Food Prices and Global Instability
Laurie Garrett, Senior Fellow for Global Health, CFR
Toni Johnson, Senior Staff Writer
February 4, 2011
Food prices are skyrocketing across the world, and last month, they peaked to the highest levels since the UN’s Food and Agriculture Organization began indexing them in 1990. In the Middle East, wheat prices are playing a role in the ongoing unrest, particularly in Egypt, the world’s largest wheat importer. Laurie Garrett, CFR’s senior fellow for global health, says the rising prices of staple grains in the region are adding to a “real sense of anger and injustice.” She notes that though governments are attempting to hold prices down artificially, “very few governments can really get away with it because they just can’t afford it.” The food price crisis, she says, is “a destabilizing moment in terms of global governance” and to meet food demand going forward, the food production in the developing world must become more efficient and “every aspect of farming, harvesting, delivery, and distribution has to improve dramatically.”
The issue of food price inflation is playing a role in Egypt’s current uprising. Some countries in the region, such as Yemen, Kuwait, and Algeria, are relaxing food taxes, capping prices on food staples, or providing subsidies. How much of a destabilizing factor is food prices?
For the last two years, we’ve been in some pretty frightening bounces in food pricing all over the world, and we’ve seen certain key essential grains skyrocket in price. And what we see all over the world is that when the key commodity that women rely on as the essential grain in their culture’s cooking suddenly skyrockets, tempers flare. So for example, Mexico had the so-called “tortilla wars.” And it was because corn prices suddenly skyrocketed. We saw riots in Manila, and it was because rice suddenly skyrocketed.
In the Middle East, it’s a very special set of grains that is essential in the [region’s] diet. If prices skyrocket, then you get a real sense of anger and injustice. A lot of governments have dealt with this problem by creating subsidies or price controls that try to somehow hold the pricing down through artificial mechanisms. But eventually, very few governments can really get away with it because they just can’t afford it. You can’t keep track and compete with the global pricing mechanisms.
A number of countries have upped their imports of staples such as rice and wheat. Egypt is already the world’s largest importer of wheat. How do food prices affect import-dependent countries?
We have seen a real sharp increase in policies executed by governments to basically control and limit export or create stockpiling of food supplies. In early 2008, key rice-producing countries, particularly in Southeast Asia, [decided] to hoard their supplies, not share in the global marketplace, and essentially drove up prices in their neighbor countries in ways that led to riots and dire conditions. This year, our issue with wheat is a direct outgrowth of the terrible fires that in Russia and in Ukraine, coupled with a disappointing wheat outlook for the drought-hit regions of Latin America. So wheat is expensive right now.
This is a huge problem when you look at a country like Egypt. There aren’t a lot of things they can do to vastly increase their farmland. Overall, Egypt is tremendously dependent on the Nile as their major water source. The way farming [used to happen] is the Nile would flood annually and it expanded out as much as a mile inward and then retreated, leaving behind a thick fertilized soil layer. But since the building of the Aswan dam, that flood cycle has not occurred. And as a result, the soils are depleted of all natural supply of nutrients that plants rely upon. So, Egypt is in a particularly tough situation. Dependent on fertilizer, dependent on various other chemicals to keep their soils going and all of that fluctuates with oil prices.
What can be done to better develop the region’s agricultural capacity?
The efficiency of farming across the region is generally pretty bad. It’s heavily reliant on small family farming and on farms that may be of middle size but are heavily dependent on government loans that may not be forthcoming or may be manipulated according to voting patterns in given regions and levels of support for the ruling party.
In the Middle East, it’s a very special set of grains that are essential in the [region’s] diet and, if prices skyrocket, then you get a real sense of anger and injustice.
In addition, what you see in Egypt and all the way out, down into Saudi Arabia and so on, are a lot of family chicken production that is extremely inefficient. Egypt happens to have the burgeoning, enormous problem with bird flu. And H5NI avian influenza seems to be out of control in Egypt. In the last two years, the bulk of all human infections and deaths have occurred in Egypt. And it’s because everybody that has any outdoor space, even a balcony hanging over a major highway in Cairo, has chickens. But there is very little in mass scale chicken production that would be contained, hygienic, and controllable. And this is typical of what you see across one sector of agricultural production after another. Just a high level of inefficiency.
Globally, food prices already have reached record highs, surpassing 2008 levels and, by some estimates, they may rise another 20 percent this year. What kind of impact this had on the world’s poorest?
