FAO gauging factors contributing to increased food prices

Dec 23, 2022 News

… fears nutrition being substituted for ‘cheap, unhealthy’ food

Kaieteur News – Real food prices have been significantly higher in recent years than 20 to 30 years ago, the United Nation’s Food and Agriculture Organisation’s (FAO) Food Price Index has stated. It said that food is currently around 30 percent more expensive than in the 1990s and this is despite the fact that current pricing mechanisms have failed to capture the whole cost of food; taking into account social and environmental externalities at all levels, providing a “full cost accounting”.

FAO’s report, ‘The future of food and agriculture – Alternative pathways to 2050’, highlights that if environmental costs were accounted for, food prices might increase by 30 to 35 percent in the next decades. At a time when political and media attention is sensitive to the price of food, and policy-makers express concerns about the efficiency of agri-food systems, the body said that, “cheap, unhealthy, socially and environmentally unsustainable food cannot be the solution.”

The FAO said that the observed price trends raise questions as to whether the upward prices illustrate the fact that the ‘green revolution’ has exhausted its effects and new technologies are needed, whether the price trend reflect that consumers are starting to pay the ‘cost of unsustainability’ of current agri-food systems and whether the future scenario of significantly increasing food prices is plausible.

Looking into these issues, the FAO explained that in market economies, prices are expected to provide signals that operators use to make efficient choices and take decisions that should maximize both individual and collective well-being. According to this conventional wisdom, prices are determined by markets so as to balance demand and supply of a particular commodity, inform about the scarcity or abundance of goods, services and resources, and guide production decisions towards the most efficient utilization of resources and technologies. As such, they are important drivers of change in all sectors of the economy, including in food and agriculture.

In reality, however, prices are not explained by market forces only; they are the result of complex mechanisms influenced by policies. For instance, rules, regulations, subsidies and taxes are designed for achieving specific objectives, as well as by many other factors such as culture, habits and technology, that result from the socio-economic and political condition prevailing in a country at a given point in time. The FAO noted that it is important to remember, that already, there are major costs involved in food production that are reflected neither in production costs nor in prices, limiting the effectiveness of prices as indicators of the real efficiency of resource use and technologies.

“These costs that are invisible to the market – externalities – would, if they were accounted for and internalized (expressed in monetary terms), likely push food prices up and create incentives for reorienting food systems towards greater sustainability.” These externalities include environmental costs, for example, the cost of greenhouse gas emissions causing climate change, loss of biodiversity and, more generally, natural resources degradation, as well as the cost of health impacts and social costs. The FAO said that several attempts have been made to estimate these costs.

The review conducted, shows however, “that there are clear signs that food prices are on the rise.” The agency concluded that at the global bulk markets level, as illustrated by its Food Price Index, the price of food has been increasing since the turn of the century. It said that “The ongoing degradation of natural resources, the impact of climate change on yields, crop suitability, pests and diseases, pollinators and other factors, climate change mitigation measures, and modifications in agriculture support policies, all contribute to create uncertainty and tensions on supply that might push food prices up if all other things remain unaltered.”

“This movement would be amplified in the event that externalities were accounted for and internalized. Tensions could become even more critical if bio-economy develops and a growing share of agricultural commodities is used to produce non-food goods, and if prices of energy continue to rise.”

FAO related that at the farm level, prices are strongly influenced by incentives and subsidies in high income and middle-income countries, of which a substantial portion aims at keeping consumer prices low and giving a competitive advantage to agricultural goods produced locally. “However, the recent trend, especially in high-income countries, has been to favour funding of general sector services and reduce measures that are harmful for human health and the environment. This trend also affects protected or subsidized products and technologies emitting large amounts of greenhouse gas, creating negative externalities, and the cost of which are reflected neither in production costs nor in prices.”

This cost, if it were accounted for, would push food prices up and reorient food systems towards greater sustainability, the food organization said. It noted however, that growing awareness of the consequences of climate change, loss of biodiversity and health impacts resulting from unsustainable agricultural practices, could lead to further cuts in incentives, possibly affecting adversely the supply of agricultural products and, ultimately, their price.

This would appear likely unless there are ground-breaking technological innovations, perhaps funded in part by a repurposed reallocation of public resources that could alter this scenario. At the level of consumers, the FAO said that food prices have followed a modest upward direction.

“The trend towards the consumption of resource-intensive foods reduces food systems efficiency and tends to increase demand for agricultural products, adding to tensions on food prices.” The FAO submitted however that, “if the signs currently indicating some movement by consumers towards less resource-intensive dietary patterns with better nutritional and environmental outcomes are confirmed, and if this movement accelerates, it would considerably diminish demand and thus could modulate or even reverse food price trends.”