The Real Culprit for Rising Food Prices

THE REAL CULPRIT FOR RISING FOOD PRICES -- (House of Representatives - April 15, 2008)

The SPEAKER pro tempore. Under a previous order of the House, the gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.

Ms. KAPTUR. Madam Speaker, the world is beginning to understand what my constituents have known for far too long, higher food prices and higher
commodity prices are destroying prosperity for millions and millions of people here at home and abroad. Whether there is a hungry person in Toledo, Ohio or in Haiti, the rising costs of basic food are really placing the world's marginalized and poor in even a tighter squeeze.

Getting in the front of devastation that higher commodity prices can cause is a challenge to all of us. While I am pleased that the leaders of the International Monetary Fund and the World Bank have called for half a billion dollars more to feed the poor of the world, I'm deeply troubled that these leaders have pointed to the same tired rhetoric in diagnosing the cause of these rising prices. It's been very interesting for me to hear them say they're blaming higher food prices on the production of ethanol and biodiesel in agricultural America, which is actually a new value-added market for our farmers. It's actually a new market that's taking land that is just laying fallow for years, where we have paid commodity payments and gotten nothing, now we are beginning to reuse some of that land again.

The real culprit for rising food prices is rising oil prices. Our world is facing a crisis precipitated by the greater competition for dwindling supplies of world energy that has caused all the prices of basic goods to skyrocket. But instead of dealing with that reality of how oil is embedded in every aspect of life in this country and globally, they're trying to blame this on the new developing market of renewable energy.

Yes, under current technology biofuels consume some food stocks for the production of fuel. Corn has been utilized by some ethanol producers, for example. But to claim that biofuels are the cause of rising food prices, that's disingenuous at best. Look to the rising oil prices at over $113 a barrel, and this oil-dependent economy must become energy independent here at home again. And renewable fuels based in agriculture are a part of the solution for this country in the world.

Take a look at the rising cost of fertilizer that can be directly attributed to the increasing cost of natural gas and smaller crop sizes. According to the recent Texas A&M Agriculture and Food Policy Center analysis, rising fertilizer costs have led to a $3 million acre reduction in planted corn in the 2006, 2007 crop year.

Let's look at another major cause globally of why food prices are going up: Drought. World food production has gone down because in Australia and eastern Europe, and because of poor weather in Canada and western Europe and Ukraine, we've seen overall production reduced. With such world stocks for wheat at 30-year lows, buyers are turning to the United States for supplies. Has the IMF offered suggestions to these nations for dealing with the drought that global warming is causing? No. They're just blaming America's farmers.

Higher incomes around the world are boosting demand for processed foods in countries such as India and China. And this higher demand has skyrocketed the need for products produced across the supply chain. Now, has the IMF sought to better manage the uncontrolled growth in developing countries? No. They're just blaming America's farmers.

With the U.S. dollar in free fall, American agricultural goods have become extremely attractive internationally and have placed great demand on foodstuff production domestically. With greater competition for food, with more U.S. exports, our weak dollar due to terrible economic policies here at home has decreased the power of Americans to purchase food produced right here in our country. Has the IMF identified the weak dollar as the challenge to millions of Americans faced with food shortages? Of course not. They just blame the U.S. farmer and the new developing market of biofuels.

With the price of oil reaching over $110 a barrel, the world's addiction to oil is driving up the production costs of agricultural products. How much do you think it costs to haul a truckload of bell peppers from Salinas Valley in California to Cleveland, Ohio?

I cannot accept IMF's wanton attack on the investment in rural America. If we follow their formula, we would not be growing any food domestically. If we were following IMF's advice, we would not be developing the infrastructure and capacity to produce our own renewable energy here at home and help lead the world in a real energy-independent transformation of this country.

Madam Speaker, Americans simply must commit to cutting off our oil addiction and restoring energy independence here at home.
[From IMF Survey Magazine, Apr. 10, 2008]

Food Price Rises Threaten Efforts To Cut Poverty--Strauss-Kahn

Higher food prices have particularly adverse effect on the poor.

Projections show nearly all African countries suffering food price shocks.

IMF Spring Meetings to discuss global strategy on food price crisis.

A rise in food prices of 48 percent since end-2006 is a huge increase that may undermine gains the international community has made in reducing proverty, IMF Managing Director Dominique Strauss-Kahn warned.

He told an April 10 news conference in Washington that policy responses to higher food prices have to be tailored to meet the needs of each country.

Strauss-Kahn said the IMF could take four steps to help address higher food prices in the short term:

Support countries in designing appropriate macroeconomic policies to deal with shocks; provide advice and technical assistance for countries where rising food prices are eroding terms of trade, through targeted income support for the poor--without jeopardizing hard-won gains on economic stabilization; in countries where price shocks are affecting the balance of payments, provide assistance through IMF lending facilities, and work, along with other agencies and donors, to help countries mitigate negative impacts.

OPEN TRADE POLICIES

Longer-term answers to the problem of higher food prices centered on removing obstacles to increased supply, Strauss-Kahn said.

The IMF cites increased trade as a policy option for mitigating the effects of higher commodity prices on national economies. IMF chief economist Simon Johnson told an April 9 World Economic Outlook briefing: ``As a way to reduce global pressure on food and energy prices, more open trade policies in those products would be a good start. Less insular biofuels policy in advanced economies would help relieve some pressure. At the same time, we encourage countries to avoid raising taxes or imposing quotas on their food exports. These reduce incentives for domestic producers and also increase international prices.''

IMPACT ON INFLATION

IMF research shows that higher prices for food pose new challenges for African policymakers and could have particularly adverse effects on the poor. Because food represents a larger share of what poorer consumers buy, a global increase in food prices has a bigger impact on inflation in poorer countries.

IMF studies show the rise in food prices reflecting a mixture of longer-term factors such as food crops being diverted to biofuel production; higher food demand from emerging economies; and higher energy and fertilizer costs. Temporary factors, such as droughts, floods, and political instability, also contributed to higher food prices.

Strauss-Kahn displayed a map at the press briefing that showed the impact of projected food price increases on global trade balances.

``Almost all African countries have a negative impact from these food prices,'' Strauss-Kahn told the briefing. A problem in trade balances meant problems in current accounts. Problems in current accounts meant problems that the IMF could help address, he said.

New projections on the effects of higher food prices follow publication of a World Bank-IMF report warning that most countries will fall short on the Millennium Development Goals, a set of eight globally agreed development targets that the international community is aiming to achieve by 2015. The report said that though much of the world is set to cut extreme poverty in half by then, prospects are gravest for the goals of reducing child and maternal mortality, with serious shortfalls also likely in primary school completion, nutrition, and sanitation goals.

NEW KIND OF IMBALANCE

In Africa and Asia the effect of higher food prices would have to be seen not only in terms of undermining the efforts to fight against poverty but also as representing a new kind of macroeconomic imbalance, Strauss-Kahn said. For a large part of Africa, a shock could be expected that was as big as, and maybe bigger than, previous shocks.

Strauss-Kahn welcomed an initiative launched by U.K. Prime Minister Gordon Brown that urges the IMF, the World Bank, and the United Nations to develop a global strategy to address higher food prices. ``The initiative taken by Gordon Brown is perfectly timely, We need now to consider the rise in food prices as something which is not just happening for one or two months but as probably more structural,'' Strauss-Kahn said.

The Brown proposal would probably be on the agenda of the IMF-World Bank Spring Meetings and of the ministerial meeting of the Group of Seven industrial countries, he added.

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