Synthesis of IFADs Analytical Work on Food Prices, Ganesh Thapa

Annual performance review workshop

Rising food prices: challenges and opportunities for smallholders

1-4 March 2009Bangkok, Thailand

Food Price Crisis

• Food price index rose from 155 in 2007 to 215 in June 2008; rice price rose from USD 305 per mt to USD 869

• Rising food prices led to rapid acceleration of inflation

• Food price crisis may slow down growth and poverty reduction in Asia/Pacific

• Prices have eased since Aug 2008 but increased in January 2009

• Despite decline in world prices in second half of 2008, domestic prices remain very high

Food price crisis

Cereal Export Prices (USD/mt)

Commodity

Jan 2008

Sep 2008

Dec 2008

Jan 2009

Rice 385 764 582 611

Wheat 381 308 240 256

Maize 206 229 160 172

What led to rising food prices?

• Rising living standards leading to improved diets • Maize-based ethanol (US) and biodiesel fuels from

vegetable oils (Europe)• Deterioration of $ increase in commodity prices

quoted in $• Flow of capital into commodity markets for

speculative gains • Underlying these demand drivers: high price of oil

What was the policy response?

• Many countries resorted to protective measures

• Food exporting countries eliminated export subsidies (China), and banned exports (India)

• Importing countries inflated imports in response to tightening supply (Indonesia, Thailand)

• Food importers increased demand by bidding for larger imports to dampen domestic inflation.

• Rising food prices sustained by policies to protect domestic consumers; likely to deepen food crisis

Impact on nutrition and poverty

• Differential impact on net food exporters (e.g. China) and net food importers (e.g. Indonesia)

• In both rural and urban areas, the poorest quintiles are the worst affected

• The poor landless are likely to be worse-off • Female-headed households fail to benefit due

to limited access to land, credit and markets • No. of malnourished in 2007 is 923 million, up

from 848 million in 2004

Policy priorities

• Price and quantity restrictions make matters worse• Subsidised food distribution provides partial relief but

does not mitigate food insecurity• Subsidies to and tariff protection of biofuel production

need re-examination • The food system is global but the principal actors are

national governments• International agencies can play a supportive role but

improvements require sound national policies• In the long-term, higher agricultural growth needed for

food security and to raise incomes of smallholders.

Constraints faced by smallholders

• Low yields of food crops in most of Asia due to:– poor crop management– lack of rural infrastructure & post harvest technologies– inadequate funding for research and development– decreasing soil quality and diminishing water tables

– weakening of supply elasticities of foodgrains • Magnitude of price incentives is lower than implied by

the rise in global prices • Less than half of recent global price increases of rice

transmitted to domestic economies due to:– Policies in procurement, distribution– Trade restrictions

Supply response in Asia

• Elasticities of yield with respect to price changes are high: (0.3, 0.31 and 0.26 for rice, wheat and maize)

• Prices matter but inputs matter more

• Over a large range of output, small and large farmers sell the same fraction of additional output

• If constraints to production are overcome, higher producer prices will lead to larger increase in market sales than output

How can we help the smallholders?

• Need to support smallholders to expand their production and marketed supply through: – agricultural research in fragile regions– access to agricultural services (extension, finance)– securing access to natural resource – diversification of their sources of income including

payments for environmental services• Strengthening livelihoods in conditions of greater

climatic uncertainty (new forms of insurance)• Additional investments in market facilities• Cost-effective and pro-poor food aid