Higher grain prices putting squeeze on world food aid

from the Chicago Tribune

By Joshua Boak

Feeding the victims of war, drought, natural disaster and poverty does not come cheap. Especially if you pay with cash.

The United Nations World Food Program budgeted $2.9 billion for its operations in 78 countries this year. But record prices for wheat and corn have unexpectedly left the organization needing an additional $500 million, causing its executive director to appear on "The Oprah Winfrey Show" and tour the Chicago Board of Trade grain pits with actress Drew Barrymore this week.

"When people don't have access to food, it creates instability," warned Josette Sheeran. "In a way, the World Food Program is the canary in the cave."

That canary has been chirping loudly, partially because of an increasingly critical shift in how governments support food-aid programs. In-kind contributions of surplus crops made up the majority of the program's budget until 2003. But the World Food Program primarily relied on cash donations last year, leaving the organization vulnerable to higher wheat, corn and soybean prices that have slashed its purchasing power by 40 percent since June.

Chicago grain traders noted that Monday's $1 million donation by Barrymore to the program was noble in its intent, but that commodity prices were largely unaffected. Wind, rain and sun matter far more than the presence of one of "Charlie's Angels."

"The weather is always a paramount concern," said Vic Lespinasse, who trades for Illinois Grain.

Global food-aid deliveries totaled 6.7 million tons in 2006, the lowest amount since 1973, the World Food Program said. And deliveries could fall further after two straight years of poor wheat harvests, growing appetites by emerging economic powers such as China and India, and the transformation of corn and palm oil into biofuels.

Prices might continue to climb, according to an analysis by the International Food Policy Research Institute. The Washington-based organization estimated that the expansion of the biofuels industry alone could increase the price of corn by 72 percent over the next dozen years.

Unless the current prices are offset by additional funds, more than 20 million people could be left hungry, said Christopher Barrett, a Cornell University economics professor.

The hungry could respond by filling their stomachs a little bit less each day, making them more prone to disease and injury, Barrett said. They also could become refugees or willingly suffer an even worse fate.

"In particularly horrible cases, they sell their kids or themselves," Barrett said.

Underlying this crisis is a subtle policy change that has been magnified by the higher commodity prices. In the 1950s and 1960s, the U.S. government amassed large stocks of wheat and other crops through a loan program that accepted farmers' harvests as collateral.

When commodity prices fell below the loan rates, the farmers shipped their crops directly to the government, which then unloaded them as aid to less fortunate countries.

But after the 1985 and 1990 farm bills amended the program, the government began to buy its food aid through the market. The food acquired by the U.S. Agency for International Development represents about 40 percent of the World Food Program's supply.

"We don't have government-owned stocks anymore," said Carol Goodloe, an Agriculture Department economist. "We have to go out into the marketplace and buy commodities."

In response to this transition, President Bush proposed a program in his State of the Union address that would purchase food aid directly from farmers in developing countries. That would echo a phenomenon already at work in the World Food Program. The UN entity bought 35 percent of its food aid from developing countries in 2006, compared with just 11 percent in 2002.

But that proposal has yet to generate much momentum in Congress, which is considering a bill that food-aid organizations say could further restrict funding. It would forbid the government from using non-emergency food aid in crisis situations, possibly fencing off half of the $1.2 billion it allots for food aid.