Confronting the Food Price Challenge

50 %
50 %
Information about Confronting the Food Price Challenge

Published on August 17, 2009

Author: jvonbraun

Source: slideshare.net

Description

IATRC Symposium
“Confronting Food Price Inflation: Implications for Agricultural Trade and Policies”
Seattle, June 22, 2009

Confronting the Food Price Challenge Joachim von Braun International Food Policy Research Institute IATRC Symposium “Confronting Food Price Inflation: Implications for Agricultural Trade and Policies” Seattle, June 22, 2009

Overview 1. Food price developments 2. Prices, policy dynamics, and feedback 3. Prices and the poor 4. New institutional arrangements Joachim von Braun, IFPRI, June 2009

Are we living in unusual times? 1872-2008 prices and population Sources: J. von Braun, based on data from NBER Macrohistory database, BLS CPI database, Godo 2001, OECD 2005, and FAO 2008; Joachim von Braun, IFPRI, June 2009 Population data from U.S. Census Bureau Int’l database and UN1999.

Globalization of agriculture and food systems Global integration—across national borders—of production, processing, marketing, retailing, and consumption of agriculture and food items Joachim von Braun, IFPRI, June 2009 Source: von Braun and Diaz-Bonilla 2008.

Trade globalization? Agriculture trade in percent of production Export/Production 1960s 1970s 1980s 1990s 2000-05 Latin America and the Caribbean 22.7 23.0 22.2 25.0 31.2 Sub-Saharan Africa a 23.3 17.0 12.8 12.2 10.9 Asia Developing 5.3 6.1 6.4 6.4 6.1 All Three Regions 11.6 11.3 10.5 10.7 11.2 Import/Production 1960s 1970s 1980s 1990s 2000–05 Latin America and the Caribbean 6.3 8.4 10.9 13.6 14.9 Sub-Saharan Africa a 8.7 6.3 8.1 8.6 11.1 Asia Developing 6.5 6.2 5.6 6.1 5.6 All Three Regions 6.8 6.7 7.0 7.8 7.8 a Does not include South Africa. Joachim von Braun, IFPRI, June 2009 Source: Data from FAOSTAT 2009/

High-value products in developing countries on the rise Domestic consumption Exports Joachim von Braun, IFPRI, June 2009 Source: WDR 2008 with data from FAOSTAT.

Widening gap in trade costs Trade costs in processed foods in 2000: - North: 73% - South: 134% Geography + history matter more than Infrastructure + institutions (?) Joachim von Braun, IFPRI, June 2009 Source: Olper and Raimondi 2009.

Commodity price spike, 2007-08 800 Price spike 125 Corn Wheat 100 600 Rice US$/barrel US$/ton Oil (right scale) 75 400 50 200 25 0 0 Closer linkages between commodity markets and economic performance Joachim von Braun, IFPRI, June 2009 Source: Data from FAO 2009 and IMF 2009.

Food prices in developing countries stay high Latest food price as of April 2009 (790 domestic price quotations in 58 developing countries) 80 78% 60 43% (%) 40 20 17% 0 > 12 months earlier > 3 months earlier Highest on record Joachim von Braun, IFPRI, June 2009 Source: FAO 2009.

Domestic prices of key staples remain high: Wheat Joachim von Braun, IFPRI, June 2009 Source: FAO 2009.

Domestic prices of key staples remain high: Maize Joachim von Braun, IFPRI, June 2009 Source: FAO 2009.

Domestic prices of key staples remain high: Rice Joachim von Braun, IFPRI, June 2009 Source: FAO 2009.

