Helping the world’s hungry could be as simple as raising the food prices

Sometimes the solution to a problem is something that sounds so out there, so intrinsically counterintuitive, that it is immediately dismissed. However, perhaps we all need to open our minds a little and think outside the square.

That’s certainly the case with respect to approaches to feeding the world’s hungry.

Andrew MacMillan served for some years as an agricultural economist with the Food and Agricultural Organisation (FAO of the United Nations. He argues that the doctrine that food prices should be kept as low as possible to end hunger is wrong.

Most governments prefer to keep food prices “affordable” for their people, he says. Many subsidise their farmers’ incomes to let them make a decent living while they sell their output for little more than it costs them to produce it. Countries justify these measures and relatively low taxes on foods as means of preventing poor people from suffering from hunger.

When international food prices rose sharply from 2007-08 onwards, the United Nations braced themselves for a big jump in hunger, predicting a record 1.02 billion hungry in 2009. Food riots took place in the cities of many developing countries. But as time went by, revised estimates showed a steady fall in the number of hungry in spite of the jump in prices.

In practice, policies that keep consumer food prices low, especially when combined with further downward pressure on prices from supermarkets as they compete for customers, may raise the incidence of hunger and malnutrition in the medium- to long-term.

This is mainly because over 70% of the 842 million people now suffering from chronic hunger live in rural areas. Food production is usually the dominant economic activity. Two factors determine the health of such rural economies – the volume of farm output and the farm-gate prices of the main products. Even if production remains steady, falling prices have a disastrous effect, putting downward pressure on wages, cutting employment opportunities and discouraging new investment on farms and in rural infrastructure and services.

When food prices fell in real terms over more than 20 years up to 2007-08, farming became less and less attractive and rural-urban migration accelerated in many developing countries. Even in industrialised countries, farm labourers and people working in the food industry, whether in processing, retailing or fast-food restaurants are amongst the lowest income earners.

On this basis, MacMillan argues that a deliberate rise in consumer food prices, passed back up the value chain in line with fair trade principles, would offer one of the best means of cutting the incidence of hunger by creating greater rural economic prosperity. And he’s not alone: Derek Headey of the International Food Policy Research Institute shows that, contrary to expectations, the recent food price rises have significantly reduced poverty and inequality in the long run.

Most consumers in industrialised and emerging economies typically spend less than 20% of their disposable income on food. In Australia, according to the Australian Bureau of Statistics, that figure is around 10%. They could easily absorb a substantial rise in food costs – even if that might result in loud complaints. Rising prices will also discourage food over-consumption, cutting future health costs from the overweight and obesity epidemic now affecting more than 1.5 billion people.

Higher food prices will also reduce the 20-30% of food wasted in industrial countries at household level. This will take pressures off natural resources while making a win-win cut in the greenhouse gas emissions that drive climate change processes – once in growing the discarded food, and then in disposing of it in landfills.

Rather than continue to effectively subsidise all consumers and indirectly perpetuate rural poverty, it seems better to promote higher food prices. However, until the economic benefits start to show up in hunger reduction, policies must ensure that all poor families can eat adequately by providing them with income supplements, indexed to local food prices.

Sceptics will claim that social protection on this scale is unaffordable. But this not so.

MacMillan has calculated how much extra food is needed to close the hunger gap globally. The average food gap between what chronically hungry people are now eating and the hunger threshold is around 300 kcals per person per day. This is equivalent to about 75g of wheat or rice, or roughly 30kg of grain per year. Closing the calorie gap for 1 billion people would need no more than 30 million tons of grain per year – well below 2% of global cereal output.

Even if you triple that amount and diversify the diet, that’s not a huge amount. It would still cost less than about 10% of the OECD countries’ farm subsidies which were estimated to cost US$415 billion in 2012.

This is an argument that merits further consideration. It certainly puts clear question marks around the current strategies of the major supermarkets here in continually attempting to drive prices ‘down, down, down’.

TFGA chief executive Jan Davis