FarmPolicy

May 25, 2019

Reuters: Food Prices & Doha; Wash. Post- “Harvesting Cash” Revisited

Commodity / Food Prices in the News

A news release issued on Friday by the United Nations Food and Agriculture Organisation (FAO) stated that, “The cereal import bill of the world’s poorest countries is forecast to rise by 56 percent in 2007/2008. This comes after a significant increase of 37 percent in 2006/2007, FAO said today.

“For low-income food-deficit countries in Africa, the cereal bill is projected to increase by 74 percent, according to the UN agency’s latest Crop Prospects and Food Situation report. The increase is due to the sharp rise in international cereal prices, freight rates and oil prices.

“International cereal prices have continued to rise sharply over the past two months, reflecting steady demand and depleted world reserves, the report said. Prices of rice increased the most following the imposition of new export restrictions by major exporting countries. By the end of March prices of wheat and rice were about double their levels of a year earlier, while those of maize were more than one-third higher, according to the report.”

The FAO indicated that, “Food riots have been reported in Egypt, Cameroon, Cote d’Ivoire, Senegal, Burkina Faso, Ethiopia, Indonesia, Madagascar, the Philippines and Haiti in the past month. In Pakistan and Thailand, army troops have been deployed to avoid seizing of food from the fields and from warehouses.”

To listen to an audio excerpt from FAO Director-General Jacques Diouf regarding food prices, just click here (MP3-2:18).

Reuters writer Robin Pomeroy reported on Friday that, “Food riots in developing countries will spread unless world leaders take major steps to reduce prices for the poor, the head of the United Nations Food and Agriculture Organisation (FAO) said on Friday.

Meanwhile, a Reuters news article from Thursday noted that, “Global investment funds and the weak dollar are largely to blame for high world food prices, a senior official of the United Nation’s Food and Agriculture Organization said on Thursday.

“‘The crisis is a speculative attack and it will last,’ said Jose Graziano, the UN food and farm organization’s regional representative for Latin America and the Caribbean.”

The article indicted that, “Across the globe foods from bread to milk have become more expensive and in some countries helped fuel inflation. High prices for rice, beans and other food staples provoked food riots in Haiti this week.”

With respect to Haiti, New York Times writer Marc Lacey reported in Sunday’s paper that, “Responding to violent street protests against rising food prices that ground Haiti to a halt over the last week, President René Préval announced subsidies on Saturday that he said would cut the cost of rice by more than 15 percent… Mr. Préval, a former agronomist who is in his second term as president, met earlier in the day with food importers at the presidential palace and emerged to announce new measures that he said would knock the price of a 50-pound bag of rice from $51 to $43, a nearly 16 percent reduction. In the poorest country in the hemisphere, that discount could mean the difference between eating and going hungry for many destitute families.”

Other countries are also taking steps to address commodity and food price concerns; Roel Landingin, writing on Thursday at the Financial Times Online noted that, “The Philippines is mounting an ambitious bid to achieve self-sufficiency in rice within three years as a policy of relying on imports to cover production shortfalls unravels amid tightening global supply and soaring world prices.

“The government is hoping the Philippines, the world’s biggest rice importer, will be able to halt imports by 2010 thanks to a spending spree on irrigation and farm support aimed at boosting production.”

The FT article stated that, “The Philippines ‘has realised now it has no other option. Grain prices, like oil, will continue to go up because production cost has also been increasing,’ says Jesus Paras, undersecretary for agriculture.

“President Gloria Macapagal Arroyo last week ordered a big increase in spending to boost rice production, allocating more than 40bn pesos ($960m) a year for construction and repair of irrigation systems, building of farm-to-market roads, distribution of special seeds and additional state lending to farmers.”

Meanwhile, Blaine Harden reported in Saturday’s Washington Post that, “More than anywhere else in Asia, the soaring price of rice has become a good-vs.-evil drama in the Philippines, one of the world’s largest importers of rice.

“Traders who fiddle with the price of the nation’s all-important staple now face life in prison. Police are raiding warehouses in search of hoarders. Soldiers and police have been mobilized to help sell government-subsidized rice to the poor.”

Also with respect to the Philippines, an AFP article from Thursday stated that, “A request to buy low-cost milled wheat from China has been turned down, Favila [Trade Secretary Peter Favila] said, forcing the government to turn to more expensive wheat from the United States.

“‘I am saddened that China did not grant our request and I have already received official communication to that effect. They did not give any reason. They just said the demand in China is also large,’ the secretary said.