Transmission from int’l to domestic prices varies by country and by product Items with positive statistical significant coefficients with respect to the international prices in t (month) and t-4 international price in regression Mexico Guatemala El Salvador Honduras Nicaragua ln_wheat_int ln_sweet_bread 0 ln_bread 1 ln_bread 1 ln_bread_loaf 0 ln_bread 1 ln_white_bread 0 ln_pasta 2 ln_macaroni 2 ln_spaghetti 1 ln_bread_loaf 1 ln_bread_decaja 1 ln_pastry 1 ln_bread_sweet 1 ln_wheat_flour 1 ln_bread_loaf_sliced 1 ln_cookies 0 ln_crackers 2 ln_crackers 2 ln_spaghettis 2 ln_other_cookies 0 ln_bread_semitas 1 ln_wheat_flour 1 ln_wheat_flour 0 ln_cookies 2 ln_pastry 0 ln_crackers 1 ln_candy_polvoron 1 ln_corn_int ln_corn 0 ln_corn 1 ln_corn 2 ln_corn 0 ln_corn 0 ln_tortillas 0 ln_tortillas 0 ln_tortillas 2 ln_tortillas 0 ln_tortillas 0 ln_corn_flour 0 ln_corn_flour 1 ln_corn_flour 0 ln_corn_flour 1 ln_corn_milling 0 ln_cornflakes 0 ln_cornflakes 1 ln_rice_int ln_rice 1 ln_rice 2 ln_rice 2 ln_rice 0 ln_rice 2 We report “.” when the null is rejected for maximum rank equal to 1,2,…,N-1 international price in VECM Costa Rica Panama Dominican Republic Ecuador Peru ln_wheat_int ln_bread 1 ln_bread 0 ln_bread1 1 dln_bread 1 ln_bread_cereals 2 ln_bread_square 0 ln_flour 1 ln_bread2 1 dln_bread_baguette 2 ln_bread_sweet 2 ln_pasta 2 ln_spaghetti 1 dln_flour 2 ln_cookies 0 ln_crackers 1 ln_pasta 1 dln_cookies 0 ln_crackers 2 ln_cereals 0 dln_pasta 0 ln_wheat_flour 2 dln_spaghetti 0 ln_corn_int ln_tortillas 0 ln_cereals 0 dln_corn 2 ln_bread_cereals 1 ln_corn_flour 0 ln_rice_int ln_rice 1 ln_rice 0 ln_rice 0 dln_rice 1 ln_bread_cereals 1 ln_rice_selected 0 ln_rice_premium 0 Joachim von Braun, IFPRI, June 2009 Source: Robles and Torero 2009 (forthcoming in Economica).

Price transmission, Uganda Correlation of global and Ugandan price and food index series, Jan 2000–July 2008 No lag One-month Three- lag month lag Maize 0.672 0.524 0.312 Rice 0.875 0.734 0.500 Food Commodity 0.779 0.755 0.707 Index Joachim von Braun, IFPRI, June 2009 Source: Benson, Mugarura, and Wanda 2008.

Reasons for the change in price trends 1. Income and population growth 2. Energy and biofuels 3. Slow agricultural growth 4. Speculation and financial crisis Joachim von Braun, IFPRI, June 2009

1. Income and population growth • Annual income growth high in 2005-07 - 10% in developing Asia, 6% in Africa - 3% in industrialized countries …but slowed down in 2008-09 - 6% in developing Asia, 4% in Africa - -1% in industrialized countries • Population grew by 78 million per year in 2005-09, reaching 6.8 billion in 2009 - Expected to reach 9.1 billion by 2050 Joachim von Braun, IFPRI, June 2009 Sources: IMF 2009 and UN 2009.

2. Energy and biofuels • Energy prices now affect not just agric. input prices, but also output prices strongly via biofuel-land competition • IMPACT Model: Increased biofuel demand in 2000-07 contributed to 30% of weighted average increase of grain prices Joachim von Braun, IFPRI, June 2009

3. Slow agricultural growth Annual total factor productivity growth, 1992-2003 % East Asia 2.7 South Asia 1.0 East Africa 0.4 West Africa 1.6 Southern Africa 1.3 Latin America 2.7 North Africa & West Asia 1.4 All regions 2.1 Joachim von Braun, IFPRI, June 2009 Source: von Braun et al. 2008.

4. Speculation Grain and oilseed futures and options - Ave. daily volume Number of contracts And closure of commodity exchanges (India, China, etc.) Joachim von Braun, IFPRI, June 2009 Source: Chicago Board of Trade 2008.

Speculation and prices: Evidence of causality Commodity Indicator of speculation activity Wheat Corn Soybeans Rice 1. Monthly volume (futures contracts CBOT) 2. Monthly open interest (futures contracts CBOT) 3. Ratio volume to open interest (1)/(2) (futures + + contracts) (Apr/05 - (Dec/04 - Oct/07) Jun/07) 4. Ratio non-commercial positions to total reportable + positions (long) (Sep/05- Mar/08 ) 5. Ratio non-commercial positions to total reportable + + positions (short) (Jan/05- (Aug/05- Jul/07) Feb/08) 6. Index traders net positions (long – short positions)* + N/A (Jan/06 – May/08) - “+”: evidence of causality - Starting period of evidence of causality in parenthesis - * It combines futures and options positions, data available since January 2006. Joachim von Braun, IFPRI, June 2009 Source: von Braun, Robles, Torero 2008.

4. And financial crisis Food- and financial crises linkages Food crisis Financial crisis But Who drives Whom? Joachim von Braun, IFPRI, June 2009 Source: von Braun 2008.

