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Wall Street Journal
Four Ways to Ease A Global Food Crisis Over the Next Year
Four Ways to Ease A Global Food Crisis Over the Next Year
By BOB DAVIS
May 12, 2008; Page A2
Boost research on improving farm yields. Invest more in irrigation and rural transportation. Power African farms with solar and wind energy. Produce biofuels with inedible vegetation, instead of corn.
Each of these steps would help ease the global food crisis -- eventually. But none of them would make a difference over the next year or so. Here are some ideas that could:
Stop hoarding. The current crisis represents a breakdown of the global agricultural market. Skyrocketing prices should boost production of grain, which can be shipped around the world. But not if countries hoard supplies and restrict exports, which is happening in about 40 countries, including China, India, Vietnam, Kazakhstan and Russia.
Hoarding makes sense politically for individual countries. It puts a lid on prices domestically and reassures worried voters. But it is a disaster internationally. Humanitarian appeals haven't done much to help, so the World Bank is appealing to economic self-interest.
The bank helped induce Ukraine to lift grain-export restrictions by persuading Kiev it was ruining its reputation as a global grain supplier. (Ukraine was once the "bread basket of Europe" and would like to be so again.) Ukraine's prime minister hailed the bank's help in tackling inflation.
It didn't hurt that Ukraine wants to join the North Atlantic Treaty Organization and negotiate a free-trade pact with the European Union, so it knows it needs to burnish its reputation. But World Bank President Robert Zoellick says a number of nations can be persuaded that they "undermine their brand name" if they become unreliable suppliers.
He cites the U.S. as proof. In the early 1970s, the U.S. barred soybean exports to fight domestic inflation -- and wound up encouraging Brazil and Argentina to vastly increase soybean production. They are now the U.S.'s toughest competitors.
The World Bank and the International Monetary Fund have another powerful tool they have been hesitant to use. They could forbid borrowers from hoarding local produce as a condition of qualifying for emergency loans. "We try to persuade them of the logic, and not bludgeon them," says Mark Plant, a senior official at the IMF.
Buy locally. The U.S. generally ships sacks of food as its food aid. Europe, on the other hand, ships cash so that food can be purchased locally. Sacks of grain are important in feeding starving masses in the Darfur region of Sudan, where there are few locally grown alternatives. But shipping food can undermine local farmers elsewhere.
Former U.S. Treasury Secretary Lawrence Summers says cash and development aid could be used in combination to persuade traders to sell stockpiles now, rather than store grains in expectation of higher prices later. Cash purchases would drive prices higher temporarily, he says, while measures to boost supply longer term would make a wait-until-later strategy unprofitable. "You need to do things that are directed at lowering the future price relative to the current price," he says.
Josette Sheeran, the head of the United Nations' World Food Program, has been campaigning for more cash aid. President Bush has been trying to help by proposing that one-fourth of the $770 million in food aid he recently pledged come in the form of cash. But that part of the program may not survive opposition from farm-state lawmakers in Congress.
Target subsidies. When people are rioting over food prices, it is easy to understand why governments want to subsidize food purchases widely. But there is a sad history in Asia, Africa and Latin America of subsidies getting so large that they undermine the economy. The issue: figuring out the difference between "poor" and "middle class" when a salary of just $100 a week qualifies as middle class in India, China and throughout Africa.
more at http://online.wsj.com/article/SB1210...fox_australian