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Food prices predicted to remain high for at least 10 years

For the first time since the mid 1970s, food prices and food security are close to the top of the international political agenda. The recent meeting of the OECD Committee of Agriculture focused on this crisis.

Due to the rise in food prices, riots have recently occurred in over twenty countries. Export bans have been imposed in traditional food exporting countries to contain price inflation. Inevitably, the poorest people, the billion people living on $1 a day and already spending 60-70% of their meagre income on food, have been most severely affected.

This explosion in food prices provided the backdrop for the 150th meeting of the Organisation for Economic Co-operation and Development (OECD) Committee of Agriculture. Over the past five decades, the Committee has played an influential role in international agricultural policy development. On this occasion, the focus was on the causes and consequences of the current food price inflation, and the options for short and long-term policy responses.

The OECD believes that prices will fall from the highs of recent months but will remain higher than average prices over the past decade. Their central assumption is that, over the next ten years, prices for cereal, rice and oilseeds will be 35-60% higher in nominal terms (10-35% in real terms) than over the past decade.

Policy responses to the new situation must have short and longer term components. There must be a rapid increase in humanitarian aid to the poorest people. The price increases mean that the World Food Programme, the UN Body distributing food and cash to the most vulnerable countries, can buy 40% less food with its budget than one year ago. It needs an additional $770 million to meet its commitments in 2008.

The soaring price of oil has meant that biofuel production has become more competitive. When combined with generous subsidies in both the US and the EU, an increasing quantity of land has switched from producing food to fuel. US production of bioethanol is estimated to absorb around 25% of national maize production.

The ambitious targets for expanded biofuel production set by both the US and EU for the coming decade will intensify this competition between food and fuel, especially if oil prices continue to rise. This will raise serious political and ethical issues as to whether countries should subsidise fuel production for the rich, which has the effect of driving up food prices for the poor.

The International Food Policy Research Institute has proposed freezing biofuel production at current levels, reducing it, or imposing a moratorium for biofuels based on grains and oilseeds until food prices come down to reasonable levels.

An increased focus on food security as part of national and international development strategy must be part of the longer-term policy response. Over recent decades, agricultural development has not received sufficient priority, or resources, in many developing countries. This has been mirrored in the fall in the share of aid programmes devoted to the agricultural and rural sector.

Current and medium-term food prices provide a clear justification for a substantial and sustained shift towards investment in agricultural and rural development in developing countries. This could raise the income of many farmers and the broader rural community, slow migration to cities, and enhance food security.

As might be expected, the OECD meeting focused on the importance of rules based trading arrangements for agricultural and food products. This is part of a longer-term strategy to enhance global food security. The damaging effects of the recent rash of export restrictions by food exporting countries, in terms of increasing price volatility and uncertainly of supply, confirmed the value of a robust rules based system.

This issue has received remarkably little attention in the current Irish debate on the WTO negotiations. The changed world market for food, and the opportunities this could provide for a competitive Irish agriculture and food sector, are not being talked about. While defending legitimate interest, Irish farmers and their representative organisations should lift their sights and look at the bigger picture.

This article was written by Tom Arnold, Chief Executive of Concern and former Chairman of the OECD Committee of Agriculture. It was originally published in the Irish Farmers Journal.