Crisis can be managed

Strauss-Kahn, a former French finance minister, said in remarks read into the record that the crisis could be managed if the world took appropriate action to

• address immediate needs of the worst-affected regions and feed the hungry

• help countries direct support to people who need it most, while avoiding actions that make things worse, such as export bans and price controls; and

• help countries contain the macroeconomic costs and stop the crisis from turning into a general inflation or balance of payments problem.

Balance of payments effects can also be large. IMF projections show that in about one-half of African countries the increase in the cost of food imports could exceed 1 percent of GDP this year. Increases are greatest in some of the poorest countries, such as the Democratic Republic of the Congo (almost 2 percent) and Mauritania (3 percent). In other countries, higher fuel prices are also having an important negative impact.

The Rome meeting, chaired by United Nations Secretary-General Ban Ki-moon, brought together the heads of key UN agencies, as well as the IMF and the World Bank, along with many heads of state and government. Ban called on world leaders gathered at the summit to take “bold and urgent” steps to tackle the global food crisis, including boosting food production and revitalizing agriculture to ensure long-term food security.

Addressing the high-level conference, Ban said that more than 850 million people around the globe were short of food before the current crisis began. That number could rise by a further 100 million, and the poorest of the poor will be the hardest hit.

Not a global food shortage

Strauss-Kahn said it was important to know there was not a global food shortage. “In fact, there is enough food to feed the world,” he stated. “Rather, the problem is that prices have risen and many people cannot afford food. So we need to get food—or the money to buy food—to those most in need.” He welcomed the appeal of the World Food Program for $755 million to deal with the surge in food costs.

Emergency measures should be cost effective and well targeted and not undermine the long-term objectives of increasing food production. Strauss-Kahn said that scaling up targeted social safety net measures, such as the food-for-work program and conditional cash transfers to the poorest, can be very effective, as shown in Brazil and Mexico.

Other effective short-term measures are reducing or eliminating tariffs on key food items (which more than 40 countries have done), temporary subsidies on the one or two products most vital for the poor, and expanding the school feeding programs that exist in many countries (for example, Kenya and South Africa).

Some responses, however, should be avoided, such as export restrictions, which export hunger from one country to another; subsidies that do not target the poor; or direct price controls, which discourage production.

“Already we are hearing that farmers in developing countries are abandoning rice production, as domestic prices do not cover input costs,” Strauss-Kahn said.

Food prices to remain high

A report issued May 29 by the United Nations Food and Agriculture Organization (FAO) and the Organization for Economic Cooperation and Development (OECD) predicts that food prices in the next 10 years will remain well above the levels of the past decade.

The report says that current high prices will hit the poor and hungry the hardest and calls for the urgent mobilization of humanitarian aid as well as a greater focus on boosting agricultural production in the longer term.

“Coherent action is urgently needed by the international community to deal with the impact of higher prices on the hungry and poor,” Jacques Diouf, Director-General of the FAO, said at a press conference in Paris.

“Today some 862 million people are suffering from hunger and malnourishment—this highlights the need to reinvest in agriculture. It should be clear now that agriculture needs to be put back onto the development agenda.”

Using prices corrected for inflation, the report says that, over the next decade, rice and sugar prices will increase by less than 10 percent; wheat by less than 20 percent; butter, coarse grains, and oilseeds will rise by 30 percent; and vegetable oils by more than 50 percent. High oil prices, changing diets, urbanization, economic growth, and expanding populations are underlying factors behind the rise in food prices, according to the report.

The FAO and OECD also cite growing demand for biofuel as another factor forcing up prices, saying that world ethanol production has tripled between 2000 and 2007 and is expected to double again in the next decade. Climate change, low stock levels, and speculation could also add to price volatility.

World Bank commitment

The World Bank Group announced on May 29 that it would support global efforts to overcome the global food crisis with a new $1.2 billion rapid financing facility to address immediate needs, including $200 million in grants targeted to the vulnerable in the world’s poorest countries.

Announcing several measures to address immediate to longer-term food challenges, the World Bank Group said it would boost its overall support for global agriculture and food to $6 billion next year up from $4 billion, and would launch risk management tools and crop insurance to protect poor countries and smallholders.