Will Asia's hunger for growth leave the world starving?

China alone, with 22 per cent of the world's population but only 7 per cent of its land area, is expected to import half its grain needs by 2030
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The Independent Online
The past year has seen a dramatic rise in international grain prices and a drop in world grain stocks to near-record low levels. Together with projections of massive grain imports by China in the 21st century, by Lester Brown's Worldwatch Institute, this has raised concerns about the long-term prospects for the world food situation. These thoughts are in the minds of the heads of state and agricultural ministers meeting now in Rome for the first world food summit since the mid-1970s.

Will the rapid industrialisation of densely populated East Asia make people in poorer countries more hungry? China alone, with 22 per cent of the world's population but only 7 per cent of its land area, is expected to need to import half its grain needs by 2030. That would represent a doubling in current world grain trade. What if India's economic reforms were to have similar consequences?

These questions are like those that concerned Thomas Malthus in the mid- 19th century and writers in the early 1970s such as the Club of Rome (in Limits to Growth) and Paul Erlich (in The Population Bomb). Malthusians make good headlines, but they have so far been proved spectacularly wrong in their predictions. The clearest indicators of that are food availability and the relative price of food in international markets. Today's 5.7 billion people have 18 per cent more food per person than the world's 3 billion people three decades ago. And if the world's demand for food were growing faster than its supply, real food prices would have been rising over time. But in fact they have been falling slightly.

According to the World Bank data in the graph, the trend decline in the price of food relative to industrial products has averaged about 0.5 per cent per year. The bank expects more of the same in the foreseeable future, as food supply growth outstrips the growth in demand.

Of course, such projections incorporate many assumptions about future developments in the world economy. So what happens to food price projections when plausible alternative scenarios replace some of those assumptions?

New research* addressing this question first projects the world economy forward a decade, assuming that no commitments on food trade are included in the recently completed Uruguay Round of trade negotiations under the General Agreement on Tariffs and Trade (Gatt). That base case predicts a continuation of the slight decline in international food prices.

The study's first alternative scenario is one in which the Uruguay Round is fully implemented by 2005 as scheduled. Alternative assumptions are then added to see how much difference they can make to the projected prices.

Contrary to some earlier studies and the fears of many food-importing developing countries, the results suggest implementing the Uruguay Round in itself will have almost no impact on real international food prices. They are projected to be only 2 to 4 per cent higher than they otherwise would be in a decade's time.

There are two main reasons why the effect is so small. One is that, on close inspection, the agricultural commitments under the Round by the most farm protectionist countries are modest.

The other reason is that many markets for non-farm products also are to be liberalised under the Uruguay Round. As a result their prices will rise in international markets as well. This moderates the increase in farm relative to non-farm prices - and it is these relative prices that influence the decisions of producers and consumers.

The next step was to see what difference it would make if China and Taiwan join the WTO. Potentially, a huge amount. Increases in international grain prices would be twice as large with China participating, and livestock product prices would be 40 per cent higher. China would import 4 per cent instead of just 1 per cent of its grain needs by 2005. Total world trade would be 13 per cent instead of just 10 per cent greater.

Furthermore, these results are at the bottom of the likely range, because they ignore the inducements to domestic and foreign investment that would accompany trade liberalisation. Should those investments boost China's industrial productivity to the extent of causing its economy to grow 25 per cent faster, for example, the gains from its accession to the WTO would be as much as four times greater. And China's dependence on grain imports would increase by about twice as much.

There is, however, a risk that advanced industrial countries will not deliver all their promised reform to textile and clothing markets. Should there be such backsliding on reform, a great deal of the projected gains from the Uruguay Round and China's WTO accession would evaporate, industrialisation in Asia's dynamic economies would slow, and the growth in their demand for food imports (and hence the rise in world food prices) would be less.

While net food exporters such as North America and Australasia would be harmed by such a slowdown in Asia's food import demand, might that not be welcome news for poorer food-importing countries in Africa and elsewhere? The answer is no, not least because that dampening of international food prices would be a symptom of a slower-growing world economy which would depress development prospects everywhere.

Contrast this with the key reason for the slight downward trend in world food prices of past decades, which is the very rapid growth in farm productivity. That productivity growth has been due in large part to well-targeted investments by aid agencies in international agricultural research, the economic returns from which have been - and continue to be - extremely high.

The very success of those research investments, however, has bred complacency. One consequence is that the emphasis on agriculture by aid agencies has waned considerably in the past decade. Should that cause global grain productivity growth to slow by, say, one-fifth during the next decade, our results suggest this would have dramatic effects: international grain prices by 2005 would be more than 5 per cent higher than otherwise, and global economic welfare would be $28bn (pounds 17bn) less per year.

These results suggest leaders at the FAO's World Food Summit in Rome ought not to worry about the effects on food markets of Asia's rapid industrialisation, but rather focus on the need for revitalising investments in agricultural research in developing countries. That may be the single best way of simultaneously reducing poverty and malnutrition and providing new technologies for sustainable development.

Kym Anderson is professor of economics at the University of Adelaide in Australia and a research fellow at the Centre for Economic Policy Research.

*Discussion Paper No. 1474, "Asia-Pacific Food Markets and Trade in 2005" by K Anderson, B Dimaranan, T Hertel and W Martin, is available from CEPR (Tel: 0171 878 2900), price pounds 4.