Rising Gas Prices Threaten Food Production

[Guest Amy Stilwell]

High food prices are threatening recent gains in overcoming poverty and malnutrition, and are likely to persist over the medium term, says a new World Bank Group policy note released today.

 

"Poor people are suffering daily from the impact of high food prices, especially in urban areas and in low income countries,” said World Bank Group President Robert B. Zoellick. “In some countries, hard-won gains in overcoming poverty may now be reversed. As an international community we must rally not only to offer immediate support, but to help countries identify actions and policies to reduce the impact on the world’s most vulnerable.”

 

According to Rising Food Prices: Policy Options and World Bank Response, increases in global wheat prices reached 181 percent over the 36 months leading up to February 2008, and overall global food prices increased by 83 percent. Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline, but they are likely to remain well above the 2004 levels through 2015 for most food crops.

 

As the policy note points out, while households that are net producers may benefit from higher prices, price increases for staple foods will increase poverty in several countries. Indeed, for many countries and regions where progress in reducing poverty has been difficult, the impact of rising food prices risks undermining the poverty gains of the last 5 to 10 years, at least in the short term. For example, in the case of Yemen, estimates show that the doubling of wheat prices over the last year could reverse all gains in poverty reduction achieved between 1998 and 2005.

 

“The poor are not just facing higher food prices but also higher energy costs, which is a worrying combination,” said Danny Leipziger, World Bank Group Vice President for Poverty Reduction and Economic Management (PREM). “Policy responses to protect the poor from food price rises are urgent, and need to be designed in a way that is conducive to stimulating greater agricultural production in the long run.”

 

Increased bio-fuel production has contributed to the rise in food prices, according to the report. Concerns over oil prices, energy security and climate change have prompted governments to increase bio-fuel production and use leading to greater demand for raw materials including: wheat, soy, maize and palm oil. Food price hikes are also linked to higher energy and fertilizer prices, a weak dollar and export bans.

 

The report notes that many governments are already taking action. Some are expanding targeted safety nets, such as cash transfer programs to vulnerable groups, food-for-work programs, or emergency food aid distribution. Several countries have lowered tariffs and other taxes on key staples, in order to provide some relief to consumers. In contrast, other countries have put in place export bans, which are detrimental to food importers and reduce incentives for production.

 

The report says that measures that seek to stimulate food grain supply are essential over the medium-term, and include strengthening basic infrastructure (transport, power and irrigation) and investing in agricultural technology. The World Bank Group is helping countries by:

 

Calling on the international community to make up the $500 million food gap required by the UN's World Food Program to meet emergency needs.

Making agriculture a priority. The Bank has announced it will double agriculture lending in Africa in Fiscal Year 2009 - from $400 million to $800 million.

Increasing financial support for short-term needs (restructuring existing projects and increasing the size of upcoming grants and loans when needed).

Expanding and improving access to safety net programs, such as cash transfers, and risk management instruments to protect the poor.

Informing the discussion on bio-fuels.

Advocacy on the negative impacts of policies such as export bans, which create price spikes in importing countries, and the high levels of trade tariffs and subsidies in the developed world.

 

Last week, Zoellick called for a New Deal for Global Food Policy to focus not only on hunger and malnutrition, access to food and its supply, but also on the interconnections with energy, yields, climate change, investment, and the marginalization of women.

[Luke_Wilbur]

It's Spring planting time down on the farm in Virginia and Maryland. Area farm families are not only trying to cope with new record price of the diesel fuel needed to run their tractors - it’s $4.15 a gallon in Maryland and $4.04 in Virginia, where it surpassed the $4 threshold for the first time ever.

 

They're also dealing with higher feed costs for their farm animals and herds and the rising cost of the fertilizer needed this time of year to increase their crop quality and promote farm yields.

 

"From the rising of the sun to the going down of the same, farmers in Virginia and Maryland are faced with higher fuel and fertilizer prices," said John B. Townsend II, AAA Mid-Atlantic’s Manager of Public and Government Affairs.

 

"It is squeezing their margins and creating a vicious cycle in the town and the country. Not only is diesel the most widely used fuel to power farm equipment and implements. 94 percent of our goods are shipped to the market in diesel-powered vehicles. Ultimately, those costs are passed on to all consumers.Like all of us, area farmers are paying a record high of $3.39 a gallon for the gas in their cars. To their chagrin, they are also forking over even more for diesel fuel than gas – a difference of nearly 80 cents a gallon. The cost of diesel, which has the dubious distinction of becoming the first of the motor fuels to cross the dreaded $4-a-gallon threshold, continues to set new price records across the nation and the region.

 

It is currently $4.11 from coast to coast, according to the Daily Fuel Gauge Report from AAA Mid-Atlantic.

 

A gallon of diesel is a record $4.17 in the Washington metro area. Farmers in the region are also complaining about the price of fertilizer. They say it has doubled or tripled in costs since this time a year ago.

 

"It couldn’t happen at a worse time for Maryland and Virginia farmers," said Townsend.

 

"As they sow this year's crop they are still trying to recover financially from last year’s devastating drought that parched their cash crops: soybean and corn."

 

The rapidly increasing cost of fuel and nitrogen fertilizer spawns higher farm production costs.

 

"Like a sieve, it all passes through to higher transportation costs to the marketplace and then on in much higher prices for the eggs, milk, fruits, vegetables and food in the kitchens of consumers, who are also grappling with higher pump prices too," noted the spokesman for AAA Mid-Atlantic.

 

Although Virginia boasts 47,600 farms and Maryland has 12,400 farms across the state, most city dwellers haven’t a clue that the cost of fertilizer, a petroleum-based product, also soars as energy prices escalate, adds the auto club.

 

As they plant their nursery and greenhouse crops, and tend to their daily chores, farmers are also reeling from the impact of soaring U.S. retail diesel prices.

 

Like the increased cost of fertilizer, the record price of diesel fuel is a yoke around their shoulders because nearly two-thirds of all farm vehicles and equipment in the U.S and the area have diesel engines, a local agricultural expert tells AAA Mid-Atlantic.

 

"This Spring planting season, area farmers are painfully aware of the fact that the price of crude oil is the main factor in the price of diesel fuel," said Brian Clark, a County Extension Agent at the University of Maryland.

 

"Likewise, the historic spike in natural gas prices is triggering the sharp increase in the cost of nitrogen fertilizer. It accounts for 70 to 90 percent of the cost of producing nitrogen-based fertilizer."

[Guest Dana Perino]

If the average U.S. consumer made the same food purchases they did last year, they would pay an additional $300 for food this year. Overall, the price Americans pay for food increased 4.5% during the past 12 months, compared to a 3.3% increase a year earlier. This includes processed food and restaurant food purchases. The price Americans pay for food is impacted far more by processing and marketing costs than the cost of the commodities used to produce food. Approximately 20 cents of every dollar spent on food goes back to the farm, while 80 cents goes to costs such as labor, transportation and packaging. Energy costs are at historic levels. Increases in oil, gas, and fertilizer prices have increased the costs of producing and transporting food.