Rising Food Prices: Drivers and Implications for Development

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  • briefing paper
    Rising Food Prices
    Drivers and Implications for Development
    Alex Evans, Centre on International Cooperation, New York University
    Chatham House Food Supply Project | April 2008 | CH BP 08/02
    Summary points
     Global food prices have risen 83 per cent over the last three years. The increases have been
    driven by high income growth in emerging economies (probably the single most significant factor),
    use of crops for biofuels, the relative inelasticity of supply, historically low stock levels and some
    speculative investment.
     More recently, national concerns over inflation and prices have led some countries to reduce
    exports and others to try to build up stocks – creating a feedback loop that feeds on itself to drive
    prices up still further. In the medium to longer term, ‘scarcity trends’ – climate change, the cost of
    energy inputs, scarcity of land and water – could limit the supply-side response.
     In the immediate term, the priority is to increase both the volume and the quality of humanitarian
    assistance available to poor people, including by moving away from in-kind food aid and towards
    cash transfers or voucher systems – although it is important to be clear that there are outstanding
    questions about how these social protection systems will work, and they should not be seen as a
    panacea. The issue of compensatory financing may also arise for some countries facing balanceof-
    payments difficulties.
     In the longer term, the key challenge is to increase the supply of food: the World Bank estimates
    that demand for food will rise by 50 per cent by 2030, as a result of rising affluence and growing
    world population. Achieving this challenge will require something close to a revolution, and a
    massive investment in agriculture in developing countries.
     If supply fails to keep pace with rising demand, then the question of ‘fair shares’ is likely to emerge
    as a significant global issue. Already, the effect of a burgeoning global middle class switching to
    diets with more meat and dairy products – both relatively inefficient in terms of grain use – has
    been to reduce the affordability of staple foods for poorer consumers.
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    Introduction
    Food prices are rising fast. In 2006, the FAO food price
    index rose by an average of 9 per cent compared with the
    previous year. By 2007, that figure had increased to 23 per
    cent – 37 per cent if December 2007 is compared with
    December 2006.1 Over the last three years, according to the
    World Bank, global food prices have increased by 83 per
    cent.2 While high price events are not unusual in agricultural
    markets – even if food prices stabilize at 25 per cent
    above their 2001 level, this would still only bring them to
    early 1990s levels – the unusual feature of the current situation
    is that the price spike applies to almost allmajor food
    and feed commodities, rather than just a few of them.3
    The move to current price levels has also been
    unusually sudden. As recently as 2005, the Outcome
    Document from the UN World Summit noted the need
    to ‘address the impact of weak and volatile commodity
    prices and support the efforts of commodity-dependent
    countries to restructure, diversify and strengthen the
    competitiveness of their commodity sectors’.4 Less than
    three years later, corn is at around its highest level in 11
    years,5 rice and soya are at their highest level in 34
    years,6 and wheat – like crude oil and gold – has
    recently touched its highest level ever.7
    This briefing paper focuses on what this important
    change means for international development. It starts
    by assessing the drivers of rising prices, noting that
    while in the short term the pressure is on the demand
    side, a suite of ‘scarcity issues’ – climate change, water
    scarcity, energy security, pressure on land – will
    increasingly affect the supply side over the longer term.
    The paper then discusses the implications of higher
    prices for developing countries, before setting out a
    brief survey of implications for development policy,
    focusing in particular on humanitarian assistance, but
    also touching on increasing supply, helping lowincome
    countries to benefit from rising prices, scarcity
    issues, trade and the question of fair shares.
    Drivers of increasing prices
    At present, the main drivers of increasing prices are on
    the demand side. Historically, demand growth for food
    has been about 1. 5 per cent each year; now, however, it
    has risen to 2 per cent, and Goldman Sachs estimate
    that it will be as high as 2. 6 per cent within a decade.8
    The World Bank estimates that food production will
    need to grow by another 50 per cent by 2030 (and 85 per
    cent for meat) to fulfil projected demand.9
    A particularly important part of the picture has been
    rapidly rising income growth, notably in emerging
    economies such as China and India. Joachim von
    Braun, Director General of the International Food
    Policy Research Institute (IFPRI), argues that high
    income growth accounts for perhaps half of the recent
    increases in food prices.10 As middle classes grow more
    affluent, food consumption patterns change too – often
    1. IFAD, ‘Growing demand on agriculture and rising prices of commodities – an opportunity for smallholders in low-income, agriculture-based countries?’, briefing
    note for Round Table at IFAD Governing Council, 14 February 2008.
    2. Andrew Martin, ’Fuel choices, food crises and finger-pointing’, New York Times, 15 April 2008.
    3. Ibid.
    4. UN World Summit 2005 Outcome Document: see http://tinyurl.com/2vp8ol.
    5. Chris Flood, ‘Wheat and corn prices poised for further rises’, Financial Times, 11 January 2008.
    6. Javier Blas, ‘Rising prices set to worsen global hunger’, Financial Times, 18 December 2007; Javier Blas, ‘UN pleads for $500m to avoid food crisis’, Financial
    Times, 24 March 2008.
