<html><body>American Enterprise Institute July 2, 2008 [Edited transcript from audio tapes] <TABLE style="WIDTH: 518px; HEIGHT: 596px" cellSpacing=1 cellPadding=1 width=518 border=0> <TBODY> <TR> <TD> <DIV class=BodyText> <DIV class=BodyText> <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>10:00 a.m.</DIV></TD> <TD> <DIV class=BodyText>Registration</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>10:15 </DIV></TD> <TD> <DIV class=BodyText>Introduction: </DIV></TD> <TD> <DIV class=BodyText> Christopher DeMuth, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Keynote Speaker:</DIV></TD> <TD> <DIV class=BodyText>U.S. Senator Richard Lugar (R-Ind.)</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV> <DIV class=BodyText> </DIV> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator: </DIV></TD> <TD> <DIV class=BodyText>Philip I. Levy, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>11:00 </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Panel I: Trade, Development, Agriculture, and Humanitarian Responses</DIV></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists: </DIV></TD> <TD> <DIV class=BodyText>Anne Krueger, Johns Hopkins University</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Asma Lateef, Bread for the World Institute </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Peter McPherson, National Association of State Universities and Land-Grant Colleges</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Namanga Ngongi, Alliance for a Green Revolution in Africa</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator:</DIV></TD> <TD> <DIV class=BodyText>Mauro De Lorenzo, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>12:30 p.m.</DIV></TD> <TD> <DIV class=BodyText>Luncheon</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>1:00 </DIV></TD> <TD> <DIV class=BodyText>  </DIV></TD> <TD> <DIV class=BodyText> Panel II: Energy, Biofuels, and Climate Change</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists: </DIV></TD> <TD> <DIV class=BodyText>Nicholas Eberstadt, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Suzanne Hunt</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Robert Paarlberg, Wellesley College</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator:</DIV></TD> <TD> <DIV class=BodyText>Kenneth P. Green, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>2:30 </DIV></TD> <TD> <DIV class=BodyText>Special Remarks:</DIV></TD> <TD> <DIV class=BodyText>Robert Zoellick, World Bank</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator:</DIV></TD> <TD> <DIV class=BodyText>Kevin A. Hassett, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>3:30 </DIV></TD> <TD> <DIV class=BodyText>Adjournment</DIV></TD></TR></TBODY></TABLE></DIV></DIV></TD></TR></TBODY></TABLE> Proceedings:   Introduction and Keynote Speech Christopher DeMuth:  Ladies and gentlemen, good morning.  I m Chris DeMuth, president of the American Enterprise Institute.  I am delighted to welcome all of you here this morning for this AEI conference which we have titled, Was Malthus Right?  Was Today s Global Food Crisis Inevitable?   The dramatic increase in food prices around the world and the severe scarcity of supplies in many regions is a development with the most acute and painful consequences for human welfare, reversing some of the recent gains in reducing global poverty and leading to serious social and political unrest in many nations.  It is a development that is deeply connected with the concurrent rise in energy prices and is also deeply connected to many bad government policies in both agriculture and energy.  Today s conference will be plumbing the depths of all of these aspects of the problem.  I have several thanks to express, first and foremost, to Mr. Ronald Malone and AEI s William and Inez Mabie Endowment for Agriculture Policy Research, which is funding today s symposium.  I am very grateful to Mauro De Lorenzo and several other AEI colleagues who have conceived and organized these sessions and will be participating in them through the day; to our guests from other academic institutions as well as civic and humanitarian organizations who are joining us on the panels, and to our special guest; Robert Zoellick, president of the World Bank, who will be offering remarks this afternoon at the conclusion of the conference; and this morning, a to our keynote speaker, Senator Richard Lugar of Indiana. It has been 40 years since Senator Lugar first emerged on the national political stage as the highly innovative mayor of Indianapolis and successful proponent of that city s organization of a metropolitan-wide government.  He has been a member of the United States Senate since 1976.  He won his sixth term in 2006 with 87 percent of the vote - his fourth consecutive victory by more than a two-thirds majority.  He is the longest serving senator in Indiana s history, and he is still a very young man.  He is currently the Republican leader of the Foreign Relations Committee and, of course, has been the chairman of that committee for a very, very long time.  He is also a member and the former chairman of the Senate Committee on Agriculture, Nutrition and Forestry.  Senator Lugar is one of Washington s great gentlemen, a great diplomat whose influence on the formation of American foreign policy for many, many years has been profound and beneficial.  He is, in addition, a great expert on energy policy and is a leader in various efforts in energy and energy conservation policy in the Senate today.  He is certainly the Senate s most forceful and principled advocate of Farm Bill reform.  It was Senator Lugar who was responsible for forging the bipartisan agreement in 1996 for reforming broad swaths of the federal farm programs, bringing an end to 1930 s production controls.  And I m particularly proud to say that he was the only conferee on the wretched 2008 Farm Bill to vote against that particular piece of legislation.  So with his deep background in international diplomacy, in energy policy and in agriculture and farm policy, we could not have a better individual to kick off our deliberations today.  We are very honored that he would be with us, and I ask everyone to give a warm welcome to Senator Richard Lugar. Richard Lugar:  Thank you very much.  Chris, I m honored to be with so many distinguished guests you have brought together today for this very important topic.  And I would say as a point of full disclosure that I come from a farm family.  My grandfather, Riley Webster Lugar, farmed in Morgan and Marion counties of Indiana.  My dad purchased land in 1932 in the depths of the Depression, probably with help from his father.  And this was the farm that I used to work on throughout the summers, sometimes pulling corn out of the soybeans, so-called voluntary corns, so the combine would not stick, and to likewise investing in hogs that produced pigs.  This was to help produce money for our college education. I mentioned all of this because my dad, at that time, discussed some of the subjects that we will touch upon today.  He was an opponent of the New Deal and a vigorous opponent to Franklin Roosevelt s agricultural policies, which he characterized as plowing under the crops and burning up little pigs, in essence.  The purpose of all of that exercise, however dastardly as it now sounds, was the thought that, somehow, farmers would continually, if they were not restrained, produce too much, therefore, given supply and demand, that prices would go down, and the way that you remedied this was by limiting the amount of food that could be produced by productive farmers.  This seems totally foreign to our objectives today - so be it - but agricultural policies that Chris DeMuth might have outlined that preceded well beyond his lifetime and mine were designed in that way until the so-called Freedom to Farm Act in the late 1990s.  And this produced, really, on our farm as well as on others , the ability to produce as much corn or soybeans, for example, as we wanted to without penalties, that were extracted in the farm legislation the supply-controlled business that lasted that long.  So as we criticize others around the world, it is well to think through some of our own policies, some of them still persisting.  If there is food inflation in our country, we have produced a part of it, even in the current Farm Bill, perpetuating certain subsidies and programs, which are hardly designed to bring about lower prices and costs for the American people. But with that preface of all my prejudices, let me begin by just simply saying that the Food and Agricultural Organization estimates now that people in nearly 40 countries are facing food shortages that require international intervention.  And more than a dozen countries have experienced food-related riots to date, and many more are anticipating them.  Many more countries are suffering from chronic food insecurity, and that is year in, year out.  These countries have both food availability and access problems.  In 15 countries, 35 percent or more of the population is considered undernourished by the FAO.  Another 23 countries have undernourished populations between 20 percent and 34 percent of their total populations.  The undernourished comprise about 850 million people globally, 170 million of which are children. The current food crisis was produced by the complex web of factors: fairly increased demand for food from growing populations and emerging economies that are doing much better; soaring energy price that drives up costs all along to the farm to market chain, whether it be fertilizer or transportation of the crops or the farm machinery; and increased demand for biofuels; droughts in some key food-exporting areas have contributed to the problem; cutoffs in grain exports by major suppliers; market-distorting subsidies; a tumbling U.S. dollar; and a profound misunderstanding, in my judgment, of the importance of genetically modified seeds and fertilizer - this, we will touch upon some more in the course of our conversation today - but it makes a huge difference, clearly, in Africa and in some other parts of the world. Our comprehensive approach to all of these, it needs to address, at least I think, the five following questions:  First, how does the international community improve its ability to anticipate and to respond in a coordinated and timely way to future emerging food supply problems; secondly, how do we achieve open trade in support of food security when the United States and Europe, for example, insist on maintaining farm subsidies and when developing countries are resistant to dropping trade barriers, in addition; and third, how do we achieve greater farm productivity through improved farming methods and the use of drought- and disease-resistant seed when agricultural assistance worldwide has declined and some parts of the world have an irrational aversion to genetically-modified seed and crops; and fourth, how do we decouple energy and agriculture issues so that both sectors can benefit from scientific advances and the debate  progresses from one of fuel versus food, to fuel and food security or both; and fifth, how do we make investments in human capital so that information is disseminated, technology is improved and incomes are raised. Now, with these questions in mind, I have offered, as perhaps some of you have, a set of initial recommendations to President Bush prior to the G8 Summit, which will be happening in a few days.  First of all, improve the international response to crises.  Both the World Bank and the Food and Agricultural Organization recognized that the global supply of food was tightening, at least, as early as two years ago.  This was a situation vulnerable to subsequent spikes in energy prices and weather-related crop disruptions.  A number of steps should be considered to improve the ability of national governments to anticipate and avert crises. Secondly, reconstitute the Food Aid Convention.  While the FAC has been the framework for coordinating food aid and food aid commitments, it should be strengthened to oversee and manage effective communication between existing early warning systems and the international community and to do advanced planning when there are indications that a crisis is looming.  A renewed convention should include an agreement among states to take preventative steps such as designing a menu of responses linked to the severity of indicators such as the global food price index.  Create a system of regionally-placed supplies of food stocks.  Such food reserves could be managed by the FAC using as its model the international coordination of strategic petroleum stocks at the International Energy Agency, for an example.  Such a system would need member-nations to agree to its use in times of shortages to avert crises rather than to distort market pricing and to commit to maintain adequate supplies. Commit to invest in rural development and agricultural productivity.  Eighty percent of the world s malnourished live in rural areas, about half of which are small landholders.  Recent U.N. studies have confirmed that funds spent on agriculture are more beneficial than spending in other sectors; yet official development assistance has fallen precipitously since the Green Revolution, currently representing now just four percent of all donor assistance.  G8 nations should commit to reinvest in agriculture and urge nations suffering from chronic food insecurity to do the same.  Increase official development assistance for agricultural production and rural development.  G8 nations should commit to double such assistance in 2009 and the salient increase assistance on a sustained basis.  Assistance should be comprehensively designed to encompass increasing farm yield: the dispersion of appropriate technology; the availability of credit; the development of rural enterprises and infrastructure and access to markets.  G8 nations should strongly encourage all traditional donors to increase rural funding, as well as other wealthy nations who depend on food imports. Increase funding for research and technology.  The G8 should endorse the work of the Consultative Group on International Agricultural Research and other research institutions such as the International Fund for Agricultural Development.  Developing more advanced and locally appropriate farming technologies is essential to increasing farm yield. Establish a global network of land-grant colleges.  G8 nations should commit to making investments in human capital in the areas of agricultural education and extension services.  A global network of agricultural schools similar to the United States land-grant college system would help advance scientific research.  Educate a new class of agricultural scientists, faculty and entrepreneurs and provide extension services to small farmers. Facilitate a trade system that is efficient, fair and transparent.  The current food crisis should serve notice that globalization requires clear and fair rules so that all nations may compete effectively in the marketplace.  The G8 Summit should unequivocally endorse a trading system from which developing nations believe they will benefit.  Fair trade facilities, global price signals - and the rest will follow. Encourage a conclusion of the Doha Development Round.  Concluding the stalled Doha round from which developing countries were to benefit would restore a stabilizing confidence to agricultural commerce and development issues.  A commitment to phasing out subsidies and other trade barriers is essential to spurring the progress of negotiations. Advocate increased research on genetically modified seeds appropriate to local needs.  An irrational opposition to GM crops and food among many European nations is literally starving people in Africa and other parts of the world.  GM seeds have been demonstrated to dramatically increase yields and hold great promise to reduce poverty.  Some nations with chronic food insecurity have turned away emergency food assistance because it might contain GM foodstuffs.  Others have refused to cultivate GM crops for fear of not being able to export to Europe.  The G8 Summit must address the myriad of regulations and labeling requirements on GM crops and food and let the consumers and the international marketplace decide the issue. Endorse greater transparency and information sharing in the futures markets.  The recent memorandum of understanding between the Commodity Futures Trading Commission and the British counterpart, Financial Service Authority, regarding oil contracts is a good example of mutually beneficial cooperation. Endorse policies that stabilize energy markets and promote alternative fuel sources.  The link between oil prices and global food inflation is clear.  Rising energy prices affect food prices all along the food to market chain.  Mediating the effect of energy on food will require aggressive energy policies to boost alternative supplies and increased efficiency.  In the near term, major progress can be made in accelerating advanced biofuel derived from agriculture, forest and municipal waste, and from special energy crops like jatropha and switchgrass.  Energy security and food security need not be a zero-sum game. Finally, encourage the opening of global energy markets.  World trade in energy is rapidly increasing, and many players are straying from market-oriented free trade and investment policies.  There are striking examples in oil and natural gas where increased political interference puts upward pressure on price and could eventually cause shortages in countries least able to cope.  The intelligence agencies of our country have saved [sounds like], parenthetically, an estimated 90 percent.  As a matter of fact, the control of oil and natural gas prices is controlled not by markets but by governments, and it is a very, very large political influence.  To demonstrate leadership, the United States should lift its tariff on Brazilian ethanol that now shelters the United States industry. G8 nations should encourage greater investment in research and large-scale commercial deployment of the next generation of biofuels made from non-feed stocks.  We should commit to increase assistance for renewable energy.  The G8 and other nations should commit to increasing official development assistance and deployment of renewable energy alternatives, especially in Africa.  Renewable power can help to electrify rural areas, reduce the effects of high-energy costs on agriculture and diversify markets through domestic energy industries.  The economic impact of high oil prices is far more burdensome in developing countries than in the developed world.  And generally, the developing countries are far more dependent on imported oil.  Their industries are more energy-intensive.  They use energy less effectively.  Climate change threatens to further disrupt agricultural productivity, encouraging the deployment of commercially available clean energy technologies to developing countries will improve the environment, promote sustainability and farm yields, and advance economic growth. Now, let me offer these additional suggestions just anecdotally.  Each one of you, I suspect, are regular file clipping types who find good ideas and put them aside for opportunities to share them.  Let me just say that, for sake of reference for this conference, the New York Times of June 30, 2008 had a chart and a map in which it points out that many countries, inexplicably, given the difficulties we are talking about here, make a very large effort to stop imports from coming into their countries in the same way that many more, as we have already suggested, are taking steps to make sure that nothing escapes, that all the last bit of rice or wheat is kept within the country.  This leads many economists to point out that the world trade system, when it comes to agriculture, is the most [indiscernible] stock of all the situations; namely, if there are emergencies in which there could be flows, the stoppers are apparent.  Without singling out any more countries, for censure [sounds like], I have already mentioned the United States and Europe, and the subsidies that we have.  In theory, that has been the major failing of the Doha round to date, not the only one, but one that negotiators point out again and again.  It has just been very, very difficult to get beyond. But looking at the other side, India, as a growing, prosperous country, makes life difficult because it negotiates frequently in these rounds that the United States and Europe should drop all of their situations, but India should retain the ability to protect Indian farmers.  And so it goes.  India is not unique in this respect, but we were not going to be able to have it all ways.  And the ability to discuss this very frankly in the midst of a world food crisis is probably important and timely.  We will have to have opportunities. I was delighted and surprised with the visit of the premier of Vietnam recently who came to the White House and then visited with a few senators the next day.  And he made the point that whereas the other countries surrounding Vietnam have stopped any export of rice or any flow coming out of their countries, Vietnam has had a banner year of rice production.  It is exporting rice to all of its neighbors, albeit at a price roughly twice what would have been at the beginning of the year; supply and demand working out there likewise.  But the thought - and I have seen other figures which many of you have seen - that consumption of rice on a per capita basis is highest in Vietnam, second to Indonesia, for example.  I mentioned this because as we examine the whole prospect, sometimes, we wave our arms around the world and think of generalities of how to solve problems.  But I have come to conclusion with these individual visits country-by-country that each has a significantly different set of situations.  The problem is getting an information collection situation so that we have early warning signals, even good data, on what is happening, even if it is bad news, that there is transparency of what is occurring here.  Secondly, I m just simply tremendously impressed.  And each one of the following speakers probably has written books that I should recommend.  But this one written by Robert Paarlberg, who will be on the program today, I understand, is called Starved for Science: How Biotechnology Is Being Kept out of Africa.  It is new and it is terrific.  Bob Paarlberg -- I have some prejudice.  He grew up on Indiana farm and had a distinguished family in agriculture, as a matter of fact.  He is now at Harvard, but that has not disturbed his thoughts about the agricultural setting.  And I would just say that he has written specifically about Africa in a number of articles, which I think are tremendously important.  He stressed the need for transparency, for the flow of world trade and all of this, but he points out in parts of Asia, where there are 400 million hungry, according to his figures, grain prices, wherever they are around the world are not a significant factor because only four percent of the food that gets to those areas is in world trade to begin with.  It is either they are on the farm and in the area or it is not. Likewise, in Sub-Saharan Africa - often a focus for our attention - only about 16 percent of the food that is a part of that general composite is imported.  And most of that is consumed by the wealthier cities, not the people who are living on the farms.  As Paarlberg describes, a typical farm in Sub-Saharan Africa, it is a situation of maybe one or two acres farmed by a woman.  If there is a man on the family, he is off doing something that makes a living for the family, essentially, as opposed to what is occurring on that particular farm.  That farm has no nitrogen fertilizers, no irrigation, no veterinary medicine if there is an animal or two around, and no improved seeds; amazingly enough, it does not do particularly well.  The income for this lady who is farming - and these are 60 percent of the farms that are involved in this - is about $1 a day.  This is a situation, folks, that there will have to be significant breakthroughs.  The world trade situation does not really touch it.  You come down to the organization of political factors within specific countries as well as, unfortunately, some influences. Once again, there are many conferences of this variety, but one that is often cited is a 2002 conference in which the president of Zambia came to Great Britain and he also visited other European countries.  And the question he was asking them, as sort of friends of the family is: Should he allow emergency grain from the United States, which was to be donated to Zambia, as they were having a terrible crisis of starvation.  Should he allow this food to come in if it had come from genetically modified seeds?  The answer given by the Europeans is, Of course not.   After going through all of the instances in which people could be poisoned, they also made the economic point that organic food or food without all these American influences and so forth was what the European market wanted.  That Europeans had come to a conclusion that genetically modified food was a bad idea, and therefore the imports ought to come from the organic principles and certainly some things that do not have these influences. As a result, the president of Zambia did not accept the food, and the people starved.  Now, it is just that stark, and this is why, folks, we have to get beyond that.  Now, in fairness, in European circles, even as I speak, there are persons suggesting regulations that they feel would not lead to changes in parliamentary language or in various regulations the countries have adopted.  And I will not try to get into the weeds, but they are suggesting, as opposed to a zero tolerance of genetically modified food, there might be a one-tenth of one percent tolerance, which, in fact, would cover about all the instances of complaints that have occurred in Europe.  The United States is calling for a five percent situation.  This shows the, I suppose, variation of the negotiating positions.  But the fact of the thing that it may have moved from zero to one-tenth of one percent is real progress. Now as Paarlberg and others have pointed out in Africa, many African farmers never heard of the dispute to begin with and are not aware that president of Zambia ever consulted with Europeans.  In terms of our diplomacy, we ought to play the ball where it lies and there will be people, as a matter of fact, who are receptive to these changes.  Now, I want to mention something else is occurring in another part of the world and that is in Ukraine.  As many articles are fond of pointing out, Ukraine has agriculture production now roughly half of what it had at the end of the Stalinist era.  And this is too bad because Ukraine is often known as the bread basket of Europe for other very, very fine names attached to the productive lands that were there; the soils are terrific but to the breakdown in terms of all of the institutional aspects, and one of the basic ones is, how will the land be owned or will it be owned.  There are several large agriculture companies throughout the world, European as well as United States, who have made recent investments in Ukraine.  Covering hundreds of thousands of acres, this land is being leased currently.  And even though the fate of this situation is uncertain, the thought is that probably the parliament of Ukraine, in due course, will move toward land ownership regulations and these companies want to be the first in line for consideration of this.  It is a problem that is faced not just by Ukraine but Ukraine, some agronomists believe, could supply roughly one-seventh of all the food on earth.  The possibilities are that great.  And this is why the depletion of those resources is so severe if you are looking at the world food crisis problem.  Likewise the geographical location of Ukraine, with regard to Europe s and Middle East and so forth, it is much more ideal for exporting as would currently [sounds like] be the case.  The questions will come back again and again, however, as the Soviets solved it with a certain degree of collectivization, to say the least, put together very large parcels so that even agricultural means of the time might farm them.  And that comes back to problems and situations that are less promising in Ukraine.  How do you aggregate properties so that the combines and the planters and harvesting equipment and so forth that we have can be used. Or to take a case that I raised with a group of Indian leaders not long ago.  A group of six people including the president of the largest bank of India and some of their largest combines came not to talk about agriculture but I have tried to draw their attention to that in a smaller conference.  And they pointed out, and they had pretty good data.  Thirty percent, they claimed, of the food in India never reaches the mouth of a human being.  It is lost in the fields, lost in the process, spoiled.  That is a big figure for all of the country the size of India.  So I said, What is the problem?   Well, the problem, they said, you should well know, it is getting into market, getting it to anybody.   It is physically moving it.  If you, as in the case of the African lady who is on her land -- if she ever had gotten fertilizer, which she does not have, if she had maybe five or 10 acres, she would be carrying a sack of fertilizer on her back.  The fact is that there are no vehicles to move any of these. So I said, What is your solution?   