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The Seeds of Disaster

Author: Lee Hudson Teslik
April 21, 2008

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For consumers and businesses in the United States and Europe, bubbling inflation and rising oil prices bring varying degrees of hardship, producing a nuisance for some and raising solvency issues for others. Elsewhere in the world, these factors threaten more existential consequences. World Bank data show rising commodity prices have prompted a dramatic spike in global food prices, with the cost of staples like wheat and rice showing the greatest increases. Unrest has risen along with prices. Riots over food prices have broken out in North and South America, the Caribbean, Africa, the Middle East, and East Asia—an interactive chart from the Financial Times shows the global reach and magnitude of the crisis. Economist Jeffrey Sachs calls it the “worst crisis of its kind in more than thirty years” (NYT).

Supply problems only seem to be accelerating. Beyond the broad rise in commodity prices, which affects most global businesses, other factors compound food problems. A drought in Australia (Sydney Morning Herald) has taken a severe toll on grain harvests. Meanwhile, global production centers of wheat and rice, pinched by shortages at home, have moved to limit exports—disrupting supplies for neighbors and trading partners. Kazakhstan, a critical supplier of wheat to Central Asia, recently suspended exports (RFE/RL). Vietnam, the world’s second leading rice exporter, did the same (Xinhua), adding to demand pressures on nearby Thailand, the global rice export leader. Some experts fault an increased focus on biofuel production for chewing up much needed food supplies, though major biofuel producers like Brazil sharply counter these claims (AP). Meanwhile, the international agency designed to deal with food crises, the UN World Food Program, says it won’t be able to meet its commitments without emergency funding.

With such a perfect storm brewing, where does one even begin with a remedy? The Economist argues rich countries should take the food crisis as seriously as they take the global credit crunch, and ought to quickly provide the World Food Program $700 million or more. In addition, it says, the program’s mandate should be broadened to help it provide humanitarian aid in a way that doesn’t disrupt local markets—proposing that the program focus on distributing funding rather than food itself.

The World Bank and International Monetary Fund came up with a plan of their own in mid-April meetings in Washington. World Bank President Robert Zoellick called for a “new deal” on global food policy that would include cash injections, food-for-work programs, and assistance with plantings. The IMF, for its part, links its efforts to combat food shortages with its broader attempt to stave off a global economic slowdown.

In the United States, some policymakers are grappling with the role agricultural subsidies play distorting food markets. This, experts say, is the broader problem that must be turned to once immediate World Food Program funding shortages have been addressed. In a recent podcast interview with CFR.org, Daniel Gustafson, the director of the Washington office of the UN’s Food and Agriculture Organization, says the next U.S. president should incorporate liberalized agricultural policy into the United States’ broad development agenda. Concerns over agricultural subsidies in the United States and other countries have come sharply into focus during trade debates and seem likely to continue to percolate as Congress nears approval of a new farm bill. Analysts caution against underestimating the stakes. The World Bank projects food prices will remain at current levels or above through 2009. For the world’s poor, many of whom Gustafson says spend as much as 80 percent of their income on food, the clock is ticking.

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