An International Monetary Fund (IMF) mission team, led by Mr. Robert Corker, visited the Federal Democratic Republic of Ethiopia during May 7-19, 2008, to conduct discussions for the 2008 Article IV consultation. At the conclusion of the visit, the mission issued the following statement:
"Ethiopia has recorded impressive growth during the past few years—the fastest for a non-oil exporting country in Sub-Saharan Africa. Growth has been supported by structural reforms and infrastructure development, as well as favorable agricultural conditions. Rapid growth has contributed to poverty reduction and progress toward the Millennium Development Goals (MDGs). However, it has also been accompanied by rising pressures on prices and international reserves, exacerbated by sharply higher world oil prices. In March, the 12-month increase of overall inflation was 30 percent, with food price rises of 40 percent (year on year) having a particularly strong negative impact on the urban poor. Reserves were below 2 months of imports.
"The consultation discussions focused on policies to reduce inflation while preserving the growth momentum. In this regard, the mission supports the authorities' objectives to return to single-digit inflation and rebuild reserves to three months of imports. It recognizes the measures taken so far to achieve these objectives, including through actions to slow broad money growth to below 20 percent.
"To place inflation on a firmly declining path the mission advised the authorities to support efforts to reduce monetary growth through a tightening of fiscal policy in FY2008/09 (July-June). It also recommended the authorities seek additional external financing on a grant or concessional borrowing basis to buffer the severe effects of high world oil prices on the balance of payments and soften the impact of domestic policy tightening on economic activity. Such financing, for example, could facilitate needed investments in the power sector without crowding out private domestic borrowing.
"Over the medium term, the mission expressed support for the government's overall strategy to strengthen the foundations for growth—with an increasing role for the private sector—while preserving macroeconomic stability. Key aspects include scaling up public sector investment in infrastructure, health and education, while maintaining a sustainable debt position, and boosting overall economic activity through commercialization of agriculture and fostering the non-farm private sector.
"The mission emphasized that it will be critical to strike a judicious balance between demand-dampening and growth-enhancing measures in the next few years to achieve macroeconomic stability and permit a return of international reserves to a comfortable level. This will allow the Ethiopian economy to become more resilient to shocks.
"The mission would like to thank the authorities for frank and open discussions, as well as the warm hospitality extended to the team."
Rising Food Prices Revolution needed to meet coming food demands
By Alex Evans and Eyasu Solomon
April 2008
Food prices are rising fast. In 2006, the FAO food price index rose by an average of 9 per cent compared with the previous year. By 2007, that figure had increased to 23 percent – 37 per cent if December 2007 is compared with December 2006. Over the last three years, according to the World Bank, global food prices have increased by 83 percent. While high price events are not unusual in agricultural markets – even if food prices stabilize at 25 per cent above their 2001 level, this would still only bring them to early 1990s levels – the unusual feature of the current situation
is that the price spike applies to almost all major food and feed commodities, rather than just a few of them. The move to current price levels has also been unusually sudden. As recently as 2005, the Outcome Document from the UN World Summit noted the need to ‘address the impact of weak and volatile commodity prices and support the efforts of commodity-dependent countries to restructure, diversify and strengthen the competitiveness of their commodity sectors’. Less than three years later, corn is at around its highest level in 11 years, rice and Soya are at their highest level in 34 years, and wheat – like crude oil and gold – has recently touched its highest level ever. This briefing paper focuses on what this important change means for international development. It starts by assessing the drivers of rising prices, noting that while in the short term the pressure is on the demand side, a suite of ‘scarcity issues’ – climate change, water scarcity, energy security, pressure on land – will increasingly affect the supply side over the longer term. The paper then discusses the implications of higher prices for developing countries, before setting out a brief survey of implications for development policy, focusing in particular on humanitarian assistance, but also touching on increasing supply, helping low income countries to benefit from rising prices, scarcity issues, trade and the question of fair shares.
At present, the main drivers of increasing prices are on the demand side. Historically, demand growth for food has been about 1. 5 per cent each year; now, however, it has risen to 2 per cent, and Goldman Sachs estimate that it will be as high as 2. 6 percent within a decade. The World Bank estimates that food production will need to grow by another 50 per cent by 2030 (and 85 percent for meat) to fulfill projected demand. A particularly important part of the picture has been rapidly rising income growth, notably in emerging economies such as China and India. Joachim von Braun, Director General of the International Food Policy Research Institute (IFPRI), argues that high income growth accounts for perhaps half of the recent increases in food prices. As middle classes grow more affluent, food consumption patterns change too – often towards diets richer in meat and dairy products that are much more intensive in terms of both grain and water use. The role of bio fuels as a source of demand for grain has also been a significant element of recent food price rises (von Braun estimates 30 per cent of the picture). The US already spends $7 billion a year supporting ethanol. This consumes 20 per cent of America’s corn crop – a figure likely to rise to 32 per cent by 2016. Looking ahead, the EU has a target for 10 per cent of its transport fuel to come from bio fuels by 2020, while the US has proposed a target of 36 billion gallons of renewable fuel by 2022. But there are also supply factors in play. In the shorter term, one issue is that food supply is quite inelastic, i.e. supply responds relatively slowly to increases in demand. IFPRI estimate that aggregate agricultural supply increases by only about 1–2 percent for each 10 per cent increase in price – and by even less when (as now) prices are very volatile. The problem of reduced exports from important food producers (such as India, Argentina and Kazakhstan) is also problematic, especially when matched by importing countries seeking to purchase larger than normal volumes of food in order to build up stockpiles. Another shorter term supply-side issue is that some current price volatility is attributable to speculative investors seeking safety in commodity markets from the weak dollar and from falling equity and bond markets – although opinion is divided over how significant a factor this is. There is also the factor of low inventory stocks, which explains some of the current market volatility. In the short term, food prices look set to ease somewhat, particularly if (as now seems likely) the northern hemisphere enjoys a good wheat crop. But in the longer term, four more fundamental supply-side factors – which might collectively be termed ‘scarcity issues’ – are already starting to make themselves felt, and are likely to become more significant. First, the costs of agricultural inputs – and especially energy – are rising. Today’s global agricultural system is predicated on the availability of cheap, readily available energy, for use in every part of the value chain: both directly (e.g. cultivation, processing, refrigeration, shipping, distribution) and indirectly (E.g. manufacture of fertilizers, pesticides – the cost of urea, a fertilizer, has almost tripled since 2003). But as noted earlier, oil prices are already at their highest ever level; many analysts expect them to stay relatively high over the medium to long term. In addition, since food can now be converted into fuel, there is effectively an arbitrage relationship between the two, implying an ongoing linkage between food and fuel prices. Second, water scarcity is likely to become a more pressing issue. Global demand for water has tripled in the last 50 years; 500 million people live in countries chronically short of water, and this number is likely to rise to 4 billion by 2050. A particular worry is depletion of limited groundwater resources, on which some parts of the world including the US, Egypt, Pakistan, India and China – have been enjoying a ‘free ride’ for the past two or three decades. Third, there is the issue of land availability. Some commodities analysts argue that whereas historical increases in demand have been met through increasing yields, in future an expansion of acreage will also be required. However, this will be expensive, given the infrastructure investment involved; there may also be diminishing returns, since much of the best land is already under cultivation. Above all, there is simply increasing competition for what land there is, including food, feed, fibre (e.g. timber, paper), fuel, forest conservation, carbon sequestration and urbanization, on top of high rates of soil loss to erosion and desertification.
