The World Food Crisis: Political and Economic Consequences and Needed Actions

The World Food Crisis:
Political and Economic
Consequences and Needed Actions
Joachim von Braun
Director General
International Food Policy Research Institute

Ministry of Foreign Affairs, Stockholm
September 22, 2008

The situation: Surge in prices
[As of August 2008]

800 140
Corn
120
600 Wheat
100

US$/barrel
Rice
US$/ton

80
400 Oil (right scale)
60

200 40
20
0 0

Joachim von Braun, IFPRI, September 2008 Source: Data from FAO 2008 and IMF 2008.

Production and Price Developments

2004/5 2005/6 2006/7 2007/8 2008/9
World grain 1.646 1.604 1.585 1.685 1.718
Prod. Mill. (July est.)
Ton (excl.
rice)
Maize price* 97 104 163 183 186 (Sept)
$/ton (Dec.)
*U.S. Yellow No. 2 Corn (at the Gulf of
Mexico)

Joachim von Braun, IFPRI, September 2008

IFPRI’s scenarios
[Models for changes in structural supply and demand factors
(2000-05 and 2006-15)]

US$/ton

Joachim von Braun, IFPRI, September 2008 Source: M. Rosegrant (prelim. results with IMPACT-WATER).

What Food Crisis?

• Political destabilization
• Macro-economic / inflation
• Poverty and hunger

• …its causes
• and what needs to be done


2007-08 timeline of food protests

30 29

25 Violent
21
20 Non-violent

15

10 8

5 4 4
2 2 2
1 1
0

Joachim von Braun, IFPRI, September 2008 Source: News reports.

Number of food protests
by type and income group
20
Violent
15 Non-violent
11
7
10

5 2 9
8 8
4
0
Low income Low-middle Upper-middle High income
income income
Source: Protests – news reports;
Joachim von Braun, IFPRI, September 2008 Income group classification – World Bank 2007.

Government effectiveness 2007 &
food protests

= Food protest

Joachim von Braun, IFPRI, September 2008 Source: Kaufmann, Kraay, and Mastruzzi 2008.

Number of food protests
by type and gov. effectiveness
18
Violent
15
Non-violent
12 8

9 7 3
1

6
8 8 8
3 6

0
0-25th 25-50th 50-75th 75-100th

From low to high
Source: Protests – news reports;
Joachim von Braun, IFPRI, September 2008 Gov. effectiveness classification – Kaufmann et al. 2008.

Economic policy actions taken

• Trade policy (restrictions, and
liberalization)
• Consumer subsidies
• Social protection
• Increased investment for supply
• Monetary policy


Variety of government policy responses
Trade Trade Consumer Social Increase
restriction liberaliz. subsidy protection supply
Asia
Bangladesh X X X X
China X X X X
India X X X X X
Indonesia X X X
Malaysia X X X
Thailand X X X

Latin America
Argentina X X X X
Brazil X X X
Mexico X X X
Peru X X X
Venezuela X X X X

Africa
Egypt X X X X
Ethiopia X X X X
Ghana X X
Kenya X
Nigeria X X X
Tanzania X X X

Joachim von Braun, IFPRI, September 2008 Source: IMF, FAO, and news reports, 2007-08.

Food putting pressure on overall inflation
China, y-o-y India, wholesale
25 4
Overall Overall
20 Food
Food 2
15
10
0
5
0 -2
Jan-05 Jan-06 Jan-07 Jan-08 Jan-05 Jan-06 Jan-07 Jan-08
Ethiopia Mexico
6 Overall 4
Overall
4 Food Food
2
2
0
0

-2 -2
Jan-05 Jan-06 Jan-07 Jan-08 Jan-05 Jan-06 Jan-07 Jan-08
Joachim von Braun, IFPRI, September 2008 Source: Data from government statistics.

Diversity in the change of food and non-
food prices inflation

Corr. in 2007-08 compared to 2005
No change Increase
High Ethiopia, India, Madagascar,
Corr. in 2007-08

Indonesia Uganda
Medium Mexico China, Vietnam

Low Nigeria

Joachim von Braun, IFPRI, September 2008 Source: Data from government statistics.

Beneath the $1 a day poverty line (2004)

Poor
($.75 cents – $1)
485 million people

Medial poor
($.50 cents – $.75 cents)
323 million people
Ultra poor
(less than $.50 cents)
162 million people
Joachim von Braun, IFPRI, September 2008 Source: Ahmed et al. 2007.

Ultra poor mostly in Africa (2004)

$0.75 and <$1: $0.50 and <$0.75: <$0.50:
485 mln 323 mln 162 mln

ECA LAC ECA 0.4 mln MENA
LAC 3 mln MENA LAC ECA 1. 1 mln MENA 0.2 mln
11.5 mln
19 mln 3.3 mln 16 . 6 mln 0 . 9 mln
EAP
SSA 8.8 mln
EAP 87.0 EAP SSA
109.3 mln 5 1 mln 9 0 . 2 mln SA
mln 19.7 mln

SSA
SA SA
121 mln
263.6 16 2 . 9 mln
mln

Source: Ahmed et al. 2007.

