American Enterprise Institute

July 2, 2008

[Edited transcript from audio tapes]

10:00 a.m. Registration         10:15  Introduction:  Christopher DeMuth, AEI         Keynote Speaker: U.S. Senator Richard Lugar (R-Ind.)       Moderator:  Philip I. Levy, AEI 11:00    Panel I: Trade, Development, Agriculture, and Humanitarian Responses         Panelists:  Anne Krueger, Johns Hopkins University     Asma Lateef, Bread for the World Institute      Peter McPherson, National Association of State Universities and Land-Grant Colleges     Namanga Ngongi, Alliance for a Green Revolution in Africa         Moderator: Mauro De Lorenzo, AEI       12:30 p.m. Luncheon         1:00    Panel II: Energy, Biofuels, and Climate Change         Panelists:  Nicholas Eberstadt, AEI     Suzanne Hunt     Robert Paarlberg, Wellesley College         Moderator: Kenneth P. Green, AEI       2:30  Special Remarks: Robert Zoellick, World Bank         Moderator: Kevin A. Hassett, AEI       3:30  Adjournment

Proceedings:

Introduction and Keynote Speech

Christopher DeMuth:  Ladies and gentlemen, good morning.  I’m Chris DeMuth, president of the American Enterprise Institute.  I am delighted to welcome all of you here this morning for this AEI conference which we have titled, “Was Malthus Right?  Was Today’s Global Food Crisis Inevitable?”  The dramatic increase in food prices around the world and the severe scarcity of supplies in many regions is a development with the most acute and painful consequences for human welfare, reversing some of the recent gains in reducing global poverty and leading to serious social and political unrest in many nations.  It is a development that is deeply connected with the concurrent rise in energy prices and is also deeply connected to many bad government policies in both agriculture and energy.

 Today’s conference will be plumbing the depths of all of these aspects of the problem.  I have several thanks to express, first and foremost, to Mr. Ronald Malone and AEI’s William and Inez Mabie Endowment for Agriculture Policy Research, which is funding today’s symposium.  I am very grateful to Mauro De Lorenzo and several other AEI colleagues who have conceived and organized these sessions and will be participating in them through the day; to our guests from other academic institutions as well as civic and humanitarian organizations who are joining us on the panels, and to our special guest; Robert Zoellick, president of the World Bank, who will be offering remarks this afternoon at the conclusion of the conference; and this morning, a to our keynote speaker, Senator Richard Lugar of Indiana.

It has been 40 years since Senator Lugar first emerged on the national political stage as the highly innovative mayor of Indianapolis and successful proponent of that city’s organization of a metropolitan-wide government.  He has been a member of the United States Senate since 1976.  He won his sixth term in 2006 with 87 percent of the vote - his fourth consecutive victory by more than a two-thirds majority.  He is the longest serving senator in Indiana’s history, and he is still a very young man.  He is currently the Republican leader of the Foreign Relations Committee and, of course, has been the chairman of that committee for a very, very long time.  He is also a member and the former chairman of the Senate Committee on Agriculture, Nutrition and Forestry. 

Senator Lugar is one of Washington’s great gentlemen, a great diplomat whose influence on the formation of American foreign policy for many, many years has been profound and beneficial.  He is, in addition, a great expert on energy policy and is a leader in various efforts in energy and energy conservation policy in the Senate today.  He is certainly the Senate’s most forceful and principled advocate of Farm Bill reform.  It was Senator Lugar who was responsible for forging the bipartisan agreement in 1996 for reforming broad swaths of the federal farm programs, bringing an end to 1930’s production controls.  And I’m particularly proud to say that he was the only conferee on the wretched 2008 Farm Bill to vote against that particular piece of legislation. 

So with his deep background in international diplomacy, in energy policy and in agriculture and farm policy, we could not have a better individual to kick off our deliberations today.  We are very honored that he would be with us, and I ask everyone to give a warm welcome to Senator Richard Lugar.

Richard Lugar:  Thank you very much.  Chris, I’m honored to be with so many distinguished guests you have brought together today for this very important topic.  And I would say as a point of full disclosure that I come from a farm family.  My grandfather, Riley Webster Lugar, farmed in Morgan and Marion counties of Indiana.  My dad purchased land in 1932 in the depths of the Depression, probably with help from his father.  And this was the farm that I used to work on throughout the summers, sometimes pulling corn out of the soybeans, so-called voluntary corns, so the combine would not stick, and to likewise investing in hogs that produced pigs.  This was to help produce money for our college education.

I mentioned all of this because my dad, at that time, discussed some of the subjects that we will touch upon today.  He was an opponent of the New Deal and a vigorous opponent to Franklin Roosevelt’s agricultural policies, which he characterized as plowing under the crops and burning up little pigs, in essence.  The purpose of all of that exercise, however dastardly as it now sounds, was the thought that, somehow, farmers would continually, if they were not restrained, produce too much, therefore, given supply and demand, that prices would go down, and the way that you remedied this was by limiting the amount of food that could be produced by productive farmers. 

This seems totally foreign to our objectives today - so be it - but agricultural policies that Chris DeMuth might have outlined that preceded well beyond his lifetime and mine were designed in that way until the so-called Freedom to Farm Act in the late 1990s.  And this produced, really, on our farm as well as on others’, the ability to produce as much corn or soybeans, for example, as we wanted to without penalties, that were extracted in the farm legislation the supply-controlled business that lasted that long. 

So as we criticize others around the world, it is well to think through some of our own policies, some of them still persisting.  If there is food inflation in our country, we have produced a part of it, even in the current Farm Bill, perpetuating certain subsidies and programs, which are hardly designed to bring about lower prices and costs for the American people.

But with that preface of all my prejudices, let me begin by just simply saying that the Food and Agricultural Organization estimates now that people in nearly 40 countries are facing food shortages that require international intervention.  And more than a dozen countries have experienced food-related riots to date, and many more are anticipating them.  Many more countries are suffering from chronic food insecurity, and that is year in, year out.  These countries have both food availability and access problems. 

In 15 countries, 35 percent or more of the population is considered undernourished by the FAO.  Another 23 countries have undernourished populations between 20 percent and 34 percent of their total populations.  The undernourished comprise about 850 million people globally, 170 million of which are children.

The current food crisis was produced by the complex web of factors: fairly increased demand for food from growing populations and emerging economies that are doing much better; soaring energy price that drives up costs all along to the farm to market chain, whether it be fertilizer or transportation of the crops or the farm machinery; and increased demand for biofuels; droughts in some key food-exporting areas have contributed to the problem; cutoffs in grain exports by major suppliers; market-distorting subsidies; a tumbling U.S. dollar; and a profound misunderstanding, in my judgment, of the importance of genetically modified seeds and fertilizer - this, we will touch upon some more in the course of our conversation today - but it makes a huge difference, clearly, in Africa and in some other parts of the world.

Our comprehensive approach to all of these, it needs to address, at least I think, the five following questions:  First, how does the international community improve its ability to anticipate and to respond in a coordinated and timely way to future emerging food supply problems; secondly, how do we achieve open trade in support of food security when the United States and Europe, for example, insist on maintaining farm subsidies and when developing countries are resistant to dropping trade barriers, in addition; and third, how do we achieve greater farm productivity through improved farming methods and the use of drought- and disease-resistant seed when agricultural assistance worldwide has declined and some parts of the world have an irrational aversion to genetically-modified seed and crops; and fourth, how do we decouple energy and agriculture issues so that both sectors can benefit from scientific advances and the debate  progresses from one of fuel versus food, to fuel and food security or both; and fifth, how do we make investments in human capital so that information is disseminated, technology is improved and incomes are raised.

Now, with these questions in mind, I have offered, as perhaps some of you have, a set of initial recommendations to President Bush prior to the G8 Summit, which will be happening in a few days.  First of all, improve the international response to crises.  Both the World Bank and the Food and Agricultural Organization recognized that the global supply of food was tightening, at least, as early as two years ago.  This was a situation vulnerable to subsequent spikes in energy prices and weather-related crop disruptions.  A number of steps should be considered to improve the ability of national governments to anticipate and avert crises.

Secondly, reconstitute the Food Aid Convention.  While the FAC has been the framework for coordinating food aid and food aid commitments, it should be strengthened to oversee and manage effective communication between existing early warning systems and the international community and to do advanced planning when there are indications that a crisis is looming.  A renewed convention should include an agreement among states to take preventative steps such as designing a menu of responses linked to the severity of indicators such as the global food price index. 

Create a system of regionally-placed supplies of food stocks.  Such food reserves could be managed by the FAC using as its model the international coordination of strategic petroleum stocks at the International Energy Agency, for an example.  Such a system would need member-nations to agree to its use in times of shortages to avert crises rather than to distort market pricing and to commit to maintain adequate supplies.

Commit to invest in rural development and agricultural productivity.  Eighty percent of the world’s malnourished live in rural areas, about half of which are small landholders.  Recent U.N. studies have confirmed that funds spent on agriculture are more beneficial than spending in other sectors; yet official development assistance has fallen precipitously since the Green Revolution, currently representing now just four percent of all donor assistance.  G8 nations should commit to reinvest in agriculture and urge nations suffering from chronic food insecurity to do the same. 