    7. Javier Blas and Isabel Gorst, ‘Wheat prices in biggest one-day rise’, Financial Times, 25 February 2008.
    8. Jeffrey Currie, ’Food, Feed and Fuels: an outlook on the agriculture, livestock and biofuels markets’, Goldman Sachs presentation, March 2007: see
    http://tinyurl.com/yqldjv.
    9. Jenny Wiggins and Javier Blas, ‘Bread and butter issues: rising prices may herald the first global food shortage since the 1970s’, Financial Times, 23 October 2007.
    10. Julian Borger, ‘Feed the world? We are fighting a losing battle, UN admits’, The Guardian, 26 February 2008.
    ‘Over the last three years,
    according to the World Bank,
    global food prices have
    increased by 83 per cent’
    towards diets richer inmeat and dairy products that are
    much more intensive in terms of both grain and water
    use.
    The role of biofuels as a source of demand for grain
    has also been a significant element of recent food price
    rises (von Braun estimates 30 per cent of the picture).11
    The US already spends $7 billion a year supporting
    ethanol.12 This consumes 20 per cent of America’s corn
    crop13 – a figure likely to rise to 32 per cent by 2016.14
    Looking ahead, the EU has a target for 10 per cent of its
    transport fuel to come from biofuels by 2020, while the
    US has proposed a target of 36 billion gallons of renewable
    fuel by 2022.15
    But there are also supply factors in play. In the
    shorter term, one issue is that food supply is quite
    inelastic, i.e. supply responds relatively slowly to
    increases in demand. IFPRI estimate that aggregate
    agricultural supply increases by only about 1–2 per cent
    for each 10 per cent increase in price – and by even less
    when (as now) prices are very volatile.16 The problem of
    reduced exports from important food producers (such
    as India, Argentina and Kazakhstan) is also problematic,
    especially when matched by importing countries
    seeking to purchase larger than normal volumes of
    food in order to build up stockpiles. Another shorterterm
    supply-side issue is that some current price
    volatility is attributable to speculative investors
    seeking safety in commodity markets from the weak
    dollar and from falling equity and bond markets –
    although opinion is divided over how significant a
    factor this is.17 There is also the factor of low inventory
    stocks, which explains some of the current market
    volatility.
    In the short term, food prices look set to ease somewhat,
    particularly if (as now seems likely) the northern
    hemisphere enjoys a good wheat crop.18 But in the
    longer term, four more fundamental supply-side
    factors – which might collectively be termed ‘scarcity
    issues’ – are already starting to make themselves felt,
    and are likely to become more significant.
    First, the costs of agricultural inputs – and especially
    energy – are rising. Today’s global agricultural
    system is predicated on the availability of cheap,
    readily available energy, for use in every part of the
    value chain: both directly (e.g. cultivation, processing,
    refrigeration, shipping, distribution) and indirectly
    (e.g. manufacture of fertilizers, pesticides – the cost of
    urea, a fertilizer, has almost tripled since 2003).19 But
    as noted earlier, oil prices are already at their highest
    ever level; many analysts expect them to stay relatively
    high over the medium to long term. In addition, since
    food can now be converted into fuel, there is effectively
    an arbitrage relationship between the two,
    implying an ongoing linkage between food and fuel
    prices.20
    Second, water scarcity is likely to become a more
    pressing issue. Global demand for water has tripled in
    the last 50 years;21 500 million people live in countries
    chronically short of water, and this number is likely to
    rise to 4 billion by 2050.22 A particular worry is depletion
    of limited groundwater resources, on which some
    parts of the world – including the US, Egypt, Pakistan,
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    11. Ibid.
    12. International Institute for Sustainable Development: http://www.iisd.org/pdf/2007/media_grain_journal.pdf.
    13. Reuters, ‘Ethanol, biodiesel eats into US corn stockpiles’, 15 May 2006, at http://tinyurl.com/27cuk8.
    14. US Department of Agriculture estimate: see http://tinyurl.com/yp4juw.
    15. Worldwatch Institute: see http://tinyurl.com/ypdnrm.
    16. International Food Policy Research Institute food policy report, The World Food Situation: New Driving Forces and Required Actions, December 2007: see
    http://www.ifpri.org/pubs/fpr/pr18.pdf.
    17. See, for example, Martin Wolf, ‘Life in a tough world of high commodity prices’, Financial Times, 4 March 2008.
    18. Javier Blas and Krishna Guha, ‘Commodities’ prices fall as hedge funds cut exposure’, Financial Times, 24 March 2008.
