High Food Prices: Threats and opportunities Kostas G High Food Prices: Threats and opportunities Kostas G. Stamoulis Chief, ESAE/F

FAO Agricultural Development Economics Division ( ESA) Key Messages High prices: Result of structural and cyclical factors 75 million more hungry people as a result of High Food Prices. The poorest, landless and female-headed households the hardest hit Importance of smallholder response Turning threat into opportunity FAO Agricultural Development Economics Division ( ESA)

FAO Agricultural Development Economics Division ( ESA) High Food Prices World prices of basic food commodities increased drastically starting in 2006. The FAO food price index, increased by 51 percent between May 2007 and 2008, while the corresponding increase between 2006 and 2007, was 13 percent. FAO Agricultural Development Economics Division ( ESA)

World Cereal Stocks and Stock-to-use Ratio Wheat Coarse Grains Rice FAO Agricultural Development Economics Division ( ESA)

Clearer linkages between commodity energy prices Index for light crude oil With additional pressure put on feedstock prices because of biofuel policies in selected countries

FAO Agricultural Development Economics Division ( ESA) Ethanol production, 2005-2017 FAO Agricultural Development Economics Division ( ESA) Source: OECD-FAO, 2008

High Food Prices Increase Hunger… FAO Agricultural Development Economics Division ( ESA)

..and cancel progress in hunger reduction FAO Agricultural Development Economics Division ( ESA)

…disproportionate impact on Africa FAO Agricultural Development Economics Division ( ESA)

Poor countries are vulnerable to high food prices…

..and so are poor households FAO Agricultural Development Economics Division ( ESA)

The poorest are hit the hardest.. FAO Agricultural Development Economics Division ( ESA)

..while women headed households are more vulnerable FAO Agricultural Development Economics Division ( ESA)

High food prices : An opportunity ? Opportunity for what ? Developing country response Poverty reduction From Prices to Incentives Pass through Net incentives FAO Agricultural Development Economics Division ( ESA)

Supply Response ? ..yes..but Developing countries: export taxes & restrictions, import subsidies subsistence: high input prices, no benefit from higher output prices rationale for ISFP type interventions Source: Global Perspective Studies Unit, FAO FAO Agricultural Development Economics Division ( ESA)

Marginal recovery in cereal production of the 82 LIFDCs FAO Agricultural Development Economics Division ( ESA)

Transmission of world to international prices FAO Agricultural Development Economics Division ( ESA)

High food prices and production incentives FAO Agricultural Development Economics Division ( ESA)

Agricultural response and poverty reduction Production in developing country agriculture has been increasing Poverty and hunger reduction slow and concentrated Poverty concentrated in the rural areas of developing countries A paradigm whereby agriculture contributes to poverty reduction: More attention to smallholder farmers Smallholders: Short term and structural impediments FAO Agricultural Development Economics Division ( ESA)

Smallholder farm organization prevalent Mean farm Size decreases in Africa and Asia increases everywhere else. FAO Agricultural Development Economics Division ( ESA)

Patterns of rural development FAO Agricultural Development Economics Division ( ESA)

Fertilizer use per hectare FAO Agricultural Development Economics Division ( ESA)

Smallholders and structural constraints Time distance to markets by geographical region FAO Agricultural Development Economics Division ( ESA)

Access to infrastructure by rural households FAO Agricultural Development Economics Division ( ESA)

Short and long term response inhibited by.. Low price incentives ( low output..high input) Access to essential inputs and markets Structural factors FAO Agricultural Development Economics Division ( ESA)

Need short and long term responses: FAO proposes…. Safety nets and transfers Urgent support to farmers in developing countries Increase investment in developing country agriculture Improve international policy coordination FAO Agricultural Development Economics Division ( ESA)

FAO Agricultural Development Economics Division ( ESA) FAO Response Forum for exchange : The HLC, June 2008 The CFS 2008 Information and analysis Market information/intelligence SOFI 2008 SOCO 2008 SOFA 2008 FAO/OECD Outlook Policy support and technical assistance The Initiative for Soaring Food Prices ( ISFP) FAO Agricultural Development Economics Division ( ESA)

FAO Initiative on Soaring Food Prices THE CHALLENGE cereal import bill in Low-Income Food-Deficit Countries has gone up by 72% in 2007-08 high input prices which have almost tripled compared with August 2007 FAO Agricultural Development Economics Division ( ESA)

FAO Inititiave on Soaring Food Prices ACHIEVEMENTS TO DATE 27 interagency assessment missions monitoring of global and domestic food prices input supply, technical and policy assistance in 79 countries (upon request) FAO Agricultural Development Economics Division ( ESA)

FAO Agricultural Development Economics Division ( ESA) FAO Initiative on Soaring Food Prices ACHIEVEMENTS TO DATE input supply ongoing and planned in 71 countries (TCP and other funds) Africa and Near East: 34 Asia and Southwest Pacific: 19 Latin America and the Caribbean: 16 Eastern Europe: 2 53 countries targeting the 2008 planting season FAO Agricultural Development Economics Division ( ESA)

FAO Agricultural Development Economics Division ( ESA) FAO Initiative on Soaring Food Prices FINANCING FAO financing to date: close to USD 69 million sources: TCP, donor countries (the Netherlands, Spain, the United Kingdom, the United States, the UN's Central Emergency Response Funds ) additional commitments: USD 70 million (EC, Japan, Switzerland, UNOCHA, World Bank) FAO Agricultural Development Economics Division ( ESA)

FAO Agricultural Development Economics Division ( ESA) FAO Initiative on Soaring Food Prices ISFP IN ACTION - Mozambique project funded by TCP and Spain distribution of cassava cuttings and seeds of high-yielding, resistant varieties training of farmers in processing and marketing techniques (transforming raw cassava crop into flour that can be used to make bread, pastries and chip snacks) Bread has increased in price by 50 percent in Mozambique Substituting cassava flour for 15 percent of the flour used in making bread,can save Mozambique an estimated US$ 15 million per year in wheat imports FAO Agricultural Development Economics Division ( ESA)

FAO Agricultural Development Economics Division ( ESA) Thank you! FAO Agricultural Development Economics Division ( ESA)