MANILA, Philippines--There are, as always, as many opinions on the outlook for the current world food price crisis as there are reasons used to explain the problem. It hardly helps the common citizen that some predict the problem to self-correct relatively quickly (i.e. by next harvest season), while others declare that tighter food supplies and high food prices are with us to stay.

It's worth mentioning that we've been there before. The world went through a food crisis in 1972-1974 that had food prices surging and governments and international organizations scrambling to find solutions. Years later, the pendulum moved the other way, with people talking about global food surpluses and arguing that world hunger was more a problem of distribution and logistics than one of supply. Now the pendulum has swung again.

To be sure, there is no one single explanation. The most basic one goes back to supply and demand. Food supplies are down because of crop damage or failures in some producing countries, with climate change often cited as a factor. Meanwhile, food demands have risen with rising incomes in rapidly growing economies, dominated by the two giant economies of China and India. While the supply side factors could be transitory in nature, the demand side pressure is argued to be a more enduring one.

The other culprit often cited, though subject to intense debate, is the rise in biofuels, which is argued to reduce food supplies in two ways. One, certain crops which can be used for both food and fuel are being drawn upon for their fuel use, thereby supposedly reducing their availability as food. Examples are coconut, sugarcane, corn and soybeans. Two, nonfood biofuel crops like jatropha are supposedly competing for available land with food crops, thereby reducing availability of the latter.

Financial forces
Yet another factor not widely appreciated or understood, yet equally compelling, is pressure associated with financial markets, quite apart from real production and consumption forces. It is no coincidence that the rise in food and other commodity prices is happening at this time when the US dollar has been continuously losing value, with its exchange rate to the euro recently breaking past the $1.60 level.

The argument here is simple: countries and institutions with large holdings of the depreciating dollar (e.g., China) are now finding it useful to convert these holdings into non-depreciating storable assets, including precious metals, steel, petroleum, and yes, grains like rice, wheat and corn. This has added further to the demands for these commodities. Still another factor closely related to this is speculation in these same commodity markets. There is evidence that hedge funds and other institutional investors have increasingly been placing speculative investments in commodities like grains, thereby artificially driving up their prices.

Price tumble?
So what is the outlook like? Depending on which factor you believe to be most critical, you would either see the current food price crisis as a passing problem, or take it as a wake-up call for longer term difficulties.

Even now, the higher food prices are already stimulating much higher production for the next cropping seasons, a natural response of producers to rising prices, whether here or abroad. Farmer leaders I've talked to attest that higher palay buying prices have spurred growers to plant more and invest more to raise productivity. A legitimate fear is that if NFA rice imports arrive at the wrong time (as has happened too often before) and flood the market just when the next harvest comes, prices can then again tumble to levels too low for farmers to recover costs. This actually happened in 1995.

Meanwhile, financial speculation in commodities markets may well turn into yet another speculative bubble, no different from the real property and subprime bubbles that had prices come tumbling down just as fast as they rose beforehand.

Homework
As for the food-fuel issue, a forum of international experts convened last week in Manila by the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (Searca) concluded that the biofuel-food conflict was largely a false one, at least in Asia. The forum saw no real competition between the two because (1) it currently makes no economic sense to divert crops usable for both food and fuel to the latter use, and (2) initiatives to grow nonfood biofuel crops like jatropha are being done on previously idle lands and marginal lands unsuitable for food production anyway.

More lasting in effect, though, is the continuing growth in numbers of mouths to feed, rising incomes and thus food demands in growing economies, continued diversion of farmlands into nonfarm uses, and rising costs of energy and other farm inputs. The current price surge may indeed correct itself sooner or later, but probably not to the same old levels. So we still have a lot of homework to do nonetheless.

Comments are welcome at chabito@ateneo.edu