WFD Issues Paper en Rev-web
Transcript of WFD Issues Paper en Rev-web
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ON WORLD FOOD DAY 2011,let us look seriously at what causesswings in food prices, and do whatneeds to be done to reduce theirimpact on the weakest members ofglobal society.
FROM CRISIS
TO STABILITY
FOODPRICES
WORLD FOOD DAY |16 OCTOBER 2011
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RAPID PRICE SWINGS make that calculation much more difcult.
Farmers can easily end up producing too much or too little. In stable
markets they can make a living. Volatile ones can ruin them while also
generally discouraging much-needed investment in agriculture.
Recognizing the major threat that ood price swings pose to the worlds
poorest countries and people, the international community, led by the G20,
moved in 2011 to fnd ways o managing volatility on international ood commoditymarkets. Under the presidency o Frances Nicolas Sarkozy, the worlds 20
largest economies agreed that any strategy directed to that purpose should
have the protection o vulnerable countries and groups as its main priority.
Todays turbulent commodities markets contrast sharply with the situation that
characterized the last 25 years o the twentieth century. Between 1975 and 2000
cereal prices remained substantially stable on a month-to-month basis, although
trending downwards over the longer term. For despite rapid population growth world
population doubled between 1960 and 2000 the Green Revolution launched by DrNorman Borlaug in the 1960s helped ood supply to meet and even exceed demand in
many countries, including India, thanks to the work o M. S. Swaminathan, then Director
o the Indian Agricultural Research Institute.
In act there was, in the Western Hemisphere at least, an over-abundance
o ood, caused in no small part by the generous subsidies which OECD
countries paid to their armers. But the picture today is a very dierent one.
The global market is tight, with supply struggling to keep pace with demand
and stocks are at or near historical lows. It is a delicate balance that can easilybe upset by shocks such as droughts or oods in key producing regions.
In order to decide how, and how ar, we can manage volatile ood
prices we need to be clear about why, in the space o a ew years, a
world ood market oering stability and low prices became a turbulent
marketplace battered by sudden price spikes and troughs.
FOOD PRICES
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BETWEEN 2005 AND 2008, the worlds staple ood prices soared to their highest levels in
30 years. During the last 18 months o that period, maize price increased by 74 percent while
that o rice almost tripled, climbing a whole 166 percent.
Food riots broke out in more than 20 countries. Editorialists decreed the end o cheap ood.
But then, ater peaking in June 2008, prices slumped again alling 33 percent in six months
largely as a vast fnancial and banking crisis threw the global economy into recession.
The downturn was short-lived, however. In 2010 grain prices shot up 50 percent and
continued to soar into 2011 beore starting to dip somewhat in the second quarter o
2011. And at that point what would happen next was very much an open question.
Economists believed, however, that the kind o price roller-coasters experienced
since 2006 are likely to recur in the coming years. In other words ood price
volatility the technical term or the phenomenon has probably come to stay.
That is not good news. Price swings, upswings in particular, represent a major threat
to ood security in developing countries. Hardest-hit are the poor. According to the World
Bank, in 2010-2011 rising ood costs pushed nearly 70 million people into extreme poverty.
FOOD PRICES FROM CRISIS TO STABILITY has been chosen as
this years World Food Day theme to shed some light on this trend and
what can be done to mitigate its impact on the most vulnerable.
At the level o net ood importing countries, price spikes can hurt poor countries
by making it much more expensive or them to import ood or their people. In 2010
the worlds Low Income Food Defcit Countries (LIFDCs) spent a record US$164
billion on ood imports, representing a rise o 20 percent on the year beore.At the level o individuals, people living on less than US$1.25 a day may need to skip
a meal when ood prices rise. Farmers are hurt too because they badly need to know
the price their crops are going to etch at harvest time, months away. I high prices
are likely they plant more. I low prices are orecast they plant less and cut costs.
FOOD
PRICES
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THE SEEDS OF TODAYS VOLATILITY were sown last century when decision-makers ailed
to grasp that the production boom then enjoyed by many countries might not last orever and
that continuing investment was needed in research, technology, equipment and inrastructure.
In the 30 years rom 1980 to date the share o ofcial development assistance which
OECD countries earmarked or agriculture dropped 43 percent. Continued under-unding
o agriculture by rich and poor countries alike is probably the main single cause o the
problems we ace today.
Contributing to todays tight markets is rapid economic growth in emerging
economies, which means more people are eating more meat and dairy produce with the
need or eedgrains increasing rapidly as a result. Global trade in soymeal, the worlds
leading protein eed or animals, has grown 67 percent over the past 10 years.
ON BIOFUELS, FAO avours abandoning current distortive subsidies and policies
or at least making them more exible and ensuring that bioenergy is produced
in the countries and with the crops best suited to such production.
