Originally published on the CGS blog on May 27, 2008.
As American retailers ration rice in response to the global food crisis and we cheer on Steven Colbert’s team of “The Rice Stuff” interns to the nearest Costco to buy up as much rice as they possibly could for his kiddy pool paella, what the “global food crisis” really means got a bit stirred and fried.
The global food crisis isn?t actually about food. It’s about poverty.
It’s impossible to conclude from the recent Food and Agriculture Organization of the United Nations report that anything other than a modest change in total world food demand has occurred. The aggregate demand for food is stable, and no natural disasters have produced unexpected supply shocks. The crisis is the result of a surge in food prices. What we?re seeing is not a food problem but rather, a food affordability problem. But how has this happened?
At the Global Poverty Roundtable talk sponsored by GlobalWorks Foundation, Dr. Homi Kharas, Senior Fellow at Global Economy and Development, Wolfensohn Center for Development, Brookings Institution, suggested examining the price surge as a reflection of new factors that have entered the market: biofuels and the decreasing value of the dollar.
As the U.S. continues to feed its sharp demand for biofuels by exporting less corn, a change in such an important export does not only destabilize the world food market but also compounds its impact by destabilizing prices of other foods as well. And this supplier-generated volatility of course then becomes dangerous for countries, mostly developing countries, that have been importing most of their foods. Now they can no longer afford to buy.
Further, export restrictions effectively prevent flexible responses to price shocks. Long after the global food crisis coverage became widespread, Japan could not put its unwanted high-grade American rice on the market because a U.S. export restriction prevents Japan “from re-exporting its reserves of US rice without permission from Washington, which has not been forthcoming until now because of the fear of domestic political repercussions from the US rice industry.”
These export restrictions and various protected actions from developed countries are designed to insulate themselves from fluctuations in the market. The World Trade Organization currently has no restrictions on export regulations.
It is worrisome, then, that the world food market, which we have a strong interest in keeping stable, and the world energy market, that realistically has always been very unstable, have now become linked.
Combined with biofuel-generated world food market volatility is the decreasing value of the dollar, that has caused inflation and decreased the income of people in developing nations.
The effect of these two new factors on the market, the sharp demand for biofuel and the decreasing value of the dollar, has been disastrous. The global food crisis in the end, then, is not simply a shortage problem, but a distribution one.
