August 21, 2019

Food Prices, Doha, and the Farm Bill

Food Prices

Scott Kilman reported in today’s Wall Street Journal that, “The soaring cost of food increased the number of hungry people in the world by 122 million in 2007 and now threatens to swell the malnourished population for a decade, the U.S. Department of Agriculture said.

“According to the department’s annual Food Security Assessment, 982 million people were hungry last year, up 14% from a revised estimate of 860 million in 2006. The number of new hungry people — the biggest increase since the department started producing the report 16 years ago — is roughly the population of Japan.”

The Journal article added that, “In the new assessment of 70 developing countries, USDA economists project that the number of malnourished will climb to 1.2 billion people by 2017. A year ago, the economists saw that number falling to about 800 million over a decade.”

Mr. Kilman noted that, “Food prices are climbing around the world because farmers can’t keep up with demand for grain. The biofuels boom in the U.S. and the new Asian middle class’s appetite for grain-fed meat have combined to drain world grain stockpiles. Since January 2007, the USDA’s index of all crop prices has climbed 44%.”

In a related editorial regarding food prices, Washington Post columnist Michael Gerson indicated in today’s paper that, “But our other demand-driven crisis — food inflation — is simply a curse since there is no pleasant alternative to eating. This problem has a variety of causes: the growth of meat-based diets across the world, requiring large amounts of grain for animal feed; the diversion of acreage to the production of ethanol; the rising cost of food transportation and natural gas-based fertilizers; water shortages and climate disruption. Recent prices have dipped a bit, but expensive food now seems to be a fact of life.

“On the fringes of subsistence in the developing world, sudden double-digit jumps in the prices of staples have resulted in riots. In America, a rise of about 6 percent in the price of groceries this year has led the poor to adopt a variety of survival strategies, from buying food that is beyond its expiration date to visiting food banks.

“The president and Congress cannot be accused of indifference. Funding for nutritional programs at the Agriculture Department has increased by more than 60 percent during the Bush years. In its recent farm bill (while expanding American agricultural subsidies that do staggering harm to farmers in the developing world), Congress helpfully increased funding for American food banks and food stamps. It also renamed the Food Stamp Program the Supplemental Nutrition Assistance Program, on the theory that boring bureaucratic names with annoying acronyms (SNAP) bear less stigma for recipients.”

Mr. Gerson noted that, “Expanding food stamps is the most direct way to reduce hunger in America. About 35 million Americans experience food insecurity, and about 25 million receive food stamps — really debit cards that can be used only for food (not sold for cash or used for alcohol). Both the Clinton and Bush administrations have cut fraud in this program. And because this system is computerized, we also know that most benefits are used up by the third week of the month, leaving many families to scramble for other sources of food.

“Hunger exacts a social cost. Hungry adults miss more work and consume more health care. Hungry children tend to be sicker, absent from school more often and more prone to getting into more trouble. Larry Brown of the Harvard School of Public Health calculates that the total price tag of hunger to American society is about $90 billion a year. In contrast, Brown estimates it would only cost about $10 billion to $12 billion a year to ‘virtually end hunger in our nation.’

“And this raises a moral issue. We have in place an automated food stamp program that is generally efficient and effective. We know it could be expanded with little increase in overhead. And we know with precision when its benefit runs out each month. So how is it then possible to justify funding three weeks of food instead of four? What additional dependence, what added moral hazard could a full month of eating possibly create?”

With respect to the price of crude oil and agricultural commodities, variables that have an important impact on the price of food, Christopher Twarowski reported in today’s Washington Post that, “Oil prices tumbled yesterday for a second straight day, sliding $5.33 a barrel due in large measure to softening demand because of the slowdown in the U.S. and European economies.

“Oil was off more than $6 a barrel in midday trading on the New York Mercantile Exchange before recovering slightly to settle at $136.04. Over the past two days, oil has skidded more than $9, the biggest decline since March.”

The Associated Press reported yesterday that, “In agriculture markets, grain prices move sharply lower Tuesday on crude’s drop and forecasts for more favorable weather in the Midwest. Warm, dry conditions have helped dry out waterlogged corn and soybean crops, raising hopes for a good U.S. yield.

“Corn for December delivery fell the maximum 45-cent daily limit to $7.02 a bushel on the Chicago Board of Trade, before gaining slightly to settle at $7.225 a bushel, down 24.5 cents. On Monday, the contract fell the daily limit to settle at $7.47.

“November soybeans fell 31.5 cents to settle at $15.295 a bushel on the CBOT, while September wheat gained half a penny to settle at $8.365 a bushel.

“Also pressuring prices Tuesday were concerns over a meeting this week by the U.S. House Agriculture Committee on whether the Commodities Futures Trading Commission is properly regulating the futures market. One idea being floated by legislators is restricting pension funds from investing in commodities –a move that would sharply reduce liquidity in commodities markets.”

Jerry Perkins reported in yesterday’s Des Moines Register that, “Iowa’s corn and soybean crops continue to improve because of last week’s favorable weather conditions, according to the Iowa Crops and Weather Report released Monday by the Iowa Field Office of the U.S. Department of Agriculture’s National Agricultural Statistical Service.

