Fudging the food flux – ISN

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Arrests in Food Price Riots. St. Quentin, France ca 1910. (George Grantham collection, LoC)

Arrests in Food Price Riots. St. Quentin, France ca 1910. (George Grantham collection, LoC)

2008 brought see-saw food price fluctuations, where rises prompted riots, and now leave almost a billion people without enough to eat. The outlook for 2009 is uncertain, and governments appear unable to cope, Simon Rougheen writes for ISN Security Watch.

The early part of 2008 was marked by a series of riots and political upheavals in numerous countries, prompted by rising food prices around the world. Although poorer countries – where people spend a greater proportion of their income on food – felt the impact the hardest, demonstrations were held in middle-income Mexico, and in Italy, as people vented spleen at the cost of tortillas and pasta.

Over 40 countries saw some form of rancor due to rising costs: Government figures in Haiti fell, and demonstrations were held in Indonesia, Peru, Mauritania, Yemen, Burkina Faso, Bolivia and Uzbekistan. In Haiti and Egypt, riots turned deadly, with four and seven people killed, respectively, in both countries during April, while over 40 died in Cameroon’s February food unrest. Even as far back as August 2007, the quashed Saffron Revolution in Burma was sparked in the first instance by the junta’s overnight doubling of essential food and fuel prices.

The political fall-out continues. On 15 December, courts in Egypt convicted 22 people for participating in deadly food riots in April, handing out sentences ranging from three to five years, and illustrating that despotic regimes see the need to clamp down on protesters, fearing that such socio-economic instability could have political repercussions.

All in all, the Food and Agriculture Organization reported that that 963 million people did not get enough to eat in 2008. That represents 14 percent of the world’s population, and an increase of 40 million on the previous year – a jump deemed attributable to the higher food prices.

In humanitarian terms the price rise is hitting home hard. Two-thirds of the world’s undernourished live in just seven countries – India, China, the Democratic Republic of Congo, Bangladesh, Indonesia, Pakistan and Ethiopia – and while some countries in Southeast Asia, like Thailand and Vietnam, have made progress toward hunger-reduction goals, regions elsewhere have seen severe setbacks.

World Food Program (WFP) head Josette Sheeran took up the baton on behalf of the poor in during an interview with Reuters on 16 December:

“We need to send a bold signal of hope to the world with a human rescue package,” she said. “As we take care of Wall Street and Main Street, we can’t forget the places that have no streets.”

The WFP needs US$5.2 billion to feed the hungry urgently in places like Zimbabwe, the Horn of Africa, Sudan and Afghanistan. Without a rapid injection of funds, millions will run out of help by March 2009.

Sheeran is asking that even in these economically tumultuous times, 1 percent of financial rescue packages be set aside for food aid to avert potential crises such as that looming in North Korea, where about 4 out of are expected to need food aid in the coming year, even after a harvest that was better than usual. Officials from the FAO and WFP visited North Korea in October, leaving with the view that 9 million people were vulnerable to food shortages in the hermit state, where perhaps 2 million died during a 1990s famine hidden from the world until it was over.

‘Perfect storm’ abated?

Even still, the “perfect storm” of hunger across the developing world that was anticipated by the WFP earlier in 2008 has not yet materialized, but there are ample reasons to think that this food price turmoil has not abated; that is, despite the falling prices for some commodities in comparison with earlier in 2008. But these reduced prices are still high compared with previous levels. Seed and fertilizer prices are twice what they were in 2006, on the back of record oil prices, all fuelling a jump in foodstuff costs and curbing cereal production at growth of just 1 percent in the developing world during 2008.

Recent months, however, have seen prices fall, and in the case of corn and wheat, fall sharply. This savings has not, however, been passed on to the consumer, and amid the global financial uncertainty of recent months, it remains unclear when and how consumer prices will fall. The flipside, of course, is that given such market volatility, prices could shoot up again in the future.

