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Washington Post “Global Food Crisis” Series Continues; Biofuels

Anthony Faiola reported in today’s Washington Post that, “The U.N. World Food Program has flagged 30 nations confronting mounting food insecurity this year as a direct result of market forces; 22 of them are in Africa. As prices climb, Mauritania, Burkina Faso, Cameroon, Senegal and other net food importers have been racked by civil unrest. Hunger is spiking in parts of the continent in patterns similar to past bouts of drought, floods or civil strife. In Mauritania — a nation of 3 million straddling Arab and black Africa — the number of people not getting enough food is up this year by 30 percent in rural areas despite a relatively good annual harvest, according to the WFP. A food emergency has been declared in broad sections of the country, with the food program rushing to roll out feeding stations.”

More broadly, the Post article explained that, “Globalization was supposed to eliminate this kind of recurring disaster. With economists radiating confidence about the new efficiencies of the global market, the need for food self-sufficiency seemed almost archaic. In that new reality, global markets would provide the long-term cornucopia that the arid earth here could not, and at reasonable prices.

“But it turned out that globalization did not really work for food. Countries, especially rich ones, felt compelled to continue protecting their farmers and their domestic food supply even as they pushed for trade liberalization for manufactured goods. It distorted the market, which didn’t adjust as global demand surged and production flagged.

“Not foreseeing that scenario, Mauritania’s government abandoned long-standing policies of fixed food prices in the 1990s. But it also gave up on large-scale efforts to boost agricultural production, shifting resources to iron ore mining and other industries.

“The last big agricultural push here — an internationally backed effort to grow irrigated crops in the country’s south — failed more than 15 years ago, officials say, because money went to businessmen rather than farmers.”

The article added that, “Mauritania knows it must bear more of its own food burden. All around, food-producing countries are barring the doors to foreign trade. Argentina raised soybean and sunflower export taxes to as much as 44 percent. Russia has quadrupled wheat-export taxes to 40 percent. Kazakhstan, one of the world’s biggest wheat exporters, halted foreign sales altogether. Rice prices shot to a record high after Indonesia stopped its farmers from selling the grain abroad.

“At the same time, import-dependent countries that can afford the higher prices are hoarding. Wealthy Singapore is stockpiling rice. Malaysia is creating a new government agency to stockpile foodstuffs. Many countries, including Mauritania, have dropped long-standing import taxes to facilitate trade and lower prices at home. But with global supplies running short, the measures have had limited effect in controlling prices here. Importers in Mauritania, for instance, say they have roughly a 45-day supply of key commodities such as wheat.

“‘Everyone is out there protecting their own right now,’ said Joachim von Braun, director general of the District-based International Food Policy Research Institute. ‘And that isn’t the way globalization is meant to work.’”

With respect to global food trade and market efficiencies, Tyler Cowen noted in yesterday’s New York Times that, “Rising food prices mean hunger for millions and also political unrest, as has already been seen in Haiti, Egypt and Ivory Coast. Yes, more expensive energy and bad weather are partly at fault, but the real question is why adjustment hasn’t been easier. A big problem is that the world doesn’t have enough trade in foodstuffs.

“The damage that trade restrictions cause is probably most evident in the case of rice. Although rice is the major foodstuff for about half of the world, it is highly protected and regulated. Only about 5 to 7 percent of the world’s rice production is traded across borders; that’s unusually low for an agricultural commodity.

“So when the price goes up — indeed, many varieties of rice have roughly doubled in price since 2007 — this highly segmented market means that the trade in rice doesn’t flow to the places of highest demand.”

The Times item indicated that, “Poor rice yields are not the major problem. The United Nations Food and Agriculture Organization estimates that global rice production increased by 1 percent last year and says that it is expected to increase 1.8 percent this year. That’s not impressive, but it shouldn’t cause starvation.

“The more telling figure is that over the next year, international trade in rice is expected to decline more than 3 percent, when it should be expanding. The decline is attributable mainly to recent restrictions on rice exports in rice-producing countries like India, Indonesia, Vietnam, China, Cambodia and Egypt.”