A creative solution by one of the Indian industrialists was, Get Wal-Mart in here.   I said, What would they have to do with it?   And they said, Well, they were already setting up stores all over the world and they sort of know how to get the product to their stores. First of all, they know what they want.  They know the specifics.  Wal-Mart could very well define what kind of seeds, what kind of procedures; it could bring about education of people who could get the job done.  It might even begin providing some roads and mode of transportation to move the stock to get it to their stores, so that it gets to human beings at a reasonably decent price.   One of the fascinating suggestions coming from an Indian magnate - but it is emblematic of the difficulty - and it is one of transportation and movements. For a long time, as an American farmer, I watched the prices in Argentina and Brazil very closely, and still do, but one reason that I was never all that worried was that the great production of those countries could not get to the ports and, therefore, out of the ports and into world commerce.  So in terms of the affecting the United States price, it was going be de minimus. The question, however, now in Argentina, as you have all observed, is not the price this year but just the fact that soybean farmers cannot get it out at all or they already had a strike, with the Argentine government demanding more and more export fees to let them get it out of the country.  And that happens again and again in other countries in a less dramatic way in which essentially governments have difficult balancing act. If you are one of the tens of governments I suggested that are on the threshold of food riots, very frequently you have already subsidizing food for people who are very poor, thus hoping that they will not go into the streets and demand that your government be dissolved or overthrown as the case may be.  But the problem with this is that you then often have a policy of paying the farmer the lower price that you can get by with because you are already subsidizing the consumer for political purposes to keep your whole situation alive.  And as a part of that, therefore, you do not want to give the farmer an incentive to export. You want to make sure that all is kept close.  In other words, pose a political problem quite apart from an economic problem.  And even though I have suggested for the G8 that they think through much greater changes and emphasis in terms of agricultural expenditures, the fact will remain among skeptics that they will say, What about Mugabe?  What was he doing at the World Food Conference, deliberately starving portions of the people that are not politically acceptable? This is that kind of a world in which we have to deal with the politics of the situation quite apart from supply and demand and breakthroughs.  At the end of the day, I have a happy note; although, somewhat blinded [sounds like], this will be commercially unacceptable.  Monsanto was at the food conference and Monsanto people happily announced that they are going to produce seed and other procedures that will double or triple the yields of crops that we produce in United States and are produced elsewhere by 2030. I make the point not to say that Monsanto will make that goal or not; although, I suspect they have a pretty good shot at doing so.  My own experience in life has been that my dad who was complaining about the supply controls in the 1930s was producing about 40 to 50 bushels to the acre from old records that I can find on the Lugar farm of corn each year - 40 or 50 bushels. Sometimes we do not have banner years and Central Indiana is perhaps not the most productive but we routinely get 150 to 160 bushels right now.  That is three times, maybe more, just in my lifetime.  And Monsanto was suggesting that this might even be truncated for me and for others who want to buy their seed or that of others who are competitors to replicate that process almost in a generation with my sons and grandchildren. In America or in Europe or in Africa or Asia or what have you, if the situation is set up right, we have the educational facilities, the transportation, the machinery, the gear and a rural system, at least the prices the situation - so that economically you make the best out of it. And this is why, an answer to the question about Malthus, the question that is raised today by AEI, I would say that Malthus is clearly wrong in terms of being inevitable that the world will starve.  I think many predict the population of the world by 2050 is supposed to go from six trillion plus to eight or thereabouts and so we will need to produce more. But in fact we do have the intellectual ability, I believe, scientific ability to produce a whole lot more and then the question will be, do we have the political skills to manage, at least, a world that is maybe more cognizant of transparent data but still face [sounds like] political factors of control.  So on that optimistic note, I rest my case and would like to respond to questions if there is time to do so. Philip I. Levy:  I think we maybe have time for perhaps one question from the audience because we have a very full day but the Senator has graciously agreed.  Can I ask people to -- whoever, to identify themselves and keep the question brief.  Yes, back here.  There should be a microphone. Albert Santoli:  I m Al Santoli.  I m president of Asia America Initiative and we are working in the field in Southeast Asia in agriculture and aquaculture areas.  In areas like southern Philippines where there is the potential of turning very, very substantial areas of, right now, land that is only at 15 percent capacity into making up for the shortages that are going to happen in Burma and China following the natural disasters. The problem is, as you said, are transport; there are problems of politics in making sure that people who might not be in the political mainstream are able to get the seed, the fertilizer at the prices they need.  It is a problem of the banks being able to get loans to the farmers so they do not go broke borrowing from middle men. What can be done when you have large groups of cooperative farmers that want to get to work but cannot get the right kind of political and financial support, who do they go to?  After this World Food Conference, it does not seem there have been any real answers or any real systematic process.  Senator, what do you see as a solution? Richard G. Lugar:  Well, there is no solution precisely if their governments are authoritarian and they are really prevented from seeing the outside world.  But let s say those situations are not quite that extreme.  I m heartened by the fact that Kofi Annan has now joined the group that is being sponsored by Bill & Melinda Gates Foundation, by the Rockefeller Foundation, I understand, that are busy on the ground in Africa.  They are talking to people. I have attended a luncheon not long ago the United Nations Foundation put together in which Kofi Annan attended.  Likewise, Bob Zoellick, who you will hear from later on today, was there.  Bob Zoellick has turned around altogether the policy of the World Bank which had gone down from 30 percent of its loans in 70 for agriculture round to eight percent and Bob is back in a big way because he sees the crisis and he has persuaded other nations sitting around that table of the World Bank. So I m encouraged, at least, that communication is occurring, some of it through the private sectors, through the foundations of generous Americans, maybe others in the world.  But likewise, the basic institutions, the World Bank taking an interest again and I hope that will spur others to do that. Now, whether those folks will be able to make contact in the field -- this is the question of the infrastructure of agriculture: Can the extension services in our country go out in the same way that we have seen doctors go out from our hospitals and treat HIV/AIDS in many countries? And I think the answer has to be, yes, there still is, thank goodness, enough transportation of people and ideas in the world that these humanitarian people from many institutions, our educational people, as well as our financial people, are able to get in touch. Philip I. Levy:  Well, thank you very much, Senator.  We will now take up some of these issues on international trade economic development and agriculture with our next panel so thank you very much.   Panel I: Trade, Development, Agriculture, and Humanitarian Responses     Mauro De Lorenzo:  Good morning.  If you could take your seats, we are going to keep pushing on.  We have a very full program today.  Welcome, again, to the American Enterprise Institute.  I m Mauro De Lorenzo, a resident fellow here at AEI. We have two panels for you today - this one on economic and humanitarian aspects of the crisis and then a panel over lunch about biofuels, energy security, climate change which will be moderated by my colleague, Ken Green, and then at 2:30 p.m., a conversation moderated by Kevin Hassett with World Bank President Bob Zoellick. Reports of famine and malnutrition in the developing world are not uncommon at all.  Naturally our first response is to try and help usually through providing food aid.  The United States is the world s largest donor of food aid and has been since the 1950s when Public Law 480 was passed.  Because our food aid system benefits U.S. farmers and transporters as well as responding to humanitarian crisis, its political support is enduring and substantial. But there are increasing calls to liberalize our food aid system by using cash to purchase food in the most efficient markets around the world and removing some of the American only restrictions on the transport and purchase.  Now, it remains to be seen whether the high levels of food aid at the world has come to expect from the United States can be sustained if this fundamental shift were made but, clearly, it is a priority in the light of the current crisis to find more efficient and rational ways of responding to this crisis. On the panel today to help us explore this issue, we have Asma Lateef who is the director of the Bread for the World Institute and one of Washington s leading analysts of food security and humanitarian response.  Now, the food crisis of 2008, I think, is unprecedented not only in its global scale but because for the first time, a crisis for which food aid is the only answer but for the first time, it is not being treated primarily or only as a humanitarian crisis. Particularly in Africa, we have tended to diagnose food security problems and a steady decline in agricultural productivity since 1990 as part of the natural order of things or, you know, the hand of God or the unavoidable consequence of drought or increasing HIV and AIDS rates or some other circumstance for which no national or international policy maker is responsible. But when we treat these complex public policy questions as natural disasters rather than as policy failures, the underlying causes rarely get addressed because there is no political mechanism or incentive to search for the culprit and demand accountability as there would be in, say, our own domestic political system. Today s food crisis is different and I think that is the opportunity before us today and over the coming years as we search for answers and diagnoses.  And I do not personally fully understand the reasons why it is being looked at in a different way than the past crises; maybe, some of our panelists will have ideas. But since it emerged into full public view a few months ago, it has been understood that the causes and the consequences of this crisis go far beyond the humanitarian and extend into areas not normally associated with food and agriculture: the rise of commodity prices, generally, including oil and metals; the decline in the U.S. dollar s value; the move away from investing in agriculture on the part of aid and development agencies over the past generation; the rise of India and China and their demand for commodities; the pending failure of the Doha Trade Round and the future of agricultural liberalization; some of the mind-bendingly absurd parts of our own Farm Bill as well as [audio glitch] nebulous collection of speculators on future s markets. Now, I m an anthropologist, I m really not going to say anymore about all that but I m pleased to be joined today here, in addition to Asma, by a very distinguished panel of experts who can help us tie all these strands together.  Beginning with Anne Krueger, professor of International Economics at Johns Hopkins, former deputy managing director of the International Monetary Fund as well as a former chief economist of the World Bank and she was for many years, as well, professor of Economics at Stanford. Next to her, Namanga Ngongi, a former Cameroonian diplomat who is now the president of the Alliance for a Green Revolution in Africa which Senator Lugar alluded to.  It is chaired by former secretary general of the UN, Kofi Annan, and recently signed an important cooperation agreement with our own Millennium Challenge Corporation.  Dr. Ngongi previously served as the deputy executive director of the UN World Food Programme and as the secretary general special representative in the Congo.  He is himself an agricultural scientist having earned his PhD in that subject at Cornell. Finally, Peter McPherson, also an economist.  He is currently the president of the National Association of State Universities and Land-Grant Colleges.  He was the administrator of the USAID for six years during the Reagan administration and then spent more than a decade as president of Michigan State University.  He is also past chairman of the board of Dow Jones and is the founding co-chair of the Partnership to Cut Hunger and Poverty in Africa. Anne Krueger - I introduced her in the middle so we got her - so whenever you are ready.  Thank you again. Anne Krueger:  Thank you very much.  It is a pleasure to be here and to hear everybody else speaking on this important and difficult topic.  As already been said, this is a topic where everything has gotten into the act, but let me also say that the discussion now is not that different from the discussion of 1973-74 where commodity prices had started up, oil prices had gone up afterward and then everybody discovered there was worldwide inflation.  There is some similarity there and part of our problem is exactly that; it is not only a food problem.  So let me with that begin.  We have had very rapid growth of the international economy over the past few years averaging more than 4.5 percent for the past four years and probably that average will be sustained through this year. I used to carry in my head the notion that three percent growth of the world economy as a whole was good, then I upped it to 3.5 and then to four; 4.5 for that many years running is getting up there and is probably at a point where there are some pressures on the system in general.  Prices of commodities including food are among those where demand is most inelastic, so very often that kind of pressure shows up there first. And one of the problems we have had - not a problem, a nice one I suppose - with that kind of rapid growth is that we have been growing a little faster than what is sustainable and there needs to be a little bit of a slowdown because the alternative is just not there; where you are going to have inflation get out of hand, in which case the long-run growth rate will fall or we are going to be doing something about it in the shorter run and that, in itself, is going to take away a little bit, not all, but a little bit of the problem we are talking about. The international economy was highly liquid and foreign exchange reserves built up enormously particularly in the emerging markets, which meant when commodity prices did increase, importers did not react the way they had in earlier such booms where they felt they needed to cut back because of scarce foreign exchange .  They basically were willing to use reserves rather than do so, so we have had less of the short term response to rising prices than we would otherwise have and certainly that has been true of oil. At first, everybody thought that the demand for oil was driving it at this time as contrasted with supply in 1973 and that that should make a difference but, in fact, if we are an importer of oil, whether it is a supply shock or demand shock, the price to us goes up and our reactions have to be much the same and that turns out to have been less important than otherwise. Thirdly, we have had several other things happen.  We have had agriculture production rising but not quite as rapidly as necessary.  Food stocks worldwide are estimated to have been going down since 1998, which tells you something about the sustained growth and basically gradually reducing them to the point where there is nothing more there and then prices go up. And basically some of the emerging markets have wanted to consume more.  A little bit too much weight, I think, is put on India and China - we can come back to that I think later on in the discussion of [indiscernible].  In India s case, I did take the time to look up and see what actually has happened to Indian exports of rice and wheat and they basically have been at about the same level with the exception of 2004 when they had a bad harvest. In a way, yes, they have had economic growth but actually caloric consumption through cereals has gone down as they consumed more of other crops.  And their production of cereals is going down but because of the shift in other consumption basket not because of the difficulties on the rice and grain farm. Energy concerns have led to increased demand for grains for biofuels, and I will come back to that, and certainly there have been, as there always are whenever anything is crisis , everything goes wrong once we have had the drought in -- with a drought in Australia which was a major factor, we have had some other weather-related factors that have kicked in. And we are going to have another big one this year when it is estimated that this year s corn harvest will be down to 11.5 million tons with 13 million last year, largely in part, in significant part because of the floods in the Midwest just at the time when the plants should have been going.  But somebody on the panel knows more about that probably than I do. Anyway, that raises a whole host of policy issues.  There are short term issues including the humanitarian ones which are going to be discussed here.  There has been a suggestion, and a good one and I will come back to it at the end, that there could some concerted action on stocks because food security for some countries is part of the issue.  Related to that is the issue of passing through the prices to consumers because some countries are subsidizing consumption which is, on the one hand, increasing it from what might otherwise be not necessarily for those who need it most and at the same time maybe and probably is discouraging production, so there are some things that can be done there. And finally, I will also raise the short term issue of biofuels - which ones we use and how.  In the longer term investment in agriculture which is important and has already been mentioned.  There certainly should be investment in finding sensible energy alternatives and, of course, there is the question of the Doha round, and I will come back to the end. But let me just go back to the international economy for a minute.  We have had this rapid growth; I said before 4 but it is actually more like 4.5.  Developing Asia has grown at over eight percent per year and then has led to an increase in food demand - there is no doubt about that - but it has not been that big a factor on international markets largely because there has not been that much trade by those commodities. Developing countries have grown faster and then had shifted up the demand for food even more than you might think because people shift to things that take more intensive agriculture.  It takes eight times as much acreage or has as much quality acreage to produce a unit of energy from food through, for example, cattle as it does to a cereal so that there is a lot of that going on too. The growth in poor countries no doubt, but biofuels have added drought in one-off factors.  Stocks of grain had been falling, as I mentioned, and the supply response has been low partly because of the liquidity issue, partly because countries are better off and they had better buffers that they are doing it and partly because people were caught unaware so they have not had time to react, I suspect, is also a part of it. There is concern that we may within not too long a period of time see a number of countries recognizing that they have been importing more than they can sustain over a period and that we may see either inflation problems or balance of payments problems among a number of the emerging countries. All of these things have interacted, non-grain demand has increased and land has been diverted, and that is important.  It is not enough to say that while we have this problem with corn and therefore the corn price is going up.  When corn price goes up all kinds of things happen, people shift their consumption from one grain to another, away from grains.  Farmers then shift their land away from other crops to the ones that pay more - all of these factors have been going on.  The price of inputs to agriculture has been going up and energy is a very important input in agricultural production.  It is something that many of the discussions ignore. And investment in agriculture as everybody says has not increased much, but water is also becoming a problem, the one that is likely, to remain a problem for some time.  As you probably know, Australia now considers itself at a permanent state of drought and quite clearly that affects potential supply down the road.  Other countries are facing up to what maybe bigger water problems - salinity problems in South Asia - and things like this that may be putting a lower ceiling on the potential for responding to upward shifts in demand; it did not happen before.  I m hurrying because I m limited on time. Now, biofuel demand has intensified the problem.  Right now, there are two kinds of biofuels that basically are used to any degree in the world economy: sugar, which is almost entirely, if not entirely Brazilian, and corn which is very largely in the U.S.  In the U.S., 30 percent of U.S. corn went into biofuels this year - 30 percent, that is a huge number. If you think of something that is price inelastic in demand in the short run and then you figure the price inelastic so that maybe, let s say price elasticity is 0.5 which is probably too high, that would say that 60 percent increase in price on that account alone.  Now, of course, corn production went up so that is an offset, et cetera, et cetera, but it is huge. Thirty-four million tons of grain in 2004, it is 101 million estimated in 2008 and 2009.  It is furthermore estimated that if 20 percent of maize/corn went into ethanol, it would be one-third of the current 10 percent blending target.  Or to say another way, you have to use 60 percent of the current crop, which is already very large, if you wanted to meet the target. The U.S. has been the user about 80 percent of the worldwide use of grains in biofuels.  Okay, take the supply response, demand response that is probably 30 percent of the increase in corn right there. Now the next thing to be noted is - let me just go back a minute - the next thing to be noted is that biofuels from ethanol as of today almost - maybe not at all - does not save energy.  Right now, the energy intake to produce the corn - the tractor, the fertilizer, et cetera - is almost as much if not as much as the energy saved on the other end, or to say it another way, the energy self sufficiency argument for doing this does not make sense.  Brazilian ethanol uses sugar and the estimate is that there is about five to one ratio on Brazilian sugar, so you do get energy saving. Okay, policy issues - very quickly - the poor are net buyers of food for the most part.  Okay, that is important.  Probably, if we are looking at the current plans for biofuel, the estimate is caloric intake in Africa would go down about eight percent which is huge.  And poor Africans spend about 70 percent of their income on food; if you get something of the price increase, they have got to cut back; they do not have any choice.  This is a major problem and one can say, Well, it would only cut back imports by five percent of the total consumption.   Again, remember with price inelastic that is very, very big. Some countries have restricted or banned exports because of concern, 15 of them to be precise is the last count I have.  And the estimate is that you could offset about 30 percent of the run-up in prices today if you could get an international agreement so that you would not have any bans and you would have people operating at the world price. There are some things you could do even in the short run to increase production but most of that is going to be long run.  The big thing you could do is change very quickly biofuels policy, at least, so we do not divert more out of food and that we begin getting incentives to search for more energy saving uses of these biofuel ingredients than we now have because biofuel, as it is now, is 51 percent subsidy on Brazilian imports plus a $12 billion subsidy directly from the U.S. government for ethanol as of this time, and it is not saving energy. I m moving quickly.  Shift energy policy, instead of subsidizing corn-based ethanol subsidize the search for energy saving biofuels which could be done and which would take the emphasis off corn and do a lot.  You could and should encourage accelerating investment in agriculture in developing countries and possibly even elsewhere.  There is infrastructure work to be done as was mentioned in the Senator s talk.  There are other things - agriculture research and extension is important too. Lastly, since we are looking at trade, I think there could be - and I wish we had politicians here to talk about it - a possible deal in Doha.  Get the U.S. to reduce its biofuel targets and uses on cereals.  How do you do that in a way that does not lead to great dislocation could be resolved. Europe accepts GMO which gives the U.S. enough benefit to offset this; Africa gets more assistance with food production and can move the GMO commodities; and exporters and importers agree to pass through international prices to consumers targeting the poor more effectively because there is a lot of waste in subsidies for poor consumers as of this time. There is absolutely no reason for some of the subsidies that now go on were indeed -- I think the last number I saw from one country was that 80 percent of subsidy by value went to the top half of the income distribution.  The poor got a bit but not very much.  You can do better than that.  And as we do get more efficient targeting in subsidies, it will make, I think, quite a difference.  Thank you very much. Mauro De Lorenzo:  Thank you very much, Ann Krueger.  We will turn now to Asma Lateef, Director of the Bread for the World Institute. Asma Lateef:  Thank you.  Thank you, Mauro, for inviting me to be on this wonderful panel.  Bread for the World is very much concerned with the humanitarian impact of this crisis and in fact, it seems like it is not just a crisis.  This is a setback against the progress that the world has made over many years to reduce poverty.  And the actions that the international community takes now are crucial to making sure that this setback is not permanent. So Mauro tells me to talk about the humanitarian aspect of this and food aid but there are three points that I would like to make: one is that we do need to have an effective humanitarian response; the second is that the international community s response to date is not commensurate with the challenges that developing countries face in this crisis; and the third is that this crisis should be a wakeup call for our own system of delivering foreign assistance. So I will start with the humanitarian impact.  Since 2006, world prices of basic food commodities have risen steeply.  The World Bank estimates that food prices have risen by 83 percent.  As of March 2008, wheat price was 130 percent higher than a year earlier and maize prices, 30 percent higher.  Rice prices have tripled just since the beginning of this year.  And the World Bank estimates that an additional 100 million people have fallen into poverty in the last two years. As Anne said, poor people in developing countries spend between 60 and 80 percent of their income on food.  Rising food prices are taking a devastating toll.  Families are having to make difficult choices and in too many cases, they do not have a choice.  They are foregoing meals or opting for less nutritious foods.  This will have long term consequences.  There are intergenerational consequences of opting for less nutritious foods especially in pregnancy and in the first two years of life.  We need to think about that as we move forward with the response to this crisis. And even before the crisis, the Food and Agricultural Organization estimated that 862 million people were suffering from hunger.  Rising food prices threaten to significantly raise that number, and we risk a reversal of the hard-fought progress against extreme poverty and the Millennium Development Goals in many parts of the world. And we have already seen the panic that rising food prices have caused in over 30 countries that have experienced social unrest in the last year.  