Global Food Prices Rising - Case Study Example

Name: Instructor: Course: Date: International Trade Investment: Global Food Prices Rising Beneficiaries from Government Policies Policies relative to international trade investment are coordinated to take on even greater significance in this era of globalisation. Economically, globalization has impacted trade unions through trade in goods and services, as well as through financial flows and the movement of persons, all together as linked to cross-border economic activity. Different governments across the globe, including the Australian and Ukrainian governments have approved a number of legislative initiatives to increase production of bio-ethanol in the automotive fuel market. Such initiatives and policies are aimed at helping respective countries to reduce dependence on imports and so come close to aligning their legislations to given trade unions. Internationally recognized trade policies aim at making given regions competitive in foreign markets. Most of these regions represented by these policies are of open economies that seek to secure improved market accessibility for its industries, services and investments. They also advocate for the enforcement of the rules of free and fair trade in both local and international markets. Ethanol producers are the most obvious beneficiaries from these government policies to promote production of ethanol, because they look for more options to be able to prepare and sell this fuel. On another perspective, different types of raw materials viable for production into a substitute for gas have palpable impacts on the price of all goods. As written by Staley and Sagaian (111), as the production of ethanol increases, so does the prices of corn and other input raw materials need to prepare the fuel. The Australian government has also implemented policies that place tariff barriers on imports of sugar cane and justification to such policies can only have basis the end result and outcomes. The observable beneficiaries of this policy are the countries that have a higher production of sugarcane as a raw material for ethanol production. They benefit, especially when they produce in bulk, because they export to countries that lays subsidies on imported sugarcane. However, producers of sugarcane take advantage of this without considering the fact that an increased demand for ethanol and other bio-fuels leads to an increase in prices for foods. Hence, due to the tariff barriers placed as government policies, the price of sugarcane has increased and, therefore, it cannot competitive sell and trade as much as the subsidized corn and soy beans and raw materials for ethanol. Globally Rising Food Prices and Its Causes Many of the world’s poorest countries and people continue to face devastating situations resulting from the sky-rocketing food prices. The main cause of this has to do with the global food system that has been gravely defected. It even worsens the situation that, apparently, the policy-makers responsible for this sector have almost been unable to find a probable solution, or so it seems. Generally, cheap food has been taken for granted too long that such times have eloped the hands of the people. Subsequently, developing and countries and people living below the poverty line can only brace themselves for worse times of expensive basic commodities. Food prices have been on the rise, especially as it was evident in the global food crisis in the years of 2008 and 2009. In developing countries like Kenya and poor ones like Haiti, at some point it caused food riots against the government, the policy-maker in this case. According to Shah (1), most reports on the matter have only concentrated on the immediate causes, yet the core and deeper issues and causes relative to the matter are yet to be discussed as much and accurate response executed. Figure 1 below shows a food price index statistics between April 2007 and April 2008, indicating a sharp rise in prices of given food items. The effectiveness and stability of the global food system has become one the most important and functional international institutions. The universal food crises have presented such entities and organizations with difficult situations, and many likely causes have been identified yet with inaccuracy sometimes, hence lack of surety of the best response (Wiggins, 10). This is evidenced by the number of studies that have only estimated the impacts of food crises but with uncertainty of their importance in determining good responsive measures. The impact of the price increases on poverty varies among countries and within countries. Recently, steep price increases on major crops such as cereals and oilseeds are resultant of a combination of production being below trends, and strong growth of demand due to continuous population growth. The declining level of stocks adds to the price rise and a significant increase in investments in agricultural derivative markets.  Commodity price formation, as a model has also been an implicit contributing factor to the escalation in food prices. This is because the involved entities and international organizations have, as it appears, had little agreements on how to form prices for internationally traded commodities, especially food staffs. Therefore, traditional aspects like the dominance of stronger economies have been allowed to greatly influence food prices. The U.S economy is an example of such, whose internal changes drive international prices. According to Heady and Fan (5), this commodity formation models practically takes the task of price harmonization off the hands of the internationally entrusted policymakers. The other factor with worth-noting effects on food prices is the American dollar. This is different from the influence of the American economy itself in the sense that most commodities have been priced in dollars in the international markets. Consequently, a sharp decline of the American dollar against other influential currencies exaggerates the rise in food and other related commodity prices. Also in relation to this is the aspect of huge flow of funds and capital amounts into the financial markets, internationally connected the future of agricultural commodities. Resultantly, many investors have fled other industries to flood the food industry in search for high returns, which leads to heavy volatility and increase in food prices. As a collective effect, rising food prices have relatively reduced or increased poverty differently depending on how poor people earn and spend their incomes. Most of the world’s poor people live in rural areas, where agriculture is the main economic activity. Therefore, rising food prices tends to alleviate poverty globally in these areas. However, the case may be different for farming households that produce and sell food crops as they benefit from the inflated prices (Polaski, 6). Actions of Rich Countries in Relation to Rising Food Prices It is modernization that has revolutionized