While the economic contraction is apparently slowing in the advanced industrial
countries and may reach bottom in the not-too-distant future, it's only
beginning to gain momentum in the developing world, which was spared the
earliest effects of the global meltdown.
Because the crisis was largely precipitated by a collapse of the housing market
in the United States and the resulting disintegration of financial products
derived from the "securitization" of questionable mortgages, most developing
nations were unaffected by the early stages of the meltdown, for
the simple reason that they possessed few such assets.
Now, as the wealthier nations cease investing in the developing world or
acquiring its exports, the crisis is hitting the less-wealthy countries with a
vengeance. On top of this, conditions are deteriorating at a time when severe
drought is affecting many food-producing regions and poor farmers lack the
wherewithal to buy seeds, fertilizers and fuel.
The likely result: A looming food crisis in many areas hit hardest by the
global economic meltdown.
Until now, concern over the human impact of the global crisis has largely been
focused - understandably so - on unemployment and economic hardship in the US,
Europe, and the former Soviet Union. Many stories have appeared on the
devastating impact of plant closings, bankruptcies, and home foreclosures on
families and communities in these parts of the world.
Much less coverage has been devoted to the meltdown's impact on people in the
developing world. As the crisis spreads to the poorer countries, however, it's
likely that people in these areas will experience hardships every bit as severe
as those in the wealthier countries - and, in many cases, far worse.
The greatest worry is that most of the gains achieved in eradicating poverty
over the past decade or so will be wiped out, forcing tens or hundreds of
millions of people from the working class and the lower rungs of the middle
class back into the penury from which they escaped. Equally worrisome is the
risk of food scarcity in these areas, resulting in widespread malnutrition,
hunger, and starvation. All this is sure to produce vast human misery,
sickness, and death, but could also result in social and political unrest of
various sorts, including riot, rebellion, and ethnic strife.
US President Barack Obama, the US Congress, or the mainstream US media are not,
for the most part, discussing these perils. As before, public interest remains
focused on the ways in which the crisis is affecting the United States and the
other major industrial powers. But the World Bank, the Food and Agriculture
Organization, and US intelligence officials, in three recent reports, are
paying increased attention to the prospect of a second economic shockwave, this
time affecting the developing world.
Sinking back into penury
In late February, the World Bank staff prepared a background paper for the
Group of 20 (G-20) finance ministers meeting held near London on March 13 and
14. Entitled "Swimming Against the Tide: How Developing Countries Are Coping
with the Global Crisis", it provides a preliminary assessment of the meltdown's
impact on low-income countries (LICs). The picture, though still hazy, is one
of deepening gloom.
Most LICs were shielded from the initial impact of the sudden blockage in
private capital flows because they have limited access to such markets. "But
while slower to emerge," the report notes, "the impact of the crisis on LICs
has been no less significant as the effects have spread through other
channels." For example, "many LIC governments rely disproportionately on
revenue from commodity exports, the prices of which have declined sharply along
with global demand." Likewise, foreign direct investment is falling,
particularly in the natural resource sectors. On top of this, remittances from
immigrants in the wealthier countries to their families back home have dropped,
erasing an important source of income to poor communities.
Add all this up, and it's likely that "the slowdown in growth will likely
deepen the deprivation of the existing poor". In many LICs, moreover, "large
numbers of people are clustered just above the poverty line and are therefore
particularly vulnerable to economic volatility and temporary slowdowns." As the
intensity of the crisis grows, more and more of these people will lose their
jobs or their other sources of income (such as those all-important remittances)
and so be pushed from above the poverty line to beneath it. The resulting
outcome: "The economic crisis is projected to increase poverty by around 46
million people in 2009."
The picture provided in the World Bank's G-20 report turns even darker when
turning to an assessment of the capacity of affected LICs to address the needs
of all these newly impoverished people. Because so much of the income of these
countries derives from the sale of commodities - the demand for which has
significantly diminished (thus lowering prices) - and because foreign loans and
investment have largely dried up, the governments involved have precious little
money left to provide emergency services for their country's growing legions of
poor. The implications are ominous.
"Absent [public] assistance, households may be forced into the additional sales
of assets on which their livelihoods depend [eg, farm implements and
livestock], withdrawal of their children from school, reduced reliance on
health care, inadequate diets and resulting malnutrition." The long-run
consequences of these desperate actions can be severe: "The decline in
nutritional and health status among children who suffer from reduced (or
lower-quality) food consumption can be irreversible." Already, "estimates
suggest that the food crisis has ... caused the number of people suffering from
malnutrition to rise by 44 million."
These estimates - an increase in those forced into poverty by 46 million and
those suffering from malnutrition by 44 million - far exceed anything reported
anywhere else. Even then, they must be viewed as preliminary figures, subject
to recalibration based on the duration and severity of the global meltdown. If
the World Bank's prognostications on the likely impacts of the crisis on the
LICs prove accurate, these figures could rise much higher.
Looming food insecurity
The spring growing season has now begun in many areas of the world, and worried
agricultural experts are already calculating the prospects for food
availability later this year. Their worries are well-founded. Last spring and
summer, rising oil prices and localized food shortages led to food riots in
Cameroon, Egypt, Ethiopia, Haiti, India, Indonesia, Ivory Coast and Senegal,
among other countries. (The price of food is closely tied to the price of oil,
as modern agriculture relies heavily on petroleum products for cultivation,
harvesting, delivery to markets, pesticides, and artificial fertilizers).
Food prices have since fallen somewhat with the decline in petroleum costs, but
supplies are also at risk of contraction due to severe drought in many parts of
the world - hence the concern over food availability in 2009.
The first assessment of food availability in 2009 is now out, and the prognosis
is not promising. Published by the Food and Agricultural Organization (FAO) of
the United Nations, the first 2009 report on "Crop Prospects and Food
Situation" provides a region-by-region overview of farm output around the
world. Although some areas are expected to experience better-than-average
harvests, most are not. The report's principal conclusion: "Early indications
point to a reduction in global cereal output in 2009 [over 2008]. Smaller
plantings and/or adverse weather look likely to bring grain production down in
most of the world."
The report's most significant findings are to be found in its overviews of the
various growing regions, where two key areas - Asia and South America - are at
particular risk because of mounting water scarcity.
In Asia, the report indicated, "severe drought is reported in Northern and
Western China, where precipitation levels have been registered at 70-90% below
normal." Some 9.5 million hectares (23.5 million acres) of winter wheat - 44%
of the total area planted - are reported to be seriously affected in Hebei,
Shandong, Henan, Shanxi, Anhai, Shaanxi and Gansu provinces. The winter
wheat
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