A Global Approach is Required to Tackle High Food Pricesby Dominique Strauss-Kahn
Managing Director of the International Monetary Fund
April 21, 2008
(This article first appeared in the Financial Times)
High food prices are today a serious humanitarian concern. They are also a source of macroeconomic instability affecting budgets, trade balances and, of course, incomes almost everywhere in the world.
Global rice prices have increased more than 50 per cent so far this year and most other food prices are up sharply. As the global economy slows, the prices for all kinds of commodities are moving up - the opposite of what we would ordinarily expect. In part this reflects strong demand from emerging markets. But financial turmoil has also increased the attractiveness of commodities as an asset class.
Experts expect short-term commodity prices (including oil and food) to rise even further. The result would be a devastating blow for the world's poorest, who often spend more than half of their income on food.
We must not stand idly by. Unless we act now, the world faces a downward spiral of trade restrictions, higher prices for staples and starvation. The World Food Programme urgently needs additional funds and supporting its well-run programmes to feed the poor is a moral and economic imperative.
Although aid is the first step, we must be bolder in tackling the long-term challenges of food supply.
Many farmers are not increasing output because they are not equipped to gear up production or because market distortions mean they do not benefit from higher food prices. So, just waiting for the market to self-correct is not a satisfactory option.
We must not lose sight of longer-term solutions. This calls for a more global approach to policies. Agricultural policies must change. Higher food prices over the past few years in part reflect well-intentioned, yet misguided policies in advanced economies, which attempt to stimulate biofuels made from foodstuffs through subsidies and protectionist measures.
High food prices also reflect imprudent agricultural pricing policies in some developing countries, and these too need to be improved.
No one should forget that all countries rely on open trade to feed their populations. But we are already seeing actions at the national level, such as curbs on food exports, that have a damaging global impact. Completing the Doha round would play a critically helpful role in this regard, as it would reduce trade barriers and distortions and encourage agricultural trade.
The International Monetary Fund and the World Bank are also engaged in discussions to improve both industrial and developing country policies. Multilateral agencies are stepping up lending to the agricultural sector in poorer and middle-income countries to encourage and support good policies. But there is more to do, and the World Bank's New Deal on Global Food Policy is a big step forward.
We also need a new approach to risk mitigation and insurance at the level of both individual farmers and countries. Important steps are being made in this direction by aid donors with regard to catastrophe insurance and developing robust futures markets. This can greatly help assure farmers that, if they make investments, they will reap the rewards.
We should consider adopting a similar philosophy to dealing with shocks - including, but not limited to, energy and food prices - at the macroeconomic level. Countries need to feel more assured that insurance-type financing will be available in times of need. The IMF will play its part in this regard.
For countries hit by food trade shock, the IMF stands ready to provide rapid financial support to address balance of payments needs. And we are ready to review our loan facilities to ensure that they are responsive to this kind of problem.
We have a moral responsibility to get food into the hands of poor people. The world can afford it and global cooperation can deliver the macroeconomic framework and incentives needed to address the problem in a lasting manner.