Food Price Volatility and Vulnerability in the Global South: considering the global economic context

Abstract

Most official analyses of the recent food price crisis have focused on the market fundamentals of supply and demand for food as key explanatory factors. As a result, most of the policy recommendations emanating from the major international institutions include measures to boost supply and temper demand. In this paper I argue that international macroeconomic factors played a key role in fostering both price volatility and vulnerability, and as such they need to be recognised. With respect to the recent price volatility, the weak US dollar and speculation on agricultural commodities futures markets greatly influenced agricultural prices. With respect to price vulnerability, global economic forces played an important role in dampening production incentives in the world's poorest countries over the past 30 years, leading to a situation of food import dependence. Policy responses to the food crisis must consider the role of these broader international macroeconomic forces—both in the immediate context and their longer term impact.

Notes

The author would like to thank David Norris, Ryan Pollice and Linda Swanston for research assistance, and the Social Sciences and Humanities Research Council and the Centre for International Governance Innovation for research support. This article was presented at a workshop on the global food crisis at the Centre for International Governance Innovation in December 2008, and the participants at that workshop provided helpful feedback and comments. Thanks are also due to Marc Cohen, Derek Hall and Eric Helleiner for additional feedback.

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2 J Sachs, Speech to the European Parliament Committee on Development, Brussels, 5 May 2008.

3 See fao, Soaring Food Prices: Facts, Perspectives, Impacts and Actions Required, HLC/08/INF/1, Rome: Food and Agriculture Organisation, 2008; UN High Level Task Force on the Global Food Crisis, Elements of a Comprehensive Framework for Action, New York: United Nations, June 2008; World Bank, Rising Food Prices: Policy Options and World Bank Response, Washington, DC: World Bank, 2008; World Bank, Double Jeopardy: Responding to High Food and Fuel Prices, Washington, DC: World Bank, 2 July 2008; oecd, ‘Rising agricultural prices: causes, consequences and responses’, oecd Observer, August 2008; usda, Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, Washington, DC: United States Department of Agriculture Economic Research Service, May 2008; and J Von Braun et al, High Food Prices: The What, Who and How of Proposed Policy Actions, ifpri Policy Brief, Washington, DC: International Food Policy Research Institute, 2008.

4 Von Braun et al, High Food Prices, pp 2, 12; oecd, ‘Rising agricultural prices’, p 2; imf, Food and Fuel Prices—Recent Development, Macroeconomic Impact and Policy Responses, Washington, DC: imf, 30 June 2008, p 7; and fao, Soaring Food Prices, p 5.

5 oecd, ‘Rising agricultural prices’, p 2; fao, Soaring Food Prices, pp 7–8; and M Rosegrant, Biofuels and Grain Prices: Impacts and Policy Responses, Testimony to the US Senate Committee on Homeland Security and Governmental Affairs, Washington, DC: International Food Policy Research Institute, 7 May 2008.

6 The usda analysis, it should be noted, downplays the significance of the biofuel factor. usda, Global Agricultural Supply and Demand, pp 15–18. See also World Bank, Rising Food Prices, p 1.

7 Rosegrant, Biofuels and Grain Prices.

8 D Heady & S Fan, ‘Anatomy of a crisis: the causes and consequences of surging food prices’, Agricultural Economics, 39 (s1), 2008, p 377.

9 fao , Soaring Food Prices, pp 6–8.

10 Ibid, pp 5–6.

11 Heady & Fan, ‘Anatomy of a crisis: the causes and consequences of surging food prices’, p 381; D Dawe, The Unimportance of ‘Low’ World Grain Stocks for Recent World Price Increases, esa Working Paper No 09-01, Rome: Food and Agriculture Organisation, February 2009, pp 4–5.

12 fao, Food Outlook, Rome: Food and Agriculture Organisation, June 2008, pp 55–57.

13 fao, Food Outlook, Rome: Food and Agriculture Organisation, November 2008, p 63.

14 P Abbot, C Hunt & W Tyner, What's Driving Food Prices?, Oak Brook, IL: Farm Foundation, 2008, pp 28–30.

15 See, for example, ibid; and N Lustig, Thought for Food: The Challenges of Coping with Soaring Food Prices, Working Paper 155, Washington, DC: Center for Global Development, 2008. See also CP Timmer, The Causes of High Food Prices, Working Paper No 128, Manila: Asian Development Bank, 2008.