The FAO estimates that there is at most 12 per cent more land available that is not already forested or subject to erosion or desertification, and that 16 percent of arable land is already degraded. The fourth, and perhaps most fundamental, factor is climate change. Overall, the International Panel on Climate Change (IPCC) projects that global food production could rise if local average temperatures increase by between 1 and 3 degrees Celsius, but could decrease above this range. Crucially, however, this is before extreme weather events are taken into account; and the IPCC judges that extreme weather, rather than temperature, is likely to make the biggest difference to food security. Glacial melting will affect agriculture as well: the IPCC estimates, for example, that many Himalayan glaciers could disappear by 2035, with catastrophic results for Chinese and Indian agriculture during the dry season. Its assessment is also that
‘climate change increases the number of people at risk of hunger’, and will lead to an increase of between 40 million and 170 million in the number of undernourished people. Many of these factors, on both the supply and the demand side, also apply to fisheries and aquaculture. Demand for fish and seafood is rising sharply, again largely because of increasing affluence. But while the FAO estimates that an additional 40 million tonnes of aquatic food a year will be needed by 2030, it also notes that catches of wild fish have remained roughly stable since the mid-1980s, at around 90 million tonnes a year, and forecasts that this figure is unlikely to rise substantially.
These underlying trends will place increasing emphasis on aquaculture, which last year accounted for 43 per cent of fish consumption (up from just 9 per cent in 1980). However, future expansion of the sector will depend not only on increasing investment capital, but also on availability of land, fresh water and energy –which as noted above, are all already subject to stresses of their own.All in all, the jury is still out on whether recent food price rises will be sustained or not. Many commentators, including the World Bank, estimate it will take ‘several years’ for supplies to increase to rebuild stocks and allow prices to fall. However, over the longer term, structural factors – a population forecast to rise to 9.2 billion by 2050, rising affluence and the four ‘scarcity trends’ referred to above – suggest the possibility of a structural, rather than merely cyclical, shift. Models from both IFPRI and the US Department of Agriculture show that while food prices will not rise much more over the next decade, they are also unlikely to fall significantly.
Rising food prices will hit poor countries and poor people hardest, and will present an obvious impediment to achieving the Millennium Development Goal of halving hunger by 2015. The FAO has already announced that 36 countries are in crisis in terms of food security, and will need external assistance; of these, 21 are in Africa (although not all of them have been affected equally).Poor people typically spend a high proportion of their income on food purchases: Oxfam put this figure at around 50–80 per cent. Of particular concern are landless poor people in rural areas. Most poor people are rural, and most rural poor people are net food buyers, who are unlikely to be compensated fully by additional employment as agriculture grows, or by higher wages. However, the extent and rapidity of current rises mean that urban populations are also being hit, as World Food Programme head Josette Sheeran recently noted: ‘There is food on shelves but people are priced out of the market. There is vulnerability in urban areas we have not seen before.’
High food prices are already posing extensive challenges to the provision of humanitarian aid. The World Food Programme currently feeds 73 million people in 78 countries (less than a tenth of the world’s undernourished). Its agreed budget for 2008 was $2.9 billion, but rising costs – for logistics as well as for food itself – mean that, according to the WFP, this level will not even cover current deliveries and at least $500 million more will now be needed. Josette Sheeran raised the possibility in a recent interview that the agency would have to look at ‘cutting the food rations or even the number of people reached’ if the additional funding were not forthcoming. Improvements in aid quality are needed too: humanitarian aid still needs to shift to a proactive insurance model from its current reactive configuration. Although the Central Emergency Response Fund – in which funds are allocated before emergencies – is likely to meet its 2008 target of $500 million, this remains a small proportion of the overall requirement. Humanitarian requirements in 2007 were $4 billion, for example, and the older, more reactive Consolidated Appeals Process remains the main window for funding.
Numerous countries have already reacted to rising food prices with concern and a broad range of policy interventions designed to address the situation. The approach taken by most countries so far (Azerbaijan, Bangladesh, Bosnia, China, Egypt, Ethiopia, the EU, Ghana, India, Indonesia, Mexico, Morocco, Nigeria, Peru, the Philippines, Russia, Taiwan and Turkey) has been to reduce or eliminate import tariffs. However, at least some of these reductions in import tariffs have been offset by the imposition of additional export tariffs or quotas by other countries – some of them major producers – in order to reduce domestic prices (Argentina – where the move has led to major unrest among farmers – China, India, Kazakhstan, Ukraine and Vietnam). Among other approaches currently being tested are making purchases to establish or replenish stockpiles and strategic reserves – which in turn increases pressure on prices (Iraq, Malaysia, Turkey and the UAE); increasing subsidy levels (Egypt, India and Oman); capping prices (China, Russia and Thailand); and examining the possibility of introducing rationing (Malaysia and Pakistan).Various countries have witnessed protests, riots or other forms of civil unrest that are at least partly attributable to rising food prices. At the time of writing, some of the most serious disturbances so far have been in Egypt, Haiti and Lebanon; unrest has also been experienced in Burkina Faso, Cameroon, China, Côte d’Ivoire, Guinea, Mauritania, Mexico, Morocco, Mozambique, Niger, the Philippines, Senegal, Uzbekistan, Vietnam and Yemen. As these lists show, rising food prices are of concern in every part of the world, and so far there is little consensus among governments on what to do about the issue. Currently most donors appear to be in information- gathering mode themselves, although World Bank President Bob Zoellick has called for a ‘new deal’ on food, including a recommendation that countries investigate cash transfers targeted at poor consumers, rather than the less efficient option of regulating food prices across the entire economy. There is significant scope for donors to help developing countries to share information on which approaches have worked where.