And later, Cowen stated that, “Restrictions on the rice trade run the risk of making shortages and high prices permanent. Export restrictions treat rice trade and production as a zero- or negative-sum game where one country’s gain comes at the expense of another. That’s hardly the best way to move forward in a rapidly growing world economy.”

Also with respect to globalization and trade, Bob Davis reported in today’s Wall Street Journal that, “The world isn’t as flat as it used to be.

“During the long march toward globalization, international borders and trade barriers came down. Communism fell. Protectionist walls in Latin America and elsewhere were dismantled. Governments — long prone to meddling in trade — took a back seat to broader market forces.

Mr. Davis noted that, “In a globalization manifesto, New York Times columnist Thomas Friedman declared that the Internet and other planet-spanning technologies were erasing national boundaries. The world, he said in a 2005 best seller, was flat.

“No longer. The global economy appears to be entering an epoch in which governments are reasserting their role in the lives of individuals and businesses. Once again, barriers are rising. Call it the new nationalism.”

The Journal article pointed out that, “Capitals that once had little sway on the global scene now have a lot. The influence of Brazil, for example, has grown along with its economy. A week after WTO trade talks collapsed in July 2006, U.S. Trade Representative Susan Schwab jetted to Brasilia to confer with the country’s foreign minister, Celso Amorim, who also handles trade issues.

“Mr. Amorim has become an unlikely power broker in the bid to wrap up the negotiations, which began in 2001. The talks broadly involve a prospective deal: The U.S. and Europe would slash agricultural subsidies if developing nations would lower their tariffs for industrial goods and broaden foreign financial firms’ access to their markets.

“In the past, developing nations essentially ratified global trade deals negotiated by the U.S. and Europe. But Brazil, India and China are no longer following that script. Mr. Amorim has put together a group of 20 developing nations that want to limit market openings at home while pressing for agricultural liberalization abroad. Their assent is essential to reaching a deal. So far they have withheld it.

“‘Brazil holds the key to getting this done,’ says Ms. Schwab.”

Biofuels

Jeffrey Stinson reported recently at the USA Today Online that, “A new cost-of-living survey in Britain found food prices have climbed 15% so far this year. A chicken now costs about $7 in a supermarket, compared with $4 a year ago. France reported its inflation rate hit a 12-year high last month, driven by higher food and fuel costs. In Germany, rising prices have driven consumer confidence to a yearly low, the Zew economic research group in Mannheim reported.

“The United States also is hit with higher food costs.

“Dominique Strauss-Kahn of France, head of the International Monetary Fund, called the push for biofuels ‘well-intentioned, but yet misguided’ in a piece published in [last] Monday’s Financial Times newspaper.”

And in a related item, The Des Moines Register editorial board noted yesterday that, “Countries around the world – including the United States, European Union members, China, Thailand, India and Brazil – have set targets for biofuels production. It’s difficult to sort out the impact on food prices. In the United States, it’s been relatively modest. A study last year by Iowa State University’s Center for Agricultural and Rural Development found that a 30 percent increase in corn prices would translate into a 1.1 percent increase in U.S. food prices. But price increases affect the poor disproportionately. They eat more minimally processed food, such as tortillas, and, for the billion people who live on a dollar a day, a few cents difference means eating or not eating.”

In part, the editorial went on to state that, “Longer term, here are initiatives the United States and international community should consider:

“- Development of biofuels continues to promise benefits, to replace oil and other depletable resources, to reduce greenhouse-gas emissions and to increase farm incomes around the world. But all biofuels are not created equal. Increasing worldwide demand for food provides even greater impetus to develop the processes to produce cellulosic ethanol, which could be made from perennial grasses and fast-growing trees grown on marginal land not suitable for food production. The U.S. government has targeted research dollars to that effort, but it should receive even greater urgency.”

“- Trade should be encouraged, and export bans, tariffs and subsidies resisted. Many nations have erected export bans to keep their food to feed their people, but that creates price increases in importing countries. The United States and Europe should lead the way by reducing farm subsidies, which make it harder for the developing world’s farmers to compete. Similarly, the structure of U.S. subsidies for biofuels and our tariffs against biofuels imports need careful thought.”

And a recent AFP article reported that, “[Brazilian President Luiz Inacio Lula da Silva] also said it was ‘inconceivable’ that wealthy nations have tried to pin the blame on biofuels for the explosive rise in global food prices, which have led to violent riots in some poor countries.

