AGRICULTURAL DIALOGUE 13

InfORmATIOn fROm ThE AGRICULTURAL InDUsTRy | july 2011

EDITORIAL

Food Security in Focus

In January this year, world food prices hit their highest level since records began

in 1990. Once more the world was entering a period of food volatility and supply

disruptions. Food security became a topic of major public concern, in Europe and

beyond after droughts, floods and fires significantly reduced the world’s agricultural

capacity.

Having a secure food supply not only supports the nutrition of a nation, but also

contributes to other societal factors such as its political and economic stability.

Agricultural research and the implementation of new technologies urgently need to

be encouraged. A clear political framework is a decisive factor in fostering research

and development to further productivity, but there are other mechanisms that can

also increase the production capacity in food insecure countries – for example, land

tenure security or access to banking and microcredit.

One way to guarantee food security is to boost farm production through the full

exploitation of innovative agricultural technologies. Simply planting more crops

however is not the solution. US agriculture secretary Tom Vilsack called on farmers

across the world to “continue to embrace existing and emerging technologies to

produce more per acre while using less”. Within Europe, the European Parliament

adopted in February a resolution for urgent measures to combat food price

manipulation and ensure that food production is maintained in Europe.

Dear Readers,

The extreme climatic condi-

tions together with unpre-

cedented appetite for agri-

cultural commodities have depleted world food

stocks to historically low levels and sent prices

to record highs.

The agricultural price outlook is cause for

concern, particularly given the current volatility

that hinders farmers’ ability to plan and has major

repercussions for world food security.

As a big global player in the farming sector and

an economy reliant on world trade, Europe is well

placed to promote the agricultural expansion

needed to balance world supply and demand.

The challenge is to produce enough to satisfy

demographic and economic growth, energy

requirements as well as fill the poverty gap.

Modern agricultural solutions are key to achieve

efficient and sustainable production. But efforts

should go further, as increasing production alone

is not enough to combat food insecurity often

caused by poverty and insufficient infrastructure.

In this edition, we examine ways of tackling the

volatility of farm commodity prices. We also share

with you the insights of Abdolreza Abbassian, a

leading agricultural economist.

Markus Heldt

President, Crop Protection Division, BASF SE

2AGRICULTURAL DIALOGUE 13 2

Did you Know

■ The world population is set to rise to 7

billion people at the turn of 2011-2012

and to 9 billion by 2050. Currently about

78 million people are added to global

population each year.

■ 70% of the world population will

live in urban areas in 2050.

■ According to FAO, the rate of growth in

agricultural production is expected to

fall to 1.5% between now and 2030.

■ Food spending in low-income house

holds in developing countries garners

up to 80% of the family budget,

according to the United Nations

Conference on Trade and Development.

■ The World Bank estimates that 44 million

people have fallen into extreme poverty,

living on less than $1.25 a day, as a

result of food prices rising by 36%

during the past year.

■ Global warming has already harmed the

world’s food production and has driven

up food prices by as much as 20% over

recent decades.

■ Per capita demand for meat in China

has been projected to increase by 60%

(or 29 kg per capita) during the period

2000-2050 (Rabobank, 2010).

With the aim of improving food security, France, a country with a longstanding

agricultural tradition, made tackling the volatility of world farm commodity

prices the centrepiece of its 2011 G20 presidency.

Significantly, the G20 grouping countries, which produce 85% of the world’s

agricultural output, said in June 2011 in its first-ever communiqué on the issue

that this excessive volatility not only has “negative impacts on access for food

for the poorest but it could also hamper investments and an effective market

response to a long-term increase in demand for food and may harm confidence

in international markets.”

Other interest groups as diverse as corporates and charity organizations are

seeking action.

This widespread concern reflects the fact that food security, previously an issue

mainly confined to non-governmental and international organizations, has moved

up the political agenda since the 2007-08 food crisis and the price shock of

2010-11. This second price spike in four years was held to be partly responsible

for the wave of unrest across the Arab world, which in turn affected global energy

markets. “In low-income countries, increases in the international food prices lead

to a significant deterioration of democratic institutions and a significant increase

in the incidence of anti-government demonstrations, riots and civil conflict,”

according to an International Monetary Fund report published in March 2011.

