Oil and food prices bedevil developing countries
Friday, 9 November 2007
The developing countries including specially the least developing countries (LDCs) such as Bangladesh, are faced with a grim situation from the escalating prices of both food and oil. In most cases, they are the major importers of these two basic items of consumption. The members of the Organisation of Petroleum Exporting Countries (OPEC) had in the seventies created supply and price squeezes. After that bitter experience both the oil cartel and users of energy were more conscious and responsible to prevent another such oil related crunch. But the developments in the international oil market have become worrisome again, particularly in the context of the volatility in Iraq and the Iran situation.
But this time around, the problem appears to be a lingering one and seems also poised to remain for a longer time than would be bearable for the poor countries. Oil prices have been steadily climbing upwards and are now close to $ 100. The price could further increase and shows no signs of stabilizing. In the seventies, the problem was centred mainly on OPEC applying a squeeze. But this time, other and more complex factors are involved such as insufficient investments in oil exploration and production, demand far outstripping the current supply as well as the volatile situation with probable military action against a major oil producer, Iran. Thus, the phenomenon of the rising oil prices could last longer than expected and the poorest countries could be much harder hit than at any time in the past.
The high risks to the economies of the poor countries are rising also from the shooting up of food price. With falling food production in many LDCs due to climate change, their import dependency on food is also rising. And the fast rising costs of imported food is coming as a very hard blow. The United Nations Food and Agricultural Organisation (FAO) warned last Wednesday that many developing countries would be hard hit and forced to go for cuts in food consumption and even go for food rationing. The international scarcity of food and their high prices is driven, among others, by the latest moves in the developed countries to turn cereals such as maize and wheat into biodiesel for meeting their energy requirements and high demand. Not only cereals, the prices of other indispensables like cooking oil in the international markets, are also fast climbing from the biodiesel industry sucking up more and more crops of a varied nature.
The poorest developing countries have been caught rather off guard by this double-barrelled attack on their economies: the absorbing of very high prices of oil and food. The international community ought to be sensitive to their plight. The hardest hit countries like Bangladesh need to mobilise their diplomatic efforts to influence the policies of the advanced nations as well as press for substantially increasing food aid to these countries. And to enable the poor countries to buy emergency food from the international market, bigger commitments for loans and grants from the donors should be forthcoming. The multilateral capital donors should specially consider new loans to the poorest countries to cushion their balance of payments difficulties arising from the need to buy fuel oil and food at such higher prices. The request for supplying fuel oil to the poorest countries at prices lower than the market-driven ones by the producers, would merit a prompt and favourable response from the latter. The affected countries should also lose no time in forming their own strategies to cope with the situation which must include increasing local production specially of food and conservation and efficient uses of energy.
But this time around, the problem appears to be a lingering one and seems also poised to remain for a longer time than would be bearable for the poor countries. Oil prices have been steadily climbing upwards and are now close to $ 100. The price could further increase and shows no signs of stabilizing. In the seventies, the problem was centred mainly on OPEC applying a squeeze. But this time, other and more complex factors are involved such as insufficient investments in oil exploration and production, demand far outstripping the current supply as well as the volatile situation with probable military action against a major oil producer, Iran. Thus, the phenomenon of the rising oil prices could last longer than expected and the poorest countries could be much harder hit than at any time in the past.
The high risks to the economies of the poor countries are rising also from the shooting up of food price. With falling food production in many LDCs due to climate change, their import dependency on food is also rising. And the fast rising costs of imported food is coming as a very hard blow. The United Nations Food and Agricultural Organisation (FAO) warned last Wednesday that many developing countries would be hard hit and forced to go for cuts in food consumption and even go for food rationing. The international scarcity of food and their high prices is driven, among others, by the latest moves in the developed countries to turn cereals such as maize and wheat into biodiesel for meeting their energy requirements and high demand. Not only cereals, the prices of other indispensables like cooking oil in the international markets, are also fast climbing from the biodiesel industry sucking up more and more crops of a varied nature.
The poorest developing countries have been caught rather off guard by this double-barrelled attack on their economies: the absorbing of very high prices of oil and food. The international community ought to be sensitive to their plight. The hardest hit countries like Bangladesh need to mobilise their diplomatic efforts to influence the policies of the advanced nations as well as press for substantially increasing food aid to these countries. And to enable the poor countries to buy emergency food from the international market, bigger commitments for loans and grants from the donors should be forthcoming. The multilateral capital donors should specially consider new loans to the poorest countries to cushion their balance of payments difficulties arising from the need to buy fuel oil and food at such higher prices. The request for supplying fuel oil to the poorest countries at prices lower than the market-driven ones by the producers, would merit a prompt and favourable response from the latter. The affected countries should also lose no time in forming their own strategies to cope with the situation which must include increasing local production specially of food and conservation and efficient uses of energy.