Thursday, May 08, 2008

Food prices and protest

from The Economist

Taking the strain

The political fallout from the rising cost of food has been manageable—so far

WHEN Haiti's prime minister resigned last month after a week of food riots, it seemed to confirm a warning that Bob Zoellick, the president of the World Bank, had given ten days before. He said 100m people were being pushed into hunger and malnutrition—and 30-odd countries faced social upheaval unless food policy improved and the rich world got its act together to help. A month on, policy has not improved, and the rich world's response has mostly been muddled—yet surprisingly, poor countries have been able to contain the unrest, albeit at heavy cost.

Simon Maxwell, head of Britain's Overseas Development Institute, a think-tank, says one problem is that donors need a single, simple guide on how and where to help, not a clamour of competing United Nations bureaucracies with different plans. There are moves in this direction. The first priority has been to finance the World Food Programme (WFP), the world's largest distributor of food aid, which has been as hard hit by food inflation as any slum-dweller. The WFP asked for $750m this year and has so far got about two-thirds of that.

The UN is also trying to make the international response more coherent. Ban Ki-moon, its secretary-general, has set up a task-force to co-ordinate what the UN agencies are doing and has called a food summit in early June to work out a plan. So far, so good. One unfortunate signal has been sent: the task-force is being run by Sir John Holmes, a British diplomat who is the UN's co-ordinator for Humanitarian Affairs and Emergency Relief. This makes the food crisis look like a short-term, emergency problem, which it isn't—or at any rate, it's not only that.

More worryingly, the crisis has set off a round of bickering over the UN's standing food bureaucracy. Criticism has long been swirling round the largest agency, the Food and Agriculture Organisation (FAO), a body that provides information and technical expertise. On May 4th Senegal's president, Abdoulaye Wade, brought this into the open by calling the FAO a “bottomless pit of money largely spent on its own functioning”. He proposed scrapping it, and incorporating it into another Rome-based UN agency, the International Fund for Agricultural Development (IFAD), which would be moved to Africa.

There is a local element to Mr Wade's strictures: the FAO's director-general, Jacques Diouf, is also Senegalese, and he might one day be a presidential challenger. But Mr Wade's words reflected real discontent with the FAO. An independent evaluation last year damned it for its “heavy and costly bureaucracy”. Merging all three Rome-based agencies (the WFP is there, too) would probably reduce management costs and turf warfare. But it could also stir up a hornets' nest of discontent, and it is not clear that bureaucratic infighting would make the world's response to higher food prices any more coherent.

To be fair, rich countries are already managing to be fairly incoherent without any UN infighting. The hope, at least among economists, was that higher prices would induce rich countries to cut state aid to farmers and—says Paul Collier, a development expert at Oxford University—“lead people to question their pleasant fantasies about GM [genetically-modified] food in Europe and biofuels in America.” So far, there are few signs of that.

True, a group of Republican senators has proposed easing legal requirements to increase the amount of ethanol used in fuel. The British government says it will be “selective” in supporting biofuels. But policy changes are thin on the ground. The current American farm bill proposes only modest cuts in ethanol subsidies. The EU has not changed its biofuels target (10% of all fuel by 2020); it continues to bully developing countries not to plant GM crops and this week refused permission to grow varieties of GM maize and GM potatoes in Europe, passing the products along to the EU's food standards agency for more tests.

While donors squabble, poor countries face riots. But so far, these have had less political impact than many expected. Around 30 countries have suffered protests but only Haiti has seen its government fall. In the Middle East, the part of the world most dependent on food imports, there have been demonstrations and strikes in Egypt, Morocco and Jordan. But all three countries withstood more serious food riots in the late 1970s and 1980s.

In some of the poorest countries, rising food prices have been causing less distress than might have been expected because benefits have also appeared. In Bangladesh, one of the most vulnerable countries, the rice crop is up 10%, prices are about four times production costs and wages for landless peasants are soaring.

Bangladesh has a lot of rural poverty. In countries with millions of urban poor, governments have so far survived demonstrations in part because they are seen to be reacting, whether by issuing ration cards (Egypt and Pakistan) or setting up and expanding social-protection programmes (this is happening almost everywhere, even America). Sometimes, admittedly, reactions are fairly daft. Thailand proposed an OPEC-style cartel for rice, an idea that went nowhere. Many food exporters have gone for beggar-thy-neighbour trade restrictions. Each time one limits or bans food exports, it pushes up world prices—and other governments, equally anxious to keep food inside the country, follow suit. About 30 countries have imposed some form of trade restraint.

Food importers don't have the luxury of making such mistakes. They are buying time by, for example, boosting food subsidies or hiking wages. In Egypt, bread used to be about a fifth of the world price; now it is less than a tenth. Several Arab states have decreed hefty pay rises: 25% for public-sector workers in Syria, 30% in Egypt.

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