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As Food Prices Soar, U.N. Calls for International Help

April 23, 2008 at 6:40 PM EDT
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The head of the U.N. Food and Agriculture Organization urged help Wednesday for countries affected by a global food crisis caused by sharp increases in the prices of rice and wheat. Experts discuss the causes and consequences of high food prices.
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JEFFREY BROWN: Around the world, the cost of food is going up, 83 percent in the last three years, and the rise in prices is threatening to plunge more than 100 million people deeper into poverty and hunger.

The U.N.’s World Food Programme says the problem is getting worse. Josette Sheeran heads the agency.

JOSETTE SHEERAN, Executive Director, U.N. World Food Programme: It’s what I call a silent tsunami. It’s not one storm hitting in one place. This is something that knows no borders and that is rolling through the world and really increasing the misery index of the world’s most vulnerable.

JEFFREY BROWN: The cost of staples last year rose significantly. Rice was up 16 percent; wheat rose by 77 percent.

This year, the spike is even more dramatic. Since January, rice prices have soared 141 percent; one variety of wheat went up 25 percent in a single day.

World Bank President Robert Zoellick.

ROBERT ZOELLICK, President, World Bank: It’s getting more and more difficult every day. In many developing countries, the poor spend up to 75 percent of their income on food. When prices of basic foods rise, it hits hard.

JEFFREY BROWN: Zoellick also warned that 33 nations are at risk of social unrest because of the rising cost of food.

Food riots have already occurred in several nations this month. At least seven people have died in violence in Haiti, where more than half the population lives on a dollar a day or less. The price of rice there has doubled since December.

Protesters also gathered outside a food market in the Ivory Coast.

PROTESTOR (through translator): Even what we are producing our self has become expensive. We cannot buy in the market. Everything becomes expensive. We don’t eat. We don’t eat.

JEFFREY BROWN: In Egypt, rioters burned a market and neighboring school. In Thailand, a country that exports 90 percent of the world’s rice, farmers now carry guns to protect their crop.

JOSETTE SHEERAN: There is a new face of hunger with people who were not in the urgent category just a few months ago joining the ranks of desperation.

JEFFREY BROWN: Among the numerous factors contributing to the problem are record oil prices that have driven up the cost of transporting food and increased demand and changing diets in emerging nations like China.

JOSETTE SHEERAN: China has almost doubled its consumption of meat, fish and dairy products since 1990. This takes a lot of grain off global markets since, for example, it takes seven pounds of grain to produce one pound of meat.

This increased demand in China reached a tipping point over the past few years, with China disappearing as one of the largest grain exporters in the world into an importer of grain virtually overnight.

JEFFREY BROWN: Another factor, particularly in the U.S. and the European Union, is the diversion of crops such as corn to produce ethanol and other biofuels.

In the meantime, the high prices also make it harder on aid agencies to help out.

NANCY ROMAN, U.N. World Food Programme: Food prices are going through the roof right now, which means that every day that passes we can buy less food than the day before.

JEFFREY BROWN: The U.N.’s World Food Programme was forced to tack an additional $755 million to this year’s budget of $2.9 billion to account for rising prices.

Food prices in this country are also on the rise, though the impact has been less dramatic. Today, there was news the top two warehouse stores, Sam’s Club and Costco, have begun limiting sales of certain types of rice.

Impact on small farmers, urban poor

Homi Kharas
Brookings Institution
Anybody who's a wage-earner and basically has the money to buy food is suddenly finding that they can no longer put two meals on the table for their family and they have to claw it back to one.

JEFFREY BROWN: And here with more on the causes and consequence of the high cost of food are Homi Kharas, senior fellow at the Wolfensohn Center for Development at the Brookings Institution. He's former chief economist for the East Asia region of the World Bank.

And Raymond Offenheiser, president of Oxfam America, an international relief and development organization.

Mr. Offenheiser, we usually think about a hunger crisis as coming from a particular event, crop failure or war. This sounds different.

