The National Catholic Review
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The bad news about global food supplies keeps coming. The World Bank reports that 44 million people have been driven into poverty since last June because of increasing food costs. And within days of the release of one U.N. report warning that global food prices in January 2011 were at an all-time high, another U.N. alert projected that drought in China would have a severe impact on the nation’s next wheat harvest. Because China has been largely self-sufficient in grain production for decades, a shortage there would mean a surge of demand through the global wheat market.

The U.N. Food and Agriculture Organization’s Price Food Index, a monthly measure of commodity costs for basic household foods, was up 3.4 percent from December 2010, the seventh consecutive month of food price increases. Sugar prices are at a 30-year high. The F.A.O. price index now stands at its highest level since the agency started measuring food prices in 1990. Prices in fact are now higher than they were in 2007 and 2008, when escalating commodity prices triggered food riots around the world. Rising food prices were among the forces underlying the discontent in Egypt and Tunisia. Unrest in other nations will be a likely outcome of the 2011 harvest of high prices if stronger measures are not taken.

World Bank and F.A.O. analysts worry that the world could be facing a long stretch of commodity price volatility and rising food prices. That might not mean much in a nation like the United States, which can anticipate minor and mostly tolerable increases in food costs in the coming year. But in the developing world, where many subsist on $3 or less a day, the results can be life-threatening. Some nations are already experiencing price shocks on food staples like rice, wheat and sugar, commodities that are now 30 percent to 40 percent higher than they were just last year. Many of the world’s poorest people are already spending more than half their income on food. They will be forced to stretch household budgets even further by skipping meals, reducing portions or buying cheaper but less nutritious substitutes. During the last food crisis, the World Bank estimated that 870 million people in developing countries were hungry or malnourished. The F.A.O. estimates the current number to be closer to 925 million.

The rising prices reflect higher global demand and poor yields in breadbasket nations like the United States and Australia, where bad weather this year played havoc across normally reliable growing fields. But hoarding has also contributed to the problem as some nations attempt to ensure domestic supplies by sequestering reserves from the commodities markets. Such efforts have a boomerang effect, adding sudden demand spikes on tight supplies.

In the short term, greater food aid from wealthy nations will certainly be necessary to stave off hunger, and poor nations can respond to the crisis by lowering tariffs and other import barriers. Meanwhile, U.S. and European regulators should keep a tight rein on market speculators tempted to increase profits by artificially inflating already high commodity prices. Over the long term, however, the rush toward biofuel production—for example, the corn-consuming and generously subsidized ethanol in the United States—needs to be seriously re-evaluated. It does not do the world much good to stiff-arm one crisis, climate change, by generating another, food insecurity and impoverishment. It may seem obvious that the best long-term step away from this carousel of scarcity, demand and price spikes would be to increase overall global supplies of staples. Less obvious is how best to go about that without further intensifying the suffering of the world’s hungriest people.

The global commodities market is a modern marvel in matching agricultural output with demand, but it has had at times a devastating impact on local production of food. In recent decades many nations have shifted from food self-sufficiency based on subsistence farming to export crop production, which discourages domestic production of basic food crops and specializes on a handful of crops or even a single major crop. Such efforts can lead nations to become dangerously reliant on imports for foodstuffs that used to be produced locally.

Efforts like the Obama administration’s Feed the Future program, a foreign aid program designed to get at the root of food insecurity by increasing agricultural production and raising smallholder farmer incomes, are welcome. But what would do the most to revive self-sufficiency and extinguish hotspots of hunger would be a critical review of expensive U.S. and European agricultural subsidy programs that contribute to the disruption of local food production. That examination of market conscience may allow subsistence producers to stay on the farm, where they can earn their daily bread and, more important, produce it within their own communities.

Comments

Tom Maher | 2/26/2011 - 10:56am
Dear Mr. Mike Evans (#3),

Your fail to recognize the power and utility of markets and capital in the tial essnetial and very beneficiial role in helping society meet their needs for food.  

Markets play a crucial role in food production and distribution that no planning agency no matter how well intentioned, politically  powerful or well financed is a substitue for.

Governments schemes to legislate the price of food by fiat have hsitorically failed and failed very badly.  The Romans at one point in time tried to set the price of bread during a time of food scarcity but only discouraged food production.  Government price-setting or price control schemes never work because they ignore the fact that increase prodcution increases supply which then lowers prices.  High prices requires increase production not price control or price fixing by governments.   Makarks much more promptly and accurately and honestly determine the price of foods and respond to high prices. .

That world food prices are very high worldwide now is not do to price manipulation.  It is a fantasticlly unrealistic assumption to say that food prices are high worldwide due to speculators.  No private group is able to fix food price in all the thousands of commodity markets around the world. 

The market pricing is sending a true message in the worldwide food prices:  demand is greater than supply.  This message needs to be known and heard and not covered up.

High prices signal produces - farmer big and small - that more food must be produced - plant more acreage of crops it say the marekets need more.  Very faithfully the producers respond higher food prices and start to produce more.

Captial plays an important role when more food is need.  Captial allows produceers to expamd production beyond above previous levels.  If need be land can be cleared.  Captial allows for a vigorous immeadiate correction to any shortfalls in the supply of food that causes the prices of food to rise. 

Markets prices react very accurately to shortfalls in prodcution and/or increases in demand for food and thereby signal producers to increae the level of production beyond what they normally would.  No other mechanism has ever come close to the efficeincy and accuracy of the market pricing mechanism as a reliable signal for  market food needs. 
Mike Evans | 2/25/2011 - 6:28pm
Ethanol and other crop subsidies are definitely in need of an overhaul. But more importantly, we need to find a way to curb the unbridled speculation in commodity prices that circle ever higher on every crisis, crop and weather report. The results are a badly and wildly swinging market that destabilizes any agricultural planning for any country. Set a parity price, stick to it, and make up for shortfalls from the surpluses. Then we could build in long-term grain harvest and planting targets that truly reflect the need and not the greed. It would also allow for long-term contracts for purchase and shipment of commodities that do not have to yo-yo to the latest boom and collapse of a totally artificial market where speculators dominate.
1303326 | 2/25/2011 - 3:54pm
Hasn't AMERICA been a bit stronger in the past against food subsidies that have wreaked havok on food prices? Most of the subsidies, which seem largely unchanged since the Great Depression of the 1930s, go to large industrial combines, not to the small farmers which they were first meant to help. With all the talkabout cutting deficits, you'd expect that someone would have raised this issue. Why doesn't AMERICA?
C Walter Mattingly | 2/25/2011 - 12:15pm
A timely article. One area where terrible US government policy is hurting not only the US but more importantly the poor struggling to pay for grains worldwide is our disastrous subsidy for corn ethanol. The US has long been the preeminent supplier of corn, but now 40% of that foodsource has been snatched from the mouths of the poor worldwide and doled out to mostly wealthy midwestern farmers who don't need it in the form of subsidies. Not only is this a moral outrage for contributing greatly to the cost of this grain worldwide by so reducing the supply for consumption, but raising corn for ethanol does not even offer the purported benefit of reducing polluting gases, for the petroleum and fertilizer expended for this relatively inefficient source for ethanol about equals and perhaps exceeds the savings it is supposed to produce when compared to the gasoline it replaces. Al Gore, to his credit, now states that corn ethanol subsidies were a bad idea to begin with.
We have long subsidized tobacco used to poison our citizens and drive up health care costs and sugar to further our obesity epidemic. Now President Obama in his latest budget proposes extending this deficit-building, immoral subsidy for corn ethanol, taking it right out of the mouths of the poor for no benefit whatsoever to our atmosphere and further growth of our immense deficit.

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