Multiple Food Price Issues, Doha Developments

Keith Bradsher and Andrew Martin reported in today’s New York Times that, “At least 29 countries have sharply curbed food exports in recent months, to ensure that their own people have enough to eat, at affordable prices.

“When it comes to rice, India, Vietnam, China and 11 other countries have limited or banned exports. Fifteen countries, including Pakistan and Bolivia, have capped or halted wheat exports. More than a dozen have limited corn exports. Kazakhstan has restricted exports of sunflower seeds.

“The restrictions are making it harder for impoverished importing countries to afford the food they need. The export limits are forcing some of the most vulnerable people, those who rely on relief agencies, to go hungry.

“‘It’s obvious that these export restrictions fuel the fire of price increases,’ said Pascal Lamy, the director general of the World Trade Organization.”

Bradsher and Martin explained that, “The new restrictions are just an acute symptom of a chronic condition. Since 1980, even as trade in services and in manufactured goods has tripled, adjusting for inflation, trade in food has barely increased. Instead, for decades, food has been a convoluted tangle of restrictive rules, in the form of tariffs, quotas and subsidies.

“Now, with Australia’s farm sector crippled by drought and Argentina suffering a series of strikes and other disruptions, the world is increasingly dependent on a handful of countries like Thailand, Brazil, Canada and the United States that are still exporting large quantities of food.”

From a political perspective, the Times article noted that, “Powerful lobbies in affluent countries across the northern hemisphere, from Japan to Western Europe to the United States, have long protected farmers in ways factory workers in Detroit could only dream of.

“The Japanese protect their rice industry by making it nearly impossible for imported rice to compete. The European Union severely limits beef and poultry imports, and Poland goes further, barring soybean imports as well.

“Negotiators have been working for years to free trade in farm goods, but today’s crisis actually makes that more difficult for them. Food protests in places like Haiti and Indonesia that rely heavily on imported food have convinced many nations that it is more important than ever that they grow, and keep, the food their citizens need.”

The Times article indicated that, “The current dispute over food exports highlights choices that nations have confronted for centuries.

“One relates directly to trade: Is it best to specialize in whatever food grows best in a country’s soil, and trade it for all other food needs – or even, perhaps, specialize in services or manufacturing, and trade those for food?

“Or is it best to seek self-sufficiency in every type of food that will, weather permitting, grow within a country’s borders?

“The usual answer from economists, and the United States’ position for decades, is that the world benefits most if every country specializes in growing (or servicing or making) what it can most efficiently, and trading for the rest.”

In other news relating to food prices, Alan Matthews, writing yesterday at the CAP Health Check Blog, stated that, “Another study forecasting higher real food prices for the next decade has recently been published by three authors associated with the Humboldt University in Berlin led by Professor Harald von Witzke. The working paper provides a useful qualitative survey of the reasons why agricultural supply will have difficulty in keeping up with the demand for food and other products of agriculture (including bioenergy). For the more technically minded, it uses a partial equilibrium multi-market model (descended from the venerable SWOPSIM model once supported by the US Department of Agriculture) to provide quantitative estimates of price levels for the key grains and oilseeds which are the focus of the study.

“The agricultural treadmill was the term coined by US agricultural economists to describe the tendency for agricultural supply to outrun demand for agricultural products, leading to a downward pressure on agricultural prices and thus farm incomes. It characterised world food markets broadly during the period from 1870 to 2000. The Humboldt paper joins an increasing number of forecasting studies which indicate that the treadmill came to a halt around about 2000 and that the reversal since then is likely to continue for the next one to three decades (depending on the time span of the study).”

On Friday, the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) released their monthly Agricultural Prices report, which noted that, “The preliminary All Farm Products Index of Prices Received by Farmers in June, at 162 percent, based on 1990-92=100, increased 11 points (7.3 percent) from May. The Crop Index is up 19 points (11 percent) and the Livestock Index increased 3 points (2.2percent). Producers received higher prices for corn, soybeans, milk, and lettuce and lower prices for strawberries, cantaloups, and wheat.”

The report also included these graphical depictions of the prices received for corn, soybeans and wheat.

With respect to the future’s price of some program crops, the Associated Press reported on Friday that, “Corn and soybean prices pushed deeper into record territory before easing Friday as rain again soaked the Midwest and traders locked in profits ahead of a planting report next week.

“The early gains followed a sharp run-up in commodity prices over the previous two days, and came as oil futures touched a new high just shy of $143 a barrel.”

