Global Economic Outlook and Development Challenges

by M Hedayetul Haque | June 23, 2009 7:03 pm

Recent economic outlook reveals that the world is consuming more than it produces. This has caused higher prices of food for years to come attributed to expansion of farming for fuel and global climate change and resulted in social unrest almost at unmanageable magnitude particularly in countries already in the grip of severe shortage of food grains. As observed by the International Food Policy Research, bio fuel expansion alone could push maize prices up over two thirds by 2020 and increase oil seed costs by nearly half with subsidies constituting tax on the poorer sections of the society. Global cereal stocks have sunk to their lowest level since the 1980s attributed to reduction of plantings and poor weather. This is reflected in the decline of stock and storage level.

Recent reports indicate that the countries, such as, Mexico have already experienced food riots over soaring prices in the face of declining stock level. If the situation continues unabated exhaustion of stocks is bound to reach and the days of falling prices of food may just be over. Surging demand for food, feed and fuel have recently led to drastic price increases. Climate change is also going to have a negative impact on food production threatening the overall food reserve in poor countries. On the other side, growing financial interest in commodity markets as prices climb is fuelling price volatility in the face of increasing prices of world cereal and energy prices. Already oil prices are hovering around $90 a barrel affecting the countries struggling in their efforts for industrialization and urbanization for higher income growth. More so, for the countries already suffered dramatic impacts from a tripling in wheat prices and near doubling of rice prices since early 2000. What is needed on a priority basis is massive investment in agricultural productivity and technology, a social network much stronger than the existing one, an end to trade barriers, improved infrastructure and financial opportunities in less developed countries that will help improve food security. Although increased trade is a key demand of many developing countries in global talks that would bring economic gains, but in many cases it would not significantly reduce poverty. Stronger view is that global warming can cut worldwide income from agriculture by 16 percent by 2020 despite potential for increased yields in some colder areas and fertilizing impact on plants of having higher carbon dioxide concentrations in the atmosphere. The increased risk of droughts and floods due to rising temperatures crop yield losses are imminent, Africa would be hit particularly hard by changes in weather patterns in which scientists say manmade gases pumped in to the atmosphere are an important factor. The effects of climate change may bring about threefold increase in the number of undernourished people in Sub-Saharan Africa between 1990 and 2080. Bio fuels also threaten nutrition for the poor. Investment plans assuming expansion in nations with high potential but without detailed plans maize prices would rise a quarter by the end of the next decade. Even prices could climb up to 72 percent for maize and 44 percent for oilseeds, it is estimated. Global food demand is shifting towards higher value vegetables, diary, fruits and meat as a result of rapid economic growth in developing countries including China and India. But it can be difficult for smaller farmers to take advantage of large retailers growing grip on the market and their high safety, quality and other requirements.

Food production and Climate Change

Agricultural production across the world has been predicted to be seriously affected by climate change in coming decades. According to a recent research report, progressive climate changes are predicted to rise in temperature from 1 to 5 degree Celsius in coming decades that may put severe blow on food supply. There is a need to account the causes of extreme seasonal rise in temperature, heat, drought or rain and multiple effects of diseases and other ecological upsets that may intensify in future. There are three researches from Europe, North America and Australia including Francesco Tubiello, a physicist and agricultural expert at NASA/ Goddard Institute of Space Studies for the Proceeding of National Academy of Sciences (PNAS). In order to keep pace with population growth, current production of grain from which humans get two thirds of their protein requirement is likely to be doubled and reach to 4 billion tons a year before 2100. These hopes are likely to turn abortive due to decline of agricultural production in the tropical region. The research report says that the developing countries may lose 135 million hectares of prime farm land in the next 50 years in tropical region while increase of temperature rises is expected to start adversely affecting northern crops as well. The temperature may also accelerate outbreaks of weeds and pests and affect plant or animal physiology. Further, higher temperatures may limit the ability of modern diary cow breeds and lead to decline of livestock fertility and longevity. The temperature rise in the North latitudes would also improve the ability of the crop pests and insects in winters making them strengthen to attack spring crops. The farmers may temporarily mitigate some effects of changing climate by moving toward adaptations that would enable the farmers to switch to different crops or change the timing of plantings and introduction of new varieties or species. But then, such an adaptation plan might require several decades for nations to agree on ways for slowing down or reversing the trend of global warming. The above is a pen picture of situation obtaining globally on the food front and let us have a look on the current development challenges in Bangladesh.

Development Challenges

At this critical juncture and complex of situations obtaining globally we are having the hardest time in history which calls for work on a firmer and stronger policy frame work on the following:

• Market prices, particularly of food prices need to be stabilized at a lower level based on realistic growth projection;
• Building up a stock level of food grains through internal and external procurement to meet the critical shortage of the deficit areas through a well designed policy of surplus and deficit areas of food grains within the country;
• Addressing inequality of income growth between the farm and non-farm sector;
• Augmentation of investment in the private sector ;
• Higher growth of domestic savings both in rural and urban sectors;
• Expanding domestic tax base through higher income growth in the hitherto neglected sectors;
• Improving quality of ADP implementation;
• Improving investment in agriculture for higher productivity through technological innovations;
• Proper utilization of allocation in power, education and health sectors;
• Sustaining FDI flow;
• Greater mobilization of equity capital;
• Pushing forward structural reforms;
• Greater foreign aid flow;

Written by M Hedayetul Haque
Former Economist of the Commonwealth Secretariat, London- CFTC and
Former Economic Adviser of the Ministry of Finance, Government of Bangladesh.

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