Global Food and the Global Poor

Joe Sarling  2nd March 2011

Food prices have risen and will certainly continue to rise, according to the World Bank’s Food Price Watch. At its most basic, food price rises can push more people into poverty or extreme poverty whilst at its most global it can affect the macroeconomic balance of an economy. This micro and macro effect of such a valuable commodity in a world recovering from the largest financial shock since the early twentieth century has the ability to undo much of the good work already completed in developing nations. Nevertheless there are areas in which modern technology and advancements can aid this process.

The World Bank’s food price index had increased by 15 percent between October and January which is just under a third higher than a year before. Over the last six months there have been increases in the global prices of wheat (20 percent), maize (12 percent), sugar (20 percent) and edible oils (22 percent), with a relatively smaller increase in rice prices.

These global prices often get translated into local prices thus having a large and profound effect on the poor in society. World Bank economists show that 44 million people have fallen into extreme poverty (below US$1.25 a day) in developing countries as a result of the food price increase since last June. As a larger proportion of income in poor households is spent on food, rising prices don’t just have negative effects on the amount of food but the type also. It is now a possibility that as staple food (such as rice, wheat, maize, corn) prices increase people will substitute them for less nutritious foods. A malnutrition issue will have lasting and long term effects for both the family and economy.

For countries with a large food import dependence and small fiscal manoeuvrability, a rise in global food prices is of serious concern. If there are not well managed safety nets to protect the poorest from these hikes or that the tax revenues are simply not large enough to act as a potential buffer then the poorest will be negatively affected. Nevertheless, a large amount of reserves would have to be spent on such a net and would put further pressure on the economy.

Furthermore, the medium- and long-term effects of more people going into poverty will have to be balanced with a thriving economy and a large social security resource. A poor, malnourished and under-educated population cannot drive growth to sustainable levels; investment to avoid extreme poverty could be worth the initial investment.

Even those economies who do export commodities and would will suffer with their own local price rises. It is equally important for a developing nation to become less commodity dependent and so needs to develop domestic demand; poverty will quash any hope of large and sustainable domestic demand driven growth.

So what can be done? With an increasing global population but a consistent land area, we have to develop high yield crops which have the possibility of growing in more extreme conditions. The genetic advancements in crop science/technology has vastly improved and could be a platform for sustainable agricultural growth. Furthermore, creating environmentally sustainable crops will ensure crops can be grown year after year whilst targeting the changes in climate can bring more stability.

On a program level, the World Bank and the International Monetary Fund need to adapt their models to incorporate such potential commodity fluctuations. Many of the countries they work with are commodity dependent, both for imports and exports, and a credible framework needs to be incorporated.

Perhaps a markets approach will go someway to controlling the risk involved. The World Bank’s President, Robert Zoellick, has stated how he feels that a free market approach can work by bringing down the export restrictions economies face. Furthermore, transparency and accessibility of food price information could help allay fears and would restrict any panic buying.

Food prices have the power to inflict severe pain on both a micro and macro level and we have to develop the tools to mitigate the risk in a sustainable way. Without these measures, continual commodity price increases will bring some economies to its knees and plunge many people into extreme poverty.