The World Bank has argued that more expensive food imports will disrupt the trade balances of relatively few countries, because the majority will see largely offsetting gains in other commodity exports; from the Bank’s perspective, the countries most adversely affected include Jordan, Egypt, the Gambia, Lesotho, Djibouti and Haiti. However, the impact of rising food prices needs to be looked at in tandem with concurrently rising energy prices, which are also imposing strain on many importing countries. An International Energy Agency study in December 2007 found that the rising cost of oil had already wiped out the benefits of increased aid and debt relief to 13 non-oil-producing African countries including South Africa, Ghana, Tanzania, Ethiopia and Senegal. According to the IEA, the increased cost of oil bought by these countries since 2004 was 3 per cent of their combined GDP – more than the total sum of debt relief and aid they had received over the past three years. If the combined effect of higher food and energy prices is to create balance-of-payments problems for countries, the question of compensatory financing may emerge as a significant issue. So far, the International Monetary Fund reports that demand for financing from funding windows such as the Exogenous Shocks Facility has been low, although critics retort that this is at least in part because of the significant conditionality attached to such lending. It is also important to note that funding windows designed to provide liquidity on shocks such as sudden changes in terms of trade are built on the assumption that such shocks will be short-lasting. If – as suggested earlier – food prices have risen as a result of a longer- term structural shift, then there are open questions about how quickly countries taking out loans will be able to pay them back, potentially heightening pressure to increase the concessional element of such loans.
What does all this mean for policy-makers – and especially? For donors?
Start with what rising food prices mean for the humanitarian system, where short-term pressures are likely to be most acute. First, consider the issue of aid volume in the context of humanitarian assistance. As noted earlier, the World Food Programme has called urgently for an additional $500 million. Given the scale of recent food price increases, it does appear likely that additional funds will be needed just to maintain current levels of food assistance. It would be of particular concern if the US were to follow up on suggestions that it might reduce the amount of food aid it provides to the WFP as a result of rising prices and costs, given that the US is by some distance the largest donor to the programme.(Washington is reported to have told the WFP that it is facing a 40% increase in food commodity prices compared with last year, and hence will ‘radically cut’ the amount it gives away – although more recently it has announced a $200 million increase in food aid, suggesting that this risk may have abated somewhat. But at the same time, more specificity is needed on how the WFP’s headline figure breaks down. It would be useful, for example, to know how the $500 million would be distributed between different types of aid (such as food aid, vouchers or cash transfers), and between which recipient countries. It is also essential that the WFP’s call for additional funds be set in the context of the needs of the UN humanitarian system as a whole, given that the programme accounts for only around half of total global food aid.52 While there is no doubting the WFP’s effectiveness in setting out its case, donors also need to hear from other multilateral agencies (notably UNICEF, the UN Development Programme, FAO and the World Health Organization), and ensure that OCHA (the UN’s Office for the Coordination of Humanitarian Affairs) is in the lead on coordinating funding calls as well as other emergency action from across the sector. This raises the question of wider humanitarian
system coherence. While progress was made in 2005 on Strengthening OCHA’s coordination role at global level, on the role of Humanitarian Coordinators in country and in the use of pooled funding arrangements, much remains to be done. The WFP has much to contribute here. It is fair to say that at the time of the UN High Level Panel on System-Wide Coherence in 2006, the WFP was not among the principal enthusiasts for a more coherent approach. But as the humanitarian system moves into a demanding context with the potential for faster-paced operations, better interagency coherence becomes more important than ever. On a related note, it would be interesting to explore the possibility of a ‘one UN’ initiative on food security, which could bring a harmonized approach to bear both at the global level and in specific countries (UNDP’s office in Yemen has already been approached by the government with a view to piloting such an approach). Such an initiative might bring together the WFP, FAO, IFAD, UNICEF,UNDP and WHO, and focus on developing and mobilizing resources for a package of policies and programmes, potentially for presentation at the Secretary-General’s summit meeting on the Millennium Development Goals in New York in September 2008. Another important current issue is changing ways of giving humanitarian assistance. As noted earlier, many donors (including the WFP) are increasingly focusing attention on social protection programmes, given that poor countries tend to lack social welfare systems – a deficit that places many poor people with precarious livelihoods at acute risk from economic shocks and stresses. For such vulnerable people, access to food is as important as the availability of food, and social protection programmes can play an important role in closing the gap. But it is important to stress that the current enthusiasm for social protection approaches is relatively novel, and that the evidence base on the effects and challenges of such projects is not yet as extensive as it could be. In particular, humanitarian donors need to be acutely aware of the political impact of a large-scale shift towards the provision of safety nets. If donors provide cash or food directly – as opposed to through national governments – then there is a potential risk of diluting states’ own accountability to their citizens. Better answers are also needed to questions about the potential inflationary impact of some social protection measures, the best combination of cash and in-kind transfers, what kind of targeting and conditionality works best, and so on. It is too soon to see social protection systems as any kind of panacea to the issue of high food prices. Donors should also assess carefully what the value added would be of the WFP’s moving into wider social protection, given the humanitarian sector’s relatively limited experience of social safety nets, and the extent of the organizational change and shift away from traditional core business that this would imply for the WFP. In the background lies the question of what it will mean for humanitarian assistance if (as considered earlier in this paper) the recent shift to higher food prices is structural rather than just a blip – if, in other words, this is the ‘new normality’. At present, around 850 million people are classified as ‘food insecure’. At times of peak demand, humanitarian agencies have been able to feed about 100 million people at the very most. If a longer-term effect of changes in world food markets were to increase the number of people in need of humanitarian assistance significantly beyond that level, then it is not clear that the humanitarian system would have the capacity and knowledge to respond, even if sufficient financial resources were available. It is therefore essential that in addition to coping with the current short-term turbulence in food markets, donors make a sustained effort to ask ‘what if?’ questions and plan for further contingencies.
As discussed above, the implications of higher food prices extend far beyond humanitarian assistance. The Suddenness with which the issue has emerged has raised not only the political stakes, but also the risk of knee-jerk policy responses. Meanwhile, the complexity of the drivers of rising food prices makes a comprehensive approach essential – while also increasing the likelihood of unintended consequences from policy responses. Policy-makers therefore face an awkward and hazardous balancing act between the urgency of responding, on the one hand, and taking enough time to understand the consequences of what they are doing, on the other.