    19. Lex column, ‘Flying fertiliser’, Financial Times, 10 April 2008.
    20. Jeffrey Currie, interview with FT.com, 19 July 2007: see http://tinyurl.com/24dmdp.
    21. Ashbindu Singh, A Tale of Two Trends: providing information and knowledge for decision-making in water-scarce regions through water assessments, UNEP: see
    http://www.unwater.org/downloads/wwwSingh.pdf.
    22. Robin Clarke and Jannet King, The Atlas of Water (London: Earthscan, 2004).
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    India and China – have been enjoying a ‘free ride’ for
    the past two or three decades.23
    Third, there is the issue of land availability. Some
    commodities analysts argue that whereas historical
    increases in demand have been met through increasing
    yields, in future an expansion of acreage will also be
    required.24 However, this will be expensive, given the
    infrastructure investment involved; there may also be
    diminishing returns, since much of the best land is
    already under cultivation.25 Above all, there is simply
    increasing competition for what land there is, including
    food, feed, fibre (e.g. timber, paper), fuel, forest conservation,
    carbon sequestration and urbanization, on top
    of high rates of soil loss to erosion and desertification.
    The FAO estimates that there is at most 12 per cent
    more land available that is not already forested or
    subject to erosion or desertification, and that 16 per
    cent of arable land is already degraded.26
    The fourth, and perhaps most fundamental, factor is
    climate change. Overall, the International Panel on
    Climate Change (IPCC) projects that global food
    production could rise if local average temperatures
    increase by between 1 and 3 degrees Celsius, but could
    decrease above this range. Crucially, however, this is
    before extreme weather events are taken into account;
    and the IPCC judges that extreme weather, rather than
    temperature, is likely to make the biggest difference to
    food security.27 Glacial melting will affect agriculture as
    well: the IPCC estimates, for example, that many
    Himalayan glaciers could disappear by 2035, with catastrophic
    results for Chinese and Indian agriculture
    during the dry season.28 Its assessment is also that
    ‘climate change increases the number of people at risk
    of hunger’, and will lead to an increase of between 40
    million and 170 million in the number of undernourished
    people.29
    Many of these factors, on both the supply and the
    demand side, also apply to fisheries and aquaculture.
    Demand for fish and seafood is rising sharply, again
    largely because of increasing affluence. But while the
    FAO estimates that an additional 40 million tonnes of
    aquatic food a year will be needed by 2030, it also notes
    that catches of wild fish have remained roughly stable
    since the mid-1980s, at around 90 million tonnes a year,
    and forecasts that this figure is unlikely to rise substantially.
    30 These underlying trends will place increasing
    emphasis on aquaculture, which last year accounted for
    43 per cent of fish consumption (up from just 9 per cent
    in 1980).31 However, future expansion of the sector will
    depend not only on increasing investment capital, but
    also on availability of land, fresh water and energy –
    which as noted above, are all already subject to stresses
    of their own.
    All in all, the jury is still out on whether recent food
    price rises will be sustained or not. Many commentators,
    including the World Bank, estimate it will take
    ‘several years’ for supplies to increase to rebuild stocks
    and allow prices to fall.32 However, over the longer term,
    structural factors – a population forecast to rise to 9.2
    billion by 2050, rising affluence and the four ‘scarcity
    trends’ referred to above – suggest the possibility of a
    structural, rather than merely cyclical, shift. Models
    from both IFPRI and the US Department of Agriculture
    show that while food prices will not rise much more
    23. Ibid.
    24. Jeffrey Currie, ‘Food, Feed and Fuels’ (note 8 above).
    25. Bidwells, The bull run in soft commodities: commodity cycle or structural shift in food and farming?, briefing note: http://www.bidwells.co.uk/documents/
    SoftCommodities.pdf.
    26. Ibid.
    27. IPCC, Fourth Assessment Report, Working Group 2, Chapter 5: ‘Food, fibre and forest products’, 2007, pp. 275 and 299.
    28. Lester Brown, ‘Melting Mountain Glaciers Will Shrink Grain Harvests in China and India’, Earth Policy Institute briefing note, 20 March 2008.
    29. IPCC, ‘Food, fibre and forest products’, p. 300.
    30. The FAO’s last State of World Aquaculture report (2006) estimated that of the nearly 600 species groups it monitors, 52 per cent of wild fish stocks are fully
    exploited, 17 per cent over-exploited, 7 per cent depleted and 1 per cent recovering from depletion; 20 per cent are moderately exploited and only 3 per cent
    under-exploited.
    31. FAO, ‘Nearly half of all fish eaten today farmed, not caught’, news release, 4 September 2006, at http://www.fao.org/newsroom/en/news/2006/1000383/
    index.html.
