By Pae Ki-pyo
This author regularly monitors prices of raw food materials traded in the international market.
Looking at the recent prices in major futures markets such as the Chicago Mercantile Exchange (CME), the price increase trend is being maintained while the cycle of fluctuation is becoming increasingly quicker.
According to the food price index announced by the World Bank in August, food prices recorded an all-time high increase of 6 percent compared to last year. The prices of corn and wheat each recorded extraordinary increases of 25 percent.
This is the so-called food crisis, an agflation in which increasing agricultural prices are causing global inflation. Goldman Sachs projected that this agflation from raw food material price increase will cause 0.2~0.4 percent level of inflation to our economy.
The UN Food and Agriculture Organization (FAO) estimated through its Agricultural Outlook 2012~2021that the trend of increase in international grain prices is likely to continue for the next 10 years until 2021. Leaders of 21 Asia-Pacific Economic Cooperation (APEC) nations recently discussed the issue of food security at the Vladivostok Summit, reflecting the seriousness of this global economic problem.
In particular, President Lee, Myung-bak emphasized in his leading speech that the nations must settle prohibition on restricting food exports by nations in order to prevent a recurrence of the food crises in 2008 and 2010. This is a positive signal that our government is actively trying to cope with the food security issue.
The causes of rapid increases in food prices and the food security issue include the worst drought in 60 years in over 90% of the Corn Belt in the United States, and a blow to production in major wheat farming nations including Russia and Ukraine, and an increase in production of the alternative energy source, bio-ethanol, which uses corn and tapioca as fuel. In addition, increase in the population as well as income of large countries like China and India, along with an inflow of international speculation capital, are adding to the problem.
If so, given the fact that self-sufficiency on grain in Korea is 27%, much less than the average rate of OECD nations at 110%, what should our nation do? Various methods can be suggested, but this column wishes to stress that it is most important to establish a paradigm and strategy allowing the government and citizens to recognize food as matter of importance equivalent to level of national security, just as they do about energy.
That is, Korea must acknowledge that food is a resource and construct a food security system. This requires the comprehensive establishment of short and long-term strategies to stably secure and develop methods of domestic and international resource supply. In the short term, protecting and increasing the food self-sufficiency rate must be implemented into law. Plans to improve food reserves and the self-sufficiency rate must be established based on a sufficient legal basis.
Moreover, specific agricultural policies for sustainable growth of domestic agriculture such as security of the agricultural budget, modernization of facilities, expansion of agricultural reinsurance, and support of distribution systems must be promoted. The author considers that it is best in principle to control food supplies within the nation.
The concept of food sovereignty proposed in 1996 by an international landless peasant movement organization called Via Campesina emphasizes local production of agricultural products. That is, agricultural laborers can only be expanded by securing the profitability of agriculture and increasing the farmland conversion rate. In the long term, assistance to overseas agricultural development must be expanded and reinforced.
Our government plans to secure 1.38 million hectares of overseas food production and 380,000 tons of food supply until 2018. As of 2011, 85 companies entered 20 nations to secure 42,000 hectares of food base and 171,000 tons of supply.
It is also necessary to cultivate the ability to secure food in the international food market. As the world’s fifth-largest food importing nation, efforts are required to establish major grain companies and to construct an overseas food distribution network, which can help the nation become somewhat liberated from the absolute influence of major global food companies that control global food supply and demand.
At the same time, the government must establish an information system for the systematic and quick collection of international information about raw food materials. We can respond flexibly to fluctuations in food prices through such efforts.
Our government applied the concept of the self-development rate used for crude oil to grain, planning to reach 55 percent by 2015. Right now, in September 2012, Korea must acknowledge the fact that it must inspect the national capacity to accomplish such goals and systematically establish strategies for food security.
The writer is CEO of Competition Consulting Company & U.S.CPA. Contact him at ceo@copetition.co.kr.