So in the immediate term, what do we do?  Increased food aid and cash transfers are crucial and will save lives.  But the capacity of the food aid system is being severely tested as the world tries to cope with this crisis, the recent disasters in Myanmar and in China and ongoing humanitarian efforts around the world.  And the food aid system must be well resourced, efficient and flexible. All donors including the United States should strive to get the maximum benefit out of food aid by reducing restrictions on procurement and shipping of food aid.  Under the current system, nearly all U.S. food aid is purchased on the U.S. market and shipped on U.S. flagships and this makes our food aid much more expensive and often it arrives too late. And the resources for food aid are far lower than they were in the 1950s when P.L. 480 was first signed into law, about a quarter of what it was at that time.  With diminished resources, it makes far more sense to purchase food closer to the crisis [audio glitch] where possible.  Food aid also runs a risk of undermining local agricultural and food markets in developing countries. Changing the system would mean providing, authorizing and appropriating funds that were flexible enough to allow for local purchase instead of the purchase of U.S. grain.  There was much debate around this in the recent Farm Bill but not much has changed and there are a lot of special interests that would lose out. A small sign of progress in the Emergency Supplemental Bill that President Bush signed on Monday, there is a small pilot program of about $50 million that would allow for local and regional purchase of food aid.  Other short term actions that need to happen, we need to strengthen safety net programs and, as Anne said, they need to be targeted to poor people.  That includes cash transfers, school feeding programs and food for work programs. We need to also get seed, fertilizer, and credit to smallholder farmers, now, so that they can begin to plant for the next harvest.  And we need to ensure that we do not backtrack on the nutritional status of the most vulnerable the pregnant women and babies.  But it would be a mistake to stop at the short-term response.  The international community must work with developing countries to address some of the structural issues, and key to that is increasing productivity of smallholder farmers and in developing countries by investing in research, in improving the capacity of developing countries to research and do their own assessment of the technologies that are useful in their context.  We need to improve extension services, infrastructure, irrigation, rural roads, electricity, rural development - I believe Namanga will speak much more to those things - and we need to remove trade-distorting agricultural subsidies.  So to my second point, the international response to date to this crisis is nowhere near commensurate with the scale of the humanitarian crisis. In 2007, developing countries spent nearly $60 billion more than the previous year on food imports.  And that has probably increased substantially in 2008, given what has happened to food prices.  FAO estimates that the rise in cereal import -- the Cereal Import Bill was 56 percent between 2007 and 2008 in low-income food deficit countries. The share of global cereal imports of African countries is 22 percent.  This is having a dramatic impact on the balance of payment situation in developing countries, and the situation varies from country to country.  But a recent IMF report that came out yesterday suggest that for the 33 net food importing countries that are eligible for the IMF s poverty reduction growth facility, the balance of payment s impact of the rising food prices is estimated 0.5 percent of GDP.  Combine that with the rise in oil prices, which was estimated to be at 2.2 percent of GDP in the 59 oil-importing PRGF countries. Many developing countries are, as the IMF managing director said, at a tipping point.  In today s New York Times, World Bank president, Bob Zoellick, said that the GDP impact could, in fact, be between three percent and 10 percent.  In Liberia, the IMF s research suggested that Liberia s GDP impact was 4.5 percent as a result of rising food prices and 15.5 percent as a result of food and fuel costs.  That is devastating.  It is eating up reserves and causing developing countries to react in ways that have probably not been helpful in terms of the flow of food and commodities in the last year or so. So what this speaks to is the need for strong multilateral response.  Developing countries - what this also suggests is that we are, the international community, is as strong as the weakest link and we need to address the crisis that they face in ways that do not increase their debt burdens as they try and meet the needs of their citizens.  And so, the IMF can ease offering balance of payment support to a number of countries and a number of seven countries, I think, have already reached out to the IMF but we need to ensure that we do not make the mistakes of the 1970s and create a debt crisis as a result of this.  And so, there needs to be a concerted multilateral response that includes grants and not just loans on concessional terms and this has to go beyond the IMF and to concerted multilateral effort. The emergency supplemental approved $1.8 billion in food aid.  The World Food Program has had an appeal and has received funding to meet immediate needs, but again, today s New York Times piece suggests that the crisis that the World Bank, the IMF, the World Food Program need at least an additional $10 billion.  So the response to date has been quick and the global community is actively engaging in how to resolve this crisis but there is a lot of work to be done.  So to my final point, this crisis did not just happen.  Rising food prices are not necessarily a bad thing.  Farmers around the world, poor farmers in particular, could benefit from rising food prices.  The problem is that, as an international community, we have so underinvested in developing country agriculture over the last 30 years that smallholder farmers in developing countries are unable to make use of or take advantage of rising food prices.  Combine that with trade policies in rich countries that were unhelpful protecting rich farmers at the expense of poor farmers, and adding to that a biofuels policy that did not take into consideration the impact on food security around the world. This hunger crisis should serve as a wakeup call for the United States to rethink development and its foreign assistance.  The United States must provide leadership commensurate with its resources and values, and the challenges we face in this crisis in the 21st century argue for a fresh approach.  Elevating development and fixing foreign aid is one of the most important things we can do to address this global hunger crisis and to prevent it from becoming a permanent setback.  This means at the highest levels of decision making, development must be on an equal footing with diplomacy and defense. I ll stop there. Mauro de Lorenzo:  Thank you very much, Asma.  We are going to turn right away now to Namanga Ngongi, the president of the Alliance for Green Revolution in Africa. Namanga Ngongi:  Thank you.  Thank you very much, Mauro, for this opportunity to participate in this panel, particularly I like very much the statement by Senator Lugar I could just stop my case there.  There I think he made the case for the Alliance of Green Revolution in Africa.  Many of the things that he said are things that are keeping us worried, let me say, on a daily basis. I will focus, as Asma already hinted, on medium to long term measures rather than the short term or the market forces which have been adequately covered also by Anne.  So let me -- As the chairman of the AGRA board keeps on saying, Mr. Kofi Annan, Africa has been in a food crisis for the last 30 years.   You can see clear stagnation in productivity in the smallholder farmers fields.  Whereas, in 1960s around where Africa, South Asia, China, more or less, had almost the same level of productivity.  Africa has remained stable, more or less.  China has gone to beyond four metric tons per hectare and South Asia is above two metric tons per hectare.  Why?  Because of total underinvestment in agriculture in Africa, I mean there is no other way to look at it.  This stagnation has really been caused by three principal factors. One is the inaccessibility of improved seeds, the genetic material.  The base for Africa s effort for production has not been there.  Second, if you can go to the next slide -- I hope you can see it.  Africa is just soil mining, that is, we are taking out more from the soil than we are able to put back into the soil.  And you can see that in 1995-97, many countries were already taking more than 60 kilograms of a nutrient equivalent per hectare.  In the year 2002, even more countries had joined that group.  It is not possible to sustain agriculture in such conditions.  First of all, less than 20 percent of Africa s smallholder farmers have access to improve seeds, then most African farmers are exporting let me say, mining the soils - the soil [inaudible]. Third, I said already, inaccessibility of inputs.  This is a slide on one of the critical imports that have changed agriculture in Asia, Latin America - fertilizer import.  For most of Africa, Uganda, you cannot even see.  I mean it probably is less than five kilograms there per hectare.  In Netherlands, it is what?  More than 400, 600 kilograms per hectare, China is somewhere around 300 kilograms per hectare.  I mean if you are going to produce, I do not think the African crops are different from the crops of other parts of the world.  I'm more amused by literature when I see that Africa should be using agrarian [indiscernible], seeds and technology, that the rest of the world should be using more advanced technology.  So if Africa is going to keep up in production and fight the let me say chronic food crisis in Africa, it has to adopt a little bit more modern technology to go beyond just what we are dealing with today. Unfortunately, for Africa, the sudden rise in price of fertilizers makes that even the 5 to 7 kilograms that are being used per hectare by this smallholder farmer will become economically inaccessible.  I mean, you cannot go from $500 per metric ton to $1,300 per metric ton and still expect the farmers to be able to have such access to fertilizer. But one thing I should actually point out here is that the market forces are fine, but at least 50 percent of the African smallholder farmers have no connection with the market.  They are deficit producers themselves.  They have to buy food to eat.  Therefore, the only way you can be able to reduce the hunger is to increase their own productivity; their own production in their farms.  So you need a different set of policies to be able to address that group of farmers - we will be able to get to that. Now, what are, therefore, the possible responses to this?  Asma has already described the first part of it the short term to address the impact on the vulnerable consumers and then I will go to the medium to long term. We need a rapid I would say a rapid not 30 more years, but a rapid increase in productivity on the smallholder farmers fields.  If we are not able to do that in the next five to 10 years, clearly, the problems will only be more serious than we are seeing today.  And how do we expect to do this?  We expect in AGRA to participate with other global effort to trigger a green revolution in Africa.  I know that the word green revolution is quite controversial in many settings and sometimes we are asked questions, Does Africa want to duplicate or photocopy the Asian green revolution?   I said, I wish it was that easy.   If it was that easy, we would have copied it long ago and it would have been functional in Africa today.  Unfortunately, the realities are that it is not that easy.  Asia, highly dependent on two crops wheat and rice - for which there was a lot of research already undertaken around the world and where good varieties were produced with genetic material.  Let me say, the effort led by Dr. Norman Apollo [phonetic].  I think that was already wonderful.  In Asia, you also have large let me say flood plains, agro-ecologies, in which you could have the same variety spread through millions of hectares of land.  In Africa, you have a lot of diverse micro agro-ecologies, which you must adapt agriculture to particular settings, which are not so large.  In Asia the large-scale irrigation, in Africa much dependent on erratic rainfall and probably this calls for a lot more scale irrigation, high use of fertilizer, low use of fertilizer, fairly good infrastructure.  Just today, the Democratic Republic of Congo has about 60 kilometers per million of inhabitants.  India has 1,000 kilometers per million inhabitants and how much do you think United States has, 30,000 per kilometer?  Okay, 50. Just to show the gravity of the situation, that whereas it is difficult even in India to reach all these small-scale farmers with modern technology.  Imagine how much more difficult it is to reach farmers in the Democratic Republic of Congo?  When we talk of markets, if it is difficult in India, 30 percent of the crop is lost we are told before it even get to the market.  Imagine how much more is lost in Democratic Republic of Congo.  So there are -- it is which we cannot duplicate and finally would be government policies.  In the end, agriculture is a private sector business.  There is no doubt about it.  I am a small farmer myself; small by Americans standards, large by Cameroon standards.  Okay, I'm a farmer myself.  But it is a private sector business, but it is governments that have to set the parameters, let me say, the enabling environment for agriculture to be a profitable profession.  If it is not profitable, people will not invest their time, resources in agriculture.  You would not do it just for the love of it; you do it to be able to live, to have a living and also to make some source of income. Now, AGRA we say we want to trigger a green revolution in Africa.  How?  By investing in some key programs, the first that was started which we saw a crop improvement program, in which AGRA is supporting plant breeders in national institutions.  There are no real private breeding companies in Africa today, but there are state institutions for plant breeders who are being supported to improve varieties using the local germ plasm, not to downplay the importance of external germ plasm which we access also, or the breeders access from the international plant genetic resource institutions around the world.  And the target there is to produce about roughly for all crop varieties approximately 1,300 varieties over the next 10 years.  Some have already been released.  We also send students to be trained to be able not only to produce the varieties, but also to have the capacity in their own countries to be able to address in the future issues related to GMOs.  I think that is a topic which becomes more and more sentimental and psychological rather than technical in Africa, because a technical capacity does not really exist.  So at least have the technical capacity for people in their own countries to take decisions on what to do with GMOs.  We are not yet involved in GMOs, but we think that will be a wonderful debate to be continued in the future. The second program which has been launched but not yet operational, we are now in the process of the business plan.  It is a soil health improvement program.  As I showed before in a slide, Africa is actually mining the soils.  We have to be able to return fertility to the soils.  Not necessarily all of it by inorganic fertilizer, because it is just inaccessible to the farmers.  We have to start by popularizing old, proven agronomic practices of crop rotation, of putting legumes into a system, but legumes that can also produce an income for the farmer, not just legumes that produce invisible fertility in the soil.  The farmer also needs a crop, needs also something to eat that is something to feed their families and also, linkages with livestock systems.  Markets are very important, but markets are very important for those who already are meeting their domestic consumption needs.  But you do need a market attraction even for those who are now deficient to look forward to access in markets to increase their incomes. Water management is critical.  That is still to be developed in the future but in Africa, as I said already, is not the grand scale irrigation systems of Asia.  It does not mean that there not areas in Africa where some of that could be done.  But there are environmental issues which have to be taken, there are cost implications that have been looked into, but there is no going around it.  You cannot fight drought with paper, you cannot fight with drought-resistant crop varieties but even those need some water.  I do not think you have the water-proof crop varieties already bred.  And above all, we would have to have an extension program that supports existing national and private extension systems that exist in countries, to be able to get the benefits of improved technology to the farmer. Policy is all paramount because without a good policy environment, all of what we are saying is just wasted.  Last week, we had a policy convening in Nairobi, in which we brought the permanent secretaries from ministries of agriculture from several African countries opened by the minister of agriculture of Kenya, in which it was agreed that although it is costly in many ways, but the African farmer cannot continue to remain the only farmer in the world that is not supported by our government because most of the African food producers are female and, therefore, there need to be systems that improve the access of small-scale farmers in Africa to the imports that they require. AGRA cannot do this alone so we are moving around the world building alliances, joining hands and forces with many institutions.  And I would say here, in Washington, on the 11th of June, we had a wonderful opportunity to sign a memorandum of understanding with the Millennium Challenge Cooperation in which they would come with their resources, capacity to improve significantly infrastructure which is one of the key limiting elements in African agriculture, thus permitting the AGRA s adaptive research and technologies to be able to give the best outputs.  I think if all of this is put together, we will be able to trigger a green revolution in Africa and at least, delay the fulfillment of Malthus theories for at least another few, maybe, centuries or millennia and probably one area in which we should say - I keep on saying, the green revolution, if it is not supported and does not succeed, you can only have the reverse.  The reverse is a threat of a red revolution. In many countries, there are more and more threat of riots and instability in government.  I mean, if governments do not focus on the needs of their small-scale farmers and make sure that they can at least meet the basic needs of their own population, they stand the risk of having the other side of the coin. Thank you. Mauro de Lorenzo:  Thank you very much, Dr. Ngongi. We will turn now right away to Peter McPherson.  He is the president of the National Association of State Universities and Land-Grant Colleges, but was also the administrator of USAID for a number of years and is the chair of several organizations devoted to agricultural development and nutrition.  Thank you very much. Peter McPherson:  Thank you and it is good to see so many of my old colleagues and friends here. The comments about the humanitarian need, I think, were very well taken.  I think Senator Lugar s comments certainly as well.  We have really had sort of a checkmate situation politically on this matter for some time.  I think until this food crisis - it could well remain that - perhaps this is intervening factor because the argument on the Hill, my recently passed away good friend, Tom Lantos, for example made an argument to a group that I was chairing at the time that you could not put together the politics on the Hill for the PL40 [phonetic] program, unless the current commodity structure as well as the shipping structure remained.  And I think that at least as to the commodities, it is not so clear that is the case anymore.  I really believe the politics of that have changed because of the prices. Now, the shipping situation is a little different.  Frankly, I would be more for an outright clear stated subsidy for shipping for the maritime industry rather than the indirect subsidy that we now have.  By the way, that comes out of the maritime committee structure, appropriation structure, not at the aid structure on the Hill, so the politics get fairly complicated. What I would like to spend most of my time talking about this morning is that we do have a long-term problem, as well as these huge immediate issues, but there is no guarantee the world is going to go about this in the right way.  We have a fairly mixed history really in how we tackle long-term development and I think it is worth reviewing how we have done it over the years. Just to look at what we have done with agriculture and food, we were all happy to see the Club of Rome being wrong and that the green revolution and whatever the other things came together in a fashion that we did not have the problem we thought we would have, but then we sort of relegated this to a second tier kind of issue. Aid in the last 20 years has become dominantly humanitarian organization as opposed to development organization if you follow the money, particularly if you put in PEPFAR and the other related aspects of it.  The one noticeable exception to that was the creation of the MCC a couple of years ago.  The World Bank figures really backed away dramatically from agriculture, but it was part of the global development community bank and USAID historically had been the leaders of agriculture; when we backed away, the rest of the world did too.  I think as positive as the global development goals have been, there was always a structural bias in those goals to look at immediate delivery of goods and services, and that is interestingly reflected in things like the debt forgiveness. I'm an old banker, I think when debts cannot be paid, you ought to restructure.  But the debt forgiveness was set up in such a way that the debtor country was to use the local currency not paid to the international community to deliver largely goods and services as opposed to development matters.  That is a simplification, but it was part of a bias the whole communities had now more and more over the years of goods and services. As we were doing all this, you all will remember when I say that as this was going on, people often said, Look, we do not have a supply issue.  We have got a distribution issue.   Of course, now, we are beginning to see we may have a supply issue population, more income, more meat consumption, and allocation of resources to energy.  And so we do probably have a supply issue, one that we ought to be able to deal with but with the supply question that cannot be neglected as we have for a long time.  But the sort of relegation of all this as a distribution problem, well, that really when you pressed on it, it did not make a lot of sense because it either meant that the world was going to have to give more and more food to places like Africa - which incidentally we have - or that somehow or the other the poor people are going to get more income to buy the food.  If you look at Africa with 60 percent of the population being rural, a dominance of really poor people in Africa - a dollar day or less being rural - there was no way we are going to get more income in rural Africa without increased food production but we were neglecting food.  We really were not prepared to continue forever the international charity work, but we were not be worrying about how to deal with people having more income.  We go through every generation with this big debate as to whether countries predominantly rural can make economic progress without increased food production.  It seems like a silly argument but here we are, again, discovering that maybe it is really true after all we have to have food production increases. Well, it is worth, I think, thinking about not just this last several generation as to what we have done, but going back over 50, 60 years about how we have, as an international community, tried to be increase incomes - economic growth.  Because I think there are some patterns in what we have done over that time, I m being - for those of you that are into this - I'm being, of course, quite simplistic here but I think it helps a little bit.  We have tended to say we are going to give budget support and/or immediate goods and services transfers or we tended to say we are going to do long-term development of human resources and technology, of infrastructure and so forth, and those are really two very different patterns. You might want to call them three patterns the budget transfer, the humanitarian, and the long-term development.  I ll say in a moment why I think the humanitarian and the budget transfers sometimes get mixed in together.  But think about how all this started.  It was a Marshall Plan.  Well, it was a great success by almost any measure, but it was a significant part of the budget transfer and it was a great success because you had the people there to do it.  The Europeans had the competence, the training, some pockets did not, but most of them they did and we drew, I think, some bad lessons from that.  Remember Walt Rostow arguing in the 60s that the only problem really was the resource gap, and if only we would provide more resources -- it was sort of a neo-Keynesian argument applied to developing countries.  Well, I mean, the problem with that, there was no people, like in Europe, to use some of the resources.  I think it would be unfair to Jeff Sachs to say that he is kind of a neo-Walt Rostow, but to some extent, Jeff s arguments are that if only you provided the resources then it will all work.  Now, he has specific goals to bring up, particularly, lives [sounds like].  So, it is not entirely fair but to some extent, there is a pattern in history to all these thinking.  And I believe, the way AID has developed over the last 20 years, huge transfer of goods and services - I mean, you can argue about primary education, I think, is being an important investment and some would say, somebody else and so on but it has been largely a transfer-of-resources kind of approach.  For you, historians, this is kind of a retreat to the basic human needs of the 70s but I think that as we sit down and think about where we are, we have to look at this history.  We really do know that there are some key things that, certainly, will bring economic growth but are usually present when it occurs.  And resource transfers may or may not be part of it, but, usually, they are not the critical component if a country is underdeveloped and cannot use more resources directly.  And let me just go down through them what I think they are and I believe, as they say in history, it is pretty clear, human resources, that is why the K-12 in fact is a good idea.  But it is the universities, as the senator was mentioning, the Gates Foundation has given our organization a grant to look through what we should do with agriculture university work, again, a matter that I have been interested in a long time.  But we know if you do not have the people in the country that can do things, not much is going to happen really.  And that is a long-term project - technology.  It was just discussed - the Green Revolution - and I heartily endorse this, and I strongly think that the GMO issue has to be dealt with.  One of the organizations I chaired the board of has a much applied research work on certain crops in developing countries, and I see with the scientist there we know there are certain things that we can do with traditional plant breeding.  It is not fast, but you can do it.  We know some of that we could do faster with biotechnology but we think we should probably get there, but we know there are certain changes in plants, adaptations and so forth that without biotechnology, it is unlikely we are able to achieve.  So those adaptations to, perhaps, to drought or increase production or whatever, it gets to be very technical but we are really saying, in several areas, if we are not going to NGOs, we simply are not going to have that be available to us.   It is interesting; I have talked about the resource transfer approach that AID has moved into the last 20 years.  This year until, perhaps, the money will come into the supplemental to AID for this; we were going to have no money at all for international agriculture research centers to the core budget.  We, basically, have cut out over the last generation research dollars to the land-grant university agriculture research folks which were, historically, huge sources of technology.   You need to have more or less the right policy.  I m not a believer and you need to help people have those policies, not try to dictate it but people need technical competence, we need training of people and so on.  I will not go into this a lot - taxing farmers by holding down their prices which we do not have as much as we did 20 years ago in Africa - a lot less, actually.  