“Dry, sunny weather allowed farmers to put in a good week of fieldwork, Iowa Secretary of Agriculture Bill Northey said.

“‘A lot of fieldwork was able to take place across the state last week as fields continued drying out,’ Northey said. ‘The only downside is that the nearly ideal growing weather Iowa is known for in May and June hasn’t arrived until July this year.’

“Corn and soybean crops were both rated 57 percent good or excellent, the crop report said.”

And Chet Mullin reported in yesterday’s Omaha World-Herald that, “The U.S. Department of Agriculture reported Monday that, overall, corn and soybean conditions improved last week.

The USDA said that about 62 percent of the corn was in good or excellent condition as of Sunday, compared with 61 percent a week earlier and 70 percent a year earlier. About 59 percent of the soybeans got the top ratings, compared with 58 percent a week earlier.”

In other related news regarding the price of commodities, Reuters news reported today that, “Farmers angry at [Peru’s] President Alan García’s free-trade policies began a two-day strike, snarling traffic and closing rail service to the Inca ruins at Machu Picchu. The strike was the latest protest urging the government to spread the wealth from an economic boom.”

And in Argentina, recall that The New York Times reported earlier this week that, “After a marathon session that lasted through the night, Argentina’s lower house of Congress on Saturday narrowly approved agricultural export tax increases that the government imposed four months ago.

“Legislators debated for more than 15 hours, starting at 7 p.m. on Friday, before voting 129-122 to approve the export tax system created by President Cristina Fernández de Kirchner. The 129 votes were just one more than the minimum the government needed for approval.

“The battle over the taxes, which caused farmers to rebel against the government, setting up blockades on major highways and cutting off exports of grains, now moves to the Senate for consideration, which could begin as soon as next week.”

Meanwhile, an update posted yesterday at The Real Time Economics Blog (The Wall Street Journal) reported that, “Leaders from the Group of Eight industrialized nations Tuesday urged food producing countries to scrap restrictions on food exports, saying such measures exacerbate the global food crisis and hinder the delivery of food aid to those in need.

“In a statement at the end of the second day of the three-day summit meeting, the G8 officials called it ‘imperative’ to lift bans on food exports.”

The update indicated that, “In recent years, countries such as Vietnam, Argentina, Indonesia, Brazil, India and Egypt have adopted various export restrictions on crops such as rice and wheat. Such limits have played a role in causing the prices of soybeans, wheat and corn to double over the past year, analysts say.

“Other factors have also played a role. Soaring crude oil prices, for example, have made it more expensive to transport food. An influx of speculative money into the commodities markets – partially as a result of the U.S. housing crisis making financial markets a riskier place to invest – has also pushed up food prices.

The G8 leaders’ food statement didn’t call for the cessation of the biofuels development, a position opposed by the U.S., a major producer of such fuels. But the statement said governments must ‘ensure the compatibility of policies’ between biofuels production and food security. Biofuels include ethanol, made from sugar or corn. The G8 officials also called for the promotion and development of ‘second-generation biofuels’ from non-food plant materials and inedible biomass.”

With respect to biofuels, Jeffrey Ball reported yesterday at the Environmental Capital Blog (The Wall Street Journal) that, “As the Group of Eight presidential leaders finish their meeting today in Japan, where food and fuel crises took center stage, the world’s leading ethanol trade groups joined forces to argue it’s not their fault food prices are so high. Their message: Blame oil.

“The U.S. and Canadian Renewable Fuels Association, European Bioethanol Fuel Association and the Brazilian Sugarcane Industry Association all said in a letter to G8 presidents dated Monday that:

“‘…the sudden and rapid increase in food prices around the world has multiple causes, not the least of which is oil already priced at $140 per barrel. Much of the world’s agriculture and food transportation are reliant on oil, and drastically higher oil prices increase prices all along the food chain.’

“Put another way: Stop picking on us for high food prices already.”

Mr. Ball added that, “The ethanol foursome makes strange bedfellows. Bob Dineen, president of the U.S. association, lashed out at a weekend ad campaign by Brazil’s ethanol association that criticized America’s $0.54-per-gallon tariff on imported Brazilian ethanol, saying the ad was designed to ‘mislead and misinform Americans about Brazilian ethanol and American biofuels policy.’”

Keith Johnson posted an interesting update earlier this week at The Environmental Capital Blog (The Wall Street Journal) regarding The Guardian newspaper report from Friday, which indicated that, “Biofuels have forced global food prices up by 75% – far more than previously estimated – according to a confidential World Bank report obtained by the Guardian.”

Mr. Johnson reported that, “The biofuels battle just gets hotter.

We just wrote about the Guardian story on a World Bank report allegedly blaming biofuels for 75% of the recent rise in fuel prices, and which was reportedly suppressed for political reasons. Alas, it ain’t so, Joe, the World Bank says.

Bob Davis of the WSJ spoke with Donald Mitchell, the author of the draft report—which wasn’t secret at all, but a working paper. And like all working papers, it doesn’t reflect the official position of the World Bank.