“Even noodles, which come from imported wheat will likely be affected as well, he warned.”

Javier Blas, also writing on Thursday at the FT Online, indicated that, “For the past 40 years, consumers have had the upper-hand in the global rice market, which has witnessed a steady decline in prices, interrupted only by the brief spike in 1973-74 triggered by the first oil crisis.

“The structural decline in prices was the result of the Green Revolution, the agronomics movement that spread the use of irrigation, fertiliser and high-yielding varieties of rice in Asia in the late 1960s and led to bumper crops.”

The FT article explained that, “A combination of factors have led to prices rising. Consumption in Asia, the Middle East and West Africa is booming, thanks to rising per capita income (which allows more people to enjoy three meals a day instead of just one or two); poor supplies due to a reduction in acreage devoted to the crop; rising costs of fuel and fertilisers; and the exhaustion of technological advances that contributed to a surge in rice yields in the past.

“Water shortages in southeast Asia, Central America and West Africa have also contributed to a slowdown in production growth, while higher labour cost in countries such as Vietnam as more people move to cities have increased production cost significantly, experts say. Demand has outstripped production in six of the past eight years and global rice stocks have fallen to their lowest level since 1976.”

And, in a separate article posted on Thursday at the FT Online, Javier Blas reported that, “Governments are racing to strike secretive barter and bilateral agreements with food-exporting countries to secure scarce supplies as the price of agricultural commodities jump to record highs, diplomats and cereal traders say.

“The moves coincide with a significant tightening of the global food market as leading exporters of agricultural commodities ban foreign sales. The government-to-government contracts could bypass those restrictions, diplomats say.”

This FT article went on to report that, “Leading rice, wheat and soyabean exporters such as Argentina, Vietnam and Russia have restricted their foreign sales, triggering concerns among importing countries about food supply security.

“Cereals traders say India has held talks with Kazakhstan to secure a bilateral contract for wheat, after New Delhi was forced to import the grain in the past two years, but added that it was unclear if any deal had been signed.

“The move towards bilateral agriculture contracts marks a policy U-turn as such deals were gradually abandoned in the 1990s as countries started to rely on the international food market for their supplies, abandoning previous policies of self-sufficiency.

“Analysts say that while bilateral agreements could help secure supplies, prices are likely to be at market prices rather than discount levels. Diplomats say Russia, Ukraine and Kazakhstan have been particularly involved in striking bilateral agreements as a way to expand their market share.”

Louise Lucas reported at the FT Online on Friday that, “It is hard to over-estimate the impact of higher food prices in Asia. Food accounts for a far bigger portion of shopping baskets in the region’s largely developing economies than in the West. According to the Asian Development Bank, food comprises 59 per cent of the consumer price index weights in Bangladesh; 57 per cent in India; 55 per cent in the Philippines; 40 per cent in China and 42 per cent in Vietnam.

“Hence the shopping list of palliatives. Dealing with the root causes is harder in the short-term. Higher prices reflect supply constraints which are only partially explained by the weather.

“Instead, supply shortages result from smaller tracts of arable land. That is partly to do with urbanisation, as well as the global trend to replace food crops with those used for biofuels. In Asia’s case, more land has also been given to live-stock to meet the emerging middle classes’ desire for more meat at mealtimes.”

With respect to issues associated with biofuels, the Associated Press reported on Thursday that, “Brazil’s president insisted Thursday that crops used for ethanol are not responsible for driving up food prices, and said Haiti – where food riots have erupted recently – could benefit from a biofuel industry.

“Luiz Inacio Lula da Silva was speaking after meeting Dutch Prime Minister Jan Peter Balkenende at the start of a two-day state visit during which he hopes to boost Dutch investment in Brazil’s biofuel industry.

“Ministers from both countries were signing an agreement to intensify cooperation on biofuels Friday.”

The AP article indicated that, “Ethanol production ‘can be the hope for a development model for many countries, particularly in Africa, Latin America and Asia,’ Silva told reporters.

“‘Just look at Haiti today. We can see how many benefits we can take to Haiti if rich and emerging countries like Brazil can make partnerships to invest in third countries and produce (biofuels) there,’ he said.

“Brazil, which claims to be the world’s main producer of ethanol from sugar cane, wants ethanol included in a U.S.-EU plan within the World Trade Organization to cut import taxes on climate-friendly products such as solar panels and wind turbines.”

Later, the AP article noted that, “Silva said food prices are rising because more of the world’s poor are earning enough to buy more and better food, and because people are living longer.

