December 26, 2008

A 'Generated' Global Food Crisis

Factors for the 2008 Global Food Crisis

A number of immediate factors for the 2008 global food crisis include the following:
  • Droughts in major wheat-producing countries in 2005-06
  • Low grain reserves (we have less than 54 days worth, globally)
  • High oil prices
  • A doubling of per-capita meat consumption in some developing countries
  • Diversion of 5% of the world’s cereals to agrofuels.

The World Food Crisis: What’s Behind It and What We Can Do About It

This report outlines the root causes of the global food crisis and addresses problems, such as trade conditions, biofuel production, and financial speculation. Further, the report points out that many people participate in “riots” against the conditions of the global food system (Institute for Food and Development Policy). Senior development sources believe the report, completed in April, has not been published to avoid embarrassing President George Bush. "It would put the World Bank in a political hot-spot with the White House," said one yesterday.

Secret Report: Biofuel Caused Food Price Increases

The Guardian
Originally Reported on July 3, 2008

Biofuels have forced global food prices up by 75% -- far more than previously estimated -- according to a confidential World Bank report obtained by The Guardian. The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally-respected economist at global financial body.

The figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises. It will add to pressure on governments in Washington and across Europe, which have turned to plant-derived fuels to reduce emissions of greenhouse gases and reduce their dependence on imported oil.

Senior development sources believe the report, completed in April, has not been published to avoid embarrassing President George Bush.

"It would put the World Bank in a political hot-spot with the White House," said one yesterday.
The news comes at a critical point in the world's negotiations on biofuels policy. It will also put pressure on the British government, which is due to release its own report on the impact of biofuels, the Gallagher Report. The Guardian has previously reported that the British study will state that plant fuels have played a "significant" part in pushing up food prices to record levels. Although it was expected last week, the report has still not been released.

"Political leaders seem intent on suppressing and ignoring the strong evidence that biofuels are a major factor in recent food price rises," said Robert Bailey, policy adviser at Oxfam. "It is imperative that we have the full picture. While politicians concentrate on keeping industry lobbies happy, people in poor countries cannot afford enough to eat."
Rising food prices have pushed 100 million people worldwide below the poverty line, estimates the World Bank, and have sparked riots from Bangladesh to Egypt. Government ministers here have described higher food and fuel prices as "the first real economic crisis of globalisation."

President Bush has linked higher food prices to higher demand from India and China, but the leaked World Bank study disputes that:
"Rapid income growth in developing countries has not led to large increases in global grain consumption and was not a major factor responsible for the large price increases."
Even successive droughts in Australia, calculates the report, have had a marginal impact. Instead, it argues that the EU and US drive for biofuels has had by far the biggest impact on food supply and prices. Since April, all petrol and diesel in Britain has had to include 2.5% from biofuels. The EU has been considering raising that target to 10% by 2020, but is faced with mounting evidence that that will only push food prices higher.
"Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate," says the report.
The basket of food prices examined in the study rose by 140% between 2002 and this February. The report estimates that higher energy and fertiliser prices accounted for an increase of only 15%, while biofuels have been responsible for a 75% jump over that period.

It argues that production of biofuels has distorted food markets in three main ways.

  1. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel.
  2. Second, farmers have been encouraged to set land aside for biofuel production.

  3. Third, it has sparked financial speculation in grains, driving prices up higher.
Other reviews of the food crisis looked at it over a much longer period, or have not linked these three factors, and so arrived at smaller estimates of the impact from biofuels. But the report author, Don Mitchell, is a senior economist at the Bank and has done a detailed, month-by-month analysis of the surge in food prices, which allows much closer examination of the link between biofuels and food supply. The report points out biofuels derived from sugarcane, which Brazil specializes in, have not had such a dramatic impact.

Supporters of biofuels argue that they are a greener alternative to relying on oil and other fossil fuels, but even that claim has been disputed by some experts, who argue that it does not apply to US production of ethanol from plants.
"It is clear that some biofuels have huge impacts on food prices," said Dr David King, the government's former chief scientific adviser, last night. "All we are doing by supporting these is subsidising higher food prices, while doing nothing to tackle climate change."

Falling Prices in Perspective

Food and Agricultural Organization of the United Nations
November 2008

Prices for most agricultural commodities have dropped significantly and swiftly in recent months. World grain prices have fallen by over 50 percent from their record highs earlier this year. International prices for other important foodstuffs, such as vegetable oils, oilseeds or dairy products have also drifted downwards, even if they still remain above their longer term trend levels. Rice is still expensive but prices may follow the path for other foodstuffs as the new crop comes on stream, export restrictions are relaxed and demand shifts further to cheaper alternatives.

At first sight, this is good news for the global food system. But the gradual return to equilibrium in food markets should not be taken to assume that the world’s food problems have been fixed, neither in the short-run nor with a view to the longer-term challenges. Cereal stocks still need to be replenished and lower prices will again divert more supply from food to fuel.

With only 433 million tons in opening stocks, the cereal stocks-to-use ratio in 2008/09 is at its second lowest in three decades. To bring stocks back to their pre-crisis levels will require 40 percent of the production increase in 2008. Bioenergy has already absorbed 100 million tons of cereals in 2007/08. Falling feedstock prices, and new bio-ethanol production capacities arriving, could stimulate new demand and thus moderate an otherwise more drastic decline in prices.

The recent decline in prices should neither be taken to mean that the world’s problems of hunger and poverty have been solved. A casual glance at the most recent production statistics reveals that most of the production increase of the last two years arose in developed countries. The benefits of higher prices have not accrued to producers in many developing countries, for their supply response was small in 2007 and virtually zero in 2008.

The reasons are manifold. Higher prices of key agricultural inputs such as fertilizers, seeds and energy, made it more difficult for all farmers to step up production. But particularly hard hit were poor subsistence producers who have been confronted with higher input prices without producing a marketable surplus that would earn them higher revenues. At the same time, export taxes and restrictions meant that high international prices were not always and not fully transmitted to domestic markets, burdening even commercial farmers with higher costs and stagnant output prices.

The policy response to soaring food prices in developing countries was indeed wide-ranging. A FAO survey found that nearly 40 countries reduced grain import tariffs and more than 20 countries imposed export controls of some kind – either in the form of taxes or quantitative controls such as outright bans and quotas.

Even more worrisome is the notion that falling prices have little to do with recovering global supplies but instead are being driven downwards by slowing demand. This is being evidenced by the fact that almost all commodity prices are declining in unison alongside a deteriorating global economic outlook. The entrenchment of the global financial crisis could mean that the economic slump may even be faster and more severe than currently anticipated. To the extent prices do reflect an anticipated slow-down in economic growth that constricts demand, lower prices may even be associated with more poverty and hunger rather than less.

UN Documents on World Hunger
Root Causes of World Hunger

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