But taxing there - the questions -- we got to be careful, for example, that the free fertilizer and some of the free fertilizer can be used -- or subsidize a fertilizer.  But if you are not careful, the government policy of free fertilizer can totally wipe out any development or can destroy whatever distribution systems the private sector has and prevent new instruments from coming into being.  So the government policy has to be reasonable.  Next the infrastructure, in a lot of countries, it is just rural roads.  It is interesting to look back at our own country and we needed roads in this country - in the Midwest where I grew up and know well.  And you also need some big projects like the Central Corridor from Dar-Es-Salaam to Rwanda which is one of those areas considered that I believe if you get the money up front would be economically sustainable.  Some of you, historians, here will know what the Erie Canal did for the Midwest.  The Erie Canal was built and had opened up the Midwest, New York and so forth in the 1820s.  By the Crimean War in the 1850s, land prices in Michigan were impacted by the Crimean War driving up international wheat prices.  Infrastructure can be a big deal, and we do not have rivers in Africa the way we do in the United States.  It is a long involved story.  And next, I would say, you need governments that really want to help their people.  Places like Ghana, Mali and Mozambique; those are governments that really wish to have things happen.  And I think all the rest of this is unlikely to happen if you do not have governments that want to help their people.  I will stop there because I know we want to have time for questions, but what I submit today is that we have an opportunity to reverse the trends in the last 20 years.  The foundation work of Gates and others are just wonderful, by the way.  The chance to reverse these trends and it is not automatic at all we will do this right, in my view.  There is such a pattern for doing it wrong periodically that we better watch this.  This cannot be just some sort of we want to help poor people.  It is long, hard and slogging but it can be done.  I ll leave you with one last figure.  It is both sad but should give us some optimism.  In the 1960s, the per capita income of Asia was one-half that of the per capita income of Africa.  In 1960, to say it another way, Africa had twice per capita income of Asia.  Great progress in Asia and we should be excited about it, but of course, it means we really lost out in Africa.  Mauro De Lorenzo:  Peter McPherson, thank you very much.  We have some time for questions before we break for lunch and discussion.  There are microphones around the room.  I propose to take three questions at a time and then we will let our panelists respond, if you could ask a question rather than making a comment.  Also, state your name and affiliation and be brief.  Those are our three rules here, I appreciate it.  The gentleman right there and then we will come here and then I ll try to be democratic if there is anyone on this side of the room for the third one.  Donald Lindsey:  Don Lindsey, George Washington University.  And I was wondering -- it does not seem to be working.  Mauro Lorenzo:  Can you bring the other one over?  Donald Lindsey:  Don Lindsey, George Washington University.  I was wondering if someone on the panel could address aquaculture as a source of efficient and cost-effective protein.  Obviously, it is an industry that has a lot of bad ecological practices but, I think, with some vast improvements, could possibly serve to help.  Mauro Lorenzo:  Good.  David, could you bring that one around here?  Martin Apple:  May I ask?  Mauro Lorenzo:  Please.  Martin Apple:  My name is Martin Apple.  Two questions - one has to do with why are we not addressing population also.  And second question is we developed this wonderful system - the CGIAR - to do agricultural research to focus on those areas that needed it most.  We built a system that was working beautifully and then we have cut the legs out from under it by defunding it, practically, completely now.  The CGIAR, we cut the legs out from under it in terms of funding, and I think that is a criminal offense of the world population towards most of the needy - food people.  Peter McPherson:  I mentioned and I strongly feel that the CGIAR system should have been more strongly funded.  They are going through some reforms to have their research be more focused and I think that is good.  I strongly support it.   Two is to fish.  If you get almost a pound of food for a pound of growth in fish, it is hard to believe.  Chickens, that is, poultry is like two pounds or a little more per pound of growth and beef is five or six pounds of grain for a pound of growth.  I m all for fish.  Now, there are a lots of issues to how to do it but fish is a very exciting and inexpensive, relatively so, source of protein.  I m talking about pond fish here.  Asma Lateef:  I could not agree with you more about the CGIAR, and I think part of them as we move forward that scenario that definitely needs funding not just to make up for the loss in the appropriations for this year, but a substantial increase in the research capacity of the CGIAR system.  On the issue of population, there has been so much analysis that suggests that development is actually key to checking population growth, that education of women delays marriage and the number of babies that they have and so on, and the nutritional status of the family, and has positive benefits for the community and the country at large.  So, I think, the way we think about designing a development program is we need to be very conscious of the links there.  Peter McPherson:  You know, I cannot help but think about 1982 here at AEI as AID administrator, I gave a speech in which I defended myself on the basis of that (1) AID should not be supporting abortions but (2) we have a very active and growing family planning program based in part upon the idea that family planning reduced abortions.  And also, though, that women want the availability of family planning and that, in fact, it was an important part of the total growth equation.   I remember that speech - you were in the same building here, too.  It is always nice to come back to say hello.  Mauro Lorenzo:  Thanks.  We will take another round right here on the corner.  Could you come around here first, please?  Alison Fitzgerald:  Hi.  Given some of the things that you said -   Mauro Lorenzo:  Could you identify yourself.  Alison Fitzgerald:  Oh, Alison Fitzgerald with Bloomberg.  Given some of the statements that you have said today, do you think policies by AID and other development institutions like the World Bank and the IMF encouraging trade and encouraging growth of cash crops has made the situation worst in Africa for agriculture in terms of smallholder farmers and local growth for food?  [Speaks away from microphone]  Anne Krueger:  Yes.  Well, first off, I do not think there has been -- put it the following way, encouragement for the small farmers in the rural areas we have been talking about to do it because as was pointed out, they are net users, buyers of food.  They are not net sellers.  And I think, as was discussed earlier in the panel and earlier today by Senator Lugar as well, one of the problems has been is that each country has not engaged enough in the international community.   There has, as Peter said, been an issue right along that we have basically had these governments taxing farmers and if they would open up to international trade, they would have been giving them better prices.  The problem has diminished but not gone away.  But I think you would find that many of them were historically agricultural exporters and they have become net importers.  So moving back to some kind of realistic system along with the kinds of issues that we have mentioned in terms of the things government should be doing, providing the roads and things like that, would make a huge difference.  But the opening up to trade, by and large, has been salutary and the countries that have done it have done better.  Namanga Ngongi:  Well, I would say that trade as trade is not bad.  But I think, Mr. McPherson said an important thing.  There are a lot of policies where they are put together special structural adjustment in many countries.  I come from Cameroon.  When it was being implemented in Cameroon, how many people understood actually what these programs were about and how to implement them.  So I think there was a lot of lock-stock-and-barrel acceptance of policy which were not adapted to country-to-country situations which probably the same policies applied in all the parts of the world where they have a greater capacity to implement them and taking into consideration their own national circumstances, they came out better.   So, I would say, maybe it was just the blanket application of good policies but which could not be implemented in countries that probably led some of the countries astray.  Like the dismantling of the market in the [indiscernible] were bad monopolies, they were poorly managed but should have been replaced by something else so that they will first give access to farmers to where to sell food and secondly, to be able to manage shortages of food when they arose, at least on that better management.  Mauro de Lorenzo:  I actually want to draw some of you around a point which emerged in a number of presentations.  We implicitly assumed that the problem is that food prices are high or too high.  If you look at some of the historical graphs there, actually, in historical perspective nowhere near the highs that were found in, let s say, 40s or 50s and we are designing a public policy implicitly around bringing those prices down as Asma and others have already pointed out and as you had pointed out when referring to the need for private investment those prices also serve good purposes.   What is the right balance as we go forward between actions designed to get prices down and actions designed to increase investments and the incomes for poor farmers?  We have been reflecting these prices in many ways through the lens of urban people because they are the ones that appear on television, the ones who buy food in markets and less through the lens of poor people who are now, in some cases, getting higher incomes.  Anne Krueger:  As has been mentioned, the distribution system is important and you want not to have huge subsidies to some groups who do not need it and then huge taxes on others which has happened in many of these countries.  Historically, of course, what happened in the now industrial world, is that everybody were farmers there too or almost everybody, and as agriculture productivity increased, part of the gains went to lower food prices and part of it went to higher farm incomes but we did not need as much food as there was.  So, people moved out of agriculture into industries as part of a normal development process.  And support of the infrastructure, as I said, is important but letting that happen in a natural way so that you get people - the supply of labor for the industrial jobs increasing at the rate you have agricultural productivity growing is important and the difficulty there is when agricultural productivity is not growing, there is not much you can do.  Namanga Ngongi:  I do not know where to start really.  Maybe, Asma, you wanted to take this?  Asma Lateef:  Well, I think you raised a good point.  And each country situation and even within countries, different regions - urban, rural - you have to tailor make the policy so that you were not undermining one set of groups over another, so I think while there are things that can be said in a general way, we need to substantially increase our understanding of this crisis, and how it is affecting different groups.  And I think the issue of data was brought up.  And so, getting that right will be crucial in terms of making the right policy choices.  Peter McPherson:  I would say that an important part of the world prosperity for the last generation which really in many ways has been the Golden Era.  I mean, when you think about the global growth and what is happening, we cannot dismiss what a great time this has been.  Some part of it was built on cheap oil and cheap food - it really was - and we are going through an adjustment.  I think food prices probably need to be somewhat higher, particularly, to get the supply back in stream.  I think that oil prices are going to be higher than they were.  I certainly hope not at these levels because I think that there is something artificial about the market.  But low food prices, we have lived in a great era in terms of global growth and prosperity.  Mauro Lorenzo:  Why do we not take -- I interrupted the flow of questions.  There is a gentleman who has been waiting patiently here.  Keith Fuglie:  Thanks.  I think my question actually picks up the last point that Dr. McPherson made.  Mauro Lorenzo:  If you can identify yourself as well, please.  Keith Fuglie:  Yes, I m Keith Fuglie from the U.S. Department of Agriculture.  My question is, really, I think probably for Professor Krueger, you compared the current rise in commodity prices to what you saw back in the 73, 74, but my recollection there is you had some one-off events.  You had an OPEC oil embargo; you had a Russian grain deal and the situation resolved itself fairly quickly.  Now, you talk about the underlying causes being prosperity, developing countries, biofuels, and growth.  Do you see the current rise in commodity prices, the food-fuel price, being similarly short run as we saw in the mid 70s or persisting for some time?  Male Voice:  That is a good question.  Anne Krueger:  That is a good question, and of course, similarities do not mean identical.  But on the other hand, we had the Club of Rome in the 1973, 74 saying, Look, we are going to extrapolate present growth rates and disaster will be followed so we will be out of materials completely within, - I have forgotten how long they said but they were wrong, obviously.  We had other things going on and you mentioned Russian grain and so on and OPEC but after all the Russian grain and the OPEC - these things were happening [indiscernible].  Remember, the Nixon embargo in 71 was because soybean prices were going up.  I mean there is a lot of stuff in that era that looked suspiciously like now; even though, there are also differences.  And what had happened before that is that there had been five years during which the United States was spending beyond its means largely because they have decided the fund of Vietnam War without tax revenues and that poured liquidity first off into the system.  Well, guess what, U.S. balance of payments deficits, those deficits increased world liquidity and it came back.  It is not a 100 percent different either, so I would say there are similarities, and commodity prices are, in any generalized inflation, likely to go up first because in short run their supplies more inelastic than other things, not that it is an identical situation at all.  Mauro Lorenzo:  I want to see -- to be fair to this side of the room there is a gentleman who has put his hands back there.  Garth Trinkl:  Garth Trinkl, Department of Commerce.  I wanted to refer to two earlier comments.  One, Senator Lugar mentioned the potential of Ukraine as a grain supplier to the emerging world, and also, Dr. McPherson mentioned the African Corridor Project North-South Project.  I wanted to ask Dr. Krueger and Mr. McPherson if you have thoughts on the drivers for infrastructure development in the developing world.  You have some conservatives who are unhappy with the European Bank for Reconstruction and Development and its funding in the Balkans in Romania, Bulgaria, Ukraine and Moldova.  You also have the African Development Bank and the Asian Development Bank which have had different comparative experiences.  Could you comment on what your opinions are on these development banks going forward as drivers for the infrastructure projects which will allow regional developments of agricultural high productivity?  Peter McPherson:  Well, I m pleased to see that the African Development Bank appears to be very interested in some of these regional corridors, these cross-borders.  MCC, currently, the legislation restricts them from crossing borders which is a mistake and I hope that can be corrected.  I think that key infrastructure projects can change the world.  To go back centuries, the Grand Canal in India really tied that country together for centuries, intermittently, they had struggles.  We need to do this now.  I think the private sector needs to play a bigger role than sometimes they have, but these efforts of this size would not happen without some of these bank roles.   Complicated issue - and sometimes the projects are bad if their driven -- interest in the Central Corridor is probably economically sound - the corridor in the southern part of the country which has more people and Tanzania has more people with the MCC supporting it actually, probably is not as economically strong as the Central Corridor.  You have to be careful that you put your money into things that are economically viable.  Easier said than done but with that as a condition I am - I love this Erie Canal story - I really do.  My family came from upstate New York by way of the Erie Canal in 1840.  Michigan was virtually unpopulated by white people before the canal was built.  Anne Krueger:  Yes, I strongly agree with the argument that what you have to do is economic.  I do think that a lot of what has happened has to happen at the national as well as at the regional level.  And that will take I think governments, in many African countries changing their priorities to pay more attention to economic infrastructures.   Contrast that with some of the projects that have been undertaken.  You might say it is caricature, it is not fair but it is close.  There have been far too many athletic stadiums relative to roads for other purposes and that there has been a lot of misinvestment [sounds like] along the way and that that may have to change.  Even if you get the corridors, you still need to feeder roads on all that, and even when you get that, you need the capability of delivery on time and pick up on time and those sorts of things and those are not issues that, so far, have attracted as much attention as they need in many parts of the world.  Namanga Ngongi:  Just to add on that.  A new major player in Africa - China - has also invested heavily or wishes to invest heavily in the infrastructure sector.  Just a little defense, I m not so sure that this strict economic analysis would lead to a lot of these major corridors being built.  I think some of them would be government decision to be able to have connectivity in Africa that will, in itself, generate probably increased rate, increased relationships which will, in the future, create economic viability.  Or else, of it is a strict economic analysis, I m sure that a lot of world investment that are needed to be made probably will not be made given the level of economic activity today.  Peter McPherson:  Can I respond?  I think that is right.  What I am for, as a banker in my one previous life here and government policy type is that just need to be transparent.  I think it is just we have done a lot of things in our country - rural postal delivery, the rural roads of this country, the telephone system.  We did a lot of things that were subsidized.  I think it should probably be clearer that we were subsidizing them.  But corridors, let s make sure we got the money upfront and we understand the subsidy involved and it is clear in the budget and a lot of decisions are made by governments for the next generations.  Asma Lateef:  Mauro, can I just --?  Mauro De Lorenzo:  Yes, please.  Asma Lateef:  On the choice of word driver, I think the drivers need to be the countries themselves and not those sources of finance, and I think that gets to a humongous point that the country needs to have a strategy for development and the financing needs to support that strategy.  That way, we avoid infrastructure projects that are not maintained over the course of time and things like that - so just a clarification on that.  Mauro Lorenzo:  Ladies and gentlemen, you would be pleased to know it is time to break for lunch.  I want to thank you for coming.  Please join me in thanking our panelists.  We are going to reconvene at 1:00 p.m.  [Lunch break] Panel II: Energy, Biofuels, and Climate Change  Kenneth P. Green:  Excuse me, ladies and gentlemen.  Good afternoon.  Welcome back.  Because we are being televised today, we are going to try to keep this to an on-time start and stop.  I m Ken Green, a resident scholar here at AEI, who studies energy and environmental policy.  It is my pleasure to moderate this afternoon s panel discussion on Energy, Biofuels, and Climate Change. My personal interest in biofuels stems from the 1970s, when, as a young teenager in the San Fernando Valley, I set out to build a solar still that I hoped to use to distill fuel ethanol from surplus citrus fruit that is around the valley.  Most people do not know it, but the San Fernando Valley was a huge orange and citrus grove before it became famous for Valley Girls and the Sherman Oaks Galleria.  My efforts, however, were stymied by the bureaucrats of the Bureau of Alcohol, Tobacco and Firearms, which required a large registration process.  You had to register yourself with the federal government as a potential distiller and fill out a raft of Byzantine forms and filing fees and so on.  And I could not, for the life of me, as a 14-year-old, figure out why the government was making it so hard for people to respond to the energy crisis of the 70s when it was more or less about price than it was about availability of fuel.  Thirty years later, I find I still cannot figure out what the government is doing, making it so hard for people to figure out how to have abundant and affordable energy.  And if anything, I m more puzzled than I was then. Environmental policy has always been somewhat linked to energy policy, as energy generation has a very big impact on environmental quality.  And, of course, with the advent of climate change, that linkage is even tighter to the point where, as many people now say, energy policy is climate policy.  What is interesting here that we are talking about today is that with the advent of biofuels, we now link agricultural policy to energy policy and climate policy.  So, now, there is one grand policy: climate is energy is food.  And this is a bit of a Gordian Knot with being pulled tight by people in their own silos of expertise and interest, who rarely acknowledge that what they want can cause negative impact in other people s policy areas or other people s silos of interest. So I look forward to hearing from our panel of scholars this afternoon, both to broaden my own understanding of the issue as seen from the other silos of policy studies than my own, which is environmental, and hear the spectacular solutions that I m sure will flow from these discussions so we will be able to all go home, knowing that the problem has been solved. First off, I would like to start with my colleague, Nick Eberstadt.  He is going to give us a bit of context and a historical perspective on the food situation.  Nick holds the Henry Wendt Chair in Political Economy at AEI and is a senior adviser to the National Bureau of Asian Research in Seattle.  He serves on the advisory board of the Korea Economic Institute of America and is a founding member of the U.S. Committee for Human Rights in North Korea.  Nick is regularly consulted by governmental and international organizations, including the U.S. Census, the World Bank, the U.S. State Department, the U.S. Agency for International Development and others.  His publication record is extensive, far too long for me to review today.  Otherwise, we would have to have a separate conference.  He has over a dozen books and monographs published, which are highly respected and which are listed in his bio in your materials and would make good reading for you on the way home. So with that, Nick, if you kick it off - we have about 20 minutes for each session.  At the end, we should have about a half an hour left over for Q&A.  Nick Eberstadt. Nicholas Eberstadt:  Thank you very much, Ken.  Very nice to see you all here today.  And I was so pleased to hear Anne Krueger this morning mention the 1972 to 74 global food crisis and some of the analogies between that earlier experience and the one that we are going through right now.  Once you get to a certain age, you realize that sometimes, there are precedents and antecedents for the unprecedented crisis that one is currently experiencing.  And what I would like to do in the next few minutes is attempt to put the current global food crisis into a little bit of historical perspective and maybe into a little bit of long-term developmental perspective. There is no gain saying that the increases in international cereal prices, registered in the last several years, have been extraordinary.  You can see them there, see them just in this little graphic.  If you try to index the changes in international cereal prices over the last, more or less, decade, you see that there have been huge increases by many hundreds of percent, and that is highly significant for a large number of reasons.  The question, I suppose, to relate this graphic to the title of our conference, Was Malthus Right? is the following: Does this upsurge in international prices over the last several years suggest that what we are seeing now is a hitting of the wall, a reaching a limit to growth, a vindication of the initial and simplest formulation of Malthus own proposition and a big new change in the way that we on the planet have to live?  I cannot categorically answer that for you here today.  If I could, we would be having this conference on my yacht instead of in AEI s auspices, but I can give you a little bit of background information that may possibly qualify much of what one hears today. We do have long-term price data on international prices of all of these cereal grains in the world markets.  They go back not just to 1900 but to considerably 1870 or, if you want to be inventive, even earlier than that.  But let s just start in 1900 because that is a nice, round number.  I m going to rely, for the next several of these slides, on work by Dr. Stephan Pfaffenzeller of the University of Liverpool, who has compiled an updated a version of what some of you will know as the Grilli-Yang data from the earlier World Bank series.  He has published much of this work in World Bank Economic Observer and World Bank Economic Review.  So it is accessible.  Let me just show you what the long-term price trend for rice, which is an especially volatile commodity because it is a relatively thin international market.  Let me show you what that seems to suggest. Over the period from 1900 to the year 2000, the long-term trend in the price for rice suggested an annual real decline of about 1.1 percent per year over this century.  And you will notice here, from about the mid 1980s to the end of the century, rice prices were way below historical trend.  So what does it look like now?  Well, rice prices are way above trend right now.  But if we continue that regression equation from 1900 to until just 2000, it changes the long-term trend in downward real prices for rice international markets ever so slightly from 1.1 percent a year to 1.0 percent a year.  Are we above trend now?  Absolutely.  Were we below trend for 20 years?  Yes.  When you have seriously below-trend prices in some markets, you get under-investments in those markets.  Things happen when you have under-investments.  This may not be the conclusive explanation for what is happening now, but it is certainly a consistent thesis for the moment. Let s take a look at long-term real trends in wheat.  Again, a similar pattern - the long-term real decline in prices from 1900 to 2000 was at 1.1 percent a year.  It was only 1.0 percent a year.  And what happens if we extend the series to 2008?  It is the same general pattern - below trend for about 20 years, above trend now.  Of course, if you are an econometrics nerd, you know that you have to be above trend about half the time.  So it may be portentous, but it may just be econometric. What about with maize?  With maize or American corn, the trend is slightly less steep.  For maize, the long-term real decline in the 20th century was about 0.8 percent per year, and once again, you see this steep below-trend situation over the last 20 years.  If you extend the series to 2008, maize is above trend, just barely.  The trend line continues, however, to be negative eight-tenths of a percent a year - a long-term decline in cereal prices. Now, this cannot tell us that tomorrow is going to be just like yesterday.  There are a number of important issues on the horizon that may change circumstances.  The constraints of climate change, the new edition of the phenomenon of biofuels as a demand on foodstuffs - all of these may make for some significant changes in the years immediately ahead for us.  But I think that we should qualify our assessment of what is happening in international food markets now by taking a look at these longer term trends because there may still be some power and significance in a trend that has, in fact, reduced the real price of corn, wheat and rice by almost 70 percent over the course of the past century.  