Anatomy of the Global Food Crisis

Abstract

Dramatic food price increases affected much of the developing world in 2008. Even as food prices have begun to relax in 2009, this trend is highly uneven across countries, and in many countries local food prices remain high relative to past levels. Furthermore, the challenge of addressing the root causes of the global food crisis remains. This paper contributes to the policy discussions in this area by offering a preliminary diagnostic of the possible factors behind the global food crisis that erupted in 2008. Some are more immediate and possibly short-term in nature, such as the volatility in the commodities markets arising from short-term financial speculation. Others, however, are going to or have already started to affect countries' food security in the medium to longer term. These include rising and changing patterns of consumption in fast-growing and large developing countries like China and India, the possibly increasing trade-off between biofuels and food, and the unfolding effects of climate change. Keeping in mind the possible structural features of the global food landscape from here on, the paper outlines a framework for policy actions, both unilateral and collective, to address the food crisis and ensure future global food security.

Notes

The authors are grateful to Diego Arias, Romina Bandura, Barbara Barungi, Paola Deles, Gaspar Fajth, John Horton, Selim Jahan, Bashir Jama, Stephen Jarrett, Guido Schmidt-Traub, Shantanu Mukherjee and Claudia Vinay for very helpful discussions as well as comments on an earlier version of this paper. They would also like to thank Nina Thelen for providing excellent research assistance. Ronald Mendoza co-authored this paper while he was an economist with undp. The views expressed herein are the authors’ and do not necessarily reflect the policies of undp or unicef.

1 Authors' calculations based on the fao's food production per capita indicator drawn from faostat Online, at http://faostat.fao.org/

2 The interested reader may wish to review the fao's monitoring website containing local food prices for 55 developing countries, at http://www.fao.org/giews/pricetool/

3 For the purposes of this paper food security is defined as: ‘Access by all people at all times to enough food for an active, healthy life’. See Simon Maxwell, ‘Food security: a post-modern perspective’, Food Policy, 21 (2), 1996, pp 155–170 for a review of other possible approaches to defining food security in practice.

4 This section provides a brief overview of some of the key challenges faced by Haiti, notably in its agricultural sector. See Diego Arias, Emily Brearley & Gilles Damais, Restoring the Competitiveness of the Coffee Sector in Haiti, Economic and Sector Study RE2-06-012, Inter-American Development Bank for a more detailed analysis of Haiti's economy, its agricultural sector, and its internal and external challenges.

5 Authors' calculations based on the fao's food production per capita indicator drawn from faostat Online, at http://faostat.fao.org/

6 Authors' calculations based on ibid.

7 Defined as raw food, cash crops, feeds and agricultural raw materials.

8 It is one of 10 low-income countries in the world whose agricultural trade deficit is more than 5% of its imports (along with Bangladesh, East Timor, Eritrea, North Korea, Mauritania, Nepal, Niger, Senegal and Yemen). Francis Ng & M Atman Aksoy, Who are the Net Food Importing Countries?, World Bank Policy Research Working Paper 4457, Washington, DC: World Bank. 2008, pp 11, 50.

9 fao, at http://www.fao.org/ES/ess/toptrade/trade.asp

10 Arias et al, ‘Restoring the competitiveness of the coffee sector in Haiti’.

11 World Resources Institute, at http://earthtrends.wri.org/pdf_library/country_profiles/for_cou_332.pdf

12 Arias et al, ‘Restoring the competitiveness of the coffee sector in Haiti’, p 3. It is important to note here that a variety of other factors could also come into play, including the absence of a strong social safety net, lack of fiscal space which could be useful to meet rising cereal import bills, and the existing tariff and tax structure for food imports and exports.

13 See, for example, Jeffrey Sachs, The End of Poverty: Economic Possibilities for our Time, New York, Penguin, 2005; United Nations, A Practical Plan to Achieve the Millennium Development Goals, London: Earthscan, 2005; and World Bank, World Development Report 2008: Agriculture for Development, 2007.

14 World Bank, World Development Report 2008, p 45.

15 Jean Dreze & Amartya Sen, ‘Introduction’, in Jean Dreze, Amartya Sen & Athar Hussein (eds), The Political Economy of Hunger: Selected Essays, Oxford: Oxford University Press, 1995; and Amartya Sen, ‘The food problem: theory and policy’, Third World Quarterly, 4 (3), 1982, pp 447–459. Sen argues that a person could starve even under conditions of abundant food through such events as a fall in his or her endowment (eg loss of assets such as land and livestock), or detrimental changes in the conditions of exchange (eg unemployment, wage cuts, food price increases, etc.) Sen, Poverty and Famines, Oxford: Oxford University Press 1981; and Sen, ‘The food problem’. For a discussion of some of the critiques and counter-critiques of Sen's entitlements approach, see Stephen Devereux, ‘Sen's entitlement approach: critiques and counter-critiques', Oxford Development Studies, 29 (3), 2001, pp 245–263.