The remainder of this paper identifies some of the larger policy questions that arise for aid donors. In most cases it does not attempt to answer them; at this stage, the aim is to build the evidence base and to act as a catalyst for more intensive and thorough conversations, involving a wider range of actors, with the objective of building shared awareness around the issue. With that caveat stated, consider the following issues: Increasing supply. Perhaps the hardest question is how the world is going to increase food supply to meet the huge rise in anticipated demand noted at the beginning of this paper. Much work needs to be done, quickly, to figure out where this increase is going to come from (both geographically, and in terms of new agricultural techniques and technologies), and what needs to be done to make it happen. An urgent first step towards increasing the available food supply should be to ensure that production of biofuels does not undermine food security – an issue now acknowledged by President Bush, who has commented that ‘If you look at what is happening in corn, you’re beginning to see the food issue and the energy issue collide.’ While an outright ban would probably be unwieldy and undesirable, discussion of basic standards for bio fuels production – with food security at their heart – should be an early priority for policy-makers. Helping low income countries to benefit. While supply increases in the shorter term are likely to come from existing ‘breadbasket’ countries such as the US, Canada, Russia, Ukraine, Brazil and Argentina, there is longer-term potential for lower-income countries to play a significant part as well – especially in Africa, largely bypassed by the first Green Revolution, where productivity remains far lower than in other regions .But although poor countries should in theory be able to benefit from rising prices for agricultural commodities, the reality is that they are held back by poor infrastructure, the need for better access to technology and finance, restrictive supply chain standards and other barriers as well. Aid donors therefore need to be clear about how crucial their role will be in this. Until recently, agriculture was seen as a rather unfashionable relic of the past in many donor agencies (and perhaps especially in their country offices). That needs to change quickly: donors need to invest heavily in programme aid – and in many cases, rebuilding their own capacity – in rural development. Managing scarcity. Donors will also need to be capable of helping countries to devise integrated strategies for managing scarcity in land, water, energy, food and the effects of climate change. The first step towards this is mainstreaming throughout donor agencies a much better sense of how these scarcity trends link to each other – as they all do, frequently in subtle and complex ways. On top of that, donors need to integrate scarcity issues more thoroughly into their governance and economic analyses (as underlined by the role of land disputes as a catalyst for the recent post-election violence in Kenya). Within the specific context of food, a good starting point would be to build a much more comprehensive picture of the overall resource footprint of different foods (and in the process, move the debate on from its current unsophisticated focus on the minutiae of specific variables, such as ‘food miles’). Trade. Donors also need a clearer picture of the trade dimensions of the current food prices issue. As noted earlier, the current picture of food-focused trade measures is growing more complex by the day, as importers lower import tariffs even as exporters raise export tariffs. Meanwhile, some countries – including China – are apparently exploring the potential for bilateral food supply arrangements, of the kind already becoming more common in energy supply. Other countries are displaying enthusiasm for import substitution policies – most notably the Philippines, which has announced its intention to move from being one of the world’s largest importers of rice to self-sufficiency within just three years. Donors and development advocates need to find their way towards a renewed strategic stance on agricultural trade. Even before food prices began their sharp increase, there was lively debate in the donor community about the extent to which agricultural trade liberalization would in practice benefit low-income countries. That debate is now further complicated by the fact that even if liberalization is desirable in principle, careful attention will need to be paid to the need to sequence reforms, in order to avoid (for example) the risk that rapid elimination of Common Agricultural Policy export subsidies could increase food prices in developing countries. Finally, there is the elephant in the room: the long-term question of fair shares, pithily illustrated in a recent cartoon in the US in which a portly man in a suit takes a maize cob out of an African child’s food bowl, with the speech bubble, ‘Excuse me. I’m going to need this to run my car.’ Inequality between countries is falling for the first time in a generation. From 2003 to 2007, per capita income grew faster in every region of the South than in developed countries: hardly news in East and South Asia, but a major shift in Latin America and Africa. In 1980 developed-country GDP was 23 times higher than in developing countries; in 2007 it was 18 times higher. Yet even as inequality between countries falls, it is rocketing within them – particularly within developing countries, and above all in emerging economies such as China, where the difference between the top 20 per cent and the bottom 20 per cent has grown by 40 per cent over the last three years.
In his book Development as Freedom, Amartya Sen observes that ‘the focus has to be on the economic power and substantive freedom of individuals and families to buy enough food, and not just on the quantum of food in the country in question.’ Later, he observes that ‘[some] who buy food may be ruined because the real purchasing power of their money incomes may have shrunk sharply. Such a famine may occur without any decline in food output, resulting as it does from a rise in competing demand rather than a fall in total supply.’ Now, Sen’s questions may be starting to apply at the global level. Even while the line between developed and developing countries grows more blurred with each passing year, the gulf between the haves and the have nots has never looked wider. In a context of increasing tightness of food supply – which is likely to grow further as population, affluence and scarcity trends all continue to rise – we may well reach a situation in which relative inequality can have absolute implications for the world’s poor, and in which a burgeoning global middle class inadvertently takes food beyond the purchasing power of the world’s poorest people. Indeed, we may already be there.
This is a time of massive change for global food policy, in developed as well as developing countries. In addition to the concerns discussed in this paper about what higher food prices mean for poor people, there are questions about environmental standards; obesity and health; animal welfare; competitiveness, between countries and companies; the security of globalized ‘just-in-time’ supply chains; and numerous other issues. At the heart of these debates is the deceptively simple question: what should global food policy be trying to achieve? We need to be clear at the outset about the nature of the choices that we face. There are real tradeoffs between different potential objectives in food policy – such as competitiveness for consumers, security of supply, environmental conservation, local sourcing. That raises the question: who is the ‘we’ that decides the shape of 21st-century food policy? Who has the power to make choices?
Evans & Eyasu can be reached at alex.evans@JHU.edu&EYASOL@AOL.com
April 2008
Food prices are rising fast. In 2006, the FAO food price index rose by an average of 9 per cent compared with the previous year. By 2007, that figure had increased to 23 percent – 37 per cent if December 2007 is compared with December 2006. Over the last three years, according to the World Bank, global food prices have increased by 83 percent. While high price events are not unusual in agricultural markets – even if food prices stabilize at 25 per cent above their 2001 level, this would still only bring them to early 1990s levels – the unusual feature of the current situation
is that the price spike applies to almost all major food and feed commodities, rather than just a few of them. The move to current price levels has also been unusually sudden. As recently as 2005, the Outcome Document from the UN World Summit noted the need to ‘address the impact of weak and volatile commodity prices and support the efforts of commodity-dependent countries to restructure, diversify and strengthen the competitiveness of their commodity sectors’. Less than three years later, corn is at around its highest level in 11 years, rice and Soya are at their highest level in 34 years, and wheat – like crude oil and gold – has recently touched its highest level ever. This briefing paper focuses on what this important change means for international development. It starts by assessing the drivers of rising prices, noting that while in the short term the pressure is on the demand side, a suite of ‘scarcity issues’ – climate change, water scarcity, energy security, pressure on land – will increasingly affect the supply side over the longer term. The paper then discusses the implications of higher prices for developing countries, before setting out a brief survey of implications for development policy, focusing in particular on humanitarian assistance, but also touching on increasing supply, helping low income countries to benefit from rising prices, scarcity issues, trade and the question of fair shares.