And even for an economist, 70 percent is not a bean bag [sounds like]. Just to put this in the Malthusian context for a moment, what I show you up here - Pfaffenzeller s index numbers on real trends in international food prices for corn, wheat and rice contrasted with population growth.  Now, if you were to do a very simple regression there, say, what is the correspondence between increasing population growth and real food prices, you would say, Gee, it looks as if the higher world population is, the lower food prices are.   That cannot be framed into a Malthusian worldview.  There are other frameworks, including certain sorts of frameworks of economic reasoning where you might be able to frame this, but you cannot frame this in a simple Malthusian model. People do not make demand.  Dollars make demand.  And you might want to look at the increase in global GDP in correspondence to long-term changes in food prices.  Angus Maddison, I think, is the past master of long-term estimates on world historical GDP, and I used his data up here, indexed.  We indexed 1900 as 100 and go up from there.  It is not just over the course of the 20th century that we had a, more or less, quadrupling of human numbers; each one of those human beings, on average, increased their output by a factor of about five over this past century.  The GDP of the planet increased by a factor of more than 20 over this same period of time, and as you know, GDP is demand.  Human demand on the planet increased by a factor of more than 20 over the last century, and over this last same century, the long-term trend for real prices of cereals was unmistakably downward.  And as you will know, economists like to use prices, among other things, to indicate relevant scarcities.  In some sort of sense, food is becoming less scarce, not more scarce, despite this absolutely unprecedented explosion of the human demand. As I mentioned earlier, it is really impossible to put these big trends into a simple Malthusian framework and to make sense of them.  But there are other frameworks where, I think, we can make sense of them, and one of these has to do with in the context of human capital and human resources because over the last century, there has been an absolute explosion of phenomenal and unprecedented explosion of human resources and human capital.  And this has made for wealth and productivity, which has created enormous changes in our lives. One of the obvious quantitative indicators of this explosion in human resources or human capital wealth has been the increase in life expectancy around the planet.  Since the year 1900, from 1900 to about the year 2000, we believe that human life expectancy doubled or more.  Nothing like that, obviously, had ever happened before.  This health explosion was what drove a hundred percent of the increase in human numbers over the past 108 years, more than a hundred percent, in fact.  And if we look around the world over the past half century, we see that in lower income countries, there has been a jump in life expectancy and in health of almost two decades.  There has been an increase of about a decade in the richer countries, which is to say that a critical gap between poor and rich has been narrowing, for the most part, over the past half century.  Progress in sub-Saharan Africa has been very much slower than other poorer areas largely because of the HIV/AIDS catastrophe, but even in sub-Saharan Africa, the life expectancy level has jumped unmistakably over the past half century.  The only long-term exception to this in the world is the situation in the Russian Federation, but that is what an exception is - an exception to the general rules. If we look at estimates by Robert Barro and Lee, Jong-Wha, we see an analogous explosion of human resources in the area of educational attainment.  This figure here may be too detailed to see from the back of the room.  What it shows, in general, is a steady rise in the average years of schooling for the adult population in richer and poorer areas all around the world in the period since 1960.  Once again, sub-Saharan Africa s progress has been troubling.  It has been slower than in other areas, but it is unmistakably progress, not retrogression. I think you can see this in a more clear graphic presentation if we take some of the work that Wolfgang Lutz and his colleagues at IIASA have done on trying to look at the distribution of educational attainments in the part of the working age population of the world, the entire globe - 120 countries that make up 97 percent of the world s population - over the period from 1970 to 2000.  And you can see that there has been an enormous explosion in human numbers of working age, but there has also been a tremendous change in the composition of educational attainment. Maybe it would be better to be seen this way, which is proportional - you see that the proportion of the human population of working age that had either a high school degree or a college degree has increased from about a quarter of the world to about half of the world s working age population just over this 30-year period.  And the proportion of humanity s working age population with no education, with no exposure to school, has dropped from about a third down to a fifth or maybe somewhere between a fifth or a sixth.  This is really consequential.  This speaks to an enormous increase in human resources and human education and human capital that can make for productive responses to international challenges, including to other forms of resource scarcity. So to conclude, I would say that if we look at the longer term record, we cannot categorically say that today is going to be like tomorrow.  We cannot conclusively say that the long-term trend we have seen over the last hundred years will continue for the next hundred.  There are constraints which my colleagues will talk about, which may change that circumstance.  I think, however, that we can say that the long-term record suggests that it is human resources rather than natural resources, which are going to continue to be the decisive determinant for future development.  Thank you very much. Kenneth P. Green:  Thank you, Nick.  Next up - and we will be queuing up his presentation - is Robert Paarlberg.  Robert Paarlberg is the Betty Freyhof Johnson Professor of Political Science at Wellesley College and a visiting professor of government at Harvard University.  He is also a member of the Board on Agriculture and Natural Resources at the National Research Council and has been a frequent consultant to the U.S. Agency for International Development, the International Food Policy Research Institute, the World Bank, the United States Department of State, the Food and Agriculture Organization of the United Nations, and the Bill & Melinda Gates Foundation - now, they did not have theirs -- you want to have a conference on.  He is the author of several books on agricultural trade policy, U.S. foreign economic policy and environmentally sustainable farming in developing countries.  His new book, which was referred to earlier, Starved for Science: How Biotechnology Is Being Kept Out of Africa, was published with incredible timeliness, in March 2008, by the Harvard University Press. Robert Paarlberg, please, the floor is yours. Robert Paarlberg:  Thank you very much, Ken.  And I m pleased to be a part of this event.  In the time that I have, although we are nearing the end of the program, I would like to challenge some of the popular assumptions about both the causes and the effects of today s unusually high world food prices.  I certainly agree that today s high prices are a crisis calling for short-term responses in order to ensure the continued flow of food aid, in order to get rid of distorting and inefficient biofuels policies and in order to end market-disrupting export bans in particular.  But I want to challenge the notion that high prices on the world market are a useful proxy indicator for trends in actual hunger among poor people in the developing world.  Hunger in the developing world usually results from highly localized circumstances, not global fluctuations.  And the number one cause of hunger in Africa, which is where I do much of my work, is lagging productivity on the farm, not high prices on the world market.  This will be reinforcing some of the comments that were made earlier this morning. Now, what I would like to do as quickly as I can is to challenge what I consider to be six erroneous assertions about today s short-term high global food prices and what they mean and then set out three essential factual assertions about the longer term challenge of increasing farm productivity in Africa.  Let me start by challenging the widespread impression that has been promulgated both in popular literature and also by recent multi-stakeholder assessment that was sponsored by the World Bank and FAO on agricultural technology, an impression that conventional high-yield farming is no longer sustainable, that it has hit its environmental limits.  This is not true.  I have summarized here on this slide the latest data that just came out last month from OECD. The data is showing that the 30 industrial countries where high-yield farming is most advanced are actually lightening their footprint on the environment, even as production increases.  Over the last 15 years in these 30 countries, production has increased by five percent, and yet it was increased with less land area devoted to agriculture with less soil erosion from wind and water, with less irrigation water per hectare, with fewer greenhouse gas emissions.  In fact, energy use in the non-agricultural sector increased six times as fast as in the agricultural sector.  So agriculture has become less energy-intensive rather, relative to the rest of the economy.  Also, less spraying of herbicides and insecticides, less use of nitrogen fertilizer are 17 percent less and also greater biodiversity. Now, these rich country farming systems are carrying a heavy load.  The OECD countries contain only 18 percent of the world s citizens, and yet the farming systems of these countries produce 36 percent of the world s cereals, 40 percent of the world s meat and 47 percent of the world s milk.  And notice that they are doing this every year now with a lighter impact on the environment than the year before.  And they have not done this by going back to low-yield farming or embracing organic approaches or agroecology.  They have done it by a transition to what is called precision farming that we could talk about if you have an interest. A second global food crisis myth is that international food prices are rising because world food production is now falling badly behind consumption.  This is not really true.  In 2008, the highest price spike on world markets was for rice prices, and as these data show - these data are from the U.S. Department of Agriculture Foreign Agricultural Service - that, at least, since 2005, world rice production has been growing with or even ahead of consumption.  And ending stocks today are higher in 2008 than they were two years ago.  So there is no global shortage of rice triggering the price increase.  There is a shortage of exportable rice on the world market.  But that is caused by export bans in a dozen or so different countries, not by any shortage of rice availability.  And we have to keep in mind, amid all the talk of a crisis, that the international sales of rice that have been badly disrupted by these export bans satisfied only a relatively small part of total global rice consumption.  Only about six percent of global rice consumption was satisfied through international trade.  So what we have seen is a damaging destabilization of a market that relatively few rely on.  A third global food crisis misunderstanding that I would like to point out is the belief that affluence in China has led to more Chinese consumption of animal products and a larger import of food and feed and that has put pressure on world supplies and driven up prices.  This really is not true as Anne Krueger alluded earlier this morning.  These data, also from FAS, show that China remains, essentially, self-sufficient in basic cereals.  In fact, it is a small net exporter of rice and wheat and coarse grains and over the past three years, while China s total consumption of wheat and coarse grains has risen sharply, its imports from the world market have actually gone down and China s carryover stocks have actually increased.  All this is possible because of the strong production performance of China s own farmers.  China s own farmers fortunately have had the green revolution that Africa s farmers have not yet had.  A fourth misunderstanding about the current global food crisis is that poor and potentially hungry people are heavily dependent on the world markets.  In fact, this really is not true.  Most of the world s poor and hungry and potentially hungry people live in South Asia and in sub-Saharan Africa.  And these two regions tend to take only a small part of their total food consumption from world markets.  These data, once again from FAS, show that currently South Asia imports only six percent of its total wheat consumption.  And for rice, you can see here that South Asia imports only one percent of its total rice consumption.  And for sub-Saharan Africa, you can see that imports of cereals provide about 15 percent of total cereals consumption in Africa.  Now, that is a slightly higher dependence on the world market but that is for cereals.  Cereals are actually not as prominent a part of the African diet as in the developing countries of Asia.  If you look at total calorie consumption, sub-Saharan Africa is not really that dependent upon the world markets since so much of food consumption in Africa comes from non-traded goods whether it is sweet potatoes or bananas or cassava or fish or meat and milk from grass-fed animals.  And all this leads to my next global food crisis myth - the myth that when international food prices go up, food consumption among the poor has to go down.  That is not always true.  And I could critique the World Bank model and its 100 million new poor people forecast.  This assumes no trade policy changes even though it was export bans that drove up the prices and it assumes a price transmission into domestic economies that I think is preposterously high given the infrastructure constraints that we heard about earlier this morning.  But it might be more useful to look at some actual consumption data from the last time we saw such a sharp and sudden increase on international market - the 1971 to 1974 period that Nick and others have alluded to - between 1971 and 1974 in part because of strong inflationary growth worldwide.  Back then, it was lax monetary policy at the Fed, just as you might say it is today, that was fueling some of this growth.  Oil prices surged, food prices surged, wheat prices doubled, corn prices increased by 60 percent, as Anne Krueger said, soybean prices went up so high that the U.S. put an export ban on soybeans.  And it was dubbed the world food crisis; there was a world food summit in Rome just like today.  Lester Brown went on television, said this was the inevitable consequence of population growth - ran out of control just as he is today.  But FAO data subsequently showed that when world prices spiked between 1971 and 1974, the actual consumption of cereals in developing countries did not change very much.  The much higher prices in 1974 did lead to substantial cutbacks in consumption but mostly in rich countries which are the greatest users of international markets - the greatest importers of international markets.  The biggest importer of corn today is Japan; the second biggest importer is the European Union; third is Korea.  It is the rich countries that use international food markets primarily. And in the 1970s when corn prices went up, the United States cut back on the feeding of grain to livestock by 25 percent.  And that drove up meat prices; and meat consumption dropped.  Soybean embargo - the Japanese had to make adjustments.  But rich countries do not experience hunger when they make these kinds of adjustments to high prices on the world market. And in the poor countries not as dependent on imports, consumption patterns changed very little.  This slide shows that in Latin America between 1970 and 1974, the change in per capita consumption was trivial and in some cases, actually positive because in the 1970s, the lax monetary policy said fuel inflationary growths of incomes were going up and people were consuming more even though prices were higher. In sub-Saharan Africa, a similar story between 1971 and 1974 during the so-called world food crisis, you see that consumption patterns in sub-Saharan Africa changed very little and in some cases, consumption actually increased.  Likewise in the developing countries of Asia, either no change or, once again, because of high income growth in the developing countries of East Asia, consumption continued to increase during the so-called world food crisis period. Now this leads to my final global myth - that when world prices fall, the crisis will be solved and consumption will recover.  Actually when world prices fell back down again in the 1980s, that was when problems began in Latin America because what brought the world food prices down in part was tighten the monetary policies by the U.S. Fed in 1979 that threw Latin America into a decade long debt crisis and income growth stopped and as a consequence, the rate of growth of food consumption went negative. So what I would like to advocate is much greater care and precision in distinguishing between price fluctuations on the world market which do make food aid more expensive and do put a painful squeeze on disposable incomes among import dependent urban populations, in particular, including in West Africa and the Caribbean.  And this income squeeze does lead to political unrest. This is a political crisis.  But I would not describe it exactly as a hunger crisis.  Tracking global hunger especially chronic malnutrition is better done without paying so much attention to international food prices there.  Eight hundred and fifty million chronically malnourished people in the world before world food prices went up and they will be there after world food prices come back down.  Now the problem of chronic malnutrition has been particularly difficult in Africa not due to high world food prices but due to lagging productivity on the farm. Very quickly, some measures of Africa s lagging agricultural productivity.  You can see here, compared to the developing countries of Asia and Latin America, that sub-Saharan Africa is way behind and falling farther behind.  Cereal yields, one-third as high as in developing Asia and from that low base, they are going only one-third as fast so every year the gap between Asia and Africa widens.  And in per capita terms, because of population growth in Africa, you can see that the rate of growth of farm production in Africa has actually been negative over the last several decades.  In fact, on a per capita basis, Africa today produces 19 percent less than it did in 1970. This is the real food crisis and it is not global; it is regional, it is focused on Africa.  What is responsible for this crisis?  Well, it is an inadequate uptake of new technology on the farm in Africa.  The simplest new technologies - improved seeds, fertilizers, irrigation, access to veterinary medicine, electrical power - most farmers in Africa have none of these things.  Most smallholder farmers in Africa have none of these improvements. Why not?  Why can they not get access to these things?  I would say that there are a lot of reasons but the one that is most prominent, in my analysis, is the isolation of farmers in rural Africa due to inadequate coverage by all-weather roads.  This data is from the World Bank, it shows that in sub-Saharan Africa, only 30 percent of farmers live within two kilometers; that is about a 25-minute walk of an all-weather road. If you do not have roads you are not going to get access to the inputs that you need, you are not going to be able to sell your products.  They are not going to put in power lines; you are not going to have an irrigation project; veterinarians will not reach you; you will not be able to get your own medical services or good teachers for your children.  Until larger investments are made in rural public goods, including agricultural science and infrastructure, the long-term problem in Africa is not going to go away. So what has been stopping those investments?  And here I would say that we cannot blame it all on African governments.  They do underinvest in farmers; only about five percent of the typical budget of an African government has anything to do with agricultural production.  But one reason they underinvest is that the donor community over the last 25 or 30 years has pulled the rug out from underneath agricultural development all over the world and in aid-dependent Africa; that has made a huge difference. You can see the comparisons here between the late 1970s and the 1980s to today.  This is turning around partly in response to the much higher prices on the world market.  And that cheers me up but I worry because if we use higher prices on the world market as our indicator of when a food crisis exists, we may repeat the mistake of the 1980s when today s high prices go down. When today s price surge recedes, we may conclude, as we did in the 1980s, that the problem has been solved and the new investments now being made by the World Bank and by the Bill & Melinda Gates Foundation and by other donors may be pulled away.  I hope not.  Thank you. Kenneth P. Green:  That was excellent.  Thank you very much.  I m actually somewhat reassured by some of that data.  It is a very positive outlook. Our third, final speaker on this panel before we go to Q&A is Suzanne Hunt.  Suzanne is an independent consultant who works with the U.S. Department of Energy, the Sustainable Energy and Climate Change Initiative of the Inter-American Development Bank - putting that one on your business card must be interesting - and other non-profit and private sector clients including Worldwatch Institute where she coordinated the landmark study Biofuels for Transportation: Global Potential and Implications for Energy and Agriculture.  Before joining Worldwatch, she worked at Environmental Defense Fund on social and environmental safeguard policy reform at the international finance institutes.  She has appeared on television in both English and Spanish and the Voice of America. Suzanne, you have the floor. Suzanne Hunt:  Thank you very much.  And thank you to the organizers especially Jon Entine, who could not be here, for the invitation.  I am guessing that Malthus did not predict biofuels but I m guessing that had he known they were coming, it might have put him over the edge.  I m guessing everyone in the room has some kind of ideas about biofuels.  We have heard a little bit already today and I guess I would just start by saying that biofuels are bigger and more interesting than most of what is being covered. Biofuels are generally thought of as just food being turned into transportation fuels for our current generation of cars.  And, in fact, biofuels have been used forever in many different forms and there are all kinds of exciting things coming.  So they are both extremely worrying and extremely exciting at the same time. So I would just say that and then kind of picking up on some of the things that were already said today.  Basically, biofuels are adding pressure to systems that are already under stress.  And right now, because most of the biofuels are being made out of food commodities, we know what happens when we expand our agricultural frontier - we have decades of experience and the environmental problems of some of our agricultural production systems.  We have thousands of square miles of our Gulf of Mexico that are completely biologically dead because of agricultural pollution.  So this is not a new challenge; it is ratcheting up. I think another important point to drive home is that biofuels should be seen in the broader context of a whole range or a series of wedges, if you are familiar with the different wedge analyses that help us deal with our climate and energy problems.  And the fact that our climate insecurity, our food insecurity and our energy insecurity problems all go hand in hand, it is not something that has been talked about a lot until recently.  And I m really glad to hear a lot of the discussion that is going on so far that makes those links - and additionally political insecurity that we have talked about today. Just a few kinds of factoids to help give some context to the current biofuels debate - currently, more or less we can argue the numbers, but in the range of about four percent of the global grains right now are going towards biofuels.  And in the case of corn, a third of the corn is left over as high protein feed once the starch is removed and still fed to livestock.  So you got about four percent of the world s grains going to biofuels.  Meanwhile, we have about 40 percent of the world s grains going to feed livestock.  So the discussion about increased meat consumption is very interesting as we are kind of positioning all this. I have the pleasure of working from time to time with Andy Karsner who is our assistant secretary of Energy in charge of renewables, and he just testified a couple of weeks ago, in the Senate, in a hearing about the impacts of our biofuels policies on food prices. And looking through all of the different analyses that have been done - and there are surprisingly few - of the impacts of biofuels on food prices, basically they range from the lowest being about -- they are saying there is about a one percent impact on food prices up to about a 30 percent if we are saying some of the higher ranges - 30 percent contribution to the higher food prices. But that still leaves 99 to 70 percent of the impact being caused by something else.  And there is broad agreement.  I was glad to hear Senator Lugar mention that oil and fossil fuels price increases are having a huge impact on our food prices.  So for me, the fact that our food supply is so highly linked to our energy supply and our food supply, globally, is so dependent on petroleum that to me is a huge food security problem that is not being addressed at the scale that it needs to be. And I spent a lot of time hanging around energy guys.  I think I m one of the few kinds of -- mostly energy people.  I did grow up on a farm, though - I will talk about that in a bit -- one of the few energy people and these guys, they are looking at the oil reserves; they are looking at the investments that have been made; they are looking at -- even if we start developing some of the dirtier oils and some of the tar sands, we are constrained by how much greenhouse gas pollution we can put into the atmosphere.  We are not only energy-constrained, we are carbon-constrained.  So when you are looking at the situation and then you see that our food supply is so dependent on fossil fuels, it is a really worrying situation. So biofuels came roaring into the scene with this kind of energy and climate constraints and all these constraints, and yet with all of the debate, I think it is important to know that biofuels still only represent about two percent of the global liquid transport fuel market.  And while that sounds small, they still are playing an important role in contributing to the growth and demand for liquid fuels, so according to the International Energy Agency, biofuels are making a significant contribution to the balance of the market.  You would not necessarily know that with oil prices going up so high right now but Karsner testified a couple of weeks ago that American consumers would be paying 20 to 35 cents more per gallon right now of gasoline if there were no biofuels in our fuel mix. So the price impacts go both ways.  The International Energy Agency is estimating that biofuels are contributing to about 30 percent of the increase in demand for liquid fuels.  So they are playing an important role despite the small global size. Another kind of interesting thing to think about, I think, is, again, the climate connection.  And biofuels right now are still quite a small segment of the agricultural sector as a whole.  And when we look at agriculture, the IPCC, the Intergovernmental Panel on Climate Change, says that agriculture contributes about 14 percent of our global greenhouse gases.  Deforestation is nearly 20 percent and they attribute the expansion of the agricultural frontier for a lot of the deforestation. So that tells us that agriculture, directly and indirectly, is causing about a third of the world s greenhouse gases right now.  So we have a situation where a third of our greenhouse gases are coming from agriculture; biofuels is a very small segment of agriculture but growing quickly.  And so I think this really points to the fact that we need to look at agriculture as a sector and look at how we can reduce those emissions and how we can stir our agricultural investments to lower petroleum input-dependent systems and how we can structure our policies, especially our international climate policies, to bring the agricultural sector in more strongly and create the right market signals. Talking about the developing world context for a little while, I think, when oil was still $20, $30, $40, $50, even $60 a barrel, you could talk about reducing oil dependency as kind of a soft environmental objective for a lot of the developing countries and the oil importing countries.  