Rubin: Security and Global Food Crisis

In two previous posts (Taliban?- What's That Got to Do with the Price of Bread? and More on Wheat, Afghanistan, Pakistan, and Global Security) I discussed the impact of the global food crisis on security in Afghanistan and Pakistan. When I first wrote about this in February, the global food shortage was only starting to attract media attention. Since then many articles and surveys have appeared, including a cover article in the Economist, which compared the impact of the crisis to a "silent tsunami." The U.N. Secretary-General has convened a special Task Force on the Global Food Crisis.

My colleague at the Center on International Cooperation, Alexander Evans, has published a briefing paper on Rising Food Prices. Summary Points:

• Global food prices have risen 83 per cent over the last three years. The increases have been driven by high income growth in emerging economies (probably the single most significant factor),use of crops for biofuels, the relative inelasticity of supply, historically low stock levels and some speculative investment.
• More recently, national concerns over inflation and prices have led some countries to reduce exports and others to try to build up stocks – creating a feedback loop that feeds on itself to drive prices up still further. In the medium to longer term, ‘scarcity trends’ – climate change, the cost of energy inputs, scarcity of land and water – could limit the supply-side response.
• In the immediate term, the priority is to increase both the volume and the quality of humanitarian assistance available to poor people, including by moving away from in-kind food aid and towards cash transfers or voucher systems – although it is important to be clear that there are outstanding questions about how these social protection systems will work, and they should not be seen as a panacea. The issue of compensatory financing may also arise for some countries facing balance-of-payments difficulties.
• n the longer term, the key challenge is to increase the supply of food: the World Bank estimates that demand for food will rise by 50 per cent by 2030, as a result of rising affluence and growing world population. Achieving this challenge will require something close to a revolution, and a massive investment in agriculture in developing countries.
  
•  If supply fails to keep pace with rising demand, then the question of ‘fair shares’ is likely to emerge as a significant global issue. Already, the effect of a burgeoning global middle class switching to diets with more meat and dairy products – both relatively inefficient in terms of grain use – has been to reduce the affordability of staple foods for poorer consumers.
  

The report is published by Chatham House. Read more on this article...

Rubin (Updated): More on Wheat, Afghanistan, Pakistan, and Global Security

Update: The British government is providing food aid to Afghanistan:

The [UK] government has promised an extra £3m in new funding to help meet growing food shortages in Afghanistan. . . .The International Development Secretary Douglas Alexander said the cash would provide a "safety net" that would will help avoid a humanitarian crisis. UN research suggests that poor Afghans are struggling to buy food because of rising wheat prices. In Kabul it is estimated that people spend up to 60% of their income on bread alone. The UK government says the shortages have been caused by rising global prices made worse by severe cold weather.

Original post:

I previously showed how the rising global wheat shortage and the resultant price increase is feeding conflict (as it were) in both Pakistan and Afghanistan.

The media are starting to catch on to the political implications of the commodity boom. It's not just oil: today's New York Times analyzes A Global Need for Grain That Farms Can’t Fill. Most of the article focuses on how rising prices for grains and other agricultural commodities are reviving the U.S. farm economy. (Of course the article misleadingly uses a few family farmers as examples rather than the multi-national agro-businesses that account for most of the production and market).

An earlier article in the Wall Street Journal (behind subscription firewall, excerpted here) attributed the shortage and price increase to "drought in Australia and poor weather in other grain-producing countries." The Times article attributes it mainly to increasing demand:

Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.

But the Times article also highlights the global implications:

A tailor in Lagos, Nigeria, named Abel Ojuku said recently that he had been forced to cut back on the bread he and his family love.

“If you wanted to buy three loaves, now you buy one,” Mr. Ojuku said.

Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics....

The increases that have already occurred are depriving poor people of food, setting off social unrest and even spurring riots in some countries. . . .

Around the world, wheat is becoming a precious commodity. In Pakistan, thousands of paramilitary troops have been deployed since January to guard trucks carrying wheat and flour. Malaysia, trying to keep its commodities at home, has made it a crime to export flour and other products without a license. Consumer groups in Italy staged a widely publicized (if also widely disregarded) one-day pasta strike last fall.

