G8 Hokikaido-Toyako summit - Double jeopardy: Responding to high food and fuel prices

Situation Report
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A New Deal for Global Food Policy: A 10-Point Plan

Support immediate needs and dampen the worst effects of the crisis on vulnerable populations:

1. Continue to fully fund the World Food Program's emerging needs, increase the flexibility of use of these funds (removing earmarked and tied aid), and support its drive to purchase food locally. Consider a partial UN assessment to meet ongoing increases in WFP requirements.

2. Support the expansion of social protection programs such as school feeding, food for work, and conditional cash transfer programs focused on the most vulnerable groups. Increase and/or frontload budget support to most vulnerable countries.

Provide financial and technical support to stimulate an agricultural supply response:

3. Ensure immediate provision of seeds and fertilizer for the most affected countries for the upcoming planting season; reform fertilizer policies to promote a mix that better matches soil conditions; provide technical support to improve production incentives.

Launch a new commitment to agriculture in developing countries:

4. Double total aid to agriculture to support investments in rural infrastructure, water and irrigation services, agricultural extension services, and post-harvest management. Increase funding going to global agricultural research and development.

5. Create an enabling environment to stimulate private sector led-investment in agri-business across the entire value chain.

6. Encourage innovative instruments for risk management such as crop insurance for small farmers. Commit to re-examine policies towards bio-fuels in the G8 countries:

7. Agree on action in the US and Europe to ease subsidies, mandates and tariffs on bio-fuels that are derived from maize and oilseeds; accelerate the development of second generation cellulosic products.

Take leadership at the highest political levels to coordinate across major exporters and importing countries and break the price spiral:

8. Call for the immediate elimination of taxation or restrictions on humanitarian food aid (certainly for WFP purchases); end export restrictions by key producers on shipments to the least developed countries and those in fragile situations; increase Japanese rice donations and exports; initiate discussions with China to increase its rice exports, or donations, to 2-3 million tons.

Build a well-functioning international trading system that avoids the recurrence of such types of crises in the future:

9. Move swiftly with an ambitious Doha round with sharp reduction of producer subsidies and import tariffs.

10. Explore institutional options to monitor and share information on national stocks and global prices and determinants; explore agreement among the G8 and key developing countries to hold virtual 'global goods' stocks, perhaps for humanitarian purposes.

1. Introduction

For the first time since 1973, the world is being hit by a combination of record oil and food prices. Such record oil and food prices are a destabilizing element for the global economy because of their potentially severe growth, inflation and distributional effects. In terms of their impact on income distribution, inflation and poverty, high food prices are of greater and more immediate concern than high fuel prices. However, the challenge of crafting appropriate policy responses to the food crisis is made much harder in a context of rising oil prices and ensuing fiscal and balance of payments pressures. The next few months will be critical for stemming this joint crisis and avoiding any potential ripple effects.

Compared to the earlier price increase in oil that occurred between 2003 and 2005, developing countries are more vulnerable to the recent increases. The terms-of-trade effects of the combined food and energy price increases since January 2007 are in excess of 10% of GDP in more than 15 countries and the room to maneuver on the macroeconomic front is limited. Continued high and volatile food and fuel prices will aggravate inflationary pressures, constrain fiscal expenditures for vulnerable groups and further endanger the poor. As underscored by G8 Finance Ministers, the high food and energy prices pose a serious challenge to global economic stability and growth, and risk reversing years of progress in many poor countries.

The International Community is facing an unprecedented test: the question is whether we can act swiftly enough to help those most in need. For globalization to work fully, it must be inclusive and sustainable. This means acting now in the interests of the poor who are most affected by this double jeopardy of food and fuel crisis, and who are least able to help themselves. The G8 Hokkaido-Toyako Summit has the potential to spark accelerated action. We call on it to do so.