Now that it is $120, $130, $140 a barrel and not expected to go back down to where it used to be, the substitution of imported petroleum fuels in the developing world and in some of the poor countries is an absolute economic imperative. And so as we are looking at diversification strategies, biofuels are one of the immediate options and tropical countries actually have inherent advantages in the fact that they have year long growing seasons, they have much more productive - and as someone mentioned earlier - energy-efficient crops that they can grow: sugar and some of the other high-yield tropical crops. As I said, biofuels are largely associated with transport fuels but they can also be used for cooking, for heating, for lighting - many of the energy services that are most important to the poorest people.  Biofuels - biomass - has been used forever and according to the United Nations, 2.4 billion people today still depend on straw and dung and other traditional biomass, bioenergy for their energy. The developing world is already dependent on biofuels; it is just traditional biomass.  So I think from a development perspective, when we know that, in many countries, women are spending a third of their productive life gathering fuel and gathering dung and girls are not going to school because they have to help collect fuel - the discussion about feeding the poor and finding ways to use biomass more efficiently and move to modern biomass and more local and renewable energy sources go hand in hand - it is not a food or an energy kind of discussion. There has been a lot of discussion about Africa today.  Countries like Burkina Faso, Niger and Guinea-Bissau - about 90 percent of their primary energy comes from biomass.  The African average right now is about 60 percent dependency on biomass for primary energy. So the management of our biomass for energy and food, I cannot stress that enough.  Maybe what I will do is just give a few general recommendations and then my favorite part of these events is always the Q&A so hopefully, we will leave lots of time for that. I think the focus - and I think Anne Krueger said this - this morning, we need to restructure our policies or in the future structure, our future policies in ways that encourage much more energy-efficient feed stocks and feed stocks that do not compete so directly with food. One of my favorite strategies for doing this is creating policies that focus on the performance.  So you create a policy that is technology neutral.  You figure out what you want.  So what we want is low carbon transportation.  We need to get from point A to point B.  We do not necessarily want a certain kind of fuel or a certain way of making that fuel. So in California, they have created a low carbon fuel standard which basically says you have to reduce the carbon intensity of the transport sector.  There are lots of other ways to do this, but I think getting the market signals right so that their incentivizing innovation and production systems that generate low carbon fuels and control some of the unwanted impacts is the direction we need to go in. As I mentioned before, I think we really need to bring the agricultural sector into climate policy.  This has been a big lack in the past.  I also think that there needs to be a lot more discussion about land use management.  When we talk about the environmental impacts of biofuels and the environmental impacts of agriculture, it is really all about land use and the land use changes. I think everyone knows Bill Clinton s famous statement, It is the economy, stupid ; I think with biofuels, really, It is land use, stupid.   And, really, we have to figure out how we put better, smarter land use policies in place. I think for sure our development banks and other institutions can play an important role here.  I m really curious to hear what President Zoellick is going to say because I think with these new agricultural investments, I m hoping that they are going to make those investments in a smart way so that future agricultural systems do not become stranded when oil prices go up again or petrochemical input prices go up again. I think we need to think about a much more - and I did not coin this term - but a much more durable food system.  I think that we all recognize the value of trade and I think we can also all recognize the value of local production and local food production.  And so I think that as we are developing these systems, and having watched a lot of farmers go out of business, figuring out or working towards having various markets to sell to helps make your system much more durable - having a variety of production systems so that we are not just dependent and we are not putting all of our hopes on a techno fix. I think technology is an absolutely vital part of the solution but it is not the whole solution.  So I think diversification, just as all of our personal investments are diversified, we want our energy supply to be diversified.  I think our agriculture needs to be diversified in a sense that we are not depending just on the export market or just on one production system. So I will wrap it up with that and look forward to questions. Kenneth P. Green:  Great.  Thank you very much.  What we will do at Q&A - next, I have some of my own questions I would like to ask and I will take the moderator s [audio glitch] somewhere along the way and inject them in.  I would like to ask a couple of things.  If you have a question, raise your hand.  If you are away over there in the side of the room I cannot see and you have a question, you might want to mozy over to stand back here so that you can be seen. Please stand up when you ask a question.  Wait for the microphones to come around.  They will be circulating amongst you.  State your name and affiliation for the audience here and elsewhere.  And please remember the Jeopardy rule which is to ask your question in the form of a question as opposed to a statement. So with that, we have about half an hour for questions.  Anybody is welcome to kick it off or I will. Caroline Poplin [phonetic]:  Hi.  I guess this would be for Dr. Paarlberg. Kenneth P. Green:  Could you identify yourself, please? Caroline Poplin:  I m Caroline Poplin from Georgetown.  If the underlying trends are favorable, why are they having food riots in Pakistan?  Is it because it is an urban situation and they are exposed to the marginal price which is the international price? Robert Paarlberg:  I do not claim to be a specialist on politics in Pakistan but what have been called food riots are a combination of a response in the street to higher food prices and also higher fuel prices.  In this context, we call them food riots but that really exaggerates the food component of the discomfort that urban consumers are now feeling. In some parts of South Asia, in Bangladesh for example, rice prices are high, food prices are high but that is a weather effect, that is not a world market price effect because Bangladesh has recently been importing very little of those commodities.  We cannot always assume that political unrest is directly connectable to price fluctuations on the world market. When you had political unrest in Haiti, it is not the first time since the last food crisis that we have had political unrest in Haiti.  Now, Haiti, actually along with other countries in the Caribbean and in West Africa, is exceptional because it is heavily dependent upon imports of rice, in particular.  And I do not minimize in those exceptional cases the political risks that are run if world prices remain as high as they are.  But some of the heaviest food importing countries in the developing world, in North Africa for example, are countries that are not seized by hunger. Per capita calorie consumption in Cairo is higher than in Europe because they have subsidized bread consumption for so long, so when food prices go up because import prices go up, that is an income squeeze on people in Cairo and they take to the streets but it is not a hunger crisis comparable to what you find just about anywhere in rural Africa, south of the Sahara. Kenneth P. Green:  Over here. Anne Krueger:  Anne Krueger, again for Bob Paarlberg.  This morning someone suggested that $10 billion more in food aid would help the humanitarian purpose and I could not help but wondering what would $10 billion more in food aid even if you could distribute it efficiently, which I have some questions about too, but even if you could, what would that do to food prices? Robert Paarlberg:  Well, you could increase the availability of food aid immediately without spending more in the budget.  If you permitted local purchases, if we cashed out our program and got away from the requirement to purchase in the United States and the requirement for U.S. flag vessels to transport the stuff around the world, you could probably triple the amount of food aid you could give in Northern Uganda if you could source it in Southern Uganda rather than sourcing it in Iowa and shipping it to Northern Uganda. The trick is to keep the budget line as large as it is after you have taken away the political support for it.  That would disappear if the requirements to purchase in United States were eliminated.  But why not just relax it as the president has suggested for the last several years and allocate a portion of our food aid budget to local purchases.  What farmer in Iowa that just locked in a $7.50 per bushel price for his corn crop is going to complain right now if we modify our food aid program that much?  I think it is a sensible thing to do. Kenneth P. Green:  Back here first and then we will come back to the center. Floriano:  Hi.  My name is Floriano [phonetic], a congressional fellow here.  I wonder if you see, also, in this crisis any role played by interest rates and by the Federal Reserve Bank here.  Well, low interest rates, increasing consumption and also driving speculators to look for other investments in commodities instead of bonds and shares. Nicholas Eberstadt:  Absolutely.  I mean, that is part of the echo of the world food crisis of the early 1970s.  I mean, as Rob mentioned, as Anne Krueger mentioned this morning, in the 70s, we had a conjunction of different global macroeconomic and monetary factors which led to, in effect, a weaker dollar.  Oil markets, food markets, other commodity markets are denominated in dollars.  Guess what happens under those sorts of circumstances. I think one can draw very important and perhaps troubling parallels between that situation 35 years ago and today, especially with regard to monetary policy of the U.S.  A weak dollar is not good for international inflationary pressures in these markets and have other, I think, inadvertent consequences as well. Bob Copaken [phonetic]:  Bob Copaken, independent energy consultant.  Traditionally, as I understand it, the U.S. economy excludes both food and fuel from its core index of inflation but is that not really giving us an unrealistic view of what the true level of inflation is?  And do other countries exclude it as well?  I m not familiar with that.  What would be a better policy in terms of understanding the real value of inflation that is contributed by food and fuel price? Nicholas Eberstadt:  I think Anne or somebody else in the room will correct me, I hope, if I misspeak, but as I recall this notion of the core rate of inflation evolved in the 1970s precisely as a consequence of the so-called international energy and so-called international food crisis.  And if you had a monetary economist here, and I most decidedly am not, you could probably nuance the pros and the cons of this a little bit better than I can. If you want to take a look at the producer price index or the consumer price index or the GDP deflator, they are all clearly affected by energy and by food prices and they also have an impact on the international prospects for the dollar especially when you have extremely low interest rates for the dollar or negative real interest rates for the dollar. Kenneth P. Green:  Back here and then I will get you over here.  Robert had comments as well. Robert Paarlberg:  Just one useful thought that I always have to keep in mind - what do we mean by the price of food?  Do we mean the farm gate price of the commodity?  Do we mean the price at the elevator?  Do we mean the price on the barge?  Do we mean the price after it has gone through processing?  Or do we mean the price after it has been packaged?  Or do we mean the price when it finally reaches the retail shelf? But the price of food seen by consumers is only a tiny part of it now; it consists of the price of the commodity at the farm gate.  It is mostly downstream - storage, processing, packaging, advertising, shelf space costs and many of those are heavily driven now by energy prices.  So the final price of food that a consumer sees is as much a reflection of energy costs downstream and upstream from the farm as it is the cost of production on the farm itself. Kenneth P. Green:  Right back here. Male Voice:  [indiscernible], Department of Interior.  One of the things that I m surprised by is that if the U.S. dollar is dropping, should this not make it easier for other countries unless they are also hooked on directly to the U.S. dollar?  I can see China might have a problem because they got so many dollars that they possess.  But as Dr. Paarlberg told us, China does not really have food problem itself because it is producing a lot of its own and its imports do not seem to be rising a whole lot, if at all. Perhaps somebody can tell me why because I think part of the problem is you are looking at the indices which are in U.S. dollars.  But when you go abroad, if you are sitting in - let s take some country at random, Ghana I suspect, I know nothing about Ghana, I suspect it is not hooked on -- its currency is not hooked to the U.S. dollar.  So from its point of view; it is probably seeing a reduction and not necessarily an increase in price at least, perhaps even a reduction if its currency has gone up relative to the dollar. Nicholas Eberstadt:  The increases in oil and cereal prices if you denominate them in euros are way more moderated than if you denominate them in dollars, no question about that, but the dollar is still a significant currency in international trade composition and also, changes in U.S. dollar prices have a substantial impact on inflationary expectations in this market and in other ones.  I do not know if it has an impact on inflationary expectations, not just for the U.S. currency but also the relationship of the dollar to other currencies.  I do not know if that helps at all. Kenneth P. Green:  The gentleman over here in the white shirt -- over here to the right.  He is behind the pillar.  There we go. Leander Schnaya [phonetic]:  I m Leander Schnaya, [indiscernible] America.  I appreciate Dr. Paalberg s point that global food price indices are maybe not the most relevant indicator for assessing the impact on the global poor, but I m wondering whether you could count [sounds like] a little bit more on what you are pointing us to which is the proportion of food that is imported into these countries.  I m wondering whether that is necessarily a much better indicator.  Global prices can feed through into local economies as long as they are well-integrated into global markets even if there is only very little in terms of the actual food that is imported.  So, is it not the more relevant issue to be looking at, specifically, the pass through from global prices into the local markets and is not the relevant indicator to be looking at that issue, which is determined by import and export parities and the wedge between those two rather than just looking at the percentage.  So, I appreciate the point.  Let s not look at these global international prices as necessarily indicating what happens to the global poor.  But I m worried that the emphasis on just one percent of food being imported into particular countries is necessarily, a much better indicator. Robert Paarlberg:  That is a fair point and we should really take much more care in talking about prices.  The first thing I want to know when someone asks, what is the price of something is well, where?  And if the price of rice for exports in Thailand is over a thousand dollars, that does not mean it is over a thousand dollars anywhere else in the world. In the case of Africa, you are right.  Certainly in urban centers that do rely on international markets, quite a bit of the international price will be transmitted into the local market and hardships will be felt.  So, there will be much more of a price transmission in Mombasa than there will be in Nairobi.  But if all the poor people live out in the Rift Valley, I want to know what the price is doing out there.  So, we have to look very locally and a lot of the famine early warnings systems now are quite good at picking up discreet highly-localized changes in price circumstances, and those are the data I wish we were paying much more attention to.  I suppose if I have to find one indicator that I would follow, it would not be the international price but it would be the local price in local currency.  And some of the work that has come out of IFPRI suggests that the run up in international prices has now brought the import price up close to the pre-existing and somewhat stable internal price.  They call that price convergence and they say that is an indication of price transmission.  I do not think that is an indication of price transmission.  Otherwise, the internal price would have been running up just as fast, but it has not.  Internal price has gone up really only a little in many countries in Africa.  But these are the terms I think we need to use to be quite careful rather than just looking at the price in the Gulf of Mexico or the price in Bangkok. Kenneth P. Green:  Kevin spoken a lot about climate change, so I think I ll like to slide in the question myself at this point so we do not shirk the subject too much.  There has been a lot of talk lately about carbon pricing, and in fact, all of our presidential candidates support the idea of establishing an international carbon price through cap and trade legislation. For what we have seen in this food situation with regard to food and energy linkage, can one price carbon without that price simply spilling under the price of food? Nicholas Eberstadt:  It has to have an effect.  Surely, it has to have an effect.  I mean, I have not -- you are taken me a little bit out of my area because I have not tried to do any sort of quantitative work on that, but as a proposition of cost transfer, one would assume this would have to have some sort of impact on the constrained system, right? Robert Paarlberg:  Of course, the high on petroleum prices today are having a huge impact.  Even without ethanol subsidies we would be diverting a lot of corn to ethanol use today because oil is $l40 a barrel.  I m not a big cap and trade fan.  I m a carbon tax fan.  I can afford to be because I m not a politician.  What we need now is a carbon tax to equalize the rationing of fossil fuels across the high greenhouse gas emission fuels and the lower greenhouse gas emission fuels at a lower price level for consumers and to stabilize it, so that investors can expect investments in fossil fuel efficient technologies made today will still pay off 15 years from now.  So that they do not have to worry about a collapse in oil prices in the next decade, similar to the collapse that occurred in the l980s and made a lot of alternative energy investments in the l970s turned belly up. Suzanne Hunt:  I would take a slightly different [audio glitch] on this, and I would not touch this microphone again.  I think one of the -- putting some kind of price on carbon whether through cap and trade system or through tax, is one of the general ways of getting the market signals right and when we do that you are going to have some winners and losers as always.  But in the long run, you are going to see a lot more low carbon transport and ideally low carbon agriculture.  So you can imagine how it would impact, it would raise food prices initially in areas for foods that were produced with lots of petro chemicals and high carbon inputs.  But in the long run, this should actually reduce prices if you assume that we are going to see a lot of innovations.  So carbon price helps bring electric cars to the market: it helps bring lightweight materials into our transport system; it helps us switch to bio-plastics and biofuels in our agriculture and all these kinds of things.  So, I think there is probably going to be an uncomfortable transition but in the long run it is positive, I think, for the food system.  And then there are other things that are a little bit further outside of the box like bio-char, in some of the advanced biofuels production, you basically, you can mimic the conditions under the earth that produce oil.  Take biomass, take whether it is waste or whatever, and heat it up and one of your by-products is charcoal.  And charcoal is an incredible soil amendment.  It holds nutrients in the biologically active form in the soil.  It also turns up to be a long-term form of carbon storage.  So, you can imagine carbon prices driving all kinds of innovations that have not even been talked about yet. Nicholas Eberstadt:  One more thing about this, I may be the last person in Washington with this problem - but I m happy to admit it to the group - I do not actually understand how to replicate the results from the science that is offered for climate change as a support for the carbon tax.  It may be right.  I cannot understand it.  When I was taught economics, a tax is a tax.  And a tax makes things more expensive and a tax makes things scarcer.  And the impact of a carbon tax is going to be to make energy scarcer, more expensive - it may well, of course, we hope - stimulate innovations, but it will make it more expensive and because of the linkages it is going to make food more expensive.  Long run trends have not make food more expensive, carbon tax will. Suzanne Hunt:  I think it is important to point out that, you are saying that it is going to make energy scarcer and more expensive, I think along with carbon policies you have to have other policies.  You cannot just slap on a carbon tax and say we are done.  You have to just take that money and invest it in renewal energy generation.  Invest it in research to figure out how we build carbon in the soil and that kind of thing.  So it is not just the carbon tax and we are done; everything is more expensive.  I think you do it smartly and you end up with a much better future and a much more sustainable future because the climate science that is coming out is really, really worrying.  They are saying that there is a 50-50 chance that we are going to have a North Pole with no ice this summer.  So, I think that some -- if someone told me there is a 50-50 chance - and this is some kind of a clich� - but if someone told me there is a 50-50 chance my house is going to burn down, I would take some actions.  And if it costs me a little bit more now, that is okay because it is going to save me a lot of money in the future. Kenneth P. Green:  Lady back here and then we will come over to you. Susie Kim [phonetic]:  Susie Kim from The New Republic.  A number of the panelists have spoken about the fact that global food production is localized and should really be thought about in terms of developing local and regional food production and food productivity.  I was going to ask whether the panelists believe that global energy production and energy sourcing should also be localized.  Specifically, in the U.S. there has been a lot of talk lately, within both parties, about America s need to assert energy independence.  And I was wondering whether this model of thinking about trying to source energy from national - either alternative energy sources or traditional fuel sources - would be a more effective, sustainable, or just a more secure way to think about our energy needs but also in terms of -- globally whether this will work for other nations as well. Suzanne Hunt:  Okay.  I think that anytime you go to the extreme you usually get yourself in trouble.  So by going to the extreme, where we are dependent on just a couple of fuel sources for all of our energy needs and we have huge bottlenecks in the system, that gets us into trouble.  If we say forget that whole system and we go to totally distribute it; then, we really drive prices up.  So, I think what we need to do is recognize that we need a much more technologically and geographically diversified energy supply and then, we do that in the smartest ways that we can.  I think a similar kind of thinking is useful in agriculture where we take the best things from all these different strategies, we take the best high-tech options, we take the best localized and organic options and we combine them.  And going to the extreme might not be the best option, but I think we definitely win by having a lot more distributed generation that is much more secure.  And also, in the case of let s say Sub-Saharan Africa, you have context where you have lots of labor but no capital.  So maybe, putting people to work, collecting oil seeds and replanting deforested areas with energy crops and that kind of thing, makes a lot more sense because you are using the resources that they have. Robert Paarlberg:  The suggested measures to seek energy independence are just woefully inadequate and deceptive.  For example, corn-based ethanol, if you took 100 percent of U.S. corn production and converted it to ethanol, the result would be only a 13 percent reduction in gasoline consumption in the United States.  So I would not mind energy independence, but I have not heard of an affordable way to get it.  I m still waiting. Nicholas Eberstadt:  Nuclear power?  Kenneth P. Green:  As soon as somebody can actually define what energy independence means then we might have a fruitful discussion about it.  But so far, I have not heard of a definition of energy security or energy independence that passes a lab test.  Over here. Martin Apple [phonetic]:  My name is Martin Apple, I m a scientist.  I would like to comment on just the whole notion of using any crop for purpose other than food, not the way you might think.  In order to get a kilogram of corn, you have to put in a thousand kilograms of water.  That water use is going to continue in demand even though the climate that we are going to grow it in is going to be shifting.  We know that across United States, at least, large areas of drought are going to be becoming larger.  We know in other countries some are the same things.  We know around the world some places are going to be suffering the same things.  So in the long run, it is not a long run solution to generate fuel or food the way we have been doing it unless, we have some alternatives.  We can use wind energy at the moment, at price competitiveness with fossil fuel energy.  We are getting there, probably several years away yet for photo-voltaic and solar systems, other than those.  So there are alternatives on the way and we are going in that right direction to make them economically viable.  But I do not see that growing our way out of it, is probably going to be a long-range solution and certainly not the way we have done it, using ethanol, which is probably the least usable source I would have thought of as an end product from a biological system.  I would have grown a bio-diesel source or something else. Robert Paarlberg:  Yes, it is not just growing the corn that uses up water.  The ethanol plants themselves consume a great deal of water. Suzanne Hunt:  I m glad you brought that up.  The water issue is extremely important and I do not think anyone is going to stand up here and defend corn ethanol.  We know it is just not the best use of our resources.  I mean, that is why I think it is important that we put prices on the things we do not want like carbon, so that there is inherently all those entrepreneurs are going to go out there and design ways to get us around that are much more efficient.  But we also need to put basic safeguards in place and make sure that we are safeguarding our natural resources.  But I would suggest looking up the water needs for fossil fuels.  Because the problem with the discussions about biofuels is that it is not biofuels or nothing, it is biofuels or oils or heavy or tar sands or electric cars or efficiency.  So we really need to broaden the discussions and say, What do we really want?   You know, if we have a carbon tax or carbon cap and trade and we look at how -- or if oil just goes up to $150 and stays there, maybe hybrid electric light weight cars will win out and biofuels will become just a completely niche thing.  But I would say, look at how much water it takes to produce tar sands and look at how much water it takes to cool a nuclear plant and look at -- all of our energy has a pretty significant water demands. Martin Apple:  I think what we have seen is we have gotten - we use the phrase carbon footprint to try and understand that system.  We need to use the word water footprint and be able to use that concept in what we are also talking about, even though the concept is being invented. Kenneth P. Green:  I think it is also important that we keep it clear in our minds, what we are talking about with regards to what energy is - it is similar to what price is.  