The Impact Of Rising Food Prices On Arab Unrest
An Iraqi shop owner sells groceries in Baghdad. World Bank President Robert Zoellick says the high cost of food is an "aggravating factor" behind the unrest in the Middle East. (Ali al-Saadi / AFP/Getty Images)
As governments across the Arab world look for ways to calm their angry populations, one challenge in particular stands out: how to address the spiraling cost of food.
Coincidence or not, the uprisings in Tunisia and Egypt came just as world food prices hit a record high. The World Bank reported this week that the cost of food is now at "dangerous" levels.
High prices are far more burdensome for people in the developing world because they typically spend a much higher percentage of their income on food. Many also buy raw food commodities — grain rather than packaged bread, for example — and it is those commodity prices that have increased most dramatically. Wheat prices have doubled in the past six months alone.
"Many households are buying raw rice," notes Joseph Glauber, chief economist at the U.S. Department of Agriculture. "They're milling it themselves. For them, a big increase in [raw] rice prices or a big increase in wheat prices is translated into a sizable increase [in food costs]."
In an interview with member station WAMU's Diane Rehm, World Bank President Robert Zoellick described the high cost of food as an "aggravating factor" behind the unrest in the Middle East, even if it is not a primary cause.
"You had a large unemployed population and people clearly fed up with the political system," Zoellick said. "But one of the reasons I think this is an important issue today is, those countries are going through something between transitions and revolutions. That's where I'm most concerned about food now."
Many governments in the Arab world subsidize the purchase of food already, but not nearly enough to counteract higher prices. If those governments now increase those food subsidies again in response to the rising discontent, they will be hard-pressed to improve delivery of other public services.
The policy challenge is complicated, but the basic economic problem is simple: The supply of food is not enough to meet the demand.
Across the world, food stocks are down in part because of unfavorable weather, ranging from drought to floods, in Russia, Pakistan, Europe, North America and Australia.
"Production of many crops was affected negatively by these unfavorable weather developments," says Abdolreza Abbassian, the chief food and grain economist for the United Nation's Food and Agriculture Organization. "This has led to tighter markets, and prices are reflecting that."
The demand for food, meanwhile, has been growing, especially in big developing countries like China.
"Sixty percent of all soybeans traded in the world go to China right now," notes the USDA's Glauber. "Forty percent of all cotton goes to China, and ... a fifth of all vegetable oil."
This imbalance between tight supplies and growing demand inevitably pushes food prices up.
But government policies also play a role. World Bank officials intend to make that point during the current meeting in Paris of finance ministers from the Group of 20 industrialized and developing countries. Among the issues to be discussed is the imposition of food export limits, another factor in rising world prices.
In the U.S., government corn policies are part of the problem. Since 2006, the U.S. Congress has used tax credits and industry mandates to divert part of the U.S. corn crop to the production of ethanol, a biofuel.
The ethanol tax credit costs U.S. taxpayers $6 billion a year. It also drives up food prices. The more ethanol is produced, the less corn is left to feed livestock or people. The key justification for the ethanol policies is to reduce dependence on imported oil, but the policies come at a cost.
"It sets up a trade-off or conflict between the perceived national security benefits of providing a substitute for imported crude oil versus the increased food prices," says Bruce Babcock, an agricultural economist at Iowa State University. "There is no doubt at all that expansion of the ethanol industry has increased the cost of producing meat, dairy, eggs and food around the world."
The U.S. government now requires oil companies to blend ethanol into their gasoline products. It gives them a tax credit for each gallon of ethanol they produce, and it limits ethanol imports. According to Babcock's calculations, the policies together push the price of corn as much as 40 percent above what it would otherwise be.
It is one more factor contributing to the spiraling cost of food around the world and causing hardship for food consumers in the Middle East and beyond.
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STEVE INSKEEP, host:
It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.
