The Global Food Crisis and Policy Implications Per Pinstrup-Andersen 2008 J.W. Fanning Lecture University of Georgia October 17, 2008

Extended Annual FAO Food Price Index = Nominal -- Real - -x August 2008

Wheat, Maize, and Rice Prices July, 2007 – December, 2008 ($/Ton) Futures* - For December 2008 Delivery

Causes of Food Price Increases (1)  Supply Side Factors:  Adverse Weather (Climate Change?)  Rapidly Falling Prices  Green Revolution  OECD Policies  Limited Investments

Causes of Food Price Increases (2)  Demand Side Factors:  Biofuel  Meat and Dairy Products Demand  Feed Demand

Causes of Food Price Increases (3)  Market Factors:  Reduced Storage of Food Commodities  Capital Market Transfers  Falling Dollar Value

FAO Food Price Index Adjusted for Changes in the exchange Rates Between US Dollar and SDR and CFA

Causes of Food Price Increases (4)  Public and Private Action  Little action towards achieving MDG  Export bans and restrictions  Panic buying

Rice Prices and Recent Policy Responses $/Ton; January 2004-August 2008 ← 835 (July 2008) ← 787 (August 2008)

Causes of Food Price Increases (4)  Public and Private Action  Little action towards achieving MDG  Export bans and restrictions  Panic buying  Reduced import tariffs

Causes of Food Price Increases (4)  Public and Private Action  Little action towards achieving MDG  Export bans and restrictions  Panic buying  Reduced import tariffs  Price controls  Rationing  Food riots  Hoarding

Causes of Food Price Increases (4)  Public and Private Action  Little action towards achieving MDG  Export bans and restrictions  Panic buying  Reduced import tariffs  Price controls  Rationing  Food riots  Hoarding  Media frenzy

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality  Rural population groups  Net sellers or net buyers

Percent of Rural Households that are Net Staple Food Sellers Selected Countries Malawi (2004)12 Bangladesh (2000)19 Zambia (1998)30 Ghana (1998)44 Vietnam (1998)51 Average (12 Countries)31 Source: FAO (2008).

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality  Rural population groups  Net sellers or net buyers  Length of run, induced innovation

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality  Rural population groups  Net sellers or net buyers  Length of run, induced innovation  Price transmission

Estimated Rice Price Transmission Q4, 2003 to Q4, 2007 for Selected Countries (%) Source: FAO (2008). Country ∆ Domestic Price/ ∆World Price ($) ∆ Domestic Price/ ∆World Price (DC) Philippines630 India920 Vietnam1112 Indonesia4164 Bangladesh4344 Thailand53100 China6488

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality  Rural population groups  Net sellers or net buyers  Length of run, induced innovation  Price transmission  Production costs

Approximate Fertilizer Prices ($/Ton) January 2007 January 2008 August 2008 Urea Diammonium Phosphate Potash Source: IFDC

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality  Rural population groups  Net sellers or net buyers  Length of run, induced innovation  Price transmission  Production costs  National Welfare Change  Net exporters and net importers

Percent of Major Grains Imported by Selected Countries ( ) Eritrea88 Niger82 Botswana76 Haiti72 Tanzania14 Malawi7 Source: FAO (2008).

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality  Rural population groups  Net sellers or net buyers  Length of run, induced innovation  Price transmission  Production costs  National Welfare Change  Net exporters and net importers  Stability

Consequences of Food Price Increases  HH Welfare Change:  Urban Consumers  Budget shares and value added  Food security and dietary quality  Rural population groups  Net sellers or net buyers  Length of run, induced innovation  Price transmission  Production costs  National Welfare Change  Net exporters and net importers  Stability  Agri-business

Policy Response to Food Price Increases  Maintaining government legitimacy  Emphasis on Short-term measures  Price controls, export bans, lifting import tariffs, rationing, food distribution  Emphasis on short-term transfers to urban lower middle class  Continued neglect of the rural poor  Expanding food production  Renewed interest in national self-sufficiency  Reserve stocks, acquisition or control of land across borders

Proposed Policy Priorities (1)  For short-run impact  Food distribution targeted on rural and urban poor  Poverty relief programs for rural and urban poor  Safety nets for rural and urban poor  Rural public works  Time-limited input subsidies

Proposed Policy Priorities (1)  For short-run impact  Food distribution targeted on rural and urban poor  Poverty relief programs for rural and urban poor  Safety nets for rural and urban poor  Rural public works  Time-limited input subsidies  Discontinuation of export bans

Proposed Policy Priorities (1)  For short-run impact  Food distribution targeted on rural and urban poor  Poverty relief programs for rural and urban poor  Safety nets for rural and urban poor  Rural public works  Time-limited input subsidies  Discontinuation of export bans  Release of Japanese rice stocks

Proposed Policy Priorities (1)  For short-run impact  Food distribution targeted on rural and urban poor  Poverty relief programs for rural and urban poor  Safety nets for rural and urban poor  Rural public works  Time-limited input subsidies  Discontinuation of export bans  Release of Japanese rice stocks  Postpone biofuel blending mandates  Eliminate biofuel subsidies

Proposed Policy Priorities (2)  For long-run impact  Improved land tenure

Proposed Policy Priorities (2)  For long-run impact  Improved land tenure  Expanded investment in:  Rural infrastructure  Agricultural research and technology  Alternative energy sources  Rural education, sanitation and health care

Proposed Policy Priorities (2)  For long-run impact  Improved land tenure  Expanded investment in:  Rural infrastructure  Agricultural research and technology  Alternative energy sources  Rural education, sanitation and health care  International trade agreements  Completion of Doha Round  Avoidance of ad.hoc. export bans and restrictions

Proposed Policy Priorities (2)  For long-run impact  Improved land tenure  Expanded investment in:  Rural infrastructure  Agricultural research and technology  Alternative energy sources  Rural education, sanitation and health care  International trade agreements  Completion of Doha Round  Avoidance of ad.hoc. export bans and restrictions  International grain storage agreement

Future Perspectives  Significant supply response  Falling real food prices

Approximate Wheat Prices January 2000$100/ton$2.50/bushel January 2007$200/ton$5.00/bushel February 2008$500/ton$12.50/bushel August 2008$300/ton$7.50/bushel December 2008 (Futures) $240/ton$5.95/bushel

Percent Decrease in Price Between the Highest and October 6, 2008 CommodityHighest Month Decrease Since Then (%) WheatFebruary, MaizeJune, SoybeansJune, RiceApril,

A Note on Arithmetic A 100% increase is offset by a 50% decrease. A 200% increase is offset by a 66% decrease. A 300% increase is offset by a 75% decrease.

Future Perspectives  Significant supply response  Falling real food prices  Strong links between oil and food prices

Crude Oil – Maize Price Breakeven Points for US Ethanol Production (2007) Crude Oil Price (US$/Barrel) Breakeven Price for Maize Without Subsidies (US$/bushel) Breakeven Price for Maize with Subsidies (US$/bushel) : 1/3 of US Maize Used for Biofuel (12% of global production) 60% of EU Rapeseed Oil (25% of global) Source: Tyner and Taheripour (2008).

Future Perspectives  Significant supply response  Falling real food prices  Strong links between oil and food prices  Continued urban bias in policy interventions

Future Perspectives  Significant supply response  Falling real food prices  Strong links between oil and food prices  Continued urban bias in policy interventions  Return to government complacency