176 ESCTER 09 E bis - Food Price Shocks and their Implications for Food Security

1.   During the run-up to the recent global financial crisis, global prices in food and energy began to soar. A 25-year downward trend in global real food prices had come to an abrupt halt.  In 2007 and 2008 food prices surged with the price of staple foods such as rice and vegetable oil doubling between January and May 2008 (Demeke, Pangrazio et al.). Although developing countries tend to be most sensitive to food price movements because such a high percentage of their GDP is spent on food, these particular price rises were so sudden and steep that they were also felt acutely in the world’s most developed countries, where a far smaller percentage of income is spent on food. The World Food Programme estimates that the number of undernourished people in the world rose by 40 million to a total of 863 million (Blas) since the price explosion.

2.   In the public mind, those price movements also became linked to the financial crisis that had begun to rear its head at roughly the same time, even though the current economic crisis is rooted more in macro-economic imbalances and regulatory lacunae, while the food crisis grew out of several structural developments specific to food and commodities markets. That said, the coincidence of rising food and energy prices and the bursting of the US housing market bubble fed mounting market pessimism just as the world began to move toward recession.

3.    The conventional wisdom has been that the 2008 food price increases were due to a speculative bubble and investors’ expectations about future commodities prices as expressed in standing future markets. But closer analysis suggests that soaring commodity prices have reflected structural changes in markets reflecting real energy and food scarcity. Indeed, the London-based research institute Chatham House has suggested that very recent declines in previously soaring food prices are ephemeral and will rise again once the world economy moves into a recovery phase (Blas). According to the American economist Paul Krugman, purely speculative price increases for commodities usually coincide with stock hoarding: speculation on future prices can affect spot prices only if it lowers supply to the spot market, i.e. if current production is not available because it is hoarded for future sales.  As food stocks for many commodities that underwent sharp price increases were at an all time low in 2008, real supply constraints, rather than stock hoarding, were likely a primary source of rising prices.  Moreover, commodities prices have remained relatively high despite the sharp global economic downturn. Commodity prices are higher today, for example, than during the boom in early 2000. This, too, could suggest that real longer term supply constraints are operating within the market (Krugman). In any case, the effects of these increases were profound. To take one example, at one point last year, the Philippines simply could not find any rice on global markets and this helped drive domestic rice prices through the ceiling.  That rice is a staple in the Philippine diet suggests that the problem there was extremely perilous. It also set off a panic round of protectionism in the region which only made the problem worse, both in and beyond Asia (NATO PA Mission Report).

4.    For the moment, however, the onset of a deep and synchronized global recession has driven down both energy and, to a lesser degree, food prices. The price of corn, wheat and rice fell earlier this year between 60% and 70% from their highs last year, but this should not give a false sense of security. Tight market conditions suggest that the fundamental problems have not been resolved.  The fall-out from last year’s price shock is still evident. Indeed, according to the Food and Agriculture Organisation (FAO), prices of main staple food commodities have remained stable in most of the countries in recent months, though they are still significantly higher than their long term averages. “The cost of the food basket is still higher in 2009 than last year and long term averages” (FAO, 4 July 2009). As for international export prices, rice continues to sell at prices 75% higher then pre-crisis levels, and this is largely due to an array of governments interventions which have kept global supplies low (FAO, 4 July 2009). Food prices thus seem to be sticky downward, as economists would say, and have not fallen at the rate that other commodity prices have fallen. Governments would be ill-advised to ignore this trend. The return to global economic growth and likely future energy price rises will precipitate future rounds of food price rises. When rooted in structural shortages, these price rises ought to raise serious concerns about global food security.

5.   In developed countries, food and energy price rises began to hit consumers just as the global financial crisis struck, thereby feeding the sense of economic anxiety and declining confidence. But for much of the world, food price shocks are not simply an inflationary inconvenience. In developing countries, they can have socio-economically devastating and indeed politically destabilizing effects as they drag millions into deeper poverty and more precarious living conditions. Indeed, last year at least, 30 countries around the world including Cameroon, Haiti and Egypt experienced serious riots and instability due to soaring food prices. Those supply shocks and the public reaction to them compelled governments worldwide to undertake measures to ensure security of supply for their populations, oftentimes introducing policies that, at least in global terms, have had extraordinarily adverse effects. Indeed, many of these policies offer no long-run solutions as they essentially constitute “beggar thy neighbour” approaches.

6. In current conditions, Africa finds itself in a particularly challenging situation. The African economist Angela Mwaniki defines food security in the following way:

(…) a situation in which all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active healthy life; is affected by a complexity of factors. These include unstable social and political environments that preclude sustainable economic growth, war and civil strive, macroeconomic imbalances in trade, natural resource constraints, poor human resource base, gender inequality, inadequate education, poor health, natural disasters, such as floods and locust infestation, and the absence of good governance. All these factors contribute to either insufficient national food availability or insufficient access to food by households and individuals.

7. To begin with, Africa  has made far less progress toward poverty alleviation than the rest of the developing world. It suffers from war, civil strife, health crises and poor governance, all of which undermine efforts to increase farm productivity. The case of Mugabe’s Zimbabwe is instructive insofar as it has demonstrated how poor governance turned one of Africa ’s most successful food producers and exporters into a country sinking into poverty and malnourishment. Moreover, drought and famine are hardly rare occurrences on a continent where food security conditions have actually worsened since 1970.  Thus, while the rest of the world has made significant progress in achieving food security, in Sub‑Saharan Africa the proportion of malnourished people is approaching 35% overall and 40% in Central Africa. Seventy percent of malnourished people live in rural areas. One obvious key to addressing the problem will lie in increasing farm efficiency while creating new non-farm employment opportunities in the countryside (Mwaniki).

8. According to the FAO, as of last spring, food prices in 89% of Sub-Saharan African countries were higher than they had been the previous year.   All Sub-Saharan countries surveyed experienced higher rice prices.  Eighty-nine percent of the countries hade higher prices for maize, millet and sorghum, with prices for maize in Kenya rising by 43%.  In Sudan, the price of sorghum had increased by 68%.  Not surprisingly, the food crisis added 115 million to the ranks of the hungry. The World Bank estimates that globally the financial crisis will push 53 million people into extreme poverty – and that number could be much higher. This will worsen nutrition, and poor nutrition is tied to 3.5 million child deaths each year, many of these on the African continent (Sheeran). Indeed, hunger has long‑term and damaging developmental implications as it mentally and physically stunts the development of children. The adverse effects thus endure for decades.

9.   Finally, last year’s price shocks have revealed that food supplies and food prices could pose long-term economic, humanitarian, political, developmental and security challenges not only to developing countries, but also to the industrialized world. The problem, however, is highly complex and evades simple solutions. This paper will delve into some of these complexities, explore key aspects of the food security challenge including the energy-food price nexus, the policy choices governments confront in addressing both short and long-term challenges related to food security and steps governments may need to undertake in order to improve food security both nationally and internationally.

A.     NATIONAL RESPONSES TO THE PRICE SHOCK

10.   One effect of the recent price shock was to distort further already congenitally warped and protected agricultural markets across the world. Quite naturally, governments in a range of developing countries sought to insulate their publics from the worst effects of rising prices. Politicians often chose export restrictions and/or import tariffs to ease pressure on domestic food prices and supplies, but it quickly became clear that such policies only exacerbated global shortages and price increases, particularly as many countries were pursuing similar ends through such policies. 