At present, the main drivers of increasing prices are on the demand side. Historically, demand growth for food has been about 1. 5 per cent each year; now, however, it has risen to 2 per cent, and Goldman Sachs estimate that it will be as high as 2. 6 percent within a decade. The World Bank estimates that food production will need to grow by another 50 per cent by 2030 (and 85 percent for meat) to fulfill projected demand. A particularly important part of the picture has been rapidly rising income growth, notably in emerging economies such as China and India. Joachim von Braun, Director General of the International Food Policy Research Institute (IFPRI), argues that high income growth accounts for perhaps half of the recent increases in food prices. As middle classes grow more affluent, food consumption patterns change too – often towards diets richer in meat and dairy products that are much more intensive in terms of both grain and water use. The role of bio fuels as a source of demand for grain has also been a significant element of recent food price rises (von Braun estimates 30 per cent of the picture). The US already spends $7 billion a year supporting ethanol. This consumes 20 per cent of America’s corn crop – a figure likely to rise to 32 per cent by 2016. Looking ahead, the EU has a target for 10 per cent of its transport fuel to come from bio fuels by 2020, while the US has proposed a target of 36 billion gallons of renewable fuel by 2022. But there are also supply factors in play. In the shorter term, one issue is that food supply is quite inelastic, i.e. supply responds relatively slowly to increases in demand. IFPRI estimate that aggregate agricultural supply increases by only about 1–2 percent for each 10 per cent increase in price – and by even less when (as now) prices are very volatile. The problem of reduced exports from important food producers (such as India, Argentina and Kazakhstan) is also problematic, especially when matched by importing countries seeking to purchase larger than normal volumes of food in order to build up stockpiles. Another shorter term supply-side issue is that some current price volatility is attributable to speculative investors seeking safety in commodity markets from the weak dollar and from falling equity and bond markets – although opinion is divided over how significant a factor this is. There is also the factor of low inventory stocks, which explains some of the current market volatility. In the short term, food prices look set to ease somewhat, particularly if (as now seems likely) the northern hemisphere enjoys a good wheat crop. But in the longer term, four more fundamental supply-side factors – which might collectively be termed ‘scarcity issues’ – are already starting to make themselves felt, and are likely to become more significant. First, the costs of agricultural inputs – and especially energy – are rising. Today’s global agricultural system is predicated on the availability of cheap, readily available energy, for use in every part of the value chain: both directly (e.g. cultivation, processing, refrigeration, shipping, distribution) and indirectly (E.g. manufacture of fertilizers, pesticides – the cost of urea, a fertilizer, has almost tripled since 2003). But as noted earlier, oil prices are already at their highest ever level; many analysts expect them to stay relatively high over the medium to long term. In addition, since food can now be converted into fuel, there is effectively an arbitrage relationship between the two, implying an ongoing linkage between food and fuel prices. Second, water scarcity is likely to become a more pressing issue. Global demand for water has tripled in the last 50 years; 500 million people live in countries chronically short of water, and this number is likely to rise to 4 billion by 2050. A particular worry is depletion of limited groundwater resources, on which some parts of the world including the US, Egypt, Pakistan, India and China – have been enjoying a ‘free ride’ for the past two or three decades. Third, there is the issue of land availability. Some commodities analysts argue that whereas historical increases in demand have been met through increasing yields, in future an expansion of acreage will also be required. However, this will be expensive, given the infrastructure investment involved; there may also be diminishing returns, since much of the best land is already under cultivation. Above all, there is simply increasing competition for what land there is, including food, feed, fibre (e.g. timber, paper), fuel, forest conservation, carbon sequestration and urbanization, on top of high rates of soil loss to erosion and desertification.
The FAO estimates that there is at most 12 per cent more land available that is not already forested or subject to erosion or desertification, and that 16 percent of arable land is already degraded. The fourth, and perhaps most fundamental, factor is climate change. Overall, the International Panel on Climate Change (IPCC) projects that global food production could rise if local average temperatures increase by between 1 and 3 degrees Celsius, but could decrease above this range. Crucially, however, this is before extreme weather events are taken into account; and the IPCC judges that extreme weather, rather than temperature, is likely to make the biggest difference to food security. Glacial melting will affect agriculture as well: the IPCC estimates, for example, that many Himalayan glaciers could disappear by 2035, with catastrophic results for Chinese and Indian agriculture during the dry season. Its assessment is also that
‘climate change increases the number of people at risk of hunger’, and will lead to an increase of between 40 million and 170 million in the number of undernourished people. Many of these factors, on both the supply and the demand side, also apply to fisheries and aquaculture. Demand for fish and seafood is rising sharply, again largely because of increasing affluence. But while the FAO estimates that an additional 40 million tonnes of aquatic food a year will be needed by 2030, it also notes that catches of wild fish have remained roughly stable since the mid-1980s, at around 90 million tonnes a year, and forecasts that this figure is unlikely to rise substantially.
These underlying trends will place increasing emphasis on aquaculture, which last year accounted for 43 per cent of fish consumption (up from just 9 per cent in 1980). However, future expansion of the sector will depend not only on increasing investment capital, but also on availability of land, fresh water and energy –which as noted above, are all already subject to stresses of their own.All in all, the jury is still out on whether recent food price rises will be sustained or not. Many commentators, including the World Bank, estimate it will take ‘several years’ for supplies to increase to rebuild stocks and allow prices to fall. However, over the longer term, structural factors – a population forecast to rise to 9.2 billion by 2050, rising affluence and the four ‘scarcity trends’ referred to above – suggest the possibility of a structural, rather than merely cyclical, shift. Models from both IFPRI and the US Department of Agriculture show that while food prices will not rise much more over the next decade, they are also unlikely to fall significantly.
Rising food prices will hit poor countries and poor people hardest, and will present an obvious impediment to achieving the Millennium Development Goal of halving hunger by 2015. The FAO has already announced that 36 countries are in crisis in terms of food security, and will need external assistance; of these, 21 are in Africa (although not all of them have been affected equally).Poor people typically spend a high proportion of their income on food purchases: Oxfam put this figure at around 50–80 per cent. Of particular concern are landless poor people in rural areas. Most poor people are rural, and most rural poor people are net food buyers, who are unlikely to be compensated fully by additional employment as agriculture grows, or by higher wages. However, the extent and rapidity of current rises mean that urban populations are also being hit, as World Food Programme head Josette Sheeran recently noted: ‘There is food on shelves but people are priced out of the market. There is vulnerability in urban areas we have not seen before.’
High food prices are already posing extensive challenges to the provision of humanitarian aid. The World Food Programme currently feeds 73 million people in 78 countries (less than a tenth of the world’s undernourished). Its agreed budget for 2008 was $2.9 billion, but rising costs – for logistics as well as for food itself – mean that, according to the WFP, this level will not even cover current deliveries and at least $500 million more will now be needed. Josette Sheeran raised the possibility in a recent interview that the agency would have to look at ‘cutting the food rations or even the number of people reached’ if the additional funding were not forthcoming. Improvements in aid quality are needed too: humanitarian aid still needs to shift to a proactive insurance model from its current reactive configuration. Although the Central Emergency Response Fund – in which funds are allocated before emergencies – is likely to meet its 2008 target of $500 million, this remains a small proportion of the overall requirement. Humanitarian requirements in 2007 were $4 billion, for example, and the older, more reactive Consolidated Appeals Process remains the main window for funding.