When the skyrocketing prices suddenly surged between the end of December 2007 and March or April of 2008, the World Bank predicted that several hundred million people around the world would be pushed backwards into worst food insecurity and poverty as a direct result. We see that all over the world, the first [thing] that a poor family does in the face of rising food prices is to cut back on protein and cut back on fruit and vegetables. As we look out another fifteen years from now, a whole generation of children in poor countries are shorter than they would have been and may indeed have decreased intellectual performance because their bodies are starving for protein and [essential] nutrients.
More and more countries are jockeying for positions and trying to figure out how to enhance their own food marketplace even as demand is outstripping supply, weather events are even further diminishing supply of key grains, and foods in key regions and price speculation is driving up the cost of the available supplies. This is not good for the global community as a whole. We’re really in a destabilizing moment in terms of global governance and any ability to come up with reasonable, rationale ways to globalize the food supply. I think the other thing that’s very worrying as a trend right now is that, when these food prices jack up, humanitarian relief work organizations have to buy in the marketplace just like everybody else. And unless you see a 20 percent increase in the amount of donor support for humanitarian relief, a 20 percent increase in the cost of essential foods means 20 percent fewer people can be fed in any given crisis. This has the potential for an even more serious destabilizing effect in key strategic regions, with Afghanistan and Pakistan at the top of the list.
In 2008, we had this crazy food crisis that never essentially went away. Were there policy initiatives or pots of money developed that would offset the kinds of things that we’re seeing now?
The good news is that the Obama administration and its counterparts in key donor countries, the UK and France in particular, stepped up to the plate and recognized that we have to absolutely stop making food aid about dumping our food products. And instead, make it about reinforcing the local or regional capacity to do food production. As oil prices skyrocket, it’s just simply ludicrous to ship wheat from central Midwest states of the United States, all the way around the world to, say, Somalia when it might be possible to purchase essential grains from within the region of the Horn of Africa. So, one of the great things is that we saw a real soul-searching by the major donor states about this business of tying what you give for overseas needs [to] your domestic production. Under the Obama administration, our foreign assistance going through USAID is very much directed toward improving the way we fund food programs in developing countries.
We’re really in a destabilizing moment in terms of global governance and any ability to come up with reasonable, rationale ways to globalize the food supply..
Demand for food is going to increase not only because population is increasing, but the percentage of the global population that is middle class and has enough disposable income to purchase protein is increasing. To meet that demand, every aspect of farming, harvesting, delivery, and distribution has to improve dramatically.
Food prices are also expected to be on the G20’s agenda in June, right?
There are a number of ideas percolating around the G20 right now, some of which have [French President] Nicolas Sarkozy’s attention. He is the official host of the G8 and G20 this year in June in Paris. The main thing that he seems to be advocating is linked to overall control of financial markets. He’s very concerned about price speculation driving up prices in terms of both commodity investment and general trade markets and has some very controversial proposals for how to control these problems. Some experts say it’s a non-starter from the beginning and that most of the G20 will not go along with it, especially the United States. There are trade ideas, including trying to have a G20 agreement that would say, “We will not hoard [and] there will not be export caps of essential goods.” Russia will never go along with that. Nor will countries that feel that capping exports is an essential component of maintaining domestic stability in the face of price increases. So, I’m not sure what will be on the G20 agenda [that] has a real hope of getting the endorsement and strong support of the G20 overall.
There’s a conference in Dubai this month on food safety in emerging economies. And there’ve been a number of recent incidences that have led to food import bans. How do you think food inflation impacts efforts to make the food trade safer? Will widening safety standards drive up costs even more?
It’s hard to say exactly how regulating safety and the cost of food products will play out. It is always a standard mantra in any industry that when it’s regulated, everything will cost more. The affected industry claims that prices will go up. And it is possible that safety can have an inflationary impact. But if you cannot be assured that the milk you serve your children or anything else that you put in your family’s mouths is free of bacterial contamination, of fungal contamination, of carcinogenic chemicals, then the cost issue really becomes secondary.
What we’re seeing is that the entire food supply of the world is now globalized, and there is no country on Earth that is entirely self-supporting. Everybody is importing and exporting. It is so fluid and so complicated, that at any given moment it is very difficult to say what countries were involved in every chain of what you consume. A study done on a hamburger sold by a fast food chain in the United States [found] that the ingredients came from fifty-four countries. When you imagine processed food [from your local market might contain] elements from ten or twelve countries, it [becomes clear] how difficult it is, in this new globalizing world of food production, to guarantee the safety of anything. The challenge is now well beyond what any given country’s regulatory agencies can handle. We really need to be thinking about entirely new kinds of global regimens and standards of safety for food, regardless of whether the consumer is in Nigeria, Argentina, or Los Angeles.
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