Increase official development assistance for agricultural production and rural development.  G8 nations should commit to double such assistance in 2009 and the salient increase assistance on a sustained basis.  Assistance should be comprehensively designed to encompass increasing farm yield: the dispersion of appropriate technology; the availability of credit; the development of rural enterprises and infrastructure and access to markets.  G8 nations should strongly encourage all traditional donors to increase rural funding, as well as other wealthy nations who depend on food imports.

Increase funding for research and technology.  The G8 should endorse the work of the Consultative Group on International Agricultural Research and other research institutions such as the International Fund for Agricultural Development.  Developing more advanced and locally appropriate farming technologies is essential to increasing farm yield.

Establish a global network of land-grant colleges.  G8 nations should commit to making investments in human capital in the areas of agricultural education and extension services.  A global network of agricultural schools similar to the United States’ land-grant college system would help advance scientific research.  Educate a new class of agricultural scientists, faculty and entrepreneurs and provide extension services to small farmers.

Facilitate a trade system that is efficient, fair and transparent.  The current food crisis should serve notice that globalization requires clear and fair rules so that all nations may compete effectively in the marketplace.  The G8 Summit should unequivocally endorse a trading system from which developing nations believe they will benefit.  Fair trade facilities, global price signals - and the rest will follow.

Encourage a conclusion of the Doha Development Round.  Concluding the stalled Doha round from which developing countries were to benefit would restore a stabilizing confidence to agricultural commerce and development issues.  A commitment to phasing out subsidies and other trade barriers is essential to spurring the progress of negotiations.

Advocate increased research on genetically modified seeds appropriate to local needs.  An irrational opposition to GM crops and food among many European nations is literally starving people in Africa and other parts of the world.  GM seeds have been demonstrated to dramatically increase yields and hold great promise to reduce poverty.  Some nations with chronic food insecurity have turned away emergency food assistance because it might contain GM foodstuffs.  Others have refused to cultivate GM crops for fear of not being able to export to Europe.  The G8 Summit must address the myriad of regulations and labeling requirements on GM crops and food and let the consumers and the international marketplace decide the issue.

Endorse greater transparency and information sharing in the futures markets.  The recent memorandum of understanding between the Commodity Futures Trading Commission and the British counterpart, Financial Service Authority, regarding oil contracts is a good example of mutually beneficial cooperation.

Endorse policies that stabilize energy markets and promote alternative fuel sources.  The link between oil prices and global food inflation is clear.  Rising energy prices affect food prices all along the food to market chain.  Mediating the effect of energy on food will require aggressive energy policies to boost alternative supplies and increased efficiency.  In the near term, major progress can be made in accelerating advanced biofuel derived from agriculture, forest and municipal waste, and from special energy crops like jatropha and switchgrass.  Energy security and food security need not be a zero-sum game.

Finally, encourage the opening of global energy markets.  World trade in energy is rapidly increasing, and many players are straying from market-oriented free trade and investment policies.  There are striking examples in oil and natural gas where increased political interference puts upward pressure on price and could eventually cause shortages in countries least able to cope.  The intelligence agencies of our country have saved [sounds like], parenthetically, an estimated 90 percent.  As a matter of fact, the control of oil and natural gas prices is controlled not by markets but by governments, and it is a very, very large political influence.  To demonstrate leadership, the United States should lift its tariff on Brazilian ethanol that now shelters the United States’ industry.

G8 nations should encourage greater investment in research and large-scale commercial deployment of the next generation of biofuels made from non-feed stocks.  We should commit to increase assistance for renewable energy.  The G8 and other nations should commit to increasing official development assistance and deployment of renewable energy alternatives, especially in Africa.  Renewable power can help to electrify rural areas, reduce the effects of high-energy costs on agriculture and diversify markets through domestic energy industries. 

The economic impact of high oil prices is far more burdensome in developing countries than in the developed world.  And generally, the developing countries are far more dependent on imported oil.  Their industries are more energy-intensive.  They use energy less effectively.  Climate change threatens to further disrupt agricultural productivity, encouraging the deployment of commercially available clean energy technologies to developing countries will improve the environment, promote sustainability and farm yields, and advance economic growth.

Now, let me offer these additional suggestions just anecdotally.  Each one of you, I suspect, are regular file clipping types who find good ideas and put them aside for opportunities to share them.  Let me just say that, for sake of reference for this conference, the New York Times of June 30, 2008 had a chart and a map in which it points out that many countries, inexplicably, given the difficulties we are talking about here, make a very large effort to stop imports from coming into their countries in the same way that many more, as we have already suggested, are taking steps to make sure that nothing escapes, that all the last bit of rice or wheat is kept within the country. 

This leads many economists to point out that the world trade system, when it comes to agriculture, is the most [indiscernible] stock of all the situations; namely, if there are emergencies in which there could be flows, the stoppers are apparent.  Without singling out any more countries, for censure [sounds like], I have already mentioned the United States and Europe, and the subsidies that we have.  In theory, that has been the major failing of the Doha round to date, not the only one, but one that negotiators point out again and again.  It has just been very, very difficult to get beyond.

But looking at the other side, India, as a growing, prosperous country, makes life difficult because it negotiates frequently in these rounds that the United States and Europe should drop all of their situations, but India should retain the ability to protect Indian farmers.  And so it goes.  India is not unique in this respect, but we were not going to be able to have it all ways.  And the ability to discuss this very frankly in the midst of a world food crisis is probably important and timely.  We will have to have opportunities.

I was delighted and surprised with the visit of the premier of Vietnam recently who came to the White House and then visited with a few senators the next day.  And he made the point that whereas the other countries surrounding Vietnam have stopped any export of rice or any flow coming out of their countries, Vietnam has had a banner year of rice production.  It is exporting rice to all of its neighbors, albeit at a price roughly twice what would have been at the beginning of the year; supply and demand working out there likewise.  But the thought - and I have seen other figures which many of you have seen - that consumption of rice on a per capita basis is highest in Vietnam, second to Indonesia, for example. 

I mentioned this because as we examine the whole prospect, sometimes, we wave our arms around the world and think of generalities of how to solve problems.  But I have come to conclusion with these individual visits country-by-country that each has a significantly different set of situations.  The problem is getting an information collection situation so that we have early warning signals, even good data, on what is happening, even if it is bad news, that there is transparency of what is occurring here. 

Secondly, I’m just simply tremendously impressed.  And each one of the following speakers probably has written books that I should recommend.  But this one written by Robert Paarlberg, who will be on the program today, I understand, is called Starved for Science: How Biotechnology Is Being Kept out of Africa.  It is new and it is terrific.  Bob Paarlberg -- I have some prejudice.  He grew up on Indiana farm and had a distinguished family in agriculture, as a matter of fact.  He is now at Harvard, but that has not disturbed his thoughts about the agricultural setting. 

And I would just say that he has written specifically about Africa in a number of articles, which I think are tremendously important.  He stressed the need for transparency, for the flow of world trade and all of this, but he points out in parts of Asia, where there are 400 million hungry, according to his figures, grain prices, wherever they are around the world are not a significant factor because only four percent of the food that gets to those areas is in world trade to begin with.  It is either they are on the farm and in the area or it is not.

Likewise, in Sub-Saharan Africa - often a focus for our attention - only about 16 percent of the food that is a part of that general composite is imported.  And most of that is consumed by the wealthier cities, not the people who are living on the farms.  As Paarlberg describes, a typical farm in Sub-Saharan Africa, it is a situation of maybe one or two acres farmed by a woman.  If there is a man on the family, he is off doing something that makes a living for the family, essentially, as opposed to what is occurring on that particular farm. 

That farm has no nitrogen fertilizers, no irrigation, no veterinary medicine if there is an animal or two around, and no improved seeds; amazingly enough, it does not do particularly well.  The income for this lady who is farming - and these are 60 percent of the farms that are involved in this - is about $1 a day.  This is a situation, folks, that there will have to be significant breakthroughs.  The world trade situation does not really touch it.  You come down to the organization of political factors within specific countries as well as, unfortunately, some influences.

Once again, there are many conferences of this variety, but one that is often cited is a 2002 conference in which the president of Zambia came to Great Britain and he also visited other European countries.  And the question he was asking them, as sort of friends of the family is: Should he allow emergency grain from the United States, which was to be donated to Zambia, as they were having a terrible crisis of starvation.  Should he allow this food to come in if it had come from genetically modified seeds? 

The answer given by the Europeans is, “Of course not.”  After going through all of the instances in which people could be poisoned, they also made the economic point that organic food or food without all these American influences and so forth was what the European market wanted.  That Europeans had come to a conclusion that genetically modified food was a bad idea, and therefore the imports ought to come from the organic principles and certainly some things that do not have these influences.