The AP article added that, “Investors are eagerly awaiting a report from the U.S. Department of Agriculture due out Monday morning [today] that will show how many acres of each type of crop have been planted.”

“Corn for December delivery nudged the all-time high up a penny to $7.96 bushel on the Chicago Board of Trade before pulling back to settle at $7.87, down one cent from the previous close.

“Soybeans for November delivery hit a new record of $15.77 a bushel on the CBOT before falling back to settle at $15.595, down 2 cents. Wheat prices also ended lower, with the September contract tumbling 30.75 cents to $9.12 a bushel on the CBOT,” the article said.

Higher feeding costs have also caused some market observers to keep a keen watch on livestock inventories, a variable that also has an impact on food prices.

A DTN article from Friday (link requires subscription) reported that, “The hog futures market should react bearishly Monday to the Quarterly Hogs and Pigs report, according to DTN Livestock Analyst John Harrington, as the report did not include any hints of significant herd liquidation.

“Some bullish market watchers were hoping to see signs of significant inventory cutbacks in Friday’s USDA report, but ‘the June 1 inventory looks bearish both in terms of smaller cuts in the breeding herd and larger-than-expected market hog totals,’ Harrington said.

“Slightly more hogs were kept for breeding as of June 1 – 6.07 million head – than the trade expected. That was 99 percent of last year’s total, but the average trade guess had been for 98.5 percent.

“Market hog inventory at 61.6 million head was up 7 percent from last year and came in 2 percentage points higher than the average trade guess.”

Friday’s NASS report also included this graphic illustration, “U.S. Quarterly Hogs and Pigs Inventory June 1.”

With the market prices of some program crops at historically high levels, and as food price issues garner more attention, some have focused on energy policy and the impact that biofuels production could potentially have on agriculture and food prices.

Along these lines, Lauren Etter, in an article posted on Friday at The Wall Street Journal Online, reported that, “Rep. Jeff Flake (R., Ariz.) called on the Inspector General at the U.S. Department of Agriculture to investigate inconsistent data presented by Bush administration officials about the impact of biofuels on food prices.

“The inquiry came Thursday, a day after a blog post on The Wall Street Journal Web site reported on the matter.”

Ms. Etter explained that, “On June 2, Secretary of Agriculture Edward Schafer said in a speech on food security at the United Nations Food and Agriculture Organization in Rome that biofuels contributed 2% to 3% of the overall increase in global food prices over the past year. The secretary’s report relied on data supplied by Edward P. Lazear, chairman of the White House’s Council of Economic Advisers.

“Ten days later in testimony before the Senate Energy and Natural Resource Committee, USDA chief economist Joseph Glauber said biofuels contributed up to 10% of the overall increase.

“Now, members of Congress want to know why there are two sets of numbers and whether the government used more benign numbers in Rome as a way to downplay the role biofuels have played in pushing up food prices.”

The Journal item continued with this analysis: “It turns out that Mr. Glauber’s number is higher because he looked at the overall impact on food prices of corn-based ethanol and soybean-based biodiesel. The White House analysis looked at the impact of only corn ethanol.

“That makes a difference. In the past year the price of soybeans, one of America’s biggest crops, has soared as more of the beans were used for biodiesel and since fewer acres of beans were planted last year to accommodate more acres of corn for corn-ethanol.

“A USDA spokesman, Jim Brownlee, says Mr. Schafer was not aware of a different number when he spoke in Rome.

“Because Mr. Schafer used the White House data in his speech, he should have used the word ‘ethanol’ instead of ‘biofuels’ because the numbers he used were only pertaining to corn ethanol.

“Mr. Brownlee says he probably used the word ‘biofuels’ accidentally. ‘When I read that I thought, ‘oops’, he meant to say ethanol,’ he recalls. Mr. Schafer used the word ‘biofuels’ nine times in his speech and during a question-and-answer session with reporters.

“The issue of measuring the total impact biofuels have had on global food prices has become a political thicket. Interest groups, armed with an array of studies, have gone to war over the issue.”

In other news regarding biofuels, David Irvin reported yesterday at the Arkansas Democrat-Gazette Online that, “Sen. Blanche Lincoln, D-Ark., said Congress must think through more deeply the unintended consequences of energy policy before making sweeping changes to current policy.

