House of Commons - International Development

Select Committee on International Development Tenth Report

3 The current food crisis

58. As we have described, a combination of short-term 'shocks' and more long-term structural factors have triggered steep rises in food prices in recent years. Food and commodity prices have been rising steadily since 2001: between 2000 and 2007, wheat prices increased by 122% and maize by 86%.[117]In the last year the rises have become sharper. It is worth noting, however, that prices are still relatively low from an historical perspective: average commodity prices in 2008 (adjusted for inflation) are similar to 1996 levels, despite the recent rises (see Graph 1 for food price trends).[118]

Graph 1: Food Price Trends

Source: Department for International Development, Ev 35

59. In this chapter we explore the reasons behind the current food crisis and look at possible outcomes. We will then move to look at appropriate responses from the WFP, DFID and the international community.

Causes of the food crisis

INCREASED DEMAND

60. Historically, annual growth in demand for food has been about 1.5%. But demand is rising, chiefly due to population expansion and sustained economic growth rates in some developing countries, notably India and China, and now stands at 2%. The world's current population, 6.7 billion, has doubled since 1970 and is predicted to be 9.1 billion by 2050. In order to meet increased demand, it is estimated that food production will need to increase by 50 per cent and oil production by 30.5 billion barrels a day by 2030.[119] According to the International Food Policy Research Institute, animal feed consumption will rise by nearly 300 million metric tonnes per year by 2020.[120] Demand for fish and seafood is also rising sharply due to increasing affluence.[121] Avoiding the exhaustion of global supplies of food and oil within a generation is made more difficult by the additional challenge of climate change, which is leading to land and water scarcity.

ENERGY PRICES

61. Oil prices have risen faster than food prices, with an increase of 40% in 2008 alone, and have reached their highest ever levels. Food and energy prices are highly correlated, both directly—through cultivation, processing, refrigeration, shipping and distribution of food—and indirectly (for instance, the manufacture of fertilisers and pesticides).[122] Increasing amounts of food, including maize, wheat, palm oil, cassava and sugar, are being converted into fuel which means there is now an arbitrage relationship between the two implying an ongoing linkage between food and fuel prices.[123]

BIOFUELS

62. The biofuels that are produced from food have contributed to rising food prices. There are two major types of biofuel. Bioethanol is an alcohol derived from sugar or starch crops that is used as a blend with petrol or in specially designed engines. Biodiesel is derived from vegetable oils and blended with diesel or burnt directly in diesel engines.[124] In the USA, one-fifth of the maize crop is devoted to ethanol production, and this proportion is likely to rise to one-third over the next eight years.[125] Europe has also become a major producer of biofuels, with an estimated 10% share of world bioethanol.[126]

63. Researchers are questioning whether large-scale biofuel production can ever be environmentally, socially and economically sustainable given that energy outputs from many crops are lower than the fossil energy inputs required to produce them. The Brazilian Government claims the ethanol it produces from sugar is much more environmentally sustainable than maize-based US ethanol: it is said to produce 8.2 times as much energy as is used in its production, compared with just 1.5 times for maize ethanol.[127] The net effect of biofuel production on any producing country will also depend on whether biofuels displace other crops (and which ones) or damage the local environment.[128] Biofuel producers—chiefly in the US, Canada and Brazil—claim that their crops have only had a 2-3% impact on this year's food price rises. But the IMF and food agencies put the figure much higher at 20-30%, particularly for specific crops such as maize.[129] The Executive Director of the WFP, Josette Sheeran has said that governments need "to look more carefully at the link between the acceleration in biofuels and food supply and give more thought to it".[130]

64. However, as experts from the Overseas Development Institute (ODI) told us, biofuels are only part of the overall picture of price rises and it is important not to "demonise" them.[131] Dr Steve Wiggins highlighted that the cost of rice has risen substantially since 2000, and yet the rice market is almost completely unaffected by biofuels.[132]