Stationary source solutions like wind and solar are not the issue with regard to food.  If you try to lower the price of food by lowering the energy cost used in shipping and producing food, you would not look toward the stationary electrical sector, you would look toward the liquid transportation fuel sector.  A quick answer to your question, I just happened to read the statistics yesterday, it takes l70 gallons of water to make a gallon of ethanol.  It takes 29 gallons of water to produce a gallon of gasoline. Suzanne Hunt:  It is quite very, very well and because we are sitting in Washington we are talking about corn-based ethanol.  So, if you look at sugar cane in Sao Paulo it is mostly rain fed and actually, if the corn guys were here or even the Department of Energy s researchers from Oakridge, will tell you that very small portion of their corn used for ethanol is irrigated.  And so, the numbers - so if you go to - if you look at - yes, I really have to break it down and it is a huge variation. Kenneth P. Green:  That is the 15 percent that is irrigated, that is the difference.  But I agree, the estimates are all over the map and we need a lot better research to figure these things out.  We have another question here and then, we will move over here.  And then the - I guess it a sort of light olive jacket. David Peebles:  Mr. Olive, David Peebles from ETH BioEnergy.  Mrs. Hunt, what is your position on mandates and when are they useful?  They seem to be taking the big hit these days in the United States, but I have had so many experiences in Brazil and some places they work and in some cases they work.  What is your view on that? Suzanne Hunt:  I think they should be taking hits.  I think that anytime you put a mandate in place you should put appropriate safeguards.  You should tie safeguards to it.  So, if you are going to create a market - and in recognizing that these new technologies need some kind of support to get a foothold in these markets that are already highly subsidized.  I do not know if anyone saw last weeks Economists with the special energy section.  But they point out that, yes, a lot of these clean technologies are getting subsidies but the whole energy sector has been hugely subsidized.  And so, for these clean technologies to get a foothold, they have to be supported.  So, when you look at the different options we have for supporting these clean technologies, mandates are very effective.  But if you are going to use a mandate, you better tie some safeguards to it.  That said, I prefer performance-based technology neutral standards, where you focus on the end goal which is some form of clean service, clean energy or clean transport service.  And that EU, you probably know that in Europe, there has been quite a debate about their mandate and whether or not they should revoke it.  And I actually think that, now, that the horses are out of the barn, probably it is not smart for them to get rid of the mandate. Because one of the problems with these clean technologies is we never actually give long-term support for them, so that investors can make long-term investments.  And the other thing is that, if they take away their mandate, they have no say in the future over how these fuels are produced.  So, they cannot require that they come from waste source.  They cannot require that producers not convert virgin habitats.  They do not have the control or any say of how the fuels are produced if they get rid of that mandate. Kenneth P. Green:  Gentleman in the blue.  Bill Aiker [phonetic]:  Hello, I m Bill Aiker.  Yes, how is that?  Okay, does humanity, especially developed countries like the United States need to change its energy consumption and such, to reflect the reality of dwindling supply.  Is there anything else out there that might work - something renewable that might save us, if I may put it that way?  Thank you.  Robert Paarlberg:  I have an answer but I did catch your reference to dwindling supply and my guess is, if price of oil is above $100 a barrel, proven reserves are not dwindling, they are bigger than ever before.  But I ll defer to the energy experts on that question. Kenneth P. Green:  Yes, I will also point out that the current price is enough of an incentive, that if you cannot get rid of the subsidies and mandates to this alternates fuels now with oil prices as they are and they are expected to stay high, then you have to wonder about the claims that the renewable and alternatives sector has been making for 20 years, where they have basically pinned $60 a barrel oil as the break-even point for when - and bio-fuels and most of the alternatives.  So in theory, we have the incentive in place but I think the predicate maybe wrong which is, we are looking so much at alternatives as they are alternative sources of the same thing such as shale oil where we have more of a supply than Saudi Arabia does. Now, there are projects starting to look at extracting the shale oil, which has consequences in water and energy use and so forth.  But I think that is more of the framework.  By the way, we are taking an extra five minutes because Mr. Zoellick is a little late.  So we are going to run to 2:35 with questions which means we get one or two more in, before I will hand this over to my colleague, Kevin Hassett who will take over from there.  And Suzanne [audio glitch] Suzanne Hunt:  Just to [audio glitch] a little bit on that line of argument.  It is easy to say, Okay, oil prices are high now, so every -- all of these renewable alternatives which are not just liquid biofuels.  There is a really interesting event a couple of weeks ago, co-sponsored by google.org about plug-in hybrid cars.  So we are not just talking about liquid fuels anymore, we are talking about electricity in the transport sector, and Wal-Mart and a lot of big players are getting involved in this and a lot of real investment money is finally flowing in.  But any of you that have spent time in the private sector, many of you know that these are not one to two year time horizons for these things to be up and running.  Children do not grow up in a couple of years.  These new technologies, new markets, new ways of doing things take decades and they take long-term investment.  And so, when you have wind tax credits that start and stop, start and stop, when you have oil prices that have been low for a long time, they do not become instantly mature technologies.  It takes more time than we have had. Jean Montgomery [phonetic]:  Jean Montgomery, I m curious here.  If you could clarify the point about how many gallons of water it takes for a gallon of ethanol or gasoline or whatever.  I got the impression that the huge estimate there was an assumption for irrigating the corn and if you do not irrigate it, what is the estimate and how do you manage to use so much water to make gasoline? Kenneth P. Green:  Well, the estimates do range from whether or not you assume irrigation to, if you do not I think about 15 percent of the crop is irrigated corn crop. Jean Montgomery:  Thirty percent that is used for ethanol? Kenneth Green:  That is right.  But only 30 percent of that goes in to ethanol use.  So, it all depends on where you bound the problem and all environmental issues really come down to bounding the issue to do a sort of, lifecycle now just to figure it out.  You use water to produce gasoline as a cooling material.  In refineries, they also use it.  They inject water in oil wells in order to bring up oil.  And so, there is water used to the making of all the fossil fuels and also generation of nuclear energy and the stationary source of electricity use a significant amount of water.  But the exact method depends - is what determines how much is used. I think we have time for one more short question and answer.  If we have one, otherwise, I will turn this over to my colleague, Kevin Hassett, who I believe is here somewhere.  He is hiding over there, around the corner.  He is back stage.  Are there any last questions?  Then join me please in thanking our panelists for an interesting and provocative discussion.  I will now turn things over to Kevin Hassett. Kevin A. Hassett:  Thanks.  Let s go to a break for about five minutes while we get Mr. Zoellick upstairs.  So, we just pause for a moment and we will begin our program in about five minutes.  Thank you very much.  [Break from 04:16:20 to 04:25:35] Kevin A. Hassett:  If folks could please take your seats, we can begin the program.  If you guys need to talk could you please move it outside the room?  Thank you very much.  Bob Zoellick, Robert Zoellick but I guess I have to call you Bob at least in introduction.  He is the president of the World Bank; previously, he was the vice-chairman of Goldman Sach s group and a managing director and chairman of Goldman Sach s board of international advisers.  He served in a number of senior government positions, including his deputy secretary at the U.S. Department of State and as U.S Trade Representative.  He has also served as deputy assistant secretary for financial institutions policy at the U.S. Department of Treasury and undersecretary for economic and agricultural affairs and counselor at the U.S. State Department.  He was executive vice president of Fannie Mae, as well as vice president and assistant to the chairman and CEO.  In addition, he has served as Olin Visiting Professor at the U.S. Naval Academy, senior adviser at Goldman Sachs, and research scholar at the Belfer Center for Science and International Affairs at Harvard University.  You know, that is what it says in his bio, as someone who has known for a number of years.  I can say he is also that rare individual that can go into a messy Washington institution and actually make things happen, and that is why I was just thrilled to see that you are appointed to be president of the World Bank.  And I m especially thrilled that you would come and join us today to talk about this important topic.  And by the way, what we are going to do here is we are going to begin with a short conversation and then, we are going to open up for questions on the floor.  I wonder if we could begin -- you are president of the World Bank and there is a food crisis going on right now.  You have access to probably the best data gathering organization on Earth, certainly the best, for finding out what is going on in developing countries.  What is the state of affairs?  Where are we right now in the food crisis?  Are we pass the point where we think it could turn into something that would really lead to a terrible famine and so on, or is there a high risk of that in the in coming months?  Where do you think we are right now in that? Robert Zoellick:  Well, first thing, thank you Kevin for inviting me and thank everybody for attending this conference which I think is most timely.  I just sent a letter to Prime Minister Fukuda, in response to his request to the World Bank and the U.N. to try to outline some of the gap in terms of support on the food and agricultural problem, in advance to the G8.  And so, I think this issue is predictably timely in getting attention that warrants.  But particularly for this audience, let me start at the slightly macro level but then, relate it to some of the particulars.  I think that we are starting to see a breakdown in the international agricultural and food markets.  So if more and more countries under threat are applying price controls, they are putting restrictions on the exports of their food; the Chinese and Indians shut down their futures markets, contracts are failing.  And what this then also represents is that in an environment where food stocks are already quite low, you start to hear a greater debate about self-sufficiency policies in foods, and I would presume most of the people in this audience will realize that is a far cry from the nature of an effective and efficient international trading system.  And so, what I have been trying to focus attention on is that, as someone who is a strong proponent of the benefits of globalization, we have to pay close attention on potential breakdowns in the system.  And those that are most harmed when the system does not, are those that are the most vulnerable.  And so, we have been most concerned about the poor and those in poor countries that are now getting hit, in a sense, by a double jeopardy of food and fuel prices.  So in looking at this question while analysis a couple of months ago was focusing heavily on the food area, I think you have to look at the food and fuel together, although the effects, economically, are different.  Now, to bring that to more specifics, what I am trying to do in the context of the G8 is apply that general assessment and add to it more concrete numbers.  So we have done on-the-ground assessments in about 50 countries.  And what you are seeing is that at the macroeconomic level, there are some 41 countries hit by the double whammy of food and energy prices that could suffer between three and seven percent declines of GDP.  But the greater concern is the fact that in those 50 countries, you are starting to find not only an increase of poverty, which we estimate could be on the order of about 100 million - setting back the efforts to overcome poverty by some seven years - but you have the social disruptions.  So you now had some 30 countries where you have food riots and people in the streets for various social disruptions.  And to bring that home in a more individual level, I would sometimes focus on Liberia because Liberia is a country where I think most people have enormous respect for President Johnson-Sirleaf.  It is a country that went through horror for decades.  Here, a woman comes in courageously and is trying to build out of a terrible situation.  And the food prices for the poor increased some 25 percent in Liberia in the month of January.  Another 200,000 people were pushed under the poverty line, so now poverty levels are some 70 percent.  Now, to connect that with the other breaks down the system, in part through the efforts that we have made and the World Food Programme has made, there is assistance on the way, but people cannot buy it in local markets.  So it may be months before we can get some of the food assistance to Liberia.  That is what I m talking about; it is a breakdown with the system.  When you take the 50 countries that we have assessed, we estimate the needs in terms of safety net support.  These would be school feeding programs, food-for-work programs, conditional cash transfer programs, mother-to-child nutrition programs; plus, the second area that we are trying to focus attention on, which is seeds and fertilizers to increase short-term production.  Those two together amounts to needs on the order of about $3.5 billion and then, you add the World Food Programme aspects on top of it and some of the IMF numbers and you come to about sort of $10 billion in terms of short-term needs.  And just to conclude this, what I am trying to stress going into the G8 is that we face a real danger zone now with this combination of food and fuel.  Whether you look at it from food or fuel, probably the best set of policies are ones that have safety net policies like I described.  We have tried to position the World Bank with some financing facilities to be able to support that.  But whether it is with the World Food Programme, whether it is ours, whether it is other combinations; that is what is in great need now.  Production in some of the developing countries could actually fall because fertilizer prices have often also shot up.  Sometimes people have gone through their seed.  So unless you get the short-term inputs, even though farmers would face higher prices, they are not planting.  So that is the second category.  And then the third category is dealing with these export restrictions, the most fundamental one being that for humanitarian s need.  Obviously, I do not favor any export restrictions.  But for goodness sakes, if the World Food Programme needs to buy food, people should not block them from buying food and tax it.  So those are the short term.  The last point I will make is there is an opportunity here, which is, of course, if we can get through this period of crisis, we can increase production and productivity in the developing world.  And there is an opportunity out of this in agricultural markets, if we do some other things in international agricultural markets. Kevin A. Hassett:  Thanks.  You mentioned the G8 meeting, and that is coming up.  You also highlighted it at the beginning of your question, that there is the risks, that people are taking kind of the wrong policy lessons from this, and they are maybe shutting down their markets and taking us backward in trade and so on.  Do you have tangible goals for the G8 meeting?  Is there some specific thing that you think that they should do or focus on during that time? Robert Zoellick:  Well, first, I m trying to make clear, in practical terms, some of these gaps that need to be filled, like the $3.5 billion.  And I m explaining the resources that we can bring to bear in the World Bank.  I m drawing attention to the World Food Programme.  And I m urging people to fill those gaps.  Second - and related to it - is that the seeds and the fertilizer toward export restrictions.  But I m trying to advance the policy agenda in two other ways.  The first relates to the World Food Programme.  The World Food Programme is a UN agency that runs with pretty good operational efficiency.  It is a voluntary program.  That means they have to raise that support every year, whether it is in commodities or whether it is in cash.  The normal year, the World Food Programme raises about $3.2 billion.  This year, it will probably be about $5 billion or $6 billion.  And what the numbers are showing is it is not going to just be one year.  They are going to have to keep doing this.  So what I am urging the G8 and others to consider is, at least, a partial UN assessment.  We make UN assessments for things like peacekeeping.  Frankly, I think there is a good argument for voluntary support because it requires agencies to be more efficient and produce better, but I am quite concerned that raising $5 billion to $6 billion a year from scratch is going to be a very difficult problem.  And so it is part of - going back to my original point - how I think we have to start to think systematically, differently about this.  The second area that I m urging, at least some commissioning of work on, goes to this concern I have about stocks.  Food stocks have gone very low.  That is one reason why you are getting the price response.  If you see this breakdown in international markets that we see, you could start to see some behavior just like you saw after the 97 financial crisis, where everybody built reserves.  And so one of the reasons why if you actually look at some of what some people refer to as the savings glut and others is the aftereffect of those, in a sense.  Eject [sounds like] those policies because the international system did not respond.  I am urging that we look at some notion of virtual stocks, maybe similar to an IEA model, for humanitarian reserves.  I m not suggesting a large stock system because it would be too expensive and the goal is not to try to control prices.  But if we are in a system where stocks are so low that a humanitarian agency has a hard time accessing them, I think it is at least worthwhile to look at whether we provide that capability.  Then, the third point that I am recommending is that we take this principle that not applying export barriers for the World Food Programme or humanitarian support, I would urge the G8 to endorse it.  I say that you got a UN general assembly meeting in September.  Let s put pressure on countries not to block the World Food Programme from getting the supplies.  And then, I also would suggest we be in a position to set up the long-term response, so there is a lot of investment that needs to be done, for example, in agricultural research.  I mean, there are a lot of potential seed varieties for flood conditions, drought conditions, or other possibilities that could create stronger production responses.  Then we, as an institution, and others are looking across the whole value chain of production in developing countries, starting with property rights, irrigation systems, wastage - in a number of developing countries, you lose 30 to 50 percent of your product along the way - how to make markets work effectively.  So fundamentally, we are trying to sketch out a short- and long-term agenda.  But I, frankly, do not want to lose sight of the short term because if you do not make it through the short term, you do not [audio glitch] the long term.  And I really think we are at the point where food and fuel - that is a stress point.  One last comment on this, in addition to the G8 - and this is a function of the change of the international system, maybe a broader interest here - I m calling on oil producing countries to also play a larger role in this.  I was in Russia a couple of weeks ago.  I actually think Russia, that is starting to look at development assistance again, may do it through multilateral institutions in the food area.  The Saudis have taken some steps.  I hope the Norwegians, other Gulf countries, they are doing pretty well out of the economic rents here.  And I think this would also be a way that we start to get an understanding that when we face these international crises, yes, it is a responsibility of the developed world, but it is also going to be a responsibility of some of the other rising players. Kevin A. Hassett:  Nick Eberstadt, in the previous session, had this really interesting chart, where he showed food prices going back over the last century.  These were trending down pretty much all the way up until the last few years.  And that was because a lot of the stuff that either the World Bank helped make happen - the spread of modern agricultural techniques and so on.  Is this something that you are talking about at the World Bank now that there has been a change?  That we are off that trend now, and now we are going into a world, sort of like people talk about what is going to happen to oil prices because it is the end of oil, we are running out of oil, and they are going to keep going up to 200 and beyond?  I mean, are we thinking about, maybe for food prices, too, that we are in a new world, where that wonderful downtrend that we could rely on to help us fight poverty might not be there anymore?  And do not get too close to the microphone because it causes feedback.  Thanks. Robert Zoellick:  The short answer is yes, at least for a while.  Our economic analysis suggests that while you get some supply response in the food area that prices are likely to remain above 2004 levels through at least 2012, 2015.  And of course, as you properly point out, one of the reasons you did not have investment in this sector was people did not see some of the potential returns.  But one of the slight rhetorical differences I have with some, some refer to this as the silent tsunami or the perfect storm.  I think, ironically, that has a misleading connotation because it suggests it is a natural disaster.  And the effects of this are fundamentally manmade, and it is going to take people to reverse them.  So to truly answer your question, you have to answer what is going to happen with biofuels policy.  Now, there are some trend lines, for example, in things like do I expect most developing countries to increase incomes; increase the consumption; increase the consumption of meat, which, depending on the meat, uses five to seven times the amount of grain?  Those are yes, and so that is going to have an effect.  It is interesting, when you actually disaggregate the numbers because of some increased efficiency in grain usage in China.  The Chinese meat issue has really not driven this as much.  When you have a policy, it is fundamental that you do in the U.S. and EU where you have a mandate for biofuels, you subsidize it, and you have a tariff.  And economically, there are some inconsistencies in that combination. Kevin A. Hassett:  There is some debate about this during the day.  What is your view about, how much of the blame for high fuel prices can be borne by biofuel subsidies? Robert Zoellick:  Well, I m sure your discussion [audio skips] with the range of the percentages.  I will just point out this.  Ed Lazeer, who I have a lot of respect for, when he comes up with the three percent number, look closely at the adjunctive [sounds like], it is retail prices in the U.S.  If you look at retail food prices in the U.S., as you know well, probably the largest components are packaging, their brand, some of the logistics aspects.  I m concerned about the developing world.  And that is why you see other USDA estimates that talk about sort of 15 percent, because if you are looking at broader prices as opposed to retail prices, you get more of an effect.  So I guess the way that I would give you a reference point is the increase in corn or maize production over the past two or three years.  Seventy-five percent of it has been used for ethanol in the United States.  So you make the judgment on supply and demand.  I mean, as you look in supply and demand curves, of course, you cannot just look at sort of one addition.  But I do not think it is an insignificant factor.  Now, I m not trying to be against biofuels because, frankly, sugar-based biofuels have a different effect, and I think cellulosic biofuels are worth a lot of investment because I see this as an energy issue.  But I was coming back to your question of what do I see in terms of the trend line for some of the agriculture production?  And what I m just saying is, what I relayed in terms of our economic analysis, you could see the logic of it based on the commonsense.  So does that mean that we will not have volatility in agriculture markets?  No, I think you will, and just as you will in other commodity markets.  That is why another aspect of our work has to be as we try to bring additional developing country farmers into the world agricultural market system, I think we also have to think of risk management measures, not the types that the U.S. and the UK created with their farm programs but some crop insurance and some other aspects.  Because I remember when I visited India last year, talking to the deputy head of the monetary fund, and he said the Indian farmers that are committing suicide are not the subsistence farmers.  They are the ones that just started to move into the market system.  They had very little cushion.  Somebody might drill a well, not be able to strike water, and they are finished.  They had taken out a loan.  So I think it does make sense.  As you know, in policy, there is a history.  Sometimes there is a terrible problem, people rush for a response, and then there is the aftershocks of it.  I think we should think, from the start, about how to manage some of the risk mitigation measures.  And just to give you one other one to show some of the potential of using financial innovation for development.  In much of Africa, the agriculture is obviously rain-fed as opposed to irrigation-based.  We are now starting to use drought derivatives with Malawi and Ethiopia and looking at this at other countries so that if you do not have rainfall, you can get a financial compensation, in which the government can use to try to help those farmers.  So it is an interesting example of how, in the field of development, I think financial innovation can be turned to the [audio glitch]. Kevin A. Hassett:  I know that you have to be careful because stories like this have half-truths and so on, but there is an old story that the heavy agricultural subsidies that cause the butter mountains and everything else, and the big Western nations have harmed the development of the agricultural sector in, say, Africa and the rest of the developing world because they get undercut.  So the idea that they are selling milk powder throughout Africa rather than having cows because it is cheaper to take the subsidized European milk powder than it is to have a cow.  So there have been all these sort of perverse things.  They are exporting sugar from Finland to Africa, and things like that.  That one, you could argue maybe now is the opportunity to fix that.  What is going on as we adjust to [sounds like].  And so now that agricultural sector in Africa is finally emerging because the prices are so high that even with the European subsidies, that is less of an issue.  It is less of a discouragement for them.  Do you think that is true?  Do you think that, now, what is going on is that the agricultural sector is really just taking off in Africa maybe the way it would have if we did not have Western subsidies sort of squashing that? Robert Zoellick:  There is the opportunity; this is why I made a reference to how the overall agricultural market system works with institutions.  One issue, of course, is that developed countries have sanitary and phytosanitary standards.  It is understandable.  It is important to do.  But as a former trade negotiator, I know that these can sometimes be used for protectionist purposes.  So part of the value chain that we are working on with African countries is to help them meet the standards for being able to export to the U.S. and Europe.  That is one area.  Obviously, this raises the biotech question.  As I often told people, when I was the trade representative, the reason I brought the biotech case against the European Union was not because I thought I would be able to change European Union policies, but I want to quarantine them.  