16 As is the case in most developing countries, a larger proportion of household expenditure among poor households is allocated towards food—the bottom quintile of Haiti's population allocates 53.4% of its expenditures on food, while the top quintile allocates about 10%. IMF, ‘Selected Issues and Statistical Appendix', August 23, 2007, Washington, DC: IMF, p 19.

17 This is one possible definition of the bop; others have been used. For further discussion, see, for example, Allen Hammond, William Kramer, Rob Katz, Julia Tran & Courtland Walker, The Next Four Billion: Market Size and Business Strategy at the Base of the Pyramid, Washington, DC: World Resources Institute & International Finance Corporation, 2007.

18 Recent analysis by the Asian Development Bank has also revealed how the share of rice expenditures not just in food expenditures but in total expenditures is much larger for the poorer households compared to richer ones—based on a sample of four rice-consuming countries in the region (Bangladesh, India, Indonesia and the Philippines), they found that spending on rice accounts for as much as 20%–35% of total household expenditures for the bottom income quintile, while, for the top quintile, the share could be as small as 5%–10%. Asian Development Bank (adb), Food Prices and Inflation in Developing Asia: Is Poverty Reduction Coming to an End?, Manila: adb, 2008, p 14.

19 Authors' calculations based on the fao's food production per capita indicator drawn from faostat Online, at http://faostat.fao.org/

20 In addition to this, the fao, High Prices and Volatility in Agricultural Commodities, Rome: fao, 2007 also notes that movements in exchange rates, notably in the US dollar, have resulted in higher demand for US agricultural exports. This brisk demand is keeping pressure on supply, even as prices of most commodities have been increasing.

21 Dietrich Domanski & Alexandra Heath, ‘Financial investors and commodity markets', bis Quarterly Review, March 2007, pp 55–67; fao, High Prices and Volatility in Agricultural Commodities; and Thomas Helbling, Valerie Mercer-Blackman & Kevin Cheng, ‘Riding a wave’, Finance and Development, March 2008.

22 Domanski & Heath, ‘Financial investors and commodity markets’; and Frank Veneroso, ‘Commodity comment’, Global Strategic Outlook, 1 April 2008.

23 On fundamentals, see Vivek Tulpule, ‘Insight: no bubbles, just fundamentals, Financial Times, 28 April 2008. On speculation, see Veneroso, ‘Commodity comment’.

24 It might be possible to distinguish the presently historically high price of petroleum as a short-run factor, even as higher demand for energy might also be considered as a medium- to long-term trend.

25 Ronald U Mendoza, ‘A proposal for an Asian rice insurance mechanism’, Global Economy Journal, 9 (1), 2009, pp 1–31.

26 India, it seems, has also done this in anticipation of rising wheat prices resulting from bad harvests on this other staple food in the country.

27 Shares of global rice exports calculated using figures for 2007, and taken from fao, Rice Market Monitor, 10 (4), 2007, p 31.

28 ‘rp unwittingly driving up international rice prices’, Philippine Daily Inquirer, 2 May 2008, at at http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20080502-134024/Thais-to-snub-RPs-rice-bid

29 Rolando Avendano, Helmut Reisen & Javier Santiso, The Macro Management of Asian Driver Related Commodity Induced Booms, oecd Development Centre Working Paper, Paris: oecd, 2008; and Fred Gale & Kuo Huang, ‘The demand for food quality and quantity in China’, usda, 2007, at http://www.ers.usda.gov/publications/err32/err32.pdf

30 Helbling et al, ‘Riding a wave’, pp 11–12.

31 Data were taken from the US Department of Agriculture Production, Supply and Distribution Database, at http://www.fas.usda.gov/psdonline/psdQuery.aspx

32 Authors' calculations based on data from ibid.

33 With rising incomes, there will be greater demand for meat products and other goods, which in turn could increase the demand for crops to be used for animal feeds.