65. The summit on the food crisis hosted by the FAO in Rome from 3-5 June 2008 did not produce a clear statement from the many governments present on the link between biofuels and rising food prices. The final declaration simply called for "in-depth studies" and the exchanging of "experiences on biofuels technologies, norms and regulations" to ensure the production and use of biofuels was sustainable.[133] Gareth Thomas argued for a balanced approach:

"There clearly is a contribution that biofuels can make, particularly if they are produced from ethanol. [...] Our own sense is that we will probably need to see some sustainability guidelines effectively drawn up so that biofuels are being encouraged from areas like sugar cane rather than from areas which might have been used for the production of food."[134]

EU regulations require that 5.75% of petrol and diesel come from biofuels by 2010, and 10% by 2020. The UK Government has explored the indirect impacts of biofuels under the Gallagher review led by the Department for Transport. The final report, published on 7 July, concluded that the Government should slow down the introduction of biofuels until effective controls are in place to prevent land use change and higher food prices. As part of this, the review recommends that the rate of increase of the UK's biofuels target should be reduced to 0.5% per annum. Targets beyond 5% by volume should only be implemented beyond 2013-14 if biofuels are shown to be "demonstrably sustainable".[135] In its recent strategy paper on working with the EU, 'Europe for Development', DFID committed to work with the European Commission and EU member states to assess the possible impacts of biofuels on food security and to "take action, if necessary, to address them".[136]

66. We agree with DFID that there are both challenges and opportunities in the use of biofuels and that the development of international sustainability guidelines on their use would be beneficial. We were disappointed that the Rome Summit of June 2008 did not produce a clear statement on the links between biofuels and rising food prices. As a first step, we urge the UK Government to press for rapid action on the "in-depth studies" and exchanges of experience on biofuels which were agreed in Rome. Proper research must be the basis for further negotiation on the global approach to biofuels if consensus is to be achieved. We also encourage DFID to fulfil its pledge to work closely with the European Commission and EU member states to address the possible impacts of biofuels on food security and to take action, where necessary, to address them.

DECREASED SUPPLY

67. Supply of food has been constrained in recent years due to a series of long-term factors and short-term 'shocks'. Between 2000 and 2006, cereal supply increased by a mere 7% and stocks declined to low levels. There have been successive poor harvests in major grain producing regions including Australia, Canada, the EU and Ukraine. Growing water scarcity, partly triggered by climate change, is affecting countries' ability to irrigate crops. Global demand for water has tripled in the last 50 years.[137] Land availability could also constrain food production in future years: processes such as urbanisation and deforestation mean there is increasing competition for land. (Urbanisation is itself a causal factor in rising food prices, as we have discussed.) The FAO estimates that there is a maximum of 12% more land available that is not already forested or subject to erosion or desertification.[138]

EXPORT RESTRICTIONS, STOCKPILING AND SPECULATION

68. A number of countries have sought to combat food price increases by boosting imports and imposing limits on food exports. India has banned rice exports and Vietnam has cut them significantly. Kenya and Saudi Arabia have reduced import duties across a range of food products. A number of countries have stockpiled staple foods. There is concern that such measures can distort markets and push prices even higher. The market volatility such actions cause has been exacerbated by market speculation. Trading in commodity derivatives has risen sharply over the last three years. The weak dollar, the sub-prime mortgage market and falling equity and bond markets have triggered increased investor interest in relatively safe commodity markets.[139]

Rising food prices: trends

69. It is not clear how long the current trend of rising prices will persist. A recent HM Treasury report on Global Commodities was relatively optimistic:

"The world has adjusted to increased commodity prices in the past. The current trends can be changed, and economic growth continued, provided there is a concerted effort by all countries to enhance efficiency, invest in new technology and maintain open and fair markets."[140]

