Rising Food Prices Nearing Danger Point: World Bank

Rising Food Prices Nearing Danger Point: World Bank

February 19, 2011

Agence France-Presse - World Bank president Robert Zoellick warned leaders of the top global economies Saturday that the world is reaching a danger point where soaring food prices threaten further political instability.

"I mentioned that we are reaching a danger point," Zoellick said, adding that he had urged G20 finance ministers and central bank chiefs meeting here to "put food first in 2011."

Zoellick said rising prices would eventually result in increased food supplies but in the intervening couple of years, "there could be an awful lot of turmoil and governments could fall and societies could go into turmoil."

Soaring food, fuel and other basic costs have been one of the key factors driving political unrest across the Middle East and North Africa which has forced the ouster of long-standing autocratic rulers in Egypt and Tunisia.

"We need to be sensitive and have a fingertip feel on what is happening in terms of food prices and its potential effect on social instability," Zoellick told a conference call.

He said the international community needs to be ready to act quickly to help countries such as Tunisia to cope with economic shocks as they try to manage political transition.

The World Bank warned ahead of the two-day G20 meeting that food prices rose by 15 percent between October 2010 and January 2011, pushing another 44 million people into poverty.

France, which holds the presidency of the Group of 20 top developing and developed countries, has made reducing price volatility in basic commodities including food one of its key goals.

Zoellick said G20 ministers were receptive to some of the ideas the World Bank has proposed and that the meeting would provide further momentum for action.

"In sum, I'd say there is a list of items here that is very do-able and the best antidote to complaints that the G20 is a talk shop is to take real action. And action for the most vulnerable people is the best form of that."

Zoellick said the situation is more concerning today than several years ago as there is increased demand from emerging markets and severe weather has reduced the ability of farmers to respond.

There have been proposals to slap limits on commodity trading to discourage speculative trading and reduce price volatility but the World Bank chief said "you counter volatility with better information" about the markets.

He said he also favoured a "code of conduct" for food export bans so as to ensure humanitarian food aid programmes are not affected.

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We may never know for sure the combination of circumstances that brought on energy crisis of 2008. But one factor was almost certainly the Commodity Futures Modernization Act of 2000, which allowed unprecedented levels of speculation in oil futures by investment banks and pension funds, bringing the familiar boom-bust cycle home to the gas pump. [Drill Now? Try Regulate Now, Wall Street Journal, April 7, 2010]

To lower international food prices and protect our social interests, the Commodities Futures Trading Commission must use its authority to curb excessive speculation in commodities futures and re-establish strict position limits on speculators (which were successful until removed by the Commodity Futures Modernization Act of 2000). We must regulate and bring transparency to all trading. We can also removing damaging speculative influence on commodities prices by prohibiting participation in commodities markets by those who do not produce, manufacture, or take physical delivery of the commodities. We must create a solidarity economy that puts compassion and care for one another ahead of short-term profits, in the United States and around the world. [The world food crisis: what is behind it and what we can do, WorldHunger.org, October 23, 2008]

The surge in world food prices can be attributed to the “financialisation” of commodities due to the Commodities Futures Modernization Act of 2000. The game changed for commodities the minute the legislation passed -- ten years ago. That doesn't explain the surge this year but it does explain the increased volatility of the last decade. [Don't Blame Bernanke: Here's Who's REALLY To Blame For Surging Food Prices, Business Insider, October 12, 2010]

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