Colin Barr

Following the money in banking, economics, and Washington

Food spike puts 44 million in poverty

February 16, 2011: 6:31 AM ET

The rise in food prices since last June has shoved 44 million people into dire poverty, the World Bank says in its latest report on the global food crisis.

The antipoverty organization says in February's Food Price Watch that its price index rose 15% between last October and last month, leaving it just 3% shy of its 2008 peak. The biggest gains have come in wheat, corn, sugar, fats and oils. One rare bright spot: the relative stability in global rice prices.

Maybe not such a coincidence

But good news is in short supply in the report, which estimates rising prices have shoved 68 million people largely in food-importing nations below the World Bank's poverty line of just $1.25 a day in income. High prices have also pushed 24 million in food producing countries above the poverty line.

While loose monetary policies in the United States and elsewhere have surely played a role in the food price runup, by revving up the global economy and stoking demand for scarce goods, the World Bank report focuses more on bread-and-butter supply-and-demand issues -- including the absurdly wasteful U.S. policy of feeding more than a third of its corn crop to yeast to make a federally subsidized, less-efficient additive to gasoline.

The report points to wicked weather in Australia and China to explain the jump in wheat prices, while blaming a poor crop in Brazil for the 73% jump in sugar since June.

But if bad weather explains some of the recent jolts, the World Bank report notes that much of the pain is manmade. Export restrictions in Russia following last summer's fires helped push up prices by curtailing supply, for instance.

And the report notes another instance of human folly: the insistence of the United States government on subsidizing the use of corn for motor fuel, a policy the World Bank report suggests has far-reaching effects. Corn prices, it says, "are affected by complex linkages with other markets" that end up lifting prices everywhere.

Ethanol production demand for corn increases as oil prices go up, with sugar-based ethanol less competitive at current sugar prices. Recent United States Department of Agriculture (USDA) estimates show the share of ethanol for fuel rising from 31% of U.S. corn output in 2008/9 to a projected 40% in 2010/11. Increased demand for high fructose corn syrup from countries such as Mexico, as they substitute away from higher priced sugar, also contributes to higher demand for corn.

That is to say, trying to reduce our dependence on foreign oil by substituting ethanol is not only failing to break our addiction to petroleum – it is making an already challenging food outlook much more stressful.

The World Bank urges governments to publish more data on food stocks and not to impose export restrictions, while scaling up nutritional assistance in poor countries. It also urges a rethink of the ethanol juggernaut -- though let's face it, Congress is going to put partisanship aside and get us a workable tax system before that ever happens.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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