Source:
Trade Observatory (IATP)
Wed Apr 23 2008
Against the backdrop of a possible Doha deal, the global economy is facing massive instability-most notably in the finance, food and agriculture sectors-and a climate in crisis resulting from human activity. According to IMF "the financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression".
On April 9, the International Monetary Fund (IMF) released its World Economic Outlook which said "the financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression." The IMF has warned that the world's banking systems could suffer up to $1 trillion in losses as a result of the credit crisis. One big financial institution, Bear Stearns, has collapsed. Wall Street has been shocked into a state of conservatism. So far, the public is paying for the irresponsible loans through tax-funded bail-outs. Financial institutions have dramatically reduced lending, which is causing a credit crunch that in turn chills the broader economy.
At the same time, and to some extent linked to the financial crisis, food and agricultural commodity prices are soaring. The rapid price increases are causing enormous stress for the urban and rural poor in regions dependent on food imports. Food riots have already spread to over 14 countries, including Haiti, Ivory Coast, Cameroon, and Egypt. Dozens of people have already died in the rioting. The World Bank predicts that 33 countries face social unrest as a result of the high prices. Twelve countries have already taken emergency measures, for example food rationing in Pakistan, increased food subsidies in Egypt, a ban on certain rice exports in India, and a boost in government investment in rice production in the Philippines.
Climate change, the rising price of oil, the expansion of biofuels production and income growth in emerging economies such as China, India, Brazil and Russia, are some of the factors that have combined over the past two years to cause an unexpected and steep rise in commodity prices. Furthermore, the influence of financial investors in commodity markets has significantly increased since 2000. As other assets become less attractive, a growing part of the money in financial markets is investing in commodity markets. Both the FAO and UNCTAD identify financial investment in commodities as a major cause for the increasing volatility in commodity markets. Finally, and most importantly for those trying to conclude the Doha Agenda, the result of the past two decades of deregulation and liberalization in agricultural markets has severely curtailed the tools available to governments to respond to the current food crisis. Not least of the problems has been the systematic dismantling of national and regional foodstocks.
Furthermore, the most recent assessment by the Intergovernmental Panel on Climate Change (IPCC) produced damning evidence on the likely impact of climate change. Climate change will mean more extreme weather events (droughts, floods, cyclones etc...), increased sea levels (threatening the existence of some island states), and higher average temperatures; further intensifying global instability.
According to the IPCC, climate change will severely disrupt food and agriculture systems all over the world particularly in Southern Africa, South Asia and Brazil. Food and agriculture systems are predicted to change dramatically in the coming decades. Heavy rains will cause regular damage to crops, soil erosion and waterlogging. Increased droughts will cause lower yields, crop failures and increased livestock deaths. Droughts will also increase the rate of desertification in the U.S., Australia, Africa and parts of Asia. There will be increased agricultural yields in colder environments and decreased yields in warmer environments.
This article was first published by Institute for Agriculture and Trade Policy at the Geneva Update. See full bulletin: Is the time ripe for a Doha deal?
Editor's note: What is the role of the IMF in this context?
Food price crisis draws attention at IMF/World Bank Meetings, by Soren Ambrose
Could the IMF have prevented this crisis?, by Héctor Torres
|