“Sugar-based fuel produced in Brazil is being fingered for causing global price surges — an accusation fiercely rejected by Lula.

“Brazil is the world’s second largest ethanol producer, after the United States whose ethanol is corn-based.”

The AFP article indicated that, “‘Those who criticize biofuels have never criticized the price of oil. The developed world imports oil with no tariffs, yet they place an absurd tariff on Brazilian ethanol,’ Lula said.

“Lula said such a situation exists because Brazil’s role in international trade has steadily transformed from minor role to major player.”

“French lawmakers visiting Brazil last week said they were impressed with the country’s biofuel industry, but warned that Europe would have to balance that model against the need to guarantee food supplies,” the AFP article said.

EU Biodiesel

An update posted on Friday at the Environmental Capital Blog (The Wall Street Journal) reported that, “Europe’s biofuel industry has long complained about U.S. subsidies. Friday, it took its case to the European Union—but the chances of winning a victory look slim.

“EU biodiesel producers have been simmering about the $1 per gallon tax credit American biodiesel producers get. EU producers say that distorts the market and, in the words of the biodiesel trade group, ‘created a severe injury to the EU biodiesel industry.’

“But probably not severe enough. EU officials and industry sources admit U.S. producers are probably safe for now. Under World Trade Organization rules, a government can only impose punitive tariffs if the foreign subsidy affects 25% of overall production. And imports of U.S. biodiesel in Europe last year came to about 1 million tons—or less than 20% of the total EU consumption of 6 million tons.”

However, the update noted that, “Some say the industry is chasing the wrong phantoms. ‘The single biggest challenge facing the biodiesel industry in Europe is not U.S. imports,’ says Kevin McGeeney, chief executive of Switzerland-based Starsupply Renewables SA, a biofuels broker. ‘It’s the debate on sustainability and food price rises.’

“The EU, which has a mandate to blend 10% biofuels with all fuels at the pump, has been struggling to figure out its biofuel policy in recent months. Rising prices for feedstocks like canola and palm oil, as well as overcapacity thanks to generous tax breaks and subsidies, have hampered the industry in many countries.

“At the same time, rising food prices and growing concerns over biofuels’ environmental impact have made many rethink the promotion of biofuels. British and German officials have questioned the EU’s mandate that pump fuels include a 10% biodiesel blend by 2020. Earlier this month, the European environmental agency recommended suspending the mandates for now.”

And Bloomberg news reported on Friday that, “European Union biodiesel producers filed a formal complaint with the European Commission against U.S. imports of the alternative fuel.

“The European Biodiesel Board wants the commission to take action against what it says is subsidized dumping of U.S. B99, a blend of diesel and biodiesel, the Brussels-based group said in an e-mailed statement today. The board represents the European units of about 60 firms, including Cargill Inc. and Archer Daniels Midland Co.

“‘There has been a dramatic surge in U.S. biodiesel exports to the EU’ since 2007, the group said. ‘The unfair competition from U.S. B99 is price-setting and has progressively disrupted the margins of European biodiesel producers, putting most of them out of business.’”

An update posted today at EurActiv.com stated that, “European biodiesel manufacturers have filed an official complaint to the Commission regarding ‘unfair’ US biodiesel subsidies, substantiating expectations that biofuels could be at the heart of the next large-scale trade spat at the WTO.

“According to the European Biodiesel Board (EBB), a US Federal measure allowing for minimal biodiesel blends to be subsidised before being exported has led to a ‘dramatic surge’ in US biodiesel exports to the EU and is ‘creating a severe injury’ to the European industry.

“The organisation explains that, under US law, producers of the so-called ‘B99’ blend qualify for subsidies of approximately €200 per tonne. Yet the blend is made simply by mixing pure biodiesel (often cheaply imported from countries like Indonesia or Malaysia) with as little as 0.1% or less of mineral diesel.”

In a press conference with reporters on Thursday, Senate Finance Committee Ranking Member Chuck Grassley (R-Iowa) fielded a question on tax issues, “splash and dash,” and biofuel tax policy, to listen to this exchange, just click here (MP3-1:47).

Keith Good