Rising raw material prices, in particular rising food prices, are now causing real hardship and what represents a cause for shoppers in developed economies to grumble is a matter nothing short of life and death for the millions less fortunate around the world. This note considers what many emerging countries are doing and why their actions, far from alleviating the problem, are actually making matters worse.

Lord Mark Malloch Brown is a junior minister in the current Labour administration. He has a reputation for being forthright and often puts his colleagues’ hackles up. He is also the former deputy secretary general at the United Nations and an acknowledged authority on global issues of critical concern. His recent comments regarding the growing food crisis are significant both because he has identified some of the root causes and because he has taken steps to raise the matter where some of his more craven colleagues dare not.

Lord Malloch Brown describes, somewhat unoriginally, the confluence of factors he sees as serving to cause food prices to rise as a “perfect storm”. These factors are: a series of poor harvests in Australia, the incremental demand for improved diet caused by the newly prosperous parts of China and India, coupled with the now wide-spread process of biofuel “flag planting” on land previously devoted to the production of food stuffs. We would add a few additional factors, on which more below.

Bang on cue, the United Nations secretary general Mr Ban Ki-moon has warned that, if allowed to escalate, permanently higher food prices could not only damage global growth but also, possibly, global security too.

Rightly, the secretary general has stuck to the UN’s remit by indicating that an environment that has seen wheat prices double and the price of rice explode higher could seriously put back the process of global poverty elimination. “If not handled properly, this crisis could result in a cascade of others (including the imposition of quotas and the banning of exports) and become a multi-dimensional problem affecting economic growth, social progress and even political security around the world”.

The biofuels debate is interesting from a number of angles. Firstly, it is not absolutely true to say that the commitment of land to the production of biofuels automatically reduces food production everywhere (although that hardly makes the European Union’s full-on encouragement of plant-derived fuel right).

Supporters of biofuels tend to use the Brazilian experience as justification for the dash to plant-derived fuel alternatives, not that that country’s success should detract from the fact that there are a lot of other places where land which would otherwise have been used to grow food for human consumption has now been given over to the production of biofuel to feed machinery!

The EU could, for example, call a halt to its pre-announced intention to derive 5.75% of petrol and diesel to be manufactured from plants, although we understand the EU’s difficulties given growing stresses in the oil market too.

The developed world has hardly covered itself in glory on this matter either. In particular legitimate questions might be asked of Western countries’ commitment to what has become known as the “Washington Consensus”. Part of the reason why a number of African countries are now back on the verge of starvation is that developed nations, through their International Monetary Fund (IMF) conduit, actively encouraged many African governments to cut farming subsidies and focus instead on producing cash crops for export and by so doing, open up their previously closed economies.

That the plan has backfired is made obvious by the fact that many countries are now struggling to grow sufficient to meet basic levels of domestic demand. Whilst the UN falls back on its World Food Programme to raise sufficient funds to feed starvation zones, what is really required is greater research and development, improved credit facilities and ultimately a “green revolution” similar to that which took place in parts of Asia, not that the Asian experience is without its own pressure right now.

From the point of view of global economics there has always been a gulf between the “haves” and the “have-nots”. Generally speaking, the larger a country is, the greater the likelihood that it will be richly endowed with natural resources. The fact that not even the largest countries are so well endowed in every scarce resource is reflected in the fact that imported inflationary pressure has become a global issue. Indeed, some of the world’s largest and most populous countries are those with the greatest dependency on imported raw materials.

Estimated top global countries by resource production

The chart shows resource wealth, calculated using the most recent production data for energy, basic resources and agricultural products using average prices achieved over the previous quarter. Against this is plotted a countries’ wealth on a per capita basis, to show that some countries are likely to benefit significantly more than others. On this basis, Saudi Arabia, Canada, Australia and Russia stand out. The second chart (below) compares the global share of a country’s estimated resource wealth against its share of global population.