Global food markets

Economics of Food Markets

Lecture 2

Alan Matthews

Lecture objectives

• To explore factors affecting the global balance between food supply and demand

• To highlight the continuing role of hunger and what can be done about it

• To discuss changing patterns of international trade in agri-food products

Long term perspectives

• Think about in terms of simply supply-demand diagram

• Factors affecting demand– Population growth, income per head,

changing tastes

• Factors affecting supply– Resources, technology

Source: FAO World Agriculture: Towards 2015/2030

Source: FAO Food Outlook

Long term perspectives

• Malthusian predictions not yet confirmed by historical experience

• Great volatility around the trend• What does the future hold?

– International organisations relatively sanguine– Dissenting voices, e.g. Lester Brown– Global population growth slowing down– The China syndrome?– Vanishing resources?– Technology?

Prospects for food and nutrition

• Tremendous progress in improving nutrition levels over last four decades

• But almost 800 million people still suffer from undernutrition

• The importance of agricultural development to address poverty and undernutrition

FAO World Agriculture Towards 2015/2030

FAO World Agriculture Towards 2015/2030

Changing international trade patterns

• Agricultural exports a declining share of global merchandise trade

• Overall agricultural trade surplus of developing countries has virtually disappeared

• Least developed countries are net food importers since the mid-1980s

• Trends driven by both policy and market factors

FAO World Agriculture Towards 2015/2030

Source: Regmi Gehlhar Amber Waves Feb 2005

Policy impacts on international trade

• Tariffs continue to curb trade

• Domestic support remains high

• More liberalisation would mainly benefit developed countries

• Does globalisation disadvantage the poorest countries?

FAO World Agriculture Towards 2015/2030

Global supply chains

“Understanding the competitive nature of the global food industry means understanding changing consumer preferences and the food industry’s efforts to meet these demands. The task of moving food from the farm to the table is becoming increasingly complex, involving diverse local, national, and global agents and networks. Food markets are constantly evolving, driven not only by changes in consumer preferences, but also by technology, linkages between members of the food supply chain, and prevailing policies and business environments. Sophisticated supply chains and distribution channels are now being adopted across different regions and national boundaries”- Regmi and Gehlhar 2005

Taming commodity markets

• Commodity markets – declining and volatile prices

• Price stabilisation– Buffer stocks

• Price raising– Export cartels

• Market-based mechanisms– Compensatory financing schemes– Risk management

Key messages – global food markets

• Positive achievements – declining food prices, fewer people hungry

• Issues– can this continue?– do OECD farm policies hurt the poor?– can we tame commodity markets?– Can globalisation of food markets work in

favour of the poor?