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Producing the World's Food: There is Much to Consider
Tuesday, December 9, 2008
It is morning in Singapore. It's 1993. It's my birthday and I'm about to board a flight to Dhaka, Bangladesh. As I looked across the horizon on that hot morning, I wondered what lay ahead. I'd never been to Asia. I really had no idea of what I was getting into.
I'm from a very rural place in a very big country. In fact most of the year, it's so cold, you have to wear a coat. I do many things. I write feature articles for several magazines. I write newspaper columns, have my own radio commentary and do a regular commodity analysis for a large Canadian agricultural organization. However, at my core, I'm defined by my day job. I'm a Canadian farmer who produces food for this world.
So I work with my hands. However, for the most part the world doesn't see that. That's because my friends both here in Canada and in Bangladesh rarely see me mix it up with machinery, soil, grease and grime. However, at the end of the day, I'm a producer for the global marketplace. As the food leaves my farm, its a commodity being traded in world markets, moved by ships on the high seas and prices determined somewhere over the rainbow. It is a very complex business. However, it all starts with a few seeds, a bit of sunshine and adequate rainfall.
As I looked out into Singapore harbour that 1993 morning I could see my soybeans produced on the other side of world entering the harbour. Ok, maybe not, but I had been told by my buyer they would be entering Singapore on about the same day I would be there. As metaphors go, this was a nice one. Asia is a hungry place and my soybeans were helping to feed it.
Moving on to Bangladesh that day changed me forever. As a Canadian farmer, I had only read about people hungry to eat. Seeing it up close changed me. After three trips to Bangladesh I am as used to it as I can be. So back on the other side of the world, in my own little way, I'm making an impact. When the sun comes up on my day on a Canadian farm, simple physics tells me it's setting in Bangladesh. I have a job to do, produce food for this hungry world.
However, it's one thing to say it and another to do it. For instance in Bangladesh rice is a staple and fish is eaten just about everywhere. I don't produce either. In fact in my society there are billion dollar industries set up to help Canadians lose weight. Food is so taken for granted in our society that people eat too much of it. The results of that is a society with an obesity problem. There are large agricultural surpluses, which have to be stored and eventually shipped out to markets wherever that may be.
That has been severely tested in 2008. I produce grain, which is traded at world commodity markets such as the Chicago Mercantile Exchange. It is traded in 5000-bushel lots. This is bought and sold which gives value to grain. Of course grain doesn't reside in one place, it needs to be moved whether that is from a Canadian field to a Japanese dinner table or a field in the Ukraine to hungry mouths in Egypt. It is a big business and it involves many hands. The lubrication for the global agricultural and food industry is credit and money. With global credit markets tightening in 2008, it has put a strain on the whole system.
Of course there are so many other factors. For instance the 911 attacks on the United States changed everything. Security especially in North America has trumped everything. When those planes hit the World Trade Centre North American security was shattered like never before. Before that, North Americans ignored the world's trouble because it never happened here. After 9/11 everything changed and the cost of moving food increased. Two wars ensued trying to get it right. Now in 2008 we've had a tightening credit market followed by global recession. Food demand is changing. World production is likely to decline.
Meanwhile the world still needs to eat. Next April, after all the snow melts I'll return to the fields. Others across the northern hemisphere will do the same thing. We'll be responding to market pressures partly created by farmers in the southern hemisphere who are planting right now. In fact there is food everywhere as I write. Some of it is being grown, some of it is being transported across oceans, and some of it is being consumed. However, there is more to it than visiting the local grocery store or outdoor market. There is a world market out there. Making it all work, can be a challenge.
Right price for a Farmer linking with the Global Market
A.K. Enamul Haque PhD
Farmers in Bangladesh are not like Phil or any Canadian Farmers. Our farmers produce to eat in most cases. This is because they realize that farm income is not large enough for them to support their families. As a result, the surpluses that they may have are sold.
Unlike Phil, who as a farmer is linked with a global market (through the Chicago Commodity Market), our farmers do not receive any early signal from a third party (in terms of what will be the price after three months, or like). As a result, they use their intuition, past experiences and local knowledge from wholesalers to know the price in the next harvest season. In most cases, they even do not have to know because unlike Phil, farmers in Bangladesh do not have to make a choice in terms of output. Phil, can produce soybeans, if the price of the soybean is not good, he can change his land use pattern in favor of corn or in favor of wheat. As an educated and well informed farmer he uses his knowledge and information to decide the crops and its acreage in his farm. On the contrary, our farmers are stuck with one or two crops rice or jute.
Our farmers can, theoretically, opt for vegetables, potato, fish or also grass but his problem is that he needs capital to do so and in this regard he is helpless. He lacks capital and education to make the switch. Previously, local wholesalers used to provide them capital or cash to produce a set crop but the rate of interest was very high and so it did not benefit them very much. Governments also came up with plans to finance our agriculture using the Agricultural Bank. Lately, microfinance institutions like Grameen Bank and also many NGOs have also helped our farmers to deal with agricultural finance. However, most of these are targeted to help the marginal and the poor farmers. We have, officially, been ignoring the role of large farmers to deal with agricultural production, like that of in Canada.
As the world economy has scaled up to a global level, it is important that farmers also think globally. Today a crop failure in Vietnam or Thailand will change rice prices in Bangladesh, a bird-flu out-break in Europe or China will change the demand for poultry in Bangladesh, and a melamine-contamination in powdered milk would change the demand for milk in Bangladesh and so on. Failure to think globally by our farmers and failure to link with a global market place is a major cause for the current state of our agriculture.
As of today, 19 percent of our national output is coming from agriculture, 70 percent of our labor force are dependent on agricultural production system. Consequently, to improve the income of the 70 percent of the people, product prices must reflect the true opportunity costs. Credit constraints, shortage of inputs or availability of inputs at the right time are major problems in our agriculture and as such it has become difficult for our farmers to receive the best income from farming. It has pushed the literate groups out of farming. Education is not considered an input in our farming practices.
The problem of our agriculture cannot be solved by the government or by NGOs whose primary focus have been and will be to help the poor and marginalized farmers. In this regard, large farmers, wholesalers, global brands, can make the change.
Forward contracts to local buyers have been an age-old practice in Bangladesh. In this system, local buyers purchase lichi or mango, for example, from the farmers before it is even produced. Lately, some large corporate buyers are doing it for rice, tomato, and also for other vegetables. The advantage with such forward contract is that farmers do not have to bear the risk of crop failure. However, they are also not always happy with it because they feel that the price that they receive is way below the market price. Here, a futures market will be helpful to diffuse the tension between farmers and the large buyers. Phil has explained this; he produces wheat, corn and soybeans. He does not feel that he was cheated in prices. In fact, it does not even occur to him because the Canadian agricultural market is linked with the global market and so his prices are linked with the global price.
In Bangladesh, our Tea market is linked globally via an auction market in Chittagong. As such we have not seen a blame game in this market. On the other hand, despite the fact the shrimp market is globally linked, our shrimp farmers often accuse the plants for manipulating the market prices. To me the benefits of linking with the global markets are less understood in Bangladesh and also in many other parts of the world.
East/West is a joint column written by A.K. Enamul Haque and Philip Shaw. Dr. A.K.Enamul Haque Ph.D, is a Professor of Economics at United International University. Philip Shaw M.Sc. is farmer, writer and broadcaster in Dresden, Ontario, Canada. Each month they will bring their uniquely East/West perspectives to specific topics of world interest.