34 World Watch Institute, at http://www.worldwatch.org/node/1626

35 See fao, gef, undp, unep, unesco, World Bank & who, ‘International Assessment of Agricultural Knowledge, Science and Technology for Development’, 2008, p 8, at http://www.agassessment.org/index.cfm?Page=Plenary&ItemID=2713

36 Joachim Von Braun, ‘The world food situation: driving forces and required actions', Food Policy Report 18, Washington, DC: ifpri, 2007, p 9. An important consideration in anticipating the evolving impact of biofuel development trends is the commercial viability of new technologies coming online. In addition, alternatives to biofuels altogether, such as solar and wind energy, might also help to ease the food versus fuel trade-off. It must also be noted that there are issues related to the effectiveness of using crops like corn to generate biofuels. Recent scientific studies suggest that in the production process (which may be land- and fertiliser-intensive), there is the possibility that much more carbon emissions could result than are prevented. Timothy Searchinger, Ralph Heimlich, RA Houghton, Fengxia Dong, Amani Elobeid, Jacinto Fabiosa, Simla Tokgoz, Dermot Hayes & Tun-Hsiang Yu, ‘Use of US croplands for biofuels increases greenhouse gases through emissions from land use change’, Science, 319 (5867), 2008, pp 1238–1240; and Joseph Fargione, Jason Hill, David Tilman, Stephen Polasky & Peter Hawthorne, ‘Land clearing and the biofuel carbon debt’, Science, 319 (5867), 2008, pp 1235–1238.

37 David Lobell, Marshall B Burke, Claudia Tebaldi, Michael D Mastrandrea, Walter P Falcon & Rosamond L Naylor, ‘Prioritizing climate change adaption needs for food security in 2030’, Science, 319 (February), 2008, p 608.

38 Drawn from various editions of the fao's Crop Prospects and Food Situation, at http://www.fao.org/giews/english/cpfs/index.htm

39 Authors' calculations based on data reported in fao, Crop Prospects and Food Situation, April 2008, p 39.

40 GW Yohe, RD Lasco, QK Ahmed, NW Arnell, SJ Cohen, C Hope, AC Janetos & RT Perez, Climate Change 2007: Impacts, Adaptation and Vulnerability—Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, eds ML Parry, OF Canzani, JP Palutikof, PJ van der Linden & CE Hanson, Cambridge: Cambridge University Press, 2007, p 825. More recent empirical estimates by Fancesco Tubiello & Gunther Fischer, ‘Reducing Climate Change Impacts on Agriculture: Global and Regional Effects of Migration, 2000–2080', Technological Forecasting and Social Change, 74 (7), 2007, p 1041 suggest that the number of people at risk of hunger in Africa because of climate change could even be much larger—increasing from 188 million in 2000 to over 400 million by 2080.

41 William Cline, ‘Global warming and agriculture’, Finance and Development, March 2008, p 25.

42 Ibid, p 24.

43 Other private sector actors in the food supply chain could also end up charging much higher costs because of factors such as poor infrastructure, lack of access to credit (resulting from an underdeveloped financial sector more broadly), as well as lack of competition. See, for example, David Dawe, Piedad Moya, Cheryll Casiwan & Jesusa Cabiling, ‘Rice marketing systems in the Philippines and Thailand: do large numbers of competitive traders ensure good performance?’, Food Policy, forthcoming; and Marcel Fafchamps, Market Institutions in Sub-Saharan Africa: Theory and Evidence, Cambridge, MA: mit Press, 2004.

44 Authors' calculations based on data from usda Production, Supply and Distribution Database, at http://www.fas.usda.gov/psdonline/psdQuery.aspx

45 Von Braun, ‘The world food situation’, p 2.

46 Ending stocks are calculated on an annual basis so that, roughly, it is the sum of total production for the year and the beginning stocks for the year, less consumption for the year. The figures above are based on the authors' calculations using data from usda Production, Supply and Distribution Online.

47 We are grateful to Diego Arias for bringing this type of innovation to our attention.

48 See, for example, fao, Crop Prospects and Food Situation, April 2008, p 4.

49 Nora Lustig, Thought for Food: The Challenge of Coping with Soaring Food Prices, Center for Global Development Working Paper, 155, Washington, DC: Center for Global Development, 2008; Martin Ravallion, Bailing out the World's Poorest, World Bank Working Paper 4763, Washington, DC: World Bank, 2008; and Ronald U Mendoza, Aggregate Shocks, Poor Households and Children: Transmission Mechanisms and Policy Responses, unicef Social Policy Working Paper, New York: unicef, 2009.

50 See Mendoza, ‘A proposal for an Asian rice insurance mechanism’.