As I mentioned in the previous post, one of the most common themes in messages from Pakistan since the assassination of Benazir Bhutto has been the wheat flour (atta) shortage, which many people ascribed to the political instability in the country, though it is a global phenomenon. In response, Pakistan has stopped wheat exports to Afghanistan.

As I also reported, rising food prices in Afghanistan are creating a crisis that is so far silent but that could manifest itself in urban riots, increased recruitment to the insurgency, and increased planting of both opium poppy and cannabis to earn cash incomes to buy food at the higher prices.

(On other commodity markets: The latest UNODC assessment of Afghanistan's drug economy notes "the steady rise in cannabis cultivation, giving Afghanistan the dubious distinction of being one of the world’s biggest suppliers of cannabis" (as also reported, left, in the New York Times). With a completely deadpan delivery, the UNODC report praises cannabis growing provinces as "poppy free." Afghan governors who succeed in convincing farmers to grow cannabis, the price of which has jumped, instead of opium poppy, the price of which is falling because of Afghan over-production, are now considered to be counter-narcotics heroes. Anyone who reads this report should carefully parse where it refers to opium and poppy and where it refers to illegal narcotics. Substitution of one illegal drug for another is being sold as counter-narcotics.)

Meanwhile, the Afghan government, which lacks economic expertise and administrative capacity in rural areas (to say the least) has proposed some kind of support for wheat farming to compensate for the food shortages and take advantage of the rising prices, which appear to be a long-term trend. Currently Afghan farmers are poorly positioned to take advantage of the wheat price rises, as traders monopolize most of the profit, as they do with poppy and cannabis. The World Bank vetoed such a program for the usual reasons (distorting markets, etc.) many of which are valid -- in addition to the fact that the Afghan government could not administer a complex and wasteful program like US agricultural price supports, especially since Afghan cultivators have no political influence.

Nonetheless, the rise in price in wheat and other commodities (what is happening to horticultural commodities, flowers, essential oils, and so on?) presents an opportunity for investing in other cash crops and their marketing in Afghanistan. For all the rhetoric about how the drug economy is supporting insurgency and terrorism, where is the program to seize this market opportunity? And for all the talk of the importance of Afghanistan to global security, where is the program to assure Afghans of an affordable supply of basic food? This would do at least as much good as more NATO troops, and with less risk of collateral damage (market distortion versus killing civilians).

Please post policy proposals in the comments. Thanks.

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Rubin: Taliban?- What's That Got to Do with the Price of Bread?

In the opening scene of Louis Malle's film My Dinner with Andre, the playwright/actor Wallace Shawn (memorably portrayed by playwright/actor Wallace Shawn) kvetches to himself as he goes about his New York daily errands:

I've lived in this city all my life. I grew up on the upper east side, and when I was ten years old I was rich! I was an aristocrat, riding around in taxis, surrounded by comfort, and all I thought about was art and music. Now I'm thirty-six, and all I think about is money!

I thought of this scene after I returned from a trip to Taliban-ruled Afghanistan in 1998. A few months later, during a discussion at the International Peace Academy, I summarized my findings as, "Outside of Afghanistan, all people think about about is Islam and extremism, but inside Afghanistan all people think about is money."

I often have flashbacks to this, most recently when a reporter who was gearing up for his first trip to the region by reading books on theology and political ideology asked me how it was possible for Hanafi Muslims like the Taliban to ally with Wahhabis like al-Qaida -- was it because the Deobandi school was closer to Wahhabism? I replied (with a pinch of exaggeration) that this had nothing to do with anything, and to understand the Taliban he would be better off looking into the price of bread.

