The Global Food Crisis and The Global Food Crisis and Policy ImplicationsPolicy Implications

Per Pinstrup-AndersenPer Pinstrup-Andersen

2008 J.W. Fanning Lecture2008 J.W. Fanning LectureUniversity of GeorgiaUniversity of Georgia

October 17, 2008October 17, 2008

Extended Annual FAO Food Price Index 1998-2000 = 100

-- Nominal

-- Real

- -x August 2008

Wheat, Maize, and Rice PricesJuly, 2007 – December, 2008 ($/Ton)

0100200300400500600700800900

1000

Jul-

07

Aug

-07

Sep-

07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-

08

Aug

-08

Sep-

08

Fut

ures

*

WheatMaizeRice

Futures* - For December 2008 Delivery

Causes of Food Price Increases (1)

Supply Side Factors: Adverse Weather (Climate Change?) Rapidly Falling Prices 1974-2000 Green Revolution OECD Policies Limited Investments

Causes of Food Price Increases (2)

Demand Side Factors: Biofuel Meat and Dairy Products Demand Feed Demand

Causes of Food Price Increases (3)

Market Factors: Reduced Storage of Food Commodities Capital Market Transfers Falling Dollar Value

FAO Food Price Index Adjusted for Changes in the exchange Rates Between US

Dollar and SDR and CFA

Causes of Food Price Increases (4)

Public and Private Action Little action towards achieving MDG Export bans and restrictions Panic buying

Rice Prices and Recent Policy Responses

$/Ton; January 2004-August 2008

← 835 (July 2008)← 787 (August 2008)

Causes of Food Price Increases (4)

Public and Private Action Little action towards achieving MDG Export bans and restrictions Panic buying Reduced import tariffs

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

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

Consequences of Food Price Increases

HH Welfare Change: Urban Consumers

Budget shares and value added

Consequences of Food Price Increases

HH Welfare Change: Urban Consumers

Budget shares and value added Food security and dietary quality

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

Percent of Rural Households that are Net Staple Food Sellers

Selected Countries

Malawi (2004) 12

Bangladesh (2000) 19

Zambia (1998) 30

Ghana (1998) 44

Vietnam (1998) 51

Average (12 Countries) 31

Source: FAO (2008).

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

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

Estimated Rice Price Transmission Q4, 2003 to Q4, 2007 for Selected Countries (%)

Source: FAO (2008).

Country

∆ Domestic Price/

∆World Price ($)

∆ Domestic Price/

∆World Price (DC)Philippines 6 30

India 9 20

Vietnam 11 12

Indonesia 41 64

Bangladesh 43 44

Thailand 53 100

China 64 88

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

Approximate Fertilizer Prices ($/Ton)

January 2007

January 2008

August 2008

Urea 280 400 800

Diammonium Phosphate

250 400 800

Potash 170 300 840

Source: IFDC

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

Percent of Major Grains Imported by Selected Countries (2001-2003)

Eritrea 88

Niger 82

Botswana 76

Haiti 72

Tanzania 14

Malawi 7

Source: FAO (2008).

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

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

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

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

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

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

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

Proposed Policy Priorities (2)

For long-run impact Improved land tenure

Proposed Policy Priorities (2)

For long-run impact Improved land tenure Expanded investment in:

Rural infrastructureAgricultural research and technologyAlternative energy sourcesRural education, sanitation and health care

Proposed Policy Priorities (2) For long-run impact

Improved land tenure Expanded investment in:

Rural infrastructureAgricultural research and technologyAlternative energy sourcesRural education, sanitation and health care

International trade agreementsCompletion of Doha RoundAvoidance of ad.hoc. export bans and restrictions

Proposed Policy Priorities (2) For long-run impact

Improved land tenure Expanded investment in:

Rural infrastructureAgricultural research and technologyAlternative energy sourcesRural education, sanitation and health care

International trade agreementsCompletion of Doha RoundAvoidance of ad.hoc. export bans and restrictions

International grain storage agreement

Future Perspectives

Significant supply response Falling real food prices

Approximate Wheat Prices

January 2000 $100/ton $2.50/bushel

January 2007 $200/ton $5.00/bushel

February 2008 $500/ton $12.50/bushel

August 2008 $300/ton $7.50/bushel

December 2008

(Futures)

$240/ton $5.95/bushel

Percent Decrease in Price Betweenthe Highest and October 6, 2008

Commodity Highest Month

Decrease Since Then (%)

Wheat February, 2008 54

Maize June, 2008 47

Soybeans June, 2008 44

Rice April, 2008 23

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.

Future Perspectives

Significant supply response Falling real food prices Strong links between oil and food prices

Crude Oil – Maize Price Breakeven Points for US Ethanol Production (2007)

Crude Oil Price (US$/Barrel)

Breakeven Price for Maize Without Subsidies (US$/bushel)

Breakeven Price for Maize with Subsidies (US$/bushel)

40 0.96 2.56

60 2.01 3.62

80 3.08 4.68

100 4.14 5.74

120 5.20 6.81

2008: 1/3 of US Maize Used for Biofuel (12% of globalproduction)

60% of EU Rapeseed Oil (25% of global)

Source: Tyner and Taheripour (2008).

Future Perspectives

Significant supply response Falling real food prices Strong links between oil and food prices Continued urban bias in policy interventions

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