Food prices are set to rise and to continue to rise

Advances in agricultural productivity have minimised food price rises for the last couple of decades. However, this is all starting to change. The world price for wheat has tripled and the price for rice and maize has doubled since 2000 and there are no indications that this trend will reverse. In fact, economists are predicting larger and more frequent shocks to global food prices, with climate change and its devastating impacts on agriculture adding greatly to the uncertainty.

The NAB's latest Quarterly Agribusiness Survey claims drought-induced supply shortages, higher input/commodity prices and the high Australian dollar will impact on profitability and export sales. It is inevitable that these issues will continue to drive food prices up.

The World Bank Development Report 2008 warns that global food supplies are under pressure from expanding demand for food, feed and biofuels; the rising price of energy; and increasing land and water scarcity; as well as the effects of climate change. This, in turn, is contributing to uncertainty about future food prices.

Luckily, Australia and New Zealand are wealthy, developed, first-world countries and, although people will complain about higher prices and how they will affect low-income families, Australian and New Zealand families will, on the whole, be able to afford food and will not go hungry.

Currently, the world has more than enough food to feed everyone, yet 850 million are food insecure. (Food security is when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.) According to the World Bank Report, achieving food security requires adequate food availability, access and use. Agriculture plays a key role by providing:

• food availability globally;
• an important source of income to purchase food; and
• foods with high nutritional status.

However, the world population is estimated to top 9 billion by 2050 and the current situation of enough food (though unevenly distributed) will no longer hold true. A 'green revolution' aimed at virtually doubling world food production in the first half of this century will be needed according to the United Nations Food and Agriculture Organization, if this population is to have sufficient food.

This pressure for increased agricultural productivity will be competing with climate change concerns and impacts. Demand for biofuels will see former food-producing land reallocated to fuel production, global pressure will limit deforestation as a source of more agricultural land and global warming-induced weather changes will include droughts, floods and profoundly alter the agricultural output of many localities. These changes are going to make commodity price increases inevitable.

Global warming and sustainability will also impact directly on food manufacturers. Energy efficiency, water savings and reduced emissions are eventually going to be legislated and companies will have to comply. Improving process efficiency and adopting sustainable work practices frequently results in improved profitability for companies but it is unrealistic to believe that these improvements will not affect the prices consumers will pay for food.

As everyone passes through this time of extreme change, it is probably a good time to adopt a global outlook. All countries must deliver reforms such as cutting distorting subsidies and opening markets.

Companies picking up the challenges of making their businesses sustainable and helping achieve global food security will be the market leaders by the middle of the century. Research and the latest Australian Federal Election results indicate that consumers are vitally concerned about the environment and are willing to pay for mitigation of global warming.