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Futurists have been predicting for some years that global warming and competition for resources poses real problems in terms of political stability, even security.  A tsunami of economic migrants leaving failed states is a possibility.  Migrants represent in total about the tenth largest state now.  Typically they flee hardship and seek better opportunities, this is always so.  What has been the most successful 50 years of alleviating poverty in human history is threatened.  What’s happening, what’s new?  Nothing is more important than food.  In 12 months, corn and rice prices have doubled, wheat price tripled, soy beans up by 87%, and global food reserves are at their lowest levels ever.   A 100 million people in the poorest countries have been pushed further into poverty. The low US dollar has pushed up food prices, exported or gifted from the US.

Governments are responding in different ways.  Some countries are banning food exports, introducing clumsy, inefficient subsidies, rationing, imprisoning hoarders.  Riots are unnerving governments from Egypt to Indonesia, Ethiopia to The Philippines.  In Thailand and Pakistan, troops have been deployed to stop the theft of food from farms and warehouses.  Price increases resulted in a general strike in Burkina Faso, a Prime Minister forced from office in Haiti, where people were forced to eat mud cakes, a mixture of mud, grain and vegetables.  Food inflation is not just a terrible threat to the poor but to families everywhere.  China and India, where exports held down inflation worldwide, they are now pushing up food and energy prices.  They are now exporting inflation due to the consumption habits of their growing middle class.  Energy prices feed directly into food prices because of fertilizer and distribution costs. In NZ, our dairy sector is booming but it costs other sections of our economy and society.  Dairy products have gone up by more than half for local families.  High prices are good for NZ, must be.  But the implications are complex, ask the Reserve Bank.  It’s called the ‘Dutch’ disease after the impact of a ‘energy’ boom in the Dutch economy.  This theory explains how large increases in one sector can harm other parts of the economy by raising the exchange rate, harming consumers and raising inflation.  Other economies that rely too much on a few commodities face similar problems. 

The rush to bio-fuels is also impacting cruelly in agriculture, massive subsidies and high oil prices are encouraging agricultural production away from basic foods.  Tragically, rich countries are subsidising bio-fuel production, raising prices.  Filling a Range Rover with subsidised ethanol takes as much ‘grain’ as would feed an African family for a year.  Rich countries’ fuel substitution programmes often consume more energy to produce than they save.  It’s a populist Green response to global warming that does the opposite of what was intended.  GM foods offer great production opportunities.

The UN, IMF, World Bank, WTO, and senior Finance Ministers met recently in Washington, DC and pledges were made to provide US$500 million in urgent food aid by May 1^st, such is the crisis.  This is important short term action.  But How can you encourage poor countries to grow food when subsidies from rich countries can drop similar products into their local market, sometimes at a third of local prices?  The medium and long term solution is the Doha Development Trade round, which is now at a critical stage.  Unless the players at the WTO can get closer in the next few weeks, the deal will not be cut this year.  Politics in the US and elsewhere make it difficult to believe the deal could be done next year.  However, negotiations are closer than most believe in Geneva.  A mini-Ministerial Meeting in May is possible.  They won’t meet if the differences can’t be bridged.

If the rich countries cannot find the political courage to front their subsidised farmers when food prices are so high and will remain high, when can they summon up the willpower to save themselves?  Subsidies in rich countries are a direct cash transfer from the poorest consumers to the richest of producers.  People have often said a WTO deal is difficult when the world economy is pumping.  Why take risks if things look good?  Now we have a global credit crunch so the global economy would receive a welcome boost if a deal was done.   Of 100 economists, 99 would report everyone wins, eventually.  But politicians and hungry families live in the immediate.  The next meal, pay day, or election.

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