IFPRI Oxfam America Policy Roundtable -- Maximo Torero

From G20 France to G20 Mexico Maximo Torero m.torero@cgiar.org Food Security and the G20, IFPRI 1st of May 2012, Washington DC

FAO Food Price IndexAveraged 216 points in March 2012, very similar to February (215) points and nearly2 percent (5 points) up from December. The rebound represented the first upturn inthe FFPI since July 2011 but the index remained 7 percent below its correspondingvalue last year.

Historical Evolution of Corn Prices

Periods of Excessive Volatility 160 140 Number of days of excessive price volatility 120 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Corn Soft Wheat Hard WheatNote: This figure shows the results of a model of the dynamic evolution of daily returns based on historical data going back to 1954 (known as the NonparametricExtreme Quantile (NEXQ) Model). This model is then combined with extreme value theory to estimate higher-order quantiles of the return series, allowing for classificationof any particular realized return (that is, effective return in the futures market) as extremely high or not. A period of time characterized by extreme price variation(volatility) is a period of time in which we observe a large number of extreme positive returns. An extreme positive return is defined to be a return that exceeds a certainpreestablished threshold. This threshold is taken to be a high order (95%) conditional quantile, (i.e. a value of return that is exceeded with low probability: 5 %). One ortwo such returns do not necessarily indicate a period of excessive volatility. Periods of excessive volatility are identified based a statistical test applied to the number oftimes the extreme value occurs in a window of consecutive 60 days.Source: Martins-Filho, Torero, and Yao 2010. See details at http://www.foodsecurityportal.org/soft-wheat-price-volatility-alert-mechanism .

Recommendations in the G20 of France and reported in the G20-MexicoInitiative Key objective ProgressAgricultural Market Has three objectives: 1) to improve the AMIS secretariat isInformation System information base and disseminate established, portal is(AMIS): information in a transparent manner; 2) working and will be to develop the capacity to produce officially launched in detailed commodity market data; and June. G20 countries + 3) to facilitate policy dialogue and 7 key importers and coordination in the event of a serious exporters have to crisis in commodity markets deliver data.Rapid Response Definition of indicators that could led to First meeting in AprilForum (RRF) an “abnormal international market 2012, in process of condition” and the procedures that RRF defining indicators of could adopt to cope with this condition “abnormal international market conditions” INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Recommendations in the G20 of France and reported in the G20-MexicoInitiative Key objective ProgressInternational Aims to identify synergies and nurture Launched inResearch Initiative collaborations via facilitated open September 2011for Wheat communications between research Global action plan isImprovement programs for wheat improvement, developed by CGIAR(IRIWI) research and technology development. and a business planThe Global It aims to strengthen the international Launched and a isAgriculture GEO- community’s capacity to produce and headed by the GroupMonitoring Initiative disseminate relevant, timely and on Earth Observation accurate forecasts of agricultural which developed a production at national, regional and detail work plan global scales, by enhancing national and agricultural reporting systems.The Tropical focuses on enhancing capacity-building Consultation processAgriculture Platform and knowledge sharing to improve with stakeholders to(TAP) agricultural production and productivity define scope and INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE nature of activity

Recommendations in the G20 of France and reported in the G20-MexicoInitiative Key objective ProgressFood Purchases for Removal of food export Still need to seekHumanitarian Non- restrictions or extraordinary resolution from WTOcommercial Purposes by taxes for food purchased forthe World Food Program non-commercial humanitarian(WFP). purposes by WFPRegional Emergency ECOWAS pilot project in process ECOWAS task force toHumanitarian Food of implementation develop operational plan.Reserves Process is very slow.Voluntary Guidelines on Guidelines approved by the CFS Pending country levelGovernance of Tenure of implementation ofLand, Fisheries and guidelinesForests in the Context ofNational Food SecurityPrinciples for Responsible Pilot Projects of the PRAI by Pilot project summaryAgricultural Investment CFS. Launched in Feb. 2012 report will be in INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE(PRAI) September 2012

What was recommended in the G20 of France and reported in the G20-MexicoInitiative Key objective ProgressRisk management tools IFC has developed some APRM launched but still tools to help developing needs validation, no clear countries to cope with price progress in other tools. volatility for agricultural commodities, such as the Agricultural Price Risk Management (APRM) + Platform on Agricultural Risk Management (PARM)Financial Regulations Principles for the Regulation Individual countries have and Supervision of started some regulations. Commodities Derivatives Progress report to be Markets by the G20 presented by IOSCO in Leader’s in Cannes, the November 2012 International Organization of Securities Commission (IOSCO) will assess their INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE implementation

New Recommendations of IO’s to the G20- Mexico Core goal increase foodproduction and productivity in a sustainable basis to promote food security and foster economic growth INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

High levels of market concentration

Figure 1. Compound annual growth rates in world crop yields (%) Compound Annual Growth Rates in World Crop Yields • The average global rates of growth in yield of most of theSource: FAOSTAT. major cereals are declining. • Since the 1980s, growth in wheat and rice yields fell from 2.5- 3% to around 1%. Maize yields showed growth of slightly Source: FAOSTAT less than 2% over the last decade