The document suggests that the required actions to achieve greater stability include: maintaining economic stability; promoting openness; encouraging cooperation; supporting innovation and investment; ensuring fairness; and mitigating and adapting to climate change, especially regarding more efficient use of resources.[141] DFID's evidence also took a relatively positive view of trends in food and commodity prices, noting that there are signs that the market is already responding to fluctuations in supply and demand, with bumper maize crops in the US and Brazil this year and global wheat production 5% up on 2006, resulting in an easing of maize prices over the past few months.[142] Dr Steve Wiggins from the ODI told us,

"We have every expectation that the current price spike will be largely overcome once the northern hemisphere's harvest is in the third or fourth quarter of this particular year, but what all the projections are showing at the moment [...] is that the medium-term forecast over the next five to 10 years is for prices to be at something like 20 to 40% higher than we have seen them in the recent past. That may sound quite a long way higher and it is not desirable, but against the historical record of declining food prices, that takes us back to food price levels that we saw in the early 1990s."[143]

70. However, Alex Evans of New York University highlighted that structural factors may make high food prices the "new normality".[144] The International Food Policy Research Institute estimates that real prices for rice, wheat and maize will increase by 20-30% by 2015, and beef, pork and poultry by 10% over the next decade.[145] Alex Evans said that population growth, rising affluence and the 'scarcity trends' connected with energy, land and water all make it likely that, whilst the steep rises in food prices may level off over the next decade, prices are unlikely to fall.[146] However, all these projections will be heavily influenced by the price of oil, which is extremely difficult to predict. Perhaps the safest assumption is one used by the ODI: "On current evidence it would be unwise not to prepare for higher prices in the medium term."[147] It seems likely that, whilst food prices may not continue their steep rise, they are also unlikely to drop significantly. We believe that given the uncertain nature of current food and commodity price predictions, the safest plan of action is to prepare for relatively higher prices over the next decade, and we encourage the WFP and DFID to make the necessary adjustments to their policies.

The appropriate response from the WFP, DFID and the international community

71. It is clear that the impact of the current food crisis on poor people is likely to be significant. Whilst some farmers may benefit from higher prices, most poor consumers are unlikely to be compensated by additional employment, state assistance or higher wages.[148] In this sub-section we will assess the adequacy and appropriateness of the response that is being made to rising food prices by the WFP, DFID and other international development actors.

THE WFP'S RESPONSE

72. The WFP told us that it is working with other agencies including the FAO, Oxfam and Save the Children UK to carry out in-depth local monitoring of the impact of price rises on poor people's lives in key countries.[149] The WFP is also in the process of developing a global model that aims to identify countries most at risk from soaring prices, especially those which import much of their food and commodities and/or face inflationary pressure.[150] The agency is also trying to mitigate price increases by increasing the proportion of food it buys locally: 80% of its cash budget is now spent locally in the developing world, a 30% increase over 2006.[151] Josette Sheeran told us that her agency was putting local procurement of goods and services at the centre of its response:

"One of the proposals is what I call our 80/80/80 solution [...] Eighty per cent of our cash for food is spent procuring food in the developing world [...] Eighty per cent of our land transportation is locally procured, which enables us to build in capability in trucking and infrastructure, storage and warehousing that is left behind when we leave [...] Eighty per cent of our staff are hired locally within country and they become very expert at food security systems, which helps, again, embed local solutions and investment in local economies. I do not know of any other organisation that is so deeply embedded now economically in the very countries where the challenges are."[152]

As we discussed in Chapter 1, the WFP is increasing its use of cash and food transfers which can provide a flexible way to help poor people cope with rising prices whilst also supporting local farmers and markets.[153] This "expanded toolbox" is embedded in the agency's new four-year Strategic Plan.[154] We reiterate our support for the WFP's increasing use of social transfer schemes. We commend the WFP's latest Strategic Plan for its emphasis on local procurement of goods and services in developing countries.

