- The Washington Times - Friday, May 2, 2008

President Bush yesterday asked Congress to authorize $770 million to ease the global food crisis, most of which will be focused on Africa, while the administration denied that corn-for-ethanol subsidies are a major cause of the worldwide surge in food prices.

“We’re sending a clear message to the world that America will lead the fight against hunger for years to come,” Mr. Bush said in a statement to reporters in the White House.

But agricultural experts testified on Capitol Hill yesterday that high food prices are here to stay, as robust demand for food worldwide collides with record fuel costs to put unprecedented pressure on food prices.

Although the prices for basic foods like corn, wheat and oil have been soaring, the prices paid to farmers are only a small part of what consumers pay at the store. As much as 75 percent of the retail price of food can be attributed to processing, packaging, transportation and distribution. These costs have also risen substantially, mainly because of high fuel prices.

“With the average food item traveling more than 1,500 miles before reaching the final consumer, it is no wonder that food costs are increasing,” Tom Buis, president of the National Farmers Union, told the Joint Economic Committee. “When looking back over the last seven years, gasoline prices have increased 198 percent and diesel fuel prices have increased almost 250 percent.”

The cost of food globally has spiked 43 percent in the past year, Edward Lazear, chairman of the White House Council of Economic Advisers, said on a conference call with reporters.

Government energy-policy supports for ethanol, which raises the demand for corn and thus its price, also have come under fire to the point that The Washington Times reported yesterday that Congress is considering cutting them.

But Mr. Lazear and White House spokesman Tony Fratto both criticized the notion that ethanol production is a main cause of rising food prices, and both the White House and the congressional witnesses offered a barrage of other, longer-term factors.

“The bottom line is that we think ethanol accounts for somewhere between 2 and 3 percent of increasing global food prices,” Mr. Lazear said.

An American Farm Bureau Federation analysis found that 44 percent of rising food costs are due to rising prices for natural gas and fuels used to make fertilizer and to run farm machinery as well as to process foods and to transport them to market. The bureau said the farmer’s share of retail food prices has been at about 25 percent since the 1970s.

“After many commodities leave the farm gate, high costs for energy, fuel and transportation are added and passed onto the consumer,” bureau president Bob Stallman told Congress. “Increased retail prices can especially be seen on highly processed foods.”

In his announcement of increased food aid, the president also called on countries both rich and poor to lower restrictions on agricultural trade, including some developing nations that are banning food exports and thus discouraging production of food, leading to shortages and higher prices.

“Some countries are preventing needed food from getting to market in the first place, and we call upon them to end those restrictions to help ease suffering for those who aren’t getting food,” Mr. Bush said.

He also called for other nations to reduce barriers to genetically modified foods.

“These crops are safe, they’re resistant to drought and disease, and they hold the promise of producing more food for more people,” Mr. Bush said.

The $770 million would be part of the fiscal 2009 budget and therefore not be available until October, but White House officials said aid groups would benefit from the advanced knowledge of such a large amount. Mr. Bush said the U.S. is set to give $5 billion toward global food relief this year and next year.

The new money will be divided into three parts: $395 million will go to emergency food aid, $225 million to disaster assistance, and $150 million to development assistance. The Bush administration last month announced that $200 million would be made available for food relief through the Department of Agriculture’s Bill Emerson Humanitarian Trust.

House Speaker Nancy Pelosi, California Democrat, said, “The Congress will respond rapidly to the growing urgent need for international food assistance.

“This is not only a humanitarian issue; it is a matter of national security as well,” she said.

In his congressional testimony, Joseph Glauber, chief economist at the Agriculture Department, said food trade worldwide is being transformed by the rise of the middle class in China, India and other fast-growing countries. Their increased appetite for meat, which requires greater use of grains for animal feed, has spawned an era of permanently higher prices, he said.

“High incomes are increasing the demand for processed foods and meat,” he said. “These shifts in diet are leading to major changes in international trade,” including increasing use of the world’s corn, wheat and soybean crops for animal feed.

The resulting shortage of supplies has caused countries that previously were major exporters of food staples — including Argentina, China, India, Kazakhstan and Vietnam — to stop exporting and even to impose taxes on exports that are making the matter worse by further raising prices, he said.

Although the shift to ethanol and biodiesel fuels made from corn and soybeans has had an “important” effect, causing a doubling of corn and soybean prices in the U.S. and raising prices for baked goods and animal feeds, the food experts told Congress that it is not to blame for the broad increase in food prices.

However, biofuel mandates have increased the price of cereal, baked goods and vegetable oil, while ethanol-driven increases in feed prices for chickens and cows likely led to increased prices for milk and eggs, which were the fastest-rising categories of food prices last year, he said.

Shortages and record high prices for wheat and rice worldwide, Mr. Glauber said, were due more to droughts and poor crop yields in major producers, though Mr. Glauber added that he saw some relief looming in the wheat market.

The influence of ethanol production on food prices has gotten much attention from legislators, because Congress was responsible for putting in place the mandate for an increasing share of ethanol in gasoline last year and could now revisit the issue as it works on the farm bill.

An unusual alliance of liberal anti-poverty and environmental groups has joined up with food businesses and conservative free-market and taxpayer organizations to call for the repeal of the biofuel mandates.

“The humanitarian impact of the biofuels boondoggle is all the more tragic for having been so clearly foreseen,” said Competitive Enterprise Institute Senior Fellow Marlo Lewis. “An array of analysts and scholars warned policy-makers against the politically expedient path of using food crops for fuel.”

“Congress needs to take a closer look at the connection between bio-based fuels and rising food prices,” said Gawain Kripke, policy director for the Oxfam America anti-poverty group.

Sean Lengell contributed to this report.



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