POVERTY: Five Causes of Rising Food Prices

February 16, 2011: Jacob Goldstein

  trimmer741/Flickr

Global wheat prices more than doubled in the second half of last year, according to a new report from the World Bank. The price of corn, sugar and cooking oil also soared.
Why are global food prices skyrocketing? Who is going to go hungry as a result? And what does it mean for the U.S.?
I recently put these questions to Abdolreza Abbassian, a food economist at the UN's Food and Agriculture Organization. Here's what he told me.



 FAO

Skyrocketing Prices
Abbassian attributed the price rise to several factors — some familiar to me (and probably to you), some less familiar.
1. The rise of biofuels, like ethanol made from corn. This market, driven largely by government subsidies, has created demand that is what economists call "price inelastic" — demand stays strong even as prices rise.
2. More demand from the developing world, particularly for meat. Livestock eat grain, so increasing demand for meat means increasing demand for grain. This source of demand has also been price inelastic, Abbassian said.
3. Disappearing stockpiles.
Because of WTO rules, the U.S. and Europe have been moving away from subsidies that led to vast reserves of wheat and corn.
Subsidies still exist in the U.S. and Europe, but they've taken a different form. Governments used to buy and stockpile surplus food from farmers. Now it's more common for governments to give farmers subsidy payments without actually buying any of the food they produce, Abbassian told me.
This sounds super wonky, but it has a huge impact on the price of food.
Big stockpiles mean that the supply of food remains relatively constant, even when there are disasters like the vast fires that destroyed last summer's Russian wheat crop.
But in the absence of stockpiles, unexpected shocks like those fires in Russia last summer have a huge impact on supply. That, in turn, contributes to huge price spikes.
"What you get is a world market that is increasingly tight, without much of a buffer," Abbassian told me. "Without a buffer, you have volatility. It's as simple as that."
4. Speculation
The volatility created by declining stocks is in turn compounded by speculation — traders betting on the rise or fall of prices.
Abbassian argued that bringing more transparency to commodities futures markets might mitigate this issue.
"If we know who is buying it and what are they buying it for, that may get those who are just there to gamble to be more cautious about their positions," he said.
Who is going to go hungry?
At any given moment, there are about a billion people in the world who don't have enough food to eat. When food prices go up, more people do go hungry — but the increase isn't as dramatic as you might think.
That's partly because many of the world's poorest people simply have no money and no access to food. Many live in countries where wars and other crises make it hard to get food to people. They would be hungry even if the price of food had not spiked.
What's more, in many poor countries, the local harvest is a more important factor than the price of global commodities. And many countries in Africa have had strong harvests of staples such as white corn and cassava.
One often overlooked region likely to be hit hard by the price increases is Central Asia, Abbassian said. This recent FAO report has lots of region-by-region detail.
What does all this mean for the U.S.?
Despite the fact that the price of staples like wheat, corn and sugar have risen by more than 50 percent in recent months, the price of food in the U.S. has barely budged — food prices here rose only 1.5 percent over the past year.
That's because the price of food in the U.S. is driven largely by labor costs and other factors, rather than by the price of the ingredients.
"If you eat a loaf of bread in the West, 2 percent of the price may be the wheat-flour price," Abbassian said. "In the developing world, it's 70 percent."
What's more, Americans only spend about 10 percent of their income on food — a far lower percentage than what people in the developing world typically spend. So even when food prices do rise in the U.S., it takes a smaller bite out of the average household's budget.
http://www.npr.org/blogs/money/2011/02/16/133744524/why-are-food-prices-going-crazy