Greater policy coordination in international ood trade can reduce volatility
by helping maintain an assured ow o goods. FAO supports the multilateral
negotiations under the World Trade Organization and the elimination o trade-
distorting agricultural subsidies in rich countries. Countries should also agree
to rerain rom operating export restrictions when their domestic supplies are
threatened (as several did in 2007-2008) or adopt reinorced rules on the issue.
On speculation, FAOs research suggests that while this might not trigger
price movements, it could exaggerate their size and duration. Authorities in the
United States o America and European Union are looking into the possibility
o improving the regulatory ramework o utures markets. But care must be
taken because utures markets play a vital role in osetting price risk and in
price discovery, while investors also bring resh liquidity into the sector.
MORE AND BETTER INFORMATION is needed to allow greater transparency in
trade on utures markets. This would help ensure that governments and traders
make inormed decisions and avoid panic or irrational reactions. The eorts made
by some countries to address transparency in utures markets are welcome.
As to mitigating the eects o volatility, national or regional saety nets, possibly
eaturing emergency ood reserves, can help assure ood supplies to needy and
vulnerable population groups during crises. Poor consumers can also be assisted with
cash or ood vouchers and producers helped with inputs such as ertilizer and seeds.
Market-based mechanisms can help low-income developing countries to meet higher
ood import bills. At country level, governments can protect themselves rom ood price
increases through a variety o fnancial arrangements such as call options, which would
give them the right to buy ood at a set price even months ahead, regardless o how the
market has moved in the meantime. At international level, compensatory acilities can
help low-income developing countries meet escalating ood import bills. Concessional
fnancing acilities such as those provided by the IMF helped countries contend with
the balance o payments problems that soaring ood prices provoked in 2007-2008.
Ultimately though, stability in the ood market depends on increased investment in
agriculture, particularly in developing countries, where 98 percent o the hungry live
and where ood production needs to double by 2050 to eed growing populations.
Investment in inrastructure, marketing systems, extension and
communication services, education, as well as in research and development,
can increase ood supply and improve the unctioning o local agricultural
markets, resulting in less volatile prices. In this way, markets can work
or the poor people who bear the burden o ood price volatility.
The level o net investments required is around US$83 billion a year
which would help millions o people around the world escape poverty
and help restore long-term stability to agricultural markets.
POPULATION GROWTH, with almost 80 mil lion new mouths to eed every year, is
another important element. Population pressure is compounded by the erratic and oten
extreme meteorological phenomena produced by global warming and climate change.
A urther contributing actor may be the recent entry o institutional
investors with very large sums o money into ood commodity utures markets.
There is evidence to suggest that ood prices may have surged partly as a
result o speculation. But there is considerable debate over the issue.
Lastly, distortive agricultural and protectionist trade policies bear a
signifcant part o the blame. In addition, with agriculture now substantially
part o the wider energy market, any shock to the latter such as unrest in a
producing country can have immediate repercussions on ood prices.
Responding to ood price volatility thereore involves two dierent kinds
o measures. The frst group addresses volatility itsel, aiming to reduce
price swings through specifc interventions while the other seeks to mitigate
the negative eects o price swings on countries and individuals.
One measure requently invoked under the frst heading is the setting up
o an internationally held ood stock able to intervene on markets to stabilize
prices. But FAOs view is that such a stock would be o dubious value, as well
as expensive and difcult to operate. Also, government intervention in ood
markets discourages the private sector and hinders competition.
FROM CRISIS
TO STABILITY FROM CRISIS TO STABILITY
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SAFETY NETS AT WORK
MEXICOS OPORTUNIDADES PROGRAMME -Following the food price crii of 2008,
the Mexicn government ndertook mjor expnion of it exiting portunidades
progrmme, trgeted cheme providing ch to poor fmilie on condition tht
children ttended chool nd fmily member reglrly viited helth centre.
he progrmme hd been introdced in 1997 when it w relized tht direct food
bidie, ch tortill price pport, were expenive nd not very effective in redcing
poverty (it w clclted tht dminitrtive cot monted to 40 percent of the totl).
o hield poor people from oring price, portunidades bdget w increed
from 39 to over 42 billion peo while the nmber of benecirie went p by million
to totl of ve million.
selection of beneciry fmilie i mde ccording to trict eligibility criteri. h
trnfer, mde on monthly bi, incree with the chool grde nd re lo higher for
girl in middle chool. Fmilie now receive n verge of 665 peo (us$57) month.
althogh the progrmme did not flly compente for the increed food
price, it did provide one Mexicn fmily in for with mjor protection gintthe trmoil in food mrket. t h lo been credited with improving the helth
of children nd dlt, nd riing ntrition nd chool enrolment level.
IMPROVING INCOMES THROUGH CREDIT WARRANTAGE
THE CASE OF NIGER - an ingenio nncing cheme deigned to rie theincome of africn mllholder frmer h been o ccefl it i to be cled
p in iger, where it w pioneered, nd extended to neighboring contrie. ike
mny africn mllholder, iger frmer hd long been penlized by hving
to ell their prodce immeditely fter hrvet when price re lowet.
