Rising Food Prices: What Should Be Done?
by Joachim von Braun
IFPRI Policy Brief • April 2008
The sharp increase in food prices over the past couple of years has raised serious concerns about the food and nutrition situation of poor people in developing countries, about inflation, and—in some countries—about civil unrest. Real prices are still below their mid-1970s peak, but they have reached their highest point since that time. Both developing- and developed-country governments have roles to play in bringing prices under control and in helping poor people cope with higher food bills.
In 2007 the food price index calculated by the Food and Agriculture Organization of the United Nations (FAO) rose by nearly 40 percent, compared with 9 percent the year before, and in the first months of 2008 prices again increased drastically. Nearly every agricultural commodity is part of this rising price trend. Since 2000—a year of low prices—the wheat price in the international market has more than tripled and maize prices have more than doubled. The price of rice jumped to unprecedented levels in March 2008. Dairy products, meat, poultry, palm oil, and cassava have also experienced price hikes. When adjusted for inflation and the dollar’s decline (by reporting in euros, for example), food price increases are smaller but still dramatic, with often serious consequences for the purchasing power of the poor.
National governments and international actors are taking various steps to try to minimize the effects of higher international prices for domestic prices and to mitigate impacts on particular groups. Some of these actions are likely to help stabilize and reduce food prices, whereas others may help certain groups at the expense of others or actually make food prices more volatile in the long run and seriously distort trade. What is needed is more effective and coherent action to help the most vulnerable populations cope with the drastic and immediate hikes in their food bills and to help farmers meet the rising demand for agricultural products.
The Sources of Current Price Increases
The combination of new and ongoing forces is driving the world food situation and, in turn, the prices of food commodities. One emerging factor behind rising food prices is the high price of energy. Energy and agricultural prices have become increasingly intertwined (see figure). With oil prices at an all-time high of more than US$100 a barrel and the U.S. government subsidizing farmers to grow crops for energy, U.S. farmers have massively shifted their cultivation toward biofuel feedstocks, especially maize, often at the expense of soybean and wheat cultivation. About 30 percent of U.S. maize production will go into ethanol in 2008 rather than into world food and feed markets. High energy prices have also made agricultural production more expensive by raising the cost of mechanical cultivation, inputs like fertilizers and pesticides, and transportation of inputs and outputs.At the same time, the growing world population is demanding more and different kinds of food. Rapid economic growth in many developing countries has pushed up consumers’ purchasing power, generated rising demand for food, and shifted food demand away from traditional staples and toward higher-value foods like meat and milk. This dietary shift is leading to increased demand for grains used to feed livestock. Poor weather and speculative capital have also played a role in the rise of food prices. Severe drought in Australia, one of the world’s largest wheat producers, has cut into global wheat production.
The Impacts of High Food Prices
Higher food prices have radically different effects across countries and population groups. At the country level, countries that are net food exporters will benefit from improved terms of trade, although some of them are missing out on this opportunity by banning exports to protect consumers. Net food importers, however, will struggle to meet domestic food demand. Given that almost all countries in Africa are net importers of cereals, they will be hard hit by rising prices. At the household level, surging and volatile food prices hit those who can afford it the least—the poor and food insecure. The few poor households that are net sellers of food will benefit from higher prices, but households that are net buyers of food—which represent the large majority of the world’s poor—will be harmed. Adjustments in the rural economy, which can create new income opportunities, will take time to reach the poor.The nutrition of the poor is also at risk when they are not shielded from the price rises. Higher food prices lead poor people to limit their food consumption and shift to even less-balanced diets, with harmful effects on health in the short and long run. At the household level, the poor spend about 50 to 60 percent of their overall budget on food. For a five-person household living on US$1 per person per day, a 50 percent increase in food prices removes up to US$1.50 from their US$5 budget, and growing energy costs also add to their adjustment burden.
