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341. Rising Food Prices: Drivers and Implications for Development

Author:
Alex Evans
Publication Date:
04-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
Global food prices have risen 83 per cent over the last three years. The increases have been driven by high income growth in emerging economies (probably the single most significant factor), use of crops for biofuels, the relative inelasticity of supply, historically low stock levels and some speculative investment. More recently, national concerns over inflation and prices have led some countries to reduce exports and others to try to build up stocks – creating a feedback loop that feeds on itself to drive prices up still further. In the medium to longer term, 'scarcity trends' – climate change, the cost of energy inputs, scarcity of land and water – could limit the supply-side response. In the immediate term, the priority is to increase both the volume and the quality of humanitarian assistance available to poor people, including by moving away from in-kind food aid and towards cash transfers or voucher systems – although it is important to be clear that there are outstanding questions about how these social protection systems will work, and they should not be seen as a panacea. The issue of compensatory financing may also arise for some countries facing balanceof- payments difficulties. In the longer term, the key challenge is to increase the supply of food: the World Bank estimates that demand for food will rise by 50 per cent by 2030, as a result of rising affluence and growing world population. Achieving this challenge will require something close to a revolution, and a massive investment in agriculture in developing countries. If supply fails to keep pace with rising demand, then the question of 'fair shares' is likely to emerge as a significant global issue. Already, the effect of a burgeoning global middle class switching to diets with more meat and dairy products – both relatively inefficient in terms of grain use – has been to reduce the affordability of staple foods for poorer consumers.
Topic:
Agriculture, Economics, Environment, International Trade and Finance, World Bank, and Population

342. Stress-Testing the Regulators: Market Risks and the EU Economy

Author:
Max Watson
Publication Date:
04-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
Today's market turbulence and global imbalances prompt the question whether economic and regulatory policies are poorly designed or just badly implemented. The question is urgent for Europe, which has its own asset booms and imbalances to worry about as well as the backwash of US problems. The imbalances in Europe's economies in large part reflect favourable shocks, such as falling interest rates and growing financial integration. But the 'growth crisis' in Portugal underscores the fact that there can be hard landings, even without a financial crisis, if fiscal policy is unwise and if productivity fails to take off. The current global imbalances and turbulence also have a common backdrop in the long period of unusually easy liquidity and low risk premia during which today's problems built up. This suggests that central banks should be prepared more often to 'lean against the wind' in times of asset price exuberance, and that politicians should not cut taxes or boost spending permanently on the back of revenue gains that result from transient financial booms. Banks and supervisors have many lessons to draw. Some involve going 'back to basics' on issues such as liquidity, off-balance-sheet operations, and the ability to close and reopen banks. Others require a careful look at incentives – in executive pay, rating agency roles and loan production systems. Supervisors also need to take better account of boom-bust cycles when they assess risks, and address cross-border issues in EU banking. Moral hazard has been partly addressed by pain inflicted on bank managements and shareholders. But at the macro level it may be building up as policy-makers act to limit losses in a setting where they cannot trace the ultimate fallout from risks. In future, their discretionary interventions need to be truly exceptional and much more symmetrical, or the money supply and the public debt will ratchet up amid serious resource misallocation.
Topic:
Economics, Government, and Financial Crisis
Political Geography:
United States and Europe

343. European Multinationals: A Globalization Scorecard

Author:
Stephen Thomsen
Publication Date:
03-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
Global competition requires a global response, and European firms are now at the forefront of attempts to become internationally diversified multinational enterprises. European firms have been accused at various times of being too focused on their integrating regional market or too tied by historical links with certain countries or regions to develop a genuinely global strategy. Yet figures for foreign direct investment suggest not only that European firms have invested far more abroad than their American and Japanese rivals, but that they have also done so in far more countries. Of particular relevance for long-term profitability, European enterprises have a much stronger presence in emerging markets than either US or Japanese firms. Europe has in turn received more inward investment from those countries than either the United States or Japan. These growing links between Europe and emerging economies could provide European firms with a competitive edge in what are the most promising markets of the future.
Topic:
Globalization and Markets
Political Geography:
United States and Europe

344. Exploiting Europe's Strong Potential: Governance, Institutions and Policies

Author:
Paola Subacchi, Benedicta Marzinotto, and Vanessa Rossi
Publication Date:
01-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
With the euro approaching the tenth anniversary of its establishment, this is a timely as well as critical moment to review policies and performance. Enough experience of the convergence and adjustment processes has been gained to better understand how they work and what problems have been created rather than solved. As the strengths – and the success – of the euro become more visible, so too do its weaknesses and the conflicts it creates. Are the appropriate mechanisms and governance in place to help manage Europe's economy so that it can realize its potential? Governance is critical because of the institutional complexity of the monetary union. Independent policy targets and policy instruments not only have to be consistent with each other, but also need to be integrated in a nonconflicting framework. There are two threads to this debate: convergence and adjustments across the euro area, and how the region as a whole is performing with regard to the rest of the world. Both imply a new approach to governance. When EMU was established, the euro area comprised 11 founding members. Now it comprises 15 and is slowly expanding. Ten years ago the emergence of China was more a possibility than a reality, while the 'Asian Tigers' were coming to terms with a devastating financial crisis. Now the rise of the emerging market economies and the enlargement of the global economy's playing field pose significant challenges to the competitiveness of the euro area. With the euro now becoming the second pillar of the international monetary system, EMU's external dimension has become very relevant. The way forward needs to blend the traditional concerns for macroeconomic stability and competitiveness with the more recent concern about the role of Europe in the global economy. All these dimensions need to be organized into a coherent agenda. The right policy should be implemented at the right time.
Topic:
Economics and Foreign Exchange
Political Geography:
Europe