    32. World Bank, High Food Prices: A Harsh New Reality, 29 February 2008: see http://tinyurl.com/362wcg.
    over the next decade, they are also unlikely to fall
    significantly.33
    Implications for development
    Rising food prices will hit poor countries and poor
    people hardest, and will present an obvious impediment
    to achieving the Millennium Development Goal of
    halving hunger by 2015. The FAO has already
    announced that 36 countries are in crisis in terms of
    food security, and will need external assistance;34 of
    these, 21 are in Africa (although not all of them have
    been affected equally).35
    Poor people typically spend a high proportion of
    their income on food purchases: Oxfam put this figure
    at around 50–80 per cent.36 Of particular concern are
    landless poor people in rural areas. Most poor people
    are rural, and most rural poor people are net food
    buyers, who are unlikely to be compensated fully by
    additional employment as agriculture grows, or by
    higher wages.37 However, the extent and rapidity of
    current rises mean that urban populations are also
    being hit, as World Food Programme head Josette
    Sheeran recently noted: ‘There is food on shelves but
    people are priced out of the market. There is vulnerability
    in urban areas we have not seen before.’38
    Humanitarian assistance
    High food prices are already posing extensive challenges
    to the provision of humanitarian aid. The World
    Food Programme currently feeds 73 million people in
    78 countries (less than a tenth of the world’s undernourished).
    Its agreed budget for 2008 was $2.9 billion,
    but rising costs – for logistics as well as for food itself –
    mean that, according to the WFP, this level will not
    even cover current deliveries and at least $500 million
    more will now be needed.39 Josette Sheeran raised the
    possibility in a recent interview that the agency would
    have to look at ‘cutting the food rations or even the
    number of people reached’ if the additional funding
    were not forthcoming.40
    Improvements in aid quality are needed too: humanitarian
    aid still needs to shift to a proactive insurance
    model from its current reactive configuration.
    Although the Central Emergency Response Fund – in
    which funds are allocated before emergencies – is likely
    to meet its 2008 target of $500 million, this remains a
    small proportion of the overall requirement.
    Humanitarian requirements in 2007 were $4 billion, for
    example, and the older, more reactive Consolidated
    Appeals Process remains the main window for
    funding.41
    Domestic policy measures
    Numerous countries have already reacted to rising food
    prices with concern and a broad range of policy inter-
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    33. Simon Maxwell, ’Will rising food prices derail development efforts?’, ODI blog, 29 February 2008, at http://blogs.odi.org.uk/blogs/main/archive/2008/02/29/
    5520.aspx.
    34. World Bank, High Food Prices; FAO, Crop Prospects and World Food Situation, February 2008.
    35. The full list is Afghanistan, Bangladesh, Bolivia, Burundi, Central African Republic, Chad, DRC, Republic of Congo, Côte d’Ivoire, Dominican Republic, Ethiopia,
    Eritrea, Ghana, Guinea, Guinea-Bissau, Haiti, Indonesia, Iraq, Kenya, DPR Korea, Lesotho, Liberia, Mauritania, Moldova, Nepal, Nicaragua, Pakistan, Russia
    (Chechnya), Sierra Leone, Somalia, Sri Lanka, Sudan, Swaziland, Timor Leste, Uganda and Zimbabwe.
    36. World Food Programme briefing note at http://www.wfp.org/english/?ModuleID=137&Key=2778; Borger, ‘Feed the world?’ (note 10 above).
    37. Simon Maxwell, ‘Will rising food prices derail development efforts?’; World Bank, High Food Prices.
    38. Borger, ‘Feed the world?’.
    39. Ibid.
    40. Javier Blas and Gillian Tett, ‘High food prices may force aid rationing’, Financial Times, 24 February 2008.
    41. Data taken from OCHA: see http://ochaonline.un.org/Default.aspx?alias=ochaonline.un.org/cerf.
    ‘Poor people typically spend a
    high proportion of their income on
    food purchases: Oxfam put this
    figure at around 50–80 per cent’
    ventions designed to address the situation. The
    approach taken by most countries so far (Azerbaijan,
    Bangladesh, Bosnia, China, Egypt, the EU, Ghana, India,
    Indonesia, Mexico, Morocco, Nigeria, Peru, the
    Philippines, Russia, Taiwan and Turkey) has been to
    reduce or eliminate import tariffs.42 However, at least
    some of these reductions in import tariffs have been
    offset by the imposition of additional export tariffs or
    quotas by other countries – some of them major
    producers – in order to reduce domestic prices
    (Argentina – where the move has led to major unrest
    among farmers – China, India, Kazakhstan, Ukraine
    and Vietnam).43 Among other approaches currently
    being tested are making purchases to establish or
    replenish stockpiles and strategic reserves – which in
    turn increases pressure on prices (Iraq, Malaysia,
    Turkey and the UAE); increasing subsidy levels (Egypt,
    India and Oman); capping prices (China, Russia and
    Thailand); and examining the possibility of introducing
    rationing (Malaysia and Pakistan).44
    Various countries have witnessed protests, riots or
    other forms of civil unrest that are at least partly attributable
    to rising food prices. At the time of writing, some
    of the most serious disturbances so far have been in
    Egypt, Haiti and Lebanon; unrest has also been experienced
    in Burkina Faso, Cameroon, China, Côte d’Ivoire,
    Guinea, Mauritania, Mexico, Morocco, Mozambique,
    Niger, the Philippines, Senegal, Uzbekistan, Vietnam
    and Yemen.45
    As these lists show, rising food prices are of concern
    in every part of the world, and so far there is little
    consensus among governments on what to do about the
    issue. Currently most donors appear to be in information-
    gathering mode themselves, although World Bank
    President Bob Zoellick has called for a ‘new deal’ on
    food, including a recommendation that countries
    investigate cash transfers targeted at poor consumers,
    rather than the less efficient option of regulating food
    prices across the entire economy.46 There is significant
    scope for donors to help developing countries to share
    information on which approaches have worked where.
