IMF Survey: Food and Biofuels: The Price of Success
December 3, 2007
In a column in the December 2007 edition of Finance & Development magazine, IMF Chief Economist Simon Johnson looks at how the adoption of biofuels is driving up world food prices. He suggests that rich countries could help limit the rise, which is hurting the poor in low-income countries the most, by removing ethanol subsidies and cutting high tariffs.
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Australian wheat, Chinese pork, U.S. corn. What do these three specific goods have to do with macroeconomics? Unfortunately, right now, a great deal, and in ways that are globally interconnected. Over the past 12 months, the world has experienced a substantial inflationary shock in the form of higher food prices. This shock doesn't necessarily translate into higher sustained inflation; monetary policy in most countries appears to be responding appropriately. But it will have adverse effects, particularly on relatively poor urban residents in low-income countries. Continue story here.