Skyrocketing Prices Point To Looming Global Food Crisis

Global food prices hit a record high in January, according to the United Nations' Food and Agriculture Organization (FAO). They are expected to continue to rise in the months ahead. Surging prices in 2007 and 2008 lead to protests in scores of countries, and Algerians rioted over skyrocketing food costs again last month. FAO senior economist Abdolreza Abbassian and NPR Senior Business Editor Marilyn Geewax discuss the implications of the looming crisis globally and in the U.S.

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MICHEL MARTIN, host:

I'm Michel Martin, and this is TELL ME MORE from NPR News.

Having a midlife crisis? Forget the red Corvette, how about strapping on some cross country skis and going a very long way in them? We'll find out more about this intriguing story in just a few minutes.

But first, we want to talk about food - a looming crisis in food. The United Nations Food and Agricultural Organization said last week that world food prices hit a record high in January, driven by huge increases in the prices of wheat, corn, sugar and oils. And prices are expected to keep rising in the coming months. That's bad news for consumers and governments.

Surging prices in 2007 and 2008 led to protests and unrest in scores of countries. And last month, Algerians rioted again over the cost of flour and sugar, which had doubled in recent months. Here in the U.S., after a stretch of relative stability in food prices, economists say shoppers should expect to see a 4 percent rise in cost at the supermarket checkout this year.

So what's behind this latest global food crisis and what's being done about it? To find out, we've called Abdolreza Abbassian. He's a senior economist with the Food and Agricultural Organization, the FAO. And he's with us from the organization's headquarters in Rome. Also with us here in our Washington, D.C. studio, NPR senior business editor Marilyn Geewax. Thank you both so much for joining us.

MARILYN GEEWAX: Hello.

Mr. ABDOLREZA ABBASSIAN (Senior Economist, Food and Agricultural Organization): Thank you for invitation.

MARTIN: Mr. Abbassian, I'll start with you, what exactly has contributed to the sharp rise in food prices?

Mr. ABBASSIAN: Well, the most important factor was weather developments in 2010. We had unfavorable weather during critical growing period or at harvest like the drought in Russia, you know, the rains in U.S. In north Europe we had, as you know, the rains and floods in Australia. So, weather reduced the yields or cut production here and there. And all of this happened while demand continue to increase. So the net result, you know, in any market is when you have demand rising and supply not keeping pace is for prices to rise.

MARTIN: Is it accurate, though, that in some part of the world, in places like Egypt and in Ethiopia, that people spend as much as half their income on food. Is that still accurate?

Mr. ABBASSIAN: Even more so. The less, I would say, affluent you are as a country or as a people, the more of your income is spent basically on the very basic of the foods. So it could be as high as sometimes as 70 percent. And this is where, really, the big concern is because globally food prices have gone up almost at least on average about 50, 60 percent, you know, year to year.

So, fortunately, nationally this doesn't happen to that level in most places. But you could imagine if it does, what sort of implications it would have for the poorest of the poor.

MARTIN: Marilyn, we haven't been feeling the pinch nearly as severely in this country as other nations have. As I understand it, the USDA issued a report last year that showed that grocery prices rose by less than 1 percent last year.

GEEWAX: That's right.

MARTIN: That's compared to about 100 percent in some countries. Why is that?

GEEWAX: There's such a disconnect between what happens to U.S. consumers and the rest of the world, but it's because so little of our groceries actually have food in them. Now, think about this, if you go into a grocery store and you buy a box of Corn Flakes for $4, the price of the corn that's in there is very small. It might just be pennies, six cents, seven cents. What you're really paying for there is the transportation cost, the advertising for Tony the Tiger. The, you know, the cost of a unionized cashier to check you out.

So, if you had six cents worth of corn in a box of Corn Flakes and let's say the price doubled, well, now it's 12 cents. So when you get to the cash register, maybe instead of paying $4 for a box, you pay $4.06 cents. It's just not that big of a deal for us relatively.

MARTIN: We're talking about the soaring price of food around the world. Here in our Washington, D.C. studio we have NPR senior business editor Marilyn Geewax. Also with us, Abdolreza Abbassian. He's a senior economist with the U.N.'s Food and Agricultural Organization.

Marilyn, economists, as we said, are predicting a 4 percent increase in grocery prices this year. Is that likely to register in the United States? Is that likely to get the consumers and the policymakers' attention here in this country?

GEEWAX: Well, even though we have relatively less food inflation than other countries, poorer places where, you know, as I say, the rice in a box of Rice Crispies is small, but if you just buy a sack of rice in a poor country, you know, you really feel the increase. However, having said that, there is a lot of inflation in the pipeline because of the rising oil prices, these growing prices for crops, it will start to filter through.

