Food and fuel crises pushing world into 'danger zone', says World Bank

04.07.08 @ 09:26

  1. By Leigh Phillips

As the head of the World Bank warns world leaders that the planet is entering the "danger zone" with millions thrown into extreme poverty by the twin food and fuel crises, a leaked report from his organisation shows that biofuels have pushed up global food prices by 75 percent - a much bigger role in the disaster than previously thought.

  • Biofuels are responsible for 75 percent of recent food price rises, according to a secret World Bank report. (Photo: Notat)

In a letter to Japanese Prime Minister Yasuo Fukuda, ahead of next week's G8 summit, and copied to other G8 leaders, World Bank president Robert Zoellick has called on them to act immediately to address the "man-made catastrophe" of soaring food and oil prices.

"What we are witnessing is not a natural disaster - a silent tsunami or a perfect storm. It is a man-made catastrophe and as such must be fixed by people," he said in the letter.

There has been an 82 percent rise in food commodity prices since 2006, with the crisis worsening since April, Mr Zoellick warned.

This has pushed an additional 100 million people worldwide into extreme poverty, he said, noting that some 41 countries have lost three to ten percent of their GDP from rising food, fuel and commodity prices since January 2007. Over 30 countries have been hit by food riots, as the impact of the crisis reaches the household level, said Mr Zoellick.

He described the current situation as an "unprecedented test" for the international community and called on wealthy countries to stump up €6.4 billion ($10 billion) in immediate short-term emergency aid for the countries hardest hit by the crisis.

Over the medium term, an additional €2.2 billion ($3.5 billion) is needed for agricultural supports and social programmes for the poor in a further 50 countries, he said.

Meanwhile, Mr Zoellick's organisation has produced a confidential report leaked to a UK newspaper that says that the rush for biofuels, particularly by the EU and US, is responsible for 75 percent of the rise in global food prices.

Until now, the US has claimed that biofuels policies have resulted in only three percent of the rise in food prices, while European Union officials have repeatedly claimed their policies have had a "negligable" impact, without attaching any percentage.

Other international institutions have assigned considerably more blame to such policies. The UN Food and Agriculture organisation says that biofuels explain 10 percent of recent price rises.

The International Monetary Fund puts this figure at 30, the same number reached in assessments from the International Food Policy Research Institute.

"Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate," the report says.

EU and US leaders have argued that it is not biofuels, but rather higher demand from India and China as incomes there rise, alongside increased oil costs and droughts in parts of the world such as Australia.

The World Bank report, produced by Don Mitchell, a senior economist at the institution, argues that emerging economies are not to blame. "Rapid income growth in developing countries has not led to large increases in global grain consumption and was not a major factor responsible for the large price increases," reads the report, adding that droughts in Australia have had a marginal impact.

Higher energy and fertiliser prices were responsible for an increase of only 15 percent says Mr Mitchell, while biofuels have been responsible for 75 percent of the price rise of 140 percent between 2002 and February 2008.

This happened in three ways, the report explains: the diversion of grain from food to fuel; the encouragement of farmers to set aside land for biofuel production; and the speculation in grains.

The report also says that other estimates of the role of biofuels have come to smaller estimates because they analysed the crisis over a longer period. Mr Mitchell instead studied food price rises month by month.

Separately, international development NGO ActionAid on Tuesday (1 July) published a report that claims that the "biofuels juggernaut" is responsible for leaving some 290 million people hungry or at risk of chronic hunger.

Additionally, on Thursday at a Brussels conference hosted by the French EU presidency, John Holmes, UN undersecretary-general for humanitarian affairs, called on the EU to "look again" at its target that would see biofuels to fuel 10 percent of vehicles by 2020.

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