Rising Food Prices Have Global Political Implications

The issue of rising food prices globally has come under increasing scrutiny lately and has political leaders concerned. The annual meetings of the World Bank and IMF gave prominence to the problem and newspapers and magazines are weighing in with their opinion on the potential short- and long-term implications of the dramatic spike in world food prices. Will this last? Are we finally facing a neo-Malthusian future or will we be able to find a feasible and politically palatable solution to this crisis?

The Economist has a new article on the potentially devastating impact that the rise in food prices. In an article called “The silent tsunami” the editors (who generally espouse a free-market oriented, classically liberal view of the relation between markets and the state) argue that what is needed to avert disaster are “radical solutions.”

PICTURES of hunger usually show passive eyes and swollen bellies. The harvest fails because of war or strife; the onset of crisis is sudden and localised. Its burden falls on those already at the margin.

Today’s pictures are different. “This is a silent tsunami,” says Josette Sheeran of the World Food Programme, a United Nations agency. A wave of food-price inflation is moving through the world, leaving riots and shaken governments in its wake. For the first time in 30 years, food protests are erupting in many places at once. Bangladesh is in turmoil (see article); even China is worried (see article). Elsewhere, the food crisis of 2008 will test the assertion of Amartya Sen, an Indian economist, that famines do not happen in democracies.

Famine traditionally means mass starvation. The measures of today’s crisis are misery and malnutrition. The middle classes in poor countries are giving up health care and cutting out meat so they can eat three meals a day. The middling poor, those on $2 a day, are pulling children from school and cutting back on vegetables so they can still afford rice. Those on $1 a day are cutting back on meat, vegetables and one or two meals, so they can afford one bowl. The desperate—those on 50 cents a day—face disaster.

Roughly a billion people live on $1 a day. If, on a conservative estimate, the cost of their food rises 20% (and in some places, it has risen a lot more), 100m people could be forced back to this level, the common measure of absolute poverty. In some countries, that would undo all the gains in poverty reduction they have made during the past decade of growth. Because food markets are in turmoil, civil strife is growing; and because trade and openness itself could be undermined, the food crisis of 2008 may become a challenge to globalisation.
After arguing that the first step in any proposed solution is for states to adequately fund the World Food Program, the editorial argues for a free-market solution to the underlying problems:

In general, governments ought to liberalise markets, not intervene in them further. Food is riddled with state intervention at every turn, from subsidies to millers for cheap bread to bribes for farmers to leave land fallow. The upshot of such quotas, subsidies and controls is to dump all the imbalances that in another business might be smoothed out through small adjustments onto the one unregulated part of the food chain: the international market.

For decades, this produced low world prices and disincentives to poor farmers. Now, the opposite is happening. As a result of yet another government distortion—this time subsidies to biofuels in the rich world—prices have gone through the roof. Governments have further exaggerated the problem by imposing export quotas and trade restrictions, raising prices again. In the past, the main argument for liberalising farming was that it would raise food prices and boost returns to farmers. Now that prices have massively overshot, the argument stands for the opposite reason: liberalisation would reduce prices, while leaving farmers with a decent living.

Here is a world hunger map from the UN Food Program. What do you think the various colors represent?

Poor Countries, Agriculture, and IMF Policies

There has been a rapid increase in food prices over the last couple of years, seen most dramatically in the recent 30% one-day rise in the price of rice worldwide.  This is putting tremendous pressure on the poor and is leading to instability in countries around the world.  There have been violent demonstrations–and equally violent government responses–to food rioting in Egypt and Haiti in the last couple of weeks.  They may be but a harbinger of the economic and political instability to come.  Here is a report from the BBC, in which an expert argues that IMF policies have contributed to the rise in food prices:

“Poor countries need to invest heavily in agriculture to feed their people.  There’s been a dearth of investment in agriculture in poor countries, mainly because of IMF and World Bank policies…”

Afghan Aid Money Spent on High Salaries

After class today I spoke with a student who is interested in working in the humanitarian field after graduation.  Given that I had acquired some experience working for humanitarian organizations before heading to graduate school, I was able to impart some words of wisdom.  While I enjoyed my time working for humanitarian NGOs, I did find that it was very easy to get frustrated and become cynical.  Here’s a story from the Associated Press that reminded me of some of the reasons that I stopped working for humanitarian organizations (I encourage you to read the whole report):

afghan_woman_usaid.jpg KABUL, Afghanistan – Too much money meant for Afghanistan aid is wasted, with a vast amount spent on foreign workers’ high salaries, security and living arrangements, according to a report from humanitarian groups published Tuesday.

The prospects for peace in Afghanistan are being undermined because Western countries are failing to deliver on aid promises — and because much of the aid money they do send is going to expatriate workers, according to the Agency Coordinating Body for Afghan Relief, an alliance of 94 international aid agencies.

Since 2001, the international community has pledged $25 billion in help but has delivered only $15 billion, the alliance said. Of that $15 billion, some 40 percent of it — or $6 billion — goes back to donor countries in corporate profits and consultant salaries, the report found.

“A vast amount of aid is absorbed by high salaries, living, security, transport and accommodation costs for expatriates working for consulting firms or contractors,” the report said. The costs are increasing with a recent deterioration in security, it said.

The cost of a full-time expatriate consultant working in Afghanistan is around $250,000, according to the group.

This is some 200 times the average annual salary of an Afghan civil servant, who is paid less than $1,000″ per year, the report said.

Amy Frumin, an international affairs fellow with the Council on Foreign Relations who spent a year in Afghanistan as an officer on a U.S. Agency for International Development reconstruction team, said blaming high expat salaries is unfair.

“You have to pay them good money to do that. They’re still having trouble finding people to fill these positions. It’s a dangerous place. Not many people are willing to risk their limbs,” she said.

How You can Directly Promote Entrepreneurship in the Developing World

Periodically, I will use student posts as the inspiration for posts of my own here. This post is inspired by an informative post by Matt and Russ on the NGO KIVA.org. KIVA allows you, from the comfort of your keyboard, to monetarily support entrepreneurship in the developing world through facilitating the supply of micro-credit loans to budding entrepreneurs. This allows these individuals to overcome the handicap of poorly developed credit markets in these countries. [You may want to ask yourself why credit markets in most parts of the developing world are poorly developed.] For as little as $25 US, you can help a budding entrepreneur get the funding s/he needs to attempt to build a sustainable living for themselves and their families. The principal is returned to the donors (or lenders, more appropriately) within a specified time period. We’ll look at micro-credit in both PLSC240 and PLSC250 later in the course. Here is former President Bill Clinton explaining the concept of KIVA to Fox News’ Greta van Susteren.