new report from the FAO blows the myth about increased grain consumption from developing countries leads to higher global demand and higher prices.

Ever since the global  food crisis of 2007-08, a perception has persisted in many parts of the world that one of the main underlying reasons for the price spikes in major food items – especially food grain – is the increased demand from countries such as  China and  India . If anything, this perception has become even more widespread since prices started rising again, especially since early 2010.

On the face of it, such a perception seems quite reasonable. After all, China and India both have huge populations, accounting for nearly 40% of the total world population between them. Their economies have both been expanding very rapidly, much faster than most of the rest of the world, so per capita incomes have been rising from relatively low bases. It is well known that as incomes rise from low levels, people tend to consume more food grain – not necessarily directly, but indirectly through the consumption of livestock products that require more grain in the form of food.

So it is only to be expected that the increased incomes in China and India would translate into more demand for food grain, and this could certainly affect the global supply demand balance in ways that would cause food prices to rise. Expected, yes: but did this actually happen?

It turns out that there has been barely any change, and if anything a slowdown, in the rate of grain consumption in these two large countries. And the global consumption of grain for all food purposes has actually decelerated in recent years compared with previous periods.

This is very evident from an important  new report from the high level panel of experts set up by the FAO to study commodity price volatility and its relationship to  food security . The report contains a careful assessment of both the actual trends and the various attempts to explain the price changes. In the process, it blows the myth about increased consumption from developing countries leading to higher global demand and, therefore, higher grain prices.

Consider the evidence it provides on rates of change of global cereal consumption, as shown in the chart. The growth rate of total cereal consumption was considerably slower in the period since 2000 than it was in the 1960s and 1970s, and only around the same as it was in the 1980s. It did increase relative to the 1990s, but not by very much. And, contrary to the general feeling, feed consumption for livestock actually increased more slowly than direct (or non-feed) consumption.

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