And for people in the United States who are on a fixed income, let's say you're on Social Security and you haven't gotten a raise, well, if food prices go up 3 or 4 percent, even though that's not as much as what somebody might feel in Yemen, it's still, you know, it's going to squeeze your budget. We're really going to start to feel it.

MARTIN: Mr. Abbassian, I use the word crisis in my introductory remarks. Do you think that that's the right word?

Mr. ABBASSIAN: I think that we have - we are certainly experiencing a price shock in terms of agricultural raw materials. As far as a crisis in terms of food crisis, right now our view is that, no, this is not so far. Now, one of the good things we've had this year is that, in fact, rice prices are below last year and they're about 50 percent below the level in 2007 and 2008. So that already gives you some comforting views about, at least in countries where rice is very important as a food, such as in Asia.

Take corn, for example, in Africa, a lot of Africans eat white corn, white maize. Now, harvests in those countries in 2010, nearly in all parts of sub-Saharan Africa, had been above average to record, which meant that they didn't have to actually buy corn from world market at those punitive levels. And this also helped those countries. Having said that, we are concerned because the world prices are not coming down and there's very little likelihood to expect them to do so until big harvest.

And the longer this takes, the more the chance of transmission and the spillover effect to other commodities and to countries, even the poorer ones. And for them, it's not a question of buying less, it's cutting out a meal and that's very dangerous.

MARTIN: Marilyn?

GEEWAX: There's one thing that's a little interesting in all of this is so far while these rising food prices have been devastating to a lot of poor people in other parts of the world, in the United States, so far, a lot of the impact has actually been sort of good for our economy. That is the rule. The economy has done really well. Corn prices are way up, wheat is way up. You look at unemployment numbers in the Dakotas and Nebraska, that's the part of the economy that's actually doing very well.

So, so far, we have benefited when there's a drought in Russia and they can't produce any wheat and our farmers can. What we're seeing is a lot of growth in the rural economy. And, in fact, pickup truck sales have been up in the United States largely because people in, you know, rural areas are going out and buying new equipment, so it's sort of ironic. But, really, this global food crisis has so far been sort of a plus for the U.S. economy.

MARTIN: Well, let me ask you this, though, Marilyn. A number of advocates in the United States are saying that food insecurity, which is a term that they prefer now instead of hunger for - that food insecurity, particularly among children, has increased dramatically over the course of the recession. Now, why is that?

GEEWAX: It's just really tied to this jobs problem that we have in this country. There are just people who used to have paychecks and now they don't. And they've really had a hard time making up, you know, keeping enough food in the house for their families. If you don't have that steady paycheck and your unemployment benefits are running out, your household can very easily slip into a situation where you're actually hungry.

MARTIN: And, finally, Mr. Abbassian, the World Economic Forum in Davos met recently, was food discussed there and what do the leading industrialized nations suggest as a solution or is it on their agenda?

Mr. ABBASSIAN: Well, more so is in the G20 agenda, and very much central, I would say, than when President Sarkozy was visiting Washington meeting President Obama. The core discussion actually focused on food security. And I think it's very much captured the central stage far more than in the past, even more than (unintelligible) before. So it is certainly a very important issue, not just because prices are so high, but also because they're very volatile.

And it seems often that markets may not be functioning well, at least that's the view of some people. So there are a lot of attention into looking into this in detail to come with some solutions.

MARTIN: And now, Marilyn, final thought from you.

GEEWAX: Yeah, there's still - there's a lot of question, too, about markets. Whether or not there's too much speculation there. A lot of people in the world who are angry about people buying up corn and wheat for financial gain instead of to feed people, so that's a controversy that's out there. And also, concerns that interest rates have been held so low for so long that people who are looking for higher returns on their investments are turning to buying things like corn and wheat instead of stocks and bonds. And that's caused, you know, some anger out there about financial markets.

MARTIN: And what happens to that food? Does it just get stockpiled?

GEEWAX: Well, it does get eaten, it's just that it's at higher prices. If people are, you know, just as we've seen the price of gold go up, all kinds of commodities have increased, and there's this concern that there's too much liquidity, as they call it, too much money, and people are buying real assets, farmland and crops. And that tends to drive up prices.

MARTIN: That's NPR senior's business editor Marilyn Geewax. She was here with us in our Washington, D.C. studio. With us from Rome, Abdolreza Abbassian, a senior economist with the Food and Agricultural Organization. He was with us from his organization's headquarters there in Rome. Thank you both so much for speaking with us.

GEEWAX: You're welcome.

Mr. ABBASSIAN: Thank you very much. You're welcome.

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