11.   A recent survey of 81 Asian, African, Latin American and Caribbean countries by the FAO revealed that governments responded to rising food prices in three broad ways:

1)   Trade-oriented policy responses that employed tariffs and export restrictions to reduce prices and/or increase domestic supply;

2)   Consumer-oriented ‘safety net’ policy responses that directly supported consumers and vulnerable groups in the form of food subsidies, social safety nets, tax reductions and price controls;

3)   Producer-oriented policy responses designed to encourage farmers to increase production through measures such as input subsidies and producer price support (Demeke, Pangrazio et al.).

12.   Of these responses, market and trade measures have had the greatest impact on food prices.  In particular, the sale of grain from public stocks or from imports has proved effective in driving down local prices. Countries carrying large reserve stocks were able to respond more quickly and at a lower cost than those with limited or no reserves.  China, for example, escaped steep increases in grain prices that struck other Asia-Pacific countries because of its bumper harvest and national grain reserve system.  The sale of public stocks proved so effective that the Saudi Arabian government proposed that rice importers raise their stocks of grain by 50% in 2008 to have reserves capable of covering between six and eight months of national consumption (Demeke, Pangrazio et al.).

13.   The restriction, or banning, of food exports has left a more ambiguous legacy. Twenty-five out of the 81 surveyed countries – including Argentina, Cambodia, China, Egypt, India, Kazakhstan, Pakistan, Russia, Ukraine and Vietnam – restricted food exports in an attempt to shore up domestic supplies. The measures undoubtedly suppressed rice prices in Asia, particularly in China and India, which experienced price rises of only 26% in 2008 compared to the global figures estimated to range between 95% and 135%. Yet, globally, these same policies also led to dramatic price volatility and provoked serious shortages. By enforcing export limits, major rice exporters like India and Vietnam only exacerbated global shortages (Brahmbhatt and Christiaensen).

14.   Price controls have also been singled out for their potentially nefarious knock-on effects.  Artificially fixing maximum retail and wholesale prices can prove popular in the short-term, but such policies ultimately erode incentives for domestic producers to boost production; they reduce privately held stocks while opening the door to black markets.  Unfortunately, this policy line has proved particularly popular in Africa, where ten countries implemented such price controls (Demeke, Pangrazio et al.). Consumer safety nets have been less common than market or trade interventions because mobilizing and distributing the necessary cash or food is difficult for poorer countries with low administrative capacity. This is just as well, as such measures can fundamentally disrupt local production and consumption patterns and oftentimes fail to benefit the most needy.

15.   The effects of potentially promising production-oriented measures such as production subsidies and tax exemptions on fertilizer and farm machinery are not always effective in achieving the intended goals and can provoke other distortions. With fertilizer prices soaring during the recent crisis, subsidies for their use became particularly onerous for government budgets. Many fertilizers, of course, are petroleum based, and their prices are thus linked directly to movements in energy markets. Fertilizer prices accordingly soared when oil prices shot up last year. This, in turn, became a daunting impediment to bolstering food production in poorer countries.  Unable to underwrite the suddenly high costs of fertilizer, many countries were consequently poorly positioned to boost production in response to rising food prices. In economic terms, high fertilizer prices rendered the supply response to rising commodity prices insufficient to meet demand; farmers in many developing countries lacked the means to bolster output because the upfront costs for fertilizers had simply become too high (Demeke, Pangrazio et al.).

16.    As this case suggests, responding to the food price crisis has severely burdened the budgets of a number of poorer countries. In 2008 food and agricultural subsidies alone were projected to consume between 2% and 4.5% of the GDP of Bangladesh, Belize, Iraq, Malawi, Mauritania, Mexico, the Philippines and South Africa. Increased food and fuel prices led to a 50% reduction of the foreign exchange reserves of several African countries including the Democratic Republic of Congo, Ethiopia, Madagascar and Zimbabwe. Many countries were simply tempted to turn away from market solutions. Some governments employed subsidies to ease the burden of high food prices, while food exporters severed domestic prices from world prices by implementing export restrictions and price controls.  In the wake of the crisis, several countries, including China, Indonesia, Malaysia, the Philippines and Senegal, declared that food self-sufficiency represented the best strategic response to rising food prices, and rejected the notion that trade might offer a way out.  This logic seems fundamentally flawed on several levels.  

B.            TRADE AND FOOD SECURITY

17.   Among economists, the notion that countries can benefit from trade is perhaps the most generally shared of all classical economic propositions.  But economists do not rule the world, and agricultural trade remains mired in protection and regulation. In November 2001 a new round of trade negotiations was launched at Doha, Qatar, to lower a range of trade barriers, many of which are impeding the development prospects for the world’s poorer countries. Those talks are, however, advancing at a glacial pace. In the current trading order, food producers in developing countries are frequently and systematically denied full access to Western markets.  This naturally limits farm income and starves farmers of the capital they need to increase productivity. Of course, increased productivity will be essential to achieving global food security goals, and so it is safe to assert that the current trading order, itself, has diminished global food security.

18.    The potential gains from further global trade liberalisation are substantial. Some estimates indicate that liberalizing merchandise trade and eliminating agricultural subsidies could boost global welfare by nearly $300 billion a year by 2015. Additional gains would come from the productivity gains that further reforms would generate. Moreover, developing countries would gain disproportionately from global trade reform. It is estimated that they would enjoy 45% of the global gain if merchandise trade were fully liberalized. Their welfare would increase by 1.2%, compared with an increase of just 0.6% for developed countries. This is because developing countries have relatively higher tariffs themselves so they would reap substantial efficiency gains simply by reducing their own level of protection. 

19.   Cuts in bound tariffs and subsidies in agricultural markets will be essential to progress in trade talks.  Agricultural protectionism is responsible for more than three-fifths of the global wealth forgone in the current trading order - even though agriculture and food processing account for less than 10% of world trade and generate less than 4% of global GDP. Indeed, agriculture is just as important for the welfare of developing countries as it is for the world as a whole. But the gains to developed countries from global trade liberalization would constitute almost two-thirds of their total potential gains.

20.    Boosting access to agriculture markets is thus crucial to any effort to improve food security. Trade negotiators, however, have focused most of their attention on the abolition of export subsidies. The framework agreement envisages their complete abolition and only partial reform of standing agricultural tariff systems.  Yet, extremely high tariffs on farm products relative to non‑farm products are the major reason that food and agricultural policies account for 63% of the cost of current merchandise trade distortions. Subsidies to farm production and exports exact relatively small costs by comparison (Anderson and Martin).

21.   Earlier this decade, simulations of the welfare gains from complete liberalization of merchandise trade were suggesting the world economy would be as much as $800 billion richer if the Doha Round were completed successfully and that roughly two-thirds of these gains would accrue to developing countries. More recent studies suggest more modest gains (Global Subsidies Initiative). The more optimistic view of trade liberalization’s impact on poverty failed to account for regional agreements, preferential schemes and recent policy changes in trade and agricultural policies, all of which have made for a more globalized trading order than was previously envisioned.

22.   Nevertheless, most trade modellers expect that the effects from further trade liberalization would be very positive. There is certainly agreement that world welfare would increase, largely due to the elimination of agricultural distortions. This welfare gain could be amplified by up to 80% if openness were to bolster factor productivity. At the same time, liberalization would generally contribute to poverty alleviation as remuneration of unskilled labour would be expected to rise in numerous developing countries, especially in South America, Sub-Saharan Africa and developing Asia (Bouët and Berisha Krasniqi). Finally, it would lead to greater diversification of supply and more efficient employment of factors of production, both of which would enhance global food security.

