Food Inflation Interviewer: Toby Thompson Interviewee: Séan Rickard September, 2008 TB: Séan Rickard, you are a Government advisor on food matters. The price increases in food recently have gone through the roof. What is the cause of that? SR: There are essentially two causes – one is underlying trend, and one is the vicissitudes of the weather. Let’s deal with the vicissitudes first. We have had a couple of years of bad harvests, which have lowered yields right across the world from Europe to Australia and that has meant that production has fallen. That always leads to some increase in prices, but what was coming up behind those changes in the weather was growing demand from Asia. China now, with its rising living standards is beginning to eat a much fuller diet that includes much more meat and meat takes about five times the area of land to produce as a vegetarian diet. So as China has increased its diet, and indeed the rest of Asia, so their demand for the output from the rest of the world has increased. Couple that with bad weather and suddenly you have agricultural prices rising 100 per cent or more and that of course has fed through eventually to the prices we pay in our supermarkets for our food. TB: But there is an increasing lobby, bio lobby, for bio fuels for instance – is that not having some sort of impact too? SR: Well essentially as the world’s population is becoming more affluent and indeed growing and demanding more food, we need more output from the land. But, at the same time, because of the rise in oil prices, governments have been interested in exploring the possibility to producing fuels from agricultural land – and indeed, we are increasingly looking at other industrial materials from the land. Every time we put funds into growing bio fuels, or indeed other industrial materials, we effectively take land out of agricultural production. It is calculated that last year bio fuels production in America took about 70 million tonnes out of the food market, and very roughly that was about the shortage of world production. TB: So have we got used to low food price? Have we got to think now in the future food prices won’t be so low again? SR: Yes, I think that we have had a generation really of relatively low food prices – in fact food prices have been falling relative to other prices in the economy. That has probably changed now; we are now entering an era of higher food prices. I am not suggesting that they are going to go on increasing every year, but households will see a step change in the cost of food over the next ten to fifteen years. TB: So what are the impacts for those involved in the supply of food – the food supply chain? SR: Well, I think what it really means is that we are going to have to redouble our efforts to try and increase production and control costs. Really we are in a funny period because during the 1990s in this part of the world, we thought the problem was oversupply of food, so we took almost every device we could to lower production here. We had something called set aside – we got farmers to set aside land, we encouraged organic farming with lower yields and essentially we said people should pay more for the better things in life, rather than buying junk food, etc. All that I suspect is about to change. Governments had a wake up call with this food inflation, they are going to now begin to focus on increasing productivity, we have already taken all our land back into production, no more set aside. We are going to see encouragement, not only of high output agriculture, you will see genetic modification now back on the table with people talking about the opportunities there and you will see supply chains focus a lot more on integration – they believe that by getting closer to farmers by beginning to cut out middle producers, processors, distributors by dealing directly with farmers they can take a lot of costs out of the supply chain. That will help to control the increases in prices and actually I think probably about ten years down the road or so, when we are embracing genetic modification, we will begin to then see perhaps falling food prices once again. TB Séan Rickard, thank you very much.