protecting poor people against food price volatility

Protecting Poor People Against Food Price Volatility

Shenggen FanDirector General

International Food Policy Research Institute

Panel discussion: Rising Global Food Prices: Causes, Impacts, and Response Strategies

Dakar, May 17, 2011

Shenggen Fan, May 2011

Key messages

Food price hikes and volatility are increasingly frequent.

A complex web of factors drive food price volatility.

High and volatile food prices hurt poor consumers and producers.

Urgent actions are needed to address food price volatility and protect poor people.


Global food price hikes and volatility

Source: Data from FAO 2011; Note:: *As of early May 2011

May

-05

Nov-0

5

May

-06

Nov-0

6

May

-07

Nov-0

7

May

-08

Nov-0

8

May

-09

Nov-0

9

May

-10

Nov-1

0

May

-11

0

200

400

600

800

Maize

Wheat

Rice

US

$/m

etr

ic t

on

Global hikes since June 2010*

• Maize: 100%• Wheat: 94%


Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-110

200

400

600

800

Maize

Wheat (white)

Eth

iopi

an B

irr/k

g

Domestic prices are also high and volatile

Retail prices in Niger, Niamey Retail prices in Senegal, Dakar

Wholesale prices in Ethiopia, Addis Ababa

Source: Data from FAO 2011

Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11100

200

300

400

500 MaizeRice

CF

A F

ranc

/Kg

Retail prices in Yaoundé, Cameroon

Feb-07 Feb-08 Feb-09 Feb-10 Feb-11150

250

350

450

550Rice (imported)

(CF

A F

ranc

/Kg)

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11250

350

450

550Rice (imported)

(CF

A F

ranc

/Kg)


Food price volatility drivers

Stronger link between oil and food prices

Extreme weather events—droughts, floods, and cyclones—lead to production losses

Trade restrictions

Market speculation?

Climate change (in the long run)


Stronger link between oil and food prices influence food security

Rising oil prices cause food prices to increase, rather than the reverse. (Heady and Fan 2010)

Rising oil prices make biofuels more profitable, rather than agricultural production more expensive. (Abbott, Hurt, and Tyner 2008)

Source: Data from IMF 2011

Note: Oil = Average crude oil price of U.K. Brent, Dubai, and West Texas Intermediate

Apr-0

5

Oct

-05

Apr-0

6

Oct

-06

Apr-0

7

Oct

-07

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

Oct

-10

Apr-1

10

50

100

150

200

250

Food

Oil

2005

= 1

00


Climate change will add pressure

Increased frequency and intensity of extreme weather events

Lower agricultural yields and production

Higher food prices

Source: Nelson et al. 2009.


High and volatile food prices hurt the poor

Source: Headey 2011

SenegalCameroon Ghana Nigeria Kenya Malawi Uganda Zambia0

10

20

30

40

50

60

70

802006/2007 2007/2008* 2008/2009*

% o

f h

ou

se

ho

lds

re

po

rtin

g p

rob

lem

s in

a

ffo

rdin

g f

oo

d in

las

t 1

2 m

on

ths

Self-reported food insecurity in Sub-Saharan Africa


Actions needed to reduce food price volatility and protect the poor

1 Invest in social protection, especially productive safety nets.

2 Establish global and regional strategic grain reserves.

3 Support transparent, fair, and open global trade.

4Promote agricultural growth, especially smallholder productivity.

5 Invest in climate change agricultural adaptation and mitigation.

6Establish an international working group to monitor world food situation and catalyze action.


Bangladesh Vulnerable Group Development Program

Increased per capita food consumption by 45-66 kcal per taka transfer (Ahmed et al. 2009)

Ethiopia Productive Safety Nets Program (PSNP)

With access to safety nets and agricultural support, beneficiaries are more food secure and productive. (Gilligan, Hoddinott, and Taffesse 2009)

Nigeria Fadama II Development Project

Increased the value of individual productive assets by about 50 percent (Nkonya et al. 2008)

1. Invest in productive social safety nets


2. Establish global and regional strategic grain reserves

Global emergency reserve Created with grain donations from large food

exporters and producers (for example, United States, France, China, India)

Located in these countries and also in poor food-importing countries (for example, Horn of Africa)

Owned and managed by an institution such as WFP • Strong global food management system including

logistical capability


Some regional initiatives are emerging:• Asean+3 Emergency Rice Reserve• Sahel and West Africa Regional Food Stocks

(RESOGEST)• SADC Regional Food Reserve Facility

Properly managed reserves can address food crises, but • operating costs need to be low.• moral hazard and other challenges must be overcome.

2. Establish global and regional strategic grain reserves


3. Support transparent, fair, and open global trade

Eliminate harmful trade restrictions and prevent new ones to:• increase market efficiency, and• reduce price fluctuations.

Potential costs of a failed Doha Round could be high (Bouët and Laborde 2009):

11.5 percent loss of developing country exports US$353 billion loss in world welfare

Quick completion of the Doha Round is crucial.


4. Promote agricultural growth, especially smallholder productivity

Invest in agricultural R&D and infrastructure• Agricultural research and new technologies• Access to high-quality seeds and fertilizer• Rural infrastructure

Promote innovations for smallholders • Financial services (community banking)

• Risk-management mechanisms (weather-based index insurance)

• Institutional arrangements (producer cooperatives)


Ghana Uganda Tanzania Ethiopia China India Thailand

Returns to agriculture or rural income(local currency/local currency spending)

Agric. R&D 16.8 12.4 12.5 0.14 6.8 13.5 12.6

Education -0.2 7.2 9.0 0.56 2.2 1.4 2.1

Health 1.3 0.9 n.e. -0.03 n.e. 0.8 n.e.

Roads 8.8 2.7 9.1 4.22 1.7 5.3 0.9

Ranking in returns to poverty reduction

Agric. R&D n.e. 1 2 n.e. 2 2 1

Education n.e. 3 1 n.e. 1 3 3

Health n.e. 4 n.e. n.e. n.e. 4 n.e.

Roads n.e. 2 3 n.e. 3 1 2

Investment in agricultural R&D has higher returns

Source: Fan, Mogues, and Benin 2009 Note: “n.e.” indicates not estimated


Investment in new technologies has high payoffs

Smallholder cassava production, Nigeria Improved cassava varieties, advances in pest control,

processing technology, mid-1980s to early 1990s

Tripled production in less than a decade

Farmer net profits were 18 times higher

Returns to labor increased by more than 60 percent

Increased income and gender equity

Generated significant technology spillovers to GhanaSource: Nweke and Haggblade 2010


5. Invest in climate change agricultural adaptation and mitigation

Adaptation: change of planting dates, adoption of more resilient crop varieties, improved water storage

Mitigation: improved land management, appropriate fertilizer/manure use, incorporation of crop residues

For win-win-win: agricultural investments should target measures that provide mitigation, adaptation, and productivity benefits (Bryan et al. 2011)

At least an additional US$7 billion in agricultural productivity investments are needed annually to offset adverse effects on

human well-being. (Nelson et al. 2009)


6. Establish international working group

Regularly monitor the world food situation and provide analysis on:• food supply, demand, stocks, prices, trade, and policies• energy prices, input prices, and market speculation

Provide guidance on:• optimal level of global emergency grain reserves to be held• when and how to release them• at what prices

Catalyze action and intervention

The working group must be composed of key institutions in collaboration with major stakeholders.


Proactive steps must be taken now to reduce food price volatility

and prevent recurring food crises.

Developed and developing country governments and international institutions

must lead the way.