As a result, the president of Zambia did not accept the food, and the people starved.  Now, it is just that stark, and this is why, folks, we have to get beyond that.  Now, in fairness, in European circles, even as I speak, there are persons suggesting regulations that they feel would not lead to changes in parliamentary language or in various regulations the countries have adopted.  And I will not try to get into the weeds, but they are suggesting, as opposed to a zero tolerance of genetically modified food, there might be a one-tenth of one percent tolerance, which, in fact, would cover about all the instances of complaints that have occurred in Europe.  The United States is calling for a five percent situation.  This shows the, I suppose, variation of the negotiating positions.  But the fact of the thing that it may have moved from zero to one-tenth of one percent is real progress.

Now as Paarlberg and others have pointed out in Africa, many African farmers never heard of the dispute to begin with and are not aware that president of Zambia ever consulted with Europeans.  In terms of our diplomacy, we ought to play the ball where it lies and there will be people, as a matter of fact, who are receptive to these changes.

 Now, I want to mention something else is occurring in another part of the world and that is in Ukraine.  As many articles are fond of pointing out, Ukraine has agriculture production now roughly half of what it had at the end of the Stalinist era.  And this is too bad because Ukraine is often known as the bread basket of Europe for other very, very fine names attached to the productive lands that were there; the soils are terrific but to the breakdown in terms of all of the institutional aspects, and one of the basic ones is, how will the land be owned or will it be owned.

 There are several large agriculture companies throughout the world, European as well as United States, who have made recent investments in Ukraine.  Covering hundreds of thousands of acres, this land is being leased currently.  And even though the fate of this situation is uncertain, the thought is that probably the parliament of Ukraine, in due course, will move toward land ownership regulations and these companies want to be the first in line for consideration of this.

 It is a problem that is faced not just by Ukraine but Ukraine, some agronomists believe, could supply roughly one-seventh of all the food on earth.  The possibilities are that great.  And this is why the depletion of those resources is so severe if you are looking at the world food crisis problem.  Likewise the geographical location of Ukraine, with regard to Europe’s and Middle East and so forth, it is much more ideal for exporting as would currently [sounds like] be the case.

 The questions will come back again and again, however, as the Soviets solved it with a certain degree of collectivization, to say the least, put together very large parcels so that even agricultural means of the time might farm them.  And that comes back to problems and situations that are less promising in Ukraine.  How do you aggregate properties so that the combines and the planters and harvesting equipment and so forth that we have can be used.

Or to take a case that I raised with a group of Indian leaders not long ago.  A group of six people including the president of the largest bank of India and some of their largest combines came not to talk about agriculture but I have tried to draw their attention to that in a smaller conference.  And they pointed out, and they had pretty good data.  Thirty percent, they claimed, of the food in India never reaches the mouth of a human being.  It is lost in the fields, lost in the process, spoiled.  That is a big figure for all of the country the size of India. 

So I said, “What is the problem?”  “Well, the problem,” they said, “you should well know, it is getting into market, getting it to anybody.”  It is physically moving it.  If you, as in the case of the African lady who is on her land -- if she ever had gotten fertilizer, which she does not have, if she had maybe five or 10 acres, she would be carrying a sack of fertilizer on her back.  The fact is that there are no vehicles to move any of these.

So I said, “What is your solution?”  A creative solution by one of the Indian industrialists was, “Get Wal-Mart in here.”  I said, “What would they have to do with it?”  And they said, “Well, they were already setting up stores all over the world and they sort of know how to get the product to their stores.”

First of all, they know what they want.  They know the specifics.  Wal-Mart could very well define what kind of seeds, what kind of procedures; it could bring about education of people who could get the job done.  It might even begin providing some roads and mode of transportation to move the stock to get it to their stores, so that it gets to human beings at a reasonably decent price.”  One of the fascinating suggestions coming from an Indian magnate - but it is emblematic of the difficulty - and it is one of transportation and movements.

For a long time, as an American farmer, I watched the prices in Argentina and Brazil very closely, and still do, but one reason that I was never all that worried was that the great production of those countries could not get to the ports and, therefore, out of the ports and into world commerce.  So in terms of the affecting the United States’ price, it was going be de minimus.

The question, however, now in Argentina, as you have all observed, is not the price this year but just the fact that soybean farmers cannot get it out at all or they already had a strike, with the Argentine government demanding more and more export fees to let them get it out of the country.  And that happens again and again in other countries in a less dramatic way in which essentially governments have difficult balancing act.

If you are one of the tens of governments I suggested that are on the threshold of food riots, very frequently you have already subsidizing food for people who are very poor, thus hoping that they will not go into the streets and demand that your government be dissolved or overthrown as the case may be.  But the problem with this is that you then often have a policy of paying the farmer the lower price that you can get by with because you are already subsidizing the consumer for political purposes to keep your whole situation alive.  And as a part of that, therefore, you do not want to give the farmer an incentive to export.

You want to make sure that all is kept close.  In other words, pose a political problem quite apart from an economic problem.  And even though I have suggested for the G8 that they think through much greater changes and emphasis in terms of agricultural expenditures, the fact will remain among skeptics that they will say, “What about Mugabe?  What was he doing at the World Food Conference, deliberately starving portions of the people that are not politically acceptable?”

This is that kind of a world in which we have to deal with the politics of the situation quite apart from supply and demand and breakthroughs.  At the end of the day, I have a happy note; although, somewhat blinded [sounds like], this will be commercially unacceptable.  Monsanto was at the food conference and Monsanto people happily announced that they are going to produce seed and other procedures that will double or triple the yields of crops that we produce in United States and are produced elsewhere by 2030.

I make the point not to say that Monsanto will make that goal or not; although, I suspect they have a pretty good shot at doing so.  My own experience in life has been that my dad who was complaining about the supply controls in the 1930s was producing about 40 to 50 bushels to the acre from old records that I can find on the Lugar farm of corn each year - 40 or 50 bushels.

Sometimes we do not have banner years and Central Indiana is perhaps not the most productive but we routinely get 150 to 160 bushels right now.  That is three times, maybe more, just in my lifetime.  And Monsanto was suggesting that this might even be truncated for me and for others who want to buy their seed or that of others who are competitors to replicate that process almost in a generation with my sons and grandchildren.

In America or in Europe or in Africa or Asia or what have you, if the situation is set up right, we have the educational facilities, the transportation, the machinery, the gear and a rural system, at least the prices the situation - so that economically you make the best out of it.

And this is why, an answer to the question about Malthus, the question that is raised today by AEI, I would say that Malthus is clearly wrong in terms of being inevitable that the world will starve.  I think many predict the population of the world by 2050 is supposed to go from six trillion plus to eight or thereabouts and so we will need to produce more.

But in fact we do have the intellectual ability, I believe, scientific ability to produce a whole lot more and then the question will be, do we have the political skills to manage, at least, a world that is maybe more cognizant of transparent data but still face [sounds like] political factors of control.  So on that optimistic note, I rest my case and would like to respond to questions if there is time to do so.

Philip I. Levy:  I think we maybe have time for perhaps one question from the audience because we have a very full day but the Senator has graciously agreed.  Can I ask people to -- whoever, to identify themselves and keep the question brief.  Yes, back here.  There should be a microphone.

Albert Santoli:  I’m Al Santoli.  I’m president of Asia America Initiative and we are working in the field in Southeast Asia in agriculture and aquaculture areas.  In areas like southern Philippines where there is the potential of turning very, very substantial areas of, right now, land that is only at 15 percent capacity into making up for the shortages that are going to happen in Burma and China following the natural disasters.

The problem is, as you said, are transport; there are problems of politics in making sure that people who might not be in the political mainstream are able to get the seed, the fertilizer at the prices they need.  It is a problem of the banks being able to get loans to the farmers so they do not go broke borrowing from middle men.

What can be done when you have large groups of cooperative farmers that want to get to work but cannot get the right kind of political and financial support, who do they go to?  After this World Food Conference, it does not seem there have been any real answers or any real systematic process.  Senator, what do you see as a solution?

Richard G. Lugar:  Well, there is no solution precisely if their governments are authoritarian and they are really prevented from seeing the outside world.  But let’s say those situations are not quite that extreme.  I’m heartened by the fact that Kofi Annan has now joined the group that is being sponsored by Bill & Melinda Gates Foundation, by the Rockefeller Foundation, I understand, that are busy on the ground in Africa.  They are talking to people.

I have attended a luncheon not long ago the United Nations Foundation put together in which Kofi Annan attended.  Likewise, Bob Zoellick, who you will hear from later on today, was there.  Bob Zoellick has turned around altogether the policy of the World Bank which had gone down from 30 percent of its loans in ‘70 for agriculture round to eight percent and Bob is back in a big way because he sees the crisis and he has persuaded other nations sitting around that table of the World Bank.

So I’m encouraged, at least, that communication is occurring, some of it through the private sectors, through the foundations of generous Americans, maybe others in the world.  But likewise, the basic institutions, the World Bank taking an interest again and I hope that will spur others to do that.

Now, whether those folks will be able to make contact in the field -- this is the question of the infrastructure of agriculture: Can the extension services in our country go out in the same way that we have seen doctors go out from our hospitals and treat HIV/AIDS in many countries?

