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Food market: Fire and farsightedness

Abdul Bayes
IT'S now a well-established fact that most of the countries of the world are grappling with the crisis of three Fs: food, fuel and farming. In fact, after decades of a modicum of calm in the international market forfood, thesudden volatility and its ferocity has seemingly changed the whole course. Real prices of food are still below their mid-1970s peak, but reached their highest points since then. For example, food price index calculated by FAO rose nearly 40% compared to 9% the year before, and prices in the first months of 2008 again increased drastically.
Wheat prices tripled, maize prices more than doubled, and rice prices reached unprecedented heights in March 2008. Meat and dairy products also joined the fiery foray. By and large, the food and nutrition situation of poor people in developing countries woefully worsened to ignite civil unrest in some countries.
The poor people in Bangladesh felt the pinch when high food prices hit them below the belt
over the last year or so. A typical, poor Bangladeshi household with an income of Tk.5000/month, spending half of it on food, will lose Tk.1500 due to a 50% rise in food prices. This is in addition to energy costs-. A Brac-backed survey in 2008 appears to show that real income in rural areas dropped by 20-25%, and the incidence of poverty, after declining, moved upwards. Quite obviously, against this backdrop, national governments and inter-national actors are bent on bringing the situation under control through a panoply of policies.
Joachim von Braun (DG, IFPRI) appreciates these efforts but, in addition, points to some pertinent pockets to be addressed with earnestness, effectiveness and cohesion. We can possibly darw upon some of his submissions and examine their relevance in our context.
Factors fueling the fire
Joachim von Braun reckons that the world food situation and prices of food are driven by the new and ongoing forces shaping both the supply and the demand sides of the spectrum. For example, higher prices of energy are fueling food prices, and these two
items have growingly become interwoven.
The US response to high oil prices resulted in a massive shift of acreage from soybean, wheat and maize to ethanol production. "About 30% of US maize production will go into ethanol in 2008 rather than into world food and feed markets. High energy price have also made agricultural production more expensive by raising the cost of inputs..." Second, poor weather and speculative capital also played a role in fueling food prices. Third, panicky response from some countries in terms of export bans and import restrictions made the international market thinner, thus pushing up prices again. Such nationalistic naivety might bring short-term relief for the countries concerned, but could also recoil in the long run.
On the demand side, rapid growth of population and demand for different kinds of food, increase in purchasing power from rapid economic growth, etc., caused a parametric shift in the demand curve for food. Specially, demand for meat and dairy products are giving rise to demand for fodder, which is
being met by diverting lands from food to fodder. It can possibly be concluded that, more or less, Bangladesh was caught by the abovementioned crises. Most importantly, high-energy prices and poor weather conditions paved the ways for the current peril.
Short-term solutions
The author suggests that in the short-term government should expand social safety net programs. The budget for 2008-09 has rightly earmarked the areas of interventions and allocated a sizeable portion of resources for addressing the ailing poor. Special mention may be made of employment guarantee for 2 million poor people for 100 days at Tk.lOO/day. Extension of the safety nets is another step. Von Braun thinks that donors should also provide more money.
Second, developed countries should eliminate their biofuel subsidies, which are proven to have distorted world food markets. Subsidies on biofuels are, in fact, an implicit tax on staple foods on which the poor rely most. Third, developed countries should eliminate trade barriers to
increase access to their markets by developing countries. If these three steps are taken and implemented properly, much of the rot could be stemmed.
Joachim von Braun suggests policy actions in three areas: (a) comprehensive social protection and food nutrition initiatives to meet short and medium term needs of the poor, (b) investment in agriculture, particularly in science and technology to augment supply in the long run and (c) trade policy reforms through a revision of the developed countries' stance on domestic biofuel production.
A happy note is that the current budget addresses both (a) and (b) by providing special attention. If long-term projects could be materialised, Bangladesh could be on an even keel through a shift in the supply curve of food grains. But opening of market access by developed countries could impart a positive sum game for these types of countries.
Facing the fire, not escaping it...
Rome was not built in a day, but could be burnt in a day. Likewise, stability in the world food market and increase in food security were achieved in decades, but are facing perils in just one year. The recent UN projection shows that the pressure that developed in the food market worldwide might wane for a while in the near future but the prevailing prices of food grains might be well above the previous ones.
It is, therefore, the responsibility of both the developed and the developing countries to frame rational policies with regard to food and agriculture. A world should be created where all people have enough food for a healthy and productive life. The fire in the forest should be extinguished — shifting of respective shelters is of no help in the long run, if we all are not dead by that time. Abdul Bayes is a Professor of Economics at J a h a n g i rnag a r University (abdu3jayes@yatao.com).