Bush, Rice and the Global Food Crisis

by Ashwini Deshpande George Bush and Condoleezza Rice recently suggested that the global food crisis is in large part due to the rising prosperity and the consequent increase in the demand for food by the Indian and Chinese middle classes. Coming from Bush, the likelihood of any statement being a smokescreen is extremely high (the world is still reeling from the devastating consequences of the WMD lie and its aftermath). In this case too, their argument is a smokescreen for some of the factors that the US leaders would prefer to not have under public scrutiny. One wonders why, though, since the US leaders and their policies have shown precious little regard, if any, to any international public opinion. In contrast to the ‘prosperity and rising food demand’ theory, consider this. The 1996 World Food Summit resolved to reduce the number of hungry people in the world by half by the end of 2015. By 2006, there were more hungry people in the developing world (820 m) than in 1996. According the FAO, instead of decreasing, the number of hungry people in the world is increasing at the rate of 4 million a year. Keeping the 1996 pledge would require decreasing the number of undernourished by 31 million every year, which would mean increasing the food consumption of the hungry. The World Bank has estimated that approximately 100 million people have fallen into poverty in the last two years due to rising food prices and that this trend is unlikely to be reversed any time soon. Food prices are expected to remain high through 2015. High prices threaten to increase malnutrition, already a cause of premature death of children in many countries. The worst-hit are the countries of sub-Saharan Africa, as they collectively import 45% of their wheat needs and 84% of their rice. But according to Bush and Rice, the food shortage in the world is being caused by the fact that two large developing economies are eating more and more. How true is this? According to the FAO, of the projected 582 million undernourished in 2015, 203 would be in South Asia alone, i.e. close to 35 percent. So, for every Indian who, by eating more, is supposedly pushing up food prices, there are hundreds who remain undernourished. Mr. Bush and Ms. Rice, just imagine the horror that would unleash if their hunger was either reduced or eradicated altogether! Indians and Chinese are not merely consumers of food grains, they produce them too. Take rice. India is the second largest rice grower in the world behind China. Rice being the staple of over 65% of the Indian population, much of the production is consumed domestically. Rice prices in India have been rising and due to the low purchasing power of the poor, even a small increase can cause a decline in their real incomes. The fact is that agricultural growth has not kept pace with overall rate of growth and it is believed that there might be other factors such as overuse of fertilisers and so forth that might put a question mark on the sustainability of rice production. Thus, while a section of the Indian population might be prospering (but not necessarily consuming more rice), it is certainly true that large sections of the poor would join the ranks of the malnourished due to increasing rice prices, especially, if current levels of rice production are unsustainable. Now let’s look at the other side of the picture that Bush and Rice are completely silent about. Rising oil prices and fears of climate change have led to a massive increase in the production of bio-fuels. The World Bank, by no means radical or left-wing, provides figures that establish how the encouragement of production and use of bio-fuels has led to increased demand for raw materials such as maize, wheat, soy and palm oil and increased competition for cropland. Almost all the increase in global maize production from 2004-07 (the period in which prices have been rising) went for bio-fuels production in the US. From 2004 to 2007, global maize production increased 51 million tons, bio fuel use in the US increased 50 million tons and global consumption for all other uses increased 33 million tons, which caused global stocks to decline by 30 million tons. Finally, when prices rise, just as many are hurt, some benefit. The World Bank has divided countries into large and moderate gainers (and conversely, losers) in terms of the impact of the food price increase on their trade balance. Large gainers would be those countries whose trade balance would improve by more than 1 percent of their 2005 GDP as a result of rising prices. Moderate gainers would be those countries whose trade balance would improve by less than 1 percent of their 2005 GDP. It turns out the largest losers are going to be several African countries. India and China are among the moderate losers. The USA, incidentally, would be moderate gainer. Of course, the distributional impact of high food prices can be serious even in countries where the balance of payments has not been adversely affected. A study for eight countries indicates that an increase in food prices between 2005 and 2008 has increased poverty by 3 percentage points. For several countries where the progress in poverty reduction has been slow, the increase in food prices threatens to wipe out gains in poverty reduction made in the last 5-10 years. Thus, the overall picture of the food crisis is a far cry from the “prosperous Indians and Chinese eating more” theory. Weather related shocks (drought in Australia) and rising oil prices have contributed to the rise in prices. But in large part, the crisis is due to the needs of the energy intensive US economy that Bush is committed to protect – even if millions have to go hungry in the rest of the world in order to sustain those needs.

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Ashwini Deshpande is Professor of Economics at the Delhi School of Economics, University of Delhi, India.

ashwini.desh@gmail.com