Soaring food prices: Problem or opportunity?

Benyamin Lakitan ,  Jakarta   |  Fri, 07/11/2008 10:12 AM  |  Opinion

Two major summits, the G8 Hokkaido Toyako Summit among developed countries and the D8 Kuala Lumpur Summit among developing countries, are both taking place on July 8, 2008. Indonesia is a member of the D8 together with Malaysia, Bangladesh, Pakistan, Iran, Turkey, Egypt and Nigeria.

Even though it was not one of the four main G8 summit themes, the issue of food security was substantially addressed under "Development and Africa".

Seven African countries were invited to join the Hokkaido summit. African countries are among those severely affected by soaring food prices. Most countries on that continent are net food importers.

For the D8 summit, four economic sectors were covered: energy, agriculture, trade and industry. Led by Malaysia and Indonesia, the D8 countries agreed to embark on joint ventures to boost food production as they endorsed a 10-year blueprint to expand trade cooperation.

In a joint statement, the D8 summit warned the current global food shortages and skyrocketing prices pose a serious threat to socioeconomic stability. Joint ventures between companies in the D8 were encouraged to produce fertilizer and animal feed and to create a seed bank.

Food security issues receiving serious attention from developed countries are raising even greater concerns among developing countries, especially among net food importers. Food prices have increased significantly since 2006.

For example, the global price of rice during the first quarter of 2008 was 46 percent higher than during the same period in 2007.

The Food and Agriculture Organization (FAO) disclosed its findings during its High-Level Conference on World Food Security in Rome last month. The impact of food price increases can be either beneficial or detrimental for each country, depending on its position in the food chain, as net producer or net consumer. Net importer countries face serious problems, both economic and political.

In developing countries, urban communities in particular suffer more from soaring food prices since they are net consumers. Results of the FAO survey show, for each 10 percent hike in food prices, the average welfare of urban communities in developing countries decreased up to 3 percent, depending on the percentage of food expenditure as a portion of total income.

Anybody could make a rough estimate of the effects of a 50 percent food price increase on welfare in an urban community: a dip in welfare as high as 15 percent. Fortunately the effect of higher food prices on agricultural communities tells a different story.

For instance, farmers in rural Vietnam -- a net rice-exporting country -- have benefited from higher rice prices. Their welfare increases by about 1 percent for every 10 percent increase in the rice price.

Indonesia was expected to end this year with a rice surplus. We certainly hope this prediction will come true. In any case, we can be pretty sure Indonesia will be close to self-sufficient when it comes to rice. A surplus can give us the luxury of choosing whether to become a net exporter or net importer.

However, if Indonesia looks at higher food prices as an opportunity, then there is no other option but to push national food production beyond self-sufficiency levels. Indonesia has to become a food-exporting country.

A lot of work needs to be done. Some policies and regulations may need to be reviewed in order to make investment in food production more attractive.

The good news is that many companies, including some previously unengaged in agronomic activities, have started to show interest in food production.

For example, the abundant land available in Papua has been targeted by many corporations as a potential site for food production.

Some conventional agronomic approaches -- making fertilizer and seeds more available and affordable to farmers, increasing water availability by improving and efficiently managing established irrigation systems -- are still needed.

However, all these efforts need to be designed to work within current farming conditions. Let's not forget, farmers are the main actors in food production.

In short, any incentives that could motivate farmers to make extra efforts to increase food production should be seriously considered and need to be facilitated.

Despite the complex technical factors that affect efficient food production, what motivates farmers is actually very simple. They require financial incentives. They will contribute more if they believe their welfare will also be improved.

With full support from the farmers, Indonesia can ensure its status as a net food exporting country and wisely take advantage of the opportunity that high food prices present.

The writer is secretary of the State Ministry for Research and Technology and professor at Sriwijaya University. This is a personal opinion. He can be reached at blakitan@ristek.go.id

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