And I think the answer has to be, yes, there still is, thank goodness, enough transportation of people and ideas in the world that these humanitarian people from many institutions, our educational people, as well as our financial people, are able to get in touch.

Philip I. Levy:  Well, thank you very much, Senator.  We will now take up some of these issues on international trade economic development and agriculture with our next panel so thank you very much.

Panel I: Trade, Development, Agriculture, and Humanitarian Responses

Mauro De Lorenzo:  Good morning.  If you could take your seats, we are going to keep pushing on.  We have a very full program today.  Welcome, again, to the American Enterprise Institute.  I’m Mauro De Lorenzo, a resident fellow here at AEI.

We have two panels for you today - this one on economic and humanitarian aspects of the crisis and then a panel over lunch about biofuels, energy security, climate change which will be moderated by my colleague, Ken Green, and then at 2:30 p.m., a conversation moderated by Kevin Hassett with World Bank President Bob Zoellick.

Reports of famine and malnutrition in the developing world are not uncommon at all.  Naturally our first response is to try and help usually through providing food aid.  The United States is the world’s largest donor of food aid and has been since the 1950s when Public Law 480 was passed.  Because our food aid system benefits U.S. farmers and transporters as well as responding to humanitarian crisis, its political support is enduring and substantial.

But there are increasing calls to liberalize our food aid system by using cash to purchase food in the most efficient markets around the world and removing some of the “American only” restrictions on the transport and purchase.  Now, it remains to be seen whether the high levels of food aid at the world has come to expect from the United States can be sustained if this fundamental shift were made but, clearly, it is a priority in the light of the current crisis to find more efficient and rational ways of responding to this crisis.

On the panel today to help us explore this issue, we have Asma Lateef who is the director of the Bread for the World Institute and one of Washington’s leading analysts of food security and humanitarian response.  Now, the food crisis of 2008, I think, is unprecedented not only in its global scale but because for the first time, a crisis for which food aid is the only answer but for the first time, it is not being treated primarily or only as a humanitarian crisis.

Particularly in Africa, we have tended to diagnose food security problems and a steady decline in agricultural productivity since 1990 as part of the natural order of things or, you know, the hand of God or the unavoidable consequence of drought or increasing HIV and AIDS rates or some other circumstance for which no national or international policy maker is responsible.

But when we treat these complex public policy questions as natural disasters rather than as policy failures, the underlying causes rarely get addressed because there is no political mechanism or incentive to search for the culprit and demand accountability as there would be in, say, our own domestic political system.

Today’s food crisis is different and I think that is the opportunity before us today and over the coming years as we search for answers and diagnoses.  And I do not personally fully understand the reasons why it is being looked at in a different way than the past crises; maybe, some of our panelists will have ideas.

But since it emerged into full public view a few months ago, it has been understood that the causes and the consequences of this crisis go far beyond the humanitarian and extend into areas not normally associated with food and agriculture: the rise of commodity prices, generally, including oil and metals; the decline in the U.S. dollar’s value; the move away from investing in agriculture on the part of aid and development agencies over the past generation; the rise of India and China and their demand for commodities; the pending failure of the Doha Trade Round and the future of agricultural liberalization; some of the mind-bendingly absurd parts of our own Farm Bill as well as [audio glitch] nebulous collection of speculators on future’s markets.

Now, I’m an anthropologist, I’m really not going to say anymore about all that but I’m pleased to be joined today here, in addition to Asma, by a very distinguished panel of experts who can help us tie all these strands together.  Beginning with Anne Krueger, professor of International Economics at Johns Hopkins, former deputy managing director of the International Monetary Fund as well as a former chief economist of the World Bank and she was for many years, as well, professor of Economics at Stanford.

Next to her, Namanga Ngongi, a former Cameroonian diplomat who is now the president of the Alliance for a Green Revolution in Africa which Senator Lugar alluded to.  It is chaired by former secretary general of the UN, Kofi Annan, and recently signed an important cooperation agreement with our own Millennium Challenge Corporation.  Dr. Ngongi previously served as the deputy executive director of the UN World Food Programme and as the secretary general special representative in the Congo.  He is himself an agricultural scientist having earned his PhD in that subject at Cornell.

Finally, Peter McPherson, also an economist.  He is currently the president of the National Association of State Universities and Land-Grant Colleges.  He was the administrator of the USAID for six years during the Reagan administration and then spent more than a decade as president of Michigan State University.  He is also past chairman of the board of Dow Jones and is the founding co-chair of the Partnership to Cut Hunger and Poverty in Africa.

Anne Krueger - I introduced her in the middle so we got her - so whenever you are ready.  Thank you again.

Anne Krueger:  Thank you very much.  It is a pleasure to be here and to hear everybody else speaking on this important and difficult topic.  As already been said, this is a topic where everything has gotten into the act, but let me also say that the discussion now is not that different from the discussion of 1973-74 where commodity prices had started up, oil prices had gone up afterward and then everybody discovered there was worldwide inflation.  There is some similarity there and part of our problem is exactly that; it is not only a food problem.  So let me with that begin. 

We have had very rapid growth of the international economy over the past few years averaging more than 4.5 percent for the past four years and probably that average will be sustained through this year.

I used to carry in my head the notion that three percent growth of the world economy as a whole was good, then I upped it to 3.5 and then to four; 4.5 for that many years running is getting up there and is probably at a point where there are some pressures on the system in general.  Prices of commodities including food are among those where demand is most inelastic, so very often that kind of pressure shows up there first.

And one of the problems we have had - not a problem, a nice one I suppose - with that kind of rapid growth is that we have been growing a little faster than what is sustainable and there needs to be a little bit of a slowdown because the alternative is just not there; where you are going to have inflation get out of hand, in which case the long-run growth rate will fall or we are going to be doing something about it in the shorter run and that, in itself, is going to take away a little bit, not all, but a little bit of the problem we are talking about.

The international economy was highly liquid and foreign exchange reserves built up enormously particularly in the emerging markets, which meant when commodity prices did increase, importers did not react the way they had in earlier such booms where they felt they needed to cut back because of scarce “foreign exchange”.  They basically were willing to use reserves rather than do so, so we have had less of the short term response to rising prices than we would otherwise have and certainly that has been true of oil.

At first, everybody thought that the demand for oil was driving it at this time as contrasted with supply in 1973 and that that should make a difference but, in fact, if we are an importer of oil, whether it is a supply shock or demand shock, the price to us goes up and our reactions have to be much the same and that turns out to have been less important than otherwise.

Thirdly, we have had several other things happen.  We have had agriculture production rising but not quite as rapidly as necessary.  Food stocks worldwide are estimated to have been going down since 1998, which tells you something about the sustained growth and basically gradually reducing them to the point where there is nothing more there and then prices go up.

And basically some of the emerging markets have wanted to consume more.  A little bit too much weight, I think, is put on India and China - we can come back to that I think later on in the discussion of [indiscernible].  In India’s case, I did take the time to look up and see what actually has happened to Indian exports of rice and wheat and they basically have been at about the same level with the exception of 2004 when they had a bad harvest.

In a way, yes, they have had economic growth but actually caloric consumption through cereals has gone down as they consumed more of other crops.  And their production of cereals is going down but because of the shift in other consumption basket not because of the difficulties on the rice and grain farm.

Energy concerns have led to increased demand for grains for biofuels, and I will come back to that, and certainly there have been, as there always are whenever anything is “crisis”, everything goes wrong once we have had the drought in -- with a drought in Australia which was a major factor, we have had some other weather-related factors that have kicked in.

And we are going to have another big one this year when it is estimated that this year’s corn harvest will be down to 11.5 million tons with 13 million last year, largely in part, in significant part because of the floods in the Midwest just at the time when the plants should have been going.  But somebody on the panel knows more about that probably than I do.

Anyway, that raises a whole host of policy issues.  There are short term issues including the humanitarian ones which are going to be discussed here.  There has been a suggestion, and a good one and I will come back to it at the end, that there could some concerted action on stocks because food security for some countries is part of the issue.  Related to that is the issue of passing through the prices to consumers because some countries are subsidizing consumption which is, on the one hand, increasing it from what might otherwise be not necessarily for those who need it most and at the same time maybe and probably is discouraging production, so there are some things that can be done there.

And finally, I will also raise the short term issue of biofuels - which ones we use and how.  In the longer term investment in agriculture which is important and has already been mentioned.  There certainly should be investment in finding sensible energy alternatives and, of course, there is the question of the Doha round, and I will come back to the end.

But let me just go back to the international economy for a minute.  We have had this rapid growth; I said before 4 but it is actually more like 4.5.  Developing Asia has grown at over eight percent per year and then has led to an increase in food demand - there is no doubt about that - but it has not been that big a factor on international markets largely because there has not been that much trade by those commodities.

Developing countries have grown faster and then had shifted up the demand for food even more than you might think because people shift to things that take more intensive agriculture.  It takes eight times as much acreage or has as much quality acreage to produce a unit of energy from food through, for example, cattle as it does to a cereal so that there is a lot of that going on too.