23.    Several countries have also sought to circumvent normal international trade simply by purchasing or leasing huge tracts of foreign land for the production of food expressly targeted for domestic consumption. In recent years China has signed some 30 land deals in Africa, Australia, Central Asia and the Philippines to ensure that it has access to fertile land to meet its public’s food demands.  Saudi Arabia is also acquiring land in poorer countries in Sudan, Ukraine, Pakistan and Thailand (Blas and England ). Jacques Diouf, Director General of the FAO, has warned that such practices risk creating a new form of neo-colonialism, but the situation is complex and there are potential benefits as well. The ­­­­devil lies in the details.  

24. Alarmed by protectionist measures adopted by major crop exporters to control domestic prices, a number of food-importing countries are using direct land purchasing to better secure basic food provisions and insulate their domestic markets from international market turmoil. In effect, these countries are outsourcing farm production to countries with capital scarcity and land abundance. To avoid market intervention, governments and politically influential companies buy or lease farmland abroad, where they grow crops and ship them back to their home countries (The Economist, 21 May 2009).   These deals often exempt investors from taxes for the first few years. Of course, there are potentially important water and other resource implications, as those working these lands are able to draw on local water sources, which means that they can potentially compete for water with local farmers if water is scarce. 

25. This is obviously a problem. Several recent contracts give a sense of the scale of some of these projects. South Korea   , for example, recently signed a deal to use 690,000 hectares of land in Sudan, while the United Arab Emirates and Egypt signed for 400,000 hectares each. Current projects primarily focus on staples or biofuels like wheat, maize, rice, jatropha. China, however, has leased 2.8 million hectares for a palm-oil plantation in The Democratic Republic of Congo, which would be the world’s largest such plantation. China is also negotiating to grow biofuels on 2 million hectares in Zambia. According to Ethiopia 's Agriculture Ministry officials, the country is negotiating 2.7 million hectares of land with foreign companies from the Middle East and East Asia (Ashine). India 's total investment in Ethiopia was $300 million three years ago but that figure has now grown to $4.3 billion (The Economist, 21 May 2009). Developing countries themselves are thus leasing land now for food security.

26. Needless to say, there are some ethical concerns about this practice. Although leased land can be formally owned by the state, it is often the case that local farmers have farmed land for generations and risk being kicked off it to make room for the investors. Cash starved states are sometimes willing to make land available to foreign renters even when it is already being farmed by local farmers. The practice naturally can spark social and economic tensions. Zambia  and Madagascar have already undergone turmoil linked to these types of land deals.

27. One should not, however, ignore potential upsides to this practice. Supporters suggest that it can put pressure on local governments to pursue much needed land reforms. Foreign investors, moreover, bring know-how, capital and technologies that can have broader spill over effects if the investment climate is properly structured, which is not often the case. Obviously, good governance is a prerequisite for positive outcomes. A code of conduct could be a first step towards building a more secure way to conduct these business transactions (The Economist, 21 May 2009). The African Union, for example, signed a declaration at its summit in July 2009, which highlighted the need to strengthen negotiation tools for developing countries possessing land sought by larger and more powerful states.

 C.     BROAD TRENDS IN FOOD DEMAND AND SUPPLY

28.   According to the FAO, the rate of growth of food demand is expected to slow over the next 30 years, although the net demand for food will certainly increase. There are no one-to-one trade‑offs between population growth and the total food supply. The world's population doubled between 1960 and 2000; yet, in global terms the level of nutrition improved in that same period while the prices of rice, wheat and maize - the most important food staples - fell by roughly 60%! In other words, food supply growth exceeded food demand growth and more than compensated for population growth. It is expected that future demand growth for agricultural products will slow further - to 1.6% a year for the period 1997-99 to 2015 and to 1.4% from 2015 to 2030. In developing countries the slowdown will be even greater, from 3.7% for the past 30 years to an average 2% for the next 30 years (FAO World Agriculture: Toward 2015/2030). This largely reflects the global slowdown in population growth. The latest UN figures suggest that from 6.1 billion people in 2000, the world population will grow to 7.2 billion in 2015, 8.3 billion in 2030, and 9.3 billion in 2050. This is a substantially slower rate of growth than that of the recent past.

29.    Of course, income and poverty levels constitute another vital component of food demand conditions.  The World Bank had estimated that by the year 2015, it will be at least theoretically possible to achieve the Millennium Development Goal of halving the  proportion  of people living in absolute poverty - defined as an income below US$1 per day – starting from the 1990 level. But the  number  of poor people will not likely be halved, particularly in light of the global financial crisis which has had a devastating impact on the developing world and rendered the achievement of Millennium Development Goals all the more elusive (NATO PA Report, 4-6 May 2009). The hope had been that the number of those living in absolute poverty would fall from 1.27 billion in 1990 to 0.75 billion in 2015. East and South Asia were to account for much of the improvement. But in Sub-Saharan Africa, where incomes are likely to grow very slowly, the numbers living in poverty will likely rise from 240 million in 1990 to 345 million in 2015. By then, two out of five people in the region will be living in poverty and this does not even factor in the impact of the current global crisis.   Indeed, the global crisis has profoundly worsened problems for the world’s hungriest people. Incomes are falling, joblessness is rising, remittances are falling, and exports are slowing. For those living without safety nets, the situation is dire, and hunger is becoming a distinct possibility for millions who enjoyed a proper diet when the world economy was growing (Sheeran).

30.   China has been a catalyst for growth in global food demand but will paradoxically also be a major factor in the slowdown of food demand. By 1997-99 the Chinese had reached an average daily food consumption of 3,040 kcal per person - only 10% short of the level in industrial countries. Over the next 30 years, its aggregate food consumption will grow, but only at only a quarter of the rate of the past three decades, while its population will expand at a third of its past rate. As it grows wealthier, China will spend a lower percentage of its income on food. This broad slow‑down on Chinese food demand is globally consequential and will further lower the global growth rate of food demand. For its part, India 's daily average food energy intake per person is still below 2,500 kcal, a level which, unlike that of China ’s, could potentially rise substantially. Moreover, India ’s population will expand at an average of over 1% a year over the next 30 years. Theoretically it could assume China 's role as the principal engine of growth in world agricultural demand. But this is unlikely, in part, because Indians are somewhat more inclined towards vegetarian diets, and this means that even an ever wealthier India could place somewhat less pressure on resource intensive protein markets than a rapidly developing China, which appears to have more of a preference for animal proteins. Vegetarian diets put far less stress on the food chain and on the environment for that matter.

31.   Despite food production increases over the years 1997-99, there were still roughly 777 million people suffering from malnourishment in developing countries, or roughly one person in six in that period. This represents only a slight improvement over previous rates. Again it has been China ’s rapid development that has skewed global figures. When China is excluded from the statistics, the number of under-nourished people actually increased in other developing countries by some 40 million. The region with the largest number of under-nourished people in 1997-99 was South Asia, where roughly one-quarter of the population was under-nourished. Sub-Saharan Africa, however, had the highest proportion of under-nourished people; one-third of the total population in Africa did not have enough to eat. War and civil strife were significant factors in many of these cases.

32.   Some studies now suggest that there is sufficient land, soil and water, as well as a potential for further growth in yields to increase global food production to meet future food demand. In fact, production growth rates in the future will not have to match those of the recent past. Yet changes in the policy environment to encourage greater production will nevertheless be needed to meet future food demand. Moreover, it is not at all clear that millions of consumers will have sufficient income to pay for the food they need or have access to the financial and physical capital resources needed to bolster food production. Food insecurity could continue to pose serious problems to both the urban and rural poor for a range of reasons including low income, climatic problems, desertification and problems with the quality of soil, as well as man made challenges like war and poor public policy. All of these could foster localized problems of food security.

