Don't expect low food prices soon

Dennis Morrison, Contributor

Last week, I reminded readers how dramatically our agricultural sector has slipped since the 1950s and early 1960s because we failed to reform and modernise production and the institutional structures in the sector.

Though I emphasised the crisis in export crops, primarily sugar and bananas, the reality is that from 1950, the growth of domestic food production was well behind the rate at which demand for food was increasing. The result was that food prices increased substantially, fuelling inflation and demand for cheap imported items from as early as those days.

Jamaican consumers, especially women, who shop for the household, can readily identify with this, having lived with the challenge of constantly rising food prices over a long period. Moreover, food still represents nearly 50 per cent of the expenditure of the average household and is the single largest item in the basket of items used to track inflation. With inflation being a critical influence on the stability of the exchange rate, a fact that should be well understood by now, it is not surprising that our underperformance in domestic agriculture continues to have such far-reaching economic effects.

Despite this knowledge, this area of our economy has not been subjected to the strategic planning process that is required if it is to be transformed. As Owen Jefferson stated in his seminal work on the Jamaican economy, agricultural policy has, since the middle of the 20th century, been mainly about "the provision of subsidies and other budgetary aids to small farmers". The fact of the uneconomic size of the bulk of our farm holdings that produce domestic food crops still remains, notwithstanding land-reform efforts over the years (land settlements, land lease and Spring Plains).

Fragmentation

Land settlements and the land-lease programme, which were aimed at redistributing arable land to small farmers, probably led to further fragmentation of cultivable areas. This is unlike the experiences of Taiwan and South Korea, where land reform that broadened access to economic size farm units, backed by major capital investment and modern marketing systems, boosted production and kept food prices stable. Stable food prices were a key factor supporting the rapid urban population growth that provided the competitively priced labour for the industrialisation of these countries.

Jamaica, on the other hand, experienced significant pressure on wage rates that contributed to wage-price spiral in the 1960s and 1970s as domestic food supply gyrated and demand increased. Indeed, Owen Jefferson pointed out that output of domestic food crops grew at only 2.1 per cent a year, over the 1950 to 1968 period, while demand was rising at double that rate. As mentioned earlier, when domestic agriculture failed to keep up with the combined growth of the population and per capita income up to the early 1970s, our dependence on cheap imported food increased.

But access to soft loans for imports of United States- and European-subsidised food did not correct the deficit between local production and demand. Together with inefficiencies in the distribution system, this imbalance often led to shortages of essential items even before the foreign exchange and other problems that brought about the confrontation over food supply in the late 1970s.

Rising inflation, induced in part by food prices, played an important part in the heightened industrial unrest in the 1970s and 1980s as workers sought to protect their purchasing power. The effects of the wage-price spiral were instability in industrial relations, negative reaction of investors, and ultimately, the damage done to the competitiveness of the local economy. This problem was aggravated in the 1990s when the premature liberalisation of the exchange rate set off massive devaluation that resulted in a sustained run of high inflation.

Temporary incentive

While the jump in the prices of imported food did slow down, demand for these items and simultaneously boosted local production, the incentive for domestic agriculture was temporary. The stabilisation of the Jamaican dollar in the mid-1990s and a decade-long period of modest price increases for imported items served to spur demand for these items and moderate local inflation rates. Not until the food price shocks of 2006-2008 were we again pushed to re-examine the role and prospects for local production in the long-term development of our economy.

I had warned before the shocks that the rapid growth of China's economy and the slowdown in the growth of its agricultural industries were likely to lead to it becoming more dependent on food imports to meet the demands triggered by the surge in the per capita income of its massive population.

The price shocks were partly a result of this, and there is every indication that we are not going to see a return to low food prices over the medium to long term. The solution to Jamaica's food deficit will, therefore, have to be based in part on transforming domestic agriculture in terms of the production system, human resources, distribution and marketing, financing, the application of modern technology, zoning and land distribution.

Wild fluctuations in the supply and prices of domestic food crops are inevitable given the present situation. Right now, without hurricane damage, the prices of a range of local food items sold at Coronation Market have climbed well beyond the levels at the corresponding period of last year when farmers were still recovering from hurricane damage in 2007 and 2008. Although drought conditions earlier in the year would have affected output, the impact is indicative of the fragility of the system, and confirms that it is not sustainable over the long term.

Dennis Morrison is an economist. Send feedback to columns@gleanerjm.com.