Just recently the crisis of the world's financial markets seemed the worst headache of the world economy. But now the threat of the food crisis is mounting with every passing day.
This crisis is much more vital for every human being, and it may become much more dangerous than financial cataclysms, because it may provoke a social uproar on a global scale. International organizations are already sending urgent relief to the poorest countries in order to prevent food riots. But it is unlikely that anyone can offer a long-term solution to this problem now.
Both the financial and food crises have been triggered off by excessive economic optimism of experts in the last few years, and their inability to predict global challenges. From the start of this century, the world economy was growing at a high rate. Incomes were confidently rising against this background, especially in such huge and rapidly growing markets as China and India. But higher incomes provoked a sharp increase in prices on all kinds of raw materials, including sources of energy, which are part of the cost of practically any product, including agricultural produce. Thus, in the past year prices on hydrocarbons have gone up by 60 percent, while rice and wheat prices have doubled. Eventually, these factors brought about a sharp price hike on food products, which started last year, and continues to this day.
The bad situation is made worse by the fact that for many years huge resources have been invested into the production of biofuels in order to prevent an energy crisis. Their production is fairly expensive, and is not always justified economically. Moreover, it is withdrawing considerable resources from the food market, thereby making food even more expensive.
Unable to afford increasingly expensive food, the poorest people, above all in countries with backward economies, are struggling for survival. In the World Bank's estimate, rocketing global food prices have set back the fight against poverty and hunger by seven years.
Large-scale poverty is fraught with social explosions. A wave of massive unrest caused by the growth of food prices has swept Egypt, Cameroon, Cote d'Ivoire, Mauritania, Madagascar and Ethiopia in Africa alone. There are hunger riots on Haiti in the Caribbean, and in the Philippines in South-East Asia. Director-General of the U.N. Food and Agriculture Organization, Jacques Diouf, predicts new hunger riots in many Asian countries as well, including food producers.
The fact that world leaders have realized the scale of the problem and are ready to act without delay, just as in the case of the financial crisis, is the only cause for optimism.
Speaking in New York on April 14, U.N. Secretary-General Ban Ki-moon said: "The rapidly escalating crisis of food availability around the world has reached emergency proportions. ... We need not only short-term emergency measures to meet urgent critical needs and avert starvation in many regions across the world, but also a significant increase in long-term productivity in food grain production."
President of the World Bank Robert Zoellick has also called for urgent measures to curb soaring food prices and prevent hunger. He emphasized that skyrocketing prices will be one of the main topics for discussion by G8 ministers of finance in Tokyo, adding: "But, frankly speaking, the G8 meeting is in June and we cannot wait for that. We have to put our money where our mouth is now -- so that we can put food into hungry mouths. It is as stark as that."
Urgent measures are already being taken. The World Bank is sending $10 million to fight hunger in Haiti. In Zoellick's estimate, $500 million should be earmarked to the poorest countries before May 1 for this purpose. Concerned over massive unrest in the world, President George W. Bush ordered $200 million in immediate aid to the poorest nations through the United States Agency for International Development.
As for long-term measures to combat poverty, the situation is rather vague. It is obvious that to reduce food prices agricultural production has to be increased, primarily in the poorest countries. But advice on how to do this is couched in general terms. Ban Ki-moon stressed the need to give emerging economies access to resources, investment and technologies. But such appeals have been made for more than a decade, and nothing has changed. The World Bank has been talking about some medium- and long-term projects on upgrading agriculture in developing nations for many years, but to no avail.
Against the background of urgent international relief to prevent the poor from dying all over the world, some members of the Russian government maintain Olympic calm. This is surprising, considering that about 15 percent of the population in Russia is living beneath the poverty line.
Speaking at the session of the WB and IMF Development Committee in Washington on April 13, Russian Finance Minister Alexei Kudrin merely expressed apprehensions over soaring food prices. He said that they are reducing the purchasing capacity of the poorest strata, and producing a negative impact on balances of payment and taxation stability in the developing countries. He even noted that "in mid-term perspective, growing food prices may be an incentive for investment in agriculture." Moreover, Kudrin believes that "price hikes on basic commodities and foods may be viewed as new opportunities." Apparently, for the poorest countries, these opportunities will come as aid from the rich donor countries.
Last year, the Russian authorities simply missed a hike in food prices. Much to their surprise, inflation in 2007 was 12 percent rather than the expected 8 percent. They did not come up with anything better than to conclude agreements with big food networks on freezing prices on certain foods. This measure is extremely ineffective in the market economy, not to mention that it violates domestic anti-monopoly legislation.
by Oleg Mityayev, an economic commentator for the Russian News and Information Agency Novosti; Web site: http://en.rian.ru/.