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The Global Food Crisis and Policy Implications

The Global Food Crisis and Policy Implications. Per Pinstrup-Andersen. 2008 J.W. Fanning Lecture University of Georgia October 17, 2008. Extended Annual FAO Food Price Index 1998-2000 = 100. -- Nominal -- Real - - x August 2008.

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The Global Food Crisis and Policy Implications

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  1. The Global Food Crisis and Policy Implications Per Pinstrup-Andersen 2008 J.W. Fanning Lecture University of Georgia October 17, 2008

  2. Extended Annual FAO Food Price Index 1998-2000 = 100 -- Nominal -- Real - -x August 2008

  3. Wheat, Maize, and Rice PricesJuly, 2007 – December, 2008 ($/Ton) Futures* - For December 2008 Delivery

  4. Causes of Food Price Increases (1) • Supply Side Factors: • Adverse Weather (Climate Change?) • Rapidly Falling Prices 1974-2000 • Green Revolution • OECD Policies • Limited Investments

  5. Causes of Food Price Increases (2) • Demand Side Factors: • Biofuel • Meat and Dairy Products Demand • Feed Demand

  6. Causes of Food Price Increases (3) • Market Factors: • Reduced Storage of Food Commodities • Capital Market Transfers • Falling Dollar Value

  7. FAO Food Price Index Adjusted for Changes in the exchange Rates Between US Dollar and SDR and CFA

  8. Causes of Food Price Increases (4) • Public and Private Action • Little action towards achieving MDG • Export bans and restrictions • Panic buying

  9. Rice Prices and Recent Policy Responses$/Ton; January 2004-August 2008 ← 835 (July 2008) ← 787(August 2008)

  10. Causes of Food Price Increases (4) • Public and Private Action • Little action towards achieving MDG • Export bans and restrictions • Panic buying • Reduced import tariffs

  11. Causes of Food Price Increases (4) • Public and Private Action • Little action towards achieving MDG • Export bans and restrictions • Panic buying • Reduced import tariffs • Price controls • Rationing • Food riots • Hoarding

  12. Causes of Food Price Increases (4) • Public and Private Action • Little action towards achieving MDG • Export bans and restrictions • Panic buying • Reduced import tariffs • Price controls • Rationing • Food riots • Hoarding • Media frenzy

  13. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added

  14. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality

  15. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality • Rural population groups • Net sellers or net buyers

  16. Percent of Rural Households that are Net Staple Food SellersSelected Countries Source: FAO (2008).

  17. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality • Rural population groups • Net sellers or net buyers • Length of run, induced innovation

  18. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality • Rural population groups • Net sellers or net buyers • Length of run, induced innovation • Price transmission

  19. Estimated Rice Price Transmission Q4, 2003 to Q4, 2007 for Selected Countries (%) Source: FAO (2008).

  20. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality • Rural population groups • Net sellers or net buyers • Length of run, induced innovation • Price transmission • Production costs

  21. Approximate Fertilizer Prices ($/Ton) Source: IFDC

  22. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality • Rural population groups • Net sellers or net buyers • Length of run, induced innovation • Price transmission • Production costs • National Welfare Change • Net exporters and net importers

  23. Percent of Major Grains Imported by Selected Countries (2001-2003) Source: FAO (2008).

  24. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality • Rural population groups • Net sellers or net buyers • Length of run, induced innovation • Price transmission • Production costs • National Welfare Change • Net exporters and net importers • Stability

  25. Consequences of Food Price Increases • HH Welfare Change: • Urban Consumers • Budget shares and value added • Food security and dietary quality • Rural population groups • Net sellers or net buyers • Length of run, induced innovation • Price transmission • Production costs • National Welfare Change • Net exporters and net importers • Stability • Agri-business

  26. Policy Response to Food Price Increases • Maintaining government legitimacy • Emphasis on Short-term measures • Price controls, export bans, lifting import tariffs, rationing, food distribution • Emphasis on short-term transfers to urban lower middle class • Continued neglect of the rural poor • Expanding food production • Renewed interest in national self-sufficiency • Reserve stocks, acquisition or control of land across borders

  27. Proposed Policy Priorities (1) • For short-run impact • Food distribution targeted on rural and urban poor • Poverty relief programs for rural and urban poor • Safety nets for rural and urban poor • Rural public works • Time-limited input subsidies

  28. Proposed Policy Priorities (1) • For short-run impact • Food distribution targeted on rural and urban poor • Poverty relief programs for rural and urban poor • Safety nets for rural and urban poor • Rural public works • Time-limited input subsidies • Discontinuation of export bans

  29. Proposed Policy Priorities (1) • For short-run impact • Food distribution targeted on rural and urban poor • Poverty relief programs for rural and urban poor • Safety nets for rural and urban poor • Rural public works • Time-limited input subsidies • Discontinuation of export bans • Release of Japanese rice stocks

  30. Proposed Policy Priorities (1) • For short-run impact • Food distribution targeted on rural and urban poor • Poverty relief programs for rural and urban poor • Safety nets for rural and urban poor • Rural public works • Time-limited input subsidies • Discontinuation of export bans • Release of Japanese rice stocks • Postpone biofuel blending mandates • Eliminate biofuel subsidies

  31. Proposed Policy Priorities (2) For long-run impact Improved land tenure

  32. Proposed Policy Priorities (2) For long-run impact Improved land tenure Expanded investment in: Rural infrastructure Agricultural research and technology Alternative energy sources Rural education, sanitation and health care

  33. Proposed Policy Priorities (2) For long-run impact Improved land tenure Expanded investment in: Rural infrastructure Agricultural research and technology Alternative energy sources Rural education, sanitation and health care International trade agreements Completion of Doha Round Avoidance of ad.hoc. export bans and restrictions

  34. Proposed Policy Priorities (2) • For long-run impact • Improved land tenure • Expanded investment in: • Rural infrastructure • Agricultural research and technology • Alternative energy sources • Rural education, sanitation and health care • International trade agreements • Completion of Doha Round • Avoidance of ad.hoc. export bans and restrictions • International grain storage agreement

  35. Future Perspectives • Significant supply response • Falling real food prices

  36. Approximate Wheat Prices

  37. Percent Decrease in Price Betweenthe Highest and October 6, 2008

  38. A Note on Arithmetic A 100% increase is offset by a 50% decrease. A 200% increase is offset by a 66% decrease. A 300% increase is offset by a 75% decrease.

  39. Future Perspectives • Significant supply response • Falling real food prices • Strong links between oil and food prices

  40. Crude Oil – Maize Price Breakeven Points for US Ethanol Production (2007) Source: Tyner and Taheripour (2008). 2008: 1/3 of US Maize Used for Biofuel (12% of global production) 60% of EU Rapeseed Oil (25% of global)

  41. Future Perspectives • Significant supply response • Falling real food prices • Strong links between oil and food prices • Continued urban bias in policy interventions

  42. Future Perspectives • Significant supply response • Falling real food prices • Strong links between oil and food prices • Continued urban bias in policy interventions • Return to government complacency

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