33.   Research and development of new agricultural technologies, credit provisions, income support as well as sensible agricultural and economic policies will thus all be critical to meeting food security needs both globally and locally.  But there are also profoundly important synergies to be had by fostering reconciliation and peace in troubled parts of the world, creating the conditions for sustainable economic and human development, in general terms, and specifically building genuine food security through a range of policies including more open trading markets (FAO World Agriculture: Toward 2015/2030).

II.             VOLATILITY IN FOOD PRICE MOVEMENTS

34.   It would be misleading to suggest that there has been one overriding factor driving highly erratic food price movements in recent years. Market changes are complex, and numerous factors shape conditions on both the supply and the demand sides of global commodity markets.  It is important to recognize first that food commodity prices themselves are historically unstable. Indeed, one of the problems of anchoring a national development strategy in agricultural or any commodity-based production is that global prices can move so quickly and so deeply that it can be very difficult to engage in long-term financial planning. National economies dependent on agricultural sales can become hostage to the price movements of a few commodities that, in turn, can upset conditions for the development of more diversified economic foundations. Moreover, supply conditions in food markets are shaped not only by normal market forces, but are also strongly conditioned by seasonal climatic factors like rain, drought, disease and plague, as well as man-made factors like war and environmental degradation. Agricultural production is also extraordinarily sensitive to government policies which, at times, can have profound effects on land use, planting strategies, food supplies and ultimately on demand and price. War too profoundly conditions food markets, particularly at the local level, but historic examples abound of war having dramatic effects on regional and global food prices as well. Energy prices also bear directly on food prices, not only because energy is a key input into food production, but also because some basic foods are increasingly sources of energy themselves and are now understood to function as substitutes, if still imperfect ones, for oil and gas. Income and credit conditions, of course, will always shape both supply and demand in food markets and thus will condition prices. Finally, it is important to recognize that even discrete changes in supply and demand conditions in certain key markets can weigh heavily on the global volume of food trade as well as on prices. In short, playing in world markets is a risky if nevertheless potentially lucrative business.

35.   As suggested above, market conditions have undergone important changes with serious price implications.  Falling food prices earlier in the decade had led to relatively low levels of investment in agriculture production.  This had a rebound effect when prices suddenly exploded at the end of 2007 and was clearly a factor in the reduced capacity of the world agricultural system to react quickly to rising prices and new market opportunities. Poor credit conditions due to the financial crisis resulted in rural credit bottlenecks, particularly in poor countries. The resulting slow supply side reaction to the surge in prices only exacerbated the price hikes. Bad weather over the last two years has also played a role in many important exporting countries, most notably Australia, where world cereals stocks were already low for this reason. Since 2005, Canada, Australia and the EU have undergone sharp declines in grain production largely due to natural factors and particularly drought.

36. In what many saw as a perfect storm in food markets, soaring oil prices also helped drive up food production and transport costs while stoking demand for grain based biofuels (Demeke, Pangrazio et al.). Oil prices rose from US$30/barrel in early 2003 to US$140 by the end of June 2008.  Moreover, OECD and non-OECD countries’ reserves of cereal stocks declined sharply from 2005 to 2007, reducing the potential buffers to these price movements. These grains are particularly important in the food production chain because they are both consumed directly and are also used for feed and increasingly for biofuel production, helping to link food and commodity markets more tightly than in the past. Key food commodities also serve as substitutes for each other. Thus rising prices for one commodity invariably drag other commodity prices upwards.  Mounting maize prices from 2004-2005 onwards, for example, drew producers away from oilseed production into corn, and the fall in oilseed production, in turn, pushed oilseed prices skyward as well.

37.   Significant changes in consumption are also at work in recent price movements. The rapid expansion of overall food consumption, and especially animal protein, in developing countries during the global economic boom of 2004-07 ­­­took place just as a sharp increase in demand for non-food agricultural products, such as timber, fibre and biofuels, reduced the arable land dedicated to food production (Demeke, Pangrazio et al.). Substantial income growth and dietary changes in some of the world’s most rapidly developing countries are having a profound impact on global food markets. Millions of Indians and Chinese have moved into the middle classes as a result of rapid and deep development in both of those countries. The emerging middle classes are not only using their ever-mounting purchasing power to buy durable goods and houses, they are also opting for a richer diet. In China, in particular, consumers are eating more protein-rich foods. Soaring demand for meat in that country has been a central factor in rising global meat prices, but it has also stoked rising animal-feed and grain prices. Indeed, it is expected that non-OECD countries will drive most future growth in global agricultural demand. This is both heartening and worrying. It implies that millions in developing countries are eating better, but it also suggests that there may be problems meeting that burgeoning demand, and that this, in turn, could lead to a structural increase in food prices. This would be bad news for many consumers and particularly for those living in or on the knife edge of poverty.

38.   The weak dollar has also played its part in the food-price crisis. Prices of many global commodities are set in US dollars. Because the dollar has remained weak in recent years, farmers in many countries have not enjoyed the same income increases in domestic currency terms than has occurred in world prices for food (Boonekamp). This not only undermines farm income, it also reduces the incentives to raise production to meet demand conditions. A weaker dollar has therefore dulled price signals. In economic terms, the supply response to rising food demand has not been as “elastic” as one might have expected. In other words, farmers have not increased their output to the extent that might have been expected because the price signal to the world’s farmers has not fully reflected the real price rises that consumers confront.

39.   As suggested above, energy costs are closely bound to food prices. According to the International Energy Agency (IEA)’s recent World Energy Outlook, while energy prices have recently fallen from historic highs due to the global recession, long-term supply and demand trends suggest that current prices are significantly below likely long-term price trends. The IEA’s reference scenario forecasts a global increase in energy demand of 45% between 2008 and 2030.  Meeting that demand is going to require massive investments particularly as currently operational oil fields begin to deplete (World Energy Outlook). Some of these investments are not likely to be made for myriad reasons and this, in turn, could lead to supply constraints that would invariably stoke energy price rises. High fuel prices, in turn, will lower the capacity of food producers to adjust agricultural supply to meet higher world demand, and this, invariably, would put upward pressure on food prices (Boonekamp).

A.     BIOFUELS AND FOOD SECURITY

40.   Increasing demand for biofuels was clearly a factor in last year’s food-price increases, although the exact relationship is a matter of some dispute. Biofuels, which are derived from organic matter, are frequently characterized as potential alternatives to fossil-based fuels like petrol.  The leading biofuels today are ethanol (produced predominantly from sugarcane and maize), and biodiesel (produced using rapeseed, palm, and soybean oil).  Brazil, the US, and the European Union are the world’s most important producers of biofuel. In 2007, approximately 23% of USA coarse grain production was used to produce ethanol, as was about 54% of Brazil ’s sugar‑cane crop.  Roughly 47% of vegetable oil production in the EU has been dedicated to biodiesel production in recent years (FAO The State of Food and Agriculture). The US government heavily subsidises corn cultivation for ethanol, and is paying out roughly 50 cents a gallon for the nine billion gallons of ethanol that the country produces annually.  Europe, too, pays out large subsidies for biofuels – €3.7 billion in 2006 alone, according to one study (Kutas et al.). In spite of these huge subsidies, ethanol currently makes up only 4.5% of the gasoline fuel market in the United States, and only 3% of the biodiesel fuel market in the EU (FAO The State of Food and Agriculture).