Policy Responses So Far
Many countries are taking steps to try to minimize the effects of higher prices on their populations. Argentina, Bolivia, Cambodia, China, Egypt, Ethiopia, India, Indonesia, Kazakhstan, Mexico, Morocco, Russia, Thailand, Ukraine, Venezuela, and Vietnam are among those that have taken the easy option of restricting food exports, setting limits on food prices, or both. For example, China has banned rice and maize exports; India has banned milk powder exports; Bolivia has banned the export of soy oil to Chile, Colombia, Cuba, Ecuador, Peru, and Venezuela; and Ethiopia has banned exports of major cereals. Other countries are reducing restrictions on imports: Morocco, for instance, cut tariffs on wheat imports from 130 percent to 2.5 percent; Nigeria cut its rice import tax from 100 percent to just 2.7 percent.How effective are these responses likely to be? Price controls and changes in import and export policies may begin to address the problems of poor consumers who find that they can no longer afford an adequate diet for a healthy life. But some of these policies are likely to backfire by making the international market smaller and more volatile. Price controls reduce the price that farmers receive for their agricultural products and thus reduce farmers’ incentives to produce more food. Any long-term strategy to stabilize food prices will need to include increased agricultural production, but price controls fail to send farmers a message that encourages them to produce more. In addition, by benefiting all consumers, even those who can afford higher food prices, price controls divert resources toward helping people who do not really need it. Export restrictions and import subsidies have harmful effects on trading partners dependent on imports and also give incorrect incentives to farmers by reducing their potential market size. These national agricultural trade policies undermine the benefits of global integration, as the rich countries’ longstanding trade distortions with regard to developing countries are joined by developing countries’ interventions against each other.
Sound Policy Actions for the Short and Long Term
The increases in food prices have a dominant role in increasing inflation in many countries now. It would be misguided to address these specific inflation causes with general macroeconomic instruments. Mainly, specific policies are needed to deal with the causes and consequences of high food prices. Although the current situation poses policy challenges on several fronts, there are effective and coherent actions that can be taken to help the most vulnerable people in the short term while working to stabilize food prices by increasing agricultural production in the long term.First, in the short run, developing-country governments should expand social protection programs (that is, safety net programs like food or income transfers and nutrition programs focused on early childhood) for the poorest people—both urban and rural. Some of the poorest people in developing countries are not well connected to markets and thus will feel few effects from rising food prices, but the much higher international prices could mean serious hardship for millions of poor urban consumers and poor rural residents who are net food buyers, when they actually are exposed to them. These people need direct assistance. Some countries, such as India and South Africa, already have social protection programs in place that they can expand to meet new and emerging needs. Countries that do not have such programs in place will not be able to create them rapidly enough to make a difference in the current food price situation. They may feel forced to rely on cruder measures like export bans and import subsidies. Aid donors should expand food-related development aid, including social protection, child nutrition programs, and food aid, where needed.
Second, developed countries should eliminate domestic biofuel subsidies and open their markets to biofuel exporters like Brazil. Biofuel subsidies in the United States and ethanol and biodiesel subsidies in Europe have proven to be misguided policies that have distorted world food markets. Subsidies on biofuel crops also act as an implicit tax on staple foods, on which the poor depend the most. Developed-country farmers should make decisions about what to cultivate based not on subsidies, but on world market prices for various commodities.
Third, the developed countries should also take this opportunity to eliminate agricultural trade barriers. Although some progress has been made in reducing agricultural subsidies and other trade-distorting policies in developed countries, many remain, and poor countries cannot match them. This issue has been politically difficult for developed-country policymakers to address, but the political risks may now be lower than in the past. A level playing field for developing-country farmers will make it more profitable for them to ramp up production in response to higher prices.
Fourth, to achieve long-term agricultural growth, developing-country governments should increase their medium- and long-term investments in agricultural research and extension, rural infrastructure, and market access for small farmers. Rural investments have been sorely neglected in recent decades, and now is the time to reverse this trend. Farmers in many developing countries are operating in an environment of inadequate infrastructure like roads, electricity, and communications; poor soils; lack of storage and processing capacity; and little or no access to agricultural technologies that could increase their profits and improve their livelihoods. Recent unrest over food prices in a number of countries may tempt policymakers to put the interests of urban consumers over those of rural people, including farmers, but this approach would be shortsighted and counterproductive. Given the scale of investment needed, aid donors should also expand development assistance to agriculture, rural services, and science and technology.