Numerous countries have already reacted to rising food prices with concern and a broad range of policy interventions designed to address the situation. The approach taken by most countries so far (Azerbaijan, Bangladesh, Bosnia, China, Egypt, Ethiopia, the EU, Ghana, India, Indonesia, Mexico, Morocco, Nigeria, Peru, the Philippines, Russia, Taiwan and Turkey) has been to reduce or eliminate import tariffs. However, at least some of these reductions in import tariffs have been offset by the imposition of additional export tariffs or quotas by other countries – some of them major producers – in order to reduce domestic prices (Argentina – where the move has led to major unrest among farmers – China, India, Kazakhstan, Ukraine and Vietnam). Among other approaches currently being tested are making purchases to establish or replenish stockpiles and strategic reserves – which in turn increases pressure on prices (Iraq, Malaysia, Turkey and the UAE); increasing subsidy levels (Egypt, India and Oman); capping prices (China, Russia and Thailand); and examining the possibility of introducing rationing (Malaysia and Pakistan).Various countries have witnessed protests, riots or other forms of civil unrest that are at least partly attributable to rising food prices. At the time of writing, some of the most serious disturbances so far have been in Egypt, Haiti and Lebanon; unrest has also been experienced in Burkina Faso, Cameroon, China, Côte d’Ivoire, Guinea, Mauritania, Mexico, Morocco, Mozambique, Niger, the Philippines, Senegal, Uzbekistan, Vietnam and Yemen. As these lists show, rising food prices are of concern in every part of the world, and so far there is little consensus among governments on what to do about the issue. Currently most donors appear to be in information- gathering mode themselves, although World Bank President Bob Zoellick has called for a ‘new deal’ on food, including a recommendation that countries investigate cash transfers targeted at poor consumers, rather than the less efficient option of regulating food prices across the entire economy. There is significant scope for donors to help developing countries to share information on which approaches have worked where.
The World Bank has argued that more expensive food imports will disrupt the trade balances of relatively few countries, because the majority will see largely offsetting gains in other commodity exports; from the Bank’s perspective, the countries most adversely affected include Jordan, Egypt, the Gambia, Lesotho, Djibouti and Haiti. However, the impact of rising food prices needs to be looked at in tandem with concurrently rising energy prices, which are also imposing strain on many importing countries. An International Energy Agency study in December 2007 found that the rising cost of oil had already wiped out the benefits of increased aid and debt relief to 13 non-oil-producing African countries including South Africa, Ghana, Tanzania, Ethiopia and Senegal. According to the IEA, the increased cost of oil bought by these countries since 2004 was 3 per cent of their combined GDP – more than the total sum of debt relief and aid they had received over the past three years. If the combined effect of higher food and energy prices is to create balance-of-payments problems for countries, the question of compensatory financing may emerge as a significant issue. So far, the International Monetary Fund reports that demand for financing from funding windows such as the Exogenous Shocks Facility has been low, although critics retort that this is at least in part because of the significant conditionality attached to such lending. It is also important to note that funding windows designed to provide liquidity on shocks such as sudden changes in terms of trade are built on the assumption that such shocks will be short-lasting. If – as suggested earlier – food prices have risen as a result of a longer- term structural shift, then there are open questions about how quickly countries taking out loans will be able to pay them back, potentially heightening pressure to increase the concessional element of such loans.
What does all this mean for policy-makers – and especially? For donors?
Start with what rising food prices mean for the humanitarian system, where short-term pressures are likely to be most acute. First, consider the issue of aid volume in the context of humanitarian assistance. As noted earlier, the World Food Programme has called urgently for an additional $500 million. Given the scale of recent food price increases, it does appear likely that additional funds will be needed just to maintain current levels of food assistance. It would be of particular concern if the US were to follow up on suggestions that it might reduce the amount of food aid it provides to the WFP as a result of rising prices and costs, given that the US is by some distance the largest donor to the programme.(Washington is reported to have told the WFP that it is facing a 40% increase in food commodity prices compared with last year, and hence will ‘radically cut’ the amount it gives away – although more recently it has announced a $200 million increase in food aid, suggesting that this risk may have abated somewhat. But at the same time, more specificity is needed on how the WFP’s headline figure breaks down. It would be useful, for example, to know how the $500 million would be distributed between different types of aid (such as food aid, vouchers or cash transfers), and between which recipient countries. It is also essential that the WFP’s call for additional funds be set in the context of the needs of the UN humanitarian system as a whole, given that the programme accounts for only around half of total global food aid.52 While there is no doubting the WFP’s effectiveness in setting out its case, donors also need to hear from other multilateral agencies (notably UNICEF, the UN Development Programme, FAO and the World Health Organization), and ensure that OCHA (the UN’s Office for the Coordination of Humanitarian Affairs) is in the lead on coordinating funding calls as well as other emergency action from across the sector. This raises the question of wider humanitarian
system coherence. While progress was made in 2005 on Strengthening OCHA’s coordination role at global level, on the role of Humanitarian Coordinators in country and in the use of pooled funding arrangements, much remains to be done. The WFP has much to contribute here. It is fair to say that at the time of the UN High Level Panel on System-Wide Coherence in 2006, the WFP was not among the principal enthusiasts for a more coherent approach. But as the humanitarian system moves into a demanding context with the potential for faster-paced operations, better interagency coherence becomes more important than ever. On a related note, it would be interesting to explore the possibility of a ‘one UN’ initiative on food security, which could bring a harmonized approach to bear both at the global level and in specific countries (UNDP’s office in Yemen has already been approached by the government with a view to piloting such an approach). Such an initiative might bring together the WFP, FAO, IFAD, UNICEF,UNDP and WHO, and focus on developing and mobilizing resources for a package of policies and programmes, potentially for presentation at the Secretary-General’s summit meeting on the Millennium Development Goals in New York in September 2008. Another important current issue is changing ways of giving humanitarian assistance. As noted earlier, many donors (including the WFP) are increasingly focusing attention on social protection programmes, given that poor countries tend to lack social welfare systems – a deficit that places many poor people with precarious livelihoods at acute risk from economic shocks and stresses. For such vulnerable people, access to food is as important as the availability of food, and social protection programmes can play an important role in closing the gap. But it is important to stress that the current enthusiasm for social protection approaches is relatively novel, and that the evidence base on the effects and challenges of such projects is not yet as extensive as it could be. In particular, humanitarian donors need to be acutely aware of the political impact of a large-scale shift towards the provision of safety nets. If donors provide cash or food directly – as opposed to through national governments – then there is a potential risk of diluting states’ own accountability to their citizens. Better answers are also needed to questions about the potential inflationary impact of some social protection measures, the best combination of cash and in-kind transfers, what kind of targeting and conditionality works best, and so on. It is too soon to see social protection systems as any kind of panacea to the issue of high food prices. Donors should also assess carefully what the value added would be of the WFP’s moving into wider social protection, given the humanitarian sector’s relatively limited experience of social safety nets, and the extent of the organizational change and shift away from traditional core business that this would imply for the WFP. In the background lies the question of what it will mean for humanitarian assistance if (as considered earlier in this paper) the recent shift to higher food prices is structural rather than just a blip – if, in other words, this is the ‘new normality’. At present, around 850 million people are classified as ‘food insecure’. At times of peak demand, humanitarian agencies have been able to feed about 100 million people at the very most. If a longer-term effect of changes in world food markets were to increase the number of people in need of humanitarian assistance significantly beyond that level, then it is not clear that the humanitarian system would have the capacity and knowledge to respond, even if sufficient financial resources were available. It is therefore essential that in addition to coping with the current short-term turbulence in food markets, donors make a sustained effort to ask ‘what if?’ questions and plan for further contingencies.