“‘I think it is right for us to set ambitious goals for renewable fuels, but we have to be cautious of the consequences and make sure that what we are doing is being thoughtful of the other industries that suffer those consequences,’ Lincoln said. The U. S. Department of Agriculture says the government’s ethanol policy has not caused a significant amount of food-price inflation. ‘We don’t think conditions today warrant changes,’ Agriculture Secretary Ed Schafer told a group of reporters and editors in Washington earlier this month, Bloomberg News reported. Corn prices rose about 80 percent in the last year, and with recent floods in the Corn Belt, the cost of a bushel of corn is now hovering above $7. That matters to meat producers like Springdale-based Tyson Foods Inc., because it uses corn and soybeans to feed millions of chickens every week. Tyson will absorb $600 million of extra grain expense this year, the company has said. It also matters to consumers, because the price of meat is rising on retail shelves as manufacturers cope with the commodity inflation. Even food banks have been affected, one Springdale minister said. To what degree ethanol production affects the price of corn – and food – is a matter of debate. But the issue will almost certainly fuel a political clash after the new president takes office, as the meat industry works this year in the halls of Congress to get rid of subsidized ethanol in the United States.”

The Democrat-Gazette article noted that, “However, with the presidential election campaign under way, few analysts expect any movement on ethanol policy this year.”

Price issues are also fostering debate about acreage in the Conservation Reserve Program.

The Associated Press reported on Friday that, “Illinois Sen. Dick Durbin, the Senate’s second-ranking Democrat, praised Department of Agriculture officials for their work in the flooding’s aftermath, saying they were doing everything they could to help the state in the face of legal restrictions that limit aid.

“One unanswered question is whether the government can make Conservation Reserve Program acreage, now set aside for preservation, available for earlier haying and livestock grazing to those affected by the floods.

“The Agriculture Department may modify rules for the program to allow such activities even earlier than usual when there has been flooding.”

And a Dow Jones news article from Friday (posted at DTN, link requires subscription), reported that, “U.S. Department of Agriculture Secretary Ed Schafer said Friday a decision regarding early release of land out of a government conservation program is expected in the ‘next couple of weeks,’ possibly in time for fall planting.

“‘We’ve got to make a decision in the next couple of weeks and we will do so. To get the ground prepped (for winter wheat), we’ve got to start soon,’ Schafer said.”

The article explained that, “Farmers who enrolled acres in the conservation reserve program commit for that land to be out of production for a set number of years, and those who take it out early usually face penalties. With rising food prices and millions of acres of farmland flooded in the Midwest there have been calls to open that land.

“If the decision is made soon, it would allow for planting of winter wheat this fall. Even though corn and soybeans have been affected by spring flooding, opening the land to winter wheat plantings would allow livestock producers to use some of that for feed, Schafer said.”

Doha

An update posted at the WTO Online on Friday indicated that, “Director-General Pascal Lamy, at an informal meeting of the Trade Negotiations Committee on 27 June 2008, urged ‘maximum effort from everyone over the next weeks’ to ensure a productive meeting of a number of ministers scheduled for the week of 21 July 2008. He said the immediate challenge is to make progress that ‘will provide a basis for improved texts in Agriculture and NAMA'”.

And Reuters writer Laura MacInnis reported on Friday that, “Governments negotiating a global trade treaty on Friday backed what trade experts said was a ‘make-or-break’ test of the seven-year drive to cut tariffs and subsidies that pinch exporters and constrain growth.

“World Trade Organization Director-General Pascal Lamy has called for ministers to meet from July 21 to seek agreement in farming and manufacturing – the two toughest areas – to try to reach a full deal on the so-called Doha round in 2008.”

The article stated that, “‘It’s clearly risky,’ said David Woods, a trade analyst and former WTO spokesman, who warned that diplomats in Geneva needed to overcome huge obstacles in their often-complex negotiations before ministers could be expected to reach any agreement.

“‘Either they make a tremendous amount of progress in the next few weeks or they do not. If that progress is not forthcoming there is no way this deal can be done in four or five days,’ Woods said, referring to the ministerial meeting.

“Former WTO services director David Hartridge said Lamy’s decision was ‘a brave but necessary thing to do.'”

In addition, the Reuters article indicated that, “New Zealand ambassador Crawford Falconer, who chairs the agriculture talks, said he would aim to release a revised negotiating text early in the week of July 7.

“‘The existing text is something that ministers could deal with, but a sensible person would prefer that they have a simpler set of decisions to deal with,’ Falconer told journalists on the sidelines of a closed-door plenary on Friday.

“Industrial talks chairman Don Stephenson told the meeting he also needed to see new offers before he could revise his text.”