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Financial Meltdown Worsens Food Crisis
As Global Prices Soar, More People Go Hungry

By Ariana Eunjung Cha and Stephanie McCrummen
Washington Post Foreign Service
Sunday, October 26, 2008

SHANGHAI -- As shock waves from the credit crisis began to spread around the world last month, China scrambled to protect itself. Among the most extreme measures it took was to impose new export taxes to keep critical supplies such as grains and fertilizer from leaving the country.

About 5,700 miles away, in Nairobi, farmer Stephen Muchiri is suffering the consequences.

It's planting season now, but he can afford to sow amaranthus and haricot beans on only half of the 10 acres he owns because the cost of the fertilizer he needs has shot up nearly $50 a bag in a matter of weeks. Muchiri said nearly everyone he knows is cutting back on planting, which means even less food for a continent where the supply has already been weakened by drought, political unrest and rising prices.

While the world's attention has been focused on rescuing investment banks and stock markets from collapse, the global food crisis has worsened, a casualty of the growing financial tumult.

Oxfam, the Britain-based aid group, estimates that economic chaos this year has pulled the incomes of an additional 119 million people below the poverty line. Richer countries from the United States to the Persian Gulf are busy helping themselves and have been slow to lend a hand.

The contrast between the rapid-fire reaction by Western authorities to the financial crisis and their comparatively modest response to soaring food prices earlier this year has triggered anger among aid and farming groups.

"The amount of money used for the bailouts in the U.S. and Europe -- people here are saying that money is enough to feed the poor in Africa for the next three years," said Muchiri, head of the Eastern Africa Farmers Federation.

The U.N. Food and Agriculture Organization estimates that 923 million people were seriously undernourished in 2007. Its director-general, Jacques Diouf, said in a recent speech that he worries about cuts in aid to agriculture in developing countries. He said he is also concerned by protectionist trade measures intended to counteract the financial turmoil.

Although the price of commodities has come down in the past few months, Diouf said, 36 countries still need emergency assistance for food, and he warned of a looming disaster next year if countries do not make food security a top priority.

"The global financial crisis should not make us forget the food crisis," Diouf said.

Commodity prices have plummeted in recent weeks as investors have shown increasing concern about a global recession and a drop in the demand for goods. Wheat futures for December delivery closed at $5.1625 on Friday -- down 62 percent from a record set in February. Corn futures are down 53 percent from their all-time high, and soybean futures are 47 percent lower.

Such declines, while initially welcomed by consumers, could eventually increase deflationary pressures -- lower prices could mean less incentive for farmers to cultivate crops. That, in turn, could exacerbate the global food shortage.

In June, governments, donors and agencies gathered in Rome to pledge $12.3 billion to address the world's worst food crisis in a generation. But only $1 billion has been disbursed. An additional $1.3 billion, which had been earmarked by the European Commission for helping African farmers, is tied up in bureaucracy, with some governments now arguing that they can no longer afford to give up that money.

"The financial crisis is providing an excuse for people across the spectrum -- governments, multilateral organizations, companies -- to not do the right thing," said Oxfam spokeswoman Amy Barry.

The precarious aid situation is compounded by export taxes and bans imposed this year by a number of grain- and fertilizer-producing nations, including China, India, Pakistan, Ukraine and Argentina.

E.U. Trade Commissioner Peter Mandelson has criticized export restrictions because they "drive up world prices and cut off supplies of raw materials." Such restrictions, he said, "invite a cycle of retaliation that is as economically counterproductive as it is politically hard to resist," Mandelson said last month.

China -- the world's biggest grain and rice producer and the biggest exporter of certain types of fertilizer -- could see its moves having ripple effects on vulnerable countries.

"The world relies on China for food security," said Anthea Webb, China country director for the U.N. World Food Program. "The world supply and demand is a big equation, and China is a big part of that."

China's new taxes on fertilizer exports, which went into effect Sept. 1, range from 150 to 185 percent. Chinese authorities said they need to ensure that prices are low at home to protect their own farmers and ensure an adequate supply of food for their residents.

Although the measure has been good for China, it has been devastating to other countries. A dozen Chinese fertilizer companies said they had stopped exporting this month.

"If we export abroad, we can make zero profit or even a loss," said Liu Chengyong, the sales manager at Henan Yuzhongao Technological Agricultural Co., which produces about 150,000 tons of fertilizer a year.

It is unclear whether the export taxes are legal under the World Trade Organization. Technically, the WTO bans all export taxes as barriers to free trade but allows for exceptions in emergency situations.

Soaring fertilizer prices triggered by China's taxes are deepening the food crisis in parts of Kenya, Tanzania, Ethiopia and Somalia.

Eustace Muriuki, general manager of Mea Ltd., the second-largest fertilizer importer for East Africa, said the price of a bag of fertilizer is currently about five times what it was a little more than a year ago.

Muriuki imports about a quarter of his fertilizer from China. He said losing China as a supplier would be particularly painful because it has been a relatively cheap and easy option, with so many shipping vessels traveling between China and Africa.

Betty Kibaara, an analyst with the Tegemeo Institute of Agricultural Policy and Development in Nairobi, said China's decision is only going to make a bad situation worse in Kenya.

Kenya's post-election crisis this year displaced hundreds of thousands of farmers who planted their cornfields late or not at all, and often without fertilizer because the price was too high.

The current harvest, which continues through November, is producing a yield that is worse than expected. And if fertilizer prices are still soaring during the next planting season, the country's deficit of corn -- its staple food -- will only grow. "We are in big trouble," Kibaara said.

McCrummen reported from Nairobi. Researcher Liu Liu in Beijing contributed to this report.

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