wfd issues paper en rev-web

8/3/2019 WFD Issues Paper en Rev-web

1/6

ON WORLD FOOD DAY 2011,let us look seriously at what causesswings in food prices, and do whatneeds to be done to reduce theirimpact on the weakest members ofglobal society.

FROM CRISIS

TO STABILITY

FOODPRICES

WORLD FOOD DAY |16 OCTOBER 2011


2/6

RAPID PRICE SWINGS make that calculation much more difcult.

Farmers can easily end up producing too much or too little. In stable

markets they can make a living. Volatile ones can ruin them while also

generally discouraging much-needed investment in agriculture.

Recognizing the major threat that ood price swings pose to the worlds

poorest countries and people, the international community, led by the G20,

moved in 2011 to fnd ways o managing volatility on international ood commoditymarkets. Under the presidency o Frances Nicolas Sarkozy, the worlds 20

largest economies agreed that any strategy directed to that purpose should

have the protection o vulnerable countries and groups as its main priority.

Todays turbulent commodities markets contrast sharply with the situation that

characterized the last 25 years o the twentieth century. Between 1975 and 2000

cereal prices remained substantially stable on a month-to-month basis, although

trending downwards over the longer term. For despite rapid population growth world

population doubled between 1960 and 2000 the Green Revolution launched by DrNorman Borlaug in the 1960s helped ood supply to meet and even exceed demand in

many countries, including India, thanks to the work o M. S. Swaminathan, then Director

o the Indian Agricultural Research Institute.

In act there was, in the Western Hemisphere at least, an over-abundance

o ood, caused in no small part by the generous subsidies which OECD

countries paid to their armers. But the picture today is a very dierent one.

The global market is tight, with supply struggling to keep pace with demand

and stocks are at or near historical lows. It is a delicate balance that can easilybe upset by shocks such as droughts or oods in key producing regions.

In order to decide how, and how ar, we can manage volatile ood

prices we need to be clear about why, in the space o a ew years, a

world ood market oering stability and low prices became a turbulent

marketplace battered by sudden price spikes and troughs.

FOOD PRICES


3/6

BETWEEN 2005 AND 2008, the worlds staple ood prices soared to their highest levels in

30 years. During the last 18 months o that period, maize price increased by 74 percent while

that o rice almost tripled, climbing a whole 166 percent.

Food riots broke out in more than 20 countries. Editorialists decreed the end o cheap ood.

But then, ater peaking in June 2008, prices slumped again alling 33 percent in six months

largely as a vast fnancial and banking crisis threw the global economy into recession.

The downturn was short-lived, however. In 2010 grain prices shot up 50 percent and

continued to soar into 2011 beore starting to dip somewhat in the second quarter o

2011. And at that point what would happen next was very much an open question.

Economists believed, however, that the kind o price roller-coasters experienced

since 2006 are likely to recur in the coming years. In other words ood price

volatility the technical term or the phenomenon has probably come to stay.

That is not good news. Price swings, upswings in particular, represent a major threat

to ood security in developing countries. Hardest-hit are the poor. According to the World

Bank, in 2010-2011 rising ood costs pushed nearly 70 million people into extreme poverty.

FOOD PRICES FROM CRISIS TO STABILITY has been chosen as

this years World Food Day theme to shed some light on this trend and

what can be done to mitigate its impact on the most vulnerable.

At the level o net ood importing countries, price spikes can hurt poor countries

by making it much more expensive or them to import ood or their people. In 2010

the worlds Low Income Food Defcit Countries (LIFDCs) spent a record US$164

billion on ood imports, representing a rise o 20 percent on the year beore.At the level o individuals, people living on less than US$1.25 a day may need to skip

a meal when ood prices rise. Farmers are hurt too because they badly need to know

the price their crops are going to etch at harvest time, months away. I high prices

are likely they plant more. I low prices are orecast they plant less and cut costs.

FOOD

PRICES


4/6

THE SEEDS OF TODAYS VOLATILITY were sown last century when decision-makers ailed

to grasp that the production boom then enjoyed by many countries might not last orever and

that continuing investment was needed in research, technology, equipment and inrastructure.

In the 30 years rom 1980 to date the share o ofcial development assistance which

OECD countries earmarked or agriculture dropped 43 percent. Continued under-unding

o agriculture by rich and poor countries alike is probably the main single cause o the

problems we ace today.

Contributing to todays tight markets is rapid economic growth in emerging

economies, which means more people are eating more meat and dairy produce with the

need or eedgrains increasing rapidly as a result. Global trade in soymeal, the worlds

leading protein eed or animals, has grown 67 percent over the past 10 years.

ON BIOFUELS, FAO avours abandoning current distortive subsidies and policies

or at least making them more exible and ensuring that bioenergy is produced

in the countries and with the crops best suited to such production.

