Food prices will continue to rise around the globe

from Politico

An examination on the political effects on soaring foord prices in the US. - Kale

By: Samuel Loewenberg

In 1928, Republicans famously promised “a chicken in every pot.” These days, it’s becoming increasingly difficult to promise even an apple for every schoolchild.

And the growing number of poor people around the world will just have to wait in line.

Soaring food prices will surely present unprecedented challenges to the new administration, Republican or Democratic. The impact of the price hikes, with commodities prices up at least 50 percent worldwide, are disproportionately hitting lower-income populations.

Domestically, that means big strains on food stamps and subsidized school lunch programs.

Internationally, an estimated 100 million people are being pushed deeper into poverty — which means hundreds of millions more dollars are needed for foreign aid. And the low value of the dollar exacerbates the situation, since that’s the currency in which most food commodities are traded.

“We are definitely talking about higher prices straining the system for a while,” said Kimberly Elliott, a senior fellow at the Center for Global Development.

The soaring food costs are the result of mix of factors: high energy prices; increased demand from emerging economies such as China and India; the explosive growth in biofuels; and the droughts, desertification and floods that may be linked to climate change.

Food prices are expected to rise domestically by as much as 5.5 percent this year. That affects not only commodity grains but also poultry and dairy products, which will require more expensive feed. The relatively small effect on American food prices is due to the fact that most American food is heavily processed, and therefore commodity grains figure much less in the total price.

The World Bank has projected that the high prices will linger for at least the next two to three years. Corn and soybeans in particular are expected to remain expensive because of their use in biofuel production.

“It is hard to delink the food crisis from the energy crisis,” Elliott said.

At the center of the public policy debate is corn, which has nearly doubled in price over the past year.

Much of the increase is blamed on increased demand, as higher oil prices have led to a significant rise in the use of corn-based ethanol, which receives substantial government subsidies.

The task for the new administration, then, will be to get rid of or reduce the ethanol mandate and subsidies, as well as to allow cheap Brazilian ethanol into the country, suggested David Orden, a professor at Virginia Tech and senior research fellow at the International Food Policy Research Institute.

And that will put the new administration at odds with farm state members of Congress, who so far have proved to have an iron grip on government support of corn-based fuel.

“It could potentially pit an administration against farm state interests,” Orden said, adding that the fight could put particular pressure on Illinois Sen. Barack Obama, the presumed Democratic presidential candidate, who has been a strong ethanol supporter.

Ethanol has been a difficult issue for the presumptive Republican presidential nominee, Arizona Sen. John McCain.

Before his latest run for the White House, McCain had been a vocal opponent of subsidies for the corn-based fuel, contending that it in fact raised gasoline prices. But by the time he was campaigning in Iowa this cycle, he was calling ethanol a “vital alternative energy source.”

Most recently, he joined 23 GOP senators in asking for a repeal of mandates on ethanol use, contending it contributed to the food crisis.

The food price spikes reverbrated on Capitol Hill last week, with officials in charge of school lunch programs saying they were having trouble providing healthy meals. Schools give subsidized meals to 31 million of the nation’s school children, for many of whom it’s a major source of nutrition. “We are struggling to make ends meet,” Katie Wilson, the president-elect of the School Nutrition Association, told the House Committee on Education and Labor. “We simply don’t have the funds to continue with this.”

Federal guidelines mandate that school lunches have large helpings of fruit, vegetables and whole grains. But these are exactly the food groups that have seen the sharpest price hikes.

Nearly three-fourths of Americans are concerned about rising grocery prices, and almost half say that the high food costs are making life difficult in their households, according to a USA Today/Gallup poll.

Domestically, the food crisis is likely to force more people to turn to government assistance in buying food. Those already on food stamps will need even more assistance, because their current food allowance won’t go as far, Orden said.

One important question is how long the crisis will last and whether the current high food prices signal a long-term shift or will ease off after a few years. “Whether it’s really a structural shift, we just don’t know,” Orden said.

What is clear is that the price spikes disproportionally affect the poor in developing countries. In the United States and other wealthy countries, people spend only about 10 percent of their budget on groceries. But in poor countries, people use between 60 percent and 80 percent of their incomes on food.

On July 8, President Bush and the other G8 leaders, meeting in Japan, issued a statement outlining their plan to deal with the crisis, including a commitment of $10 billion to support food aid and agricultural development. The statement also called for speeding up negotiations during the Doha round of the World Trade Organization to reduce trade barriers.

But globalization is not a panacea, and free trade isn’t enough, some critics say. “We should care about economic inequality even in a world where growth has brought unprecedented affluence. Inequality means that international markets provide fewer benefits to poor countries,” said John Echeverri-Gent, a professor at the University of Virginia who recently led a task force of the American Political Science Association on globalization and poverty. Its report found that persistent poverty limits “the number of people who can take advantage of the opportunities offered by economic development.”

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