Any lessons from history? Financial and Food Price Crises 1900 - 2008 Pre World War: CORR (1900 – 1950) = - 0.16 Banking, currency, sovereign default, and inflation crises index (weighted by share of income) (2000 US$/metric ton, 3-year averages) Panic of 1907 Wheat price Sources: The wheat price are compiled and interpolated from data from BLS 2008, Godo 2001, NBER 2008, OECD 2005, U.S. Census Bureau 2008, and United Nations 1999. The BCDI Index is a composite index of banking, currency, sovereign default, and, inflation crises. It was developed by C. Reinhart and K. Rogoff, and presented at Brookings Institution in April, 2009. Joachim von Braun, IFPRI, June 2009

Commodity prices, inflation, and monetary policy in the USA Core inflation, effective federal funds rate Oil price per barrel, PPI – commodities End-2004: oil price spill to other commodities, effect on core inflation 2004-07: Tight monetary policy triggered recession (from housing market defaults to decreased consumption and incomes) Joachim von Braun, IFPRI, June 2009 Source: Data from US Bureau of Labor Statistics.

Overview 1. Food price developments 2. Prices, policy dynamics, and feedback 3. Prices and the poor 4. New institutional arrangements Joachim von Braun, IFPRI, June 2009

Decreased market distortions ? Producer support estimates India Indonesia 30 80 20 60 10 40 20 Percent 0 Percent 0 -10 -20 -20 -40 -30 -60 -40 -80 1985 1987 1989 1991 1993 1995 1997 1999 2001 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 %PSEc %PSE %PSEc %PSE China Vietnam 30 80 20 60 10 40 20 Percent 0 Percent 0 -10 -20 -20 -40 -30 -60 -40 -80 1995 1996 1997 1998 1999 2000 2001 1985 1987 1989 1991 1993 1995 1997 1999 2001 %PS Ec %PS E %PSEc %PSE Source: Orden et. al 2007. Global Trade Restriction Index: 1985-89=23%, 2000-04=12% (Lloyd, Croser and Anderson 2007) OECD producer support: 1986-88=37%, 2005-07=26% (OECD 2009) Joachim von Braun, IFPRI, June 2009

But now a new wave of trade protectionism with high prices? Export restrictions in 2008 were serious! • Tariff increases do not explain trade decline • Trade financing an issue in the recession Potential costs of rising protectionism are high! • Failed Doha round: up to -11.5% in world trade (volume) if tariffs increase to their current WTO limits (bound level) Joachim von Braun, IFPRI, June 2009 Source: Laborde, Torero 2009, IFPRI.

…And reversal in grain stock policy Cereal stocks 206.9 200 2006 149 2009 150 Million tonnes 100 54.5 50 39.4 44.4 25.8 0 China India EU Joachim von Braun, IFPRI, June 2009 Source: Based on data from FAO 2009.

Creation of cartels? • 2008, Vietnam, Thailand, and Burma attempted to form a rice cartel • June 2009, Russia, Ukraine, Kazakhstan to form a 'grain pool’ to: - manage stocks and prices - improve infrastructure incl. rail and port capacity Joachim von Braun, IFPRI, June 2009

Result: Accumulation of market inefficiencies Market efficiency: From “hypothesis” to “fact” to “myth”? (Justin Fox, 2009) Joachim von Braun, IFPRI, June 2009

Rise in food protests 800 Maize 25 700 Wheat Rice 20 600 Riots (right) 500 # of riots 15 US$/ton 400 300 10 200 5 100 0 0 Jul-07 Jul-08 Jan-08 Jun-08 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Aug-08 Sep-08 Oct-08 Apr-08 Feb-08 Mar-08 May-08 Joachim von Braun, IFPRI, June 2009 Source: J. von Braun based on data from FAO 2009 and news reports.

Looking for land: Overseas land investments to secure food supplies, 2006–09 Source: von Braun and Meinzen-Dick 2009, Joachim von Braun, IFPRI, June 2009 with data compiled from media reports.

Overview 1. Food price developments 2. Prices, policy dynamics, and feedback 3. Prices and the poor 4. New institutional arrangements Joachim von Braun, IFPRI, June 2009

Rising number of hungry people in the developing world >1 bil. (in million) WFS target Joachim von Braun, IFPRI, June 2009 Data source: FAO 2006, 2008, 2009.

1.4 billion people remain poor in the developing world Poverty at $1/day, 2005 PPP 80 1.2 East Asia and Pacific South Asia 1.0 Sub-Saharan Africa 60 % of population 0.8 Billions 40 0.6 East Asia and Pacific 0.4 20 South Asia 0.2 Sub-Saharan Africa 0 0.0 1981 1987 1993 1999 2005 1981 1987 1993 1999 2005 Joachim von Braun, IFPRI, June 2009 Source: Chen and Ravallion 2008.