As well as price volatility, other factors are threatening food security. With the

world’s population set to reach 9 billion by 2050, severe weather conditions

regularly destroying crops and biofuels production eating into grain supplies, the

need for a larger food supply is ever more urgent. This will only be made possible

with the help of technology and innovation in biotechnology and crop protection

within the framework of sustainable agriculture.

Oxfam chief executive Barbara Stocking said in a recent report that “the food

system is pretty well bust in the world. We are sleepwalking towards an avoidable

age of crisis”. Oxfam’s research highlights that in the absence of urgent and

aggressive action to tackle global warming, prices of basic staple foods are

expected to skyrocket in the coming two decades.

Securing our food supply starts by allowing farmers crucial tools in achieving

productive, sustainable agriculture. This does not only mean better products, but

also targeted, smart and safe use of technology as part of sustainable farming.

Modern agriculture technologies can help raise yields, while at the same time

addressing the numerous other challenges facing farmers and play a vital role in

the quest to improve food security.

Another factor that needs to be accounted for is the issue of “land grabbing”.

Though Europe has sufficient food supply, its consumption of imported food has

an impact on food availability on the producing - often developing - countries.

A recent study by the Humboldt University of Berlin analysed the impact of

agricultural trade on land-use decisions outside the European Union, finding

that an area approximately the size of Germany was being used to grow crops

imported to the EU. The conclusions warned that the EU must encourage

agricultural innovation and productivity increases to avoid charges of virtual

“land grabbing”.

Food security, a global dialogue

InfORmATIOn fROm ThE AGRICULTURAL InDUsTRy | JULy 2011 3

Food for ThoughtAbdolreza Abbassian, who has more than 20 years of

international experience in global food security, is the

FAO’s Secretary of the Intergovernmental Group on

Grains. This Group, with over 60 countries among its

members, is a principal forum for intergovernmental

consultation and exchange on trends in the global

grain sector. Abdolreza Abbassian explains the

implications of high and volatile food prices.

How much of a problem are high food commodity prices?

They are not necessarily a problem in that high prices can lead to more

investment in agriculture, which would be positive. But the signs are that in

general with food commodities the likelihood that they will stay at high levels

is very strong. According to our outlook for the period up to 2020, prices

are not likely to be below the levels that we are seeing now. Unless there

are fundamental shifts in crop production and an improvement in average

weather conditions, we will be producing only as much as is needed. That

means there will be very little buffer in the form of stocks. So price volatility

will become the norm rather than the exception, unless political action is

taken by countries to find ways of reducing it. And my feeling is that we

cannot count on that in the medium term.

So, from your point of view, volatility is the real problem?

The volatility that we are seeing makes it almost impossible to take

investment decisions in agriculture. Farmers simply cannot make investment

decisions when there is so much volatility. Whether prices are high or low is

not necessarily the problem. What we cannot live with is the current volatility.

What are the options for tackling the problem of volatility?

The G20 has put agriculture and commodity prices at the forefront of its

priorities this year, and all members are trying to find possible solutions to

address the problem of price volatility. One of these concerns improving

market transparency and market information. There is a feeling that the

sector was caught off-guard last year with the severe drought in Russia, so

this is a fair view, although I am not so sure that it is that influential a cause of

volatility. There is also the possible role for flexible mandates (biofuels). World

stock levels of food commodities are in themselves very low, but in addition

the biofuel sector is playing a role in this. The agricultural commodities going

into biofuels can be seen as virtual stocks, and the G20 may consider the

possibility of diverting these stocks in case of extreme shortage. If this is

agreed, I think the prospect of increased supply in times of need could bring

some stability to the sector. The third element is the role of the financial sector

and what should be put in place. There is general agreement that Europe has

to do a lot more and, as a starting point, introduce a framework similar to

that in the US. Currently, it is hard to see who the market participants are and

what products they are trading.

About the Food and Agriculture

This United Nations body founded in

1945 leads international efforts to de-

feat hunger. Serving both developed and

developing countries, the FAO acts as

a neutral forum where all nations meet

as equals to negotiate agreements and

debate policy. Also a source of knowle-

dge and information, it helps developing

countries and countries in transition mo-

dernise and improve agriculture, forestry

and fisheries practices and ensure good

nutrition for all. It focuses special atten-

tion on developing rural areas, home

to 70% of the world’s poor and hungry

people.

About Abdolreza Abbassian

As an economist, Abbassian leads the

Food Outlook team of the FAO, which is

responsible for the publication Food Out-

look, the leading bi-annual publication on

short-term outlook for food commodities.

