the world food crisis: political and economic consequences and needed actions

The World Food Crisis: Political and Economic

Consequences and Needed Actions

Joachim von BraunDirector General

International Food Policy Research Institute

Ministry of Foreign Affairs, Stockholm

September 22, 2008

Joachim von Braun, IFPRI, September 2008

The situation: Surge in prices

[As of August 2008]

0

20

40

60

80

100

120

140

0

200

400

600

800

US

$/b

arr

el

US

$/t

on

Corn

Wheat

Rice

Oil (right scale)

Source: Data from FAO 2008 and IMF 2008.


Production and Price Developments

2004/5 2005/6 2006/7 2007/8 2008/9

World grain

Prod. Mill.

Ton (excl.

rice)

1.646 1.604 1.585 1.685 1.718

(July est.)

Maize price*

$/ton (Dec.)

97 104 163 183 186 (Sept)

*U.S. Yellow No. 2 Corn (at the Gulf of

Mexico)


IFPRI’s scenarios[Models for changes in structural supply and demand factors

(2000-05 and 2006-15)]

Source: M. Rosegrant (prelim. results with IMPACT-WATER).

US$/ton


What Food Crisis?

• Political destabilization

• Macro-economic / inflation

• Poverty and hunger

• …its causes

• and what needs to be done


0

5

10

15

20

25

30

Violent

Non-violent

2

2007-08 timeline of food protests

1

42

1

4

8

21

2

29

Source: News reports.


Number of food protests

by type and income group

Source: Protests – news reports;

Income group classification – World Bank 2007.

8 8

4

9

11

7

2

0

5

10

15

20

Low income Low-middle income

Upper-middle income

High income

Violent

Non-violent


Government effectiveness 2007 &

food protests

Source: Kaufmann, Kraay, and Mastruzzi 2008.

= Food protest


Number of food protests

by type and gov. effectiveness

Source: Protests – news reports;

Gov. effectiveness classification – Kaufmann et al. 2008.

From low to high

68 8 8

7

8

31

0

3

6

9

12

15

18

0-25th 25-50th 50-75th 75-100th

Violent

Non-violent


What Food Crisis?




• …its causes



Economic policy actions taken

• Trade policy (restrictions, and

liberalization)

• Consumer subsidies

• Social protection

• Increased investment for supply

• Monetary policy


Variety of government policy responses

Trade

restriction

Trade

liberaliz.

Consumer

subsidy

Social

protection

Increase

supply

AsiaBangladesh X X X X

China X X X X

India X X X X X

Indonesia X X X

Malaysia X X X

Thailand X X X

Latin AmericaArgentina X X X X

Brazil X X X

Mexico X X X

Peru X X X

Venezuela X X X X

AfricaEgypt X X X X

Ethiopia X X X X

Ghana X X

Kenya X

Nigeria X X X

Tanzania X X X

Source: IMF, FAO, and news reports, 2007-08.


Food putting pressure on overall inflation

-2

0

2

4

Jan-05 Jan-06 Jan-07 Jan-08

Overall

Food

China, y-o-y India, wholesale

-2

0

2

4

6


Overall

Food

Ethiopia

0

5

10

15

20

25


Overall

Food

-2

0

2

4


OverallFood

Mexico

Source: Data from government statistics.


Diversity in the change of food and non-

food prices inflation

No change Increase

High Ethiopia, India,

Indonesia

Madagascar,

Uganda

Medium Mexico China, Vietnam

Low Nigeria

Source: Data from government statistics.

Co

rr. in

200

7-0

8

Corr. in 2007-08 compared to 2005


What Food Crisis?




• …its causes



Beneath the $1 a day poverty line (2004)

Poor

($.75 cents – $1)

485 million people

Medial poor

($.50 cents – $.75 cents)

323 million people

Ultra poor

(less than $.50 cents)

162 million people

Source: Ahmed et al. 2007.


Ultra poor mostly in Africa (2004)

$0.75 and <$1:

485 mln

<$0.50:

162 mln

$0.50 and <$0.75:

323 mln

SA

16 2 .9 mln

SSA

9 0 .2 mln

EAP

5 1 mln

LAC

16 .6 mln

MENA

0 .9 mln

ECA 1.1 mlnMENA

0.2 mln

ECA 0.4 mlnLAC

11.5 mln

EAP

8.8 mln

SA

19.7 mln

SSA

121 mln

LAC

19 mln

ECA

3 mlnMENA

3.3 mln

EAP

109.3

mln

SSA

87.0

mln

SA

263.6

mln



-31

-38

-27

5

29

-45

-30

-15

0

15

30

Developing World East Asia & PacificSouth Asia L America & Caribb.Sub-Saharan Africa

Mil

lio

nThe growing number of the poorest in SSA

Living below US$.50/day (1990-2004)



1981 1990 1992 1997 2003 2004

Proportion of

undernourished (%) 28.3 19.9 19.9 17.4 16.3 16.5

Underweight in

children (%) 36.6 32.8 32.0 27.1 26.3 26.0

Under-five mortality

rate (%) 13.0 9.9 9.6 8.9 8.0 7.9

Global Hunger Index 26.0 20.9 20.5 17.8 16.9 16.8

Global Hunger Index and its components

(for identical countries), 1981 - 2004

Source: Wiesmann, IFPRI.


