In the throes of the financial meltdown, it's easy to forget that at this time last year we were in the midst of another serious crisis that's still lurking in the background: a global food crisis. In the first half of 2008, food price increases were sharp and steep, pushing the number of malnourished people on this planet up from 850 million to well above one billion.

Global financial instability and speculative financial trading were in large part responsible for driving up food prices in the first place. As the dollar value fell in 2007 and 2008, hedge funds and institutional investors began to invest heavily in commodity index funds, which include agricultural commodities futures. The massive movement into these types of investments naturally drove up prices of the commodities on which they were based. It was, in fact, a food price bubble, rather than a global shortage of food, behind last year's food price spikes.

The financial collapse that began last fall saw commodity investors scrambling to sell, and grain prices on international markets fell back to more normal levels. However, this is no reason for complacency. The food crisis is far from over. The global economic crisis is setting the stage for even greater food insecurity, especially in the world's poorest countries.

For developing countries that depend on food imports, which include most African countries, the current economic downturn has meant fewer available resources to finance food imports. Tight local supplies have meant rising food prices within these countries, even though international food prices have eased.

The effects have been devastating. Poor people in developing countries spend 50 to 80 per cent of their income on food. Food insecurity is likely to become even greater as the economic crisis drives up unemployment.

The economic crisis has also dried up sources of farm credit used to pay for agricultural inputs like fertilizer, seeds and fuel. Farmers around the world are already planting less this season in response to the absence of available financing.

Given these trends, the global food security outlook at the present time is not promising. While the food crisis of 2008 may have been the result of a price bubble, the food crisis of 2009 and beyond could be far more serious and much more difficult to address.

Although G8 agriculture ministers met recently to discuss the current food crisis, little was agreed beyond broad statements that the global food security outlook is grim. By failing to make new pledges and strike a bold new direction, an important opportunity for averting an intensification of the food crisis was lost.

What is needed is nothing short of a global agricultural new deal. Four elements of this new deal are vital:

First, in the short run international food aid needs not to merely increase, but it will also have to be more flexible. International food aid tonnages have fallen in recent years to their lowest levels since the early 1960s. For the amount of aid offered to shrink just as the numbers of hungry grow is simply not acceptable. Much of the current provision of food aid is also still tied to donor-grown commodities. Purchasing food from small farmers in regions where hunger is greatest and giving that food as aid for the neediest is not only a more efficient use of donor dollars, but also supports farmer livelihoods in poor countries.

Second, volatility on international commodity markets needs to be tempered with the introduction of new financial regulations to prevent large scale opportunistic investment in essential commodities, such as food. The U.S. is currently reviewing potential legislation to regulate commodities trade, but a global agreement along these lines is also essential.

Third, there is a need for a significant increase in investment in agriculture, including credit provision for the world's poorest farmers and research into sustainable farming methods for a world affected by climate change. We have witnessed a steep and steady decline in agricultural investment in poor countries over the past 30 years, and a significant and sustained effort is required to reverse that trend. Food and Agriculture Organization director-general Jacques Diouf has called for an additional $30 billion US for the sector. Rich countries must not be allowed to use the economic crisis as an excuse to cut back assistance.

Finally, there is a desperate need for more balanced international trade rules. There is wide agreement that the current rules have worked against the interests of the world's poorest farmers. Talks at the World Trade Organization have been stalled on and off for the past eight years, stuck on the issue of agricultural trade. New rules are vital to end the trade distortions that work against farmers in developing countries.

Global leaders must not forget the importance of food security in the midst of the current economic crisis. The cost of averting an intensification of the food crisis by taking measures in these four key areas is minuscule compared to the money currently going toward bank bailouts and economic stimulus packages in the world's richest countries. The world's poorest people have borne the brunt of the economic crisis, yet they are the least responsible for it. A global new deal for agriculture could start to reverse that trend.

Jennifer Clapp is CIGI chair in international governance at the Balsillie School of International Affairs and a professor of environment and resource studies at the University of Waterloo.


The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.