How a little help from above keeps food prices lower

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Confusing tales of morality infused the United Nations food price index press conference Thursday morning in Rome.

The morality of allowing "financial speculators" to play in the food commodities market was roundly condemned by the directors assembled at the UN Food and Agriculture Organization (FAO) event. Jomo Sundaram, the FAO's assistant director-general for economic and social development, noted that some food price spikes, like the infamous one in 2008 that triggered riots in dozens of poor countries, were "largely due to financial speculation."

He is no doubt right. To its credit, the FAO and other international organizations urged what Mr. Sundaram called "moral restraint" to try to banish the speculators for the global food temple. Even the Vatican joined the anti-speculator campaign, noted FAO director-general Jose Graziano da Silva. "These actions were very important," he said.

It appears to have worked, at least somewhat. The latest FAO food index, for August, was unchanged from July – welcome news for developing countries and emergency food-aid organizations who feared the planet was on the verge of another food-price surge. The index, which measures everything from cereals to sugar, now stands at 25 points below its all-time peak of 238 points in February, 2011, and 18 points below the level of 12 months ago. Credit a sharp fall in sugar prices and no increase in cereal prices. Corn (maize) prices, which had soared in the United States because of one of the worst droughts since the Second World War, finally came down after the rains returned in the latter part of August.

The morality of using corn to feed cars, not people, was a different issue. The American practice of growing ever increasing amounts of corn to make ethanol-gasoline blends for transportation is probably not liked by the FAO, but its officials decline to condemn the practice as forcibly as they condemn financial speculation in the agriculture markets.

Just as there is no doubt that speculators contributed to the stunning food-prices rises since the middle part of the last decade, there is no doubt that ethanol mandates in the United States, which is responsible for 40 per cent of the world's corn export market, have jacked up the prices used for human and cattle consumption. On Thursday, Oxfam again called on governments to "end the biofuels mandates which convert food into fuel."

The UN food agencies – there are three in Rome – have been rather mealy mouthed about the rapidly expanding corn-based ethanol industry. This might be because the United States is always among the very top contributors to the food agencies, and Washington tends to listen to the all-powerful U.S. corn lobby. Financial speculators do not fund the food agencies and can be ignored.

Mr. da Silva is urging governments "to be more flexible on bio-fuels mandates," as he put it on Thursday. His hope, apparently, is that the mandates that require gasoline to be mixed with a certain amount of ethanol in the United States and elsewhere will be relaxed, or at least not boosted.

The FAO stance is a good start, one that should have been made clear many years ago, as the ethanol rush was getting underway. But it's still a far cry from outright condemning the use of corn for fuel. If the UN is truly concerned about high corn prices, it should go after ethanol mandates with the same vigour that it went after food speculators.