    Import costs and trade balances
    The World Bank has argued that more expensive food
    imports will disrupt the trade balances of relatively few
    countries, because the majority will see largely offsetting
    gains in other commodity exports; from the Bank’s
    perspective, the countries most adversely affected
    include Jordan, Egypt, the Gambia, Lesotho, Djibouti and
    Haiti.47 However, the impact of rising food prices needs to
    be looked at in tandem with concurrently rising energy
    prices, which are also imposing strain on many
    importing countries. An International Energy Agency
    study in December 2007 found that the rising cost of oil
    had already wiped out the benefits of increased aid and
    debt relief to 13 non-oil-producing African countries
    including South Africa, Ghana, Tanzania, Ethiopia and
    Senegal. According to the IEA, the increased cost of oil
    bought by these countries since 2004 was 3 per cent of
    their combined GDP – more than the total sum of debt
    relief and aid they had received over the past three years.48
    If the combined effect of higher food and energy prices
    is to create balance-of-payments problems for countries,
    the question of compensatory financing may emerge as a
    significant issue. So far, the InternationalMonetary Fund
    reports that demand for financing fromfunding windows
    such as the Exogenous Shocks Facility has been low,
    although critics retort that this is at least in part because
    of the significant conditionality attached to such lending.
    It is also important to note that funding windows
    designed to provide liquidity on shocks such as sudden
    changes in terms of trade are built on the assumption
    that such shocks will be short-lasting. If – as suggested
    earlier – food prices have risen as a result of a longer-
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    42. Sources: media coverage.
    43. Ibid.
    44. Ibid.
    45. Matthew Green, ‘Cameroon crisis continues as inflation surges’, Financial Times, 4 March 2008.
    46. Krishna Guha and James Politi, ‘Zoellick stresses fight against hunger’, Financial Times, 23 January 2008.
    47. World Bank, High Food Prices – a Harsh New Reality, briefing note, at http://tinyurl.com/362wcg.
    48. Ed Crooks and William Wallis, ‘Africa aid wiped out by rising cost of oil’, Financial Times, 28 December 2007.
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    termstructural shift, then there are open questions about
    how quickly countries taking out loans will be able to pay
    them back, potentially heightening pressure to increase
    the concessional element of such loans.49
    Policy implications
    What does all this mean for policy-makers – and especially
    for donors?
    Humanitarian assistance
    Start with what rising food prices mean for the humanitarian
    system, where short-term pressures are likely to
    be most acute. First, consider the issue of aid volume in
    the context of humanitarian assistance. As noted
    earlier, the World Food Programme has called urgently
    for an additional $500 million. Given the scale of recent
    food price increases, it does appear likely that additional
    funds will be needed just to maintain current
    levels of food assistance. It would be of particular
    concern if the US were to follow up on suggestions that
    it might reduce the amount of food aid it provides to
    theWFP as a result of rising prices and costs, given that
    the US is by some distance the largest donor to the
    programme.50 (Washington is reported to have told the
    WFP that it is facing a 40% increase in food commodity
    prices compared with last year, and hence will ‘radically
    cut’ the amount it gives away – although more recently
    it has announced a $200 million increase in food aid,
    suggesting that this risk may have abated somewhat.51)
    But at the same time, more specificity is needed on
    how the WFP’s headline figure breaks down. It would
    be useful, for example, to know how the $500 million
    would be distributed between different types of aid
    (such as food aid, vouchers or cash transfers), and
    between which recipient countries. It is also essential
    that the WFP’s call for additional funds be set in the
    context of the needs of the UN humanitarian system as
    a whole, given that the programme accounts for only
    around half of total global food aid.52 While there is no
    doubting the WFP’s effectiveness in setting out its case,
    donors also need to hear from other multilateral agencies
    (notably UNICEF, the UN Development
    Programme, FAO and the World Health Organization),
    and ensure that OCHA (the UN’s Office for the
    Coordination of Humanitarian Affairs) is in the lead on
    coordinating funding calls as well as other emergency
    action from across the sector.
