The United Nation’s World Food Programme (WFP) announced that the tumultuous rises in prices of basic food stuffs over the past year has put the most pressure on the world’s poor. Such rises could result in 100m further people being left without adequate food.
In response to the WFP’s estimate that 52m of the world’s chronically hungry already reside in Latin America and the Caribbean, a meeting of the Bolivarian Alternative for the Americas (ALBA) was held in Caracas, Venezuela, last week in order to address the issue.
At the meeting, as Hugo Chávez’s leftist alternative to the US-backed Free Trade Area of the Americas (FTAA), the presidents of Bolivia, Nicaragua, Venezuela, and the vice-president of Cuba agreed to an US$100m scheme to fight the consequences of rising food prices on the region’s poor.
The food security fund will be used for staples such as rice, beans and corn in a bid to offset global price rises. Additionally, they will encourage joint programmes for agricultural development, though specific details on how this will work have yet to be released.
In typically bellicose mood, Mr Chávez stated: “This food crisis is the biggest demonstration of the historic failure of the capitalist model.” He continued by assuring that the countries of Latin America needed to create their own food distribution networks “…so we don’t fall into the hands of intermediaries and speculators, which stop millions from receiving food.”
Venezuela itself has struggled with sporadic shortages of essential items such as milk, sugar and beef. Whilst Chávez has blamed local businesses, claiming they hoard products, critics have claimed the government-imposed price controls are at fault, saying it makes it hard for certain businesses to turn a profit.
The average price of food has risen by 56% worldwide over the past year. The price of wheat has increased by 92% and rice, the staple food of half the world, 96%. But what is causing these price increases, the likes of which have not been seem for 30 years?
One of the more contentious aspects of the issue is the impact that the increased use of biofuels such as ethanol is having, as industrialised nations attempt to combat the effects of climate change. As a result, over 20% of corn and rapeseed production in developed countries has been diverted away from food which, according to statistics from the US Department of Agriculture, lead to the price of corn doubling between 2005 and 2007.
Latin America’s two primary economic powerhouses, Argentina and Brazil, are not members of ALBA, but Brazilian president Luiz Inácio da Silva has previously defended biofuel production. He denies that it is the primary cause of rising prices, instead blaming rising oil prices. Brazil has had an ethanol production plan since the 1970s, and nowadays is the world’s largest exporter of sugar-based ethanol. All gasoline sold in Brazil must contain at least 20% ethanol. Similarly, gasoline sold in Colombian cities of over 500,000 people must contain at least 10% ethanol, and Venezuela has similar plans for the future.
US president George Bush has been keen to reduce the US’ dependence on foreign oil by finding alternative energy sources, and signed the Energy and Security Act in 2007, which requires US fuel producers “to use at least 36bn gallons of biofuel by 2022”. This is nearly a fivefold increase on current levels. This has meant an agricultural shift away from food production, leading to a reduction of US food exports and an increase in food imports.
Argentina and Brazil have responded to the price rises in a similar way to other food-producing nations around the world by cutting or stopping food exports in order to curb domestic inflation and ensure supplies for their own populations. Brazil recently temporarily suspended rice exports, as the commodity’s price passed $25 per hundredweight on the futures market, whilst Argentina suspended supplies of wheat to its primary importer, Brazil. The US treasury secretary, Henry M. Paulson Jr., has expressed concern at such protectionism, remarking that food price controls and consumption subsidies “create fiscal burdens and economic distortions”.
These comments come in spite of the heavily-subsidised nature of the US’ ethanol industry. According to a December 2007 article in The Economist: “The ethanol program is the product of government subsidies. There are over 200 different kinds, as well as a 54 cents-a-gallon tariff on imported ethanol.” Essentially this prices Brazilian ethanol, which is made from sugarcane rather than corn and is more energy efficient, out of what would otherwise be a competitive market.
In an attempt to ease the current burden on world stocks, the UN has asked for donor countries to pledge an additional US$755m to meet the existing food aid targets of the WFP. Additionally, the UN’s Food and Agriculture Organisation has requested US$1.7bn for seeds and inputs to assist farmers in poorer countries grow more food.
In addition, Mr Bush has announced he is seeking congressional approval to offer US$770m in international food aid. This amount would include US$620m in direct food aid shipments and US$150m for long-term schemes to assist farmers in developing nations. However, there have been some critics of the plan, who point out the money will not be available until the next fiscal year in October.
Ban Ki-moon, the secretary general of the United Nations, has called on world leaders to attend a summit in Rome on 3rd June to tackle the issue. So far French president Nicolas Sarkozy and his Brazilian counterpart have said they will attend, whilst Argentine president Cristina Kirchner has not as yet confirmed her presence.