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IMFSurvey Magazine: In the News

FOOD SECURITY CONFERENCE

IMF Helping Countries Respond to Food Price Crisis

IMF Survey online

June 3, 2008

  • IMF says crisis can be managed, action is a "moral and economic imperative"
  • Fund providing additional financing to some worst-hit countries
  • IMF coordinating action with United Nations, World Bank

The IMF is helping low-income countries hit by high food prices take appropriate policy action while providing financial assistance to some of the worst-affected nations, Managing Director Dominique Strauss-Kahn said.

In remarks for a United Nations conference in Rome on world food security that opened on June 3, Strauss-Kahn said that high food prices were stoking worldwide inflation and undercutting the economies of low-income countries, particularly in Africa.

The IMF has doubled financial assistance to four low-income countries affected by food and fuel price hikes and is discussing additional support with another 11 countries, Strauss-Kahn told delegates. He named countries that had received extra aid as Burkina Faso, the Kyrgyz Republic, Mali, and Niger.

The IMF said on May 29 it was giving an extra $21 million to the landlocked West African nation of Mali to help with the crisis and boosted assistance to the Kyrgyz Republic, a mountainous Central Asian country, by $14.4 million.

Crisis can be managed

Strauss-Kahn, a former French finance minister, said in remarks read into the record that the crisis could be managed if the world took appropriate action to

    • Address immediate needs of the worst affected regions and feed the hungry

    • Help countries direct support to people that need it most, while avoiding actions that make things worse, such as export bans and price controls

    • Help countries contain the macroeconomic costs and stop it turning into a general inflation or balance of payments problem.

Balance of payments effects can also be large. IMF projections show that in about one half of African countries the increase in the cost of food imports could exceed 1 percent of GDP this year. Increases are greatest in some of the poorest countries, such as the Democratic Republic of Congo (almost 2 percent) and Mauritania (3 percent). In other countries higher fuel prices are also having an important negative impact.

The Rome meeting, chaired by United Nations Secretary-General Ban Ki-moon, brings together the heads of key UN agencies, as well as the International Monetary Fund (IMF) and the World Bank, along with many heads of state and government. Ban called on world leaders gathered at the summit to take "bold and urgent" steps to tackle the global food crisis, including boosting food production and revitalizing agriculture to ensure long-term food security.

Addressing the high-level conference on world food security, Ban said that over 850 million people around the globe were short of food before the current crisis began. That number could rise by a further 100 million, and the poorest of the poor will be the hardest hit.

Not a global food shortage

Strauss-Kahn said it was important to know that it was not a global food shortage. "In fact, there is enough food to feed the world," he stated. "Rather the problem is that prices have risen and many people cannot afford food. So we need to get food—or the money to buy food—to those most in need." He welcomed the appeal of the World Food Program for $755 million to deal with the surge in food costs.

Emergency measures should be cost effective, well targeted, and not undermine the long-term objectives of increasing food production. He said that scaling up targeted social safety net measures, such as food-for-work program and conditional cash transfers to the poorest can be very effective, as shown in Brazil and Mexico.

Other effective short-term measures are reducing or eliminating tariffs on key food items (as done by more than 40 countries), temporary subsidies on the one or two products most vital for the poor, and expanding the school feeding programs that exist in many countries (for example, Kenya and South Africa).

Some responses, however, should be avoided, such as export restrictions, which export hunger from one country to another, general subsidies that do not target the poor, or direct price controls which discourage production. [See related story]

"Already we are hearing that farmers in developing countries are abandoning rice production as domestic prices do not cover input costs," Strauss-Kahn said.

Food prices to remain high

According to a report issued on May 29 by the United Nations Food and Agriculture Organization (FAO) and the Organization for Economic Cooperation and Development (OECD), food prices in the next 10 years are expected to remain well above the levels of the past decade.

The report says that current high prices will hit the poor and hungry the hardest and calls for the urgent mobilization of humanitarian aid as well as a greater focus on boosting agricultural production in the longer term.

"Coherent action is urgently needed by the international community to deal with the impact of higher prices on the hungry and poor," Jacques Diouf, Director-General of the FAO said at a press conference launching the report in Paris.

"Today some 862 million people are suffering from hunger and malnourishment—this highlights the need to reinvest in agriculture. It should be clear now that agriculture needs to be put back onto the development agenda."

Using prices corrected for inflation, the report says that over the next decade rice and sugar prices will increase by less than 10 percent, wheat by less than 20 percent, butter, coarse grains, and oilseeds will rise by 30 percent, and vegetable oils by over 50 percent. High oil prices, changing diets, urbanization, economic growth, and expanding populations are underlying factors behind the rise in food prices, according to the report.

The FAO and OECD also cite growing demand for biofuel as another factor forcing up prices, saying that world ethanol production has tripled between 2000 and 2007 and is expected to double again in the next decade. Climate change, low stock levels, and speculation could also add to price volatility.

World Bank commitment

The World Bank Group announced on May 29 it would support global efforts to overcome the global food crisis with a new $1.2 billion rapid financing facility to address immediate needs, including $200 million in grants targeted at the vulnerable in the world's poorest countries.

Announcing several measures to address immediate to longer-term food challenges, the World Bank Group said it would boost its overall support for global agriculture and food to $6 billion next year up from $4 billion, and would launch risk management tools, and crop insurance to protect poor countries and small-holders.

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