Andrew Martin reported in today’s New York Times that, “In anticipation of a global summit on the food crisis, the United Nations called on world leaders Wednesday to agree to urgent measures to ease demand for grains and alleviate high food prices.

The report, by the Food and Agriculture Organization of the United Nations, suggests that countries might need to reconsider policies that encourage the production of ethanol and other biofuels. The report also suggests that the food summit in Rome, which will run June 3 to 5, will give world leaders a chance to renew a war on hunger.”

The Times article stated that, “While noting that price spikes in agricultural markets were not uncommon, the report suggested that the current run-up in prices was different because it had lasted longer and affected nearly all major food and feed commodities, instead of just a few crops. It predicted that higher food prices would continue but was vague on how long the higher prices would last.

“‘The possibility of further sharp price hikes and continued volatility as a result of unforeseen events seems to be likely for the next few seasons,’ the report said. ‘As opposed to other instances of sharp increases in agricultural commodity prices that have rapidly dissipated, we could be facing higher prices for some time.’

“The report said the price increases were caused by a confluence of events. Weather problems created crop shortages, and demand for biofuels ratcheted up demand for corn, sugar and other feedstocks. Stockpiles of grains have dropped by 3.4 percent a year, on average, since 1995 because demand has outstripped supply. An increasing appetite for meat and dairy products in China and other developing countries has intensified the demand for feed grains.”

At pages eight through eleven, the UN report provides a closer look at various issues associated with biofuels. On page ten the report stated that, “The issue is not limited to how much of each crop may be used for biofuels instead of food and feed, but how much planting area could be diverted from producing other crops to those used as feedstock for production of biofuels. To illustrate, high maize prices since mid- 2006 encouraged farmers in the US to plant more maize in 2007. Maize plantings increased by nearly 18 percent in 2007. This increase was only possible because of reductions in soybeans and, to a lesser extent, in wheat areas. The expansion in maize plantings combined with favourable weather resulted in a bumper harvest in 2007 which made it possible for the US to meet domestic demand, including that from its growing ethanol sector, as well as exports. However, this apparent success in maize masked another important development – reduced wheat and soybean plantings and therefore their decreased production was one reason for their sharp price increases. This chain reaction may be repeated in 2008, but this time in reverse order. Farmers in the US are reported to be cutting back their maize plantings in favour of soybeans and wheat because of their higher relative prices. However, the demand for maize by the ethanol sector is expected to continue to rise and if production of maize declines in 2008, it is difficult to expect that the United States will be able to meet all demand (food, feed, fuel and exports) without a significant drawdown on its own maize stocks. Such an eventuality will be watched closely because, in these periods of tight markets, they could result in firmer prices for maize again next year. In future years, in view of the new US Energy Independence and Security Act (EISA), feedstock demand for maize is almost assured to grow considerably under mandates.”

Dow Jones writer Takashi Nakamichi reported today that, “The World Bank and international food aid agencies urged rich countries Thursday to do more to help African and other poor nations hard-hit by what some call the worst global food crisis in decades.”

The article indicated that, “The statement was issued by top officials from the World Bank Group and three U.N. agencies, including the Food and Agriculture Organization, the World Food Programme and the international Fund for Agricultural Development. They met on the sidelines of a three-day African summit ending Friday.

“‘We need to move from discussions to action,’ said Robert B. Zoellick, president of the World Bank, at a joint news conference.

“He expressed hopes that the heads of states from the Group of Eight leading countries will tackle food problems. Signs are growing that the international community is getting more serious in its fight against food price inflation, which threatens global economic growth. Expensive crops have struck people in poor countries in Asia, Africa and other regions, who spend much of their income on food. Rising food costs, along with record-high oil prices, have also emerged as a thorny issue for advanced economies because they fuel inflation.”

Meanwhile, Anthony Faiola reported in today’s Washington Post that, “Efforts by the United States and multilateral agencies including the World Bank to reduce hunger in sub-Saharan Africa have been ‘insufficient,’ with foreign aid to the region failing to flow into agricultural development projects vital to the ability of poor countries to feed themselves, according to a report to be released this morning by the U.S. Government Accountability Office.

