The New York Times yesterday (and Paul Krugman earlier in the week) called on rich countries to "step up to the plate" in confronting the food crisis in developing countries -- in the short run by increasing their donations of food aid. and in the medium run by getting rid of economically inefficient, inequitable, and environmentally unsound subsidies for biofuels, especially corn-based ethanol.
While the sources of current crisis are many -- adverse weather in key producing areas, rising farm costs due to higher oil and fertilizer prices, speculation in financial markets, rising demand, especially for meat, in China, the diversion of crops from food to fuel, and low stocks -- not all of them are amenable to policy changes, at least in the near term.
Rising demand for food in China, India, and other rapidly growing developing countries is the result of reducing poverty and that, of course, is a good thing! Over the longer run, a big part of the answer is for donors and developing country governments to invest more in improving agricultural productivity, as recommended by World Bank President Zoellick in his speech at the Center last week. In terms of what can be done now, this post focuses on the food aid problem and the need to reform US policy. A future post will examine policies to promote biofuels in the United States and Europe.
Food prices are notoriously volatile but the chart shows the magnitude of the present problem, with prices for key grains surging over the past two years to levels not seen in a decade or more and with more recent increases that are off the charts. The human costs of rising prices can be seen in food riots and rising hunger and poverty around the world.
Farmers are responding by increasing their plantings of grains and a US recession should dampen price increases a bit over the next year or so, but immediate and generous action by donors is desperately needed. The World Food Program's call in February for $500 million in increased food aid funds has already been eclipsed by the accelerating price increases. The World Bank study released just this morning also summarizes other safety net and food delivery programs that governments are adopting and that it is supporting in various ways. Strikingly, however, neither the US Department for Agriculture nor the US Agency for International Development had anything on their homepages this morning about the food crisis or plans to increase US assistance.
Beyond the need for an immediate response, the crisis also underscores the need to reform the way the United States delivers food aid. US policy did not create the food crisis but it is making it harder to address. Food aid budgets everywhere are being stretched thin by the escalation in food prices. But US policy compounds the problem by requiring that food aid must be purchased and packaged in the United States and shipped mainly on US-flagged ships. Thus, a good chunk of the US food aid budget gets diverted to higher distribution and transportation costs, which are also going up as a result of oil price hikes and rising freight costs.
Moreover, if the US Congress does not change the farm bill currently being debated, it could make things far worse. Although the House and Senate versions are slightly different, both require that a certain portion of the food aid budget be reserved for longer-term development projects, meaning that less would be available to respond to emergencies. This provision was always problematic but in the current environment, it could be disastrous.