Reducing food price volatility for food security and development

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1

School of Oriental

& African Studies

Reducing Food Price Volatility

for Food Security &

Development: G20 Action

December 2010

Andrew Dorward

Centre for Development, Environment and Policy School of Oriental and African Studies

University of London

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Questions

 What are the sources of food price instability?

 What has happened to food prices?

 What are the prospects?

 What to do, by/ with who, how, where?

 Why?

Paris, 1st December 20102

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Causes of the 2008 spike?

Environmental changes

Policy changes

Population growth Economic

growth

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Causes of the 2008 spike?

4 Paris, 1st December 2010

Environmental changes

Policy changes

Population growth Economic

growth Water

scarcity

Oil prices

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Causes of the 2008 spike?

Environmental changes

Policy changes

Population growth Economic

growth

Biofuels Reduced subsidies Water

scarcity

Oil prices

Reduced

R&D

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Causes of the 2008 spike?

Environmental changes

Policy changes

Population growth Economic

growth

Loss of land Biofuels

Reduced subsidies Water

scarcity

Rising demand Oil prices

Reduced

R&D

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Causes of the 2008 spike?

Environmental changes

Policy changes

Population growth Economic

growth

Higher prices Low stocks Stagnant

productivity

Falling supply

Loss of land Biofuels

Reduced subsidies Water

scarcity

Rising demand Oil prices

Reduced

R&D

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Causes of the 2008 spike?

Volatility:

price spikes

Environmental changes

Stakeholder stocking Financial speculation Production

lags Policy changes

Population growth Economic

growth

Higher prices Low stocks Stagnant

productivity

Falling supply

Loss of land Biofuels

Reduced subsidies Water

scarcity

Rising demand Oil prices

Reduced

R&D

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Causes of the 2008 spike?

Volatility:

price spikes Weather

shocks

Environmental changes

Stakeholder stocking Financial speculation Production

lags Policy changes

Population growth Economic

growth

Higher prices Low stocks Stagnant

productivity

Falling supply

Loss of land Biofuels

Reduced subsidies Water

scarcity

Rising demand Oil prices

Reduced R&D

Oil prices

Biofuels

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Drivers of food price changes

 Long term drivers

 Policies

 Environmental eg climate change

 Population

 Economic growth

 Energy prices

 Technical change / labour productivity

 Short term drivers

 Weather shocks

 Policy shocks

 Stocks

 Distinguish between

 Low, middle, high income economies / people?

 Long and short term food prices

 What has happened to food prices?

Paris, 1st December 2010¹⁰

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What has happened to food prices?

Long term

trend

Decline relative to income, due to labour productivity

increases from energy substitution & technical

change Short

term spike

More expensive relative to other goods and services,

relative to inputs

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What has happened to food prices?

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What has happened to food prices?

Rich buyers, sellers

Long term

trend

Decline relative to income, due to labour productivity

increases from energy substitution & technical

change Short

term spike

More expensive relative to other goods and services,

relative to inputs

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What has happened to food prices?

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What has happened to food prices?

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What has happened to food prices?

Rich buyers, sellers

Less /

emerging poor (buyers &

sellers)

Poor (net buyers)

Long term

trend

Decline relative to income, due to labour productivity

increases from energy substitution & technical

change

Always high relative to

income

Short term spike

More expensive relative to other goods and services,

relative to inputs

More expensive relative to income, more difficult to afford

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What is going to happen?

 Impacts on labour productivity, incomes, equity,

economies, food security, food stocks, price variability?

 Implications for international policies:

 Increase stocks

 Raise supply - productivity

 Whose productivity where?

 What constraints?

 Low productivity traps, price tight ropes?

 What policies, what technologies?

 Reduce demand?

 Rising energy prices? ^ Population growth

 Water scarcity? ^ Economic growth

 Climate change impacts?

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What to do, how, by/with who, where?

Volatility:

price spikes Weather

shocks

Environmental changes

Stakeholder stocking Financial speculation Production

lags Policy changes

Population growth Economic

growth

Higher prices Low stocks Stagnant

productivity

Falling supply

Loss of land Biofuels

Reduced subsidies Water

scarcity

Rising demand Oil prices

Reduced R&D

Oil prices

Biofuels

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Prevent Cope Market

State

transparency agricultural

R&D

infrastructure

insurance, options

macro-economic management consistency

rules inputs

A

output markets finance

insurance

safety nets institutions

D C

B

Notes: Work in progress - stylised contents & location, instruments extend across & contribute to both prevention & coping; roles & providers

differ between contexts (eg poor, less poor economies) & between levels (eg farm, national, regional, international) - especially for

What to do, how, by/with who, where?

finance

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Why?

 Low stable food prices critical for

 Welfare of the poor – incomes, nutrition, health, child development, education, ……..

 Development processes

 International relations & security

 Welfare / lifestyles of developed economies founded on

 cheap mobile energy,

 cheap food,

 Technology & technical change

 Institutions & institutional change

 A critical G20 issue

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higher labour productivity in food production

Energy, materials, capital, technology, knowledge, institutions

AGRI- CULTURAL

REVOLUT- IONS

higher labour productivity, other goods &

services

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increased / constant per capita food availability Energy, materials,

capital, technology, knowledge, institutions

AGRI- CULTURAL

REVOLUT- IONS

services

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increased / constant per capita food availability

releasing labour for production of other goods and services

falling food prices relative to

wages/income, Energy, materials,

COORDINATION

processes, scale, locations, populations, timing

AGRI- CULTURAL

REVOLUT- IONS

services

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wages/income,

increased income available for purchase

of non food goods &

services Energy, materials,

COORDINATION

AGRI- CULTURAL

REVOLUT- IONS

services

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wages/income,

of non food goods &

COORDINATION

AGRI- CULTURAL

REVOLUT- IONS

services Increased demand for &

supply of non-food goods

& services

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wages/income,

of non food goods &

COORDINATION

AGRI- CULTURAL

REVOLUT- IONS

services increased / constant per

capita ‘other’ availability releasing labour for production of

other goods &

services falling ‘other’

prices relative to wages/income, increased income

available for purchase of goods & services

Energy, materials, capital, technology, knowledge,

institutions COORDINATION

INDUSTRIAL, SERVICE, KNOWLEDGE

REVOLUT- IONS

Increased demand for &

& services

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wages/income,

of non food goods &

COORDINATION

AGRI- CULTURAL

REVOLUT- IONS

other goods &

Energy, materials, capital, technology, knowledge, COORDINATION

INDUSTRIAL, SERVICE, KNOWLEDGE

REVOLUT- IONS

& services

Earlier(?) Positive feedbacks

Capital, Technology, Knowledge, Health?

Poverty reduction,

Globalisation?

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wages/income,

of non food goods &

COORDINATION

AGRI- CULTURAL

REVOLUT- IONS

other goods &

Energy, materials, capital, technology, knowledge,

institutions COORDINATION

INDUSTRIAL, SERVICE, KNOWLEDGE

REVOLUT- IONS

& services

Later (?) Negative feedbacks

Natural resource use, Waste, Environmental degradation, Biodiversity

loss, Health? Inequity? ? Globalisation?

Earlier(?) Positive feedbacks

Capital, Technology, Knowledge, Health?

Poverty reduction,

Globalisation?

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School of Oriental

& African Studies