    This raises the question of wider humanitarian
    system coherence. While progress was made in 2005 on
    strengthening OCHA’s coordination role at global level,
    on the role of Humanitarian Coordinators in country
    and in the use of pooled funding arrangements, much
    remains to be done. The WFP has much to contribute
    here. It is fair to say that at the time of the UN High
    Level Panel on System-Wide Coherence in 2006, the
    WFP was not among the principal enthusiasts for a
    more coherent approach. But as the humanitarian
    system moves into a demanding context with the
    potential for faster-paced operations, better interagency
    coherence becomes more important than ever.
    On a related note, it would be interesting to explore the
    possibility of a ‘one UN’ initiative on food security, which
    49. Stephany Griffith-Jones, letter, Financial Times, 2 January 2008. See also Stephany Griffith-Jones and José Antonio Ocampo, ‘Compensatory Financing for
    Shocks: What Changes are Needed?’, working paper, 2008: see http://tinyurl.com/5w5pxt.
    50. The US provided around $1.1bn of assistance to the WFP last year, mostly as food aid. The EU and Canada are the second and third largest donors, at
    $250m and $160m respectively, mostly given in cash.
    51. Borger, ‘Feed the world?; Reuters report, ’Bush releases $200 million in emergency food aid’, 14 April 2008, at http://tinyurl.com/4nn2hr.
    52. World Food Programme, Food Aid Flows 2006, at http://www.wfp.org/interfais/index2.htm.
    ‘While there is no doubting the
    WFP’s effectiveness in setting
    out its case, donors also need to
    hear from other multilateral
    agencies ’
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    Rising Food Prices
    could bring a harmonized approach to bear both at the
    global level and in specific countries (UNDP’s office in
    Yemen has already been approached by the government
    with a view to piloting such an approach). Such an initiative
    might bring together the WFP, FAO, IFAD, UNICEF,
    UNDP and WHO, and focus on developing and mobilizing
    resources for a package of policies and
    programmes, potentially for presentation at the
    Secretary-General’s summit meeting on the Millennium
    Development Goals in New York in September 2008.
    Another important current issue is changing ways of
    giving humanitarian assistance. As noted earlier, many
    donors (including the WFP) are increasingly focusing
    attention on social protection programmes, given that
    poor countries tend to lack social welfare systems – a
    deficit that places many poor people with precarious
    livelihoods at acute risk from economic shocks and
    stresses. For such vulnerable people, access to food is as
    important as the availability of food, and social protection
    programmes can play an important role in closing
    the gap.53 But it is important to stress that the current
    enthusiasm for social protection approaches is relatively
    novel, and that the evidence base on the effects
    and challenges of such projects is not yet as extensive
    as it could be.
    In particular, humanitarian donors need to be
    acutely aware of the political impact of a large-scale
    shift towards the provision of safety nets. If donors
    provide cash or food directly – as opposed to through
    national governments – then there is a potential risk of
    diluting states’ own accountability to their citizens.
    Better answers are also needed to questions about the
    potential inflationary impact of some social protection
    measures, the best combination of cash and in-kind
    transfers, what kind of targeting and conditionality
    works best, and so on.54 It is too soon to see social
    protection systems as any kind of panacea to the issue
    of high food prices. Donors should also assess carefully
    what the value added would be of the WFP’s moving
    into wider social protection, given the humanitarian
    sector’s relatively limited experience of social safety
    nets, and the extent of the organizational change and
    shift away from traditional core business that this
    would imply for the WFP.
    In the background lies the question of what it will
    mean for humanitarian assistance if (as considered
    earlier in this paper) the recent shift to higher food
    prices is structural rather than just a blip – if, in other
    words, this is the ‘new normality’. At present, around
    850 million people are classified as ‘food insecure’. At
    times of peak demand, humanitarian agencies have
    been able to feed about 100 million people at the very
    most. If a longer-term effect of changes in world food
    markets were to increase the number of people in need
    of humanitarian assistance significantly beyond that
    level, then it is not clear that the humanitarian system
    would have the capacity and knowledge to respond,
    even if sufficient financial resources were available. It is
    therefore essential that in addition to coping with the
    current short-term turbulence in food markets, donors
    make a sustained effort to ask ‘what if?’ questions and
    plan for further contingencies.
    Wider issues
    As discussed above, the implications of higher food
    prices extend far beyond humanitarian assistance. The
    suddenness with which the issue has emerged has raised
    not only the political stakes, but also the risk of knee-jerk
    policy responses. Meanwhile, the complexity of the
    drivers of rising food prices makes a comprehensive
    approach essential – while also increasing the likelihood
    of unintended consequences from policy responses.
    Policy-makers therefore face an awkward and hazardous
    balancing act between the urgency of responding, on the
    one hand, and taking enough time to understand the
    consequences of what they are doing, on the other.