Greater policy coordination in international ood trade can reduce volatility

by helping maintain an assured ow o goods. FAO supports the multilateral

negotiations under the World Trade Organization and the elimination o trade-

distorting agricultural subsidies in rich countries. Countries should also agree

to rerain rom operating export restrictions when their domestic supplies are

threatened (as several did in 2007-2008) or adopt reinorced rules on the issue.

On speculation, FAOs research suggests that while this might not trigger

price movements, it could exaggerate their size and duration. Authorities in the

United States o America and European Union are looking into the possibility

o improving the regulatory ramework o utures markets. But care must be

taken because utures markets play a vital role in osetting price risk and in

price discovery, while investors also bring resh liquidity into the sector.

MORE AND BETTER INFORMATION is needed to allow greater transparency in

trade on utures markets. This would help ensure that governments and traders

make inormed decisions and avoid panic or irrational reactions. The eorts made

by some countries to address transparency in utures markets are welcome.

As to mitigating the eects o volatility, national or regional saety nets, possibly

eaturing emergency ood reserves, can help assure ood supplies to needy and

vulnerable population groups during crises. Poor consumers can also be assisted with

cash or ood vouchers and producers helped with inputs such as ertilizer and seeds.

Market-based mechanisms can help low-income developing countries to meet higher

ood import bills. At country level, governments can protect themselves rom ood price

increases through a variety o fnancial arrangements such as call options, which would

give them the right to buy ood at a set price even months ahead, regardless o how the

market has moved in the meantime. At international level, compensatory acilities can

help low-income developing countries meet escalating ood import bills. Concessional

fnancing acilities such as those provided by the IMF helped countries contend with

the balance o payments problems that soaring ood prices provoked in 2007-2008.

Ultimately though, stability in the ood market depends on increased investment in

agriculture, particularly in developing countries, where 98 percent o the hungry live

and where ood production needs to double by 2050 to eed growing populations.

Investment in inrastructure, marketing systems, extension and

communication services, education, as well as in research and development,

can increase ood supply and improve the unctioning o local agricultural

markets, resulting in less volatile prices. In this way, markets can work

or the poor people who bear the burden o ood price volatility.

The level o net investments required is around US$83 billion a year

which would help millions o people around the world escape poverty

and help restore long-term stability to agricultural markets.

POPULATION GROWTH, with almost 80 mil lion new mouths to eed every year, is

another important element. Population pressure is compounded by the erratic and oten

extreme meteorological phenomena produced by global warming and climate change.

A urther contributing actor may be the recent entry o institutional

investors with very large sums o money into ood commodity utures markets.

There is evidence to suggest that ood prices may have surged partly as a

result o speculation. But there is considerable debate over the issue.

Lastly, distortive agricultural and protectionist trade policies bear a

signifcant part o the blame. In addition, with agriculture now substantially

part o the wider energy market, any shock to the latter such as unrest in a

producing country can have immediate repercussions on ood prices.

Responding to ood price volatility thereore involves two dierent kinds

o measures. The frst group addresses volatility itsel, aiming to reduce

price swings through specifc interventions while the other seeks to mitigate

the negative eects o price swings on countries and individuals.

One measure requently invoked under the frst heading is the setting up

o an internationally held ood stock able to intervene on markets to stabilize

prices. But FAOs view is that such a stock would be o dubious value, as well

as expensive and difcult to operate. Also, government intervention in ood

markets discourages the private sector and hinders competition.

FROM CRISIS

TO STABILITY FROM CRISIS TO STABILITY


5/6

SAFETY NETS AT WORK

MEXICOS OPORTUNIDADES PROGRAMME -Following the food price crii of 2008,

the Mexicn government ndertook mjor expnion of it exiting portunidades

progrmme, trgeted cheme providing ch to poor fmilie on condition tht

children ttended chool nd fmily member reglrly viited helth centre.

he progrmme hd been introdced in 1997 when it w relized tht direct food

bidie, ch tortill price pport, were expenive nd not very effective in redcing

poverty (it w clclted tht dminitrtive cot monted to 40 percent of the totl).

o hield poor people from oring price, portunidades bdget w increed

from 39 to over 42 billion peo while the nmber of benecirie went p by million

to totl of ve million.

selection of beneciry fmilie i mde ccording to trict eligibility criteri. h

trnfer, mde on monthly bi, incree with the chool grde nd re lo higher for

girl in middle chool. Fmilie now receive n verge of 665 peo (us$57) month.

althogh the progrmme did not flly compente for the increed food

price, it did provide one Mexicn fmily in for with mjor protection gintthe trmoil in food mrket. t h lo been credited with improving the helth

of children nd dlt, nd riing ntrition nd chool enrolment level.

IMPROVING INCOMES THROUGH CREDIT WARRANTAGE

THE CASE OF NIGER - an ingenio nncing cheme deigned to rie theincome of africn mllholder frmer h been o ccefl it i to be cled

p in iger, where it w pioneered, nd extended to neighboring contrie. ike

mny africn mllholder, iger frmer hd long been penlized by hving

to ell their prodce immeditely fter hrvet when price re lowet.

