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Bloomberg editorial: The worst way to respond to a food crisis

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Food prices have risen to record levels around the world, exacerbating poverty, hunger and political instability. Although there are no quick solutions to the crisis, the most prosperous countries should at least make an effort not to make it worse.

According to the World Food Program (WFP), some 193 million people worldwide are acutely food insecure, due in part to pressures on global food markets that have been building for some time. Rising energy prices in 2021 have pushed up the costs of fertilizers and fuels needed by farmers.

Dry weather ruined crops in big food-producing countries like Brazil, the United States and Canada. Shipping delays caused by the pandemic have disrupted trade.

The Russian invasion of Ukraine has aggravated the crisis. Before the war, both countries accounted for nearly 30% of the world’s traded wheat. Ukraine provided about half of world sunflower oil exports and Russia an eighth of fertilizer exports. Sanctions against Russia have further pushed up energy prices, making fertilizers even more expensive.

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The global consequences of a prolonged war could be dire. High input costs could discourage many small farmers from planting more, preventing supply from meeting demand and increasing volatility. With the dollar strengthening, many countries will struggle to pay for key food and fuel imports.

Price increases and shortages could spark riots, as happened during the 2011 Arab Spring, and push millions of people into extreme poverty.

Governments are compounding the problem with protectionism. Since Ukraine’s invasion, at least 20 countries have imposed restrictions on food exports, covering some 17% of calories traded worldwide, including Indonesia’s decision to block crucial shipments of palm oil.

These restrictions risk triggering a cascading effect and driving up prices for all: it is estimated that they accounted for 13% of the global rise in food prices during the 2008-11 food crisis.

The pressure on the global food supply requires a coordinated response. Foreign ministers meeting at the United Nations next week to discuss food security should pledge not to add new trade restrictions and to lift existing ones as soon as possible.

At the June ministerial meeting of the World Trade Organization, countries should seek a more binding agreement, at a minimum not to block shipments of food needed for humanitarian purposes. They should also share any information they have about stocks and shipping logistics, so that the markets don’t panic unnecessarily.

Countries should also eliminate policies that take food off the market in times of need. The United States, in particular, should consider temporarily suspending mandates for biodiesel, which absorbs more than 40% of the country’s soybean oil.

Congress should also suspend the requirement that half of US food aid be shipped on US carriers. It would be cheaper and more efficient to finance WFP’s efforts to purchase supplies closer to where they are needed.

While Western countries are rightly focused on helping Ukraine defend itself, they will also need to increase aid to the developing world. Poor countries, already stretched to the limits of their fiscal capacity to cope with the pandemic, need help to subsidize fertilizers, strengthen safety nets and bolster their macroeconomic positions.

In addition to direct aid, the G20 can follow through on pledges to reallocate $100 billion in so-called International Monetary Fund special drawing rights to vulnerable nations, making it easier for them to seek debt relief.

Finally, governments must let markets work. Early signs suggest that US and European farmers are responding to rising prices by planting more. The best way for officials to encourage these decisions is to get out of the way. In such a complex crisis, the first principle should be to do no harm.

Source: Gestion

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