    The remainder of this paper identifies some of the
    larger policy questions that arise for aid donors. In most
    cases it does not attempt to answer them; at this stage,
    the aim is to build the evidence base and to act as a cata-
    53. Elizabeth Cromwell and Rachel Slater, Food Security and Social Protection, ODI submission to Commission for Africa, September 2004.
    54. Ibid.; see also DFID, Using social transfers to improve human development, DFID practice paper, February 2006.
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    Rising Food Prices
    lyst for more intensive and thorough conversations,
    involving a wider range of actors, with the objective of
    building shared awareness around the issue. With that
    caveat stated, consider the following issues:
    Increasing supply. Perhaps the hardest question is how
    the world is going to increase food supply to meet the
    huge rise in anticipated demand noted at the beginning
    of this paper.55 Much work needs to be done, quickly, to
    figure out where this increase is going to come from
    (both geographically, and in terms of new agricultural
    techniques and technologies), and what needs to be
    done to make it happen. An urgent first step towards
    increasing the available food supply should be to
    ensure that production of biofuels does not undermine
    food security – an issue now acknowledged by
    President Bush, who has commented that ‘If you look at
    what is happening in corn, you’re beginning to see the
    food issue and the energy issue collide.’56 While an
    outright ban would probably be unwieldy and undesirable,
    discussion of basic standards for biofuels
    production – with food security at their heart – should
    be an early priority for policy-makers.
    Helping low income countries to benefit. While supply
    increases in the shorter term are likely to come from
    existing ‘breadbasket’ countries such as the US,
    Canada, Russia, Ukraine, Brazil and Argentina, there is
    longer-term potential for lower-income countries to
    play a significant part as well – especially in Africa,
    largely bypassed by the first Green Revolution, where
    productivity remains far lower than in other regions.
    But although poor countries should in theory be able to
    benefit from rising prices for agricultural commodities,
    the reality is that they are held back by poor infrastructure,
    the need for better access to technology and
    finance, restrictive supply chain standards and other
    barriers as well. Aid donors therefore need to be clear
    about how crucial their role will be in this. Until
    recently, agriculture was seen as a rather unfashionable
    relic of the past in many donor agencies (and perhaps
    especially in their country offices). That needs to
    change quickly: donors need to invest heavily in
    programme aid – and in many cases, rebuilding their
    own capacity – in rural development.
    Managing scarcity. Donors will also need to be capable
    of helping countries to devise integrated strategies for
    managing scarcity in land, water, energy, food and the
    effects of climate change. The first step towards this is
    mainstreaming throughout donor agencies a much
    better sense of how these scarcity trends link to each
    other – as they all do, frequently in subtle and complex
    ways. On top of that, donors need to integrate scarcity
    issues more thoroughly into their governance and
    economic analyses (as underlined by the role of land
    disputes as a catalyst for the recent post-election
    violence in Kenya). Within the specific context of food,
    a good starting point would be to build a much more
    comprehensive picture of the overall resource footprint
    of different foods (and in the process, move the debate
    on from its current unsophisticated focus on the minutiae
    of specific variables, such as ‘food miles’).
    Trade. Donors also need a clearer picture of the trade
    dimensions of the current food prices issue. As noted
    earlier, the current picture of food-focused trade measures
    is growing more complex by the day, as importers
    lower import tariffs even as exporters raise export tariffs.
    Meanwhile, some countries – including China – are
    apparently exploring the potential for bilateral food
    supply arrangements, of the kind already becoming more
    common in energy supply. Other countries are displaying
    enthusiasm for import substitution policies – most
    notably the Philippines, which has announced its intention
    to move from being one of the world’s largest
    importers of rice to self-sufficiency within just three
    years.57 Donors and development advocates need to find
    55. See Wiggins and Blas, ‘Bread and butter issues’ (note 9 above).
    56. Javier Blas and Jenny Wiggins, ‘Expensive tastes’, Financial Times, 18 March 2008.
    57. Conrad Carino, ’Rice sufficiency not impossible, experts say’, Manila Times, 7 April 2008.
    their way towards a renewed strategic stance on agricultural
    trade. Even before food prices began their sharp
    increase, there was lively debate in the donor community
    about the extent to which agricultural trade liberalization
    would in practice benefit low-income countries. That
    debate is now further complicated by the fact that even if
    liberalization is desirable in principle, careful attention
    will need to be paid to the need to sequence reforms, in
    order to avoid (for example) the risk that rapid elimination
    of Common Agricultural Policy export subsidies
    could increase food prices in developing countries.