international trade between national economies such that respective national borders have opened up to global trade. This, effectively, has lead to an increase in the movements of goods, services, capital and trade itself. Globalization has also come with impact of enhanced spread of information, knowledge and technology, often accompanied by deregulation (Bridges, 362). Notwithstanding this, studies have shown that as a section of the national society comprised of rich countries continue to, as mentioned above continue to benefit in a way from government policies, the poor people, on the other hand are continuously suffering globally all over the world as a result of these policies. Alongside undesirable weather in production areas and higher oil prices, poor government policies have accounted for much of the rise in food prices. These policies are characterised by unplanned export bans and import subsidies. An outcome of this is uncontrolled inflation of food items by entities that are not eligible to increase prices, thereby, making most of these products too expensive and almost unaffordable to the poor. Apart from the causes of rising food prices, the world also needs to know what can be done and what is being done currently to curb this crisis. The perception is that developed and economically rich countries are at a better position to respond to this by probably designing internationally accepted and socially sensitive policies. However, with respect to ethanol, developed countries usually give subsidies. So with the production of corn increasing rapidly for farmers to plant more of it the policies are only beneficial to the developed countries but not the poor ones. Rich countries can help improve investment in agriculture, review their trade policies to limit effects on food price volatility and to improve market transparency. Global Warming and Ethanol Subsidies The subject of increased subsidies on ethanol has received much support from different governments and even trade unions. The support is based on the perception that production and use of more ethanol will cut down on the import and use of oil, which according to reports by the European Union, produce a lot of Carbon (IV) Oxide and accelerate global warming when burnt. Trade unions have set standards and policies that govern regarding membership and choosing of leaders. These policies are ethical and social accepted internationally. More importantly to this context, they have well defined insights relative to global warming (European Union, 70). Many countries have therefore gained confidence as they pursue policies addressing internationally traded. Outcomes of old government subsidies and blending mandates have made ethanol a very successful renewable source of energy and obviously producers and sellers of the fuel have benefited too. In relation to global warming, many still wonder how ethanol is an effective solution to climate changes considering that it has not really cut down oil imports in countries like the United States of America. Even though production and combustion of ethanol as fuel produces very low levels of carbon dioxide, government subsidies and mandates have since expired or revoked. This is because from the fact that the policies did not really cut down oil importation, the level of global warming has continued without much of change for the better (Miller, 1). From figure 2 below as Miller (1) discusses, government policies that advocated for replacing petroleum gasoline by gallons of ethanol achieved a reduction in carbon dioxide emission by 30MMT annually. Mixing the two fuels reduce carbon emission by 24% when the mixture is uncorrected, but by 18% if the mixture is corrected. Despite all of the appreciable reductions in emission of carbon, critics look at the issue in a whole different perspective. First, the policy achieves reduction of carbon emission but then the reduction is achieved at very low levels yet at quite expensive costs. Besides, importation or use of oil products has not been completely put off, therefore, subsidies and blending mandates regarding ethanol have proved to be less effective solutions towards global warming and climate changes. The other perspective in relation to the context of this discussion is that the large increase in consumption of corn for ethanol as had immense impacts on general food prices in international markets. In response to rising food prices caused by ethanol subsidies and other causal factors, regional trade unions and related trade policies have come in to improve livings standards of most people in the society. An indirect impact of this is that the economy grows as more people can regularly pay taxes, which the government then uses to avail services to citizens. National economic growth, in turn, influences the countries position relative to international markets. Fight for professional relationships between it members and entities inculcates respect and acceptable morals on the social perspective. However, despite all the achievements, only a few of which have been mentioned, trade unions like the European Union have experienced a decline in membership The decline is evidenced by the employment growth has been in less unionized sectors than in well organized sectors. Politics and legislation play a role s they favour individual employment agreements over collective bargaining. Government policies have also affected unionisation in the public employment. The public employment sector has seen great political influence, enough to encourage employees of the private sector to pursue management policies which undermines unionism. Work Cited Miller, John. 2013. Is Ethanol a Cost Effective Solution to Climate Change? The Energy Collective, 17 January. 2013. Web. 18 September 2013. Bridges, Gavin. Grounding globalization: The Prospects and Perils of Linking Economic Processes of Globalization to Environmental Outcomes. Economic Geography, 78.3, (2002): 361–386. European Union. European Trade Union Practices on Anti-Discrimination and Diversity. London: London Metropolitan University, 2010. Print. Heady, Derek and Fan, Shenggen, Reflections on the Global Food Crisis. How Did It Happen? How Has It Hurt? And How Can We Prevent the Next One? Washington DC: International Food Policy Research Institute, 2010. Print. Jayaraj, R. Analyzing the International Business Environment and Identifying Key Factors for International Business Operations. India: Madurai Kamaraj University, 2012. Print. Polaski, Sandra. Rising Food Prices, Poverty, and the Doha Round. New York: Carnegie Endowment for International Peace, 2008. Print. Shah, Anup, Global food crisis 2008. Global Issues, 10 August, 2008. Web. 18 September 2013. Staley, Daniel,. and Sagaian, Sayed., Government policy and ethanol: What does the future hold? Journal of Food Distribution Research, 42.1 (2011): 111-115. Wiggins, S. Is the global food system broken? Opinion Brief 113. London: Overseas Development Institute, 2008. Read More