Memorandum submitted by Joachim von Braun,
Director General, International Food Policy Research Institute,
Washington DC, USA
Strong forces of change in the world food equation—income
growth, globalization, urbanization, biofuel production, and climate
change—are transforming food consumption, production, and
markets. Surging world food prices, risky price volatility, and
inappropriate policy responses around the world pose threats to
nutrition and food security. While the recent price increase can
help reduce urban-rural income gaps, most poor households in rural
areas will be adversely affected because they are net buyers of
food. In response to surging food prices, the poor tend to shift
to even less-balanced diets, with adverse impacts on health in
the short and long run. Food aid is crucial for helping poor people
respond to these food security risks. However, as prices rise
and put severe pressure on existing food aid budgets, food aid
is likely to fall both in terms of rations and number of people
reached. To reduce food prices and mitigate the negative effects
on food security, a comprehensive social protection initiative
is needed, with a special focus on food and nutrition. An expansion
of the resources for WFP seems advisable under these circumstances.
1. Strong and new forces of change in the
world food equation are transforming food consumption, production,
and markets. On the demand side, consumption of both staple and
high-value products is surging due to high income growth, change
of peoples' food preferences, and subsidized biofuel production.
Since 2000, cereal use for food and feed has increased by 4 and
7%, respectively, while cereal use for industrial purposes—such
as biofuel production—has increased by more than 25%. With
calls for energy security remaining strong, this high cereal demand
trend is likely to continue and spread globally. IFPRI's global
scenario analysis show that by 2015, global cereal demand will
increase by up to 20% across all regions.
2. On the supply side, however, land and
water constraints, climate change, and underinvestment in agriculture
innovation are impairing productivity growth and the needed production
response. Between 2000 and 2006, cereal supply increased by a
mere 8% and stocks declined to low levels. Yields and total factor
productivity are growing very slowly in most regions. For example,
yields for corn grew by only 0.7% between 2000 and 2006, compared
to 4% in the 1960s and 1970s. Overall productivity growth in agriculture
has been too low to cope with the rapidly growing demand. Total
factor productivity is about 1.3% per annum in most regions, though
it is closer to 2% in China.
3. The rise in food prices resulting from
growing demand and irresponsive supply has been dramatic. Since
the beginning of 2000, the price of wheat has increased more than
threefold, while the prices of corn and rice have more than doubled.
When adjusted for inflation, the price increases are lower, but
still drastic. The high global agricultural prices do not appear
likely to fall soon. According to IFPRI's global scenario analysis,
real world prices for rice, wheat, and maize will increase by
about 20 to 30% by 2015. In addition, beef, pork, and poultry
prices are projected to increase by up to 10% in the next decade.
4. Supply and demand changes, however, do
not fully explain the sharp increase in food prices. Other factors
contributing to rising prices include production shocks (such
as Australia's drought) and reduced grain stocks, which make the
markets more and more nervous the smaller the stocks become. Global
cereal stocks—especially wheat stocks—are currently
at their lowest levels since the early 1980s. Financial investors
are becoming increasingly interested in rising commodity prices,
and speculative transactions are adding to increased food-price
volatility. The trade restrictions triggered by high prices in
many countries further narrow the global market and result in
"starving your neighbor" policies.
5. Increasing agricultural prices have uneven
impacts across countries and population groups. Countries that
are net exporters will benefit from improved terms of trade, while
net importers will struggle to meet domestic food demand. The
few poor households that are net sellers of food would benefit
from higher prices, but households that are net buyers of food,
which represent the large majority of the world's poor, would
be negatively impacted. The nutrition of the poor is also at risk
because higher food prices will induce them to limit their food
consumption and shift to even less-balanced diets, with adverse
impacts on health in the short and long run. The poor spend about
50-60% of their overall expenditures on food. For a five-person
household living on $1 per person per day, a 50% increase in food
prices removes up to $1.50 from their $5 budget, and growing energy
costs also add to their adjustment burden.
6. Food aid needs to respond to rising risks
to food security not only for current food aid recipients, but
also for populations that have not previously needed food aid
assistance but may be in need now. Current relatively steady food
aid budgets are severely challenged by the spike in world food
prices. For many food aid agencies, set budgets barely cover immediate
assessed needs and would not be sufficient to respond to unforeseen
emergencies. Faced with increasingly scarce resources, food aid
agencies have started to consider reductions of the number of
recipient countries and the amount of food provided to them. This
narrower targeting and tighter prioritizing will inevitably leave
without a safety net some of the people needing immediate food
assistance.
7. Food aid allocations should be expanded
and made counter-cyclical. Currently, donors have made a commitment
to minimum tonnage of food aid through the existing Food Aid Convention,
but allocate the budget for food aid in monetary terms. Therefore,
as food prices rise, the amount of food aid decreases. In addition
to expanded food aid, agencies should rethink existing programs.
They should try to improve the food security of recipient countries
by providing support in strengthening their food emergency preparedness,
needs assessment, and delivery capacity. Innovations in food aid
delivery should also be considered and their potential benefits
carefully evaluated. Providing households with cash to purchase
food and purchasing food for aid at local markets are increasingly
popular options, but it is recognized that they may also put upward
pressure on local food prices under current circumstances. Thus
food aid needs to be accompanied by sound market analyses and
poverty assessment.