The growth in poor countries no doubt, but biofuels have added drought in one-off factors.  Stocks of grain had been falling, as I mentioned, and the supply response has been low partly because of the liquidity issue, partly because countries are better off and they had better buffers that they are doing it and partly because people were caught unaware so they have not had time to react, I suspect, is also a part of it.

There is concern that we may within not too long a period of time see a number of countries recognizing that they have been importing more than they can sustain over a period and that we may see either inflation problems or balance of payments problems among a number of the emerging countries.

All of these things have interacted, non-grain demand has increased and land has been diverted, and that is important.  It is not enough to say that while we have this problem with corn and therefore the corn price is going up.  When corn price goes up all kinds of things happen, people shift their consumption from one grain to another, away from grains.  Farmers then shift their land away from other crops to the ones that pay more - all of these factors have been going on.  The price of inputs to agriculture has been going up and energy is a very important input in agricultural production.  It is something that many of the discussions ignore.

And investment in agriculture as everybody says has not increased much, but water is also becoming a problem, the one that is likely, to remain a problem for some time.  As you probably know, Australia now considers itself at a permanent state of drought and quite clearly that affects potential supply down the road.  Other countries are facing up to what maybe bigger water problems - salinity problems in South Asia - and things like this that may be putting a lower ceiling on the potential for responding to upward shifts in demand; it did not happen before. 

I’m hurrying because I’m limited on time.

Now, biofuel demand has intensified the problem.  Right now, there are two kinds of biofuels that basically are used to any degree in the world economy: sugar, which is almost entirely, if not entirely Brazilian, and corn which is very largely in the U.S.  In the U.S., 30 percent of U.S. corn went into biofuels this year - 30 percent, that is a huge number.

If you think of something that is price inelastic in demand in the short run and then you figure the price inelastic so that maybe, let’s say price elasticity is 0.5 which is probably too high, that would say that 60 percent increase in price on that account alone.  Now, of course, corn production went up so that is an offset, et cetera, et cetera, but it is huge.

Thirty-four million tons of grain in 2004, it is 101 million estimated in 2008 and 2009.  It is furthermore estimated that if 20 percent of maize/corn went into ethanol, it would be one-third of the current 10 percent blending target.  Or to say another way, you have to use 60 percent of the current crop, which is already very large, if you wanted to meet the target.

The U.S. has been the user about 80 percent of the worldwide use of grains in biofuels.  Okay, take the supply response, demand response that is probably 30 percent of the increase in corn right there.

Now the next thing to be noted is - let me just go back a minute - the next thing to be noted is that biofuels from ethanol as of today almost - maybe not at all - does not save energy.  Right now, the energy intake to produce the corn - the tractor, the fertilizer, et cetera - is almost as much if not as much as the energy saved on the other end, or to say it another way, the energy self sufficiency argument for doing this does not make sense.  Brazilian ethanol uses sugar and the estimate is that there is about five to one ratio on Brazilian sugar, so you do get energy saving.

Okay, policy issues - very quickly - the poor are net buyers of food for the most part.  Okay, that is important.  Probably, if we are looking at the current plans for biofuel, the estimate is caloric intake in Africa would go down about eight percent which is huge.  And poor Africans spend about 70 percent of their income on food; if you get something of the price increase, they have got to cut back; they do not have any choice.  This is a major problem and one can say, “Well, it would only cut back imports by five percent of the total consumption.”  Again, remember with price inelastic that is very, very big.

Some countries have restricted or banned exports because of concern, 15 of them to be precise is the last count I have.  And the estimate is that you could offset about 30 percent of the run-up in prices today if you could get an international agreement so that you would not have any bans and you would have people operating at the world price.

There are some things you could do even in the short run to increase production but most of that is going to be long run.  The big thing you could do is change very quickly biofuels policy, at least, so we do not divert more out of food and that we begin getting incentives to search for more energy saving uses of these biofuel ingredients than we now have because biofuel, as it is now, is 51 percent subsidy on Brazilian imports plus a $12 billion subsidy directly from the U.S. government for ethanol as of this time, and it is not saving energy.

I’m moving quickly. 

Shift energy policy, instead of subsidizing corn-based ethanol subsidize the search for energy saving biofuels which could be done and which would take the emphasis off corn and do a lot.  You could and should encourage accelerating investment in agriculture in developing countries and possibly even elsewhere.  There is infrastructure work to be done as was mentioned in the Senator’s talk.  There are other things - agriculture research and extension is important too.

Lastly, since we are looking at trade, I think there could be - and I wish we had politicians here to talk about it - a possible deal in Doha.  Get the U.S. to reduce its biofuel targets and uses on cereals.  How do you do that in a way that does not lead to great dislocation could be resolved.

Europe accepts GMO which gives the U.S. enough benefit to offset this; Africa gets more assistance with food production and can move the GMO commodities; and exporters and importers agree to pass through international prices to consumers targeting the poor more effectively because there is a lot of waste in subsidies for poor consumers as of this time.

There is absolutely no reason for some of the subsidies that now go on were indeed -- I think the last number I saw from one country was that 80 percent of subsidy by value went to the top half of the income distribution.  The poor got a bit but not very much.  You can do better than that.  And as we do get more efficient targeting in subsidies, it will make, I think, quite a difference.  Thank you very much.

Mauro De Lorenzo:  Thank you very much, Ann Krueger.  We will turn now to Asma Lateef, Director of the Bread for the World Institute.

Asma Lateef:  Thank you.  Thank you, Mauro, for inviting me to be on this wonderful panel. 

Bread for the World is very much concerned with the humanitarian impact of this crisis and in fact, it seems like it is not just a crisis.  This is a setback against the progress that the world has made over many years to reduce poverty.  And the actions that the international community takes now are crucial to making sure that this setback is not permanent.

So Mauro tells me to talk about the humanitarian aspect of this and food aid but there are three points that I would like to make: one is that we do need to have an effective humanitarian response; the second is that the international community’s response to date is not commensurate with the challenges that developing countries face in this crisis; and the third is that this crisis should be a wakeup call for our own system of delivering foreign assistance.

So I will start with the humanitarian impact.  Since 2006, world prices of basic food commodities have risen steeply.  The World Bank estimates that food prices have risen by 83 percent.  As of March 2008, wheat price was 130 percent higher than a year earlier and maize prices, 30 percent higher.  Rice prices have tripled just since the beginning of this year.  And the World Bank estimates that an additional 100 million people have fallen into poverty in the last two years.

As Anne said, poor people in developing countries spend between 60 and 80 percent of their income on food.  Rising food prices are taking a devastating toll.  Families are having to make difficult choices and in too many cases, they do not have a choice.  They are foregoing meals or opting for less nutritious foods.  This will have long term consequences.  There are intergenerational consequences of opting for less nutritious foods especially in pregnancy and in the first two years of life.  We need to think about that as we move forward with the response to this crisis.

And even before the crisis, the Food and Agricultural Organization estimated that 862 million people were suffering from hunger.  Rising food prices threaten to significantly raise that number, and we risk a reversal of the hard-fought progress against extreme poverty and the Millennium Development Goals in many parts of the world.

And we have already seen the panic that rising food prices have caused in over 30 countries that have experienced social unrest in the last year.  So in the immediate term, what do we do?  Increased food aid and cash transfers are crucial and will save lives.  But the capacity of the food aid system is being severely tested as the world tries to cope with this crisis, the recent disasters in Myanmar and in China and ongoing humanitarian efforts around the world.  And the food aid system must be well resourced, efficient and flexible.

All donors including the United States should strive to get the maximum benefit out of food aid by reducing restrictions on procurement and shipping of food aid.  Under the current system, nearly all U.S. food aid is purchased on the U.S. market and shipped on U.S. flagships and this makes our food aid much more expensive and often it arrives too late.

And the resources for food aid are far lower than they were in the 1950s when P.L. 480 was first signed into law, about a quarter of what it was at that time.  With diminished resources, it makes far more sense to purchase food closer to the crisis [audio glitch] where possible.  Food aid also runs a risk of undermining local agricultural and food markets in developing countries.

Changing the system would mean providing, authorizing and appropriating funds that were flexible enough to allow for local purchase instead of the purchase of U.S. grain.  There was much debate around this in the recent Farm Bill but not much has changed and there are a lot of special interests that would lose out.

A small sign of progress in the Emergency Supplemental Bill that President Bush signed on Monday, there is a small pilot program of about $50 million that would allow for local and regional purchase of food aid.  Other short term actions that need to happen, we need to strengthen safety net programs and, as Anne said, they need to be targeted to poor people.  That includes cash transfers, school feeding programs and food for work programs.

We need to also get seed, fertilizer, and credit to smallholder farmers, now, so that they can begin to plant for the next harvest.  And we need to ensure that we do not backtrack on the nutritional status of the most vulnerable – the pregnant women and babies. 

