The world cannot get richer if the cost is that the poor are left to starve

From rice and corn to wheat and dairy products, skyrocketing food prices are rippling around the world affecting developing and developed countries alike. As prices rise, serious concerns are mounting about the food and nutrition situation of poor people, about ‘agriflation,’ and — in some countries — civil unrest.

The world’s food system is now facing complex new challenges that threaten to affect adversely the livelihoods and food security of people around the world, particularly the poorest. A co-ordinated global response is urgently needed to address the humanitarian crisis effectively and enhance the productivity of agriculture for the future.

The Sources of Current Food Price Increases

Since 2000, the price of wheat in international markets has more than tripled while the price of corn has more than doubled. Earlier this year, rice prices jumped to unprecedented levels. Dairy products, meat, poultry, palm oil and cassava have also seen significant price hikes.

Even when adjusted for inflation and the dollar’s decline, food price increases are still dramatic and carry serious consequences for the world’s poor.

Compounding this challenge is the likelihood that high global food prices are here to stay for the foreseeable future. A myriad of new forces are shaping the current world food situation, dramatically transforming food consumption, production and markets.

Key among these forces is the push-and-pull of global agricultural demand and supply. On the demand side, consumption of staples crops, such as cereals and high-value foods such as meat and dairy products, is on the rise due to high income growth in the emerging economies, shifting food preferences and increasing use of grain and oilseeds to produce biofuels.

However, efforts to meet this demand effectively have been impaired due to land and water constraints, climate change and underinvestment in agricultural innovation.

Between 2000 and 2006 global cereal supply increased by a mere eight per cent and stocks declined to low levels. At the same time, cereal use for food and feed increased by four and seven per cent respectively while cereal use for industrial purposes such as biofuel production increased by more than 25 per cent.

Supply and demand are only part of the larger equation driving rapidly increasing food prices. Unexpected food production shortfalls due to drought as well as reduced global cereal stocks, which are currently at their lowest levels since the early 1980s, are critical factors. The current high prices are not fully explained by market fundamentals; speculation may also influence prices. The trade restrictions triggered by high prices in many countries further restrict the global market.

The Impact of High Food Prices

While developing and developed countries alike are experiencing higher food prices, the effects are radically different across countries and population groups.

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. In recent months, 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.

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 impoverished households that are net sellers of food will benefit from higher prices but households that are net buyers of food, representing a large majority of the world’s poor, will be harmed.

For these people, more than half of their overall budget is spent on food. For a five-person household living on $1 per person per day, a 50 per cent increase in food prices removes up to $1.25 from their $5 a day budget.

In addition, growing energy costs also add to their burden. This adjustment will lead to deteriorating diets especially for women and children (Vitamin A, Iron).

Looking Ahead

There are no simple solutions to the current world food crisis. Effective and coherent actions are required to assist the most vulnerable people in the short term while stabilizing food prices by increasing agricultural production in the long term.

Developed countries can take effective steps by reforming their domestic biofuel policy and eliminating agricultural trade barriers while developing countries can make good on pledges to devote more of their national budgets to agricultural development.

Beyond specific country-level actions a global response is essential. This response should include an emergency package to stem the tide of the humanitarian crisis and a resilience package to strengthen the capacity of poor people and developing countries to meet their own needs.

Action in these areas would go a long way to address rising food prices and reduce the threat of hunger and poverty but the necessary steps must be taken sooner rather than later. The impact of the ‘emergency package’ would be seen soon whereas that of the ‘resilience package’ would take some time to set in.

The ‘Emergency Package’

Enhance food assistance. Donor governments need to provide increased support to enable food and nutrition security for the poor. The focus should be on the most vulnerable, including children.

Improve biofuels policies. Governments should revoke biofuel subsidies and excessive blending quotas such as the requirement to use a certain percentage of ethanol in gasoline. Political leaders should consider a range of additional measures including freezing biofuel production at current levels, reducing production or enacting a moratorium on the use of grains and oil seeds for biofuels.

At the same time there needs to be support for development of bio-energy technologies that do not rely on food crops. A moratorium on grain-based biofuels would quickly unlock these commodities for use as food. This measure might bring corn prices down globally by about 20 per cent and, as a consequence, decrease wheat prices by about 10 per cent.

Stop export bans. A country that implements measures such as agricultural export bans, high export tariffs, and price controls may reduce its risks of food shortages in the short term. However, these measures are likely to backfire by making the international market smaller and more volatile. Export restrictions have harmful effects on import-dependent trading partners.

For example, export restrictions on rice in India affect Bangladeshi consumers adversely and also dampen the incentive for rice farmers in India to invest in agriculture. Price controls reduce farmers’ incentive to produce more food. On the other hand, the elimination of export bans would stabilize grain price fluctuations, reduce price levels by as much as 30 per cent and enhance the efficiency of agricultural production.

Empower small-scale farmers. Providing improved seeds, fertilizer, credit and other resources for small-scale farmers in developing countries would quickly improve production, increase incomes and lower prices.

The ‘Resilience Package’

Invest in people. To achieve a longer-term impact, developing countries need to invest in social protection measures such as cash transfer programmes, pension systems and employment programmes. Preventative health and nutrition programmes targeted to vulnerable groups (e.g. mothers, young children, and people living with HIV/AIDS) should be scaled up to ensure universal coverage.

In addition school feeding programmes can play an important role in increasing school enrollment and in retaining children in school and enhancing their academic achievement. These programmes would reduce the vulnerability of poor people and enhance their long-term capacity for productivity.

Reduce market volatility. Improving grain stocks and enacting regulatory measures to curb excessive speculation in agricultural commodities would help to stabilise markets in times of crisis.

Complete the Doha round. World leaders need to complete the Doha Development Round so that we have a global system that promotes agricultural trade on a fair and equitable basis.

Support agriculture. Long term relief from rising food prices can only be possible with increased agricultural production. Industrialized nations should revitalise their support for research, innovation and extension to transform small farm agriculture. African heads of state need to deliver on their commitment to allocate ten per cent of their national budgets to agriculture. These investments not only have high returns in terms of agricultural growth but also have a major impact in reducing poverty.

Ultimately spiraling food prices may deliver more harm than good for much of the world’s population. This may be especially so for the 160 million people globally who survive on less than 50 cents a day. As the global community works to address this crisis the most vulnerable people of the world must be kept at the forefront of its efforts.