Saturday, March 29, 2008

The new face of hunger

As food shortages and skyrocketing prices are being reported around the world it is apparent that globilization, NAFTA and and other perverse trade policies have produced systems that are becoming increasingly disconnected from the needs of people everywhere. (GW)

The new global menace: food inflation

WASHINGTON — First it was shelter. Now food.

Still reeling from the U.S. housing collapse, global markets are confronting a dangerous new bubble: food inflation.

The price of the world's three main grains – rice, wheat and corn – have all more than doubled in the past year, affecting just about everything people eat, and fanning social unrest in some of the most unstable corners of the world.

Canadians might be forgiven for not noticing. The remarkable rise of the loonie has so far largely insulated them from the kind of rampant inflation that is hitting much of the rest of the world. Canadian prices were up 1.8 per cent in February compared with last year, less than half the U.S. inflation rate – a gap economists say is largely due to the strong dollar.

Numerous countries, including Argentina and Vietnam, have capped or taxed exports of key farm products in a bid to quell domestic inflation, running the risk of violating international trade rules. To ease growing shortages, the Philippine government has asked fast-food restaurants to serve less rice with meals to ease shortages.

In Egypt, the price of many basic foods has spiked as much as 50 per cent in a matter of months. In Asia, where rice is part of virtually every meal, prices are rising almost daily.

The United Nations World Food Programme warned this week it will have to ration food aid to cope with soaring grain prices unless it gets an emergency cash infusion of $500-million (U.S.) from donor countries.

“We are seeing a new face of hunger – people who suddenly can no longer afford the food they see on store shelves,” lamented Sheila Sisulu, deputy executive director of hunger solutions for the UNFP. “Prices have soared beyond their reach.”

And yesterday Chinese authorities announced they will pay farmers substantially more for rice and wheat as they try to boost output and cool surging inflation that threatens to spark unrest ahead of the Beijing Olympics.

“This could be the next bubble,” suggested William Cline, an agricultural economist and senior fellow at the Peterson Institute for International Economics in Washington.

The trick is sorting out how much of the recent inflationary burst is permanent, and how much is caused by speculators flocking to commodities to escape the turmoil in financial markets. “There's a lot of speculative money that has gone into commodities as a store of value in turbulent times,” Mr. Cline said.

There are also longer-term factors pushing food prices higher, including global warming, Asia's dramatic economic emergence, $100-a-barrel oil and the United States's love affair with ethanol.

“Markets do adapt over the longer term,” said Kimberly Elliott, a senior fellow at the Washington-based Center for Global Development.

“But in the short-run, we are going to continue to see some pretty serious effects in parts of the world.”

The era of cheap food may be over for a while. Food prices soared 40 per cent between 2006 and 2007, according to a key UN index, and the rate of inflation has accelerated this year. In a report this month, the United Nations predicted that food prices are likely to remain high for a decade.

The most lasting cause of higher food prices is certainly population growth. As countries such as China and India grow and prosper, they are consuming a greater share of the world's food. Prosperity affects how much people eat and what they eat.

This has pushed inventories such as rice and wheat to lows not seen in decades. World rice inventories currently stand at about 72 million metric tones, equal to about 17 per cent of what the world consumes annually and the lowest level since the 1970s. The U.S. Department of Agriculture has predicted that, this year, wheat inventories will hit their lowest point since 1946.

The Chinese, for example, are eating a lot more meat as they move from rural areas to cities. Ms. Elliott pointed out that it takes roughly eight pounds of grain to produce a single pound of meat.

Ms. Elliott warned that export controls aren't the answer to rising prices because they distort markets and may ultimately discourage production.

Experts also point to climate change as a reason for rising food prices. Rising temperatures are being blamed for longer and more frequent droughts, such as the ones now affecting grain production in Australia and Ukraine.

The spike in oil prices isn't helping.

Farmers consume large quantities of fertilizer, which in turn depends on now more expensive fossil fuel to produce. Likewise, in a global economy, food is shipped over ever-greater distances, compounding the impact on food prices when oil prices rise.

Even oil-rich Persian Gulf states, such as the United Arab Emirates, are experiencing rampant food inflation, and the resulting unrest. Last week, hundreds of construction workers demanding higher wages burned cars and ransacked buildings. Like most Arab states, the UAE's currency is pegged to the falling U.S. dollar, forcing consumers to pay more for the largely imported food they eat.

Another major culprit is the ethanol boom in the United States, Brazil and Europe. The diversion of crops, such as corn and soybeans, to produce biofuels has raised the price of all crops and diverted fields from food to fuel production.

This, in turn, has sparked growing tension between North and South over agricultural policies. During a visit to London this month, Egyptian Investment Minister Mahmoud Mohieldin complained that U.S. and Europe biofuel subsidies are hurting the world's poor.

“[The market] is out of order,” he told Dow Jones. “It sends the wrong message to the world, especially its poorer nations. It takes from the food of people to feed thirsty automobiles used by the relatively rich.”

Oddly, global consumers may get some relief from higher prices if Americans endure some economic pain as the U.S. economy slumps.