Figure 1. Compound annual growth rates in world crop yields (%) Trends in food and agricultural public expenditures• Public R&D expenditures on 4,500 agriculture in low-and middle 4,000 income countries are Million 2005 PPP dollars 3,500 generally lower as a % of Ag.Source: FAOSTAT. 3,000 GDP than in OECD 2,500 countries. 2,000• In East Asia and the Pacific, 1,500 China accounted for about 1,000 500 two-thirds of total public 0 agricultural R&D 1981 1986 1991 1996 2001 2006• In Sub-Saharan Africa, after Sub-Saharan Africa East Asia & Pacific, minus China a decade of stagnation in the China South Asia, minus India 1990s, investment in Latin America & Caribbean India agricultural research rose more than 20% between Source: ASTI 2001 and 2008 but mainly in few countries

New Recommendations of IO’s to the G20- MexicoInitiative Key objectiveIncrease agricultural productivity - Invest in sustainable approached to productivity growth - Supporting improving agricultural and rural statistics in public and private investment in agricultural productivityImproving trade policies - Sstrengthen international disciplines on all forms of import and export restrictions, as well as on domestic support schemes that distort production incentives - Promote greater adherence to the science-based sanitary and phytosanitary measures developed by the FAO/WHO Codex Alimentarius INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Commission and capacity building

What is happening today

Secondary responses: An illustration with the wheat market: Effects on world prices of trade policy reactions for selected countries Exogenous demand increase [initial Policy Effects perturbation] Effects of increases in export taxes to mitigate the shock on domestic “Natural” prices Shock Effects of decrease in import duties to mitigate the shock on domestic prices Interaction effects between import and export restrictions0% 10% 20%Source: Bouet and Laborde, 2009. MIRAGE simulations

New Recommendations of IO’s to the G20- MexicoInitiative Key objectivePromote Public Private partnership - Work with B20 to assess the potential offor investment in agriculture various public-private partnership models to increase foreign direct investment in developing country agriculture and, - promote and scale-up appropriate partnership models in developing countries’ agricultureImprove investments in agricultural - Continue to support G20-Paris initiativesinnovation systems - Increase policy dialogue on AIS at a high level - Support the Agricultural Science and Technology Indicators (ASTI) initiative to a) collect and maintain a comprehensive database on expenditures on agricultural innovation; b) develop tools and methods to assess INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE the performance and impact of

New Recommendations of IO’s to the G20- MexicoInitiative Key objectiveImproving information, access and - Support developing countries toIPR systems on plant and animal establish and enforce IPR systemsgenetic resources consistent with international obligations - Support development and promotion of a global information system on plant and animal genetic resources and making information available through a common portal such as “Genesys”Improve investments in agricultural - Continue to support G20-Paris initiativesinnovation systems - Increase policy dialogue on AIS at a high level - Support the Agricultural Science and Technology Indicators (ASTI) initiative to a) collect and maintain a comprehensive database on expenditures on agricultural innovation; b) develop tools and methods to assess INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE the performance and impact of

New Recommendations of IO’s to the G20- MexicoInitiative Key objectiveOn Water - Recognizing the importance to improve the efficiency of water use in agriculture and to safeguard the quality of water - Continue dialogue based on the recommendations concerning food security and water made by Ministers in their Declaration at the World Water ForumSustainable use of natural resources - Review policies that could have perversewithin the short-term imperatives of incentives for sustainabilityensuring food security - Support design of policies that do a comprehensive analysis of the relationship between food security, food production and natural resources - Increase monitoring and evaluation of systems of “market-smart” smallholder targeted subsidies INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE - Analyze mechanisms to increase

Distribution of World Fertilizer Production capacity by countryNote: Based on capacity of operative plants in 2008/09.Data: IFDC Worldwide Fertilizer Capacity Listing by Plant.Source: Hernandez, M and Torero, M (2012)

Impact on fertilizer intake, crop production andrural income of a 10% decrease in concentration 18.8 20 18 13.3 16 14 12 10 % 8 4.7 6 3.3 1.0 1.9 4 2 0 Increase in fertilizer Increase in crop Increase in rural use production income Conservative scenario Optimistic scenario Source: Hernandez, M and Torero, M (2012), ), Gruhn et al. (1995) and Bumb et al. (2011).

New Recommendations of IO’s to the G20- MexicoInitiative Key objectiveOn Risk management - Platform for Agricultural risk management - Global Index Insurance Facility - Weather info for All initiative - Improve historical and current meteorological information to facilitate development of weather insuranceOn Human Capital Development - Support the continued provision of targeted, well-designed and gender- sensitive social protection programs - Explicit integration of agricultural education and of the sustainable agriculture intensification agenda - Bridge gender productivity gaps in agriculture (both access to resources and technology) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE - Promote the Women Empowerment

Final comments Invest in agricultural research and development to improve world portfolio of exporting countries Improve information to better prioritize needed investment to increase agriculture productivity in a sustainable basis Enable environment to the increase of private and public & private investment We need to increase food production and productivity in a sustainable basis Competition in the input markets is needed Better information to improve risk coping mechanisms is needed

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IFPRI Oxfam America Policy Roundtable -- Maximo Torero

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