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BW Businessworld

The Ticking Food Bomb

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Recognition of a problem is, in theory, the beginning of a solution. But the behaviour of countries trying to collectively address the world's largest problems shows the huge gap between awareness and action.

Talking about global governance has become fashionable among a section of political leaders and commentators, but they have not, so far, resulted in any concerted effort to produce global solutions other than emergency Band-Aid. The climate change summit at Copenhagen in 2009 ended in failure, as did the Convention on International Trade in Endangered Species in Doha the following year. The recent report of the International Energy Agency shows that since 2009, the level of greenhouse gases has reached a record high and another report by the Conference of Parties for the Convention on Biological Diversity warned about the rapid disappearance of species.

Last week, the meeting of G20 agriculture ministers to address global hunger ended in a whimper. All agreed that high food prices create instability, but as usual, the short-term interests of the stakeholders trumped the long-term problem of hunger.

The first ever meeting of G20 agriculture ministers convened by France stemmed from rising worries about the crisis in 2007-09, when sky-rocketing food prices triggered more than 60 riots and threatened many countries' stability. The number of hungry in the world rose from 800 million to 1 billion. The factors that created the crisis remain today, and food shortages are among the factors behind the ongoing unrest in Arab streets. According to the World Bank, since June last year, food price volatility has pushed 44 million more people to join the ranks of the poor.

When France took over the presidency of the G20, it pledged regulation of fluctuating food prices a priority. As the G-20 accounts for 65 per cent of all farmland and 77 per cent of global grain output, its decision could significantly influence the situation. In November, major international institutions and NGOs were tasked with developing policy recommendations on how to protect the most vulnerable. A high-level group that included FAO, World Food Program (WFP), IMF, World Bank, WTO and OECD duly produced a report and a set of recommendations. However, after two days of closed-door negotiations at the first-of-a-kind meeting, the ministers kicked the can down the road.

While acknowledging disagreements over the result of speculation on food prices, the report concluded that increased participation by non-commercial actors could have "contributed to the formation of price bubbles in some situations". However, there was no appetite among the developed countries to rein in the financial sector. Instead, they repeated an earlier agreement by finance ministers to study limiting the number of contracts that speculators can hold.

Instead of tackling speculation — a move opposed by developed countries — the ministers recommended establishing an Agricultural Market Information System. It is hoped that transparency would discourage speculation. Even the recommendation about limiting import and export restriction by countries was accepted in a watered down form. During the 2008-09 crisis, several countries banned exports of key crops, fuelling fear and hiking up prices. The G20 meeting agreed that only humanitarian organisations such as WFP would be exempted from food export restrictions.

Arguing that the production of biofuels pushed up prices of food, the expert report recommended an end to diversion of food crops to biofuel. The US, the world's biggest corn producer, encourages — through mandate and subsidy — the diversion of as much as 40 per cent of corn crops to produce ethanol. American officials argue that the impact of diversion is negligible, as only a small percentage of food was diverted to ethanol production. The fact is, both political parties of the US remain beholden to corn farmers in politically key states, like Iowa, an important bellwether in the run-up to the 2012 Presidential election.

As the rich countries dither, the world is on course for an unprecedented crisis. By 2050, when the world's population is expected to reach 9 billion, demand for food will double. The steadily declining rate of growth of agricultural production, as FAO warns, could slow down to less than 1 per cent.

The US has hailed the G20 agriculture ministers meeting as a "historic union", but it might prove historic for a different reason — for the disunity it displayed.

The author is director of publications at the Yale Center for the Study of Globalisation, and Editor of YaleGlobal Online


(This story was published in Businessworld Issue Dated 11-07-2011)