41.    Theoretically, biofuels represent an attractive alternative, or more realistically, a supplement to oil and gas use. Biofuels are theoretically renewable, although fertilizers needed to grow them are often petroleum based. Moreover, they can be produced domestically or in friendly countries, thereby adding a degree of supply security to the overall energy mix. They are also theoretically cleaner and emit less greenhouse gases, although again in practice the chain of production for certain biofuels produced in northern climes generally demands a rather substantial energy input.  Indeed, biofuels were once hailed as a way to enhance energy security, mitigate climate change, and promote agricultural and rural development. That claim must now be qualified, as many energy analysts and environmentalists deconstruct several of these core assumptions. 

42.   Energy security and environmental security are perceived to represent the “external” benefits to using biofuels and, according to this rational, their production should be subsidized so that these collective benefits are reflected in the final price. In other words, it is often argued that governments ought to underwrite their costs to ensure that the ostensible benefits they confer are made generally available in the market.  With this logic in mind, many countries have established elaborate subsidy programmes for a range of products like corn and soy based ethanol and biodiesel fuels. Beyond the debate surrounding the actual environmental and economic benefits of doing so, there are growing concerns that these policies are diverting land and feed-stocks away from food production, thereby triggering food price increases. Of course, energy and agriculture markets have long been closely linked because of the energy required for modern farming, particularly with regard to petroleum based fertilizers and pesticides. The growing demand for soy, corn and sugar based biofuels, often stoked by government subsidies, has now added another important and not always helpful link.

43.    Not surprisingly, a number of agricultural economists are growing very wary of biofuel production as it has reduced the amount of land, water and capital dedicated to food production while driving up basic agricultural prices. Yet there are disagreements on the exact size of this effect. Last year, then US Agriculture Secretary Ed Schafer argued that biofuel production had raised food prices by no more than 3% (Holmes). A World Bank policy research working paper, however, suggested that biofuel production has boosted prices for a range of key agricultural commodities by as much as 75% (Mitchell). The FAO estimates that roughly 14 million hectares of land were used for the production of biofuels in 2004, a figure projected to rise 2 – 3½ times in the next 20 years mainly because of support policies in the OECD countries (FAO The State of Food and Agriculture). The FAO believes that while biofuels will continue to offset only a modest share of fossil energy use over the next decade, they will have much more consequential effects on food security.  The price of maize and oilseeds doubled during 2007-2008, partially as a result of the aforementioned US and EU subsidies, and FAO Director General Jacques Diouf has gone on the record in arguing that, “$11bn-$12bn a year in subsidies and protective tariff policies have the effect of diverting 100 million tonnes of cereals from human consumption, mostly to satisfy a thirst for vehicles” (Holmes).

44. It is clear that a significant share of US corn production is being diverted into ethanol production. Because only a small fraction of the world’s grain is actually traded on world markets and because the United States accounts for half of the world’s grain, a diversion of as little as 10% of total US corn production into biofuel production can have a significant global price effect. Thus American domestic farming policy can have a massive effect on world supplies and prices.  It should be noted that Europe as well has the capacity to effect global prices through its internal policies (NATO PA Mission Report).

45.   For its part, the UN has suggested that biofuels could have a dual effect on food supplies. On the one hand, they divert land, water and other resources away from food production. On the other hand, by potentially making energy more widely and cheaply available, biofuels could increase the availability of food (New Scientist). A recent UN report, however, warned that "Unless new policies are enacted to protect threatened lands, secure socially acceptable land use, and steer bioenergy development in a sustainable direction overall, the environmental and social damage could in some cases outweigh the benefits"  (UN Energy). The food diversion impact of biofuel production was made evident during the recent food price explosion. Higher biofuel demand in the US and the EU not only helped push corn and soybean prices skywards, it also triggered price increases on substitution crops while driving up the cost of livestock feed by creating financial incentives to switch away from other crops (Mercer-Blackman et al.). The potential impact on food costs must therefore be factored into the public debate about the role of biofuels in the energy mix and the specific policies governments are using to encourage their production. If global ethanol and biodiesel production were to double over the next ten years, that production would likely absorb approximately 36% of US maize production, 64% of sugar cane output in Brazil and 40% of vegetable oil production in the EU and nearly 60% in Australia by the year 2017 (Boonekamp).

46. It is also essential to recognize that energy yield per hectare is highest for feed stocks grown in tropical conditions. Brazil</, st1:place> ’s tropical climate makes it possible to grow sugarcane for ethanol production in a very efficient fashion. Brazil ’s biofuel industry began three decades ago and now produces 40% of its transport fuel. According to some reports, Brazil’s sugarcane ethanol costs three times less to produce and has an energy balance eight to ten times more potent than northern hemisphere corn-based ethanol (Biopact). Yet, Brazil is shut out from the US and EU markets by tariffs on ethanol imports which currently stand at $0.54 per gallon in the US and up to €0.19 per litre in the EU (Preto). Brazil and a number of other countries from the southern hemisphere have decried the US and EU import restriction on ethanol for years, and Brazil has pushed hard for the matter to be resolved in a World Trade Organisation arbitration panel (Reuters 02/09/2008). Both the EU and the US have blocked Brazil ’s efforts to have biofuels listed among the green products exempted from tariffs in the Doha Round. Absurdly, carbon-based fuels typically do not face tariffs at national borders. The EU has its own biofuel trade dispute with the US. Citing unfair subsidies given to biodiesel producers in the US, as well as the dumping of that biodiesel into European markets, the European Commission imposed both anti-subsidy and anti‑dumping duties on imports of US biodiesel in March of this year. The duties will seriously harm biodiesel imports from the US into Europe (CNN Money, 12/03/2009). Such protectionism, at least in the case of Brazil, restricts the trade of genuinely efficient and environmentally friendly fuels and denies both EU and US consumers the price and environmental benefits that this efficient fuel source offers. This is an utterly absurd approach to a product, the benefit of which is supposed to be global in nature. It suggests that biofuel policies are much more about larding favoured interest groups with cash than producing clean and sustainable fuel.

47.    Since 2008, there have been notable changes in EU biofuel policy, although these are not primarily driven by food security concerns.  Whilst the EU still supports biofuels with the aim of reducing greenhouse gas emissions, diversifying fuel supply sources, and offering new income opportunities, officials have sought to improve the environmental credentials of biofuel production by promulgating a directive enforcing strict sustainability criteria for biofuels with regard to minimum CO2 savings and land use (European Commission, 23/01/2008).  Additionally, as part of a drive to improve indirect carbon dioxide emissions in biofuel production, the governments of Sweden and the Netherlands are pressing for the EU to scrap tariffs on Brazilian ethanol (Tolgfors et al.), although resistance to this plan by EU bioethanol producers has been marked (Ethanol Producer).

48.   A rather fierce debate about the merits of biofuel production has been unfolding in recent years because in some northern climes, production subsidies seem to defy economic logic and are not yielding the environmental benefits that were anticipated. Critics contend that US and EU subsidies have also artificially promoted the least efficient first generation biofuel production technologies and are thus diverting resources away from projects focused on developing so-called ‘second-generation’ biofuel production. Second generation biofuel will be derived from wood and/or grass based biomass, which can be grown on marginal lands that are currently not dedicated to food production. Second generation sources, moreover, would not compete for energy intensive agricultural inputs like fertilizers.  Processes for producing these bio-fuels are not yet commercially viable, but given the potential upside of this renewable energy resource, there is a strong case for bolstering research and development funds to develop these technologies. The Nobel Prize Winner Steven Chu, then the Director of the Berkeley Energy Lab and currently the US Secretary of Energy, told members of this committee several years ago that there is very promising genetic engineering research on enzymes that will rapidly break down switch grass and transform it into a useable energy source (NATO PA Mission Report, June 2006). If these kinds of breakthroughs can be achieved, they would offer far more promise in reducing greenhouse gas emissions and bolstering energy security while putting less pressure on food stocks. It thus makes a great deal of sense to ensure that these projects are generously funded because of the potential contribution they can make to both energy and food security.

