Food, Agriculture, and Biofuels

Soaring global food prices have led to a precarious situation in Asia, where government efforts to restrict rice exports are exacerbating shortages. CGD non-resident fellow Peter Timmer, a leading expert on agriculture and development who is advising Indonesia on its response to the crisis, warns in a Q&A that if currently high global prices are passed along to poor people in Asia, 10 million people or more could die prematurely. Q: In the past famines have been about local or regional shortages. Experts have told us that the problem is not a global lack of food per se but rather problems in distribution. Is this still true? A: It's not as true today as it was a decade or two ago because of the changing composition (and location) of increases in demand for food. There is still plenty of food for everyone, but only if everyone eats a grain and legume-based diet. If the diet includes large (and increasing) amounts of animal protein (not to mention bio-fuels for our SUVs), food demand is running ahead of global production. We have been drawing down grain stocks for the past seven years, and that is not sustainable. See Also: Trade Policy for a New Deal on Hunger by Nancy Birdsall and Arvind SubramanianQ: In your opinion, what's driving this crisis? A: It's important to start with the basic balance between food demand and food supply. Although the Green Revolution has run out of steam, and the rapid increases in food supply seen in the 1970s and 1980s are no longer in prospect, we have still seen respectable increases in food supply over the past decade--significantly larger than population growth. So the problem must largely lie on the demand side. Four basic drivers seem to be stimulating rapid growth in demand for food commodities: (1) rising living standards in China, India, and other rapidly growing developing countries, which lead to increased demand for livestock products and the feedstuffs to produce them; (2) stimulus from mandates for corn-based ethanol in the United States and the ripple effects beyond the corn economy; (3) the rapid depreciation of the U.S. dollar against the Euro and a number of other important currencies, which drives up the price of commodities priced in U.S. dollars; and (4) massive speculation from new financial players searching for better returns than in stocks or real estate, also stimulated by the declining dollar. It's very hard to attribute weights to each of these causes to the run-up in food prices. The weights vary by commodity and by what time period is being considered. For example, rice prices started to explode just two months ago, well over a year after wheat prices sky-rocketed and eight months after the sharp run-up in corn prices. Individual commodities still have their own dynamics. But clearly there are also fundamental underlying connections across all of these commodity markets, even in the relatively short run, and only financial market linkages can explain those connections. Q: How serious is the problem? Is there more hunger globally today than there was a few weeks ago when this broke as a major news story? A: This is the most serious problem facing the world food economy since 1973-74, when a million people in Sri Lanka and Bangladesh alone died prematurely as a result of a rice crisis. World Bank president Zoellick suggested last week that high food prices risked pushing 100 million people back below the poverty line, wiping out seven years of progress. In my view, the situation is actually much worse than that. Unless some way can be found to stop the explosive rise in food prices generally, and rice prices in particular, we will see sharply higher mortality. Most of these deaths will be in Asia because of the huge numbers of poor, hungry people there who are dependent on rice for their daily subsistence. This will not be mass starvation, with people dying in the streets, but it will be sharply higher infant and child mortality and weakened adults succumbing prematurely to infectious diseases. If current rice prices in world markets are actually transmitted into most Asian countries--and this is not yet a reality, but it becomes more likely every day the world price stays this high--then even conservative calculations suggest that upwards of 10 million people will die prematurely. A month ago I thought we would be able to avoid this happening, but now the world price is so high, and countries are so spooked, that even the big countries might not be able to keep their domestic prices low enough for poor people to afford the food they need. Q: Does domestic politics in Asia play into this? A: Absolutely! The trigger for the explosion in rice prices was the decision of the Indian government to impose an export ban in November 2007, taking the world's second largest exporter out of the market. That set off fears in the newly elected, populist government in Thailand that rice prices would get out of control there, so export controls were openly discussed-- Thailand is the world's largest rice exporter. Vietnam followed with export restrictions in January 2008. On the import side, the Philippines has been throwing fuel on the fire by insisting on huge tenders for rice from a world market that cannot provide it, thus driving up the price in this thin market. Last Thursday, the Philippines tendered for 500,000 metric tons of rice and received offers for only 316,000 metric tons at an average price of $1170, a price 30 percent higher than a week before. They have insisted they will do this again on May 5. Q: Is more food aid the answer? A: I understand the appeal of cranking up the food aid allocations to help poor people in the short run, but this is no real answer. My own sense is that the most urgent intervention right now would be to get India, China, Vietnam, Thailand, Indonesia, and the Philippines into one room and get them all to agree to open their markets to rice imports and exports, at least for the next six months. Once some sensible equilibrium is reached--perhaps around $500 per ton, where everyone can come out a winner--there would be time to sit down and discuss a sensible longer-term arrangement for rice trade. Continuing the current “beggar my neighbor” policies will be a catastrophe in both the short run and the long run. Obviously, after we get through the worst of the crisis, huge new investments are needed to raise agricultural productivity around the world. These investments were forthcoming after the world food crisis in 1973-74, and they are needed this time as well. But they take a long time to produce results. Q: You say that getting the major rice producers and consumers-- India, China, Vietnam, Thailand, Indonesia, and the Philippines--to agree to open their markets would relieve the price pressure. How do you see this happening? A: There are already several initiatives to get the Asian rice consumers and producers to talk about a cooperative solution. One from the Philippines is lead by their foreign minister and seems to involve greater trade cooperation, but it is undermined by their own refusal to lift their own high import duties on foreign rice. A second initiative comes from the International Rice Research Institute (IRRI) and focuses on quick production responses and longer run research initiatives. There has been no visible movement on either proposal. Q: What role do you see for the U.S., other rich countries, and the international institutions? A: There are two obvious things the rich countries can do: first, boost supply by funding food aid channels, including the World Food Program and others, with cash and commodities. Rice is now quite scarce physically in a number of distressed countries--a reversal of situations caused mostly by local crop failures or disasters. Second, end bio-fuel subsidies and mandates immediately. There is substantial disagreement over the role corn-based ethanol (in the U.S.) and vegetable oil-based bio-diesel (in Europe and some parts of Asia) in the recent price spikes--the "respectable" range is from 10 to 60 percent. But there is no way the rich countries can play a leadership role in bringing this crisis under control as long as they insist there is plenty of food for people, livestock, AND automobiles. There just isn't--and we've known that from the start of the U.S. bio-fuels program. Peter Timmer and other CGD experts on the global crisis are available for media interviews. Please contact Ben Edwards to set up an interview: (202) 416-0740; Bedwards@cgdev.org.