RAYMOND OFFENHEISER, Oxfam America: Well, I think, as Josette Sheeran said in the set-up, I mean, that this is a confluence of a variety of different things happening all at once. We've had drought in Australia. We have the biofuels issue.

We have the sort of broader question of the impacts of oil price increases in the world market over the last few years and the impacts on input, costs of farmers, all occurring simultaneously and creating, to some degree, either the perfect storm, if you will, in terms of price increase.

So it's not the kind of cyclical phenomenon we've seen in the past. And so I think that's one of the reasons why there's a deeper concern.

JEFFREY BROWN: What jumps out at you, in terms of the causes that are making this affect so many different countries at the same time?

HOMI KHARAS, Wolfensohn Center for Development: Well, I think one thing that we see is that markets for some foods are very, very thin. And as prices started to go up, a lot of people said, "Well, we'd better buy now because prices might keep going up in the future."

So you've got a lot of panic buying. And the countries that were previously willing to sell stopped selling, and so that just reinforced the bubble in markets.

JEFFREY BROWN: And some governments are now limiting their exports to protect their own populations.

HOMI KHARAS: They are, which is possibly a good short-run effect for them, but it does prevent their farmers from taking advantage of these higher world prices and increasing production, which is what we really need in the long run.

JEFFREY BROWN: Who is being hit directly, which kinds of countries and which populations within those countries?

RAYMOND OFFENHEISER: I think the populations that are probably being most affected are populations in countries that are, you know, oil importers, fossil fuel importers, and also largely food-importing nations.

So Haiti, for example, imports 90 percent of its food. So you can imagine, if the food prices have gone up sort of three times over the last three years, that's going to be a country that's very, very affected.

The populations in those countries are going to be small farmers, landless laborers, urban slum-dwellers. Those are the kinds of families that are going to be most directly hit.

JEFFREY BROWN: And from the reports I've seen, it seems to be reaching into populations in these countries beyond the poorest, reaching into the middle class.

HOMI KHARAS: Absolutely. Anybody who's a wage-earner and basically has the money to buy food is suddenly finding that they can no longer put two meals on the table for their family and they have to claw it back to one.

JEFFREY BROWN: What can be done in the short term to alleviate the suffering for people feeling it right now?

HOMI KHARAS: Well, I think one of the vulnerable groups is children and children of poor families. And if one can get good school-feeding programs into the schools, it can do two things. It can keep the children in school and very often, in these kinds of circumstances, they tend to drop out because they have to help their families earn extra money.

So you want to try to keep the children in school. And at the same time, you can help get them the kind of nutrition that they need.

Aid agencies struggle to help

Raymond Offenheiser
Oxfam America
I think the entire humanitarian community is very concerned about the amount of money that's going to be available for food assistance over the coming year.

JEFFREY BROWN: Your agency does this kind of thing, very kind of thing. What can be done now?

RAYMOND OFFENHEISER: Well, I think the entire humanitarian community is very concerned about the amount of money that's going to be available for food assistance over the coming year.

And as Josette Sheeran has been saying, the World Food Programme is seeing a $750 million shortfall in its budget because it needs to meet food supply that they anticipated, but with increased prices, won't have enough money. AID is reporting that it may have a $260 million shortfall.

The good news, President Bush has allocated $200 million already, Gordon Brown $60 million, but we still need a lot more funding.

Here in the United States, I think another issue is our food aid program and the need to be able to buy food locally in markets to stimulate those markets, you know, increase investment in local agriculture, and perhaps break a little bit the pattern of buying within the United States and shipping overseas at very high costs.

We need to get more efficient and more direct support to farmers overseas.

JEFFREY BROWN: And as they said in our set-up piece, with the prices higher, that makes it, of course, more expensive for the aid agencies to buy food to ship wherever it has to be going.