III.           THE ENVIRONMENT AND FUTURE FIXES BY TECHNOLOGY

49.    Although adverse weather conditions including flooding, drought and the pest infestations and diseases that follow on from extraordinary climatic events, can have dramatic effects on particular harvests and food prices in those periods, often the effects on supply are temporary and do not impinge on longer-term price trends. Weather changes have indeed been a factor in the recent price shocks (Midgley). The concern today, however, is that longer-term climate changes are underway and could have enduring effects on growing conditions and thus on long-term food supply conditions. The world’s soaring population, as well as the rapid development of the Chinese and Indian middle classes, suggests that future demand will remain robust even if supply conditions are to tighten, which, by extension, implies that long-term prices could be affected by changing climatic conditions as well. Shifting climatic conditions including altered rainfall patterns are potentially imperilling long-term food supplies. Extended droughts in Southern Europe, Australia, China, and in parts of the United States, for example, could herald a new era of water scarcity that would directly and profoundly impinge on future food supplies and prices. Beyond measures to mitigate the release of greenhouse gases, there are other potential approaches to deal with the problem.

50.    Many contend that a new “green revolution” including radical crop innovation will be essential if the global agricultural system is to meet future food demands. UN Secretary‑General, Ban Ki‑moon, said in June 2008 that as much as $20 billion a year was needed to invest in agriculture to tackle an ever broadening range of challenges.   These investments would aim not simply to bolster yields, but change the agricultural model from an input-intensive one (in terms of water, fertilizer, pesticide and energy) to one that is “knowledge‑intensive”. According to a Chatham House report, genetically modified crops (GMCs) could be part of an effort to develop “ecologically integrated approaches – such as integrated pest management, minimum tillage, drip irrigation and integrated soil fertility management – [which] often score higher in terms of resilience and equitability, as they put power in the hands of farmers rather than seed companies” (Evans).  Varieties of genetically modified drought-tolerant oilseed rape and maize have been tested in field trials in the United States.  Several varieties are reported to increase yield by 40% when the plants are most water-stressed, although opponents of GMCs counter that these claims are exaggerated. There are also concerns that widespread planting of GMC crops could lead to cross fertilization with undesirable weeds that would only further complicate growing conditions on drought ridden farmlands (Randerson). GMCs thus remain highly controversial, particularly in Europe where they are often perceived more of a threat to food security than a means to achieve it.

A.     WATER SECURITY AND AGRICULTURAL PRODUCTIVITY

51.   Agriculture accounts for some 70% of global freshwater use, but unsustainable extraction from lakes, rivers and groundwater, as well as by climate change threatens the long-term availability of water supplies for global food production (International Water Management Institute, March 2003). Indeed freshwater supplies are dwindling. A UN-sponsored 2005 Millennium Ecosystem Assessment found that water-based ecosystems are now the world’s most degraded natural resource.  Some estimates suggest that 50% of the world’s inland water area (excluding large lakes) has been lost.  Global freshwater demand significantly exceeds long-term accessible supplies, and irrigation withdrawals from 70 of the world’s major rivers, including the Colorado, Ganges, Jordan, Nile and Tigris-Euphrates Rivers, are approaching unsustainable levels. The consequences of an interruption of water flow through any of these rivers would be disastrous. For example, when the Yellow River ran dry for 226 days in 1997, agricultural losses alone approached $1.6 billion (World Resources Institute, 2005).

52.    Groundwater overdraft is occurring at rates that exceed 25% in China and 56% in India, (United Nations Development Programme, 2006). As a result water tables are falling at more than one metre per year in these two large and important countries.  In Mexico, extraction rates in a quarter of the country’s 459 aquifers exceed long-term recharge by more than 20%.  The Ogallala aquifer in the western United States and the Edwards aquifer for the city of San Antonio, Texas, have virtually disappeared (World Economic Forum, January 2009). Compounding these supply‑side woes, climate change could well hasten water depletion rates in already arid or semi‑arid regions.  A number of studies warn that water supplies could decline significantly in areas already marked by chronic water stress and this will directly affect harvests.  Projections for rainfed areas in East Africa allude to potential productivity losses of up to 33% in maize and more than 20% for sorghum and 18% for millet due to climate change. The Sahel and Southern Africa would also be gravely affected by enduring climate change (Human Development Report).  More extreme weather patterns affecting water conditions are expected in other regions as well. Disruptions to monsoon patterns in South Asia may lead to more rain but also fewer rainy days and could ironically trigger drought conditions (Brahic). Glaciers from the Himalayas to California effectively act as “water banks” and are the source of rivers that effectively support the civilizations along their banks. That glaciers are now rapidly retreating does not augur well for the rivers below, nor for the civilizations they support (United Nations Environment Programme and World Glacier Monitoring Service).

53.   Growing demand for agricultural produce is set to exacerbate further pressures on water resources. Global demand for meat, for example, is forecast to increase by 50% between now and 2025. A typical meat-eater’s diet may require as much as ten times more water as that of a vegetarian for the same nutritional value (The Economist, November 2008). This highly significant change in the pattern of global food consumption could therefore significantly increase the demand for water (Steinfeld et al.).  Planned increases in biofuel production will only add to the demand-side pressure on water stocks (International Water Management Institute, 2008).  With these changes in mind, water experts now estimate that the world could face annual water losses equivalent to 350 million metric tons of food production by 2025 (International Water Management Institute, March 2003). Apart from their direct impact on agricultural productivity, water problems are also evident in rising salinity levels in freshwater, nutrient pollution, and the loss of floodplains and wetlands.  Water loss can also affect energy supplies and costs as it takes a surprisingly large amount of water to produce energy. Water for energy generation – hydropower, thermal and nuclear cooling, and cultivating biofuels – currently accounts for about 39% of all water usage in the United States and 31% in the EU. Although water employed for these purposes is not all permanently consumed, it is often returned to river or lakes at significantly higher temperatures and can thus trigger thermal pollution (Danish Hydrological Institute, 28 October 2007).

54.    It should not be surprising that inefficiently managed water supply services can have onerous economic effects.  In February 2009, a World Economic Forum (WEF) report warned that while under-priced water has bolstered economic growth over the past 50 years or so, many regions of the world are now “on the verge of water bankruptcy”, particularly parts of China, the Middle East, the south-western US, southern Europe and India. The WEF Report urged governments to move toward scarcity pricing for water in order to encourage proper water stewardship (World Economic Forum, January 2009). 