    The question of fair shares
    Finally, there is the elephant in the room: the long-term
    question of fair shares, pithily illustrated in a recent
    cartoon in the US in which a portly man in a suit takes
    a maize cob out of an African child’s food bowl, with
    the speech bubble, ‘Excuse me. I’m going to need this to
    run my car.’58
    Inequality between countries is falling for the first
    time in a generation. From 2003 to 2007, per capita
    income grew faster in every region of the South than in
    developed countries: hardly news in East and South
    Asia, but a major shift in Latin America and Africa. In
    1980 developed-country GDP was 23 times higher than
    in developing countries; in 2007 it was 18 times higher.59
    Yet even as inequality between countries falls, it is rocketing
    within them – particularly within developing
    countries, and above all in emerging economies such as
    China, where the difference between the top 20 per cent
    and the bottom 20 per cent has grown by 40 per cent
    over the last three years.60
    In his book Development as Freedom, Amartya Sen
    observes that ‘the focus has to be on the economic
    power and substantive freedom of individuals and
    families to buy enough food, and not just on the
    quantum of food in the country in question.’ Later, he
    observes that ‘[some] who buy food may be ruined
    because the real purchasing power of their money
    incomes may have shrunk sharply. Such a famine may
    occur without any decline in food output, resulting as it
    does from a rise in competing demand rather than a fall
    in total supply.’
    Now, Sen’s questions may be starting to apply at the
    global level. Even while the line between developed and
    developing countries grows more blurred with each
    passing year, the gulf between the haves and the havenots
    has never looked wider. In a context of increasing
    tightness of food supply – which is likely to grow
    further as population, affluence and scarcity trends all
    continue to rise – we may well reach a situation in
    which relative inequality can have absolute implications
    for the world’s poor, and in which a burgeoning
    global middle class inadvertently takes food beyond the
    purchasing power of the world’s poorest people.
    Indeed, we may already be there.
    Conclusion
    This is a time of massive change for global food policy,
    in developed as well as developing countries. In addition
    to the concerns discussed in this paper about what
    higher food prices mean for poor people, there are questions
    about environmental standards; obesity and
    health; animal welfare; competitiveness, between countries
    and companies; the security of globalized
    ‘just-in-time’ supply chains; and numerous other issues.
    At the heart of these debates is the deceptively simple
    question: what should global food policy be trying to
    achieve? We need to be clear at the outset about the
    nature of the choices that we face. There are real tradeoffs
    between different potential objectives in food
    policy – such as competitiveness for consumers, security
    of supply, environmental conservation, local
    sourcing. That raises the question: who is the ‘we’ that
    decides the shape of 21st-century food policy? Who has
    the power to make choices?
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    page􀀀10
    Rising Food Prices
    58. See http://www.globaldashboard.org/scarcity/a-thousand-words/.
    59. Figures from UNCTAD Trade and Development Report 2008, quoted in John Vandaele, ‘Globalisation “localises” inequality’, IPS analysis note, 11 March 2008:
    see http://www.ipsnews.net/news.asp?idnews=41549.
    60. Ibid.
    It is vital that advocates for development get
    involved in these debates now, and start making the
    argument that the primary objective of the world food
    system in the 21st century must be to feed all of us, as
    healthily as possible. From there, work can be started to
    evaluate what such a food system might look like. But if
    the hard questions about overall objectives are swept
    under the carpet, or answered without being properly
    considered, then one outcome seems certain: the
    world’s poor will be under-represented in the debate,
    and marginalized by its outcome.
    But as they start to put forward their case for a food
    system designed to meet the needs of all the world’s
    people, advocates for development should take great
    care with the narratives they set out. Food has always
    been an emotive subject, and never more so than when
    questions start to be asked about whether there is
    enough to go around. People rarely make better decisions
    for being in a fearful frame of mind. ‘Malthusian’
    narratives carry with them a risk of self-fulfilling
    prophecy if they lead to bad decisions, and are in their
    way just as deterministic as ‘Cornucopian’ narratives
    with their message of inexhaustible plenty.
    Instead, development advocates may find that the
    emergence of food as a top-rank political issue provides
    them with an opportunity to form new alliances, new
    coalitions and new drivers for change. Stressing the
    reality that we have the power to make choices about
    the kind of food system we want is a good starting
    point. In that light, we may find that ‘food democracy’
    is a more useful frame than ‘food security’ – both in the
    kind of thinking that it engenders, and in the policy
    options and approaches that it implies.
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    Rising Food Prices
    ‘Stressing the reality that we
    have the power to make choices
    about the kind of food system we
    want is a good starting point’
    Chatham House is one of the world's leading
    organizations for the analysis of international issues.
    It is membership-based and aims to help individuals and
    organizations to be at the forefront of developments in an
    ever-changing and increasingly complex world.
    Alex Evans is a Non-resident Fellow at New York
    University’s Center on International Cooperation, where
    he runs the Climate Change and Global Public Goods
    programme (email: alex. .(JavaScript must be enabled to view this email address). edu). He is
    leading a joint CIC/Chatham House initiative designed
    to provide policy-makers with a strategic assessment
    of global food prices and their implications, particularly
    for developing countries. The study is being conducted
    in association with Chatham House’s research project,
    UK Food Supply in the 21st Century: the New
    Dynamic. The financial support of Oxfam and Foodvest
    is gratefully acknowledged.
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