RAYMOND OFFENHEISER: Precisely. That's why the cash for us would be better, because we can buy locally, buy more efficiently, and buy at a better price.

JEFFREY BROWN: Now, the longer term issues here seem far more complicated, because to the extent that some of this is structural or has a kind of longer term impact. Demand, for example, in China and India, that's not going away.

HOMI KHARAS: No, that's right. But demand in China and India has been increasing now for a decade or more. And globally, the system was able to cope with that demand, up until just a few years ago.

So I don't think that we can attribute this current crisis, this sharp spike in food prices, just to the demand factors. We have to deal with the demand factors, but this is really a short-run problem.

And when we change and give more money for food, it's really important to make sure that this is additional and incremental to the amounts of money that we're giving for other things in development.

JEFFREY BROWN: What do you mean?

HOMI KHARAS: Well, there will be some agencies, agencies such as the World Bank, for example, who have a fixed amount of money that they have been given to allocate.

To the extent that they shift money into providing more for, say, agricultural development and production, it means less money for other necessary things.

But at the end of the day, this is not a problem of a global food shortage. This is really a problem of distribution. This is a problem of people who don't have enough money to buy food.

So we have to look at it as something which, in the long term, both increases the supply of food and increases jobs and wages for people so that they can afford the food.

Long-term sustainability

JEFFREY BROWN: Is that the way you think about the longer term problem here?

RAYMOND OFFENHEISER: Absolutely. I mean, I think this is one of the really interesting things about this problem, is that we have enough food presently to meet the need, but people can't afford it, particularly those people that are in the bottom billion, living on two dollars a day on kind of a razor's edge and spending 70 percent to 80 percent of their income for food. They can't afford these increased prices.

So what's really important for us to be looking at is, once we get beyond the humanitarian relief aspect of this, is, are we investing in the agricultural sector?

One of the interesting things to observe is the investment in the agricultural sector by the World Bank and USAID and other major, international, bilateral agencies collapsed from 1980 to the present.

We've got to reinvigorate investment in agriculture and the agricultural sector in many of these countries in order to get a sustainable, long-term solution.

Competition from energy industry

Raymond Offenheiser
Oxfam America
[W]e've got our foot on the accelerator to produce more corn-based ethanol and to accelerate this sort of connection between food and fuel. It's something I think we may have to unpackage going forward.

JEFFREY BROWN: You know, we usually talk about markets and prices as adjusting, as the players adjust to what they see going on. Does that work when it comes to food, to farming, to food prices, to distribution problems you're talking about?

HOMI KHARAS: Oh, absolutely. I mean, we do see good production responses to price increases and demand responses.

But one of the things that has happened here is that the market for food has become connected with the market for energy, because you need -- most of the fertilizer is produced from natural gas. You need energy to transport and distribute food.

And so the shocks that we're now seeing and the pressures in the energy market are inevitably spilling over into pressures in the food markets.

And one of the things we may need to rethink is, how do we want to structure food? Do we want to link this market so closely to another very vulnerable market, which is energy? Or do we want to develop different forms of agriculture, which are less energy intensive?

JEFFREY BROWN: And we're just in the last minute here, but that's tied to the controversy over ethanol, the diversion of corn into a biofuel, rather than for food, which is a very ongoing debate in this country.

RAYMOND OFFENHEISER: Precisely. I mean, America produces, I think, 40 percent of the world's corn and we're diverting 30 percent of our production into corn-based ethanol currently.

And in our ag. bill, we're providing incentives for the increased building of new ethanol plants. And in our energy bill, we're actually setting targets for increased production of ethanol nationally.

In other words, we've got our foot on the accelerator to produce more corn-based ethanol and to accelerate this sort of connection between food and fuel. It's something I think we may have to unpackage going forward.

JEFFREY BROWN: All right, Raymond Offenheiser and Homi Kharas, thank you both very much.

HOMI KHARAS: Thank you.

RAYMOND OFFENHEISER: Thank you.