The growing number of the poorest in SSA
Living below US$.50/day (1990-2004)

29
30

15
5
Million

0

-15

-30 -27
-31
-45 -38

Developing World East Asia & Pacific
South Asia L America & Caribb.
Sub-Saharan Africa

Joachim von Braun, IFPRI, September 2008 Source: Ahmed et al. 2007.

Global Hunger Index and its components
(for identical countries), 1981 - 2004

1981 1990 1992 1997 2003 2004
Proportion of
undernourished (%) 28.3 19.9 19.9 17.4 16.3 16.5

Underweight in
children (%) 36.6 32.8 32.0 27.1 26.3 26.0

Under-five mortality
rate (%) 13.0 9.9 9.6 8.9 8.0 7.9

Global Hunger Index 26.0 20.9 20.5 17.8 16.9 16.8
Joachim von Braun, IFPRI, September 2008 Source: Wiesmann, IFPRI.

New hunger estimates of FAO 2007

• undernourished people in 2007 increased
by 75 million, over and above 2003-05 (to
923 million in 2007)
• Asia / Pacific 41 million
• Latin America / Caribbean 6 million
• Near East / North Africa 4 million
• Sub-Saharan Africa 24 million


Sources and features of price increases

1. Energy and biofuels

2. Income and population growth

3. Slow agricultural response

4. Market and trade policy

5. Speculation and market fundamentals


(1) Biofuels: Fundamental change in world
food price determination
Energy prices now affect not just agric. input
prices, but also output prices strongly via
biofuel-land competition

Elastic energy demand creates price bands for
agricultural commodities

Increased biofuel demand in 2000-07 contributed to
30% of weighted average increase of grain prices


(2) Rising consumption

• Income growth (2005-07 per annum)
- 9% in Asia, 6% in Africa
- 2% in industrialized countries
- that force is slowing down 2008/9
• Since 2000, global cereal use for:
• Food 5%, feed 8%
• Industrial purposes 38%

Future grain consumption is driven by
income growth, population growth, and feed
for meat and dairy production, biofuels
Joachim von Braun, IFPRI, September 2008 Sources: FAO 2003 and 2008; IMF 2008.

(3) Productivity growth is declining

6
maize
Average annual growth rate (%)

5 rice
wheat
4

3

2

1

0
1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003
Joachim von Braun, IFPRI, September 2008 Source: World Development Report 2008.

(3c) Grain stocks: The world eats more
than it produces
Million tons
700

600

500

400
Total cereal stocks
300

200

100 China
0
2000 2001 2002 2003 2004 2005 2006 2007 2008*

Source: Data from FAO 2003, 2005-08.
Joachim von Braun, IFPRI, September 2008 * Forecast.

(4) Ad hoc trade measures add up to
policy failures

• Export bans/restrictions:
- Reduce global market size, increase volatility,
and harm import-dependent trading partners
- Stimulate cartel formation, undermine trust, and
encourage protectionism

• Price controls:
- Reduce farmers’ incentives to produce more food
- Divert resources away from those who need them
most


(5) Speculation plays a role, but is mainly
a symptom
• 3 main categories of speculators:
- Governments, farmers, households, small traders
- Commercial traders
- Non-commercial traders

• Low stock levels and ill-designed policies
promote speculation

• In Q1 of 2008, volume of globally traded grain
futures & options by 32% (Chicago Board of Trade)


The Food Crisis Tradeoffs and Effects

Energy security Political security
risks risks

Food security
risks

+ Mass protests in more than 50 countries
+ Inflation and macro-economic imbalances
+ Environmental sustainability consequences


IFPRI’s proposed policy actions

• Emergency package: for immediate food
assistance and availability needs
[Implement immediately]

• Resilience package: to meet ongoing and
future challenges in the food system
[Phase in now for future impact]


Policy actions: Emergency package

1. Expand emergency and humanitarian
assistance
- international (price indexed) and national
2. Eliminate agricultural export restrictions
- reduces price levels by up to 30%
3. Fast-impact production programs in key areas
- Poorest 50% of farmers in Africa - partly publicly
funded = US$2.3 billion per annum
4. Change grain and oil seeds bio-fuel policies
- reduces maize price 20%, wheat 10%

Policy actions: Resilience package

5. Calm markets with:
- market-oriented regulation of speculation
- establish global (virtual) grain bank
6. Invest in social protection
- focus on child nutrition, women, and poorest
7. Investments for sustained agric. growth
- global incremental public agric. investment for
MDG1 = US$14 billion, Africa: US$4-5 billion per
annum; with R&D in agriculture
8. Multi-lateral trade regime (WTO+)
- strengthen rule based trade

Implementation of actions must be sound

• Country-driven and -owned programs – with
prioritization and sequencing
• Costs: Face the high investment needed; the
benefits for people, growth, security are huge

• New international governance architecture of
agriculture, food, and nutrition needed
• Accountability at international and national
levels: independent monitoring and
assessment


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