The global food crisis is the bad news story that caught the world's political and policy-making classes – and most of its farmers – by surprise.
It shouldn't have.
Each year in this decade, the U.S. Department of Agriculture has reported a rise in global grain consumption, a barely perceptible increase in hectares under cultivation, and a decline in crop carry-overs. A year ago, its surveys showed world supplies of wheat, rice and corn were at their lowest levels – in relation to consumption – on record. (Its reports are the world's most authoritative, because they are based on costly satellite surveys of crop plantings and harvests.)
That governments, NGOs, and farm groups failed to warn of a crisis is understandable: The "food problem" for industrial countries has for many decades been the challenges posed by their farmers' ability to produce far more than markets desired. With the implementation of the insights of Norman Borlaug's Green Revolution, most of the Third World became able to feed itself most of the time, and the U.S., Europe, Canada and Australia were always indecently eager to compete with each other to meet any deficiencies by supplying cheap food at cheap borrowing costs.
Farm organizations across the OECD made sure that their governments were committed to keeping farmers in business through subsidies, tariffs, import quotas and the imposition of "supply management" programs aimed at matching domestic production to domestic consumption.
I served the Canadian Federation of Agriculture as its general counsel four decades ago when the network of supply management programs across Canada was being completed. Among the numerous foodstuffs subject to production quotas at the farm gate were milk and dairy products, eggs, tobacco, broiler chickens, hogs and white beans. Even small-c conservatives supported these programs because "everybody else is protecting their farmers" and allowing the rural areas to fall back to Depression-levels of poverty made no sense politically or morally.
What is most astonishing about the failure of policy-makers to anticipate the onset of food inflation that would lead to a global food crisis is that the soaring prices of oil and metals signalled what would soon happen to food. When hundreds of millions of formerly impoverished people in China and India moved into dwellings with indoor plumbing, electricity and basic appliances, and gained access to motorized transportation, they quintupled the price of oil in just seven years.
The next disruption to the OECD's cozy belief in the endless supply of cheap commodities came when those same vast hordes of the formerly poor began to change their diets. "We are now using energy and metals the way you did for decades, and now we're going to eat like you. We're no longer content to stay small and skinny by living on rice, bread and lentils. We want animal protein – in milk and meat."
As world supplies of grains were quietly turning from surplus to scarcity, the U.S. and EU were noisily falling all over themselves to "grow oil" through corn-based ethanol (U.S.) and soybean, palm oil and canola-based diesel fuels.
Results: Corn, canola and soybean prices have more than doubled in two years, as have wheat and rice. The entire world can no longer afford to have serious crop failures in any of the major grain-producing regions. According to the UN's World Food Program, hundreds of millions of the world's poor are already facing malnutrition or famine.
The world will soon face its greatest collective food crisis, as major Third World countries with growing food demands and growing wealth bid for available supplies of grains, milk and meat. Food inflation will soon be a greater constraint on global growth than $120-a-barrel oil. Even among the wealthy nations, consumers will be spending more and more of their earnings on food and fuels, and cutting back on expenditures on almost everything else.
If there are disappointing crops this year or next in any major grain-growing regions, the consequences will be scary. Engel's Law states that when food prices rise on a sustained basis, the impact is felt inversely to incomes – of individuals, families – and nations.
Future historians will write of this era as the time of history's greatest simultaneous efflorescence in personal economic liberty. In less than four decades, at least a billion people will move into middle-class dwellings and will switch to middle-class diets. That process took the West and Japan a century. The demands of these people for basic materials will be the overarching story of economic activity in the world until at least 2030.
The wealth created for Canadians from the Alberta oil sands, Voisey's Bay and the oil and gas development offshore Newfoundland testify to the growing buying power of these new consumers. Agriculture can be at least as big a contributor to Canadian economic progress as mining if Canada commits itself to becoming a major player in global food.
Canada should aim to become a major food exporter by scrapping its existing controls on farm outputs, which were imposed when surpluses were the overriding reality. That means 1) eliminating provincial controls on outputs of the internationally tradable basic foods, and 2) stepping up research at the nation's agricultural colleges to devise new techniques and technologies to expand outputs of milk and grains – in Canada, and across the Third World. A federal-provincial conference should be called to approve an agenda that includes buying out the farmers' quotas at market prices. (Most dairy farms' quotas are worth as much – or more – than the farms, so this expropriation will be a necessary one-time cost to all taxpayers.)
In the 1980s, a few venture capitalists began congregating in Silicon Valley to be near Stanford, where much of the ground-blazing research on computer hardware, software and the Internet was being conducted. Ottawa should promote similar clusters of venture capital located near leading agricultural schools such as Ontario Agricultural College. These institutions could become world leaders in generating the ideas and programs that would benefit the world – and create wealth for Canadian investors and farmers.
Pierre Trudeau accurately summed up what had long been the challenge to Canadian agriculture policy-making. Speaking in Manitoba, he asked, "Why should I sell your wheat?" The voters told him it was his job – and his successors have marched to the same orders.
There are more than 2 billion reasons why those Canadian agricultural policies are now outdated: A billion of those are people who face malnutrition or worse from food shortages and soaring prices; the other billion are those who will find the funds to finance the foods to which they have become accustomed.
There is non-stop discussion of the challenges posed by "the energy crisis," and the possibility of serious global warming.
However, the food crisis will, over the next decade, be an even bigger challenge.
And, for Canada, an even greater opportunity.
Don Coxe is Global Portfolio Strategist at BMO Financial Group.