People rising up in the Arab world have been demanding political rights, but the timing of these uprisings may have a lot to do with economics. We're going to hear a lot this morning about the changes still underway in one of the most critical regions of the world. And we begin with a simple world-wide fact: the cost of food is rising.
NPR's Tom Gjelten reports on what's behind the increase and what nations, including the U.S., could do about it.
TOM GJELTEN: Perhaps it was a coincidence, but the uprisings in Tunisia and Egypt came just as world food prices hit a record high. Consumers here in the United States may not have noticed, but for people in the developing world, the impact has been dramatic. They spend a much higher percentage of their income on food. They also buy raw food - grains rather than packaged bread, for example - and it's those commodity prices that have jumped the most.
Joseph Glauber is chief economist at the U.S. Department of Agriculture.
Mr. JOSEPH GLAUBER (U.S. Department of Agriculture): Many households are buying raw rice, they're milling it themselves, so for them a big increase in rice prices or a big increase in wheat prices, you know, are translated into a sizable increase.
GJELTEN: World Bank president Robert Zoellick this week said he thinks the spiraling cost of food is an aggravating factor behind the protests in the Arab world, even if not the primary cause. Here was Zoellick discussing the unrest on NPR's DIANE REHM SHOW.
Mr. ROBERT ZOELLICK (President, World Bank): You had a large unemployed population and people clearly fed up with the political system. But one of the reasons that I think this is an important issue today is, those countries are going through something between transitions and revolutions, and that's where I'm most concerned about food now.
GJELTEN: With governments facing new political pressures, how they respond to rising food costs will be a key challenge. Many subsidize the purchase of food already, but not enough to counteract higher prices. And if governments now increase those food subsidies, they'll be harder pressed to deliver on other services.
So it won't be easy for governments to address this fundamental economic problem: the supply of food is not enough to meet the demand for food.
Abdolreza Abbassian of the UN's Food and Agriculture Organization attributes the food shortages in part to bad weather.
Mr. ABDOLREZA ABBASSIAN (UN Food and Agriculture Organization): From Russia to Pakistan to U.S., Canada, North Europe, and before the year ended in Australia, so production of many crops were affected negatively.
GJELTEN: Meanwhile, the demand for food goes up because there are more people to feed.
Economist Joseph Glauber points to big developing countries like China.
Mr. GLAUBER: I think 60 percent of all soybeans traded go to China right now, 40 percent of all cotton goes to China, and even things like vegetable oil, about a fifth of all vegetable oil.
GJELTEN: That supply/demand imbalance pushes prices up.
But government policies are also important. World Bank officials intend to make that point when they meet this weekend in Paris with finance ministers from the planet's top economic powers - the G-20. They will highlight the practice of limiting food exports, for example. That also drives up prices.
Here in the United States, government corn policies are part of the problem. Since 2006, through tax credits and mandates, the U.S. Congress has set aside more and more of the corn crop to make ethanol, a biofuel. The ethanol tax credit costs U.S. taxpayers $6 billion a year. Plus, the more ethanol is produced, the less corn is left to feed livestock or people.
Bruce Babcock, an agricultural economist at Iowa State University, says the justification for promoting ethanol production is that it means less dependence on foreign oil. But there is a cost.
Professor BRUCE BABCOCK (Iowa State University): It sets up basically a conflict between the perceived national security benefits of providing a substitute for imported crude oil versus the increased food prices. Because there's no doubt at all that expansion of the ethanol industry has increased the cost of producing meat, dairy, eggs, and food around the world.
GJELTEN: The U.S. government now requires oil companies to blend ethanol into their gasoline products. It gives them a tax credit for each gallon of ethanol they produce. And it limits ethanol imports.
Economist Bruce Babcock says these policies together push the price of corn as much as 40 percent above what it would otherwise be - one more factor contributing to the spiraling cost of food around the world and causing hardship for food consumers in the Middle East and beyond.
Tom Gjelten, NPR News, Washington. Transcript provided by NPR, Copyright National Public Radio.
