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By Jason Simpkins
And William Patalon III
Money Morning Editors
United Nations Agencies and the World Bank yesterday (Tuesday) set up a special task force and called on countries to stop restricting food exports – the latest evidence that an escalating global food shortage is threatening to spiral out of control.
"We consider that the dramatic escalation in food prices worldwide has evolved into an unprecedented challenge of global proportions," the United Nations said in a statement after the meeting.
The U.N. and World Bank comments followed a meeting of 27 international agency heads in Berne – the Swiss capital – where the group was hoping to start engineering some solutions to a growing worldwide food crisis that's causing hunger to escalate, and that's touched off hoarding and even riots in some of the poorer countries of the world.
The prices of such staple foods as wheat, rice, and corn have skyrocketed over the past year. The cash price for corn on the Chicago Board of Trade soared from $1.86 a bushel in the 2004-2005 marketing year to a record high $6.24 a bushel yesterday – a 235% jump. Rice rose to a record high $25.07 per 100 pounds last Thursday as several of the world's largest producers curbed exports.
According to the World Bank, worldwide food prices have risen a scorching 83% over the past three years. The U.N. Food and Agriculture Organization's (FAO) Food Price Index – which measures the prevailing market prices of cereals, dairy products, meat, sugar and certain oils was 57% higher in March 2008 than a year earlier.
The president of the World Bank, Robert B. Zoellick, estimates that the spike in food prices could push 100 million people in low-income countries deeper into poverty, as food costs cut into already meager earnings.
Rising prices have already caused rioting in Burkina Faso, Cameroon, Egypt, Indonesia, Mozambique, Senegal, Haiti and others. They've also translated into a $755 million shortfall in U.N.'s World Food Programme (WFP) budget, a gap U.N. Secretary General Ban Ki-moon insists must be closed as soon as possible.
"Without full funding of these emergency requirements, we risk again the specter of widespread hunger, malnutrition, an social unrest on an unprecedented scale," he told reporters after the Berne meeting. The WFP aims to feed 73 million people this year.
The World Bank will double the amount it lends to agriculture in Africa over the next year to $800 million, Zoellick said calling for an "integrated international response."
Zoellick and others also encouraged countries to lift export bans, citing Ukraine's lifting of such a ban on wheat last week as an example. Ban, the U.N. secretary-general, urged countries such as Brazil and Egypt to follow suit by lifting export bans that have driven the price of rice significantly higher in recent months.
The World Trade Organization (WTO), represented at Berne by its Director General, Pascal Lamy, said it would aid the effort by "reinforcing discipline in trade distorting subsidies."
"It's well known that trade-distorting farm subsidies from rich countries have damaged food production in developing countries," Lamy said.
The WTO has issued similar warnings in trying to advance trade negotiations in Doha, Qatar, where for seven years, the group has unsuccessfully lobbied countries to liberalize agricultural trade. Proponents of the Doha round say an international compromise would stabilize food markets, lower tariffs, spur food production, and add $100 billion a year to a weakening global economy by spurring trade and growth.
As envisioned, the U.N.-formed task force will bring together the leaders of all the United Nations agencies, funds and programs that focus on food, as well as the World Bank and the International Monetary Fund. Under the leadership of Ban, the U.N. secretary-general, the task force will then establish plan-of-action priorities, and then follow to make sure that they're carried out.
The surge in food prices is being attributed to a number of factors – including increased demand in developing countries, higher fuel costs, a drought in Australia, the use of crops for biofuels, and speculation on global commodity markets.
However, one key catalyst is almost always left out. And ironically, that catalyst could raise the stakes today (Wednesday). U.S. Federal Reserve policymakers are expected to conclude a two-day Federal Open Market Committee (FOMC) meeting today by announcing a reduction in short-term interest rates – the seventh such reduction since the middle part of September.
And many experts believe those rate cuts have been highly inflationary. They've helped send the U.S. greenback into a nosedive against other major world currencies, which has fed into major upsurges in the price of energy- and food-related commodities. If the Fed continues on this course, it could cause worldwide hunger to spike – along with food prices.
Just last week, United Nations' WFP Executive Director Josette Sheeran warned that a "silent tsunami" of hunger is sweeping the globe because of soaring food prices. The Fed rate cut expected today will only make that worse. [Check out this Money Morning Special Investment Research Report for several strategies that will allow investors to protect themselves – and even profit – from the expected continued increase in global food prices].
"This is the new face of hunger – the millions of people who were not in the urgent hunger category six months ago, but now are," the WFP's Sheeran said. "The response calls for large-scale, high-level action by the global community, focused on emergency and longer-term solutions."
News and Related Story Links:
- Money Morning Commentary:
The Fed's Dilemma: Rescue the Housing Market, or Feed the Poor?
- Money Morning Special Investment Report:
Six Ways to Protect Yourself – and Profit – From a Global Food Crisis That's Here to Stay.