73. But the WFP can only do so much to defend its operations against global price fluctuations: as we have made clear, the agency's purchasing power is currently severely constrained and this is beginning to 'bite'. The latest figures show that food aid deliveries declined by 15% in 2007 to 5.7 million tonnes—the lowest level since records began in 1961.[155] The implications are serious. In June 2008, the withdrawal of the Humanitarian Air Service run by the WFP on behalf of the humanitarian community in Sudan was narrowly avoided due to last minute funding pledges. A reduced programme of air operations will be able to continue until September, after which new funding will be required if the service is to continue.[156] Funding for a helicopter operation providing essential logistical support to nearly 50 aid agencies in Burma is also close to running out, threatening the relief effort for 2.4 million cyclone survivors. An urgent WFP appeal to fund the helicopters and other logistics supporting the food pipeline to the worst-affected Irrawaddy Delta region was made in May but only 60% of the required funding has been pledged. The Secretary of State told us on 9 July that unless further contributions were made, the use of helicopters, trucks and boats in the relief effort would be impossible after August 2008. He had written to his fellow development ministers urging support for a revised appeal launched on 10 July.[157]

74. The positive response to the WFP's $750 million funding call in May 2008 (see Paragraph 9) has meant that the WFP has not yet had to engage in substantial cuts to country programmes, but the agency has been open about the fact that programme reductions will be the next step if funding gaps continue.[158] It is worth noting that this year's $750 million appeal was needed simply to meet the WFP's current obligations. As Joachim von Braun told us, food aid budgets are tight: "For many food aid agencies, set budgets barely cover immediate assessed needs and would not be sufficient to respond to unforeseen emergencies."[159]

75. Given the World Bank's estimate that 100 million more people may be pushed into poverty due to price rises, it is likely that global hunger will increase in the short to medium term. If WFP is to extend food assistance to new groups of people pushed into poverty, as well as continuing to deliver its existing services, its budget will need to be increased. Simon Maxwell of the ODI emphasised that meeting this additional need was feasible, if donors provide the relatively modest extra funding required:

"I think Robert Zoellick said 100 million might be seriously affected and pushed back below the poverty line but say 200 million—if you needed 100 kg per person in order to prevent famine, that is 20 million tonnes. Global cereal production this year is estimated by FAO at about 2 billion tonnes, so we are talking about less than 1% of global cereal production [...] As a share of total global income and as a share of total food supply, it is relatively small [...] What we need to do here is to find a way to put extra money into the agencies in order to support the short and then medium-term food programmes, and to do it by supporting their core budgets and not by setting up special-purpose vehicles."[160]

World Bank President Robert Zoellick underlined the need to increase the WFP's core funding at the G8 Summit in Japan on 7-9 July:

"The WFP usually requires about $3 billion a year in voluntary contributions. But this year it could be between $5 and $6 billion [...] Money should not be earmarked or tied, since this reduces its effectiveness. We should think about a special UN funding assessment, or a commitment to core funding, which would reduce the need to raise the full amount every year from scratch."[161]

76. Save the Children agreed that donors, including DFID, should increase their funding of the WFP, saying that "the alternative, that WFP significantly scales down its work in 2008, is certain to lead to a significant hunger problem among populations it is currently serving."[162] The amount DFID gives to the WFP fluctuates in line with the number of humanitarian emergencies in any given year. Recently, the amount given directly to the WFP has declined and the money given to pooled funds has increased. But DFID's direct contributions so far this year—£44 million in total—already represent a 40% increase on last year.[163] DFID said in its evidence, "When responding to new humanitarian appeals we will take the increase in food and transport costs into account."[164]

77. We are very concerned at the constraints that global food prices are imposing on the WFP's budgets. Up to 20 million tonnes of food may be needed to assist the new groups of people being pushed into poverty by the current food price rises. Securing this additional food supply, which represents less than 1% of global cereal production, is achievable. But donor contributions to the WFP will have to increase substantially: the usual total of US$3 billion a year in voluntary contributions may need to double to US$5-6 billion. It is important that these increased contributions are made directly to the agency's core budget rather than as earmarked funds. We welcome DFID's pledge to take rising food and transport costs into account when responding to new humanitarian appeals by the WFP. We encourage DFID to do all it can to compensate for rising prices when disbursing funds to the WFP and to encourage other donors to do the same.