Firt tep w to help them form frmer grop. hen the grop were
helped to get credit throgh locl verion of the warrantage, or inventory
credit ytem, ed by ropen frmer in the nineteenth centry.
under the ytem, rther thn elling their hrvet t once, frmer e it
collterl for bnk lon. With the money they cn by eentil inpt for the next
plnting nd lo hold on to their prodce ntil the len eon when price climb.
a tdy of the iger project crried ot in ecember 2009 fond tht
prticipting frmer were ble to incree their income by between 19 nd
113 percent in ix month. and ince they were ble to by better eed nd
fertilizer, their yield went p by between 44 nd 120 percent.
BOOSTING DOMESTIC PRODUCTION
THE CASE OF THE PHILIPPINES -severl contrie, inclding hin, ndonei,
Mlyi, the Philippine, Mlwi, igeri nd senegl, re now booting dometic food
prodction their trtegic repone to high food price. For exmple, the overnment
of the Philippine, which ed to be the world lrget rice importer, i eeking to chieve
rice elf-fciency by 2013. he government i intending to ct import from more thn
two million tonne lt yer to le thn one million thi yer following the lnch of n
intenied prodction progrmme tht i expected to relt in 15 percent incree
in the mmer hrvet nd chieve elf-fciency in two to three yer time.
ocl Ply rice prodction for the rt hlf of the yer i et to rech more
thn 7.6 million tonne de to the expnion in hrveted re nd n incree in
verge yield from 3.6 tonne per hectre lt yer to 3.8 tonne per hectre in
2011. sccefl implementtion of irrigtion ytem repir, etblihment of more
pot-hrvet fcilitie, nd contrction of frm-to-mrket rod pr ticlrly in
Mindno, othern Philippine, re prt of n inteniction progrmme plnned
to tke the Philippine rice prodction to 17.46 million tonne thi yer.
he Philippine plyed mjor role in the reen evoltion. n 1960 8, the hybrid
rice vriety tht w to end recrrent fmine in mny prt of ai, w developed t the
nterntionl ice eerch ntitte, etblihed by the Philippine government nd the Ford
nd ockefeller Fondtion in o Bo. With the new, high-yielding vriety, rice prodction
qickly dobled in the contry nd it becme net exporter. Bt beqent prodction
incree filed to keep pce with demnd from ft-growing popltion. By 1990, the
contry w importing 600 000 of tonne, which by 2008 hd grown to 2. 5 million tonne.
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FAOS CONTRIBUTION
Under its Initiative on Soaring Food Prices, launched in December 2007, FAO has helpeddistribute key inputs such as seeds and fertilizer to poor farmers in some 90 of thecountries hardest hit by price volatility.
RecentlyFAO,togetherwiththeOECD,ledateamofnineinternationalorganizationsinpreparing a series of recommendations for the French Presidency of the G20 on how tomanage food price volatility so as to protect the most vulnerable.
FAOmonitorsandanalyzesthecausesoffoodpricevolatilityinglobalandnationalmarkets,throughitsGlobalInformationandEarlyWarningSystemandpublicationslikeFood Price Index, Food Outlook and Food Price Monitor.
FAOpublishedrecentlytheGuide for Policy and Programmatic Action at Country Level to AddressHigh Food Prices and embarked on the organization of a series of regional and subregional
seminars to help countries make informed decisions and support the design of country-level/national action plans.
Increasedinvestmentinagricultureshouldbeoneofthemainresponsestohighfoodprices. In 2010, FAO assisted governments to programme over US$5 billion of investmentby development banks to agriculture.
In2010, FAO delivered US$800 million in emergency and technical cooperation assistancein over 70 countries.
FAO FOOD PRICE INDEX 19902011
NEW ERA OF FOOD PRICE VOLATILITY ENDS LONG PERIOD OF STABILITY.
Food and agriculture organization oF the united nations
Viale delle Terme di Caracalla - 00153 Rome, Italy
Telephone: +39 06 570 54478 Fax: +39 06 570 53210
E-mail: [email protected]
www.fao.org
50
90
130
170
210
250
11100908070605040302010099989796959493929190
2002-2004=100
FAO Food Price Index
Prices are adjusted for inflation
(Source: FAO)
Photo credits:page 2 Reuters/Arko Datta; page 3 (clockwise from top left) AFP/Juan Mabromata, Reuters/Jianan Yu,
FAO/Giulio Napolitano, FAO/Asim Hafeez; page 4 Reuters/Rick Wilking; page 5 International Rice Research Institute
(IRRI); page 6 (top) Reuters/Daniel Aguilar, FAO/Issouf Sanogo; page 7 (clockwise) Reuters/Arko Datta, Reuters/Frank
Polich, Reuters/Sukree Sukplang.