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Rising Food Prices: Causes, Effects, and Actions Needed. Rajul Pandya-Lorch International Food Policy Research Institute. 2008 Norman E. Borlaug International Symposium “Confronting Crisis: Agriculture and Global Development in the Next 50 Years” Des Moines, October 15-17, 2008. Overview.

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Rising food prices causes effects and actions needed l.jpg

Rising Food Prices:Causes, Effects, and Actions Needed

Rajul Pandya-Lorch

International Food Policy Research Institute

2008 Norman E. Borlaug International Symposium

“Confronting Crisis: Agriculture and Global Development in the Next 50 Years”

Des Moines, October 15-17, 2008


Overview l.jpg
Overview

  • Price developments and causes

  • Impacts on the poor and hungry

  • Priorities for action


Most sustained and significant increase of food prices in 3 decades l.jpg
Most sustained and significant increase of food prices in 3 decades

Annual FAO Food Price Index 1998-2000=100, 1961-2008

Source: FAO 2008.


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Higher and more volatile prices decades

(As of Sept. 2008)

Since Jan. 2003, maize and wheat prices doubled,

rice prices tripled, oil prices quadrupled

Source: Data from FAO 2008 and IMF 2008.


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Soaring global fertilizer prices decades

World Fertilizer Prices, 2000-2008, US$/mt

1400

1200

April 2008

1000

DAP, US Gulf

800

600

400

200

MOP, Vancouver

Urea, Arab Gulf, prilled

0

Jan-05

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-06

Jan-07

Jan-08

Source: IFDC 2008.


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Sources of the price increase decades

  • Income and population growth

  • Energy and biofuels

  • Slow agricultural response

  • Market and trade policy


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(1) Income and population growth decades

  • Income growth (2005-07 per annum)

    • 9% in Asia, 6% in Africa

    • 2% in industrialized countries

  • Population growth of more than 1% per year

  • Since 2000, global cereal use for:

    • Food 5%, feed 8%, industry 38%

    • Non-cereal demand rises dramatically

    • 6 kg grain generates 1 kg beef

    • 3 kg grain generates 1 kg pork

    • 2 kg grain generates 1 kg poultry

Sources: FAO 2003 and 2008; IMF 2008.


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(2) Energy and biofuels decades

Energy prices traditionally affected agric. input prices (fertilizer, pesticides, irrigation, transport)

Now, they also affect agric. output prices through opportunity costs

Generous developed country subsidies for biofuels and energy crops distort markets

Biofuel demand contributed to 30% of the increase of grain prices in 2000-07

Source: Rosegrant 2008


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(3) Slow agricultural response: decadesDeclining productivity growth

Source: World Development Report 2008.


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(4) Market and trade policy: decadesDistorting ad hoc measures

  • Export bans/restrictions:

    • Reduce global market size, increase volatility, harm import-dependent trading partners

    • Stimulate cartel formation, undermine trust, encourage protectionism

      E.g. Argentina, China, India, Indonesia, Russia

  • Price controls:

    • Reduce farmers’ incentives to produce more

    • Divert resources away from those who need them most

      E.g. China, Egypt, Malaysia, Pakistan, Russia


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Variety of government policy responses decades

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


Overview12 l.jpg
Overview decades

  • Price developments and causes

  • Impacts on the poor and hungry

  • Priorities for action


Looking beneath the 1 a day line 2004 l.jpg

Poor decades

($.75 cents – $1)

485 million people

Medial poor

($.50 cents – $.75 cents)

323 million people

Ultra poor

(less than $.50 cents)

162 million people

Looking beneath the $1 a day line (2004)

Source: Ahmed et al. 2007.


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World map of hunger: decades2008 GHI by severity

Source: von Grebmer et al. 2008.


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The number of hungry increased in 2007, mainly due to high food prices

The number of undernourished in 2007 increased by 75 mil. since 2003-05 (to 923 mil.)

  • Asia / Pacific 41 mil.

  • Latin America / Caribbean 6 mil.

  • Near East / North Africa 4 mil.

  • Sub-Saharan Africa 24 mil.

Sources: FAO 2008.


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Impact of High Prices food prices

  • At country level

    • Net food exporters gain

    • Net food importers struggle

    • Impact within a country depends on price transmission

  • At household level

    • Net sells benefit

    • Net food buyers harmed – the majority of the poor


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Impacts of high prices on the poorest food prices

Driven by initial conditionsand adjustments in labor, finance, and goods markets

Level of inequality below the poverty line (up)

Exclusion and discrimination (up)

Level of diet (low) and nutritional deficiencies (high)

Wage rate adjustments among unskilled labor to changing prices (slow)

Capability to respond to market opportunities (small)

A 50% increase in food prices in Bangladesh = 25% more prevalence of micronutrient deficiency in women and children (Bouis 2008)


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Irreversible consequences with long-term impact food prices

  • Deterioration of nutritional status of women and preschool children

  • Withdrawal of children esp. girls from school

  • Distress sale of productive assets and decrease of purchasing power


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The food crisis tradeoffs and effects food prices

+ Mass protests in about 60 countries

Violent: Bangladesh, Egypt, Guinea, Haiti, Honduras, Tunisia, etc.

+ The poorest suffer most and do so silently

+ Inflation and macro-economic imbalances

+ Environmental sustainability consequences

Energy security risks

Political security risks

Food security risks


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Overview food prices

  • Price developments and causes

  • Impacts on the poor and hungry

  • Priorities for action


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The food crisis is food pricesnot overcome, actions are needed now

IFPRI’s proposal:

  • 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]


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Policy actions: food pricesEmergency 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%


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Policy actions: food pricesResilience 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 per annum

8. Complete the WTO Doha Round

Strengthen rule based trade


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Improved information and monitoring needed food prices

  • Information is not available:

    • Everywhere

    • Quickly enough

    • At the needed level of disaggregation

    • Information strengthening and monitoring needed through:

    • Internet-based portal

    • Capacity-strengthening toolbox

    • Facilitation of fast data collection and estimations

Source: Benson et al. IFPRI 2008.


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Implementation of actions must be sound food prices

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


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