DFID'S RESPONSE

78. Having discussed DFID's funding responses, we now turn to other responses the Department is making to the current food crisis. It is important to remember that such responses need to go beyond DFID's support to the WFP. The agency, whilst fulfilling a vitally important role, is responsible for only half of all world food aid.[165] This year, the WFP hopes to feed 73 million, less than one-tenth, of the 850 million people who regularly do not eat sufficient food to meet their nutritional requirements.[166] Thus a major imperative for DFID and other donors is implementing long-term responses to assist the remaining 775 million people not reached by the WFP. Alex Evans of New York University told us that addressing food security was vital regardless of the current food crisis: "It is essential that in addition to coping with the current short term turbulence in food markets, donors make a sustained effort to ask 'what if?' questions and plan for further contingencies."[167]

79. DFID is aware of the need to think beyond the current crisis to implement longer-term policies addressing food security. The Secretary of State for International Development said at the Rome Summit in June, "We need to use the current crisis as a catalyst for much deeper improvements."[168] Gareth Thomas agreed that there must be more to DFID's response to the food crisis than just giving more money to the WFP, including addressing trade rules that discourage poor farmers from expanding their operations and helping countries adapt their agricultural systems to climate change.[169] He saw these as "medium and long term responses" that could complement "the immediate response which WFP has been doing a fantastic job in leading."[170]

An International Partnership for Agriculture and Food

80. At the Rome Summit, the UK Government proposed a new International Partnership for Agriculture and Food that would include developing country governments, donors, international institutions, NGOs and the private sector. Its aims would include securing significantly increased investment in the sector and doubling agricultural production in participating countries. DFID hopes that this would "greatly" improve food security particularly for women and children within ten years.[171] Gareth Thomas said that the proposed Partnership could act as a "marriage broker", matching the needs of developing country governments in particular areas, for instance, agriculture or policy expertise, with expertise from different sectors of the international community.[172]A small secretariat would operate on behalf of the Partnership, seeking to "bring together different people with their talents in particular agencies and [secure] access to pots of money in the different financing arms of the international community."[173] He said that "a number of countries", including France, had reacted positively to the idea and that DFID would seek to take the idea forward at the G8 meetings on 7-9 July 2008.[174] A commitment was made at the Summit that the G8 would work with the broader international community towards forming a global partnership.[175]

81. We are concerned that there are 775 million people who are regularly hungry but who are currently not receiving sufficient assistance from their national governments, and who are not covered by the WFP's emergency operations. We welcome DFID's recognition that, as well as immediate emergency responses to the global food crisis, longer-term approaches addressing food security are highly important. We support the establishment of an International Partnership for Agriculture and Food and are anxious to see rapid action in taking the proposal forward. We urge DFID to build on momentum from the G8 Summit and ensure that the Partnership has the international community's agreement by the time of the UN High Level meeting on the MDGs, scheduled for 25 September 2008.

THE INTERNATIONAL COMMUNITY'S RESPONSE

82. The Partnership, if agreed to by other members of the international community, could build on the work done in the short-term by a smaller, high level grouping, the UN Taskforce on the Global Food Security Crisis. The taskforce was launched by UN Secretary-General Ban Ki-Moon in May 2008 and brought together the UN with the IMF, World Bank and other agencies. Sir John Holmes, head of humanitarian affairs at the UN, has been given responsibility for co-ordinating the taskforce, whose main objective is "to ensure comprehensive and coordinated understanding and action in responding to both immediate and longer-term food challenges".[176]