“Issued ahead of a major United Nations summit in Rome next week to address the global food crisis, the report suggests that the failure to invest in African agriculture has contributed to the problems unfolding in the region as food prices soar worldwide. High dependence on imported food has been blamed for Africa’s worse spike in hunger in years, with skyrocketing prices sparking unrest and food shortages in a number of nations, including Mauritania and Somalia.

“The report, a draft copy of which was obtained by The Washington Post, additionally describes U.S. aid efforts in sub-Saharan Africa as fragmented and misdirected. It says, for instance, that a Bush administration initiative to ‘end hunger in Africa’ launched in 2002 effectively amounted to a repackaging of existing programs and came with no new funding.”

An item posted yesterday at the Council on Foreign Relations Online by Lee Hudson Teslik (“Where Farm Policy Meets the Food Crisis”) stated that, “Farmers in the United States and European Union will be watching more than the weather this summer. New legislation pending on both sides of the Atlantic holds significant implications for the future of agriculture markets, international trade policy, and the food crisis that continues to grip large swaths of the developing world.

“At first blush, Europe’s efforts seem broader than Washington’s. On May 20, the European Commission presented a proposal (VOA) that would do away with decades-old rules capping domestic agricultural production, while simultaneously overhauling how European governments dole out subsidies to farmers. This could mean an end to the practice where farmers are paid to leave land fallow, which economists say represents a major market distortion. The legislation might also attempt to cajole farmers into greener behavior (Telegraph) by eliminating subsidies for farmers who refuse to adopt ecologically friendly reforms such as limiting pesticide use. To pass, however, the bill must gain approval from all EU member states, and that could be a tall order.”

The CFR article indicated that, “In the United States, Congress recently forged its own comprehensive agriculture legislation, though economists didn’t much like the results. The Economist lambastes the new U.S. Farm Bill, which required Congress to override President Bush’s veto. Despite an effort to cut back on subsidies to the wealthiest U.S. farmers, the article says a Byzantine system of handouts and insurance benefits mean only households making over $1.5 million a year will see any reduction to their subsidies—and even those restrictions can be avoided through loopholes. Several countries at recent World Trade Organization meetings slammed the legislation (Reuters). CFR’s Sebastian Mallaby says Washington’s policies have aggravated the global food crisis—‘not for the first time in Washington do the fat welfare queens of the farm lobby trample on the poorest people in the world,’ he writes.

“For this dynamic to be amended, experts say structural adjustments to U.S. food aid policy will be necessary. President Bush proposed earlier this year that the U.S. farm bill should require the United States to purchase a quarter of its food handouts overseas, a plan aimed at making food donations cheaper and more plentiful, and at bolstering local agriculture markets in the developing world. Congress acknowledged this line of reasoning by authorizing the purchase of $60 million worth of local food (USNews), but critics say that’s a drop in the bucket, given the scope of the global food crisis. Many economists hope future iterations of the U.S. farm bill will allow for a much larger percentage of U.S. foreign food aid to be bought overseas.”

In other news impacting global food prices, the BBC reported yesterday that, “Tens of thousands of Argentine farmers have promised to suspend the export of grain and meat exports, in a continuing dispute with the government over taxes.

“The farmers said they would not take their goods to market between 28 May and 2 June and would block roads.

“‘The farmers’ commission has resolved to call on all growers in the country to resume protest measures,’ said the Argentine Rural Confederation.”

Bloomberg writer Jae Hur reported yesterday that, “Soybean futures advanced in Chicago as Argentina’s farmers will stop selling crops and livestock until next week in the third protest in two months over export taxes, after the government canceled talks. Corn and wheat declined.

“Soybeans rallied as much as 1 percent today on the Chicago Board of Trade. Farmers in Argentina will start withholding newly harvested corn and soybeans today, and livestock producers will stop sending cattle to slaughterhouses tomorrow, Mario Llambias, president of the Argentine Rural Confederation, said yesterday. The sales disruptions are slated to end June 2, he said.

