Protecting Poor People Against Food Price Volatility

Protecting Poor People Against Food Price Volatility
Shenggen FanDirector General
International Food Policy Research Institute
Panel discussion: Rising Global Food Prices: Causes, Impacts, and Response Strategies
Dakar, May 17, 2011

Key messages
Food price hikes and volatility are increasingly frequent.
A complex web of factors drive food price volatility.
High and volatile food prices hurt poor consumers and producers.
Urgent actions are needed to address food price volatility and protect poor people.

Global food price hikes and volatility
Global hikes since June 2010*
Maize: 100%
Wheat: 94%
Source: Data from FAO 2011; Note:: *As of early May 2011

Domestic prices are also high and volatile
Wholesale prices in Ethiopia, Addis Ababa
Retail prices in Niger, Niamey
Retail prices in Senegal, Dakar
Source: Data from FAO 2011

Food price volatility drivers
Stronger link between oil and food prices
Extreme weather events—droughts, floods, and cyclones—lead to production losses
Trade restrictions
Market speculation?
Climate change (in the long run)

Stronger link between oil and food prices influence food security
Rising oil prices cause food prices to increase, rather than the reverse. (Heady and Fan 2010)
Rising oil prices make biofuels more profitable, rather than agricultural production more expensive. (Abbott, Hurt, and Tyner 2008)
Source: Data from IMF 2011
Note: Oil = Average crude oil price of U.K. Brent, Dubai, and West Texas Intermediate

Climate change will add pressure
Increased frequency and intensity of extreme weather events
Lower agricultural yields and production
Higher food prices
Source: Nelson et al. 2009.

High and volatile food prices hurt the poor
Self-reported food insecurity in Sub-Saharan Africa
Source: Headey 2011

Actions needed to reduce food price volatility and protect the poor

Invest in productive social safety nets
Bangladesh Vulnerable Group Development Program
Increased per capita food consumption by 45-66 kcal per taka transfer (Ahmed et al. 2009)
Ethiopia Productive Safety Nets Program (PSNP)
With access to safety nets and agricultural support, beneficiaries are more food secure and productive. (Gilligan, Hoddinott, and Taffesse 2009)
Nigeria Fadama II Development Project
Increased the value of individual productive assets by about 50 percent (Nkonya et al. 2008)

Establish global and regional strategic grain reserves
Global emergency reserve
Created with grain donations from large food exporters and producers (for example, United States, France, China, India)
Located in these countries and also in poor food-importing countries (for example, Horn of Africa)
Owned and managed by an institution such as WFP
Strong global food management system including logistical capability

Establish global and regional strategic grain reserves
Some regional initiatives are emerging:
Asean+3 Emergency Rice Reserve
Sahel and West Africa Regional Food Stocks (RESOGEST)
SADC Regional Food Reserve Facility
Properly managed reserves can address food crises, but
operating costs need to be low.
moral hazard and other challenges must be overcome.

Support transparent, fair, and open global trade
Eliminate harmful trade restrictions and prevent new ones to:
increase market efficiency, and
reduce price fluctuations.
Potential costs of a failed Doha Round could be high (Bouët and Laborde 2009):
11.5 percent loss of developing country exports
US$353 billion loss in world welfare
Quick completion of the Doha Round is crucial.

Promote agricultural growth, especially smallholder productivity
Invest in agricultural R&D and infrastructure
Agricultural research and new technologies
Access to high-quality seeds and fertilizer
Rural infrastructure
Promote innovations for smallholders
Financial services (community banking)
Risk-management mechanisms (weather-based index insurance)
Institutional arrangements (producer cooperatives)

Investment in agricultural R&D has higher returns
Source: Fan, Mogues, and Benin 2009 Note: “n.e.” indicates not estimated

Investment in new technologies has high payoffs
Smallholder cassava production, Nigeria
Improved cassava varieties, advances in pest control, processing technology, mid-1980s to early 1990s
Tripled production in less than a decade
Farmer net profits were 18 times higher
Returns to labor increased by more than 60 percent
Increased income and gender equity
Generated significant technology spillovers to Ghana
Source: Nweke and Haggblade 2010

Invest in climate change agricultural adaptation and mitigation
Adaptation: change of planting dates, adoption of more resilient crop varieties, improved water storage
Mitigation: improved land management, appropriate fertilizer/manure use, incorporation of crop residues
For win-win-win: agricultural investments should target measures that provide mitigation, adaptation, and productivity benefits (Bryan et al. 2011)
At least an additional US$7 billion in agricultural productivity investments are needed annually to offset adverse effects on human well-being. (Nelson et al. 2009)

Establish international working group
Regularly monitor the world food situation and provide analysis on:
food supply, demand, stocks, prices, trade, and policies
energy prices, input prices, and market speculation
Provide guidance on:
optimal level of global emergency grain reserves to be held
when and how to release them
at what prices
Catalyze action and intervention
The working group must be composed of key institutions in collaboration with major stakeholders.

Proactive steps must be taken now toreduce food price volatility and prevent recurring food crises.
Developed and developing country governments and international institutions must lead the way.

Protecting Poor People Against Food Price Volatility

by International Food Policy Research Institute (IFPRI)

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