Food Security Deteriorating in the Nineties--Grain Prices More Volatile

FOR IMMEDIATE RELEASE
Thursday, March 6, 1997

Lester R. Brown, Worldwatch Institute President

When the grain harvest began in 1996, world carryover stocks had dropped to 246 million tons or 51 days of world consumption, the lowest level on record. The prospect of such low stocks made grain prices highly volatile. In the spring of 1996, wheat and corn prices both climbed to all-time highs, doubling the price of a year earlier.

In late summer of 1996, with the prospect of a bumper harvest, prices eased, falling back toward more normal levels. Yet, despite exceptionally favorable weather and a record 1996 harvest of 1.84 billion tons (see Figure 1), depleted carryover grain stocks were rebuilt in 1997 by only 4 day's worth of consumption. This 55 days of consumption was the second lowest on record, slightly less than in 1973, a year when grain prices doubled.

The inability to rebuild depleted stocks to a more secure level from the 1996 harvest has left the world living close to the edge at least through the 1997 harvest. To reduce price volatility and restore some semblance of stability to grain markets, the world needs carryover stocks of 70 days of consumption. At that level, the world market could absorb one moderately poor harvest without a runaway rise in grain prices. Below 60 days of carryover stocks, however, grain prices are highly volatile, driven by daily weather reports.

The combination of slower growth in production in recent years, along with a strong growth in demand, has led to a dramatic reduction of world grain stocks and commodity set-aside land since 1990. The experience of 1996 indicates that rebuilding stocks as we approach the new millennium will not be easy, certainly not something that we can automatically assume.

With the world consuming 5 million tons of grain every day, increasing carryover stocks from 55 to 70 days of consumption requires an additional 75 million tons of grain. Given the estimated world consumption of 1,820 million tons in 1997 and the 26 million additional tons of grain needed to cover annual population growth of over 80 million, rebuilding stocks to a more secure level of 70 days of use would require a harvest of 1,921 million tons in 1997. Given the loss of momentum on the production front thus far during the nineties, the odds do not favor such a rebuilding.

There are several reasons why rebuilding stocks is now so difficult. On the supply side, a combination of land scarcity, water scarcity, and the diminishing response to the use of additional fertilizer is making it difficult to sustain the rapid expansion in the world grain harvest that characterized the period from 1950 to 1990 when the world grain harvest nearly tripled.

On the demand side of the food equation, growth is robust. As noted above, the world continues to add more than 80 million people each year. In addition, the world economy, which is increasing rapidly in the mid nineties, is projected to grow by more than 4 percent in 1997. This, combined with the growth in population, is expanding the demand for grain at near record rates.

Now that the frontiers of agricultural settlement have disappeared, cropland is becoming scarce. Although there are still a few places in the world where new land is being added, most of it is marginal. Aside from the lack of fertile new land to bring under the plow, the loss of cropland to nonfarm uses is shrinking the cropland base in many countries. Every year, tens of thousands of new factories are now being built in Asia. Each one requires a warehouse and an access road. All consume land, often cropland.

Beyond this, the rapidly growing worldwide demand for vegetable oils for human consumption and for high-protein oilseed meals for use in livestock feeds is expanding the demand for oilseeds even faster than that for grain. One of the difficulties in raising production of oilseeds, such as soybeans, is that yields are not rising nearly as fast as they are for cereals. As a result, the land area in soybeans has expanded from 14 million hectares in 1950 to 64 million in 1996. Part of this 4.5-fold expansion in soybean area has come at the expense of grain.

Part of the record increase in the 1996 grain harvest came because farmers diverted land from soybeans and other oilseed crops to grain to take advantage of high grain prices. As a result, world oilseed carryover stocks in 1997 have fallen to one of the lowest levels on record. With strong oilseed prices in the spring of 1997, some of the land that was pulled into grain in 1996 will likely go back to soybeans and other oilseeds in 1997, further compounding the difficulty in rebuilding grain stocks.

The experience of 1997 indicates how difficult it now is to rebuild world grain stocks at current world population levels. Over most of the last half-century, this was a relatively simple matter of returning idled cropland to production. But unfortunately all of the land set aside under commodity supply management programs in the United States was in production in 1996, leaving only a modest amount of set-aside land in Europe.

Aside from the small area of idled cropland remaining, the only other cropland reserve is the 14 million hectares in the U.S. Conservation Reserve Program (CRP), much of it wheatland in the Great Plains states. Part of this land is so highly erodible that it should remain in grass--its only sustainable use over the long term. Perhaps half of this land, however, could be returned to production and farmed sustainably with the appropriate conservation measures. If half of the CRP land were returned to production, it would expand world grainland area by 1 percent.

Water scarcity is also emerging as a major constraint on efforts to expand world food production. Water tables are falling in the major food-producing regions, including the southern Great Plains of the United States, the Punjab of India, and much of central and northern China.

Aquifer depletion is already leading to irrigation cutbacks in the southern Great Plains. The resultant shrinkage in irrigated area in Texas, Oklahoma, Kansas, and Colorado is slowing growth in the grain harvest. For example, Texas--one of the largest U.S. agricultural states--has lost 14 percent of its irrigated area since 1980.