55.   Because water is indispensable to human survival and most forms of economic production, water security issue areas that are conventionally regarded as low politics can also quickly become matters of peace and security. Conflicts between nations that share trans-boundary freshwater reserves will become more likely as demand for water hits the limits of finite supply, threatening the geopolitical stability of regions such as the Middle East over the Jordan River and Tigris-Euphrates Basins, Central Asia over the Syr Darya and Amu Darya rivers, South Asia in the Ganges-Brahmaputra-Meghna region, and the Greater Mekong Subregion (Bajpaee). The Nile, for example, is sometimes described as ‘one river – nine states’.  The daunting challenges of sharing this resource are illustrated by tensions surrounding a 1959 treaty between Egypt and Sudan. That treaty has accorded Cairo a de facto right to veto any project using Nile water in other riparian state.  Ethiopia, for example, has long sought to develop a more sophisticated irrigation system to wean itself off a dependency on foreign food relief.  It has also challenged Egypt ’s domination of the Nile. For its part, Egypt contends that any unilateral action to make use of Nile water upstream would be regarded as a breach of international law, and has even threatened to deploy military force to prevent this from occurring (BBC News, 24 February 2005). Sudan, Uganda and Tanzania have also developed a greater interest in Nile River water. Meanwhile, the population of the Nile Basin countries is expected to double within the next three decades, promising the water access and use issues will only grow more compelling, complex and potentially dangerous (Dehéz).

56. It should be noted that water shortages pose greater danger to domestic peace than to international stability. A review conducted by the Pacific Institute’s Water Conflict Chronology revealed that demographic pressures on water resources have actually been more likely to foment domestic rather than international conflicts. The number and gravity of incidents involving communal violence and domestic clashes involving pastoral farmers, agricultural farmers, and state authorities over water far outnumber inter-state disputes (Gleick).

57. Deforestation is also posing serious problems to water management and food security.  Tree clearing is often driven by efforts to secure new farm land because of population pressures, because previous overuse can deplete arable land, and because wood is a primary source of cooking and heating fuel in much of the developing world. But clear cutting can lead to flooding during rainy seasons, which threatens livestock and crops and which can remove vital topsoil needed to grow food. Malawi, for example, loses 2.8% of its forest land each year. Moreover, forests are vital to environmental sustainability and can be important and sustainable sources of food. Climate scientists also agree that their preservation will be a pillar of the fight against climate change, which itself poses a threat to food security in many regions of the world.

IV.          THE HARD SECURITY LINKS

58. There is an almost natural tendency to relegate issues like food, development and, more generally, economics to the realm of soft security.   This is mistaken. Food security is very much about hard security. One of the very first priorities in a military intervention is to ensure that the local population has access to food and water. If these are not available, all controls break down and the security situation swiftly degrades. It was partly this logic that informed the US‑UK‑Commonwealth Airlift to Berlin in 1948 - a humanitarian mission that played a critical part in NATO’s ultimate formation. NATO operations in Afghanistan, Bosnia and Kosovo have all included support for food supply lines which were essential to maintaining security. It is important to note again here that there were major food riots in at least 30 countries last year as a result of soaring food prices and scarcity conditions.  The government in Haiti fell as a result of those types of riots. 

59. NATO’s long concern with defending the lines of food supply is clearly justified in hard security terms. Josette Sheeran, Executive Director of the World Food Programme recently told members of the NATO Parliamentary Assembly’s Economics and Security Committee that hunger breaks the contract between a government and its citizens and that “Without food, people do one of three things: they revolt, migrate or die” (Sheeran).  The capacity to maintain food supplies is what sets functioning states apart from failed ones and failed states, as those working in NATO circles can attest, pose perhaps the greatest threat to global security in the 21^st century. It is for this very reason that NATO has deployed thousands of troops to Afghanistan and is providing a security umbrella that, among other things, makes it possible for the WFP to feed 2.2 million Afghan children in that country’s school system. This not only helps maintain social peace, it also brings Afghan children to school which is essential for the country’s long-term development.   More generally North American and European governments recognize that hunger can compel millions to migrate and thus create enormous burdens both in the countries of emigration and in the countries of immigration. Illegal migration has become an explosive social issue in Europe and North America and perhaps the best means of coping with this problem is helping ensure that hunger is not driving people westward.

60. The tight links between food and hard security were also apparent in the pirate attacks off the coast of Somalia. When pirates seized ships bearing emergency food supplies, security throughout much of East Africa was immediately put at risk. The World Food Programme, for example, was feeding roughly half the population of Somalia at that time, and cutting off that vital maritime food route would have quickly triggered mass migration, revolt and starvation. It was partly for this reason that NATO agreed to a maritime protection mission in those waters.  Nor was this the only theatre in which NATO member militaries have worked to keep vital food channels open. After a devastating hurricane struck Myanmar in 2008, for example, Canadian helicopters played a crucial role in getting food into the hardest struck remote areas of that country and NATO itself carried out a vital relief operation in Pakistan after a major earthquake left three million people without food and shelter at the onset of the Himalayan winter (NATO website, Pakistan Relief Operation).

61. The role of the World Bank has established a global food crisis program, which includes a $2 billion facility to ensure a rapid response to food emergencies in various countries in Asia, Africa and Latin America. The Bank is currently working with 30 countries to forge appropriate responses to soaring food prices.  Part of this effort is to discourage taxation on food that might restrict agricultural trade or provoke even higher prices. The Bank is also underwriting food productivity enhancement projects and helping to forge new links between farmers and markets.

62. To stabilize food markets and boost agricultural lending, the World Bank has also established a $12 billion fund which over the next two years will support new projects in agriculture and rural development (World Bank, 3 August 2009). To improve the quality of agricultural investment, it has established the Agricultural Adaptations program, or “AADAPT,” which provides rigorous assessments of agricultural development projects known as “impact evaluations.” The program’s major goals are to gather knowledge about agricultural best practices and to work to ensure that these practices are better diffused throughout the developing world (World Bank, 27 July 2009).  Obviously ensuring access to land, water, energy, seeds and fertilizers is fundamental to ensuring adequate food supplies. Today, only 4% of Africa ’s arable land is irrigated, leaving most farmers there totally dependent on annual weather patterns. This is not a problem of water per se; it is rather a problem of investment. In Asia, by comparison, nearly 50% of the land is irrigated and this is why Asian yields approach those of Europe. African yields are only 15% of Europe ’s. The Bank is supporting irrigation efforts through the continent. With a portfolio of $3.7 billion, the Bank is supporting efforts to increase water productivity in both irrigated and rainfed areas, create effective and sustainable institutional arrangements including support for water users associations, engaging the private sector and ensuring that irrigation systems are financially viable. It is funding efforts to improve links to input supply and marketing chains, helping farmers adapt to climate change and factoring in poverty and gender concerns into water policy making (World Bank website, Water).

63. Access to technology and seeds constitute a second problem. In Africa there are roughly seven kilograms of fertilizer per hectare, while the figure for Europe  is eight to nine tons.  This is obviously one reason for the huge productivity gap. Moreover fertilizer prices quadrupled last year making the purchase of fertilizers very difficult for poor developing country farmers.  The World Bank established a fund last year to help small farmers gain access to seeds and fertilizers and extend access to markets. Credit is a particularly important problem and farmers cannot increase productivity without it.  The global financial crisis is drying up available lending capital and this is hitting poor farmers precisely at a moment when they need to boost production to meet rising prices. European farmers have been able to do this, but many developing country farmers have not.  The credit crunch has increased the risk that food production could be worse this year than last year despite the rise in prices.  Huge investments in water saving technology are also needed as water demand is slated to soar. More broadly, the Bank feels that small farmers should be able to sell food on global markets. This is the best way to advance development in rural areas and help moderate food prices. 

V.             TENTATIVE CONCLUSIONS

64.    Ensuring adequate food supplies sold at reasonable prices will remain critical to bolstering nutrition in parts of the developing world and in ensuring an acceptable level of food security. As demand for food rises, the international community will be challenged to ensure that the structure of agricultural markets is such that this increased demand can be accommodated without pricing out the world’s poorest people. Technological advancement and improved agricultural management will be critical to increasing food production, meeting growing demands, and ensuring that food is affordable to the most vulnerable.  But a range of policy changes at national and global levels will be essential to achieving this goal.  

