By Steve Thomas Observer Nevis Editor
(Charlestown, Nevis) ” Shoppers were hard hit during 2008 by higher food prices, but a number of reports indicate that conditions will improve in 2009 while the Federation’s finance minister is claiming some success in the fight against inflation. Dr. the Hon. Timothy Harris is the Minister of Finance, International Trade, Industry, Commerce and Consumer Affairs for the Federation of St. Kitts and Nevis. Inflation has been cut to 4.5 percent this year compared to 8.5 percent in 2006, Dr. Harris said. “This is a significant reduction in prices recorded across a wide range of goods,” said Minister Harris, adding: “We stemmed the substantial increase on the price of food and nonfood items through the enactment of the Price Control Order No. 41 of 2007, and the Consumption Tax Order No. 11 of 2008.” The price control orders regulated the retail markup on selected food, pharmaceuticals, some baby products and regulated other items. Under the consumption tax order, the government waived consumption tax and duty on 12 common food staples. Although the government can take steps to help control the rising cost of food, there is a limit to what they can accomplish. Far more than taxation or price controls, the cost of food is determined by production levels, processing costs and shipping costs. Since the Federation does not produce enough food to feed itself, these other factors have far more to do with the prices on grocery shelves than government intervention. Although the Federation is taking steps to build a stronger agriculture sector, the country still lacks the production and processing facilities needed to ensure greater food security. But the fight against higher food prices will be get assistance from some of the same global pressures that helped drive them up. The Economist correspondent John Parker writes about these factors in “The World in 2009.” “In 2008, food-price rises sent tens of millions tumbling into direst poverty. Those same higher prices mean that, in 2009, farmers will grow bumper crops. Bigger harvests will, in turn, moderate the price rises, giving belated relief to hard-pressed consumers. But although prices will fall back somewhat, the upshot will be that, in many countries (not all), farmers will produce good crops at prices higher than they have been used to for 20 years. In the year ahead, markets in world farming will begin to move back towards equilibrium. “The process is under way. According to the United Nations Food and Agriculture Organisation, the world wheat harvest in 2008 may have been some 9% above the 2007 level; total grains (rice, maize and the like) were about 4% up. These increases were achieved even though farmers are risk-averse: it usually takes them a season or two to respond fully to higher prices. The supply response will speed up in 2009. The International Grains Council, a trade body, reckons the 2008-09 season will see rises of between 4% (for total grains) and 11% (for wheat). Barring unforeseeable droughts or floods, both the wheat and cereals harvests in 2009 will set records. “There are three reasons for these improvements. One is that countries are at last getting rid of the self-defeating anti-farmer policies that they imposed at the height of panic over rising food prices in early 2008. Thirty countries implemented measures like export restrictions (to increase domestic supplies) and food-price controls. These policies caused the worst of all worlds: they did little to reduce prices at home; they increased world prices (by 40%, in the case of rice); and local farmers were cut off from international markets. As supplies rise, countries will feel confident enough to get rid of these state-sponsored perversities. “Second, markets will do what they always do: encourage investment into areas where the returns are good. Farming is no exception. The share prices of farm-machinery makers outperformed the stock market’s (admittedly miserable) averages in 2007 and 2008. Agricultural land prices in Britain rose by their fastest recorded amount in 2008. It is true that this is not always a sign of good health: soaring land prices in America in the early 1980s bankrupted many farmers who borrowed too heavily to buy land. But this time, in combination with other indicators, they suggest rising confidence in the future of agriculture. “Most important, higher prices seem to have changed the attitudes of governments in developing countries. This matters because public investment in farming underpins rural productivity there. Public investment has been declining for years but the decline has been reversed in the biggest countries. Of course, it is one thing for governments to make promises, another to deliver on them. Still, after many years of suffering from neglected irrigation, bad rural roads, intermittent or non-existent electricity and so on, farmers in emerging markets can hardly fail to benefit from the renewed attention. “Over the past dozen years, world farm output has barely kept pace with increased demand. In the past three years, output actually fell short: the world was eating more food than it grew. In 2009 output will surge ahead again, relieving some of the pressure on developing countries that, in 2008, caused the first global outbreak of food riots for more than 30 years. But it will not provide much relief. The forces behind the increase in demand”a growing appetite for meat in fast-growing countries such as China and India; policies encouraging the production of fuel from crops, especially in America”have not abated. They will keep prices from falling back to anywhere near the levels of the early 2000s.” A report released this week by the World Bank, “Commodities at the Crossroads,” points toward a trend that will help consumers ” dropping prices for food and energy ” but does not indicate a return to the markedly lower prices of the 1990s or the early part of the this decade: “Recent sharp declines in oil and food prices mark the end of what has been the most historic commodity price boom of the past century. Like earlier booms, this one was driven by strong global economic growth and has come to an end with the abrupt slowdown in the global economy precipitated by the financial crisis. “The exceptional duration of this five-year commodity boom, the number of commodities involved, and the heights that prices reached reflect the resilience of developing country growth during this period. “Between early 2003 and mid-2008, oil prices climbed by 320 percent in dollar terms, and internationally traded food prices by 138 percent. But the prolonged boom is clearly over, even as the social and human consequences of historic high prices linger. Prices across the board have fallen, giving up much of their earlier gains, due to slower GDP growth, increased supplies, and revised expectations. “However, they still remain a lot higher than they were at the start of the boom and are expected to remain higher than during the 1990s over the next 20 years, owing to biofuel-driven demand for food grains. Oil prices are likely to average about $75 a barrel next year and, for the next five years, real food prices worldwide are expected to remain about 25 percent higher than they were in the 1990s.” So the good news is: The cost of food, both globally and locally, should stabilize, barring any major natural or man-made disasters. The bad news is: Food is unlikely to ever be as cheap as it used to be.