83. The Taskforce aims to: advise the Secretary-General on appropriate responses; ensure co-ordination amongst different actors; and develop and implement a range of strategies for immediate and long-term action. These strategies, known as the 'Comprehensive Framework for Action' (CFA), were presented to world leaders at the Rome Summit in June. The UN Secretary-General calls the CFA "a process, not a document" and has emphasised that it should support national governments, who must play the central role in responding to the food crisis. An updated version of the CFA was due to be prepared in time for the G8 Summit in July.[177] John Thompson from the Institute for Development Studies was cautiously optimistic about the draft CFA:

"The emphasis is on boosting smallholder farmers' food production, increasing social safety nets and strengthening risk management. There is really very little new in these recommendations, but the focus on coordination and concerted action is an important addition, and long overdue."[178]

84. The Minister told us that the Taskforce's work would be taken forward at the series of forthcoming global meetings, including the high-level meeting on the MDGs in September 2008. He envisaged the UK's proposed International Partnership picking up the Taskforce's initial "relatively time-specific" work and taking it forward in the longer-term, beyond the immediate crisis period.[179] We commend the establishment of the UN Taskforce on the Global Food Security Crisis, and we hope that the UK's proposed International Partnership for Agriculture and Food could—assuming international agreement to the Partnership is secured—lead on sequentially from the Taskforce's initial phase of work.

Beyond the Rome Summit

85. The Rome Summit on food prices in June 2008 achieved a number of key funding pledges, but, the presentation of the CFA aside, there was a disappointing lack of action-oriented responses by the international community. The funding pledges were by no means inconsequential—for instance, a $1.2 billion facility was proposed by the World Bank for investment in social protection schemes, assistance to small farmers and balance-of-payments support to poor countries. However, many experts believed the Summit's outcomes to be disappointing. For example, Kevin Watkins of Oxford University has argued that the Summit's solutions were more "sticking plasters" than robust responses to the crisis.[180]

86. The presentation of the draft Comprehensive Framework for Action was, however, a positive outcome from the Summit. In April 2008, Simon Maxwell of the ODI had told us that a unified UN response to the crisis was an overwhelming priority:

"It would be very helpful if the large countries like the UK would say to the UN system, "We want one ten-page summary of what you want to do as a UN system", signed by the Secretary-General, delivered to the series of meetings that is happening through the summer, the Call to Action, the G8 and so on."[181]

The development of this "single analysis and immediate action plan", is, as we described in the previous sub-section, now underway due to the UN Taskforce's initial preparation of the CFA. Whether or not the final action plan meets Mr Maxwell's specifications—namely that UN agencies "move very fast" to get action plans agreed with countries; that the Plan should put national country needs at its centre; and that it should be coherent with the Paris agenda of harmonisation and alignment—is yet to be tested.[182]

87. We commend the UN Taskforce's development of a Comprehensive Framework for Action (CFA). We urge the Taskforce, together with the international community, to finalise the CFA as soon as possible. We hope that implementation of CFA strategies at country level will be well underway by the time of the September 2008 meeting on the MDGs, so that the international community can assess progress at this point. We strongly encourage the Taskforce to put national country needs at the centre of the process. We request that DFID update us on progress on the International Partnership and the CFA in response to this Report.

117 WFP, 2007 Food Aid Flows Back

118 Ev 34 Back

119 Ev 47 and HM Treasury, 'Global Commodities: a long term vision for stable, secure and sustainable global markets', June 2008, Executive Summary Back

120 Ev 35 Back

121 Ev 48 Back

122 Ev 47 Back

123 Ev 48 Back

124 ODI Natural Resource Perspectives no.107 (June 2007), 'Biofuels, Agriculture and Poverty Reduction', p.2 Back

125 Ev 47 Back

126 ODI Briefing Paper no.32 (January 2008), 'Biofuels and development: will the EU help or hinder?', p.1 Back

127 'Biofuels in Brazil: Lean, Green and not Mean', The Economist 26 June 2008 Back

128 ODI Natural Resource Perspectives no 107 (June 2007), 'Biofuels, Agriculture and Poverty Reduction', p.4 Back