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April 14, 2008

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"Soaring Food Prices: A Global Crisis" Address By CRS' Frank Orzechowski at the 10th International Food Aid Conference

The dramatic rise in commodity prices is creating a global food crisis. I'd like to present some remarks on the crisis, how it developed, and to make some recommendations for action.

Before speaking to these issues, however, I would like to acknowledge the US Government and the American people for their efforts in trying to alleviate the scourge of hunger. The USA is the largest food aid donor in the world, traditionally responsible for over 50% of total global food aid. The poor benefit immensely from these endeavors but more must be done, particularly in current circumstances.

The news of surging commodity and energy prices only makes grimmer the existing reality of chronic hunger and malnutrition that afflicts more than 800 million people. Due to the unprecedented price increases, an addition of millions more to the ranks of the food insecure is likely. Those whose income previously allowed them to barely escape the pangs of hunger have seen their purchasing power erode. Some are now facing Hobson's choices on what to cut back: medicine, education, shelter, or food. Many of these newly insecure are city dwellers who possess the means for political action that their rural brethren lack.

Already we have seen food protests in Egypt, Cameroon, Senegal, Ivory Coast, Burkina Faso, Mauritania, the Philippines, Indonesia and Haiti. Some of these have turned violent. Food exporter nations such as Ukraine, Argentina, Vietnam and India have imposed de facto export bans on foodstuffs to preserve their domestic supply. In the 34 years that I have been involved in the grain trade I've never seen conditions such as these. There is danger that the situation will spin out of control in large parts of the developing world. Particularly vulnerable are fledgling democracies that have recently adopted free market economies.

Price rises in food and the resulting hunger and misery of the populace have often been the precursors to civil disorder and unrest. I have recently returned from Liberia, where in 1979 riots in response to rising rice prices were eventually followed by a coup that submerged the country under a period of dictatorship and bloodshed that lasted over 20 years.

CRS field offices around the world are assessing the situation on the ground. We received situation reports from 14 countries in the last week on this issue alone. We are now analyzing changes in food basket prices, their effect on the general public, and host government responses. I would like to share just a few stories we received from CRS field offices this week to illustrate the nature and scope of the food price crisis.

How did we get here? The chief caloric sources of the globe's diet are grains. This is particularly true in less affluent societies. More affluent societies utilize large amounts of grain for conversion into animal-based foods. This conversion into dairy, eggs and meat uses more grain than if people simply ate the grain themselves. In recent years the world has been using more grain annually than is being produced. Global stocks of wheat, coarse grains - corn, barley, sorghum, millet and oats - and rice have decreased every year since 2001/2002 with the exception of 2004/2005. In effect, we have been living off our savings. In 2001/2002 the amount in excess of use in that production year was equal to14 weeks of use. According to USDA's April 2008 World Agricultural Supply and Demand Estimate, in 2007/2008 that safety net is now under 8 weeks.

Growth in grain demand is not only being caused by population growth but by rising living standards. This, coupled with more industrial demand for grain, specifically from bio-fuel initiatives, has pushed demand for grain to record levels. At the same time adverse weather conditions, a leveling off of grain yields and the increased costs of agricultural inputs, particularly petroleum-based fertilizers, have tempered supply increases.

Increased transportation costs caused by rising energy prices and greater transport distances have compounded the problem, particularly for those countries that are dependent on grain imports.

While these changes were and are occurring, the governments of the developed world have neglected aid to the agricultural sectors of low income food deficit nations. The value of developmental food aid in particular has been debated by academics and policy makers. Some have argued that the only legitimate use of food aid is in emergencies. While no one has argued that agricultural development and increased food production are unimportant, major donors have not offered adequate resources to accomplish these goals. Resources have, on a cash basis, remained static at best and have shrunk greatly when the quantity of food aid deliveries is considered.

This is true for emergency and developmental programs alike. For example, at current prices PL 480 Title II, America's largest food aid program, will need $900 million more than is presently budgeted just to supply the same quantity of food as was supplied in FY 2007. The real need is much greater. Congress mandated that 75% of Title II aid be for developmental programs that would lessen food insecurity; instead in recent years over 75% has been used for emergencies; that at least partially could have been mitigated by such developmental programs.

What we are seeing this year is a real emergency. Those that can least afford it will suffer the most and the political stability of much of the world is at risk. The short term solution is more aid of all types to keep the crisis from degenerating into chaos. Once stability

is accomplished, more investment must be made in agriculture in the developing world. If high world food prices continue for the longer term, as suggested by some studies, these investments by recipient nations themselves, donors, and private businesses will reap high returns.

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Hosted by USAID and USDA, the conference draws more than 800 participants from 30 countries to discuss policy and operational issues related to the delivery of food aid. Attendees represent private voluntary and non-government organizations, commodity and transportation companies, U.S. politicians, and scientists.