But it would be a mistake to stop at the short-term response.  The international community must work with developing countries to address some of the structural issues, and key to that is increasing productivity of smallholder farmers and in developing countries by investing in research, in improving the capacity of developing countries to research and do their own assessment of the technologies that are useful in their context.  We need to improve extension services, infrastructure, irrigation, rural roads, electricity, rural development - I believe Namanga will speak much more to those things - and we need to remove trade-distorting agricultural subsidies. 

So to my second point, the international response to date to this crisis is nowhere near commensurate with the scale of the humanitarian crisis.

In 2007, developing countries spent nearly $60 billion more than the previous year on food imports.  And that has probably increased substantially in 2008, given what has happened to food prices.  FAO estimates that the rise in cereal import -- the Cereal Import Bill was 56 percent between 2007 and 2008 in low-income food deficit countries.

The share of global cereal imports of African countries is 22 percent.  This is having a dramatic impact on the balance of payment situation in developing countries, and the situation varies from country to country.  But a recent IMF report that came out yesterday suggest that for the 33 net food importing countries that are eligible for the IMF’s poverty reduction growth facility, the balance of payment’s impact of the rising food prices is estimated 0.5 percent of GDP.  Combine that with the rise in oil prices, which was estimated to be at 2.2 percent of GDP in the 59 oil-importing PRGF countries.

Many developing countries are, as the IMF managing director said, at a tipping point.  In today’s New York Times, World Bank president, Bob Zoellick, said that the GDP impact could, in fact, be between three percent and 10 percent.  In Liberia, the IMF’s research suggested that Liberia’s GDP impact was 4.5 percent as a result of rising food prices and 15.5 percent as a result of food and fuel costs.  That is devastating.  It is eating up reserves and causing developing countries to react in ways that have probably not been helpful in terms of the flow of food and commodities in the last year or so.

So what this speaks to is the need for strong multilateral response.  Developing countries –- what this also suggests is that we are, the international community, is as strong as the weakest link and we need to address the crisis that they face in ways that do not increase their debt burdens as they try and meet the needs of their citizens.  And so, the IMF can ease offering balance of payment support to a number of countries and a number of seven countries, I think, have already reached out to the IMF but we need to ensure that we do not make the mistakes of the 1970s and create a debt crisis as a result of this.  And so, there needs to be a concerted multilateral response that includes grants and not just loans on concessional terms and this has to go beyond the IMF and to concerted multilateral effort.

The emergency supplemental approved $1.8 billion in food aid.  The World Food Program has had an appeal and has received funding to meet immediate needs, but again, today’s New York Times piece suggests that the crisis that the World Bank, the IMF, the World Food Program need at least an additional $10 billion.  So the response to date has been quick and the global community is actively engaging in how to resolve this crisis but there is a lot of work to be done. 

So to my final point, this crisis did not just happen.  Rising food prices are not necessarily a bad thing.  Farmers around the world, poor farmers in particular, could benefit from rising food prices.  The problem is that, as an international community, we have so underinvested in developing country agriculture over the last 30 years that smallholder farmers in developing countries are unable to make use of or take advantage of rising food prices.  Combine that with trade policies in rich countries that were unhelpful protecting rich farmers at the expense of poor farmers, and adding to that a biofuels policy that did not take into consideration the impact on food security around the world.

This hunger crisis should serve as a wakeup call for the United States to rethink development and its foreign assistance.  The United States must provide leadership commensurate with its resources and values, and the challenges we face in this crisis in the 21st century argue for a fresh approach.  Elevating development and fixing foreign aid is one of the most important things we can do to address this global hunger crisis and to prevent it from becoming a permanent setback.  This means at the highest levels of decision making, development must be on an equal footing with diplomacy and defense.

I’ll stop there.

Mauro de Lorenzo:  Thank you very much, Asma.  We are going to turn right away now to Namanga Ngongi, the president of the Alliance for Green Revolution in Africa.

Namanga Ngongi:  Thank you.  Thank you very much, Mauro, for this opportunity to participate in this panel, particularly I like very much the statement by Senator Lugar – I could just stop my case there.  There I think he made the case for the Alliance of Green Revolution in Africa.  Many of the things that he said are things that are keeping us worried, let me say, on a daily basis.

I will focus, as Asma already hinted, on medium to long term measures rather than the short term or the market forces which have been adequately covered also by Anne.  So let me --

As the chairman of the AGRA board keeps on saying, Mr. Kofi Annan, “Africa has been in a food crisis for the last 30 years.”  You can see clear stagnation in productivity in the smallholder farmers’ fields.  Whereas, in 1960s around where Africa, South Asia, China, more or less, had almost the same level of productivity.  Africa has remained stable, more or less.  China has gone to beyond four metric tons per hectare and South Asia is above two metric tons per hectare.  Why?  Because of total underinvestment in agriculture in Africa, I mean there is no other way to look at it.  This stagnation has really been caused by three principal factors.

One is the inaccessibility of improved seeds, the genetic material.  The base for Africa’s effort for production has not been there. 

Second, if you can go to the next slide -- I hope you can see it.  Africa is just soil mining, that is, we are taking out more from the soil than we are able to put back into the soil.  And you can see that in 1995-97, many countries were already taking more than 60 kilograms of a nutrient equivalent per hectare.  In the year 2002, even more countries had joined that group.  It is not possible to sustain agriculture in such conditions.  First of all, less than 20 percent of Africa’s smallholder farmers have access to improve seeds, then most African farmers are exporting – let me say, mining the soils - the soil [inaudible].

Third, I said already, inaccessibility of inputs.  This is a slide on one of the critical imports that have changed agriculture in Asia, Latin America - fertilizer import.  For most of Africa, Uganda, you cannot even see.  I mean it probably is less than five kilograms there per hectare.  In Netherlands, it is what?  More than 400, 600 kilograms per hectare, China is somewhere around 300 kilograms per hectare. 

I mean if you are going to produce, I do not think the African crops are different from the crops of other parts of the world.  I'm more amused by literature when I see that Africa should be using agrarian [indiscernible], seeds and technology, that the rest of the world should be using more advanced technology.  So if Africa is going to keep up in production and fight the – let me say – chronic food crisis in Africa, it has to adopt a little bit more modern technology to go beyond just what we are dealing with today.

Unfortunately, for Africa, the sudden rise in price of fertilizers makes that even the 5 to 7 kilograms that are being used per hectare by this smallholder farmer will become economically inaccessible.  I mean, you cannot go from $500 per metric ton to $1,300 per metric ton and still expect the farmers to be able to have such access to fertilizer.

But one thing I should actually point out here is that the market forces are fine, but at least 50 percent of the African smallholder farmers have no connection with the market.  They are deficit producers themselves.  They have to buy food to eat.  Therefore, the only way you can be able to reduce the hunger is to increase their own productivity; their own production in their farms.  So you need a different set of policies to be able to address that group of farmers - we will be able to get to that.

Now, what are, therefore, the possible responses to this?  Asma has already described the first part of it – the short term – to address the impact on the vulnerable consumers and then I will go to the medium to long term.

We need a rapid – I would say a rapid – not 30 more years, but a rapid increase in productivity on the smallholder farmers’ fields.  If we are not able to do that in the next five to 10 years, clearly, the problems will only be more serious than we are seeing today.  And how do we expect to do this?  We expect in AGRA to participate with other global effort to trigger a green revolution in Africa.  I know that the word “green revolution” is quite controversial in many settings and sometimes we are asked questions, “Does Africa want to duplicate or photocopy the Asian green revolution?”  I said, “I wish it was that easy.”  If it was that easy, we would have copied it long ago and it would have been functional in Africa today.  Unfortunately, the realities are that it is not that easy. 

Asia, highly dependent on two crops – wheat and rice - for which there was a lot of research already undertaken around the world and where good varieties were produced with genetic material.  Let me say, the effort led by Dr. Norman Apollo [phonetic].  I think that was already wonderful.  In Asia, you also have large – let me say – flood plains, agro-ecologies, in which you could have the same variety spread through millions of hectares of land.  In Africa, you have a lot of diverse micro agro-ecologies, which you must adapt agriculture to particular settings, which are not so large. 

In Asia the large-scale irrigation, in Africa much dependent on erratic rainfall and probably this calls for a lot more scale irrigation, high use of fertilizer, low use of fertilizer, fairly good infrastructure.  Just today, the Democratic Republic of Congo has about 60 kilometers per million of inhabitants.  India has 1,000 kilometers per million inhabitants and how much do you think United States has, 30,000 per kilometer?  Okay, 50.

Just to show the gravity of the situation, that whereas it is difficult even in India to reach all these small-scale farmers with modern technology.  Imagine how much more difficult it is to reach farmers in the Democratic Republic of Congo?  When we talk of markets, if it is difficult in India, 30 percent of the crop is lost – we are told – before it even get to the market.  Imagine how much more is lost in Democratic Republic of Congo.  So there are -- it is which we cannot duplicate and finally would be government policies. 