Outside of Afghanistan people want to know if Deobandis are a type of Hanafis that are closer to Wahhabis, but inside Afghanistan all people think about is the price of bread. As I was leaving Kabul in January, the fixer who helps me get through lines and avoid bribes at the airport started complaining about the price of bread (as for bribes -- when one of the border police at the numerous airport checkpoints asked him for some money for tea, he pointed to me and said "mahman-i rais-i jamhur ast wa-farsi mifahmad" -- he's a guest of the President and understands Persian -- both clauses of which were exaggerated but effective). He complained that people in Afghanistan were concerned with only one thing: getting enough bread to eat, and so many were not able to do so. The prices of everything were so high! Under the Taliban the price of everything was much lower. I pointed out to him that we were driving to the airport (much improved, difficult though it is to believe for those seeing it for the first time) along a newly paved wide highway that could accommodate the increased traffic. He acknowledged all that, but said that many people were better off under the Taliban.

I paused a little bit to let that sink in, and then I asked him, So do people want the Taliban to come back? His eyes bugged out as if I had completely lost my mind, and he started waving his hands in the air and shouting, "No! No!" Of course this man had a secure job with the government, was about to leave for English-language training course in India, and had been able to go on hajj last year. I don't think that foreign soldiers had broken into and searched his house or killed, arrested, or abused any of his relatives (at least he never mentioned it, which others did). He was a hajji, but a clean shaven hajji. And by the looks of him, he was getting his daily bread, and then some.

But I had heard quite a bit about this bread. Someone told me that food prices had gone up 70 percent. After General Musharraf declared a state of Emergency during my visit in November, notes from Pakistani friends often spoke of a growing shortage of "atta" (whole wheat flour). On my flight to Delhi from Kabul I sat with a senior official of the Indian Customs Service who was advising the Afghan Customs Department. He told me that Afghanistan was importing only ten percent the amount of wheat that it had last year. U.S. Ambassador William Wood was trying to convince Afghan villagers that food shortages (like the insurgency) were due to poppy cultivation. (I always heard that food shortages led Afghans to cultivate poppy so they could buy wheat plus have some cash for other needs -- but that would require assuming that farmers earn money for their crop and can buy food on a market.)

What is going on? The Wall Street Journal (behind subscription firewall) answers the question this morning (hint -- it's not the scourge of narcotics or, to be fair, General Musharraf either):

The little known Minneapolis Grain Exchange is suddenly one of the hottest spots in the global financial markets.... Yesterday wheat closed at $22.40 a bushel on the Minneapolis Grain Exchange, up from about $5 a year ago....Minneapolis has become ground zero for the global wheat shortage, which has been caused by drought in Australia and poor weather in other grain-producing countries. Global stocks are projected to reach 30-year lows this year, while U.S. stocks will reach 60-year lows.

The rise in agricultural prices, combined with high oil prices .. have contributed to higher food inflation in the U.S. and around the world....

Another byproduct of the rally by wheat and other grains is that food is becoming more politicized as countries dependent on food imports fear they will be left at the mercy of volatile markets and shrinking supplies. Such a development could exacerbate hunger while generating food riots or political problems at home.

To cope with high prices, countries have been rationing supplies by leveling tariffs or taxes on grain exports. [Kazakhstan and Syria have taxed or canceled exports, while Jordan and Egypt are short of food.] Pakistan recently stopped exporting some of its wheat flour to Afghanistan.

In addition, countries accounting for a third of global exports (Russia, Kazakhstan, Ukraine, Argentina, and China) have taken some wheat off the market to address domestic shortages.

"Food riots or political problems...." Of course there were those riots in Kabul in May 2006 in which a few hundred angry young men paralyzed the capital for much of a day.... At several meetings I have heard former Minister of Finance of Afghanistan Ashraf Ghani say that the most common definition of a "Talib" in southern Afghanistan is "an unemployed youth." Some Kandahari fruit traders I interviewed said that nearly all the fighting in Afghanistan was due to unemployment. Statistically, youth employment is one of the most robust correlates of civil violence.

Another thought -- this bad weather, drought, and so on leading to shortages not seen in decades.... Could it be related to climate change? I don't know. But I suspect that neither missile strikes, nor more NATO troops, nor a deeper study of Islamist political ideology will enable us to solve these problems. Read more on this article...