Tuesday, March 08, 2011

Food Prices, the Middle East and World Bank Warnings at the G20 Meeting

FT: To End the Food Crisis, the G20 Must Keep a Promise FT: Chronic Hunger to Affect 1 Billion People

With an additional 44 million people facing extreme hunger because of rising food prices in recent months, a total one-sixth of the world’s population is “chronically hungry” according to World Bank President, Robert Zoellick. In developing countries, rising food prices can be catastrophic because the world’s poorest spend a high percentage of their income on food. According to World Bank estimates, prices are up almost 30 percent in the last year, with sugar and wheat prices up 20 percent, and fats and oils up 22 percent. Moreover, prices on wheat, corn, and soybeans are at a 30-month record high.

In Middle Eastern countries, where the population spends nearly half of their income on food, high food prices in Egypt, Tunisia and now Libya have contributed to the political upheaval, according to Zoellick. In other parts of the Middle East, like Jordan and Algeria, protesters have focused demands specifically on reducing food prices. For those countries in the Middle East that are going through “something between transitions and revolutions,” high prices on food could influence future political developments. Chief Economist at the U.S. Department of Agriculture, Joseph Glauber, noted that high prices contribute to the political pressure because governments subsidize the cost of food to the detriment of providing other services.

As noted by participants at the G20 February Summit in Paris, inflationary pressures around the world are a growing threat for global economic stability. While not a serious factor in the Middle East where unemployment is high, in countries with relatively low unemployment, employees are likely to receive pay raises to cover higher food prices, increasing inflationary pressure.

Various factors and events have contributed to increases in food prices. Most importantly, with a fast-growing global population, supply has not been able to satisfy demand. Commentators have also focused on other specific reasons for high prices. First, droughts in Russia and Argentina, coupled with torrential rains in Australia and Canada, caused crops to fail last year. Second, unregulated speculators have contributed to higher prices. Third, dwindling food stockpiles are creating uncertainty and pushing up prices as governments are infusing food into markets to satisfy demand. Fourth, governments continue to issue export bans (reserving food for domestic use) that reduce supply in the global market. Fifth, governments, particularly the United States, have put in place policies that promote crop use for biofuels, thereby shrinking the food supply for consumption. Finally, crop production is not currently maximized in tropical Africa because of under-investment.

Solutions for reducing prices are as varied as the factors that have contributed to their growth. At the G20 Summit in Paris, Brazil’s finance minster opposed regulation for prices while France advocated for greater involvement, including greater transparency of countries’ stockpiles, restrictions on export bans, and greater regulation of speculators. Commentators have noted that the G20 must promote greater food production. In 2009, G20 members pledged $22 billion for a World Bank fund to promote food security, but member countries have contributed just $305 million of the promised amount. The next step will be to see whether G20 countries will be able to overcome domestic political pressures to aid global food production as promised.

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