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Financial crisis may worsen food crunch it eclipsed

Although commodity prices for a wide range of crops have fallen by as much as 50 percent from record highs in June, the financial crisis is expected to make food shortages dramatically worse.

By David MonteroCorrespondent of The Christian Science Monitor / December 2, 2008

Harvest: A farmer carried harvested rice last month from a field on the outskirts of Agartala, India.

Jayanta Dey/Reuters

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Phnom Penh, Cambodia

Call it crisis eclipse.

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The global food crisis that dominated headlines earlier this year has been overshadowed by this fall's financial crisis, but it continues to exact a crippling toll on the world's poor. And, although commodity prices for a wide range of crops have fallen by as much as 50 percent from record highs in June, the financial crisis is expected to make it dramatically worse: credit for farmers could dry up, meaning less money to buy fertilizer and seed, leading in turn to greater global shortages of food.

Money for food aid could dry up as well. In June, governments and donors pledged $12.3 billion for the food crisis. So far, only $1 billion has actually been disbursed, as lending institutions and governments instead scramble to save ailing banks.

"My concern is that with the food crisis out of the headlines, policymakers will assume it's not a problem. Another worry is that, [with the financial crisis], there will simply be less money to invest in agriculture. We've got to turn that around," says Robert Zeigler, the director general of the International Rice Research Institute (IRRI) in the Philippines. (Editor's note: The original version misspelled Mr. Zeigler's name.)

Some factors contributing to the food crisis have ebbed, which adds to the notion that the worst is over.

The price of oil, needed to transport food to markets, has dropped from July highs of nearly $150 a barrel to around $50 today.

Corn, soybean, and wheat prices have fallen about 50 percent from record highs earlier in the year. And many of the restrictions set by grain-exporting governments like Vietnam, China and India – all of whom feared shortages and effectively hoarded grain supplies, causing prices to shoot up further – have now been eased, meaning supplies have stabilized and prices have come down accordingly.

Lower prices haven't ended crisis

Still, a country like Cambodia helps illustrate that lower prices have not ended the crisis. The price of rice – the country's staple food – has gone down by about 7 percent since August. But observers say that's not enough to offset the staggering 25 percent inflation of the last year.

"Workers already spend about 70 percent of their income on food. Prices have gone down, but they're still higher than other years. If you look at people's income versus inflation, many more are poor today," says Yang Saing Koma, president of the Cambodian Center for Study and Development of Agriculture, a think tank in the country's capital, Phnom Penh.

In fact, the Asian Development Bank estimates that 2 million more Cambodians may have been pushed into poverty.

Lending agencies respond to ongoing global food crisis

The United Nations estimates that $15 billion to $20 billion will be needed to address the food crisis affecting 923 million malnourished people worldwide. Only some $1 billion has been disbursed so far. Some of the largest pledges from lending agencies include:

• The Word Bank created a $1.2 billion rapid-financing facility and pledged to increase support for global agriculture and food from $4 billion to $6 billion in 2009.

• The UN World Food Program pledged an extra $1.2 billion a year toward helping 75 million people who are starving worldwide.

• The International Development Bank pledged to provide $1.5 billion in food aid across the next five years.

• The Asian Development Bank pledged $500 million to member nations most affected by food prices.

• The Islamic Development Bank pledged $1.5 billion for agriculture projects in poor countries.

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