According to the annual joint report from the OECD and the UN Food and Agriculture Organisation, the cost of food is set to soar over the next decade.

Okay, soar is a bit extreme. The report says that wheat and coarse grain prices will rise by between 15 and 40 per cent over the next year. Vegetable oils are expected to jump by 40 per cent, and dairy products by between 15 and 45 per cent.

The report stated: “Investment to encourage the 1 billion people whose livelihoods rely on smallholder agriculture is vital. Not only will this increase yields but will go a long way to increase prosperity in poverty stricken regions,” said Barbara Crowther, Director of Communications at the Fairtrade Foundation.

“At the same time, the promise of increased agriculture commodity prices could spark a new surge in land grabbing by sovereign wealth funds and other powerful investors which risks marginalising further rural communities who must be included in solutions to secure and maintain food supplies.”

You don’t need to be an economic genius to work out why. The march of globalisation is leading to more demand for food. Bio-fuels are not helping. Meat is less efficient than vegetable crops, and as our diet becomes more meat intensive, the land available for our crops falls.

But it is too easy to say the trend will just carry on indefinitely. History is littered with occasions when some learned fellow predicted a food shortage, only to be proven wrong.

According to Matt Ridley, in his book ‘The Rational Optimist’: “In 2005 twice as much grain was produced from the same acreage as in 1968… If the average yields of 1961 had still prevailed in 1998, then to feed six billion people would have required the ploughing of 7.9 billion acres, instead of the 3.7 billion acres actually ploughed in 1998, an area the size of South America minus Chile.”

Ridley believes there is no problem with the world meeting demand for food, providing we carry on as we have been. He says that trade, greater specialisation and genetically modified crops, in combination can easily produce enough food to meet the world’s needs, even as the population grows. He says: “In Siberia and the Amazon perhaps 99 per cent of plant growth supports wildlife rather than people. In much of Africa and Central Asia, people reduce the productivity of land even as they appropriate a fifth of the production – an overgrazed scrubland supports fewer goats than it would support antelopes if it were wilderness. In Western Europe and Eastern Asia, people eat nearly half the plant production yet barely reduce the amount left over for other species – because they dramatically raise the productivity of the land with fertiliser: the grass meadow near my house sprinkled with nitrate twice a year, supports a large herd of milking cows, but it is also teeming with worms, leatherjackets, dung flies – and the blackbirds, jackdaws and swallows that eat them. This actually gives great cause for optimism, because it implies that intensifying agriculture throughout Africa and Central Asia could feed more people and still support other species too.”

For Ridley, the real dangers are the growing calls for self sufficiency, organic farming and the anti GM brigade. He argues that mass farming, which is promoted by trade, is better for the environment.

But setting that argument aside, let’s assume the UN/OECD report is right, and food inflation is set to rocket. What does that mean?

See: Deflation descends on the US

Click here for UN/OECD report

© Investment & Business News 2013