New hunger estimates of FAO 2007

• undernourished people in 2007 increased

by 75 million, over and above 2003-05 (to

923 million in 2007)

• Asia / Pacific 41 million

• Latin America / Caribbean 6 million

• Near East / North Africa 4 million

• Sub-Saharan Africa 24 million


What Food Crisis?




• …its causes



Sources and features of price increases

1. Energy and biofuels

2. Income and population growth

3. Slow agricultural response

4. Market and trade policy

5. Speculation and market fundamentals


(1) Biofuels: Fundamental change in world

food price determination

Energy prices now affect not just agric. input

prices, but also output prices strongly via

biofuel-land competition

Elastic energy demand creates price bands for

agricultural commodities

Increased biofuel demand in 2000-07 contributed to

30% of weighted average increase of grain prices


(2) Rising consumption

• Income growth (2005-07 per annum)

- 9% in Asia, 6% in Africa

- 2% in industrialized countries

- that force is slowing down 2008/9

• Since 2000, global cereal use for:

• Food 5%, feed 8%

• Industrial purposes 38%

Future grain consumption is driven by

income growth, population growth, and feed

for meat and dairy production, biofuels

Sources: FAO 2003 and 2008; IMF 2008.


0

1

2

3

4

5

6

1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003

Avera

ge a

nnual g

row

th r

ate

(%

)

maize

rice

wheat

Source: World Development Report 2008.

(3) Productivity growth is declining


(3c) Grain stocks: The world eats more

than it produces

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008*

Source: Data from FAO 2003, 2005-08.

* Forecast.

Million tons

Total cereal stocks

China


(4) Ad hoc trade measures add up to

policy failures

• Export bans/restrictions:

- Reduce global market size, increase volatility,

and harm import-dependent trading partners

- Stimulate cartel formation, undermine trust, and

encourage protectionism

• Price controls:

- Reduce farmers’ incentives to produce more food

- Divert resources away from those who need them

most


• 3 main categories of speculators: - Governments, farmers, households, small traders

- Commercial traders

- Non-commercial traders

• Low stock levels and ill-designed policies

promote speculation

• In Q1 of 2008, volume of globally traded grain

futures & options by 32%

(5) Speculation plays a role, but is mainly

a symptom

(Chicago Board of Trade)


What Food Crisis?




• …its causes



The Food Crisis Tradeoffs and Effects

+ Mass protests in more than 50 countries

+ Inflation and macro-economic imbalances

+ Environmental sustainability consequences

Political security

risks

Energy security

risks

Food security

risks


IFPRI’s proposed policy actions

• Emergency package: for immediate food

assistance and availability needs

[Implement immediately]

• Resilience package: to meet ongoing and

future challenges in the food system

[Phase in now for future impact]


Policy actions: Emergency package

1. Expand emergency and humanitarian

assistance

- international (price indexed) and national

2. Eliminate agricultural export restrictions

- reduces price levels by up to 30%

3. Fast-impact production programs in key areas

- Poorest 50% of farmers in Africa - partly publicly

funded = US$2.3 billion per annum

4. Change grain and oil seeds bio-fuel policies

- reduces maize price 20%, wheat 10%


Policy actions: Resilience package

5. Calm markets with:

- market-oriented regulation of speculation

- establish global (virtual) grain bank

6. Invest in social protection

- focus on child nutrition, women, and poorest

7. Investments for sustained agric. growth

- global incremental public agric. investment for

MDG1 = US$14 billion, Africa: US$4-5 billion per

annum; with R&D in agriculture

8. Multi-lateral trade regime (WTO+)

- strengthen rule based trade


Implementation of actions must be sound

• Country-driven and -owned programs – with

prioritization and sequencing

• Costs: Face the high investment needed; the

benefits for people, growth, security are huge

• New international governance architecture of

agriculture, food, and nutrition needed

• Accountability at international and national

levels: independent monitoring and

assessment

the world food crisis: political and economic consequences and needed actions

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