Conclusion
World agriculture is facing new challenges that, along with existing forces, pose risks for poor people’s livelihoods and food security. This new situation calls for policy actions in three areas:- comprehensive social protection and food and nutrition initiatives to meet the short- and medium-term needs of the poor;
- investment in agriculture, particularly in agricultural science and technology and in market access, at a national and global scale to address the long-term problem of boosting supply; and
- trade policy reforms, in which developed countries would revise their biofuel and agricultural trade policies and developing countries would stop the new trade-distorting policies with which they are hurting each other.
Pl infrom me when you write up next time.
It is good to see and read. An well attempt
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Seemed like a pretty good article right up until the conclusion. And these solutions are supposed to be sustainable?
Unfortunately, there was not one word about our burgeoning world population and it's effects on agriculture or food supply, or about immediately-needed solutions--One Child Per Family (OCPF) and other methods such as delaying pregnancies to help achieve Rapid Population Decline (RPD).
We have without question, overshot our earth's carrying capacity, and policies not incorporating OCPF and RPD are about as useful as using band-aids to treat lung cancer.
I'm disappointed--I expected more--especially from this institute.
Comments/criticisms are welcome.
Regards,,,John
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It is unfortunate to have such a comment even now. We have enough evidence to suggest that it is not population growth per se but higher life styles are causing degradation of natural resources and rising cost of food and other goods and services. Current sky rocketing prices of petroleum is result of unsustainable life styles. It is also well know that burgeoning population in certain parts of globe are result of under development and ignorance. Investment in education, health care, social security, etc, are effective means to control population growth rather than blunt campaigns.
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Population, meat consumption, biofuels, oil depletion, and inequality all have a role to play in world hunger, and they're all linked. Population by itself does not cause hunger, if we could somehow distribute the food equally there'd be enough. Higher life styles per se don't cause it, if we could get world population down to (say) about 10% of current levels, everyone could live like an American (well, for a while, anyway). Oil depletion per se wouldn't cause hunger if we could shift our agriculture to a sustainable basis, as it was (more or less) about 100 years ago.
But put them all together, and you've got a problem.
Having said that, I agree with the author of this comment that the consumptive lifestyles of Western nations are a critical component. Meat consumption is rising rapidly, now not only in the U. S. but in China as well. Biofuels, which actually makes global warming worse anyway because of all the fossil fuels in industrialized agriculture, also drives up the price. Those who are more affluent can afford it and tolerate it with some complaints. But those who are poorer may find that the price exceeds that they can afford to pay. Thus you have the food riots in Mexico, Cameroon, India, etc.
Food policy responses can certainly emphasize greater production, more efficient use of agricultural resources, etc., as the author suggests. But we've pretty much reached the point of diminishing returns on this score. To really have an impact, you need to (1) reduce meat consumption (2) reduce or eliminate biofuels, which is really a scam because of all the fossil fuels in agriculture, and (3) reduce inequality. In the long term, you also need to lower population to probably around 2 to 3 billion at most, or even with all the above reforms environmental degradation will make us all equal but all starving.
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This brief is an excellent summary of the current situation. However a few details and a few innovative suggestions at the end might have enriched the brief. From my experience in India (I believe it would be relevant to many developing countries), I suggest that it is lack of investment per se but absence of appropriate investment in agriculture research, the major problem. There is wide gap between potential and actual yields. Transfer of technologies from labs to field is major challenge in India. Transfer of technologies internationally should be the priority.