In other words, I wanted to try to limit the effect of that going to other countries and have a recognition that they would pay a price, because I believe that, over time, biotech would show its benefit.  But you do have a problem, as you have seen in Africa, about fear of using biotechnology production because of the inability to export that.  So that is another imperfection in the market.  Obviously, in a lot of developed country markets, you still have excessive barriers.  So leave aside the subsidies, put the market access barriers - whether it be tariffs and quotas - and that brings us to the Doha round.  And I know people get weary of the prospects for these trade rounds.  I honestly believe this is the make-or-break time.  The ministerial that Lamy has called on July 21 will be whether this forges ahead or whether this strips away.  I believe there is a deal on the table.  In the agricultural area, the package is pretty close.  You can eliminate exports subsidies, which should be a huge advance.  You could probably cut, in the range of 70 percent, of domestic subsidies.  You could get some additional market access.  The question now will be what you get on the good side, and particularly, whether you get some market opening in the goods.  And this is a symptom of the larger evolution in the international system from what I changed.  It is just like my message on the G8.  This is no longer a game just for the U.S. and EU, with Japan coming along.  The question will be whether the large developing countries will also engage in this, see the benefits, but also assume the responsibilities in the system.  The last thing I will say is there is an argument - may be some people in AEI make this, too - that I think is now a little bit perverse, which is saying, Well, now is the wrong time to cut subsidies because subsidies would produce more food.   First off, I think this is where the economists actually have to go check the way that the laws work.  There are plenty of incentives to produce food in America.  I really do not think that we need the subsidies that we have in the Farm Bill.  And frankly, I would flip the argument on its head.  And I would say, If we cannot cut subsidies for agriculture production in the U.S. and Europe when prices are at this level, then when are you ever going to be able to cut them?   And it is not only the subsidies; it is when can we open the borders?  Because when you actually look at the efficiency gains, a lot of it comes from lowering the barriers to tariffs and trade.  So I just think that it is the other message for the G8.  But not only for the G8, for some of the major developing countries, is this is the moment to really crack the back of those problems in the Doha round.  And I think it can be done. Kevin A. Hassett:  Also, Europe is, too, paying to keep about, what, 10, 15 percent of our land fallow right now to support pricing.  Something else that people discussed today - and I wonder what the latest research is at the World Bank on this - is that there are people who benefit from high food prices in developing countries, that there are pluses and minuses.  I wonder if you could run us through a little bit.  Who is it that is benefiting from the high food prices?  Are they expanding in a way that is going to help development there? Robert Zoellick:  In general terms, no big surprises, the urban poor are really squeezed on this.  And if you go into the rural agricultural areas, you do not see much benefit for the poorest group.  So there is a category that does benefit.  But those that are squeezed either because they do not own much land or they have inefficient access to credit or inefficient access to markets, they are not only not getting the benefit, but as I mentioned there in that category, that we are trying to help with seeds and fertilizer.  President Kikwete of Tanzania, a very good leader and reformer, told me a couple of weeks ago that their fertilizer prices are up six times.  If you look at the price of urea, it is kind of just goes up like that.  It is not surprising because a lot of these are energy-based.  So you do get distributional effects across both the fuel and the agricultural area, but it has less of a benefit than you might first hope for the rural agricultural group in developing countries.  But this is part of what you just said, kindly enough, life in the policy world.  I m always trying to take an issue and make it to the advantage.  I do think there is an opportunity here.  I think we can make markets work much better.  And some of the research that we did at the bank that came out last October - this should not be a surprise - but the benefits in overcoming poverty are basically three times higher for income-producing activities in agriculture than in non-agriculture area because there is a lot of poor in rural areas.  So you get the multiplier effect.  So if we can use this to generate additional income production in developing countries, in rural areas, it could be a big boost. Kevin A. Hassett:  Would there be a role for the private sector here in the sense that there are all these micro-loan programs that are expanding?  And do you think that now precisely is the time that there needs to be an inflow of capital into these places to invest in new things? Robert Zoellick:  There is a huge role for the private sector.  I was just over with our IFC team.  They are our private sector arm, International Finance Corporation.  They are a big part of our response to this because they are partly looking through the value chain in each country, and trying to decide what is the missing step?  Is it storage facilities?  Is it rural credit?  What needs to be added?  I made a reference to property rights.  If you do not start with property rights, people are going to invest in the structures and building the longer term investment.  There is also, again, on the positive side, a number of the major energy producing countries.  For example, Saudi Arabia is abandoning its not very efficient wheat production, and looking to expand private sector agriculture in Pakistan and some of the countries in Africa.  So there are some good opportunities here.  And definitely, if you are going to have a growth response, you have to figure out how you generate the private sector.  Kevin A. Hassett:  Robert Kaplan has a really interesting article on Malthus at the Atlantic.com.  I encourage everyone to go read it.  In it, he actually wonders why it is that we are still talking about Malthus because it seems like every time people introduce Malthus as an idea, then they reject him as being incredibly wrong.  And look at how things are doing.  It is a lot better than Malthus thought, and so on.  And yet, here is this fellow who is wrong, who keeps being brought up again.  And usually, after we have said someone is wrong, then we move on, and we do not mention them anymore.  But Malthus is someone we keep mentioning.  He says it is because, at some point, Malthus might be right, and we are always worried about that, at any point in time.  Do you think that Malthus might be right, as we move forward, because the world population is getting so big that we might be looking at a future with more famine and poverty rates going the opposite direction?  Or do you think that scientific progress and economic convergence and so on will get us through this one?  I know we talked about food price trends, but now I m talking more about economic development.  Would we be back on a sort of positive trajectory that we have been on for the last 20 years pretty soon? Robert Zoellick:  Well, if the United States, over the course of 100 years, could go from about 50 percent of its population and agriculture, too, about two percent, with larger increases in productivity, I think there is still a long way for the world to go.  So this is a fun question because you could address it from various angles.  Maybe it is sort of optimism or my faith in market incentives, I think if you create the right market incentives, there is a huge possibility not only for production but for productivity increases, including in the developing world.  And there is no reason why you would face those set of Malthusian dangers.  I suppose another way of answering is people like to debate arguments.  And the reason that Malthus keeps being put forward is the reason why some other people, whose ideas were failed, keep getting put forward, which is they are part of a pole that makes an interesting debate. Kevin A. Hassett:  Thank you very much.  And we will now open up to the floor for questions.  I would ask that you please ask a question and not make a statement. Robert Zoellick:  I will just add to that.  And I m saying this in an AEI audience because I know people enjoy the intellectual interchange and exchange.  In a way, the problem with the Malthus point, that is a fun point to debate.  But we have got a real problem that is much more of concern, which is, if you believe in markets and people believe in the productivity and efficiency, you are starting to see the breakdown of this market system in international agriculture, in trade.  And that is a very worrisome thing.  There has always been a population, including in this country, in Japan, and others, that say, We have to grow our own food.   Well, frankly, I do not want to grow all my own food.  If you believe in the international trading system, if you believe in comparative advantage, it is a very dangerous idea, and it is starting to creep in more and more and more.  It fuels protectionism.  And maybe these are just sort of the ongoing nightmares of a trade negotiator.  There is a lot of protectionism and economic isolationism out there.  And people just take this for granted.  In some ways, what I m trying to bring to people s attention is, when you see some of the responses in the international system to this threat, you should not take this for granted.  It does not mean that the government does not have a role.  See, in my view, if globalization does not figure out a way to help those that are most vulnerable - what I have called the inclusive and sustainable globalization - it is always going to be under attack and it is always going to fray.  So my view, as a person who is a supporter of globalization and markets, is we have to do better at helping those responses.  And that is what takes me to things like the World Food Programme and emergency humanitarian stocks as opposed to Malthus.  Kevin A. Hassett:  In fact, your answer made me think of one more question, just watching you answer, it came to mind.  The first thing that came to mind, by the way, is that I think I would pay to watch you try to grow your own food.  Robert Zoellick:  I did grow up in Illinois.  I do have family who are farmers, but I went to school to get away from that. Kevin A. Hassett:  I can remember emailing with you right at the moment when you were going over to the World Bank for the first time.  And as you looked ahead at that moment, I do not think you could possibly have dreamed that it would be exactly like what it has been.  Do you think that the World Bank is taking on a new role now in this crisis, that it is sort of changing who the organization is, that you are changing who the organization is because of this crisis?  Or do you think that you are taking on your traditional role, and just doing it maybe in a slightly more activist way?  Has the World Bank s responsibility changed, has it changed -- [cross-talking] Robert Zoellick:  It is a very interesting question.  It could lead to a very long answer, and we will not have time for people s questions.  So we should come back, Kevin, and take that on at some other point.  But I will answer it this way.  At one level, I think part of the challenge for the World Bank is how do you take one of the grand old institutions of the multilateral post-Cold War system and overhaul it to deal for a very different world 50 years hence?  And that is why I have tried to lead to some of the strategic themes about the poorest but also the services in middle income countries, global public goods, fragile states.  That is an ongoing process.  But another dimension of that - and I have alluded to this - as somebody who has been dealing in this field since at least the mid- 80s at the Treasury Department, I m watching how the power in decision centers are changing the international system.  When I was working for Secretary Baker at the Treasury, you would look to the G7 finance ministers, it could face a lot of these questions.  They may do it well or not so well, but they had a sense of responsibility.  You are seeing diffusion in the system.  And so I have made this allusion to all the oil countries, the middle income countries, and trade, this is part of the debate about whether G8, G13, or other structures.  It is the voice and representation issue.  One aspect of that that I m seeing from the bank and trying to infuse in the culture is to shift from an analytical culture, where we analyze and comment on power and problems and issue papers, to a problem-solving culture.  Part of this is with our clients to understand that they are clients.  And how do we bring to bear knowledge and learning and mark at experiences from around the world, and then with capital, whether from IFC or IBRD.  But it also leads to this question.  In a sense, this is why the G8 summit is quite interesting.  Is what role can we play as a catalyst to start to shape people s thinking?  So coming back to this food issue, it did not surprise me, but your comment is interesting; it surprised some other people to say, We have never had the World Bank go out there and tries to raise money for the World Food Programme or talk about those issues related to the assessment.   But I think that is one potential catalytical role that the bank can play in shaping policy analysis but also contributing to solving the solutions.  Kevin A. Hassett:  I will open up for questions.  Maybe we will start with Nick, and then we will move around, and then come back. Nicholas Eberstadt:  Bob, great to see you here. Robert Zoellick:  Greatest living expert on North Korea, may be employed soon. Nicholas Eberstadt:  Yes, exactly. Kevin A. Hassett:  No, I think Kim Jong Il knows a little more about North Korea than -- Nicholas Eberstadt:  To what extent do you think that the current world food crisis is actually a current dollar crisis, with negative real interest rates of the Fed and so forth?  Your current portfolio is one of international, multilateral ODA instruments.  But if you could trade it for one that would get the value of the dollar back to where it was when you were in USTR, which way would you go?  Male Voice:  The question could not be heard out here. Kevin A. Hassett:  Restate the question. Robert Zoellick:  It is good.  It gives me more time to think.  Thanks. Kevin A. Hassett:  Yeah, why do you not say it again for everybody to [inaudible]? Nicholas Eberstadt:  Say it again.  To what extent would you think of the current international food crisis as actually a current international dollar crisis, with the weak dollar as a consequence of negative real interest rates of the Fed.  Your current portfolio is one of international, multilateral instruments.  But under these circumstances that you face now, would you trade it for instruments that will get the dollar back to its international value when you were USTR? Robert Zoellick:  Well, I suppose it would be fun to have the instruments to transfer the dollar price.  I could probably make a lot of money on that.  I think part of the problem is I do not know exactly what those instruments are, other than increasing interest rates.  And I m not sure I would take that approach.  In essence, another way to phrase this is the sort of the IMF versus the World Bank agenda.  I like the World Bank agenda because I think there is a greater opportunity with some of the microeconomic and structural issues that we are talking about in private sector.  This is a slight tangent, but when you look at some of the distress points in the international system, some of the things that the IMF was traditionally involved with, as a catalyst, goes back to Kevin s question - some countries out there that may be in trouble.  We are going to need again, in one form or another, whether it is the IMF, whether it is the G7, whether it is other players.  That is the real way I would take your question, which is that I think where the dollar decline is contributing to this problem is, obviously, its possible effect on commodity prices and oil prices, and also some of the inflationary dangers in the system.  The overlay that you have added to this discussion is that the reason why this danger zone is particularly fragile is that we are in a period where, for the past seven or eight years, people did not worry that much about inflation.  So the role of the monetary bank, the central banks was a lot easier.  I think we now have to be concerned about that.  So in addition to the inflationary effects of the food and fuel prices, I see some fragility, including in the fact that some of the developing countries had current account surpluses a few years ago.  They were better able to withstand these pressures.  I think that you are going to find less of them are able to withstand these pressures.  And so I do not envy the central bankers of the world because, on the one hand, you want to make sure that you have got suitable growth.  But we do face greater inflation risks than we did before.  So I do believe in flexible exchange rates.  And I do believe that with the U.S. current account, there was an adjustment process.  But the effects that you are, at least, alluding to are certainly there that make the variables even more difficult to try to guide. Kevin A. Hassett:  There is a question back there.  Sir? Arturo C. Porzecanski:  I m Arturo Porzecanski on the faculty of American University.  I m going to pick up on Kevin s last question and try to rephrase it to see if you would be tempted to answer it.  Time was, let s say, when the World Bank was a very cement-intensive operation: dams, bridges, ditches, and canals and roads and sewers, and so on.  And lately, it has become more of softer issues: governance, business climate, incentives, markets, institutional building, and so on.  Do you think the pendulum will swing back?  Personally, given some of the policy responses we have seen, I think there is a lot of room for good policy advice rather than more cement-intensive activities again. Robert Zoellick:  Well, I m always wary of fads.  I suppose this is why I m a [audio glitch] at Brookings.  And so I have always felt that the challenge is: How do you customize the mixture of these activities for the particular circumstances?  Let me try to answer in more practical terms. I was struck when I went to Africa during the transition period, about a year ago in June.  A lot of the countries I visited in West Africa, East Africa, and Southern Africa were very focused on the socio-development agenda, the Millennium Development Goals, as they should be.  They have to have basic education.  They have to have basic health conditions.  I have tried to draw attention to the malnutrition issue which runs through it all.  At the same time, I was also encouraged that a number of them were saying, Look, we want to grow.   And what they wanted to grow were the same things that Europe wanted after World War II, and that the United States wanted: They wanted infrastructure; they wanted energy; they wanted regional integration; a link to global markets; and they wanted to develop the private sector.  I found that all very positive, and there is a role for the bank - but going back to Kevin s point - in a different way to help provide some of those.  So let me give you an example.  I have had a long interest and involvement in financial markets.  You hear a lot about public-private partnerships, but it is a mantra.  There is a lot of capital out there.  The real problem in driving these public-private partnerships is the experience in putting together the right technical specifications and the right financial arrangements for a long-term investment to draw the capital.  There was a reference, I think in the FT, about a new infrastructure fund that IFC is creating, where we started with $100 million, but we think we can leverage that many times more.  So the challenge is not the bank of Robert McNamara.  We simply rely on our capital to do those.  But how can we use our capital to catalyze a combination of private markets and the right public support in policies to drive that forward?  Now, that also includes, obviously, regulatory policies.  It includes good administration.  It includes governance and anti-corruption policies.  But just think about the United States or any other country, you have to customize these for the individual circumstances.  Let me give you an example - since we have talked about financial markets - that I m very excited about.  When I was at the Treasury in the 80s, I think one of the reasons why you actually start to see the basis for the deutschmark and then the euro to become kind of an international securities currency was some of the turmoil in the 80s financial market.  And so a lot of this I see through the possibilities of creating alternative asset classes because you got big pools of capital out there.  We are helping to create, through a project called GEMLOCK, a funding arrangement - I will be careful for SEC rules - that basically encourage local currency, local bond markets.  And it is a neat idea because it is not only a fund that gets created through this, but it is an index, because again, one of the things I learned at Goldman is if you are going to create an asset class, you have to have a comparative index.  And the standards for putting the index start out with market weights.  But over time, we look for investibility criteria.  So those that have better investment criteria will rank higher.  My goal for this, over 10 or 15 years, would be I would love it if local currency bond markets in developing countries could become an asset class, just like commodities are an asset class, and in a more diverse way than they are now.  That is a way of addressing capital to help do investments that is different than simply building the dams.  Or just to give you another example, and this shows a little bit of the financial engineering.  I was down in Mexico, actually last week, but a couple of weeks before.  They have a very interesting low-income housing program.  They have mortgage securitization.  Because of what happened in the U.S. markets, some of the capital dried up even though, frankly, the credit risks were nowhere near analogous.  We came in through IFC, and we designed some mezzanine financing to help them go forward.  And there are other different types of government financing.  So it is a question of using financial engineering to help a low-income housing project.  So the change for the World Bank, going to Kevin s question, is that we need to be much more agile in terms of using financial instruments.  But the question is then customizing.  So it is not just hard concrete infrastructure; it is also student loans because the other lesson for developing countries is it is great that we can get boys and girls in primary school.  That is not enough.  We have to improve the quality of education.  We have to get them at higher education.  When I was in Colombia, the challenge is how are Colombia and Mexico going to compete with some of the East Asians?  They have to move up the value chain.  They have to increase the education, so all these things are a combination, just as you would think about the U.S. economy. Kevin A. Hassett:  There was another question right after that.  And then I promise I will move over this way. Ndugo Oklani [phonetic]:  Ndugo Oklani, Department of the Interior.  You say you are concerned about the breakdown of the market.  But does not all this talk about energy independence actually feed into that?  And feed into the fact that maybe we should abandon the market, and also spawns things like subsidies for ethanol and so on and so forth, that essentially makes matters even worse? Robert Zoellick:  Yes. Ndugo Oklani:  So what advice do you have for the United States? Robert Zoellick:  This is where you have to disaggregate it.  You are partly getting the anxiety of high prices, but you are also getting the anxiety of being held hostage by producers in regions and cartels and the geo-security issues.  Those are not illogical responses.  Now, I had been, for years, saying in government that even if the United States produced all the energy that it needed for itself, if the rest of the world was not producing energy and it was not growing, we would not be doing so well.  So yes, you have to have international commodity markets and prices that these commodities are fungible.  Having said that, if this can lead to innovations in things like cellulosic ethanol, then we increase the overall supply and the diversity of supply, and that can be a good thing.  If discussions of energy security will, say, as opposed to independence, lead people to put in energy efficiency measures, and whether in developing or developed countries, you use price mechanism to encourage people to pay the full cost of things, that can be a good thing.  In developing countries right now, part of the fuel problem, the reason it is affecting the social fabrics is a lot of these countries have huge energy subsidies.  And so, you see in the paper that Pakistan is going to try to remove the energy subsidies.  In the current environment, that is going to be a challenge.  So it is how can we use the market but also recognize some of the externalities, however you want to price them or value them?  So I keep coming back, just as I do in agriculture, I think it makes sense for the public sector to do certain R&D work so as to encourage some of these alternatives.  And just to give you a little sense of how the bank would fit in this, again, we are looking in some of these areas where we could provide an incubator function.  Well, probably our comparative advantage is the R&D work, but we may be able to help bring some of these activities to market, at least related to low carbon development. Kevin A. Hassett:  We have to move really quickly.  I think I probably have time for one more question.  I really apologize.  I know there are so many questions out there, but I just got a note that Mr. Zoellick has to run to his next thing.  He is going to be late for that. Suzanne Hunt:  Hi, Suzanne Hunt.  I spoke in the last panel.  I absolutely love chocolate and coffee.  And we cannot grow it in temperate zones, so I m very appreciative of the international trading system.  Robert Zoellick:  You and I have similar tastes. Suzanne Hunt:  But I also appreciate the local production and I also grew up in a farm, and for years, watched folks who have one buyer or only one market that they sold to go out of business whenever there was any kind of blip with that buyer.  So I m wondering, do you not think that it is a more responsible, more secure setup to advise countries to develop production for local markets and for trade? Robert Zoellick:  It is a very good point. Suzanne Hunt:  I m worried to hear you say that you think it is scary that people are encouraging local production.  That is my concern. Male Voice:  [indiscernible] energy in the U.S. market. Robert Zoellick:  Local production for energy?  Look, well, let me try to answer this -- Suzanne Hunt:  I m talking about food.  But either way, I think having the market -- Robert Zoellick:  Look, again, if you believe in portfolio theory, diversity in a world of uncertainty can be a very useful thing.  So another way that I would have approached the question is I think with some African countries, we are trying to encourage them to look at production of cassava, potatoes - other things that diversify.  And that is also, frankly, important given the risk of disease in some of these countries.  So as part of a risk mitigation strategy, I certainly can see the benefits of that.  What I m saying, in terms of local production, is that I do not think you want to have an international trading system, where the Japanese - given their geographic and territorial situation - feel they have to grow all their own food and all their own rice, I might add on that.  So that is the sort of breakdown in the system.  I may not perceive the question.  So the idea of diversity of production, the idea that you can grow for local markets, of course, that is great.  I mean if you look at the higher value added product in a lot of developing countries, it is growing fruit and vegetables for local markets as opposed to the general commodity prices.  I did a free trade agreement with Morocco.  And one of the logic was they had gotten themselves locked in the wheat production, which, given some of the climatic and other changes, probably was not the most efficient use for their agriculture.  Fruit and vegetable development for Europe probably was a higher value added product -- so sure. Kevin A. Hassett:  Thank you very much for coming over.  It has been great to talk to you and good luck with all -- Robert Zoellick:  I m sorry to leave.  This is actually a lot of fun for me.  But just so you have the positive side, I m trying to call a minister of an oil-producing country to try to deliver on some of these things.  Thank you. [End of file] [End of transcript]  </body></html>