“The report was meant to contribute to a World Bank position paper on rising food prices, which was released at the Bank’s spring meeting in mid-April.

“The final April report didn’t include his specific calculation. But, Mr. Mitchell says, ‘I never saw that as political.’ Instead, he says he believes the changes were made because of ‘editing.’ He said that he has been encouraged by World Bank management to explore the issue of biofuels and the overall rise in food prices. ‘I had input’ into the final report that was released at the spring meeting, he said.

Mr. Mitchell said that because of the publicity engendered by the Guardian piece, the World Bank is trying to put out a polished version of his report by the end of this week.”

And in EU biofuel news, Sarah Laitner reported in today’s Financial Times Online that, “Contentious plans to raise the European Union’s biofuels use have been dealt a blow after legislators called for the brakes to be put on the proposals.

“EU leaders last year backed a goal of taking 10 per cent of European transport fuel from renewable energy sources by 2020, with biofuels expected to be the main component.

“But European parliamentarians have voted to lower the target, underling growing concerns over the effects of the EU’s plan to turn to plant-based fuels to tackle climate change.

“On Monday, the UK indicated it could retreat from its biofuels aims after a government-commissioned report showed the fuels contributed to food price rises.”

The FT article added that, “Biofuel critics say plant-based fuels compete with food production for fertile land, hurt the environment and create more carbon emissions than they save. They back other forms of renewable energy, cleaner cars and so-called ‘second-generation’ biofuels.”

However, Mark Rice-Oxley reported yesterday at the Christian Science Monitor Online that, “Plenty of EU officials remain convinced that biofuels should remain part of the mix. Michael Mann, EU agricultural spokesman, says that Europe could still hit its target ‘without major effects on food supplies,’ and argues that biofuels have less of an impact on food prices than do failed harvests and burgeoning demand from a growing global population.

“‘The amount of corn the US is putting into ethanol does have an effect on the market,’ he acknowledges. ‘But rice, for example, has seen the biggest increase in prices and it is not used for biofuels. Sugar is a biofuels crop – and its price has gone down.’

“Mr. Mann dismisses arguments that some biofuel production can actually generate more greenhouse gases, saying that all EU biofuels must be at least 35 percent cleaner than fossil fuels to qualify as such.”


Reuters writer William Schomberg reported yesterday that, “Leaders of rich countries will press counterparts from China, Brazil and other emerging economies on Wednesday to help rescue a global trade deal, less than two weeks before the negotiations face a critical test.

“The heads of the Group of Eight nations, including the United States, Japan and Europe’s biggest countries, urged developing countries to keep the World Trade Organisation’s Doha round of trade talks alive by making last-ditch offers on industrial goods and services.”

An AFP article from yesterday indicated that, “World Trade Organization mediator on Tuesday urged countries to bridge ‘absurdly small gaps’ on trade in industrial goods before a ministers’ meeting later this month aimed at hastening the conclusion of a global trade pact.

“‘There is some success on some issues but too many issues remain unresolved,’ said Donald Stephenson, who acts as WTO mediator for negotiations on industrial products.”

And The Telegraph Online reported yesterday that, “Over the past week, the European Trade Commissioner has been engaged in a war of words with the French President over World Trade Organisation negotiations.

“Mr Sarkozy has attacked Mr Mandelson and the Commission over plans to free-up global markets and to cut EU farm subsidies as part of new WTO deal aimed at benefiting poorer, developing countries.

“The former Northern Ireland secretary, who became European commissioner responsible for the WTO talks in 2004, will be briefing EU trade ministers on progress at a meeting in Brussels next Friday.

“‘I’m not going to be bullied,’ he said.

“Mr Mandelson has acknowledged that the French leader is under ‘domestic political pressures’ to protect agriculture and business but argued that France and other EU countries should support liberalised and competitive international markets.”

And Reuters writer Jonathan Lynn reported yesterday that, “U.S. farm exporters will mainly gain access to markets in other rich countries under a likely World Trade Organisation (WTO) deal, new studies released on Tuesday by three major agricultural institutes said.

“The studies, by the International Centre for Trade and Sustainable Development, International Food and Agricultural Trade Policy Council and International Food Policy Research Institute, look at the impact of a WTO deal on the United States, the European Union and India.

“‘The U.S. study shows that the U.S. gains most market access in other developed countries,’ the three organisations said in a joint news release.”

Farm Bill

Reuters writer Charles Abbott reported yesterday that, “The government can prevent abuse of U.S. farm subsidies by adopting stricter eligibility rules for use under the new farm law, two longtime Senate advocates of stricter payment limits said on Tuesday.

“When it enacted the law in May, Congress directed the Agriculture Department to examine topics such as who is ‘actively engaged’ in farming and thus eligible for payments. Critics say lax definitions allow people who have little connection to a farm to collect subsidy payments.

“‘The time to make changes in payment limits is now, during implementation of the new farm bill,’ wrote Sens. Byron Dorgan, North Dakota Democrat, and Charles Grassley, Iowa Republican, in a letter to USDA. They said stricter rules would ‘restore integrity to our payment limit system.’”

Keith Good

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