Rising costs wipe out gains at the farm gate
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14/04/2008
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Financial Times (London)
Could record food prices be their own cure, spurring farmers around the world to lift production? A recent fact-finding trip to Kenya by Josette Sheeran, director of the United Nations World Food Programme, provided little evidence to support this view. When, in a meeting with a group of farmers, Ms Sheeran asked for a show of hands on whether they were benefiting from the rising cost of agricultural commodities, not one among the two-dozen present reached up. "Definitely no benefit," Carl Tundo, the manager of Lesiolo Grains in Kenya, told Mrs Sheeran. "Input cost has risen ridiculously in the last six months - everything from fertiliser to seed and fuel is much more expensive." Even if the prices they achieved rose, higher production costs - particularly of fertilisers and diesel - often prevented farmers in the poor countries of sub-Saharan Africa and south-east Asia from profiting. In Pakistan, for example, the government has forecast a lower wheat crop this spring and summer, in spite of record prices. This was because farmers there halved their use of fertilisers after a price rise of almost 50 per cent in the past year. A lower use of fertiliser cuts wheat yields, eroding farming income. Nestor Osorio, executive director at the International Coffee Organisation, says rocketing oil prices are exerting a negative impact on the incomes of coffee farmers. "This could lead them to cut down on the use of fertilisers, with a consequent fall in productivity." That is bad news for world supplies of agricultural produce. Worse, farmers in poor countries might not increase their planting - and in some cases could even cut their acreage - in spite of the current record prices and strong demand. The situation is different in the rich countries of Europe and the US, where farm-gate prices are closer to those on the international market and, moreover, farmers enjoy generous government subsidies. The combination is pushing farmers to plant more in an effort to benefit as much as possible from surging demand. The US Department of Agriculture forecasts that US farmers will this year plant the highest acreage since 1984, although it is unclear if that expansion will translate into a bumper crop, because of the poor quality of some of the new land. Net farm income in the US is forecast this year to hit a record $92.3bn (