An ounce of prevention...
Press attention has again focused this past month on rising food prices. As Financial Times journalist Javier Blas tells us, panic buying has now reared its head, completing the already present factors of crop failures, export restrictions and food riots that were the trademarks of the 2007-08 food price crisis. Last week, Algeria added 800,000 tons to its January imports, bringing the monthly total to 1.7 million tons—that is already roughly a third of the normal annual purchases for a country that is one of the world's biggest wheat importers. Saudi Arabia has announced it will double its wheat purchases in 2011, to create a stockpile equivalent to a year's demand.
Wheat was already on the food crisis watch list—it's a heavily traded commodity (around 18 percent of the world's wheat crosses an international border) that's in relatively short supply after some bad harvests in some of the regions that supply world markets. Rice is the other big food crop. There, the market is much thinner (about 7 percent of total production is traded internationally). Rice is in relatively plentiful supply, but prices are also rising because importers such as Indonesia and Bangladesh have placed much larger orders than usual on the world market.
Needless to say, such unusually big purchases are only going to drive prices higher. But it is not Saudi Arabia that will worry about the cost. No, that concern is going to fall on much poorer countries, whose governments buy a lot less grain but whose treasuries can much less well afford it.
For all the talk and pledged money to help the world's hungry after the last food crisis, it seems the world is poised for another food crisis.
Yet the issue is on the global policy agenda, and on the overseas aid agenda as well. The discussion on price volatility is focused on several issues: the need for greater regulation of commodity and futures exchanges; the need for greater transparency of information regarding stock levels; the proposal to ban or curtail export controls; and, the possibility of creating strategic food reserves at regional and global levels to curb short-term price fluctuations. All of these are important. None are solutions to chronic hunger. But the uncertainty in commodity markets is doing nobody a favor, except the firms poised to profit from their superior information and deeper pockets.
The public interest needs prices high enough to ensure natural resources are sustainably managed, while farmers and farm laborers earn a decent income for their work. This is wholly compatible with food at prices people can afford. Tackling the causes of unwanted volatility in world food markets is a central part of the solution. Not sufficient on its own but absolutely necessary.
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