A Question of Price

Malnutrition is an indicator of low purchasing power and unacceptably high prices, not a lack of resources. To avoid food crises, we must clearly understand their true causes.

The modern world has never lacked resources. Over the past 100 years, humans have faced a number of food crises, but those mainly stemmed from food reserve shortages. In the past, when the global food market was fragmented and barely functioning, local shortages could not be replenished with global reserves. But over the last century, the overall stockpile of food resources has always been enough to solve the food problems in certain areas of the world.

Sporadic reductions in food reserves have inevitably led to food crises, though they were never for lack of resources – there has always been more supply than demand. But lower stock leads to an increase in prices, so crises are primarily caused by the cost of food resources exceeding the purchasing power of consumers.

This trend has been consistent and it is unlikely to change in the near future, regardless of population growth, lack of acreage, or other factors. The use of technology is growing rapidly in all sectors of the economy – even in agriculture, despite its pronounced conservatism. Technology helps replenish resources; in spite of smaller cultivated areas and fewer production facilities, increases in the agricultural sector are due to better crop productivity and more livestock production, be it meat or milk.

Undeniably, a crisis brings the cost of food to astronomical levels, but also creates a strong incentive for technological development. Agriculture then receives a flow of investment, which increases the amount of food produced in the year immediately following a crisis. This has already happened more than once – in 2008, Russian agriculture demonstrated the potential of this sector as a whole. The food market crisis of the 2007-2008 season was a powerful incentive for technological modernization and resulted in a huge inflow of investment. In barely a year, Russia had made an enormous technological leap forward, and in 2009 was rewarded with the best grain yield of the post-Soviet era. It is worth noting that this was achieved even though Russia was working from a rather backward and weak baseline.

Technology is designed to reduce the cost of production. However, for the Russian agricultural sector, these are still largely pipe dreams; the country sorely lacks funding to deploy such technologies, yet they are the key factor to really improving productivity. If you move away from conventional moldboard plowing to minimal technology, then turning over layers of soil and re-plowing them becomes unnecessary and tilling may be reduced fourfold. This process would require fewer steps and less manpower. Thus, the increase in productivity would be almost inevitable.

However, this is quite a long and costly process, and such technologies might not recoup their costs until five years down the line. That is why production costs are skyrocketing, and they are growing faster than the cost of food. We are pursuing the traditional margin of safety and competiton in vain.

This is not a global trend, but mostly a Russian phenomenon. Labor productivity is growing all over the world. Many countries have moved to a tillage system, in which plant remains (mulch) are left in the field; essentially, the field humidifies the mulch by forming a layer that retains moisture and heat. Consequently, no soil treatment needs to be carried out. This technology is part of the concept of precision agriculture, but again, its implementation requires specialty seeding systems. Seed costs can be reduced, but the quality requirements for these seeds will become much more stringent. In addition, a seeding machine costs about €300,000 and that is certainly not even the final price; the ‘seeder’ needs a high-power tractor as well. To adopt this method, large amounts of machinery would need to be purchased, which would be a serious investment. As such, though Russia does not have the capacity to implement such technologies, the country’s agricultural sector can still be improved by learning from other countries’ experiences.

GMO as a Conscious Necessity

A case in point is Brazil, an interesting example for Russia and the rest of the world. Brazil made a huge number of strategic and tactical mistakes when trying to reach its agrarian potential. For example, Brazilians denied using GMOs for a long time, but were finally forced to acknowledge their rampant use. They then legalized the procedures, opened the market, and set up technological controls. As a result, they have dramatically increased their capacity and productivity.

Russia is following squarely in Brazil’s footsteps. We tell the world that our produce does not contain GMOs, even though GMO usage is widespread. As far back as five years ago, GMO crops already covered 400,000 hectares, and the current figure is hard to estimate since it continues to grow – especially with the reintegration of Crimea, which is full of GMO crops.

There needs to be a clear understanding that today’s ‘eat organic’ trend will never be universally accessible. It is only available to a premium subset of society, as organic products cannot, by definition, be grown cheaply. It is the same issue again – the stumbling block is purchasing power. Organic food is not accessible to the general consumer. People can shake their fists in righteous indignation all they want and insist that producers make all of their products organic, but it must be understood that food would become at least three times more expensive. And where would one find consumers able to buy all of that?

No country in the world has that capacity. Organic products account for about 1.5% of total sales in Russia (and could reach a maximum of 10%). In the richest countries in Europe, the share of organic produce does not exceed 15-20%, and it is not possible, even hypothetically, to raise that figure because purchasing power will always be a deal breaker. The lower the country’s purchasing power, the lower its market share of organic products.

Hence, GMOs are vital for countries like Russia, India, and many others. Those who have little knowledge in this field believe the existing myths. They think that GMOs lead to increased production volumes, while in fact they simply reduce the losses incurred by their traditional counterparts. Thanks to GMOs, the cost of production is reduced by at least 20%. That is, its use leads to lower prices, which correlates with purchasing power – especially in underdeveloped, ‘undernourished’ areas. This is why the American rhetoric that partially blames the countries that have banned the use of GMOs for the millions of undernourished people in Africa and Asia is actually far from groundless.

Export as a Driver

In 2013, Brazil reported that it had managed to reach its target indicator, set 18 years ago, of exporting $100 billion worth of agricultural products. The obvious question is: how big is the Brazilian agricultural sector if its exports alone are worth more than $100 billion?

The answer, provided by a Brazilian minister in response to a journalist’s question about the country’s new agricultural targets, was particularly emblematic. The Minister stressed that they had reached their target indicator, but their agrarian policy goals remained the same: farmers need to earn money. Export is merely a means to an end. That is how they set their goals. It may very well be that Brazilians export their best products – Brazilian coffee, for instance, is much more flavorful in Europe than it is ‘at home’ – but that is a means of promoting products in foreign markets. This does not mean that they do not want to sell products of the same quality in the domestic market; unfortunately, their purchasing power is so low that these products must be sent abroad.

In principle, there are no target indicators in Russia. Export is never the primary goal in any government program, and the entire body of domestic policies is aimed at limiting it rather than supporting it. This is a fundamental misconception, because export is the most powerful driver for development – by limiting our opportunities of entering the international market, we reduce our own potential.

Official partners

Logo nkibrics en Logo dm arct Logo fond gh Logo palata Logo palatarb Logo rc Logo mkr Logo mp Logo rdb