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March 31, 2010

Are we heading for another food crisis?

Long dry spells in parts of Africa and erratic rainfall in Asia have cast uncertain clouds over crop yields for 2010 in the world's poorest countries. Food prices in most developing countries are down from their 2008 crisis levels, but still higher than they were in 2007.

It would take "two consecutive bad years" for a repeat of the 2008 food and fuel crisis to arise, said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group on Grains at the UN Food and Agriculture Organization (FAO). Unlike the situation in 2008, global cereal stocks are at comfortable levels.

But there were "many factors at play" in food prices. "In fact, we're projecting prices to stay firm, even in the medium term (the next 10 years), although they may not exceed the highs witnessed in 2008," Abbassian commented.
It is still a matter of adequate supply to meet growing demand, and the supply of food cereals has been declining. The gradual reduction in subsidies and support for the world's biggest producers in the Organization for Economic Cooperation and Development (OECD) countries - the US and the European Union (EU) in particular - has meant smaller surpluses.

"On the other hand, population growth and economic prosperity fuel demand - as in Asia, especially in China and India - therefore, we are moving into a situation whereby supply expansion could decelerate, while demand will continue to grow - sometimes even faster than in the past," said Abbassian.

A paper by the OECD suggested that food prices would start rising again, "(albeit not to 2008 peaks) once economies come out of the recession, as the basic structural demand and supply-side determinants are still very much present ... [with] demand growing faster than supply. Food prices should therefore no longer be seen as a 'shock' or short-term 'crisis', but rather as a longer-term structural issue."

Some of the structural changes that brought about the 2008 food price crisis, such as diverting agricultural land from producing food cereals to grains for biofuel, had yet to be addressed, Abbassian said.

ActionAid, an international NGO, calculated in its new report, Meals per gallon: the impact of industrial biofuels on people and global hunger, that by 2020 biofuel consumption in the European Union (EU) would jump nearly four-fold, and that two-thirds would be imported, mainly from the developing world.

"Biofuels are conservatively estimated to have been responsible for at least 30 percent of the global food price spike in 2008," said ActionAid, which warned that a repeat of crisis could be in the offing, with the supply of food cereals likely to be compromised by a demand for biofuels in the EU.

"Up to 100 million more people could go hungry if Europe commits itself to a huge increase in biofuels consumption in order to meet new European Union legislation," said the report.

The legislation dates back to an agreement between the EU states in 2008 to meet 10 percent of their transport fuel needs from renewable sources, including biofuels, hydrogen and green electricity, by 2020.

In a scenario that takes into account a planned and predictable biofuel expansion in some countries, the US-based International Food Policy Research Institute (IFPRI), projected maize prices rising by more than 20 percent by 2020, and by more than 71 percent in a drastic expansion scenario.

C. Ford Runge and Benjamin Senauer, academics at the University of Minnesota, wrote in an article published in 2007 in Foreign Affairs, an American magazine, that if the prices of staple foods continued to increase as per the IFPRI projections, the number of food-insecure people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods.

ActionAid noted that "If all global biofuel targets are met, it is predicted that food prices could rise by up to an additional 76 percent by 2020." The NGO said it found that EU companies had already acquired, or were negotiating for, at least five million hectares in developing countries, which could threaten food supplies of some of the most vulnerable populations.

According to FAO, one in six people in the world are now hungry, with the 2008 crisis having pushed another 100 million into poverty and food insecurity.

There could be a solution. The global stock of cereals, which has relied on countries in the western hemisphere, has begun to look towards the Commonwealth of Independent States (CIS), a regional organization comprising the Russian Federation, Belarus, Ukraine, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, Uzbekistan and Georgia.

Abbassian pointed out that Russia has become the world's second largest exporter of wheat after the US. "Unfortunately, they [the CIS] are located in a part of the world which is extremely vulnerable to environmental shocks."

Weaker international prices for sugar, dairy and cereals have caused FAO's Food Price Index, released on 2 March, to register a decline: "The index is down 21 percent from its peak in June 2008, but up 22 percent from the corresponding period a year ago," said Abbassian.

There was always a chance that prices might spike "as a result of market imbalances but, overall, high prices will encourage more investment in agriculture, which in turn will help in closing the gap between supply and demand", he noted.

Liliana Balbi, a senior economist at the FAO Global Information and Early Warning System, said she thought speculation was contributing to price volatility. "The fact is, prices go up quickly but don't come down fast."

Nevertheless, Abbassian was optimistic. "Technological progress and changing diets will help in maintaining a stable global food situation, even though developments at country/local level may not always be as rosy!"

The percentage hike in food prices varies between countries, as do the causes. Balbi's unit identified 33 countries that were the world's most food insecure in its Crop Prospects and Food Situation report for February - the first in 2010. Many were going hungry because they could not afford food.

Most countries on the February list have been there before; new entries are rain-poor Niger, conflict-torn Yemen and earthquake-hit Haiti.

The ActionAid report found that "each 10 percent increase in the prices of cereals (including rice) adds nearly US$4.5 billion to the aggregate cereals import cost of those developing nations that are net importers."

In the next three parts of the series, IRIN will provide a snapshot view of food vulnerability in the 33 countries spread across Africa, Asia and the Caribbean.


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