8. Improving the livelihoods of people at
the bottom of the income scale has proven difficult, especially
in the context of new risks and vulnerabilities. The number of
undernourished in the developing world actually increased from
823 million in 1990 to 830 million in 2004. About 160 million
people in the world continue to live in ultra poverty, on less
than 50 cents a day. In a worrying trend, the most severe deprivation
and malnutrition have increasingly been concentrated in Sub-Saharan
Africa. The region experienced a significant increase in the number
of the ultra poor since 1990 and is currently home to three-quarters
of the world's ultra poor people. Also, IFPRI's Global Hunger
Index (GHI)[98]
shows that while Sub-Saharan Africa has achieved some progress
in hunger reduction since 1990s, it has been limited. Hunger is
also high in South Asia, whose GHI is at the same level as in
Sub-Saharan Africa. In South Asia, 45% of children under five
are moderately or severely underweight—the highest share
in the world.
9. Biofuel production contributes to the
changing world food equation and adversely affects food security
through price-level and price-volatility effects. IFPRI's global
scenario analysis projects that biofuel expansion may result in
price level increases of 26% for maize and 18% for oilseeds by
2020. Rising prices due to biofuel expansion will be accompanied
by a net decrease in the availability of and access to food. In
Sub-Saharan Africa, calorie availability is projected to fall
by more than 8% if biofuels expand drastically. As new linkages
and trade-offs are created between the agricultural and energy
sectors, agricultural commodity prices are also becoming increasingly
correlated to energy prices. The worrisome consequence is that
volatile energy prices will translate into larger food-price fluctuations.
New biofuel technologies, which may lessen the food-fuel competition,
are still a long way away. Waiting for the emergence of second-
and third-generation technologies, and planning for "leapfrogging"
to these technologies later, makes sense for many countries. In
the meantime, ill-designed bioenergy programs, such as subsidies
for biofuels and biofuel feedstock, implicitly act as a tax on
basic food, which constitutes a large share of the expenditures
of the poor.
10. Climate change risks will have an adverse
impact on food production and will create new food insecurities.
The impact of climate change in developing countries is expected
to be more severe than in the rest of the world. Agricultural
output potentials in developing countries is projected to decline
by 20 percent due to climate change, while output in industrial
countries is expected to decrease by 6%. The higher vulnerability
of developing countries and poor people to climate change is not
only due to geography, but also to limited adaptive capacities.
Low-income communities depend more on climate-sensitive resources,
including water and food supplies, and have inadequate complementary
services, such as health, education, and insurance services.
11. Other factors such as of globalization,
urbanization, and industrialization provide both increased risks
and opportunities for agricultural producers in developing countries.
Small farmers should be enabled to switch to new commodities,
overcome barriers due to scale and high safety and quality standards,
and connect to the new markets. Some of the ways to achieve this
are by i) training farmers in new crops and production techniques,
ii) improving their access to financial risk management tools
such as rural credit and insurance credit, iii) building infrastructure
such as roads, electricity, water transportation, and information
and communication technologies, iv) developing domestic markets
institutions, such as commodity exchanges, to make markets more
efficient and transparent to farmers in remote areas. Contract
farming and horizontal cooperation schemes are other ways to overcome
the market entry barriers.
12. To reduce the vulnerability of poor
households to adverse shocks and to prevent new households from
falling into poverty, there is an increased need to strengthen
public and market-based social protection mechanisms. Mitigating
the growing burden for the poor requires immediate expansion of
nutrition interventions and food aid. Other examples of social
protection policies include social safety nets (such as conditional
or unconditional cash transfers, public works and school feeding
programs, subsidies on items consumed by the poor, microcredit,
and crop insurance), health insurance, and social security. Social
protection must be adjusted to the individual circumstances of
each country and should be supported by good governance. To support
longer term economic growth in rural areas and increase in total
factor productivity, social protection interventions should be
complemented by sharply increased investment in rural infrastructure,
market institutions, and agricultural science research.
13. The World Food Programme (WFP) presently
delivers about half of global food aid. It is also the intergovernmental
institution with the most experience in providing food aid and
linking it to sustainable development, poverty reduction, and
food security. IFPRI and the WFP have a productive collaboration
on a wide variety of issues directly related to the Programme's
goals to meet emergency needs and support economic and social
development. The two organizations have worked together on strengthening
emergency food aid assessment and developing pathways away from
poverty in a number of food-aid recipient countries. IFPRI has
played a role in enhancing social protection for the poor by providing
evaluations of the appropriateness and feasibility of food and
cash transfer programs. Drawing on its expertise in health-nutrition-agriculture
linkages, IFPRI has also contributed to improving the quality
of life of the world's most vulnerable people through collaboration
for instance on the WFP-funded project on AIDS impact on child
nutrition and growth. In Ethiopia, the establishment of the commodity
exchange, on which the two institutions collaborate, will improve
the livelihoods of smallholders by providing more transparent
prices, reducing transaction costs, and engaging them in the market
economy.
98 The GHI is a combined measure of three equally weighted
components: (i) the proportion of undernourished as a percentage
of the population, (ii) the prevalence of underweight in children
under the age of five, and (iii) the under-five mortality rate. Back
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