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Rising Food Prices Threaten Poverty Reduction

High food prices are threatening recent gains in overcoming poverty and malnutrition, and are likely to persist over the medium term, says a new World Bank Group policy note released on Thursday.

"Poor people are suffering daily from the impact of high food prices, especially in urban areas and in low income countries," said World Bank Group President Robert B. Zoellick. "In some countries, hard-won gains in overcoming poverty may now be reversed. As an international community we must rally not only to offer immediate support, but to help countries identify actions and policies to reduce the impact on the world's most vulnerable."

According to Rising Food Prices: Policy Options and World Bank Response, increases in global wheat prices reached 181 percent over the 36 months leading up to February 2008, and overall global food prices increased by 83 percent. Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline, but they are likely to remain well above the 2004 levels through 2015 for most food crops.

As the policy note points out, while households that are net producers may benefit from higher prices, price increases for staple foods will increase poverty in several countries. Indeed, for many countries and regions where progress in reducing poverty has been difficult, the impact of rising food prices risks undermining the poverty gains of the last 5 to 10 years, at least in the short term. For example, in the case of Yemen, estimates show that the doubling of wheat prices over the last year could reverse all gains in poverty reduction achieved between 1998 and 2005.

"The poor are not just facing higher food prices but also higher energy costs, which is a worrying combination," said Danny Leipziger, World Bank Group Vice President for Poverty Reduction and Economic Management (PREM). "Policy responses to protect the poor from food price rises are urgent, and need to be designed in a way that is conducive to stimulating greater agricultural production in the long run."

Increased bio-fuel production has contributed to the rise in food prices, according to the report. Concerns over oil prices, energy security and climate change have prompted governments to increase bio-fuel production and use leading to greater demand for raw materials including: wheat, soy, maize and palm oil. Food price hikes are also linked to higher energy and fertilizer prices, a weak dollar and export bans.

The report notes that many governments are already taking action. Some are expanding targeted safety nets, such as cash transfer programs to vulnerable groups, food-for-work programs, or emergency food aid distribution. Several countries have lowered tariffs and other taxes on key staples, in order to provide some relief to consumers. In contrast, other countries have put in place export bans, which are detrimental to food importers and reduce incentives for production.

The report says that measures that seek to stimulate food grain supply are essential over the medium-term, and include strengthening basic infrastructure (transport, power and irrigation) and investing in agricultural technology. The World Bank Group is helping countries by:

  • Calling on the international community to make up the US$500 million food gap required by the UN's World Food Program to meet emergency needs.
  • Making agriculture a priority. The Bank has announced it will double agriculture lending in Africa in Fiscal Year 2009 - from US$400 million to US$800 million.
  • Increasing financial support for short-term needs (restructuring existing projects and increasing the size of upcoming grants and loans when needed).
  • Expanding and improving access to safety net programs, such as cash transfers, and risk management instruments to protect the poor.
  • Informing the discussion on bio-fuels.
  • Advocacy on the negative impacts of policies such as export bans, which create price spikes in importing countries, and the high levels of trade tariffs and subsidies in the developed world.

Last week, Zoellick called for a New Deal for Global Food Policy to focus not only on hunger and malnutrition, access to food and its supply, but also on the interconnections with energy, yields, climate change, investment, and the marginalization of women.

(China Development Gateway April 10, 2008)


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