PRESS CONFERENCE on ‘world economic situation and prospects’

There was a need for a new intergovernmental consensus for enhanced food security and a new deal for food security that would address the complex and interrelated issues that had come together to create the current global food crisis, Jomo Kwame Sundaram, the United Nations Assistant Secretary-General for Economic Development, said today.

Speaking to correspondents at a Headquarters press conference to present the midyear update of the World Economic Situation and Prospects, Mr. Sundaram said that there was need to establish the necessary public policies, public infrastructure and institutions and to resume public spending to raise food production and, crucially, food agricultural productivity.

Mr. Sundaram, who was joined by Rob Vos, Director of the Development Policy and Analysis Division of the United Nations Department for Economic and Social Affairs and author of the World Economic Situation and Prospects, noted that, for decades, agriculture in general, and food agriculture in particular, had been relatively ignored, especially by international agencies, the food international financial institutions and by many Governments.

He called on donor countries to provide budget support to help deal with the current humanitarian food emergency and on the international financial institutions to provide far more balance of payment support to low-income food-importing countries, focusing on grants, rather than loans, since those countries might not be able to easily repay the funds.

The United Nations estimated that about 1 billion people suffered from chronic hunger, but that number left out the many more people that suffered from nutrient and vitamin deficiencies and other forms of malnutrition.  The total number of food insecure people was probably closer to about 3 billion people or about half the population of the world.  In addition, approximately 18,000 children died daily as a direct or indirect consequence of inadequate nutrition.

Lack of food, however, was rarely the reason that people went hungry, he went on.  There was food but people simply could not afford to buy it.

He said that the factors affecting the food situation included the fact that the uses of land had changed in the last few decades, with a greater proportion that was previously used for agriculture now being used for non-agricultural purposes.  At the same time, a greater proportion of the land used for agricultural purposes, was now devoted to non-food agriculture.

Another factor was that rising income in many parts of the world had meant increasing consumption of food, especially meat, whose production required fairly significant quantities of grains, he continued.  Thus, while there had been a significant increase in grain production over the decades that had not necessarily translated into increased human grain consumption.

Another factor was that, although there had been a tendency to dismiss all biofuels, some were far more cost-effective than others, he said.  Some of the feedstock used to create some ethanol and biodiesel had not resulted in food price increases.  For instance, the price of sugar had not gone up the way that of corn had, in recent times.  Thus, a much more nuanced and sophisticated view was needed on the whole question of biofuels.

Mr. Sundaram added that, in the last two or three decades, there had been a significant increase in the concentration of the power of transnational agro-businesses that had come to dominate not only marketing and consumption but also the production and supply of food inputs.  That problem was being exacerbated because of the strengthening of intellectual property rights and the extension of those rights to cover agricultural inputs.  The consequences had largely been at the expense of small farmers and consumers, especially the poor.

There was also the question of rich country agricultural subsidies and tariffs, which had undermined food production in many developing countries, he added.  However, the immediate consequences of reducing subsidies could be to increase food prices, while reducing tariffs alone would not necessarily raise food production in poor countries.  In that regard, the whole situation was much more complex and care was needed in making recommendations and prescriptions.

As for the issue of securitization, he said that food assets and food future options had become very attractive.  As a consequence, there had been very significant speculation by financial investors, and that had driven up both future and current food prices.

On the midyear update, Mr. Vos had said it covered new trends and developments since the report was launched in January and that it had mainly adjusted downwards the earlier forecasts, because of continuing problems, particularly in the United States financial markets and the related slowdown in the United States economy.  The update now resembled the pessimistic scenario from the January version of the report.

The main message of the update was that a global economic slowdown should be expected in 2008 and 2009, he said.  There was still a great deal of uncertainty about that, since it was not clear how long the housing and credit crisis in the United States would go on.  The basic assumption was that those problems had not bottomed out yet.  The report also noted that the problems with the United States dollar had not disappeared and it expected more depreciation of that currency. On top of that, there has been a surge of oil and food prices in recent months.

He said that it projected that developing countries would be hit by the economic slowdown, as would many of the food and energy importing countries, because of the increases in prices.  It was only with concerted multilateral action that the international community could deal with the crisis.  Individual countries could not resolve it by themselves.

Because of continuing uncertainty, the update mentions three scenarios -- a baseline, an optimistic and a pessimistic one, Mr. Vos said.  The optimistic scenario, which would still have the growth rate go down from what had been projected in the past, would come about if some of the more stimulatory policies were to take effect and lead to increased aggregate demand, and the problems in the financial markets were resolved quickly.  The pessimistic scenario would apply if the current problems were to further deepen.

He said that, for now, the baseline scenario, which was more pessimistic than what had been put out in January, was expected to work out.  Under that scenario, the average growth rate for the developed countries would be less than 1 per cent in 2008 and also slightly below 1 per cent in 2009.  Developing countries, which had been growing much faster over the past years, were expected to suffer significantly, particularly from the slowdown in the major economies and also because of the higher food and energy prices.  The least developed countries were expected to suffer strongly, with a downturn in 2008.  There might be some recovery, but that would be very much based on very country-specific conditions in 2009.

For country groups, there would be a slowdown in all regions, he said.  In the Africa region, if the pessimistic scenario were to work out, economic growth would almost come to a standstill, dropping to 2.2 per cent in 2008 and 1.1 per cent in 2009, which would be a major obstacle to the prospects of those countries achieving the Millennium Development Goals.  In East and South Asia, a major slowdown was expected from 11 per cent in 2007 to about 8.5 per cent in 2008, with India suffering.  Latin America, which did better than expected in 2007, but had close trade linkages with the United States economy, was expected to suffer the very strong negative impacts of lowered demands for its exports into 2008 and 2009, leading to lowered growth performance.

Mr. Vos said that a further threat to the global economy was the rising oil prices, which, when adjusted for inflation, were well above the peak prices in the early 1980s.  It was expected that in the coming years, demand might weaken but prices would stay up, with a more moderate level of prices -- in 2008, perhaps $95 per barrel and $90 per barrel in 2009.

Oil prices had been expected to be a major factor in bringing the world economy down because of slowing world economic growth, he said.  In the seven or eight years of increasing oil prices, what had been seen was mainly a demand-driven increase in prices over the long range.  Now, the supply factors had become much more pressing, so oil prices were up despite the slowdown in the economy, particularly because of those pressures on the supply side and also because of a lot of speculation.

He said commodity prices had also been on a continued surge in 2007 and early 2008, particularly agriculture and food prices, such as the price of rice, which increased by 215 per cent up to April, while wheat prices increased by 83 per cent.  Those prices were expected to increase further in 2008 and then flatten out and reduce into 2009, as a consequence of the slowdown of the global economy.

He added that the prices of metals and minerals were expected to retreat moderately in 2008-2009 on the back of the slowdown of the global economy.  Average food prices had increased 14 per cent in 2007, but most of the increases had been the result of rising commodity and energy prices.  That situation was having the strongest effect on the least developed countries, many of which were net food importers.

The solution for the current food crisis was not something that should be seen as completely apart from the other global economic problems, he said.  The food crisis had to do with the dollar depreciation and the downturn in financial markets, as a lot of financial investors were moving into commodity markets, thereby creating more volatility because of speculation and driving prices up further.

What were needed, in the longer run, were more structural solutions to the food crisis, he said.

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