“‘The halt of exports from Argentina helped push Chicago soybeans higher, despite the bearish factors of the dollar’s rebound and a sharp decline in crude oil,’ Kenji Kobayashi, an analyst at Kanetsu Asset Management Co., said today by phone from Tokyo. Argentina is the world’s third-largest soybean exporter behind the U.S. and Brazil and is second to the U.S. for corn.”

In news regarding the price of corn, Ian Berry reported in today’s Wall Street Journal that, “The government’s decision to open 24 million acres of previously protected land for cattle grazing pressured Chicago Board of Trade corn futures, as traders anticipated a drop in feed demand.

“Nearby July corn, the most active month, was down 5.5 cents to $5.9250 a bushel.

“Analysts said the Agriculture Department’s decision to release the acres from its Conservation Resource Program would likely reduce feed demand for corn, although they disagreed on the extent of the impact. CRP is a land-idling program where producers are paid a subsidy not to farm environmentally sensitive land.”

The Journal article noted that, “Others said the move might not decrease corn demand by all that much, especially if cattle ranchers see it as an opportunity to increase the size of their herds.”

Mr. Berry explained that, “As it has in recent weeks, corn continued to follow crude-oil prices throughout the day, traders said. Corn trimmed several cents off its earlier losses as crude rebounded later in the day.

“Analysts say higher crude oil not only increases production costs, it can spur more demand because it makes ethanol production more economically attractive. Joel Karlin, an analyst with Western Milling in Goshen, Calif., said that for ethanol producers, margins are as good as they’ve been in 15 months.”

And with respect to oil, Neil King Jr. and Spencer Swartz reported in today’s Wall Street Journal that, “The world’s top oil producers are proving unable to put more barrels on thirsty world markets despite sky-high prices, a shift that defies traditional market logic and looks set to continue.

“Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world’s top oil exporters fell 2.5% last year, despite a 57% increase in prices, a trend that appears to be holding true this year as well.”

The Journal authors stated that, “There are several reasons behind the net-export decline. Soaring profits from high-price crude have fueled a boom in oil demand in Saudi Arabia and across the Middle East, leaving less oil for export. At the same time, aging fields and sluggish investments have caused exports to drop significantly in Mexico, Norway and, most recently, Russia. The Organization of Petroleum Exporting Countries also cut production early last year and didn’t move to boost supplies again until last fall.

“In all, according to the Energy Department figures, net exports by the world’s top 15 suppliers, which account for 45% of all production, fell by nearly a million barrels to 38.7 million barrels a day last year. The drop would have been steeper if not for heightened output in less-developed countries such as Angola and Libya, whose economies have yet to become big energy consumers.”

The Journal article also contained this interesting graphic.

Doha Talks

Reuters writer Doug Palmer reported yesterday that, “World trade talks have veered toward a less balanced and ambitious outcome than the United States can support, the top U.S. trade official said on Wednesday.

“‘I will tell you frankly, we are concerned about the direction the Doha negotiations are taking in Geneva,’ U.S. Trade Representative Susan Schwab said at a news conference on a trade dispute with the European Union.”

Mr. Palmer indicated that, “Schwab said a pair of new texts in the agricultural and industrial goods portion of the talks were ‘disappointing because they do not move us closer to a deal that will contribute to economic growth and development.’”

And Dow Jones writer Tom Barkley reported yesterday that, “Recently revised draft texts on agriculture and manufacturing hashed out by World Trade Organization negotiators ‘shifted the focus from opening markets to negotiating about expanded exceptions and exclusions,’ she [Ambassador Schwab] said.

“Schwab also repeated the U.S. complaint that fast-growing developing countries should do more to lower tariffs on industrial goods.

“‘Of particular concern, quite frankly, is the continued unwillingness of a handful of advanced developing countries to make meaningful market access contributions as part of the round,’ she said, adding that such countries are hiding their real by claiming to speak for less-developed countries.

“While there was hope that a high-level ministerial meeting could be held in coming weeks, Schwab said more work needs to be done.”

Keith Good