POVERTY: The silence on EU subsidies is a gift to Eurosceptics

Julian Glover guardian.co.uk, Sunday 26 December 2010

By not fighting to reform the common agricultural policy pro-Europeans are helping their opponents, as Cameron well knows
Here's a jolly game for a bank holiday walk. It's called guess the farming subsidy. Anyone can play, and the genius is that you don't even have to be in the countryside to take part.
Strolling past the Guardian's offices in Islington? Locals received €291,071 in payments from the common agricultural policy over the last decade, in part thanks to the borough's ability to export isoglucose from the previously unknown sugar beet fields of Clerkenwell and Barnsbury.
If you are somewhere where you can see real sheep, cows and crops, the game becomes even more fun. Perhaps the Queen has asked you to stay for Christmas. If so, you'll want to know that Sandringham Farms received €3,309,318, including supplementary aid for growing durum wheat (but then Prince Charles does have his quirks).
Do have a go while you can, though. The game may not be so easy to play next year. Not because the CAP's abuses are waning, but through the simpler expedient of covering things up. Programmers and researchers at the farmsubsidy.org website, who have processed the data, are being foiled by a European court of justice ruling, which recently decided that the names of subsidy recipients should be private. Most governments have already removed from their websites information that allows campaigners to name names.
The detailed truth is particularly embarrassing: but with the CAP even the broad totals are startling enough. A subsidy bill of around €55bn a year. A distorted system that means Greek farmers get paid €560 a hectare, but Latvians only €90. A rigged market which means the biggest agribusinesses get the most money and small farmers, who mostly do less harm to the environment, a smaller share of the cash.
The disaster is overfamiliar, so it is ignored. Only pro- and anti-European zealots and environmentalists really care either way. A few years ago, a minister resigned from the UK government, promising to devote himself to the campaign for CAP reform – and of course nothing more was ever heard of him.
There have been bursts of change – decoupling, in Eurospeak – which tied money to land, not production, and removed the worst excesses. Nitrogen fertiliser use has fallen by a third since 1998; some unsustainable crops have gone; and some landowners – charities in Britain included – do use their payments to improve the environment. But not the majority. Rising payments in eastern Europe have lured US grain barons, who are rewarded with EU taxpayers' cash; Poland has been paid to ship pork scraps to Africa.
2011 was supposed to be the year for CAP reform: officials in Brussels slipped out a sensible policy paper last month. But even this contains options for the status quo to continue, or for there to be no policy on agriculture at all. The authors know Europe too well to expect better when governments work out a deal in the coming year.
So, I think, does David Cameron, which is why he is conniving at an arrangement that will keep the CAP in its present form. One of the apparent puzzles of his government is why such an unshakable Eurosceptic is doing so little to cause trouble in Brussels. Liberal Democrats like to think that they have toned down his outrage, and perhaps they have.
But there is another reason too. Like Karl Marx, Cameron has come to understand the revolutionary power of internal dialectical contradiction. Or, in the more traditional phraseology a Tory might choose, "give a man enough rope and he'll hang himself". It suits the Tories to give the Europeans rope.
Cameron dislikes the European Union more than most people realise. But it does not follow that on matters European he feels he must behave in a crassly Eurosceptic manner. If you think that the federalist dream is dead and the institution itself is heading for some form of collapse (as any open-eyed observer might do), then the logical thing is to just wait.
So it was no surprise when just before Christmas it was reported that Britain had done a dirty deal with Germany and France to save the CAP. This country will agree to leave agricultural subsidies essentially unchanged in return for the continued toleration of the British budget rebate. The losers will be eastern European states (the Poles have already denounced "British perfidy, the British lie") and, in the end, the EU itself.
A deal to save the rebate will buy Cameron some peace among his backbenchers at home. Farming friends will be happy too. As beneficiaries of sterling's fall against the euro (the currency in which subsidies are set), they are alone in the UK at not suffering from spending cuts. But a Eurosceptic who truly thought that Europe was a growing force would not be content, as Cameron is, to let the CAP rot continue. Apathy will carry the day: the EU is losing what remains of its momentum and courage.
In 2011 it is pro-Europeans who need to act. They ought to be fighting for CAP and budget reform (as, to be fair, Tony Blair tried to do in the last round of budget negotiations). But for the most part all we get is a lethal silence. The apparent solidity of the Brussels institutions hides shaky foundations.
For some, Europe will always be an affair of the heart. They know what they feel regardless of the facts. But for most, the case for the EU rests on practicalities. It needs to do things well, or at least more effectively than when they are done apart.
Can Europe still claim this to be the case? Perhaps with the bailouts – but then they are driven by the need to save the euro, a currency without a cause. Certainly not with the CAP, which makes up almost half the EU's budget. If, over the next year, the British government ducks a fight over the EU budget, some will take it as a sign that the fire has gone out of the Eurosceptic fight. The truth is the opposite: Cameron has recognised what it means for the sceptics to have won.
http://www.guardian.co.uk/commentisfree/2010/dec/26/eurosceptics-subsidies-cap-cameron

POVERTY: Agricultural subsidies which may not be agricultural

A most useful reference if you want to learn about the farm subsidies that skew the world's markets.

http://farmsubsidy.org/