Food distribution line. Photo: L. Boscardi/UNHCR

The UN is preparing plans to ration its food aid to people in need if new donations don't provide more money soon, according to an article in the Financial Times this week. Rising global food prices are putting serious pressures on the World Food Program (WFP)'s budget, to the tune of several million dollars each week.

"The WFP crisis talks come as the body sees the emergence of a "new area of hunger" in developing countries where even middle-class, urban people are being "priced out of the food market" because of rising food prices.

The warning suggests that the price jump in agricultural commodities - such as wheat, corn, rice and soyabeans - is having a wider impact than thought, hitting countries that have previously largely escaped hunger."

It is not just the UN that will have to ration its food aid. Countries like Egypt and Pakistan are reinstating or strengthening rationing systems for the first time in decades. Unfortunately, the crisis will be getting worse in the short term. According to the US Department of Agriculture "high agricultural commodities prices [will] continue for at least the next two to three years."

Here's 60 million Zim Dollars, roughly the equivalent of US $400 (August 2007). Photo: GrahamKing (flickr)

Imagine a place where you would rather use a $10,000 bill to light a fire than actually try to purchase goods.

Today, The Washington Post provides an excellent look at the Black Market in Zimbabwe, a country where 80 percent of the population lives in poverty. The article puts a very real face on the black market industry as Craig Timberg follows a trader around for the day.

The economy began its free fall when landless black peasants invaded white-owned farms in 2000 with the support of Mugabe, who said the redistribution would undo colonial inequities. The often violent process decimated the country's most crucial industry and biggest earner of foreign exchange, triggering hyperinflation that has rarely paused on its staggering ascent.

Today, it's not unusual to see a wadded-up 10,000-dollar bill lying on Harare's filthy sidewalks. Though officially worth about 33 cents in U.S. currency, the real value is about one-tenth of a penny.

Robert Mugabe with First Lady, Grace Mugabe. Photo: Pan-African News Wire

What happens when a dictator can't afford to pay the people who have ensured his rise to power? It looks like Zimbabwe's strong-man, Robert Mugabe, may be about to find out.

According to Time Magazine;

The only functioning part of the country is the security apparatus, but, aside from Mugabe's bodyguards, even that is now questionable, with consistent reports of no pay, sporadic mutinies and the apparent allying of some heavyweight military figures against Mugabe. "These guys have a bottom line," says Marengo, "and Mugabe is increasingly seen as an economic liability."

It seems counter intuitive-- how can higher oil prices possibly make oil rich countries like Saudi Arabia worse off? Well, these prices are certainly hurting the middle class.

Today's New York Times article is a must read on the subject:

Here in Jordan, the cost of maintaining fuel subsidies amid the surge in prices forced the government to remove almost all the subsidies this month, sending the price of some fuels up 76 percent overnight. In a devastating domino effect, the cost of basic foods like eggs, potatoes and cucumbers doubled or more.

In Saudi Arabia, where inflation had been virtually zero for a decade, it recently reached an official level of 6.5 percent, though unofficial estimates put it much higher. Public protests and boycotts have followed, and 19 prominent clerics posted an unusual statement on the Internet in December warning of a crisis that would cause “theft, cheating, armed robbery and resentment between rich and poor.”

The inflation has many causes ranging from a weakening dollar to global commodity demand, but the fact is that average citizens in many oil rich countries are not benefiting from high oil prices. From Yemen to Morocco, the higher food prices and shrinking government subsidies have resulted in protests and demonstrations with people blaming corrupt officials for higher prices.

The BBC is featuring a diary written by a woman living and working in Zimbabwe in which she describes the challenges of living a normal day-to-day life in the face of economic crisis and rampant inflation.

In a daily analysis from last week, Council on Foreign Relations senior fellow Benn Still suggested that the United States is “exporting inflation worldwide.” The latest action by the US Federal Reserve may have staved off inflationary disaster domestically but only to the detriment of other nations who peg their currency to the dollar.

Venezuela struggled with inflation rates over 20 percent in 2007 (Bloomberg). Argentina and Bolivia face similar concerns. Official data puts Russian inflation for 2007 at nearly 12 percent (Forbes). Several Gulf Arab states also find themselves with inflation over or near 10 percent. In China, rates near 7 percent registered in December 2007 represent the highest inflation in over a decade. China’s Prime Minister Wen Jiabao recently announced Beijing would freeze short-term energy prices in an attempt to curb consumer price increases (NYT).

Nobel laureate economist Joseph Stiglitz paints a grim picture of the global economic outlook for 2008. Stiglitz warns that this is likely to trigger a backlash against the forces of globalization and that:

For those who think that a well-managed globalization has the potential to benefit both developed and developing countries, and who believe in global social justice and the importance of democracy (and the vibrant middle class that supports it), all of this is bad news.

In the end, Stiglitz believes that central banks will be able to restore order after a global slowdown in which the inflationary pressure is wrung out of the system.