As discussed above, the implications of higher food prices extend far beyond humanitarian assistance. The Suddenness with which the issue has emerged has raised not only the political stakes, but also the risk of knee-jerk policy responses. Meanwhile, the complexity of the drivers of rising food prices makes a comprehensive approach essential – while also increasing the likelihood of unintended consequences from policy responses. Policy-makers therefore face an awkward and hazardous balancing act between the urgency of responding, on the one hand, and taking enough time to understand the consequences of what they are doing, on the other.
The remainder of this paper identifies some of the larger policy questions that arise for aid donors. In most cases it does not attempt to answer them; at this stage, the aim is to build the evidence base and to act as a catalyst for more intensive and thorough conversations, involving a wider range of actors, with the objective of building shared awareness around the issue. With that caveat stated, consider the following issues: Increasing supply. Perhaps the hardest question is how the world is going to increase food supply to meet the huge rise in anticipated demand noted at the beginning of this paper. Much work needs to be done, quickly, to figure out where this increase is going to come from (both geographically, and in terms of new agricultural techniques and technologies), and what needs to be done to make it happen. An urgent first step towards increasing the available food supply should be to ensure that production of biofuels does not undermine food security – an issue now acknowledged by President Bush, who has commented that ‘If you look at what is happening in corn, you’re beginning to see the food issue and the energy issue collide.’ While an outright ban would probably be unwieldy and undesirable, discussion of basic standards for bio fuels production – with food security at their heart – should be an early priority for policy-makers. Helping low income countries to benefit. While supply increases in the shorter term are likely to come from existing ‘breadbasket’ countries such as the US, Canada, Russia, Ukraine, Brazil and Argentina, there is longer-term potential for lower-income countries to play a significant part as well – especially in Africa, largely bypassed by the first Green Revolution, where productivity remains far lower than in other regions .But although poor countries should in theory be able to benefit from rising prices for agricultural commodities, the reality is that they are held back by poor infrastructure, the need for better access to technology and finance, restrictive supply chain standards and other barriers as well. Aid donors therefore need to be clear about how crucial their role will be in this. Until recently, agriculture was seen as a rather unfashionable relic of the past in many donor agencies (and perhaps especially in their country offices). That needs to change quickly: donors need to invest heavily in programme aid – and in many cases, rebuilding their own capacity – in rural development. Managing scarcity. Donors will also need to be capable of helping countries to devise integrated strategies for managing scarcity in land, water, energy, food and the effects of climate change. The first step towards this is mainstreaming throughout donor agencies a much better sense of how these scarcity trends link to each other – as they all do, frequently in subtle and complex ways. On top of that, donors need to integrate scarcity issues more thoroughly into their governance and economic analyses (as underlined by the role of land disputes as a catalyst for the recent post-election violence in Kenya). Within the specific context of food, a good starting point would be to build a much more comprehensive picture of the overall resource footprint of different foods (and in the process, move the debate on from its current unsophisticated focus on the minutiae of specific variables, such as ‘food miles’). Trade. Donors also need a clearer picture of the trade dimensions of the current food prices issue. As noted earlier, the current picture of food-focused trade measures is growing more complex by the day, as importers lower import tariffs even as exporters raise export tariffs. Meanwhile, some countries – including China – are apparently exploring the potential for bilateral food supply arrangements, of the kind already becoming more common in energy supply. Other countries are displaying enthusiasm for import substitution policies – most notably the Philippines, which has announced its intention to move from being one of the world’s largest importers of rice to self-sufficiency within just three years. Donors and development advocates need to find their way towards a renewed strategic stance on agricultural trade. Even before food prices began their sharp increase, there was lively debate in the donor community about the extent to which agricultural trade liberalization would in practice benefit low-income countries. That debate is now further complicated by the fact that even if liberalization is desirable in principle, careful attention will need to be paid to the need to sequence reforms, in order to avoid (for example) the risk that rapid elimination of Common Agricultural Policy export subsidies could increase food prices in developing countries. Finally, there is the elephant in the room: the long-term question of fair shares, pithily illustrated in a recent cartoon in the US in which a portly man in a suit takes a maize cob out of an African child’s food bowl, with the speech bubble, ‘Excuse me. I’m going to need this to run my car.’ Inequality between countries is falling for the first time in a generation. From 2003 to 2007, per capita income grew faster in every region of the South than in developed countries: hardly news in East and South Asia, but a major shift in Latin America and Africa. In 1980 developed-country GDP was 23 times higher than in developing countries; in 2007 it was 18 times higher. Yet even as inequality between countries falls, it is rocketing within them – particularly within developing countries, and above all in emerging economies such as China, where the difference between the top 20 per cent and the bottom 20 per cent has grown by 40 per cent over the last three years.
In his book Development as Freedom, Amartya Sen observes that ‘the focus has to be on the economic power and substantive freedom of individuals and families to buy enough food, and not just on the quantum of food in the country in question.’ Later, he observes that ‘[some] who buy food may be ruined because the real purchasing power of their money incomes may have shrunk sharply. Such a famine may occur without any decline in food output, resulting as it does from a rise in competing demand rather than a fall in total supply.’ Now, Sen’s questions may be starting to apply at the global level. Even while the line between developed and developing countries grows more blurred with each passing year, the gulf between the haves and the have nots has never looked wider. In a context of increasing tightness of food supply – which is likely to grow further as population, affluence and scarcity trends all continue to rise – we may well reach a situation in which relative inequality can have absolute implications for the world’s poor, and in which a burgeoning global middle class inadvertently takes food beyond the purchasing power of the world’s poorest people. Indeed, we may already be there.
This is a time of massive change for global food policy, in developed as well as developing countries. In addition to the concerns discussed in this paper about what higher food prices mean for poor people, there are questions about environmental standards; obesity and health; animal welfare; competitiveness, between countries and companies; the security of globalized ‘just-in-time’ supply chains; and numerous other issues. At the heart of these debates is the deceptively simple question: what should global food policy be trying to achieve? We need to be clear at the outset about the nature of the choices that we face. There are real tradeoffs between different potential objectives in food policy – such as competitiveness for consumers, security of supply, environmental conservation, local sourcing. That raises the question: who is the ‘we’ that decides the shape of 21st-century food policy? Who has the power to make choices?
