MaRS

Corn Flakes: A thing of the past?

We’ve all heard ominous news of a global food crisis: rice riots, school lunch programs shutting down, hoarding and the like. We’ve also heard heated grumblings about the role of biofuels and speculators. What is making food prices rise, what are the consequences, and what can Canada do to respond? To get to the bottom of these questions, I attended the MaRS Global Leadership Series event, Rising Food Prices: Global Dynamics & Canada’s Response.

Dr. John Johnson, an economist for RBC, explained that a “perfect storm” of converging factors were behind the food crisis. Demand is being driven up by:

• Global population and economic growth
• Westernization of diets in the developing world, a consequence of
• Rising incomes per capita and urbanization

At the same time, supply is being reduced by:

• Underinvestment since the 1980s
• Rising input costs (fertilizer, transportation, etc)
• Reductions in the workforce due to urbanization and the HIV/AIDS epidemic in Africa
• More frequent climactic weather (due to climate change)

Biofuels and speculation also have an influence, but the panelists deemphasized their importance. While 40% of the global corn harvest may be diverted into biofuels, Ron Bonnett, President of the Canadian Agriculture Federation, pointed out that this accounts for only 1% of the world’s arable land. Furthermore, the cost of raw materials is only one input into food product costs; according to Mr. Bonnett, there is only four cents of corn in a box of Corn Flakes. Likewise, John Johnston argued that while speculation may be at play, he suspects its role is not huge. Moreover, when seeking to address the issue, he argued that we should look at the fundamental causes.

All the panelists agreed that food prices were going to rise and stay high for at least the next 10 years. What will be the consequences? David Sparling, associate dean in the College of Management and Economics at the University of Guelph, said that Canadians can absorb the costs (e.g. that food would rise from 10% to 12% of income.) But in the developing world, where food accounts for 50% of many people’s incomes, there is major cause for concern. (My question: what about poorer Canadians?)

See more event photos on Flickr

How can Canada respond? Michael Detlefson, former CEO of Maple Leaf Foods, pointed out that the situation was a major impetus towards innovation in the private sector. As for government, panelists agreed that there was a shocking lack of policy work on globally focused solutions. Instead, governments have been inwardly focused on trade issues and supporting local farmers. All agreed that the realities of food price dynamics and global competition in the agriculture sector demanded innovation and international cooperation. In the words of Sparling, the issue is a matter of foresight and will: “The potential is there, we just have to apply it.”