16 L Elliott, ‘Against the grain: weak dollar hits the poor’, Guardian, 21 April 2008.

17 Timmer, The Causes of High Food Prices, p 8.

18 Institute for Agriculture and Trade Policy (iatp), Commodities Market Speculation: The Risk to Food Security and Agriculture, Minneapolis: Institute for Agriculture and Trade Policy, November 2008.

19 J Young, ‘Speculation and world food markets’, ifpri Forum, July 2008, p 9.

20 M Masters, Testimony before US Senate Committee on Homeland Security and Governmental Affairs, Washington, DC, 20 May 2008.

21 iatp, Commodities Market Speculation.

22 Ibid.

23 World Bank, Double Jeopardy, p 2; and Von Braun et al, High Food Prices, p 5.

24 World Bank, Double Jeopardy, p 2.

25 Von Braun et al, High Food Prices, p 5.

26 Timmer, The Causes of High Food Prices, p 7.

27 fao, Food Outlook, November 2008, pp 63–64.

28 This group includes most countries in sub-Saharan Africa, much of Asia including India, China, the Philippines, Bangladesh, Pakistan and Indonesia and several Central American and Caribbean countries. fao, Low-Income Food-Deficit Countries (lifdc), Rome: Food and Agriculture Organisation, 2008.

29 Oxfam, A Round for Free: How Rich Countries are Getting a Free Ride on Agricultural Subsidies at the wto , Oxfam Briefing Paper 76, Oxford: Oxfam, June 2005; and S Murphy, B Lilliston & MB Lake, wto Agreement on Agriculture: A Decade of Dumping, Minneapolis, MN: Institute for Agriculture and Trade Policy, 2005.

30 See M Khor, The Commodities Crisis and the Global Trade in Agriculture: Problems and Proposals, Malaysia: Third World Network, 2005; and T Weis, The Global Food Economy: The Battle for the Future of Farming, London: Zed, 2007.

31 J Clapp, ‘wto agriculture negotiations: implications for the global South’, Third World Quarterly, 27 (4), pp 563–577; and P Rosset, Food is Different: Why the wto should get out of Agriculture, London: Zed, 2006.

32 World Bank, Rising Food Prices, p 8; and High Level Task Force on the Global Food Crisis, Elements of a Comprehensive Framework for Action, p 8.

33 C Barrett & D Maxwell, Food Aid after Fifty Years: Recasting its Role, London: Routledge, 2005.

34 The Development Effectiveness of Food Aid: Does Tying Matter?, Paris: Organisation for Economic Co-operation and Development, 2005.

35 J Clapp & D Fuchs (eds), Corporate Power in Global Agrifood Governance, Cambridge, MA: mit Press, 2009; and W Heffernan, ‘Concentration of ownership and control in agriculture’, in F Magdoff, J Bellamy Foster & FH Buttel (eds), Hungry for Profit: The Agribusiness Threat to Farmers, Food and the Environment, New York: Monthly Review Press, 2000, pp 61–75.

36 M Hatanaka, C Bain & L Busch, ‘Third party certification in the global agrifood system’, Food Policy, 30 (3), 2005, pp 354–369; and P McMichael & H Friedmann, ‘Situating the retailing revolution’, in G Lawrence & D Burch (eds), Supermarkets and Agri-Food Supply Chains, Cheltenham: Edward Elgar, 2007, pp 291–320.

37 UN High Level Task Force on the Global Food Crisis, Elements of a Comprehensive Framework for Action; Group of Eight, ‘G8 Leaders Statement on Global Food Security’, Hokkaido Toyako Summit, 8 July 2008; World Bank, Double Jeopardy; oecd, ‘Rising agricultural prices’; usda, Global Agricultural Supply and Demand; and Von Braun et al, High Food Prices.

38 iaastd, Executive Summary of the Synthesis Report, Washington, DC: Island Press, 2008.

39 For further analysis of the conclusions drawn by the iaastd report, see M Ishii-Eiteman, ‘Re-orienting local and global food systems: institutional challenges and policy options from the UN agricultural assessment’, in J Clapp & M Cohen (eds), International Governance Responses to the Food Crisis, Waterloo: Wilfred Laurier Press, 2009.

40 Von Braun et al, High Food Prices.

41 UN High Level Task Force on the Global Food Crisis, Elements of a Comprehensive Framework for Action, pp 24–25.

42 Von Braun et al, High Food Prices, p 9.

43 iatp, Commodities Market Speculation, p 10.

44 An earlier ifpri document, however, does mention this factor. See Von Braun, The World Food Situation: New Driving Forces and Actions Required, ifpri Food Policy Report, Washington, DC: International Food Policy Research Institute, 2007.