Depletion of aquifers in the north Indian state of Punjab is likely to shrink the area of land devoted to the double cropping of wheat and rice in the years ahead. In much of central or northern China, water tables are falling. Professor Chen Yiyu, vice president of the Chinese Academy of Sciences, reports that the water table in an area of north central China that contains 100 million people has fallen some 30- 35 meters over the last two or three decades. At some point in the future, when that aquifer is depleted, the rate of pumping will necessarily be reduced to the rate of recharge, leading to abrupt cutbacks in irrigation water supplies.

In scores of arid and semiarid regions of the world, cities are now pulling water away from farmers. In the spring of 1994, farmers in the agricultural regions surrounding Beijing were banned from reservoirs. All the water in the region is now needed to satisfy Beijing's soaring needs. In the southwestern United States, sunbelt cities like Denver, Phoenix, Tucson, Los Angeles, San Diego, and Las Vegas expand their water consumption at the expense of farmers.

The combination of aquifer depletion, the diversion of irrigation water to cities, and the abandonment of irrigated land damaged by salt accumulation may now offset the new land being brought under irrigation with new projects, such as those in Turkey and Viet Nam. At least one noted water expert, David Seckler, director of the International Irrigation Management Institute in Sri Lanka, went on record in the spring of 1996 saying that he thinks the world irrigated area may now be shrinking.

In many parts of the world, farmers are faced with a diminishing response of grain yield to the use of additional fertilizer. Once the use of fertilizer rises to the point where a wheat, rice, or corn plant is getting all the nutrients needed to realize its full genetic potential, the application of additional nutrients has no effect on yield. In many countries, including the United States, Japan, Russia, and those in Western Europe, fertilizer use has levelled off and, in some cases, even declined. U.S. farmers, for example, are using less fertilizer in the mid nineties than they did in the early eighties.

One consequence of little or no growth in irrigation worldwide and the diminishing response to the use of additional fertilizer in large areas of the world is a slower rise in land productivity. This has been particularly pronounced since 1990. After rising at 2.1 percent a year annually from 1950 to 1990, land productivity during the nineties appears to have dropped to roughly 1 percent a year.

As the growth in production slows, the growth in demand is accelerating. While public attention focuses on the role of population growth in boosting the demand for grain, rising affluence has become an even stronger source of additional demand for grain in some rapidly expanding economies. This is reflected in growing world consumption of meat. Growth in the world demand for meat expanded at 4 percent a year in 1994 and 1995, slowing to less than 2 percent in 1996. The rise in demand for meat, driven largely by rising affluence, is so strong that even the doubling of corn prices in 1996 was not sufficient to halt the growth in world consumption.

Much of the rise in affluence is occurring in Asia, led by China. Beginning in 1992, China's annual economic growth rates were 13 percent, 13 percent, 11 percent, 10 percent, and 9 percent, leading to a rise in incomes of two thirds in 5 years. Much of this additional income has gone to diversify diets, enabling China's 1.2 billion people to move up the food chain--eating more pork, poultry, eggs, and beef, and drinking more beer--all of which require grain.

Since 1990, most of the growth in grain use in China has been for feed to fuel the unprecedented growth in its livestock and poultry industry. Between 1990 and 1995, the use of grain expanded by 39 million tons, 31 million of it for feed. It is this enormous appetite for meat that has helped push the growth in demand beyond that of production, making China the world's second largest grain importer.

Other parts of Asia are undergoing similar changes. The economic growth rate for the region, defined as the area from Pakistan east to Japan, but excluding Japan, has averaged 8 percent a year for five successive years. With 3.1 billion people in the region--more than half the world total--such growth is enabling literally hundreds of millions of people to move up the food chain, consuming more livestock products. While attention has focused on China, broiler production in India is expanding at 15 percent a year. Egg consumption is climbing rapidly. So, too, is milk consumption. In Indonesia, the broiler industry is doubling in size every five years. Beef imports are rising in Taiwan, South Korea, the Philippines, and Indonesia.

Beer consumption is climbing throughout Asia as incomes rise. In China, which already has more than 800 breweries, beer consumption is rising at 7 percent a year. Most of the barley imported into China is used for brewing.

Historically, part of the growth in the demand for animal protein was satisfied by an expanding oceanic fish catch. But since the catch has not expanded since 1989, and is not expected to expand further in the future, all the additional growth in demand for animal protein must be satisfied from land-based sources. For the first time in history, the world's farmers can no longer count on its fishing fleets to help them expand the food supply.

Further complicating the effort to enhance food security is the dependence of the world on a single supplier, the United States, for half of all grain exports. Among the major grain producers--China, the European Union, India, and the United States- -the grain harvest in the latter is by far the most volatile. A weather-induced drop in the U.S. grain harvest of 70 million tons, or one fifth, is not uncommon. Indeed, in 1988, severe heat and drought reduced the U.S. grain harvest by 108 million tons below the average of the three preceding years.

With such climate instability in the country that supplies grain to more than 100 importing countries, the world is living dangerously. If carryover stocks of grain are not rebuilt, a weather-reduced harvest in the United States could pull carryover stocks even lower than in 1996 and grain prices could climb even higher.