Another crucial area of concern is deteriorating natural resources and environment. The adverse effects of climate changes are known only partially. Widely acknowledged adverse effects of climate changes are frequent shocks. It is also known that the frequency, magnitude and intensity of these shocks are increasing. Other serious adverse effect of retreating natural resources and physical environment, which is less acknowledged yet equally if not more important, is gradual decline of productivity of natural resources in general and agriculture in particular. In Indian context, agro-forestry would be the best possible method to reverse the degradation of natural resources. But agro-forest could not take off in the country because of strict restrictions on growing, harvesting and trading of forestry species. There is an unsustainable trend nationally and internationally replacing the renewable wood with non-renewable products like steel and cement. Appropriate policies could easily (a) reverse the degradation of natural resources, (b) increase the productivity of natural resources and agriculture without any additional investments and inputs, and (c) increase the supply of valuable forestry species without degrading the natural forests.
Another policy review that is related to the previous issue is use of crop support incentives in such as way that results in conservation of natural resources. In India there are all kinds of support to resource intensive crops like Paddy, Wheat and Sugarcane. Because of this wide and complex incentive system, the area under these three crops, their productivity and production have increased vis-à-vis other crops during last three and half decades. What is more interesting to note is that prices of these three crops have increased steeply compared to other crops during all these years.
Another crucial area for action is to increase the return on the investments made or being made in agriculture and rural developments. E.g. there is wide gap between irrigation potential created in the country and actual area provided with irrigation. Similarly the productivity in irrigated area is quite low compare to the potential. Similarly the huge investments made in land development and watershed development neither resulted in increase in the quality of the land nor in higher crop productivity.
These kinds of distortions may be present in other countri
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The sharp up shot in the food price, over the couple of years, is not due to scarce resources but due to lack of appropriate optimal utilization of resource. If one looks at the per drop productivity and per capita enhancement over the production from Agriculture sector, it is gradually decline in its trends over the past decade. This is in spite of different developmental programmes that have been taken up by both Govt and private sectors in a big way. The results shown in different studies that resource utilization has been drastically increased over the period.
The technology is available for us in India, through Micro Irrigation developed by many technologists but could not penetrate into the real world due to lack of intensive promotional processes. Availability of resources with better access has increased the negligence over those resource utilization and is leading to dramatic situation in reducing the per drop productivity. One can quote many examples on this viz., supply of power, present utilization of water resource vis-à-vis the land resource, financial resources made available by lending money through institutionalization process had ultimately failed to get the results that are foreseen in terms of productivity enhancement. This scenario is coupled with the lack of minimum price mechanism to the farmer and providing incentives for enhanced productivity which added flame to it for such rise.
The second reason for steep hike in price of food products could be, the corporate bodies entered into the commodity (groceries) trading business, it was realized by many and an uproar was made against such act of commodity storage on large scale in their godowns. Exporting these products is another possibility under globalization and privatization without appropriate assessments made on the country’s requirement. In my view, the source of current inflation that is observed in food price is due to large quantum of food grains / product storage made by different corporate sector, who have recently entered in to grocery supply viz., Reliance, Subhiksha, Food World etc,. Then, it is neither the policy makers nor the promoters who have bothered about it; except the practitioners who sensitized the issue, viewing about the pro and consequences behind such act. Ultimately, in the process, their voice was un-heard as usual.
In the current situation instead of looking at policy changes which will take their own course of time to get practical changes, one should adopt the best suitable practice to be placed in real time.
In India, traditionally if one looks at fulfilling the food requirement is through exchange of goods, which was gradually replaced by the currency. In this process, communities started cultivating single crop, that too towards commercial ones, instead of multiple staple crops. This kind of shift, lead to increased dependency for food grains for human and cattle. In spite of this, it is also observed that the present ag sys
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congratulations to a very concise and clear presentation of the issues and policy options.
Still, I would suggest adding a further policy need, i.e. the establishment of a grain reserve, possibly combined with a food reserve fund. The grain reserve should be focussed on stabilizing the grain market, not distorting longer term price trends. We know that these markets are highly volatile as a result of the low (short - medium term) price elasticities, both on the supply as well on the demand side. This needs an international initiative as rules, management guidelines and financing require an international burden sharing.