Although oil and other commodities have fallen in price in recent months, this positive side-effect of the global financial turmoil is not itself without a caveat. Capital for investment in agriculture is very limited – worrying when one considers the view held by the International Food Policy Research Institute that the crisis in 2007–2008 stemmed from long-term neglect of agricultural investment, especially investment in research and development.

Superficial causes

And while the 2008 global financial crisis stems from superficial causes – other to the food price rise – such as flawed regulatory regimes in banking and finance, the two crises have fed on each other, so to speak, and they are becoming increasingly entangled, and not just with each other but with macro-level political and economic decision-making as well

Part of the uncertainty stems from the welter of potential causes behind the food price rise, and the difficulty in unraveling what factor caused what percentage of the price rise, and the relationship between the factors.

A couple of avoidable bogeymen stand out. Analysts from the OECD to the World Bank argue that biofuel demand is the biggest single reason why food prices have soared in the past couple of years, accounting for as much as 70 percent of the rise in maize prices and 40 percent of the rise in soybean prices. Higher energy prices have also made a difference as fertilizer and other input costs have risen.

These subsidies account for a type of market distortion that has fed into the price rises. The culprits are the rich, particularly the US and Western Europe. Ostensibly to reduce carbon emissions, governments in both places have introduced policies to encourage biofuels (corn-based ethanol in America and biodiesel in Europe). Thanks to these subsidies and regulations, demand for maize and vegetable oils (on which biodiesel is based) has exploded and these crops have displaced others, such as wheat.

That cloud has its own silver lining, however, with the latest phase of 2G biofuels based on non-food crops such as jatropha, having the potential to provide some fuel alternative that does not undermine the food market. BP Oil and others are investing heavily in this research, though the long-term impact and potential as viable alternative energy source remains unclear.

Speculation has played a part in the price rise, but the precise impact is difficult to gauge in general and with regard to particular foodstuffs.

One interpretation holds that as the world markets have retracted in recent months, speculators have retreated into their bunkers, and that the recent food price drop reflects this – with speculative money being pulled from commodity markets, as Peter Timmer from the Center for Global Development told ISN Security Watch.

However, oil and other commodity prices, which fuelled the food price rise, have themselves plummeted, and this too is surely impacting on the price for basic foodstuffs.

Despite the obvious links with biofuel policies, western politicians have passed the buck on this whole issue, pointing to rising affluence in emerging economies. Richer Indian and Chinese consumers are eating more meat than ever before – though a lot less than people do in the West – but the timing of this trend is not sudden enough to explain the price surges since 2006.

But emerging economies are not blameless either, and contribute more to the current problems than just by eating more meat.

In agriculture, governments restricted supply, aggravating the problems caused by demand in the rich world. Panicked by rising food prices in 2007, more than 30 governments introduced export restrictions for farm produce. This cut the supply of food on world markets, sending prices even higher. Rice was worst hit with only 4 percent of the global crop is traded, compared with 13 percent for maize and 19 percent for wheat. On news of bans in China, Vietnam, Cambodia, India and Egypt (which among them grew 40 percent of world rice exports in 2007), the price tripled within a few weeks.

In this panicked environment, futures prices for all food commodities shot up. At times investment funds may have exacerbated fears about scarcity. But for food, as for fuel, the main reason for the price rises of recent years has been unexpected demand growth, often compounded by government distortions.

The way out for many governments and people is narrowing. Administrations that subsidize food and fuel prices have been left in dire straits, with no fiscal or borrowing wiggle room left to rescue their most vulnerable people. Remittances – which at the global level account for three times as much money sent to developing countries as official aid – are falling, as are exports.

What can be said for sure is that – akin to the unseen bends yet to be negotiated at the bigger global financial level – nobody can be really certain where the food price and food availability crisis is leading to next, at the macro or local levels. For the one-sixth of humanity that does not have enough to eat, this does not augur well for 2009.

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