New forces are dramatically changing how food is produced, marketed, and consumed, prompting a surge in food prices and ushering in potentially devastating effects for the world's poorest people.
Why is this happening? Part of the answer is that in recent years, energy and agricultural prices have become increasingly intertwined. High energy prices have made agricultural production more expensive by raising the cost of inputs, such as fertilisers and irrigation. As the price of oil reaches record levels, attention has turned to alternative sources of energy, namely biofuels. Recent analysis by the International Food Policy Research Institute (IFPRI) found that biofuel production was responsible for 30 per cent of the cereal price increase between 2000 and 2007.
Another critical factor is the fact that many parts of the developing world have experienced high economic growth and this has boosted consumers’ purchasing power. Developing Asia, especially China and India, continues to see sustained growth - real GDP in the region increased by 9 per cent a year between 2004 and 2006. Sub-Saharan Africa also experienced rapid economic growth of about 6 per cent during the same period. Even developing countries with high rates of hunger have reported strong growth rates. This growth has prompted consumers to move away from traditional staple crops, such as grains and cereals, towards "high-value" foods like vegetables, fruits, dairy, and meat. Growing demand for meat, in particular, has in turn driven demand for grain to feed livestock.
Efforts to keep pace with surges in demand have been impaired. Unexpected food production shortfalls due to drought in Australia, for example, and low global cereal stocks - currently at their lowest levels since the early 1980s - are two other reasons. Between 2000 and 2006, global cereal supply increased by a mere 8 per cent. Overall productivity growth in agriculture along past trends is simply too low to cope with the increases in demand.
The impact of high food prices
Both rich and poor countries are experiencing record high food prices, but the effects are radically different across countries and income levels. Countries that are net food exporters will benefit from improved terms of trade, while net food importers will struggle to meet domestic food demand. Given that almost all countries in Africa are net importers of cereals, countries in this region will be among the hardest hit by rising prices.
Surging and volatile food prices will have the most impact on those who can least cope, the world's poorest people. The majority of the world's poor are net buyers of food, typically spending 50 to 70 per cent of their budget on food. When food prices increase, poor peoples’ purchasing power diminishes and they tend to limit their food consumption and shift to even less-balanced and nutritious diets.
A co-ordinated global response is urgently needed to effectively address the humanitarian crisis and enhance the productivity of agriculture for the future. 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.
Both sets of actions should be implemented as soon as possible.
The "emergency package"
Enhance food assistance. Donor governments need to provide increased support for poor people's food and nutrition security. The focus should be on the most vulnerable, including children.
Empower small-scale farmers. Providing improved seeds, fertiliser, credit, and other resources for small-scale farmers in developing countries would quickly improve production, increase incomes, and lower prices.
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 - if markets remain very tight - enacting a moratorium on the use of cereals and oil seeds for biofuels. At the same time, there needs to be support for development of bio-energy technologies that do not compete with basic food.
Stop export bans. The export bans among developing countries have created a new trade policy theatre. The problem of export bans cannot be addressed country by country; it should be addressed by a forum of global players. At the very least, export trade for humanitarian purposes should be reopened now even before a forum is convened.
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