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To all:
I would like to direct your attention to the following article by Peter Salonius at this link: http://www.sciencealert.com.au/opinions/20080105-17256.html
This article should put to rest any pie in the sky notions about how techno-fixes can solve our world-wide ecological nightmare.
I await reasoned refutations.
Regards,,,John
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Joachim: "Fourth, to develop, countries need to invest in roads, electricity, and communications, and crop storage and processing capacity."
Yet such investment in the past merely made land more valuable, more worth fighting over, and the winning landowners richer, the losing country folk poorer and hungrier.
A fifth positive step to take, maybe most basic, is land reform, especially a kind that works, letting farmers own land. To spur absentee owners of huge tracts to sell off their excess at prices poor farmers can afford, tax land at its annual rental value. Having to pay the overhead, big owners no longer find it worthwhile to be a middleman. This tax broke up huge estates in Denmark, California, Australia, New Zealand, and Taiwan, Afterwards, working their own land, farmers produced much more food, wiping out hunger in the case of Taiwan.
Any readers want to help us shift taxes off our efforts, onto locations? Thanks.
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Some important facts which are undeniable.
* To produce 1 lb of meat, an average of 40 lbs of vegetation is used.
* 12 lbs of wheat produce 12 loaves of bread and only 1 hamburger.
* It takes 3.25 acres of land to produce food for a meat eater on a continuing basis, while it takes 1/3 of an acre for someone eating a diet of plants and dairy and 1/6 of an acre for a person eating totally plant based diet (vegan).
* A University of California Study shows that to produce 1 lb of meat it takes an average of 2,500 gallons of water, it takes 966 gallons of water to produce one gallon of cow’s milk and on the other hand plant foods such as wheat, corn, apples etc. take 20 to 50 gallons of water to produce one pound of food.
* Eating food crops first hand produces a tremendous energy savings. To produce one pound of protein derived from beef requires 20 times as much fossil fuel energy as the same one pound of protein derived from corn or wheat. Protein from beef requires 40 times more fossil fuel energy than the same amount of protein derived from soybeans.
* The waste released in the atmosphere by the U.S. Meat and Dairy Industry is 230,000 pounds per second, thus polluting earth, air and water systems.
These staggering numbers are a wake up-call for us to make a difference now.
Human Welfare
* Twenty vegetarians can be fed on the amount of land needed to feed one person consuming a meat-based diet.
* If America reduced their intake of meat by 10 percent, 60 million people can be adequately fed by grain saved.
* A cow has to eat 7 lbs of grain and soy bean protein to produce 1 lb of meat protein. If the same land were to produce food for humans directly, 7 times more people could eat.
* More than half of all the water used in the United States is used in live stock production that can be used where there is water shortage.
When we become aware of these facts and change our lifestyle and go vegan we can increase the amount of grain available to feed people elsewhere, reduce pollution, save water and energy, cease contributing to the clearing of forests and the most important we can save billions of sentient beings from torture and pain and death. Factory farming is an aberration.
Green groups continue to avoid addressing the meat and dairy issue because it is the other "inconvenient truth". The planet needs to go vegan *now*. It is deception by omission that governments and green groups do not bring this to public attention. They should be embarrassed that even an meat industry site was highlighting this issue. DEFRA in the UK is also suggesting to the public that adopting a vegan diet (plant based) would be a good personal action to address climate change.
The facts are undeniable. Biofuels are not causing world hunger and global warming, animal agribusiness and meat consumption is.
Go vegan for peace, for yourself, for all sentient beings and the environment.
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That sounds good, but most cattle are grazed on open land where they are not supplied with any sort of wheat.
Cattle eat grass and such in areas that cannot sustain garden veggies or wheat. rice or other grains.
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To all:
Here is another link to yet another article which should help to dispel the myth we only need to reduce consumption, while allowing population to continue to go unchecked, this by John Feeney: http://commentisfree.guardian.co.uk/john_feeney/2008/05/return...
Contrary factual thoughts are most welcome,,,Regards,,,John
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