“We may quickly see a decline in [food] prices if we see a recession in the United States,” said Ms. Elliott of the Center for Global Development.



Farmers in Argentina called off their 16-day strike against higher taxes on grains exports yesterday, aiming to ease talks with the government, strike leaders said.

The national farm and ranch strike has all but paralyzed one of the leading world exporters of soybeans, beef and wheat. There were no reports of major violence. President Cristina Fernandez had angrily refused to roll back new export taxes, facing down angry farmers.

Thousands took to the streets this week to support the farmers.

Spreading shortages of beef, milk, cooking oil and other farm products on supermarket shelves only compounded public angst.

Asia-Pacific region

Biofuels are not only hurting poor consumers in Asia by driving up crop prices, they are also failing to help farmers who have not been able to adapt their production to cash in on the boom, a UN report said this week.

The UN report noted that the sector has the potential to lower oil prices as well as provide higher demand for farmers, but urged governments to "carefully consider the impact on the poor."

The report calls for a "revolution" in the agriculture sector, saying that it could lift 218 million people living across the Asia-Pacific region out of poverty.

Urging attention on the sector that employs 60 per cent of the region's workers, the report says that raising average agricultural labour productivity is needed.


Australia, once the second largest exporter of grain, would harvest about 25 million tonnes in a good year. But, because of the worst drought in a century, the 2006 crop yielded only 9.8 million tonnes.

Global wheat stocks are at their lowest levels since 1979, and the Australian drought is one of the reasons why.

But things are looking up as rainfall in grain-growing regions has replenished soil moisture after years of drought, improving prospects for this year's crop. "Rain in late April, May and June will be the key for production this year," said Luke Chandler, a senior commodities analyst in Sydney. Bloomberg and BBC


China said yesterday it will pay farmers more for rice and wheat, trying to raise output and cool surging inflation that threatens to fuel unrest ahead of the Beijing Olympics.

Beijing has frozen retail prices of rice, cooking oil and other goods in an effort to rein in food costs that jumped 23.3 per cent in February over the same month last year.

But analysts warn that holding down prices paid to farmers will discourage them from raising production and easing shortages blamed for the increases.


Egypt banned rice exports from April to October to ensure availability of the grain at affordable prices and as an alternative food to wheat products, the government-run news agency said, citing Trade and Industry Minister Rachid Mohamed Rachid.

"Consumption of rice went up because the price of pasta and bread soared," Mr. Rachid said to MENA. "We had to make sure there is enough rice available in the local market, so we halted exports." A global increase in grain prices pushed up food costs in Egypt, which imports about half of its wheat. Bread and grain prices jumped 27 per cent last month in Egypt, which imports about half of its wheat.


Higher rice prices have sparked protests in the Philippines.

President Gloria Macapagal Arroyo, worried about anything that could spark a revolt against her, is assuring the public rice won't run out or skyrocket in price during the traditionally lean months of July to September.

This week, she arranged the purchase of up to 1.4 million tonnes from Vietnam. She also has ordered a crackdown on price manipulation, hoarding and profiteering on subsidized rice and will hold a food summit April 4.

Things are so tight the Agriculture Secretary has asked people not to throw away leftover rice and urged fast-food restaurants to dole out less rice.


Russian consumer prices probably rose between 1 per cent and 1.2 per cent in March from the month before, driven by food costs, the Economy Ministry said.

"Accelerating inflation at the start of 2008 is principally due to food price growth," which was twice as high as in the first two months of last year, the ministry said in its monthly review posted on its website yesterday.

In a bid to rein in food prices, the government has cut dairy and vegetable oil import duties, sold grain from state reserves and added a grain export duty.

United States

The worst case of food inflation in nearly 20 years has more Americans giving up restaurant meals to eat at home.

Record-high energy, corn and wheat prices in the past year have led to sticker shock in the grocery aisles. At $1.32, the average price of a loaf of bread has increased 32 per cent since January, 2005. In the past year alone, the average price of a carton of eggs has increased almost 50 per cent.

Ground beef, milk, chicken, apples, tomatoes, lettuce, coffee and orange juice are among the staples that cost more these days, according to the federal Bureau of Labor Statistics.

Overall, food prices rose nearly 5 per cent in 2007, according to the U.S. Department of Agriculture, and a survey by the Food Marketing Institute showed the average number of weekly shopping trips falling below two per household for the first time. Food banks are seeing increases in their overall client loads.


A sharp rise in the price of rice has Vietnamese exporters and farmers stockpiling it in expectation of further price increases.

The U.S. Department of Agriculture forecasts global rice stocks for 2007-08 at 65 million tonnes, the lowest since 1983-84 and about one-half of the peak in 2000-01.

In Vietnam, a major rice exporter, the crop has been hit by a virus called tungro and infestations of the brown plant-hopper insect.

Farmers there say they are not benefiting from the higher prices.

"The rice price has gone up 50 per cent over the past three months but I'm not making any more money because I have to pay double for fertilizer, insecticides and labour costs," said one farmer in Ha Tay province, just outside Hanoi.


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