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Food Price Spike Tests Trade Faith

The recent shift toward rising food prices has shaken the confidence of developing countries in counting on trade to feed their hungry, and sparked a move toward protectionism, an OECD official said on Feb. 26.

“The last 20 years, the movement was toward opening markets, and trade liberalization, and less government intervention in agricultural markets. What we saw in the last two years was sort of a retrenchment,” said Wayne Jones, head of the agrifood trade and markets division of the Organization for Economic Cooperation and Development.

Commodity prices spiked sharply higher last year due to crop failures amid surging demand for grains and oilseeds for food and biofuels, causing food hoarding and riots in some countries.

Grappling with shortages of food staples, many developing countries responded by restricting exports and protecting domestic markets, exacerbating the problem, Jones said.

“That was probably justified, given the situation at the time. The question is, is that a change in … the way they’re thinking about their food security policies?” Jones said on the sidelines of the U. S. Agriculture Department outlook conference.

Price volatility should abate somewhat from the extreme levels seen last year, when the OECD forecast food prices for the next decade would be 20 to 40 per cent higher than they were for the past 10 years, Jones said.

Jones, who is working on the OECD’s next forecast slated for release in June, said he now expects prices will increase by five to 15 per cent in the next 10 years over the previous decade.

“For countries that are low-income, food-importing countries, this (shift to higher prices) is a very scary concept,” Jones told the USDA conference.

Compounding the problem, an estimated 50 million jobs will be lost in the next few years – mainly in developing countries – because of the global recession, Jones said.

Some countries have said they will focus on becoming more self-sufficient in agriculture rather than relying on imports, Jones said, noting that the number of chronically hungry people around the world has increased to close to one billion because of higher food prices.

“People’s confidence in trade as a means of ensuring food security was severely damaged,” he said.

The run-up in prices was “a wake-up call” that developed nations need to do more if they want market access in developing nations, a long-term growth market, Jones said.

A successful conclusion to the Doha round of World Trade Organization talks – which have dragged into their eighth year – could help ensure developing countries get more out of trade, he said.

Developed nations could help fend off protectionism by providing more humanitarian aid as well as committing more money to helping developing nations find long-term solutions to growing their own agricultural production, he said.

But he said there is little consensus on how best to boost yields on the more than 500 million subsistence farms in developing nations.

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