In the end, agriculture is a private sector business.  There is no doubt about it.  I am a small farmer myself; small by Americans standards, large by Cameroon standards.  Okay, I'm a farmer myself.  But it is a private sector business, but it is governments that have to set the parameters, let me say, the enabling environment for agriculture to be a profitable profession.  If it is not profitable, people will not invest their time, resources in agriculture.  You would not do it just for the love of it; you do it to be able to live, to have a living and also to make some source of income.

Now, AGRA we say we want to trigger a green revolution in Africa.  How?  By investing in some key programs, the first that was started which we saw a crop improvement program, in which AGRA is supporting plant breeders in national institutions.  There are no real private breeding companies in Africa today, but there are state institutions for plant breeders who are being supported to improve varieties using the local germ plasm, not to downplay the importance of external germ plasm which we access also, or the breeders’ access from the international plant genetic resource institutions around the world.  And the target there is to produce about roughly for all crop varieties approximately 1,300 varieties over the next 10 years.  Some have already been released. 

We also send students to be trained to be able not only to produce the varieties, but also to have the capacity in their own countries to be able to address in the future issues related to GMOs.  I think that is a topic which becomes more and more sentimental and psychological rather than technical in Africa, because a technical capacity does not really exist.  So at least have the technical capacity for people in their own countries to take decisions on what to do with GMOs.  We are not yet involved in GMOs, but we think that will be a wonderful debate to be continued in the future.

The second program which has been launched but not yet operational, we are now in the process of the business plan.  It is a soil health improvement program.  As I showed before in a slide, Africa is actually mining the soils.  We have to be able to return fertility to the soils.  Not necessarily all of it by inorganic fertilizer, because it is just inaccessible to the farmers. 

We have to start by popularizing old, proven agronomic practices of crop rotation, of putting legumes into a system, but legumes that can also produce an income for the farmer, not just legumes that produce invisible fertility in the soil.  The farmer also needs a crop, needs also something to eat – that is something to feed their families and also, linkages with livestock systems. 

Markets are very important, but markets are very important for those who already are meeting their domestic consumption needs.  But you do need a market attraction even for those who are now deficient to look forward to access in markets to increase their incomes.

Water management is critical.  That is still to be developed in the future but in Africa, as I said already, is not the grand scale irrigation systems of Asia.  It does not mean that there not areas in Africa where some of that could be done.  But there are environmental issues which have to be taken, there are cost implications that have been looked into, but there is no going around it.  You cannot fight drought with paper, you cannot fight with drought-resistant crop varieties but even those need some water.  I do not think you have the water-proof crop varieties already bred.  And above all, we would have to have an extension program that supports existing national and private extension systems that exist in countries, to be able to get the benefits of improved technology to the farmer.

Policy is all paramount because without a good policy environment, all of what we are saying is just wasted.  Last week, we had a policy convening in Nairobi, in which we brought the permanent secretaries from ministries of agriculture from several African countries opened by the minister of agriculture of Kenya, in which it was agreed that although it is costly in many ways, but the African farmer cannot continue to remain the only farmer in the world that is not supported by our government because most of the African food producers are female and, therefore, there need to be systems that improve the access of small-scale farmers in Africa to the imports that they require.

AGRA cannot do this alone so we are moving around the world building alliances, joining hands and forces with many institutions.  And I would say here, in Washington, on the 11th of June, we had a wonderful opportunity to sign a memorandum of understanding with the Millennium Challenge Cooperation in which they would come with their resources, capacity to improve significantly infrastructure which is one of the key limiting elements in African agriculture, thus permitting the AGRA’s adaptive research and technologies to be able to give the best outputs. 

I think if all of this is put together, we will be able to trigger a green revolution in Africa and at least, delay the fulfillment of Malthus’ theories for at least another few, maybe, centuries or millennia and probably one area in which we should say –- I keep on saying, the green revolution, if it is not supported and does not succeed, you can only have the reverse.  The reverse is a threat of a red revolution.

In many countries, there are more and more threat of riots and instability in government.  I mean, if governments do not focus on the needs of their small-scale farmers and make sure that they can at least meet the basic needs of their own population, they stand the risk of having the other side of the coin.

Thank you.

Mauro de Lorenzo:  Thank you very much, Dr. Ngongi.

We will turn now right away to Peter McPherson.  He is the president of the National Association of State Universities and Land-Grant Colleges, but was also the administrator of USAID for a number of years and is the chair of several organizations devoted to agricultural development and nutrition.  Thank you very much.

Peter McPherson:  Thank you and it is good to see so many of my old colleagues and friends here.

The comments about the humanitarian need, I think, were very well taken.  I think Senator Lugar’s comments certainly as well.  We have really had sort of a checkmate situation politically on this matter for some time.  I think until this food crisis - it could well remain that - perhaps this is intervening factor because the argument on the Hill, my recently passed away good friend, Tom Lantos, for example made an argument to a group that I was chairing at the time that you could not put together the politics on the Hill for the PL40 [phonetic] program, unless the current commodity structure as well as the shipping structure remained.  And I think that at least as to the commodities, it is not so clear that is the case anymore.  I really believe the politics of that have changed because of the prices.

Now, the shipping situation is a little different.  Frankly, I would be more for an outright clear stated subsidy for shipping for the maritime industry rather than the indirect subsidy that we now have.  By the way, that comes out of the maritime committee structure, appropriation structure, not at the aid structure on the Hill, so the politics get fairly complicated.

What I would like to spend most of my time talking about this morning is that we do have a long-term problem, as well as these huge immediate issues, but there is no guarantee the world is going to go about this in the right way.  We have a fairly mixed history really in how we tackle long-term development and I think it is worth reviewing how we have done it over the years.

Just to look at what we have done with agriculture and food, we were all happy to see the Club of Rome being wrong and that the green revolution and whatever the other things came together in a fashion that we did not have the problem we thought we would have, but then we sort of relegated this to a second tier kind of issue.

Aid in the last 20 years has become dominantly humanitarian organization as opposed to development organization if you follow the money, particularly if you put in PEPFAR and the other related aspects of it.  The one noticeable exception to that was the creation of the MCC a couple of years ago.  The World Bank figures really backed away dramatically from agriculture, but it was part of the global development community bank and USAID historically had been the leaders of agriculture; when we backed away, the rest of the world did too.  I think as positive as the global development goals have been, there was always a structural bias in those goals to look at immediate delivery of goods and services, and that is interestingly reflected in things like the debt forgiveness.

I'm an old banker, I think when debts cannot be paid, you ought to restructure.  But the debt forgiveness was set up in such a way that the debtor country was to use the local currency not paid to the international community to deliver largely goods and services as opposed to development matters.  That is a simplification, but it was part of a bias the whole communities had now more and more over the years of goods and services.

As we were doing all this, you all will remember when I say that as this was going on, people often said, “Look, we do not have a supply issue.  We have got a distribution issue.”  Of course, now, we are beginning to see we may have a supply issue – population, more income, more meat consumption, and allocation of resources to energy.  And so we do probably have a supply issue, one that we ought to be able to deal with but with the supply question that cannot be neglected as we have for a long time.  But the sort of relegation of all this as a distribution problem, well, that really when you pressed on it, it did not make a lot of sense because it either meant that the world was going to have to give more and more food to places like Africa - which incidentally we have - or that somehow or the other the poor people are going to get more income to buy the food. 

If you look at Africa with 60 percent of the population being rural, a dominance of really poor people in Africa - a dollar day or less being rural - there was no way we are going to get more income in rural Africa without increased food production but we were neglecting food.  We really were not prepared to continue forever the international charity work, but we were not be worrying about how to deal with people having more income.  We go through every generation with this big debate as to whether countries predominantly rural can make economic progress without increased food production.  It seems like a silly argument but here we are, again, discovering that maybe it is really true after all we have to have food production increases.

Well, it is worth, I think, thinking about not just this last several generation as to what we have done, but going back over 50, 60 years about how we have, as an international community, tried to be increase incomes - economic growth.  Because I think there are some patterns in what we have done over that time, I’m being - for those of you that are into this - I'm being, of course, quite simplistic here but I think it helps a little bit.  We have tended to say we are going to give budget support and/or immediate goods and services transfers or we tended to say we are going to do long-term development of human resources and technology, of infrastructure and so forth, and those are really two very different patterns.

You might want to call them three patterns – the budget transfer, the humanitarian, and the long-term development.  I’ll say in a moment why I think the humanitarian and the budget transfers sometimes get mixed in together.  But think about how all this started.  It was a Marshall Plan.  Well, it was a great success by almost any measure, but it was a significant part of the budget transfer and it was a great success because you had the people there to do it.  The Europeans had the competence, the training, some pockets did not, but most of them they did and we drew, I think, some bad lessons from that.

 Remember Walt Rostow arguing in the ‘60s that the only problem really was the resource gap, and if only we would provide more resources -- it was sort of a neo-Keynesian argument applied to developing countries.  Well, I mean, the problem with that, there was no people, like in Europe, to use some of the resources.

 I think it would be unfair to Jeff Sachs to say that he is kind of a neo-Walt Rostow, but to some extent, Jeff’s arguments are that if only you provided the resources then it will all work.  Now, he has specific goals to bring up, particularly, lives [sounds like].  So, it is not entirely fair but to some extent, there is a pattern in history to all these thinking.