“‘There is … no relation with biofuels,’ he said.”

Doha Link

In a related article from Friday regarding food prices (“What will Doha really do for world food prices?”), Reuters writer Missy Ryan reported that, “A new world trade deal, more than six years in the making, finally appears to be within reach, but it may not ease raging global food costs that have protesters pouring into the streets from Egypt to Haiti.

“On the contrary, many experts expect a new global pact would actually lift food prices slightly, at least at first.”

Later, the article indicated that, “Arguing a deal may ease the price crunch is a novel approach for advocates of the Doha round. For years, they said freer trade would help developing nations boost prices for farm exports, in part by cutting price-depressing subsidies in wealthy nations.”

Ms. Ryan stated that, “Economists have long predicted that a new world trade deal would lift commodity and food prices by a small increment — a couple of percentage points globally for most products, and a bit more for milk, oilseeds or paddy rice.

“Yet they also caution that the benefits of a Doha deal depend on where you sit. It’s good for net exporters of food commodities, like Brazil, Vietnam, or the United States, and bad for those that rely on food imports.”

The article reported that, “A recent paper by World Bank economists showed that rising food prices from 2005 to 2007, while differing from place to place, generally deepened poverty in developing countries.

“Hardest hit were countries like Nicaragua, where large urban populations saw incomes eaten away at by higher costs.

“‘There was always concern about net food importing countries,’ said David Orden, an agricultural economist at the International Food Policy Research Institute.”

Ms. Ryan noted that, “Many Doha supporters say booming prices may make it easier for wealthy nations like the United States to cut farm subsidies and help negotiators win passage for a deal.

“‘It’s so painless,’ said Charlotte Hebebrand, chief executive of the International Food and Agricultural Trade Policy Council in Washington.

“‘All of these commitments are so much simpler than they were a few years ago. Let’s get it done,’ Hebebrand chided.

“But U.S. negotiators, who must answer to Congress and, in turn, a powerful agriculture lobby, may be reluctant to commit to cuts that would stick if prices weaken.

“As the U.S. Congress has been negotiating a new farm law, many farm-state lawmakers been unwilling to accept major cuts to crop supports, saying their constituents need a safety net in case the current boom evaporate.”

Concluding, the Reuters article stated that, “‘Today’s prices are another warning call that we need a good, open agricultural trading system that gets food produced efficiently and distributed efficiently,’ Orden [David Orden, an agricultural economist at the International Food Policy Research Institute said.”

U.S. Food Prices

A Congressional Research Service Report from Thursday (“Food Price Inflation: Causes and Impacts”- by Tom Capehart and Joe Richardson) stated that, “U.S. food prices rose 4% in 2007 and are expected to gain 3.5% to 4.5% in 2008. Higher farm commodity prices and energy costs are the leading factors behind higher food prices. Farm commodity prices have surged because (1) demand for corn for ethanol is competing with food and feed for acreage; (2) global food grain and oilseed supplies are low due to poor harvests; (3) the weak dollar has increased U.S. exports; (4) rising incomes in large, rapidly emerging economies have changed eating habits; and (5) input costs have increased. Higher energy costs increase transportation, processing, and retail costs.

“Although the cost of commodities such as corn or wheat are a small part of the final retail price of most food products, they have risen enough to have an impact on retail prices. Generally, price changes at the farm level have a diminished impact on retail prices, especially for highly processed products.

“The impact of higher food prices on U.S. households varies according to income. Lower-income households spend a greater portion of their income on food and feel price hikes more acutely than high-income families. Higher food costs impact domestic food assistance efforts in numerous ways depending on whether benefits are indexed, enrollments are limited, or additional funds are made available. Higher food and transportation costs also reduce the impact of U.S. contributions of food aid under current budget constraints.”

“Harvesting Cash” Revisited

An update posted on Friday at The Washington Post Online stated that: “The Post’s investigation into farm subsidies, a series of stories that ran in 2006 and 2007, is the focus of a PBS documentary airing tonight. The program, ‘Expose: America’s Investigative Reports,’ follows the Post’s Sarah Cohen, Gilbert M. Gaul and Dan Morgan, who explain how they found more than $15 billion in wasteful, unnecessary spending.

“The program will air as part of Bill Moyers Journal and will look specifically at two elements of the Post’s stories, the finding that $1.3 billion was paid in farm subsidies to land owners who had grown nothing and $635 million in drought payments to farmers who had experienced moderate or no drought.

“The program can also be viewed on the website for ‘Expose: America’s Investigative Reports.’”

Keith Good

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