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Soaring Prices Trigger Food Security Concerns

Long-term solutions are needed to manage food supply and demand

MORE HUNGER With higher food prices, millions in Asia will continue to go hungry each night
Photo by AFP

We have not eaten meat in months,” says Mary Ann Rosales, a 33-year-old mother of two from Manila. Between rent, bills, and transportation costs, hardly anything is left of the P250 (about $6) her husband earns from construction work each day for food. To keep her two toddlers from getting hungry, she cooks a watery noodle soup and mixes it with the subsidized rice sold by the government—good enough for two meals a day.

Rosales is one of millions across the globe who is increasingly suffering from soaring food prices, which are estimated to have risen by 83% over the three years to April 2008. The Food and Agriculture Organization (FAO) says 37 countries currently face a food crisis.

The price of rice—a staple in Asia—more than doubled in the first quarter of the year. Wheat export prices rose more than 50% in 2007, while maize export prices had climbed to a 10-year high to reach $177 per ton by the end of the year. International prices for oilseeds have also reached an all-time high.

Governments are starting to feel the pinch. In Bangladesh, prices for a maund (37.3 kilograms) of rice in local markets in mid-March were rising to more than $17.70, fluctuating by more than a $1 per day in some areas, and up from $11.60 in December. In the Philippines, another rice-importing country, the government is scrambling to secure rice supplies so it can keep domestic prices low.

More important than these statistics, however, is how the poor are being affected by the soaring prices. In April, at least 15,000 garment workers in Bangladesh went on strike to clamor for higher wages, as low income earners are now reportedly eating only twice a day, and many have resorted to selling property to buy food. In Haiti, people have taken to eating patties made out of oil, sugar, and mud to quiet hunger pains. Food riots have been reported in several countries.

In the Asia and Pacific region, where about 600 million people live on $1 a day or less, the impact is particularly severe. According to the Asian Development Outlook (ADO) 2008, released in April by the Asian Development Bank (ADB), food accounts for 59% of the consumption basket in Bangladesh, 57% in India, 55% in the Philippines, 42% in Viet Nam, and 40% in the People’s Republic of China.

Development Agencies Alarmed

International Monetary Fund Chief Dominique Strauss-Kahn has warned that the situation “is driving 100 million poor people worldwide into even deeper poverty.” United Nations Secretary General Ban Ki-Moon has stated that the crisis could mean “7 lost years” in the fight against worldwide poverty.

In Asia, ADB President Haruhiko Kuroda has said that the sharp rise in food prices has disproportionately affected the poor, particularly in countries such as Bangladesh, Cambodia, and Lao People’s Democratic Republic, where half of consumer expenditures go to food. “Poverty reduction has been very rapid in many Asian economies but the current high food price inflation has really affected poor people in the region, particularly in low income countries,” he says.

The ADO says that spending on other essentials, such as education and health, may suffer as a result.

The World Bank has called on governments to fill the $756 million food gap identified by the UN World Food Programme.

“We are in the midst of the beginning of a humanitarian crisis right now because we are unable to provide the same assistance to the same number of people,” says Paul Risley, spokesman for Asia at the World Food Programme. “There will be continuing evidence of high malnutrition in developing countries, particularly here in Asia.”

The US has already ordered the release of $200 million in emergency aid, while France has pledged $100 million.

Price Pushers

A combination of factors, both natural and man-made, is behind the worsening food situation, which has been described by economist Jeffrey Sachs as “the worst crisis of its kind in more than 30 years.”

Global food stocks have hit their lowest levels in decades. FAO expects cereal stocks to fall to about 420 million tons this year, down 2% from the previous year to the lowest level since 1983. The United States Department of Agriculture projects stocks of wheat to fall to 242 million bushels this year, the lowest since 1946, the year after World War II ended. Wheat stocks have also been hit hard by the one of the worst droughts in Australia, the world's second largest wheat exporter behind the US. Additionally, rice stocks are expected to fall to their lowest levels since the mid-1970s.