 And I believe, the way AID has developed over the last 20 years, huge transfer of goods and services –- I mean, you can argue about primary education, I think, is being an important investment and some would say, somebody else and so on but it has been largely a transfer-of-resources kind of approach.  For you, historians, this is kind of a retreat to the basic human needs of the 70s but I think that as we sit down and think about where we are, we have to look at this history.  We really do know that there are some key things that, certainly, will bring economic growth but are usually present when it occurs.  And resource transfers may or may not be part of it, but, usually, they are not the critical component if a country is underdeveloped and cannot use more resources directly.

 And let me just go down through them what I think they are and I believe, as they say in history, it is pretty clear, human resources, that is why the K-12 in fact is a good idea.  But it is the universities, as the senator was mentioning, the Gates Foundation has given our organization a grant to look through what we should do with agriculture university work, again, a matter that I have been interested in a long time.  But we know if you do not have the people in the country that can do things, not much is going to happen really.  And that is a long-term project - technology.

 It was just discussed - the Green Revolution - and I heartily endorse this, and I strongly think that the GMO issue has to be dealt with.  One of the organizations I chaired the board of has a much applied research work on certain crops in developing countries, and I see with the scientist there we know there are certain things that we can do with traditional plant breeding.  It is not fast, but you can do it.  We know some of that we could do faster with biotechnology but we think we should probably get there, but we know there are certain changes in plants, adaptations and so forth that without biotechnology, it is unlikely we are able to achieve.  So those adaptations to, perhaps, to drought or increase production or whatever, it gets to be very technical but we are really saying, in several areas, if we are not going to NGOs, we simply are not going to have that be available to us. 

 It is interesting; I have talked about the resource transfer approach that AID has moved into the last 20 years.  This year until, perhaps, the money will come into the supplemental to AID for this; we were going to have no money at all for international agriculture research centers to the core budget.  We, basically, have cut out over the last generation research dollars to the land-grant university agriculture research folks which were, historically, huge sources of technology. 

 You need to have more or less the right policy.  I’m not a believer and you need to help people have those policies, not try to dictate it but people need technical competence, we need training of people and so on.  I will not go into this a lot - taxing farmers by holding down their prices which we do not have as much as we did 20 years ago in Africa - a lot less, actually.  But taxing there –- the questions -- we got to be careful, for example, that the free fertilizer and some of the free fertilizer can be used -- or subsidize a fertilizer.  But if you are not careful, the government policy of free fertilizer can totally wipe out any development or can destroy whatever distribution systems the private sector has and prevent new instruments from coming into being.  So the government policy has to be reasonable.

 Next the infrastructure, in a lot of countries, it is just rural roads.  It is interesting to look back at our own country and we needed roads in this country - in the Midwest where I grew up and know well.  And you also need some big projects like the Central Corridor from Dar-Es-Salaam to Rwanda which is one of those areas considered that I believe if you get the money up front would be economically sustainable.  Some of you, historians, here will know what the Erie Canal did for the Midwest.  The Erie Canal was built and had opened up the Midwest, New York and so forth in the 1820s.  By the Crimean War in the 1850s, land prices in Michigan were impacted by the Crimean War driving up international wheat prices.  Infrastructure can be a big deal, and we do not have rivers in Africa the way we do in the United States.  It is a long involved story.

 And next, I would say, you need governments that really want to help their people.  Places like Ghana, Mali and Mozambique; those are governments that really wish to have things happen.  And I think all the rest of this is unlikely to happen if you do not have governments that want to help their people.

 I will stop there because I know we want to have time for questions, but what I submit today is that we have an opportunity to reverse the trends in the last 20 years.

 The foundation work of Gates and others are just wonderful, by the way.  The chance to reverse these trends and it is not automatic at all we will do this right, in my view.  There is such a pattern for doing it wrong periodically that we better watch this.  This cannot be just some sort of we want to help poor people.  It is long, hard and slogging but it can be done.  I’ll leave you with one last figure.  It is both sad but should give us some optimism.

 In the 1960s, the per capita income of Asia was one-half that of the per capita income of Africa.  In 1960, to say it another way, Africa had twice per capita income of Asia.  Great progress in Asia and we should be excited about it, but of course, it means we really lost out in Africa.

 Mauro De Lorenzo:  Peter McPherson, thank you very much.

 We have some time for questions before we break for lunch and discussion.  There are microphones around the room.  I propose to take three questions at a time and then we will let our panelists respond, if you could ask a question rather than making a comment.  Also, state your name and affiliation and be brief.  Those are our three rules here, I appreciate it.

 The gentleman right there and then we will come here and then I’ll try to be democratic if there is anyone on this side of the room for the third one.

 Donald Lindsey:  Don Lindsey, George Washington University.

 And I was wondering -- it does not seem to be working.

 Mauro Lorenzo:  Can you bring the other one over?

 Donald Lindsey:  Don Lindsey, George Washington University.  I was wondering if someone on the panel could address aquaculture as a source of efficient and cost-effective protein.  Obviously, it is an industry that has a lot of bad ecological practices but, I think, with some vast improvements, could possibly serve to help.

 Mauro Lorenzo:  Good.

 David, could you bring that one around here?

 Martin Apple:  May I ask?

 Mauro Lorenzo:  Please.

 Martin Apple:  My name is Martin Apple.

 Two questions - one has to do with why are we not addressing population also.  And second question is we developed this wonderful system - the CGIAR - to do agricultural research to focus on those areas that needed it most.  We built a system that was working beautifully and then we have cut the legs out from under it by defunding it, practically, completely now.  The CGIAR, we cut the legs out from under it in terms of funding, and I think that is a criminal offense of the world population towards most of the needy - food people.

 Peter McPherson:  I mentioned and I strongly feel that the CGIAR system should have been more strongly funded.  They are going through some reforms to have their research be more focused and I think that is good.  I strongly support it. 

 Two is to fish.  If you get almost a pound of food for a pound of growth in fish, it is hard to believe.  Chickens, that is, poultry is like two pounds or a little more per pound of growth and beef is five or six pounds of grain for a pound of growth.  I’m all for fish.  Now, there are a lots of issues to how to do it but fish is a very exciting and inexpensive, relatively so, source of protein.  I’m talking about pond fish here.

 Asma Lateef:  I could not agree with you more about the CGIAR, and I think part of them as we move forward that scenario that definitely needs funding not just to make up for the loss in the appropriations for this year, but a substantial increase in the research capacity of the CGIAR system.

 On the issue of population, there has been so much analysis that suggests that development is actually key to checking population growth, that education of women delays marriage and the number of babies that they have and so on, and the nutritional status of the family, and has positive benefits for the community and the country at large.  So, I think, the way we think about designing a development program is we need to be very conscious of the links there.

 Peter McPherson:  You know, I cannot help but think about 1982 here at AEI as AID administrator, I gave a speech in which I defended myself on the basis of that (1) AID should not be supporting abortions but (2) we have a very active and growing family planning program based in part upon the idea that family planning reduced abortions.  And also, though, that women want the availability of family planning and that, in fact, it was an important part of the total growth equation. 

 I remember that speech –- you were in the same building here, too.  It is always nice to come back to say hello.

 Mauro Lorenzo:  Thanks.  We will take another round right here on the corner.  Could you come around here first, please?

 Alison Fitzgerald:  Hi.  Given some of the things that you said –- 

 Mauro Lorenzo:  Could you identify yourself.

 Alison Fitzgerald:  Oh, Alison Fitzgerald with Bloomberg.

 Given some of the statements that you have said today, do you think policies by AID and other development institutions like the World Bank and the IMF encouraging trade and encouraging growth of cash crops has made the situation worst in Africa for agriculture in terms of smallholder farmers and local growth for food?

 [Speaks away from microphone]

 Anne Krueger:  Yes.  Well, first off, I do not think there has been -- put it the following way, encouragement for the small farmers in the rural areas we have been talking about to do it because as was pointed out, they are net users, buyers of food.  They are not net sellers.  And I think, as was discussed earlier in the panel and earlier today by Senator Lugar as well, one of the problems has been is that each country has not engaged enough in the international community. 

 There has, as Peter said, been an issue right along that we have basically had these governments taxing farmers and if they would open up to international trade, they would have been giving them better prices.  The problem has diminished but not gone away.  But I think you would find that many of them were historically agricultural exporters and they have become net importers.  So moving back to some kind of realistic system along with the kinds of issues that we have mentioned in terms of the things government should be doing, providing the roads and things like that, would make a huge difference.  But the opening up to trade, by and large, has been salutary and the countries that have done it have done better.

 Namanga Ngongi:  Well, I would say that trade as trade is not bad.  But I think, Mr. McPherson said an important thing.  There are a lot of policies where they are put together special structural adjustment in many countries.  I come from Cameroon.  When it was being implemented in Cameroon, how many people understood actually what these programs were about and how to implement them.  So I think there was a lot of lock-stock-and-barrel acceptance of policy which were not adapte