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Thursday, September 27, 2007

Jeffrey Sachs: World's Extreme Poor Face Triple Threat

Jeffrey Sachs says strong worldwide economic growth, especially in China and India, is a big part of the "triple threat of rising world demand, conversion of food into fuel, and climate shocks" that is driving food and commodity prices upward and making it more difficult for the world's extreme poor to meet their basic needs:

Applaud economic growth, but recognize its downsides, by Jeffrey Sachs. Project Syndicate: A fundamental global trend nowadays is growing natural resource scarcity. Oil and natural gas prices have soared in recent years. This past year, food prices have also skyrocketed, causing hardships among the poor and large shifts in income between countries and between rural and urban areas.

The most basic reason for the rise in natural resource prices is strong growth, especially in China and India, which is hitting against the physical limits of land, timber, oil and gas reserves, and water supplies. Thus, wherever nature's goods and services are traded in markets (as with energy and food), prices are rising. When they are not traded in markets (as with clean air), the result is pollution and depletion rather than higher prices.

There are many reasons for the dramatic increase in world food prices, but the starting point is increased food consumption, again strongly powered by China's economic growth. China's population is eating more, notably more meat, which in turn requires the importation of higher volumes of animal feed made from soybeans and maize.

Moreover, rising world energy prices have made food production more costly... At the same time, rising energy prices create a strong incentive for farmers to switch from food production to fuel production.

Indeed, in the United States, 2 billion bushels of maize production out of a total harvest of 12 billion bushels in the 2006-2007 marketing year are being converted into ethanol. This is forecast to rise to 3.5 billion bushels in the coming 2007-2008 marketing year... The squeeze on maize supplies for food will only intensify.

The situation is exacerbated by another basic constraint: climate change. During the past two years, a rash of climate-related disasters has hit global wheat supplies. Total wheat production fell from 622 million metric tons in the 2005-2006 planting season to an estimated 593 million metric tons in 2006-2007. ...

The triple threat of rising world demand, conversion of food into fuel, and climate shocks has conspired to push world food prices much higher than anticipated even a couple of years ago.

So far, there has been no global leadership to start addressing the many implications of these changes. One implication, for example, is that the heavy subsidies given in the US for fuel production from maize and soybeans are misguided. Another is that the world needs a much more serious cooperative effort to develop long-term environmentally sound technologies to substitute for scarce oil and gas and for fuels produced from farmland.

Moreover, there is an urgent imperative to raise food productivity in poor countries, especially in Africa, which needs its own "Green Revolution" to double or triple its food production in the coming few years. Otherwise, the world's extreme poor will be hardest hit by the combination of rising world food prices and long-term climate change...

    Posted by on Thursday, September 27, 2007 at 04:05 PM in Economics | Permalink  TrackBack (0)  Comments (22)


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