Seven steps to prevent recurring food crises

Just three years after the 2007-08 food crisis, the food security of poor people and vulnerable groups, especially women and children, is under threat as the prices of basic food items increase rapidly and become more volatile. Expanding biofuel production, rising oil prices, U.S. dollar depreciation, export restrictions, and panic purchasing are again driving up food prices-to the particular detriment of the world's poorest consumers, who spend some 50-70 percent of their incomes on food.

Determining the extent to which each source has contributed to inflation and price volatility is difficult, partly because the effects differ by food product and market. Nevertheless, studies suggest that a significant amount is induced by demand pressure resulting from the diversion of crops from food or feed to biofuel production. Rising oil prices in recent months and the expansion of biofuel production (particularly maize ethanol), among other things, suggest a significant risk of even higher global food prices.

The impacts of the current food price spikes are not yet known but research shows that when food prices change quickly, as they continue to at present, poverty increases in the vast majority of cases. High food inflation is affecting not only small countries but also those with large numbers of poor people such as India, China, and Indonesia. For example, food inflation rose to 10 percent in China and 18 percent in India between December 2009 and December 2010.

It is often said that poor agricultural producers benefit from higher food prices through higher incomes, but this is only possible if they are net sellers of food and if their input costs do not also rise. In recent years, however, the cost of inputs such as fertilizer and transport has also been high and volatile. Increasing costs, coupled with the uncertainty that stems from excessive price volatility in input and output markets, can reduce farmers' profit margins, distort long-term planning, and dampen investment in improved productivity.

Decisive action is needed to prevent recurring food crises. Given the complex web of factors affecting global food security, governments and international organizations must adopt a comprehensive approach. Such an approach should incorporate seven principal elements:

1. Curtailing subsidies and reforming policies, particularly in the United States and Europe, to minimize biofuels' contribution to volatility in international and domestic food markets. One measure would be to reward lower carbon intensities in biofuel production resulting from the use of feedstock that is more energy-efficient than grain. In the longer run, the costs and benefits of crop-based biofuel production for food security and environmental sustainability need to be carefully evaluated to determine their real contribution to lowering greenhouse gas emissions and transport fuels' carbon intensity.
2. Creating or strengthening social protection for women, young children, and other especially vulnerable groups-something few countries have done during or since the 2007-08 crisis. Research shows that cash transfer programs can be particularly effective at enabling poor households to maintain healthy diets during food price crises. While it is often said that safety nets compete for limited government resources, they typically cost less than one percent of gross national product when properly targeted.
3. Improving the transparency, fairness, and openness of international trade to enhance the efficiency of global agricultural markets. Existing export restrictions should be eliminated and countries should refrain from imposing new ones. Harmful import tariffs and nontariff barriers should be dismantled. The Doha Round of World Trade Organization (WTO) negotiations should be completed to reduce maximum tariff levels and the risk that governments will resort to policies that destabilize world food markets.
4. Exploring the viability of an international humanitarian emergency grain reserve to protect the most vulnerable during food price crises. Such a reserve should be managed by an experienced global institution such as the World Food Program (WFP) and could consist of multiple physical reserves strategically positioned near major food-importing poor countries. A small reserve should be started as a pilot project in order to learn how to improve efficiency and effectiveness before it is scaled up to the optimal level.
5. Promoting agricultural growth, in particular through improved smallholder productivity. This would involve, for example, improving smallholder access to seeds, fertilizer, and other inputs; increasing investment in crop breeding and livestock research; and enhancing access to markets by strengthening rural infrastructure.
6. Investment by national governments in climate change adaptation and mitigation using the full potential that agriculture offers. Adaptation involves improved land management, adjusted planting dates, and the introduction of new, climate-hardy crop varieties. Mitigation includes improvements in energy efficiency, crop yields, and carbon storage. Recent research suggests that US$7 billion per year will be needed to raise calorie consumption enough to offset the negative effects of climate change on the health and well-being of children. Most of these investments also make good economic sense even in the absence of climate change.
7. Establishing an international working group to monitor the world food situation and trigger action to prevent or dampen excessive price volatility. This group would bring together key institutions such as the UN Food and Agriculture Organization, International Food Policy Research Institute, International Fund for Agricultural Development, Organization for Economic Cooperation and Development, UN Conference on Trade and Development, World Bank, WFP, and WTO. The group would scrutinize not only food production, consumption (including for biofuels), trade, stocks, prices, and policies but also energy and input prices and financial market speculation.

While some of these proposals have been made before, each outbreak of volatility in world food markets makes them more urgent. Now is the time to act to prevent a replay of the last food price crisis.