The World Bank President, Robert Zoellick, recently warned that global food prices peaked at a three-year high in July 2011. He cautioned the world polity that "persistently high food prices and low food stocks indicate that we're still in the danger zone, with the most vulnerable people, the least able to cope."
There are few governments, who would need a reminder of what happened in 2007 and the first half of 2008, when prices of staple foods escalated to an extent that gave rise to social unrest in several countries - Egypt, India, Indonesia, Bangladesh among several others. Interestingly, a May 2008 survey revealed that throughout the United States food banks and pantries were compelled to cut back free food distribution as 99 percent of respondents reported a rise of about 15 to 20 percent requesting food. While there were other factors at work, including high unemployment, rising rent/mortgage costs, and higher fuel costs, yet rising food prices were also a contributory factor behind the rising number of people requesting food.
A detailed analysis was carried out to determine the causes of the escalation in prices in 2007-08 and five factors were held responsible. Firstly, drought in the grain producing countries had reduced output with an expected impact on prices. This factor is not in evidence in 2011 as noted by Zoellick who revealed that global output of grains is projected to be 3 percent higher than the estimated output for last year. A 2008 World Bank study maintained that this factor played a marginal role in the food price rise.
Second, stocks were released onto the markets with the objective of keeping prices down and, in time these became too low to be used to manipulate prices which then led to skyrocketing prices. Today, stocks to use the ratio for maize is 13 percent, the lowest since the early 1970s. The World Bank notes that "coupled with the fact that the realisation of the forecast yields is itself contingent on benign weather conditions in major exporting countries, the low stock environment has created a situation in which even small shortfalls in yields can have amplified effects on process [prices]." A way to deal with this recurring problem would be to pull out food items from futures trading.
Third, rising oil prices in 2007-08 raised the costs of production for farmers world-wide, with its direct impact on fertiliser, food transportation as well as industrial agriculture costs. While oil prices today are quite high, yet they do not compare with the July 2008 peak.
Fourth, the rising use of bio-fuels contributed to a shortage of grain world-wide, whereby food was diverted for the production of fuels. There is an obvious economic argument for this diversion: the profit margin is higher for - producers especially given the incentives in the form of subsidies and tariffs on imports imposed by the US and the EU governments, designed to develop their bio-fuel industry. The 2008 World Bank study held bio-fuels accountable for 70 to 75 percent rise in food prices, while higher oil prices and a weak dollar explained 25-30 percent food price rise. Interestingly, the report also noted that Brazil's sugarcane-based ethanol has not raised sugar prices significantly. Its recommendation: the US and the EU must remove tariffs on ethanol imports, thereby allowing more efficient producers such as Brazil and other developing countries to produce ethanol profitably for export.
Finally, the subsidies given by the US and the EU to its farmers as well as the fact that international donor agencies treat food output as any product under international trade and compel debtor governments to reduce subsidies for fertilisers, tubewells, high variety seed and other farm requirements as a prerequisite for assistance are wrong, so argued former president Bill Clinton on 16th October 2008, in a speech on the United Nations World Food Day. He stated: "We need the World Bank, the IMF, all the big foundations and all the governments to admit that, for 30 years, we all blew it, including me when I was president. We were wrong to believe that food was like some other product in international trade, and we all have to go back to a more responsible and sustainable form of agriculture." True, indeed, for the world's first priority must be to feed the world's increasing population.
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