65.    According to the development economist Paul Collier there are, in fact, three politically imposing steps that need to be taken. First, the world may need more commercial style agricultural production to ensure higher productivity. Larger farms accordingly may be essential to bolster food supplies capable of meeting rising demands. Secondly, scientific advances in crop science, including genetically modified crops, may have to be embraced rather than resisted, provided, of course, that public safety and health shape the approval process prior to planting. This would require a substantial change in the attitudes of many in developed countries to GMCs. Thirdly, developed countries will also need to end or at least sharply reduce very high subsidies for first generation biofuels so that food is not diverted into energy production.  Economists also believe that greater liberalization in the trade of agricultural produce could boost global food security. It would certainly encourage countries to grow most what they grow best and it would provide greater income to many of these regions which face the most persistent threat to food security. None of these steps will be easy and will require political will, coordination and harmonisation efforts (at the local, regional and international level) if the international community is to move in this direction (Collier).

66.   New financial resources will be needed to underwrite nutrition, agriculture and hunger‑related programmes and to promote best practices. The UN Secretary General and the UN’s High Level Task Force on the Global Food Security Crisis are promoting the notion of a more coordinated and adequately funded response to the current food insecurity situation and urge that the governments of affected countries and their civil societies be directly engaged in this process (Statement of the Madrid High-Level Meeting on Food Security for All). Countries in the industrialized north should live up to the commitments to earmark 0.7% of GDP to ODA (Official Development Assistance) which could help developing countries reinforce their own food production systems. While the most desperate regions require direct food aid, more broad development efforts are needed to support best practices in developing countries, where poor governance has been a central cause of food insecurity. While technology is important, simple efforts to increase farm productivity are clearly needed. This should involve providing farmers access to credit and training, while creating off-farm employment opportunities for the rural poor including opportunities in food processing industries. Gender sensitive approaches are key in this regard, as women often play a critical role in rural entrepreneurship.

67.    New investments are needed to improve the prospects for future food production, both in terms of research and development as well as physical infrastructure.  In this respect, the Green Revolution may provide a degree of inspiration. Given increasing evidence of persistent supply constraints linked to a complex array of factors, including climatic conditions, the loss of arable land to urbanization, and soaring demand driven by rapid economic growth in some emerging economies, changing global diets and general population trends, it may be necessary to muster the political will and the resources for more ambitious research and development projects. These efforts should engage the public and private sectors and of course, must be mindful of the broad impact of new techniques and technologies in areas like the environment as well as in social harmony. At the recent G8 summit in Aquila  , heads of government called for an emergency strategy favouring investments in agriculture rather than direct aid provisions to better cope with the underlying causes of the food crisis. The final G8 statement affirmed that its member governments are committed to increasing investments in short, medium and long term agriculture development. “We support public-private partnerships with adequate emphasis on the development of infrastructure aimed at increasing resources for agriculture and improving investment effectiveness.” The G8 has set itself the ‘goal of mobilizing $20 billion over three years through this coordinated, comprehensive strategy focused on sustainable agriculture development, while keeping a strong commitment to ensure adequate emergency food aid assistance’ (G8 final statement). Parliaments should monitor this effort closely.

68. Agriculture and land use account for 30% of the human contribution to global warming. So farming is both part of the problem and part of the solution. Farming can be structured to enhance carbon capture, and this should be part of the deal made in Copenhagen. But it is not clear that agriculture will even be addressed there.  This is an area that also requires further scientific research.  For example, livestock is a major contributor to the greenhouse gas methane. There are feeds that can reduce the production of methane significantly. Feeding cattle grass rather than corn, for example, reduces methane production by 50%. Subsidies ought to be structured to encourage grass rather than corn feed which are not natural for cattle.  Fertilizer technology has also failed to evolve since World War II, and it seems like this is another area that can benefit from more serious research support.  There is also a role for GMCs, although Europe is generally very hostile to genetically modified foods.

69.   Because biofuel policy is generating ever greater upward pressure on agricultural prices by co-opting land and inputs once reserved for food and dedicating them now to energy production, subsidies to this sector must be reassessed so that environmental and security goals are properly weighed against the compelling need to keep food prices at globally sustainable levels. Extraordinarily high subsidy levels to produce biofuels that ultimately yield little environmental gain ought to be abandoned as they are not only costly and ineffective, but also because they are contributing to soaring food prices that benefit a few but penalize millions of consumers and tax payers. More resources should also be dedicated to developing second generation biofuels that will not compete with food for land and water.  At the same time, free trade in efficiently produced biofuels should be encouraged. Currently highly competitive producers like those in Brazil, who are not subsidized, confront tariff barriers in industrialized countries that are pursuing far more dubious biofuel subsidy policies.

70.   There is also a need to re-assess financing programmes for countries that are affected by price fluctuations in agricultural commodities.  The current aid system is extraordinarily ad hoc and there was little coherence in the international community’s response to last year’s price shocks. An international consensus must be developed about emergency response. Efforts like the World Food Programme’s recent decision to source its own agricultural purchases from some of the world’s poorest farmers is the kind of approach that helps encourage development by bringing income to farmers who need it most  (Blas, 25 September 2008).

71.   Successful completion of the Doha Round as well as new initiatives to liberalize the trade in food will help bolster food security. More liberal trade regimes will ensure more rapid market responses to price rises that will help keep prices low. It will also provide new markets and new financing opportunities for developing country farmers who are traditionally denied access both to the kind of capital that would help them bolster production and to barrier free access to key markets in the developed world. Greater access is desperately needed in the developing world and Western consumers stand to benefit if it is extended through global trade talks.

72. Pressure must be kept up on warring parties in a number of conflicts that continue to employ starvation of civilians as a method of combat. This is a violation of international humanitarian law and an important source of food insecurity in some regions of the world (International Committee of the Red Cross). More comprehensive and coordinated approaches are needed to deal with this particular challenge as well as the broader approach to fragile states.  As the global financial crisis deepens, the key challenge in developing countries may not be food prices, but access to credit for farmers for fertilizers and equipment. Afghanistan poses a particular problem in this regard. A very poor harvest in 2008 left small famers in the centre and northern regions of the country facing hunger and food shortages. These situations only stoke the climate of uncertainty and desperation there (Gall).

73. NATO has a legitimate and vital role to play in keeping humanitarian/food corridors open, and to take action to protect them as it has done off the coast of Somalia and elsewhere. Organizations like the WFP, UNICEF and the Red Cross/Red Crescent cannot provide life-saving relief if key supply routes are cut off.  The security implications here are particularly grave, and NATO needs to assess fully how it approaches this aspect of food security as it revisits its strategic concept.

74. Finally, of course, legislators should continue to support food programs like the WFP which has shown itself to be very effective in getting food to where it is most needed in the world, and in so doing, making a vital contribution to world peace and security.

 BIBLIOGRAPHY

Kym Anderson and Will Martin, “Agricultural Trade Reform and the Doha Development Agenda,” World Bank and Palgrave Macmillan, November 2005.

ARGAW ASHINE, Daily Nation, ‘Amid hunger, foreign companies in race to 'grab' Ethiopia 's arable land’, 13 August 2009, http://www.nation.co.ke/News/africa/-/1066/639004/-/1382s0sz/-/index.html

“A Water for Energy Crisis?” Danish Hydrological Institute, 28 October 2007, http://www.dhigroup.com.au/~/media/194E32E36720403A86F34152788B51E6.ashx

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