Current and future challenges for agriculture and food security

1. Current and future challenges for agriculture and food security Kostas G. Stamoulis Director, Agricultural Development Economics Division Food and Agriculture Organization of the United Nations

2. Source: FAO Rapid rise in the number of hungry in recent years

3. Short-term developments

4. Food price developments, 2003-2009 FAO commodity price indices (2002-2004 = 100) Source: FAO Food Outlook (Dec. 2009)

5. Paradox 1: No serious production shortfalls Global crop production Source: FAO Food Outlook (Dec. 2009)

6. Price transmission(1) : International vs. domesticprices

7. The Price Transmisson Paradox(2): Prices Inflexible downward

8. Impact of % 50 increase in the price of maize on food expenditure 20 15.69 10 3.11 0.94 0 Malawi Zambia Uganda Malawi Zambia Uganda -4.79 -10 -15.52 -20 -30 Changes in expenditure on maize Changes in quantity of maize consumed -30.03 -40 Paradox 3: Determining the impact of pricehikes • Households adjust differently: • Net producers, net consumers • extent of separability between consumption and production decisions • Production/expenditure patterns • Liquidity constraints, investment capacity • Fact: Source: FAO

9. Could a similarcrisishappen again? • Can some of the basic drivers be reproduced • Shortfall in stock levels ? Energy prices? Financial markets ? • Will underinvestment in agriculture continue ? • Who will be able to respond to the higher prices • Incoherent policy responses • Initial reaction of exporters to food price increase (export restrictions) exacerbated price instability : Safeguards ? • Longer-term reaction of importers (land acquisition, supply arrangements) could reduce residual market size and further increase market instability • Loss in confidence in international markets • Energyandagriculturalmarkets will becomemorestronglyinterlinked: canfoodpricesbedeterminedbymuch larger energymarkets? • Will newplayers in international grainmarketsprovide a safeguard ?

10. Long-term challenges

11. Undernourished in developing countries (Million) Year Source: FAO (2009) Food security in perspective

12. Key challenges • Key overall challenge: To eliminate food insecurity • Challenges for agriculture: • Meet the food and energy needs of 9.2 billion people by 2050 • Meet additional demands from energy markets • Cope with local resource scarcity and shift to more sustainable production methods • Adapt to the agro-ecological changes related to climate change and contribute to the mitigation effort • Protection of livelihoods as agriculture transforms and markets are integrated

13. Demand Outlook : Slow-down in global demandforagriculturalcommodities • Slowdown in Population growth • +2.3 billion to 2050 after +3.3 billion over the last 40 years • Highest growth in the poorest regions: Sub-Saharan Africa (+114%) • Lowest growth in East and South East Asia (+14%) • +2.7 billion in urban areas, significant urbanization • Optimistic on income growth • Overall a richer world by 2050 • +2.9% growth per annum for the world a a whole • higher in developing countries (5.2%), lower in industrial countries (1.9%) • Less poverty (scenarios differ), but low poverty line of US$ 1.25

14. 2050 Average daily per capita consumption: 3068 kcal Change in the composition of diets Source: FAO

15. Agricultural production future 70 World past 148 future 23 Developed past 63 future 97 Developing past 255 0 50 100 150 200 250 300 Source: Bruinsma (2009) The global food outlook to 2050 Baseline: How much more needs to be produced by 2050? (%) past = 1961/63 to 2005/07; future = 2005/07 to 2050

16. A Baseline Scenario shows that globally we can meet effective demand • Globally: 91% fromincreasedyieldsandcroppingintensities • In developing countries: 79% fromincreasedyieldsandcropppingintensity • Improvedseeds • More efficientinput-use (especiallywaterandfertilizer) • Small increase in cultivatedarea • Yield growth: considerable slow down: 0.8% p.a. in the future compared to 1.7% in the past • Still considerable untapped/bridgeable yield potentials and increases in yield ceilings BUT • R&D needed for crops that are important for the poor (millet, sorghum, R&T, pulses, plantains) • Key Challenge : In 27 countries prevalence of food deprivation more than 50% in 2050 not counting climate change and bioenergy demand

17. Exploitable yield gaps for maize in Africa Source: WDR, 2008, Sasakawa Africa

18. Agriculturalsystemtransformation

19. Structural shifts in agriculture and agro-industry • As economies develop and incomes rise, emphasis shifts to value addition, risk management, quality and safety characteristics • Trade liberalization and FDI intensifies the spread of agribusiness • Gains from scale economies dominate • Knowledge of how to manage complex systems • Concerns: • Rapid transformations increase risk of smallholder marginalization • lack of access to knowledge, capital of all kinds, organisation • Agriculture-development-poverty reduction link is broken

20. Structural transformation (1) Share of agriculture in GDP and per-capita GDP (180 countries) Note:GDP per capita refers to 2005 PPP USD. Source: World Development Indicators, 2009.

21. Structural transformation (2) A declining share of agriculture in GDP, but a high and rising share of agribusiness in GDP in developing countries Source: World Bank, WDR 2008

22. Importance of smallholders • Who is a smallholder ?? • 70 percent of world’s poor concentrated in rural areas where 2 out of 3 bn people reside in about 450 million small farm households. • Focus on poverty reduction forces a better look at smallholders • Smallholder growth has collateral positive effects on local economies.

23. inclusive commercialization ?? • Smallholder participation into markets • Traditional constraints( infrastructure; input markets; information) • Which Markets ? • Ease of entry depends on market characteristics (e.g. volatility: volumes, prices; integration between rural, urban, regional, global) • “Willingnesss” of producers to generate sufficient surpluses • Smallholder participation in value-chain development • Which Value chain ? • Ease of entry depends on the specific value-chain (e.g. capital intensity, knowledgeintensity, land intensity; policy induced risks) • What is the ultimate objective ( smallholder orthodoxy) • Operating through labour markets ( demand and supply)

24. Policy interventions/ VCD initiatives to alleviate constraints • Characteristics of the constraint/market failure will determine appropriate delivery mechanism/intervention • Public/merit good • research, extension, quality assurance, market intelligence, trade facilitation, dialogue, coherence • Private good • access to/affordability of inputs (subsidies, distribution) • output price support (level/volatility) • When to deliver support/service? • Who and how to deliver? • Trade Policy • Target primary product ? • Protect processed or raw material ? • Characteristics of industries to be protected

25. Sources of Failure in Agricultural Markets

26. Policychallenges..andopportunities

27. Key Conclusions • The world can produce enough food to feed itself in the long-run – if appropriate policies and investments are put in place also to deal with wild cards ..biofuels and CC • Producing enough food will not eliminate hunger – access to food must also be increased • Improving the performance of agriculture is necessary to increase both food production and access to food • Rapid transformation of the agri-food sector creates risks of marginalisation of “small “ producers.

28. Interventions vs initiatives • More creative role for public sector that goes beyond creation of basic enabling environment • Mechanisms by which public sector support can be used to leverage greater private sector participation • State seeks to align incentives facing private sector with public policy goals such as service provision to poor groups • Public sector risk sharing to encourage greater participation and investment • Counterproductive interventions • Crowding out • Policy environment (e.g. ad hoc use of trade restrictions)

29. Thank you For more information, please visit http://www.fao.org/economic