345. Ending Dependence: Hard Choices for Oil-Exporting States

Author:
John V Mitchell and Paul Stevens
Publication Date:
07-2008
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
Since 2003, countries whose economies depend on the export of oil and gas have enjoyed a surge of revenue driven by rising oil prices and, in some countries, rising export volumes. The press has captured petroleum-fuelled prosperity in images of futuristic construction plans and the rocketing assets of sovereign wealth funds. However, this obscures important differences among oil and gas exporters in terms of reserves size and social development challenges. Based on a major study of twelve hydrocarbon-exporting countries, this report shows that the boom does not guarantee economic sustainability for these countries, most of which face hard policy choices over domestic consumption, development spending and rates of economic growth. The report estimates the timeframes these countries have in which to make the necessary changes and examine their prospects for success given the existing human, institutional and technical capacity, competitive advantages, infrastructure and access to capital.
Topic:
Development, Energy Policy, Oil, International Security, and International Affairs
Political Geography:
Middle East

346. The Coming Oil Supply Crunch

Author:
Paul Stevens
Publication Date:
08-2008
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
This report argues that unless there is a collapse in oil demand within the next five to ten years, there will be serious oil 'supply crunch'–not because of below-ground resource constraints but because of inadequate investment by international oil companies (IOCs) and national oil companies (NOCs). An oil supply crunch is where excess crude producing capacity falls to low levels and is followed by a crude 'outage' leading to a price spike. If this happens then the resulting price spike will carry serious policy implications with long-lasting effects on the global energy picture.
Topic:
Security, Economics, Energy Policy, Markets, and International Security

347. A British Agenda for Europe: Designing Our Own Future

Author:
Stephen Wall
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
Fifty years after the founding of the European Community, an enlarged EU has moved far away from the notions of creating some form of European super-state that have dominated the British debate over its EU policy. If anything, as the results of recent referenda on the EU in France, the Netherlands and Ireland have revealed, British scepticism towards complex institutional reforms is increasingly shared across Europe. Far from taking advantage of this pivotal moment to help drive the EU's future development, much of the popular and political debate in Britain questions whether it is worth being a member of the EU at all.
Political Geography:
Britain and Europe

348. Iran: Breaking the Nuclear Deadlock

Author:
Richard Dalton(ed.)
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
The dispute over Iran's nuclear programme is deadlocked. Five years of negotiations, proposals, UN resolutions and sanctions have failed to achieve a breakthrough. As diplomacy struggles and Iran continues to advance its nuclear capabilities, the issue becomes ever more grave and pressing.
Topic:
International Relations, Foreign Policy, Oil, Weapons of Mass Destruction, and International Security
Political Geography:
United States, Europe, Iran, and Middle East

349. After the Doha Débâcle: What Next for the Global Trade System?

Author:
Guy de Jonquières
Publication Date:
09-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
The troubled history of the Doha trade talks, which suffered their latest breakdown in July 2008, is due to more than differences between members' negotiating positions. It is a symptom of deeper institutional problems in the WTO, as it struggles to adjust to global economic change. At stake are not only prospects for a further push to open world markets, but the primacy of the WTO as the maker and enforcer of the multilateral rules that underpin the international economic order. Although reforms of WTO procedures may be desirable, they will not be enough to restore momentum. WTO members need also to develop a new model of leadership, define a clearer mission for the organization and pursue domestic policies that buttress its role. It is unclear whether governments possess the political energy or commitment required to undertake that effort. But continued drift risks weakening the organization and could, in the longer term, undermine the integrity of the rules-based trade system.
Topic:
International Relations, Economics, Globalization, International Political Economy, and International Trade and Finance

350. Sierra Leone a Year After Elections: Still in the Balance

Author:
Tom Cargill
Publication Date:
09-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
The UN mission that led Sierra Leone out of bloody civil war in 2002 ends on 30 September 2008. Despite significant advances, and landmark elections last year that saw the opposition win power, the country remains amongst the poorest in the world. It is vulnerable to crime, corruption, and the growing power of South American drugs cartels. The UK has been Sierra Leone's major donor since its military intervention in 2000 - the last successful military intervention before the Iraq war. However, slow progress and uncertain prospects for the country mean that the UK is keen to broaden the responsibility for supporting Sierra Leone. There are good signs that the government of Sierra Leone is serious about reform. But if it is to cement stability and growth, it will need to find new international partners, continue its reform efforts, and deter drug-traffickers from establishing themselves in the country. Most importantly, it will need to show greater leadership, confidence and direction to both voters and donors to ensure that widespread goodwill is not eroded by uncertainty and drift.
Topic:
Political Violence, Democratization, Post Colonialism, Poverty, and United Nations
Political Geography:
Africa