The resilience challenge (2)


Government failures

Faced with this alarming outlook, you might think that governments would take urgent action to address fragility in the food system. But up until now, governments have either ignored the problem or made it worse.

Although global investment in renewable energy now exceeds that in fossil fuels, most governments shy away from making binding commitments to reduce their greenhouse gas emissions. Instead, they offer voluntary cuts, collectively putting us on a course for a catastrophic 3–4 degrees of warming.

Governments often exacerbate volatility through their responses to higher food prices. In 2008 the global food system teetered on the edge of the abyss as, one after the other, more than 30 countries slapped export restrictions on their agricultural sectors in a giddying downward spiral of collapsing confidence.103 Export bans reduce supply on the world market, driving up prices for food-importing countries.

Governments blame each other. In 2008 rich countries, most notably the USA, unleashed barrages of criticism against developing countries’ export restrictions. All the while the USA was, and still is, imposing the mother of all export bans, but below the radar. The Renewable Fuel Standard (RFS), combined with tariff restrictions on imported ethanol, effectively mandates the diversion of huge amounts of the US maize crop to biofuel production. The USA is a crucial player in global maize markets, accounting for around one-third of worldwide production, and two-thirds of global exports.104 Yet since 2004, the amount of maize diverted to biofuel has soared: in 2010 nearly 40 per cent of US corn production went into engines rather than stomachs.105

Biofuel mandates such as the RFS, or those of Canada and the EU, introduce into food markets major sources of new demand that are inflexible in the face of changes in supply, amplifying price movements. And by making crops a substitute for oil, biofuels facilitate price contagion between energy markets and food markets.

Food markets may also be increasingly linked to financial markets. Holdings in commodity index funds (the principal vehicle for pure financial investments in agricultural commodities) rocketed from $13bn in 2003 to $317bn in 2008,106 as investors stampeded to a safe haven from capital markets in meltdown. Many observers argue that excessive speculation in commodities futures has amplified food price movements and may have played a role in the 2008 food price spike. The USA has taken initial steps to rein in excessive speculation in agricultural commodities and is considering further regulation.107 The issue has also risen to the top of the EU’s legislative agenda.

Some governments may have learned from their failures. French President and G20 Chair Nicolas Sarkozy has placed food governance squarely on the G20’s agenda. When they meet in November 2011, G20 leaders will discuss agricultural investment, commodity speculation and international trade, presenting a real opportunity to avoid the mistakes of the past.

A humanitarian system at breaking point

The world’s system of humanitarian relief is stretched as never before. Between 2005 and 2009, donors covered only about 70 per cent of the emergency assistance requested in UN appeals. In 2010, the figure dropped to 63 per cent.108 Demand for food aid could conceivably double by 2020,109 yet the system is already buckling.110 Because donors’ budgets for food assistance are in monetary terms rather than tonnage, food price hikes erode their value.

In-kind food aid can provide a vital lifeline when food is unavailable, but often the food is there but is simply too expensive. In these cases, providing cash or vouchers is more efficient, and will not undermine the livelihoods of local producers and traders, as in-kind food aid often does. Yet donors continue to push a disproportionate amount of in-kind aid. Why? Because it suits vested interests in donor countries.

The USA is the world’s biggest food aid donor, providing roughly half the world’s food aid.111 But its programmes deliver more to the pockets of agribusiness and shipping companies than to the mouths of hungry people. Rather than donating cash to humanitarian agencies, American taxpayers first pay their farmers to produce food, then pay a premium to buy it as food aid, and then pay another premium for it to be transported across the world (see Box 6). As the largest food aid donor, the USA sets a standard for others, and China, which has recently emerged as a major donor of food aid, appears to be following its lead.

Elsewhere, donors have taken bold steps to prise food aid from the clutches of special interests. In 2004, Oxfam Canada and the Canadian Foodgrains Bank, which provides food aid on behalf of 15 churches and faith-based agencies, mobilised their supporters to campaign for untying Canadian food aid, 90 per cent of which by law was sourced from Canadian farms. By September 2005, growing popular pressure gave politicians the opportunity to untie 50 per cent of food aid. Continuing momentum grew until food aid was untied completely in May 2008. Today, Canada chairs renegotiation of the Food Aid Convention, promoting similar reforms to food aid globally.

Untying food aid allows humanitarian agencies to tailor their response to the specific situation: where appropriate, purchasing food on local markets, or providing cash or vouchers so that people can buy their own.

Nor is the way humanitarian responses are funded appropriate for a future of increasing price volatility and climate chaos. Donors are nearly always asked for money only once a crisis is already under way, causing delays that could be avoided through a system of assessed contributions, such as that used to fund UN peacekeeping operations.

Box 6: Food aid for whom, exactly?

With the exception of 2009, over the past two decades more than 90 per cent of US food assistance has come in the form of subsidized crops grown by American farmers.112 Yet only 40 cents of every taxpayer dollar spent on US food aid actually goes to buying food.

A big chunk goes straight into the pockets of US agribusiness companies. US legislation specifies that 75 per cent of food aid must be sourced, bagged, fortified, and processed by US agribusiness firms with contracts from the United States Department of Agriculture (USDA). Bidding processes are dominated by only a few corporations, leading to payments on average of 11 per cent above market rates, and up to 70 per cent over the odds in the case of corn.

After the food is purchased, US shipping companies get their turn. Under law, the food must be processed and freighted by American companies on US-flagged ships at taxpayer expense. Nearly 40 per cent of total food aid costs are paid to US shipping companies, where again, restricted bidding limits competition and pushes up prices.

Such aid takes longer to reach those in need. During 2004–08, US food aid to Africa required an average of 147 days for delivery, compared with 35–41 days for food from the African continent.113 And in situations where shipping food aid from the USA would be an appropriate response, Oxfam estimates that procuring transport on the open market would allow the American taxpayer to provide 15 per cent more food,114 enough to feed an additional 3.2 million people in emergency situations.115

Source: Barrett and Maxwell (2008) Food Aid After Fifty Years: Recasting its Role