Evans & Eyasu can be reached at alex.evans@JHU.edu&EYASOL@AOL.com
Obama Reportedly Will Declare Victory
By DAVID PAUL KUHN,politico.com
Not long after the polls close in the May 20 Kentucky and Oregon primaries, Barack Obama plans to declare victory in his bid for the Democratic presidential nomination.
And, until at least May 31 and perhaps longer, Hillary Clinton's campaign plans to dispute it.
It's a train wreck waiting to happen, with one candidate claiming to be the nominee while the other vigorously denies it, all predicated on an argument over what exactly constitutes the finish line of the primary race.
The Obama campaign agrees with the Democratic National Committee, which pegs a winning majority at 2,025 pledged delegates and superdelegates—a figure that excludes the penalized Florida and Michigan delegations. The Clinton campaign, on the other hand, insists the winner will need 2,209 to cinch the nomination—a tally that includes Florida and Michigan.
"We don't accept 2,025. It is not the real number because that does not include Florida and Michigan," said Howard Wolfson, one of Clinton's two chief strategists. "It's a phony number."
Wolfson said they intend to contest the DNC's 2,025 number "every day," as well as any declaration of victory made by Obama based upon that number, because it does not include Florida and Michigan.
In January, Clinton won both states by wide margins when Obama did not actively contest them. The two states were stripped of their delegates for holding early primaries not sanctioned by the Democratic National Committee.
Obama will not reach the 2,025 magic number on May 20. Rather, on that date he is all but certain to hit a different threshold—1,627 pledged delegates, which would constitute a winning majority among the 3,253 total pledged delegates if Florida and Michigan are not included.
"On May 20 we're going to declare victory," said an Obama senior advisor who asked that his name be withheld to speak candidly, adding that after those contests they will be "the ones with the most pledged delegates and the most popular votes."
While the nature of that declaration of victory is "still developing," in the advisor's words, the Obama campaign contends that the winner of a majority of pledged delegates should be the party nominee.
"Senator Obama, our campaign and our supporters believe pledged delegates is the most legitimate metric for determining how this race has unfolded," wrote Obama campaign manager David Plouffe Wednesday in a memo to superdelegates. "It is simply the ratification of the DNC rules - your rules - which we built this campaign and our strategy around."
More StoriesBut the Clinton campaign's insistence on counting Florida and Michigan would alter not only the overall delegate math, but the pledged delegate math as well. Because if the two states are included in the count, the total number of pledged delegates would rise from 3,253 to 3,566—which means the magic number for a majority rises to 1,784, not 1,627 as the Obama campaign asserts.
By hewing to that interpretation, the Clinton campaign would thus be able to raise doubts about a May 20 declaration of victory by Obama.
Since the earliest possible resolution of the Florida/Michigan dispute is May 31, when the DNC Rules and Bylaws Committee will meet in Washington to address petitions from Michigan and Florida DNC members, the 11-day period between the May 20 primaries and the RBC meeting could produce a chaotic stretch where Obama claims to be the party nominee while Clinton argues otherwise.
Already, the two campaigns are gearing up for the battle.
"With the Clinton path to the nomination getting even narrower, we expect new and wildly creative scenarios to emerge in the coming days," wrote Plouffe in his memo. "While those scenarios may be entertaining, they are not legitimate and will not be considered legitimate by this campaign or its millions of supporters, volunteers, and donors."
"You can declare mission accomplished but that doesn't mean that the mission has actually been accomplished," Wolfson said.
Avi Zenilman contributed to this report
Not long after the polls close in the May 20 Kentucky and Oregon primaries, Barack Obama plans to declare victory in his bid for the Democratic presidential nomination.
And, until at least May 31 and perhaps longer, Hillary Clinton's campaign plans to dispute it.
It's a train wreck waiting to happen, with one candidate claiming to be the nominee while the other vigorously denies it, all predicated on an argument over what exactly constitutes the finish line of the primary race.
The Obama campaign agrees with the Democratic National Committee, which pegs a winning majority at 2,025 pledged delegates and superdelegates—a figure that excludes the penalized Florida and Michigan delegations. The Clinton campaign, on the other hand, insists the winner will need 2,209 to cinch the nomination—a tally that includes Florida and Michigan.
"We don't accept 2,025. It is not the real number because that does not include Florida and Michigan," said Howard Wolfson, one of Clinton's two chief strategists. "It's a phony number."
Wolfson said they intend to contest the DNC's 2,025 number "every day," as well as any declaration of victory made by Obama based upon that number, because it does not include Florida and Michigan.
In January, Clinton won both states by wide margins when Obama did not actively contest them. The two states were stripped of their delegates for holding early primaries not sanctioned by the Democratic National Committee.
Obama will not reach the 2,025 magic number on May 20. Rather, on that date he is all but certain to hit a different threshold—1,627 pledged delegates, which would constitute a winning majority among the 3,253 total pledged delegates if Florida and Michigan are not included.
"On May 20 we're going to declare victory," said an Obama senior advisor who asked that his name be withheld to speak candidly, adding that after those contests they will be "the ones with the most pledged delegates and the most popular votes."
While the nature of that declaration of victory is "still developing," in the advisor's words, the Obama campaign contends that the winner of a majority of pledged delegates should be the party nominee.
"Senator Obama, our campaign and our supporters believe pledged delegates is the most legitimate metric for determining how this race has unfolded," wrote Obama campaign manager David Plouffe Wednesday in a memo to superdelegates. "It is simply the ratification of the DNC rules - your rules - which we built this campaign and our strategy around."
More StoriesBut the Clinton campaign's insistence on counting Florida and Michigan would alter not only the overall delegate math, but the pledged delegate math as well. Because if the two states are included in the count, the total number of pledged delegates would rise from 3,253 to 3,566—which means the magic number for a majority rises to 1,784, not 1,627 as the Obama campaign asserts.
By hewing to that interpretation, the Clinton campaign would thus be able to raise doubts about a May 20 declaration of victory by Obama.
Since the earliest possible resolution of the Florida/Michigan dispute is May 31, when the DNC Rules and Bylaws Committee will meet in Washington to address petitions from Michigan and Florida DNC members, the 11-day period between the May 20 primaries and the RBC meeting could produce a chaotic stretch where Obama claims to be the party nominee while Clinton argues otherwise.
Already, the two campaigns are gearing up for the battle.
"With the Clinton path to the nomination getting even narrower, we expect new and wildly creative scenarios to emerge in the coming days," wrote Plouffe in his memo. "While those scenarios may be entertaining, they are not legitimate and will not be considered legitimate by this campaign or its millions of supporters, volunteers, and donors."
"You can declare mission accomplished but that doesn't mean that the mission has actually been accomplished," Wolfson said.
Avi Zenilman contributed to this report
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