Rising wheat prices cause problems for food aid programs

04/22/08Rising wheat prices are creating problems for food aid programs and third world food markets.

Prices are rising in a dramatic way and are affecting the bottom quarter of the poorest nations, which spend around 75%-80% of their income on food, said Daniel Gustafson, the director of the liaison office for North America of the United Nations Food and Agriculture Organization.

Most of the poorest populations are rural farmers, who are expected to benefit from rising crop prices, Gustafson said. However, he added that farmers are not producing enough wheat to sustain their families, let alone make a profit on the market.

"As commodity prices rise, the purchasing power of poor people erodes," said David Kauck, a senior policy analyst for Care International, an NGO.

According to a report by the U.S. Wheat Associates there is a number of variables affecting the wheat market. The study shows that wheat stocks are low, demand remains high, some countries have restricted exports and ocean freight rates are at an all time high.

Wheat is a truly global product, Gustafson said, and added that the increase of consumption of meat in China, along with Russia and Argentina's cease in exporting is creating a real crunch.

The increase of meat in China is an indication of a rising middle class, which is also consuming more grain, Gustafson said.

The U.S. Wheat Associates report states that world wheat stocks will end at a thirty year low and that world export prices are up 64% from 2006.

These factors are reducing the number of tons delivered to food aid programs and pushing local producers out of the markets, Kauck said.

One method utilized in food aid programs is monetization,the process by which U.S. food is purchased, either by the government or NGOs, to meet nutritional needs or to be sold on the open market. Once the crop is sold on the market, the proceeds are used to fund programs to address underlying problems of hunger.

"It's sort of like the Salvation Army," Gustafson said.

Care International is currently the only NGO in America to give up the practice of monetization.

Care aims to provide food security for those it serves. The organization's website states that "Households that are 'food secure' are those that are able to provide each member of the family, no matter what their sex, age or physical condition, with an adequate supply of nutritious food on a sustainable basis."

Most NGOs still use monetization. It was seen as a creative solution to hunger and a good way to finance relief efforts, Gustafson said.

"Monetization is wasteful and has unintended consequences in third world countries for local producers and processors," Kauck said.

Gustafson said that the issue of monetization is more polarizing within the NGO community and that the Food and Agriculture Organization of the United Nations approaches the problem from the viewpoint of the individual countries.

"The issue is that you don't want to harm domestic producers and processors [of food]," Gustafson said. "The downside is that what you bring in crowds out what is produced locally," he said.

However, rising prices will continue to cause hunger, Kauck said, and added that with monetization, every dollar spent does not equal a dollar on the other end due to transport and handling costs.