Firt tep w to help them form frmer grop. hen the grop were

helped to get credit throgh locl verion of the warrantage, or inventory

credit ytem, ed by ropen frmer in the nineteenth centry.

under the ytem, rther thn elling their hrvet t once, frmer e it

collterl for bnk lon. With the money they cn by eentil inpt for the next

plnting nd lo hold on to their prodce ntil the len eon when price climb.

a tdy of the iger project crried ot in ecember 2009 fond tht

prticipting frmer were ble to incree their income by between 19 nd

113 percent in ix month. and ince they were ble to by better eed nd

fertilizer, their yield went p by between 44 nd 120 percent.

BOOSTING DOMESTIC PRODUCTION

THE CASE OF THE PHILIPPINES -severl contrie, inclding hin, ndonei,

Mlyi, the Philippine, Mlwi, igeri nd senegl, re now booting dometic food

prodction their trtegic repone to high food price. For exmple, the overnment

of the Philippine, which ed to be the world lrget rice importer, i eeking to chieve

rice elf-fciency by 2013. he government i intending to ct import from more thn

two million tonne lt yer to le thn one million thi yer following the lnch of n

intenied prodction progrmme tht i expected to relt in 15 percent incree

in the mmer hrvet nd chieve elf-fciency in two to three yer time.

ocl Ply rice prodction for the rt hlf of the yer i et to rech more

thn 7.6 million tonne de to the expnion in hrveted re nd n incree in

verge yield from 3.6 tonne per hectre lt yer to 3.8 tonne per hectre in

2011. sccefl implementtion of irrigtion ytem repir, etblihment of more

pot-hrvet fcilitie, nd contrction of frm-to-mrket rod pr ticlrly in

Mindno, othern Philippine, re prt of n inteniction progrmme plnned

to tke the Philippine rice prodction to 17.46 million tonne thi yer.

he Philippine plyed mjor role in the reen evoltion. n 1960 8, the hybrid

rice vriety tht w to end recrrent fmine in mny prt of ai, w developed t the

nterntionl ice eerch ntitte, etblihed by the Philippine government nd the Ford

nd ockefeller Fondtion in o Bo. With the new, high-yielding vriety, rice prodction

qickly dobled in the contry nd it becme net exporter. Bt beqent prodction

incree filed to keep pce with demnd from ft-growing popltion. By 1990, the

contry w importing 600 000 of tonne, which by 2008 hd grown to 2. 5 million tonne.


6/6

FAOS CONTRIBUTION

Under its Initiative on Soaring Food Prices, launched in December 2007, FAO has helpeddistribute key inputs such as seeds and fertilizer to poor farmers in some 90 of thecountries hardest hit by price volatility.

RecentlyFAO,togetherwiththeOECD,ledateamofnineinternationalorganizationsinpreparing a series of recommendations for the French Presidency of the G20 on how tomanage food price volatility so as to protect the most vulnerable.

FAOmonitorsandanalyzesthecausesoffoodpricevolatilityinglobalandnationalmarkets,throughitsGlobalInformationandEarlyWarningSystemandpublicationslikeFood Price Index, Food Outlook and Food Price Monitor.

FAOpublishedrecentlytheGuide for Policy and Programmatic Action at Country Level to AddressHigh Food Prices and embarked on the organization of a series of regional and subregional

seminars to help countries make informed decisions and support the design of country-level/national action plans.

Increasedinvestmentinagricultureshouldbeoneofthemainresponsestohighfoodprices. In 2010, FAO assisted governments to programme over US$5 billion of investmentby development banks to agriculture.

In2010, FAO delivered US$800 million in emergency and technical cooperation assistancein over 70 countries.

FAO FOOD PRICE INDEX 19902011

NEW ERA OF FOOD PRICE VOLATILITY ENDS LONG PERIOD OF STABILITY.

Food and agriculture organization oF the united nations

Viale delle Terme di Caracalla - 00153 Rome, Italy

Telephone: +39 06 570 54478 Fax: +39 06 570 53210

E-mail: [email protected]

www.fao.org

50

90

130

170

210

250

11100908070605040302010099989796959493929190

2002-2004=100

FAO Food Price Index

Prices are adjusted for inflation

(Source: FAO)

Photo credits:page 2 Reuters/Arko Datta; page 3 (clockwise from top left) AFP/Juan Mabromata, Reuters/Jianan Yu,

FAO/Giulio Napolitano, FAO/Asim Hafeez; page 4 Reuters/Rick Wilking; page 5 International Rice Research Institute

(IRRI); page 6 (top) Reuters/Daniel Aguilar, FAO/Issouf Sanogo; page 7 (clockwise) Reuters/Arko Datta, Reuters/Frank

Polich, Reuters/Sukree Sukplang.

wfd issues paper en rev-web

Documents