This document discusses actions needed to reduce food price volatility and protect poor people. It recommends establishing social safety nets, strategic grain reserves, and supporting open global trade. It also stresses the need to promote agricultural growth, especially for smallholders, through investments in research, infrastructure, and climate-resilient technologies. An international working group is proposed to monitor the global food situation and provide guidance on reserves and coordinated responses to volatility.

1. Protecting Poor People Against Food Price Volatility Shenggen FanDirector General International Food Policy Research Institute Panel discussion: Rising Global Food Prices: Causes, Impacts, and Response Strategies Dakar, May 17, 2011

2. Key messages Food price hikes and volatility are increasingly frequent. A complex web of factors drive food price volatility. High and volatile food prices hurt poor consumers and producers. Urgent actions are needed to address food price volatility and protect poor people.

3. Global food price hikes and volatility Global hikes since June 2010* Maize: 100% Wheat: 94% Source: Data from FAO 2011; Note:: *As of early May 2011

4. Domestic prices are also high and volatile Wholesale prices in Ethiopia, Addis Ababa Retail prices in Niger, Niamey Retail prices in Senegal, Dakar Source: Data from FAO 2011

5. Food price volatility drivers Stronger link between oil and food prices Extreme weather events—droughts, floods, and cyclones—lead to production losses Trade restrictions Market speculation? Climate change (in the long run)

6. Stronger link between oil and food prices influence food security Rising oil prices cause food prices to increase, rather than the reverse. (Heady and Fan 2010) Rising oil prices make biofuels more profitable, rather than agricultural production more expensive. (Abbott, Hurt, and Tyner 2008) Source: Data from IMF 2011 Note: Oil = Average crude oil price of U.K. Brent, Dubai, and West Texas Intermediate

8. High and volatile food prices hurt the poor Self-reported food insecurity in Sub-Saharan Africa Source: Headey 2011

9. Actions needed to reduce food price volatility and protect the poor

10. Invest in productive social safety nets Bangladesh Vulnerable Group Development Program Increased per capita food consumption by 45-66 kcal per taka transfer (Ahmed et al. 2009) Ethiopia Productive Safety Nets Program (PSNP) With access to safety nets and agricultural support, beneficiaries are more food secure and productive. (Gilligan, Hoddinott, and Taffesse 2009) Nigeria Fadama II Development Project Increased the value of individual productive assets by about 50 percent (Nkonya et al. 2008)

11. Establish global and regional strategic grain reserves Global emergency reserve Created with grain donations from large food exporters and producers (for example, United States, France, China, India) Located in these countries and also in poor food-importing countries (for example, Horn of Africa) Owned and managed by an institution such as WFP Strong global food management system including logistical capability

12. Establish global and regional strategic grain reserves Some regional initiatives are emerging: Asean+3 Emergency Rice Reserve Sahel and West Africa Regional Food Stocks (RESOGEST) SADC Regional Food Reserve Facility Properly managed reserves can address food crises, but operating costs need to be low. moral hazard and other challenges must be overcome.

14. US$353 billion loss in world welfareQuick completion of the Doha Round is crucial.

15. Promote agricultural growth, especially smallholder productivity Invest in agricultural R&D and infrastructure Agricultural research and new technologies Access to high-quality seeds and fertilizer Rural infrastructure Promote innovations for smallholders Financial services (community banking) Risk-management mechanisms (weather-based index insurance) Institutional arrangements (producer cooperatives)

16. Investment in agricultural R&D has higher returns Source: Fan, Mogues, and Benin 2009 Note: “n.e.” indicates not estimated

17. Investment in new technologies has high payoffs Smallholder cassava production, Nigeria Improved cassava varieties, advances in pest control, processing technology, mid-1980s to early 1990s Tripled production in less than a decade Farmer net profits were 18 times higher Returns to labor increased by more than 60 percent Increased income and gender equity Generated significant technology spillovers to Ghana Source: Nweke and Haggblade 2010

18. Invest in climate change agricultural adaptation and mitigation Adaptation: change of planting dates, adoption of more resilient crop varieties, improved water storage Mitigation: improved land management, appropriate fertilizer/manure use, incorporation of crop residues For win-win-win: agricultural investments should target measures that provide mitigation, adaptation, and productivity benefits (Bryan et al. 2011) At least an additional US$7 billion in agricultural productivity investments are needed annually to offset adverse effects on human well-being. (Nelson et al. 2009)

19. Establish international working group Regularly monitor the world food situation and provide analysis on: food supply, demand, stocks, prices, trade, and policies energy prices, input prices, and market speculation Provide guidance on: optimal level of global emergency grain reserves to be held when and how to release them at what prices Catalyze action and intervention The working group must be composed of key institutions in collaboration with major stakeholders.

20. Proactive steps must be taken now toreduce food price volatility and prevent recurring food crises. Developed and developing country governments and international institutions must lead the way.