On March 9, 2008, New York Times has an article "A Global Need for Grain that Farms Can't Fill", which basically reflects the fundamental transition of the world economic landscape. It is a chain reaction:
1. Globalization embarked a global redistribution of capital and led to a period of rapid industrialization of the third world, particularly Asia countries like China and India.
2. Industrialization drives a huge wave of urbanization and reallocation of land use.
3. General economic development generates great demand, including all kinds of natural resources and food.
4. Former balance was disrupted by increasing demand and limited supply. Worldwide inflation is spiraling upward, driven particularly by the perceived bottleneck of energy insufficiency.
5. Energy cost and industrial byproducts, shrinking agricultural land and spiking global warming, are lifting food prices, which reinforce the overall inflation in the world.
6. Energy scarcity is transmitting from oil and coal to other new energy sources. With the oil overpassing $110, countries go to coal and use new coal technology, then the price of coal doubled. Others turn to nuclear, uranium prices jump. Automobile societies try to rely on hybrid, price of battery component lithium doubled. EU and US have realized that ethanol from corn or sugar cane was a bad idea that contributed to the wild inflation of food prices. Every alternative is causing strain of the next natural resource.
The truth is, with current development pattern, the earth cannot afford an all out Americanization. Without a recycling economic infrastructure, we are heading into a disaster.
Alan Greenspan was right in pointing out that the economic prosperity started with the end of the cold war and would end with global inflation. (Of course he hand-made the fuse for the bomb: the sub-prime credit meltdown.) But he didn't offer a solution. And yet, if his bubble theory is also correct, the commodity bubble is definitely making some people rich, but generally by killing everyone else in the economy.
Back to the topic. Rising food price and relative decline of food supply have spilled over the economic realm and run into security arena. There have been minor conflicts around the world on food and water, but so far, world food market is running OK to serve the need of billions. However, recent food safety issue is disturbing the market and has a potential to threat its healthy function.
Globalization not only globalized industrial goods, but also agricultural goods, including aqua products. World wheat supply is depending upon the production of a number of countries like America and Australia; rice, Southeast Asia; fish farming, China and Vietnam, etc. China is especially productive in terms of processed food due to its cheap labor and food price. Now if something happens to the major food base, food security is in danger. Similarly, if something happens to the major food processing base, food safety as well as security will be in danger. This is a typical unconventional threat to global security.
For instance, Japan imports 90% of its processed food from other countries like China. The dumpling incident is hurting Chinese producers on the one hand and Japanese consumers and retailers on the other. New safety scrutiny has significantly delayed food delivery to Japan and animosity between the two countries has prolonged the prosecution process and depleted Japanese food industries' inventory. Further protraction of the incident will not only damage bilateral relations but force Japan to search for alternative food sources, which in the short run will dramatically inflate the food prices and pressure its already weakened economy.
On the Chinese side, inflation has long been a national security issue. The runaway inflation in the late 1940s led to the demise of the KMT government on the mainland, and the late 1980s to the Tiananmen movement. (If we go back 2000 years, many more cases can reveal the destructive force of inflation.) Therefore, the government has to treat its seriously. Current inflation is mainly induced by mounting food price, meat in particular. Other than obvious reasons like disease and natural catastrophe, policy lag is the fundamental problem. Nationalized land ownership and Hukou system are major obstacles on optimizing land use and improving agriculture productivity. Without flexible land ownership, land resource allocation is out of the market control and extremely biased toward powerful interest groups. Also, currently arrangement makes rural entrepreneurship and micro-financing difficult. Hukou system not only creates huge urban problem by burdening the local government and letting industrial capitals profit from free ride on public expenses, but also dries out the rural labor poor by preventing a proper rural labor market. Moreover, rising cost for fertilizer and fuel are squeezing the margin of the farmers, diminishing the benefit of the cancellation of government taxes.
The ongoing food price inflation presents an opportunity for the government to execute some of the delayed reforms in the rural area. More liberalized, market-driven, efficient (maybe high-tech?) and environmentally friendly agriculture is needed to sustain China's development and to reduce the risk of food security.
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