Where food and energy compete.

• Author: Zhu, Ling

Since 2007, global food and energy prices have been increasing steeply, hitting economies reliant on energy and food imports with great force like a "silent tsunami". (1) Rising food costs have led to social unrest in some 30 countries. Food and energy security is more closely connected with political stability than ever before. How to balance food security and energy needs is becoming a burning topic in the international community. (2) China, India and other Asian countries have responded promptly to the global food and energy crisis with a number of measures, including export bans, price intervention and subsidies. However, despite the short-term effect of reducing inflationary pressure by export and price intervention, very little seems to slow the momentum of rising prices. In fact, the intervention would probably distort subtle price adjustments and mislead resource allocations, which could in turn be the potential cause for a real crisis at a later stage.

Based on available statistics, this paper primarily studies the compensation between food and energy resources and its impact on consumption among China's low-income groups and the poor. In addition, it will focus on the public actions necessary for balancing food security and energy needs.

DRIVING FORCE IN THE FOOD-ENERGY COMPETITION

Increases and fluctuations in the price of energy are some of the factors driving up food prices and creating instability. This leads to higher costs of agricultural inputs such as farm machinery, irrigation, fertilizer and labour. At the same time, the more obvious competition between energy demand and food needs is the production of bioenergy from corn and rapeseed.

The International Grains Council reported an overall 32-per cent growth in 2007/08 in the use of cereals to produce biofuels of which 80 per cent occurred in the United States. World corn production amounted to 111 million tonnes, of which 95 million of the 100 million tonnes traded were used for biofuels. The International Food Policy Research Institute (IFPRI) estimated that the growing demand for ethanol was responsible for a 30 per cent rise in food prices during 2000/07. (3)

Furthermore, due to population growth, higher incomes, industrialization and urbanization, people shifted to high-value commodities, further pushing up food prices. Other causes of the price surge include unmet demand and lower food output due to insufficient investment in agricultural research and infrastructure and sluggish productivity. In the years 2000/07, total world food production fell short of global demand, leading to a fall in food stocks. In addition, climate change, scarcity of water resources, poor harvests in major food-producing countries such as Australia and a cut in food exports all added up to worsen and drag out the problem (Figure l). (4) In China, government intervention ensured lower domestic food prices even as international prices kept rising.

In addition, exceptional institutional factors and patterns in economic growth relevant to the food price issue are worth noting:

First, cultivable land is rapidly shrinking, and farmers only hold the usufruct right to land ownership, which has been practiced since 1978. (Usufruct refers to the legal right to use and derive profit or benefit from property that belongs to another person, as long as the property is not damaged.)

During the 30 years of rapid industrialization and urbanization, land development was inevitable. However, today, farmers in China have weak bargaining power if they seek to commercially develop their land. They encounter a coalition of local government and developers. Since farmers lack ownership rights to farmland, their usufruct rights are even more precarious.

Thus, scarce farmland without a true price tag results in institutional and widespread land abuse and wastage, with a consequent accelerating decline in the total area of cultivable land. In 2004, it transpired that 147,700 hectares of farmland had been cumulatively developed for commercial use. The figure for 2006 was 91,200 hectares.

Second, there are fewer agricultural labourers. The number of workers--mostly young and middle-aged--migrating from villages to cities and employed in non-agricultural jobs is estimated at 200 million. Limited farmland has been a strong constraint on rural settlement, and workers can earn more in non-agricultural jobs. In the 1980s, the average farm size was only 0.5 hectares. Today, more and more farmers are looking for city jobs as their land is put to commercial use through deals made between the government and developers. Another problem is that migrants cannot take their families to the cities because of the permanent residential registration system. The aged and women are left behind to take care of the household and the farm, and this creates a rural-urban polarization. At the same time, for migrants and their families, the limited farmland is their security, especially since social protection for rural people is fragile. Workers restricted in their knowledge and use of new technologies contribute to a further decline in productivity, which is evident by a fall in the cropping index, from 155 per cent in 1990 to 129 per cent in 2006. Even after taking into account statistical corrections on cultivable land in 1996, geographers discovered that the fall in the cropping index is evident in the middle and lower reaches of the Yangtze River and in south China, (5) which had been renowned for the highest grain yield per unit in the entire country.

Third, China is facing a water crisis. North China traditionally is drought stricken. The rapid expansion of industries and cities has only worsened the situation, which is evident from projects to redirect water from south China to the north. In addition, treatment of waste emission into heavily-polluted rivers in China, as well as into major lakes which are slowly deteriorating, is lagging. Studies show that it is highly likely that pollutants in water are absorbed in crops through irrigation, therefore threatening food security. In 2006, some 28 per cent of surface water was found to be of the poorest quality nationwide. (6) Various water contaminants have caused a shortage of drinking and irrigation water in south China, distorting its long history as a land of abundant water.

Fourth, agriculture is always boxed into an unfavourable position when competing for fiscal resources. Although the budget for agriculture has been growing in real terms, i.e. actual purchasing capacities after removing the effect of inflation, the share of total expenditure has fallen from 10 percent in 1999 to 6.5 per cent in 2006. (7) This shows a...