Tuesday, April 15, 2008

World Bank, IMF Show Concern over Rising Grain Prices

Source: Riots, instability spread as food prices skyrocket

Riots continue to break out all over the world as millions of people struggle to keep up with the soaring costs of food. World Bank President Robert Zoellick warned that the surging food costs could result in “seven lost years” in the worldwide fight against poverty. Zoellick pointed out that in only two months, the price of rice has risen by nearly 75% globally, with even steeper increases in some markets. The price of wheat has increased 120 percent in the last year. To put these numbers in perspective, a 2-kilogram bag of rice in Bangladesh now consumes half of the daily income of an average poor family and the price of a loaf of bread has nearly doubled in countries where the poor already spend nearly 75 percent of their income on food. Zoellick emphasized that “this is not just about meals forgone today or about increasing social unrest; this is about lost learning potential for children and adults in the future, stunted intellectual and physical growth.”
Managing Director of the IMF, Dominique Strauss-Kahn, also weighed in on the rising cost of food, stating that “if food prices go on as they are today then the consequences on the population in a large set of countries…will be terrible.” He went on to add that “disruptions may occur in the economic environment…so at the end of the day most governments, having done well during the last five or ten years, will see what they have done totally destroyed, and their legitimacy facing the population destroyed also.”
There are a number of theories as to why the price of basic food stocks are increasing. Critics of the ethanol industry argue that because ethanol comes from corn, the emphasis on replacing certain fuels with an ethanol-based fuel is creating a new, unsustainable demand for corn. Former President Clinton, campaigning for his wife in Pennsylvania, stated that “corn is the single most inefficient way to produce ethanol because it uses a lot of energy and because it drives up the price of food.” Some environmental groups reject this criticism, citing rising fuel costs as having the greatest impact on consumer food prices.
Other suggested explanations for the increase in food prices include rising global demand from countries such as India and China who are in the midst of a population boom as well as “climate shocks” which are damaging food supplies in parts of the world. Says Columbia University’s Sachs, “You add it all together: Demand is soaring, supply has been cut back, food has been diverted into the gas tank. It’s added up to a price explosion.”

Questions for Discussion
1. Is the US focus on the production of ethanol from corn (an arguably inefficient and resource intensive process) a significant contributing factor to increased food costs?
2. What duty do governments have to develop sustainable agricultural practices as a means for controlling worldwide food prices?

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