High food prices reach the poor • Poor countries fully participate in food price shocks • Poor households are reached by high prices (Dorosh, Dradri, Haggblade 2009) - Coping strategies vary, and include switching to non-traded food items Joachim von Braun, IFPRI, June 2009

Maize and sweet potato prices Zambezia, Mozambique 2006-2008 12 mzpkg 10 wspkg 8 6 4 2 0 Joachim von Braun, IFPRI, June 2009 Source: R. Labardo, A. de Brauw HarvestPlus, 2008.

People in low-income countries are very sensitive to changes in food prices Price elasticities of maize in Zambia High Low estimate estimate North Small farm -0.92 -0.52 Rural nonfarm -1.04 -0.59 Middle and urban rich -0.61 -0.45 Urban poor -0.53 -0.39 South Small farm -0.60 -0.33 Rural nonfarm -0.58 -0.33 Middle and urban rich -0.16 -0.12 Urban poor -0.24 -0.18 National aggregate -0.64 -0.43 Joachim von Braun, IFPRI, June 2009 Source: Dorosh, Dradri and Haggblade 2009.

Human costs of volatile prices are high Price stocks and malnutrition in Kordofan children, Jan 1981-Dec 1986 Teklu, von Braun, Zaki 1991. And must be included in sound econ. analysis of Joachim von Braun, IFPRI, June 2009 price volatility

Overview 1. Food price developments 2. Prices, policy dynamics, and feedback 3. Prices and the poor 4. New institutional arrangements Joachim von Braun, IFPRI, June 2009

Strategic agenda 1. Promote pro-poor agriculture growth with technology and institutional innovations 2. Facilitate open trade and reduce market volatility 3. Expand social protection and child nutrition action Joachim von Braun, IFPRI, June 2009

For long-term agric. growth: Double public agric. R&D to impact poverty R&D allocation  in # of + Agr. output (mil. 2005 $) poor (mil.) growth (% pts.) 2008* 2013 2008-2020 2008-2020 SSA 608 2,913 -143.8 2.8 S Asia 908 3,111 -124.6 2.4 Devel.ing World 4,975 9,951 -282.1 1.1 CGIAR investment to rise from US$0.5 to US$1.0 billion as part of this expansion Joachim von Braun, IFPRI, June 2009 Source: von Braun, Shenggen Fan, et al. 2008.

What to do about volatility? 1. Keep trade open at times of global and regional food shortage is a must 2. Regulation of food commodity markets? (only as part of financial markets) 3. Establish grain reserves policy at global level (emergency reserve, shared physical reserves, and a virtual reserve > a new institution at global level needed) Joachim von Braun, IFPRI, June 2009

Institutional design behind virtual reserves Intelligence unit • Model fundamentals Futures market • Model dynamic price band • Trigger alarm High level technical commission • Approve intervention Country Appoint commitment to supplying funds Joachim von Braun, IFPRI, June 2009

Support pro-poor food and nutrition interventions Protective actions e.g.: • Cash transfers • Employment-based food security programs Preventive actions e.g.: • School feeding • Early childhood nutrition programs Focus on children, women, and poorest Joachim von Braun, IFPRI, June 2009

www.ifpri.org Joachim von Braun, IFPRI, June 2009

Add a comment

Related pages

Confronting the Food Price Challenge by Joachim von Braun

Confronting the Food Price Challenge Joachim von Braun International Food Policy Research Institute IATRC Symposium “Confronting Food Price Inflation: ...
Read more

Confronting the Food Price Challenge - Documents

IATRC Symposium “Confronting Food Price Inflation: Implications for Agricultural Trade and Policies” Seattle, June 22, 2009
Read more

The Future and the WTO: Confronting the Challenges

Since 2007 global food prices have been increasing and volatile, reaching the highest level ... The Future and the WTO: Confronting the Challenges ...
Read more

Confronting | LinkedIn

View 26922 Confronting posts, ... Confronting the Food Price Challenge. 1,239 Views. ... Confronting the Challenges of Teacher Evaluation, ...
Read more

Confronting the Challenges of Participatory Culture: Media ...

Confronting the Challenges of Participatory Culture: ... Use the Amazon App to scan ISBNs and compare prices. ... Confronting the Challenge ...
Read more

Confronting the Crisis of Sustainability and Resource ...

Confronting the Crisis of Sustainability and Resource Scarcity; ... "The spiraling price of food in 2008 was a ... "Confronting resource scarcity and the ...
Read more

Amazon.com: Confronting the Challenges of Participatory ...

Use features like bookmarks, note taking and highlighting while reading Confronting the Challenges of Participatory Culture: ... Kindle Price: ...
Read more

Food & Beverage Manufacturing - Home Page - Merit Solutions

Food & Beverage Manufacturing. 1 Food manufacturers have a lot on their plates these days: ... prices, promotions, ...
Read more