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Soaring Global Food Prices Keep Consumers -- And Rulers -- Guessing

A worker chases chickens out of the storage room at a grain-storage facility in the village of Tsentralnaya, Ukraine.
A worker chases chickens out of the storage room at a grain-storage facility in the village of Tsentralnaya, Ukraine.
At first glance there would seem to be little that unites the revolution in Egypt, the struggle to combat drought in China, and campaign politics in Pakistan. Yet it turns out that all three of these stories have something in common: the spike in global food prices.

Food prices are shooting up to levels last seen back in 2008, when foodstuff inflation hit populations around the world. If present trends continue, though, some consumers might find themselves looking back on that earlier era with nostalgia.

Economist Joachim von Braun, director of the Center for Development Research in Bonn, Germany, says the world could be facing a new era of expensive food. "The best forecasting models for the long run, for the next few decades," von Braun says, "are that we may have to face 50 percent increases in grain prices by 2030 and further increases, up to doubling trend prices, by the middle of the century."

Protesters scramble for food and drink being distributed during mass demonstrations at Cairo's Tahrir Square in early February.
If current trends are any indication, these trends are likely to bring plenty of political instability in their wake. Experts note that rising food prices in countries like Egypt, where the average citizen spends some 40 percent of his or her annual income on food, have been a major factor in the political turmoil rocking the Middle East.

Perilous Effects

The World Bank recently warned that high food prices have driven 44 million people around the world into poverty since June. "There is no room for complacency," World Bank President Robert Zoellick told journalists. "Global food prices are now at dangerous levels and it is also clear that recent food-price rises are causing pain and suffering for poor people around the globe."

In today's world of interlinked markets, a problem in one place quickly ripples out to others. Croplands in Russia, one of the world's leading wheat producers, were devastated by fires during last summer's record-breaking heat wave. Wheat harvests in Ukraine, also plagued by torrid weather, dropped 15 percent last year.

Both countries responded by introducing export bans that have exacerbated global shortages of the commodity. Partly as a result, world wheat prices doubled between June 2010 and January 2011. According to the World Bank, wheat prices have risen in the past six months by 54 percent in Kyrgyzstan, 45 percent in Bangladesh, and 33 percent in Mongolia.

Harvesting wheat at the Alibi-Ishim farm, near the village of Birlik, in Kazakhstan (file photo)
As usual, it is the poorest of the poor -- those who spend the largest proportions of their day-to-day incomes on food -- who are hit the hardest. Governments around the world are struggling to channel subsidies to the disadvantaged. But policies rarely keep up. In Pakistan, for example, government-subsidized food, sold in so-called utility stores, usually sells out as soon as it arrives.

In the oil-rich Caucasus republic of Azerbaijan, high prices have been sending citizens across the border into neighboring Georgia, where they are buying up meat, potatoes, onions, and apples. Nadeem Ilahi, head of an International Monetary Fund (IMF) delegation visiting Baku this week, warned that Azerbaijanis should expect overall prices to rise 10 percent in the course of this year -- most of it due to the worldwide rise in the cost of food.

Forcing Rethinks

Longer-term trends are also part of the problem. Demand for food is skyrocketing as the middle class grows in countries like China and India. Yet the amount of land devoted to crops has remained unchanged, while efforts to promote agricultural productivity have failed to keep pace.

Even the growing demand for biofuels is a factor. A recent report by the Organization of Economic Cooperation and Development, a forum of the world's developed countries, recommends that governments cut back on subsidies aimed at raising corn, sugar, and beets as biofuels. The problem, says World Bank economist Hassan Zaman, is that rising prices for crops like these have knock-on effects.

"When it comes to other commodities these markets are very interlinked," Zaman says. "So the price of meat goes up as the price of animal feed increases, and that's affected by the price of corn."

Zaman also points out that export bans usually end up exacerbating shortages for all concerned -- even the countries that impose the bans to protect their own domestic markets. Countries that keep their wheat at home through export restrictions will still end up paying for the meat and other foodstuffs that they import.

The food crisis is having many unexpected side effects. The president of Indonesia has been using his speeches to urge citizens to grow chili peppers in their backyards. Iraq's government has shelved plans to buy new fighter planes for its air force, opting instead to use the money to boost its stocks of grain. In areas devastated by last year's flooding, Pakistani politicians have been handing out packets of seed along with campaign literature.

In the Persian Gulf, both Kuwait and Bahrain have promised their citizens generous subsidies to compensate for the rise in food prices -- though that doesn't seem to be stemming the political turbulence in the latter country.

Underlying Problems

Economists warn that a new influx of aid is needed to target people in places most at risk. The World Bank says that donors should focus on countries like Afghanistan, the Democratic Republic of Congo, Kyrgyzstan, and Mongolia.

A worker rests after unloading sacks of wheat for distribution to Kabul widows by the World Food Program in October 2010.
Yet the lingering aftereffects of the financial crisis are hampering aid efforts. In 2009 the G20, the summit of the world's biggest economies, created the Global Agriculture and Food Security Program, an ambitious attempt to help the world's most vulnerable populations. But so far the program has received only a fraction of the funds originally promised. The U.S. Congress is threatening to cut the Obama administration's request for $400 million for the program to just one-quarter of that amount.

Even if the most urgent needs are met, however, experts say that longer-term solutions are the only way to address the underlying problems. Countries need to invest in boosting agricultural productivity. Improved weather forecasting and better sharing of information on food stocks can also help.

There are some promising signs. So far prices for maize and rice, key staples in Africa and Asia, have remained relatively stable -- in part because this time around major exporters like Vietnam and Thailand have abstained from imposing export bans that sent rice prices soaring in 2008. Since then, notes economist von Braun, some countries have made much-needed efforts to boost investment in agriculture.

"Fortunately some lessons were learned," von Braun says. "Since 2008, especially China [and] India but also Brazil have massively expanded their investment in agriculture. And that will have positive effects in the coming years. But it's too early. Two crises in three years are just too much to cope with."

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