Given the strategic role of grains in food

security, Abbassian is also the FAO’s

focal point on food aid matters and re-

presents FAO in major international plat-

forms on food aid related issues such as

in Food Aid Committee meetings.

ImpRInT

www.agro.basf.com

BASF SE

Agricultural Center Limburgerhof

AP/K - LI555

67117 Limburgerhof

Germany

Rainer von Mielecki

AP/K – Public/Government Affairs

Phone: +49 (0) 621 / 60-27 511

Fax: +49 (0) 621 / 60-27 512

rainer.mielecki@basf.com

AGRICULTURAL DIALOGUE 13 InfORmATIOn fROm ThE AGRICULTURAL InDUsTRy | JULy 2011 4

What role do you see agriculture technology/crop sciences playing in the

food security debate?

World food production ought to increase by 70% by 2050 to feed an additional

2.3 billion people. We are 7 billion today. In developing countries, food produc-

tion needs to double. Yet, the rate of growth in world cereal yields has dropped

from 3.2% per year in 1960 to 1.5% in 2000. The real challenge for technology

is to reverse this decline, a formidable task given climate change and its impact

on production systems. New technologies, crop management techniques, more

input use efficiencies, and improved plant breeding techniques, including mo-

dern biotechnology, are essential in accelerating yields as well as closing yield

gaps.

How important is increasing production?

There is a need for improved yields. We have seen a decline in yield growth in

recent years. This is a rather uncomfortable situation if we are to succeed in

feeding 9 billion people by 2050. One option would be to expand the area of

productive land but we know there is a limit in that regard. We therefore need

to seek other ways of increasing output, in the absence of extra productive land

and its impact on production systems. New technologies, crop management

techniques, more input use efficiencies, and improved plant breeding techniques,

including modern biotechnology, are essential in accelerating yields as well as

closing yield gaps.

For more information

■ Action plan on food price volatility and agriculture http://agriculture.gouv.fr/IMG/pdf/2011- 06-23_-_Action_Plan_-_VFinale.pdf

■ FAO - Special Programme for Food Security (SPFS) http://www.fao.org/spfs/en/

■ Farming First, Food Security http://www.farmingfirst.org/foodsecurity/

■ Food Security (Standford) Climat Trends and Global Crop Production Since 1980 http://foodsecurity.stanford.edu/publica- tions/climate_trends_and_global_crop_ production_since_1980/

■ Food Security Portal (IFPRI) http://www.foodsecurityportal.org/

■ Gates Foundation http://www.gatesfoundation.org/Pages/ home.aspx

■ Global Food and Farming Futures http://www.bis.gov.uk/foresight/our- work/projects/published-projects/global food-and-farming-futures

■ Growing a Better Future, Oxfam’s Research http://www.oxfam.org/en/grow/reports/ growing-better-future

■ James Hutton Institute http://www.hutton.ac.uk/

■ Price Volatility in Food and Agricultural Markets: Policy Responses http://www.unctad.org/en/docs/2011_ G20_FoodPriceVolatility_en.pdf

■ Rabobank - Sustainability and Security of the global food supply chain http:// www.rabobank.com/content/images/ Rabobank_IMW_WB_report-FINAL-A4- total_tcm43-127734.pdf

■ The World Food Programme http://www.wfp.org/

■ World Food Situation (FAO) http://www.fao.org/worldfoodsituation/ wfs-home/en/

01 02 03 04 05 06 07 08 09 10 11

FAO Food Price Index*

NominalDevelopment of demand - From the UN Population Division.

Real (The real price index is the nominal price index de�ated by the World Bank Manufactures Unit Value Index “MUV”)

- Drought in Australia- Canada weather related low yields

Beyond 2011

Beyond 2011

- Rapid Population growth- Dietary changes- Unpredictable weather- Increase pressure on natural resources

- Oil price surge- Declining Dollar

- Drought and �re in Russia- Floods in Pakistan- Rains in Canada and USA- Floods in Australia- Russian export Ban

00

- Food crisis. Drought- High energy prices- Low food stocks

250

210

170

130

90

50

2002 - 2004 = 100

10

08

06

04

02

00

09

07

05

03

01

15 25 43 83

Billion People

Years

*http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/

7 B8 B

9 B

10 B