May 30 (Bloomberg) -- America’s breadbasket, on the heels of last year’s severe drought, abounds with predictions of record corn and soybean harvests. The juxtaposition of the hope for this growing season against the reality of last year should give us reason to consider the lessons learned in 2012.
With grain stocks low, farmers have responded to higher prices and planted more. Although rising commodity prices are often viewed only as harbingers of inflation, they also motivate farmers to produce more. “The cure for high prices,” as the commodities-market adage goes, “is high prices.”
In late March, the U.S. Agriculture Department predicted farmers would plant the most corn since 1936 -- about 97 million acres -- and 77 million acres with soybeans, although estimates may fall because of the slow pace of spring planting. All that acreage is predicted to deliver a record 14 billion bushels of corn and a near-record of more than 3 billion bushels of soybeans. The forecasts are predicated on a return to normal yields and moderate weather during the growing season.
We have been here before. Last year, from January through the first week of June, the price of the most important food crops fell 20 percent in anticipation of bountiful harvests. Then the rains stopped. By August, corn and soybean prices in the U.S. reached record highs in anticipation of what proved to be the smallest corn and soybean harvests in six and nine years, respectively.
Many consequences of last summer’s drought are still affecting agriculture and the economy.
Cattle ranchers responded to increases in feed prices by thinning herds. By the start of this year, the U.S. cattle herd was the smallest since 1952. Packers now have insufficient animals to process. As a result, feed lots and packing plants have been idled, some closed for good. The herd reduction kept beef prices low temporarily, but prices have now begun to rise. An Agriculture Department report shows that prices for poultry, other meats, eggs and dairy also have increased since September 2012, while food prices in other categories have been little changed.
Food prices aren’t the drought’s only impact. With corn in short supply, 20 of the country’s 211 ethanol plants halted production. Meanwhile, low water levels on the Mississippi River made shipping corn, soybeans and other commodities by barge more expensive in late 2012 as traffic was restricted to one lane in some areas, and barges couldn’t be loaded to capacity.
If we are going to ensure that the 9 billion people on the planet by 2050 have access to safe, affordable and nutritious food -- and that we can produce that food in an environmentally responsible way -- we should learn some important lessons from the drought of 2012. Here are four to consider.
First, free trade is essential and makes food more affordable. Despite the severity of last year’s drought, world food production contracted by only 1.4 percent from a year earlier. A dry Iowa alone doesn’t create a world shortage. We will produce the most food, the most efficiently, if farmers plant the crops best suited for their regional growing conditions, and if we trade the surpluses with one another. Food must be able to move from times and places of surplus to times and places of deficit.
The U.S. benefited from this last year. Historically the world’s largest net corn exporter, the U.S. will import even more corn during the 2012-2013 crop year than China, according to Agriculture Department forecasts. Imported corn prevented last year’s herd thinning from being more pronounced than it was. Drought-related food-price increases are being mitigated today partly because U.S. beef, pork and poultry producers used corn from Latin America to feed their animals.
In an increasingly interconnected world, export bans, trade-distorting tariffs and inconsistent import standards hinder the free flow of food, worsen local shortages and contribute to price increases. There are more than 1,300 tariff-rate quotas in agriculture and food products filed with the World Trade Organization, including more than 100 in the European Union on important foodstuffs such as animal protein, rice and dairy products. All of them harm consumers.
The second lesson is that markets are better than mandates at allocating food supplies. Commodity prices elevated by low supplies told farmers everywhere -- not just in the U.S. -- to plant more crops. But in times of tight supply, a mandated diversion of a crucial crop, such as corn, into biofuel production creates unintended consequences for food and feed affordability in poorer countries. I believe biofuels have a role to play, but we need policies to be more responsive to supply and demand.
A third lesson is that we must embrace technologies that help farmers to grow more from less. Food production must increase at least 70 percent, by some estimates, in the next four decades to meet population growth. Optimally we should achieve that increase without bringing sensitive lands into production, by reducing greenhouse-gas emissions, and by using less water and fewer chemicals. This is possible only if we gain society’s permission to use sound, proven science -- including genetically engineered crops -- to produce food.
But the most important lesson from the drought of 2012 is this: Our world can’t take food production for granted. Producing food will always be subject to all the uncertainties and unpredictability of the weather. We won’t have a food-secure world if we compound the inherent risks with poor policy.
(Greg Page is chairman and chief executive officer of Cargill Inc. The opinions expressed are his own.)
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