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Tuesday, February 22, 2011

Walker's World: The real G20 crisis

Walker's World

Published: Feb. 21, 2011 at 6:16 AM

By MARTIN WALKER, UPI Editor Emeritus

PARIS, Feb. 21 (UPI) -- Once again, the weekend summit of the Group of 20 lived down to the sinking expectations this purported new system of global governance has already inspired. But there was one significant exception.

Meeting for the first time in Paris, under this year's chairmanship of French President Nicolas Sarkozy, they at least discussed the elephant in the room: the rise in food prices and the consequent threats of inflation and unrest.

The rise in food prices swollen by the climbing costs of a series of basic commodities is now "a global social issue," Sarkozy told other world leaders. Rising prices had helped trigger the revolutions in Tunisia and Egypt, he noted, as he went on to warn of the coming "hunger riots."

"We need to agree a global strategy aimed at ensuring food stability," Sarkozy said as he opened the two-day meeting of finance ministers from the G20 countries, which between them produce more than 80 percent of the world's economic output.

His diagnosis was fine but his prescription was unlikely to win much support from the other members of the G20. In traditional French style, Sarkozy called for greater transparency and regulation of commodities prices and derivative trading. His assumption is that markets are being driven by speculation, as opposed to demand.

"A market without rules is a market which is governed by speculation," Sarkozy said. "Markets must have rules woven into them."

But the real problem of the world food crisis, with the United Nations' food price index higher now than it was at the last peak in 2008, isn't speculation but an acute shortage of supply.

The droughts in Russia last year took Russian wheat exports out of world markets. Floods in Australia and Brazil and a new drought in China are worsening the problem. And with more than 100 million tons of American corn being turned into ethanol, the squeeze on food has tightened further.

And then there is demand, not simply from the 73 million babies born worldwide each year but from the way hundreds of millions of Chinese and Indians and other inhabitants of fast-growing countries want to eat eggs and meat and chicken rather than just rice and beans and bread. Once a country starts climbing the prosperity ladder, it soon starts clambering up the protein ladder, too.

The United Nations' Food and Agriculture Organization estimates that world demand for food will double over the next 20 years. World demand for water is also rising, which is becoming a serious crisis for the arid Middle Eastern countries facing angry riots in their streets.

And now there is a further problem, the steady spread of the Ug99 wheat rust virus, which has spread from its origins in Uganda to Somalia, Yemen and now Iran. Attempts to stop its spread by planting resistant strains of wheat developed in Australia have failed, because the virus is mutating as it travels.

If it continues to spread into the South Asian breadbasket of the Punjab, that spells disaster for India and Pakistan. If it spreads north into Kazakhstan, Russia and Europe, the consequences are equally severe.

In a speech to last week's annual FarmTech conference in Edmonton, Canadian food pathologist Tom Fetch warned that "Ninety percent of the wheat varieties in the world are susceptible."

"Ug99 can be brought into North America at any time," he said. "It's not really a matter of if it will come here but when it will come here."

Fetch, one of the scientists recruited to a $13 million research project with Agriculture Canada looking to breed varieties resistant to Ug99, is pinning his hopes on two Canadian strains, AC Cadillac and Peace, which are highly resistant to the disease.

Meanwhile in Afghanistan, which needs to grow about 5.million tons of wheat each year to be self-sufficient, U.S. troops from the 10th Mountain Division are being trained to recognize the virus and to warn Afghan farmers to plant resistant strains.

"It's already in neighboring Iran and we are expecting it to hit Afghanistan probably in the next year or so," warns Peter Hobbs, professor of crop and soil sciences in the College of Agriculture and Life Sciences at Cornell University. "Farmers don't know this. They don't know it's on its way."

By comparison with the food issue, the G20 talks on financial issues were almost irrelevant. They at least agreed, after initial Chinese objections, to talk about global trade imbalances and the role of currency valuations. U.S. Treasury Secretary Timothy Geithner charged that China's currency was still "substantially undervalued" and that recent steps taken by Beijing to raise its value were inadequate.

But the concern over food and commodity prices kept recurring, with Geithner and the International Monetary Fund's Dominique Strauss-Kahn both warning of the role rising prices had played in what Geithner called the "historic events" in North Africa.

The IMF estimates that commodity prices jumped 20 to 30 percent last year, a trend that Strauss-Kahn said was "creating a lot of problems for low-income countries and vulnerable people."

Separately, World Bank President Robert Zoellick said, "We're reaching a danger point" in these countries. He said he urged G20 officials to "put food first in 2011," even as they argued over ways to measure imbalances in the world economy.

Read more: http://www.upi.com/Top_News/Analysis/Walker/2011/02/21/Walkers-World-The-real-G20-crisis/UPI-88851298286960/#ixzz1Eir0P8Z7

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