While food supply is declining, demand is on the rise, pushed by the world’s increasing population and prosperity. For example, average income in the People’s Republic of China jumped by about seven times from 1985 to 2006, and subsequently per capita meat consumption increased from 20 kilograms (kg) in 1980 to 50 kg now. This has pushed up demand for grain feedstock, adding to the price pressures on commodities.

The increased use of crops and land for biofuel production has also been blamed, and economists fear this could have a greater impact in the years to come. The amount of maize used to produce ethanol in the US has climbed from about 15 million tons in 2000 to about 85 million tons today. According to an FAO report in February 2008, “The fast-growing demand for biofuels is expected to keep maize exportable supplies at exceptionally tight levels even with a record harvest.”

Exacerbating the basic supply and demand problem is the continued rise in oil prices. “High energy prices are pushing up fertilizer costs, irrigation charges, and transportation costs for marketing agricultural produce,” says the ADO. From January 2007 to April 2008, Brent crude oil futures climbed about 90%, hitting a record high of $115 per barrel on April 18.

Underinvestment in Agriculture

Underlying these factors is the long-term benign neglect of the agricultural and natural resources sector, says food security expert Mohiuddin Alamgir, former director for policy and planning at the International Fund for Agricultural Development.

“Underinvestment in agricultural infrastructure, poor maintenance of existing systems needed to produce quality agricultural inputs, and reduced support for research and technology have contributed to the current situation,” Alamgir says.

FAO Secretary General Jacques Diouf has said that in Africa, only 4% of agricultural land is irrigated, not due to water shortages but because of a lack of investment.

As a result, productivity has not kept pace with demand.

Immediate Response

Countries have responded to the crisis by limiting exports and distributing subsidized rice, but have not yet begun to implement longer-term solutions.

“The governments concerned have not carefully reflected on the short-, medium-, and longer-term options to deal with the unfolding food crisis,” explains Alamgir. “Instead, they have near panicked and responded with price controls, export caps, import liberalization, and government borrowing to finance food imports and energy supply.”

Alamgir says that, for now, “governments have to feed their people, at whatever cost.”

While these immediate actions may be necessary to limit the impact of the current crisis, they are not sustainable. ADB’s Kuroda has warned against using trade measures or price control measures to address this food price inflation issue. Increased subsidies are difficult to sustain in many resource-poor economies in the region, while importing food grains at high prices can put pressure on balance of payments position.

Though governments may be tempted to resist commodity price increases through administrative measures, these are likely to come with a high fiscal price tag, which may add to future inflation, according to ADB.

“Over time, such measures would have perverse impacts, merely prolonging the adjustment process that is required to bring inflation back to earth,” according to HSBC in The Food Price Scare, a report the bank released in April.

Instead, ADB says carefully targeted direct income support for the poor, within strict budgetary limits, might better alleviate stresses—and at a much lower cost

Sustained High Prices

NO MORE CHEAP FOOD Experts say the world will have to get used to higher food prices
Photo by AFP

“The good news is that with some rapid adjustments, the world will probably overcome the crisis without undue loss of life from hunger except in pockets of Africa,” says Alamgir. “The bad news is that the combination of factors cited will recur and the trend in food prices will be sustained, though the rate of increase may be moderated.”

So, beyond short-term crisis management, the world will have to get used to higher food prices and introduce medium- to long-term adjustment measures to address the demand and supply imbalance, he adds.

World leaders have already begun calling for agricultural reform in response to the crisis. World Trade Organization Pascal Lamy said in a recent BBC radio interview: “As far as development assistance is concerned, the focus has not been on agriculture in the last decade and has to become the main focus of the coming times.”

If everything is done in a coordinated manner, Alamgir says, in 10–15 years, the situation will be under control. Among other things, this requires that governments maintain adequate food security reserves to feed their people for at least 12 weeks in case of an emergency.

“This is the time to get our priorities right,” says Alamgir. Otherwise, the panic will ease and the issue will fade from the limelight, but the hunger will continue. •

- WITH REPORTING BY DANIEL TEN KATE