Policy Options Panel Discussion
by
Tassos Haniotis
Power Point Presentation for the
International Agricultural Trade Research Consortium
Analytic Symposium
“Confronting Food Price Inflation:
Implications for Agricultural Trade and Policies”
June 22-23, 2009
Seattle, Washington
Confronting Food Price Inflation:
Implications for Agricultural Trade and Policies
Policy Options Panel Discussion
IATRC Symposium, Seattle, WA, June 22-23, 2009
Tassos Haniotis
Head of Unit, Agricultural Policy Analysis and Perspectives
DG for Agriculture and Rural Development
European Commission
Assessing myths, realities and uncertainties

The myth: strong food demand drives future food challenges
–
–
–

The reality: supply response is the main food challenge
–
–
–
–

World population will grow towards 2050 at half its corresponding past rate
World GDP growth in the future is also expected to be slower than in the past
Emerging economies are already at income levels of marginal food demand growth
Lagged supply response characterises agricultural markets, but area reserves exist
Yields grow faster where food pressures are higher (except for SSA)
Food grains and the livestock sector are not the challenging sectors
Maize and soybeans are the sectors raising most (policy-related) questions
The uncertainty: the link of agriculture to the macro environment
–
–
–
The price of oil sets a new “band” for agricultural commodities - but at what ceiling?
Policy responses to climate change will affect the maize/oil price link - but how?
Climate change will affect agricultural supply – but what will the overall balance be?
T. Haniotis
IATRC - June 22-23, 2009
2
The longer-term trends
% annual rate of growth
7%
6%
5%
4%
3%
2%
1%
0%
1960-2005
1980-2005
World GDP
T. Haniotis
2005-2015
2005-2030
2005-2050
World population
IATRC - June 22-23, 2009
3
Growth rates for population and GDP
Source: FAO
annual rate of growth ( % )
10%
8%
6%
4%
2%
0%
1961-72
Population
T. Haniotis
1973-84
1985-96
Real global GDP
IATRC - June 22-23, 2009
1997-08
Real global per capita
4
Total grain demand growth
Source: FAO
annual rate of growth ( % )
14%
12%
10%
8%
6%
4%
2%
0%
-2%
1961-72
Rice
T. Haniotis
1973-84
Wheat
1985-96
Barley
IATRC - June 22-23, 2009
1997-08
Maize
Soybeans
5
Meat and feed demand growth
Source: FAO
annual rate of growth ( % )
14%
12%
10%
8%
6%
4%
2%
0%
-2%
1961-72
Beef
T. Haniotis
Pork
1973-84
Poultry
Maize for feed
1985-96
Wheat for feed
IATRC - June 22-23, 2009
1997-08
Barley for feed
Soybean meal
6
Ethanol and edible oil use
Source: FAO/USDA
annual rate of growth ( % )
14%
12%
10%
8%
6%
4%
2%
0%
1961-72
US maize industrial use
T. Haniotis
1973-84
Palm oil
1985-96
Soybean oil
IATRC - June 22-23, 2009
1997-08
Rapeseed oil
7
Assessing myths, realities and uncertainties

The myth: strong food demand drives future food challenges
–
–
–

The reality: supply response is the main food challenge
–
–
–
–

World population will grow towards 2050 at half its corresponding past rate
World GDP growth in the future is also expected to be slower than in the past
Emerging economies are already at income levels of marginal food demand growth
Lagged supply response characterises agricultural markets, but area reserves exist
Yields grow faster where food pressures are higher (except for SSA)
Food grains and the livestock sector are not the challenging sectors
Maize and soybeans are the sectors raising most (policy-related) questions
The uncertainty: the link of agriculture to the macro environment
–
–
–
The price of oil sets a new “band” for agricultural commodities - but at what ceiling?
Policy responses to climate change will affect the maize/oil price link - but how?
Climate change will affect agricultural supply – but what will the overall balance be?
T. Haniotis
IATRC - June 22-23, 2009
8
Production/consumption gap – 3 main grains
mio mt
3-year moving averages
200
200
175
175
150
150
125
125
100
100
75
75
50
50
25
25
0
0
-25
-25
-50
-50
1997
1998
EU
T. Haniotis
1999
US
2000
2001
2002
Major exporters
2003
2004
2005
Other exporters
IATRC - June 22-23, 2009
2006
CHN/IND
2007
2008
World
9
Chinese wheat supply and demand
mio mt
3-year moving averages
120
100
80
60
40
20
0
1997
1998
1999
Ending stocks
T. Haniotis
2000
2001
2002
2003
2004
Production
IATRC - June 22-23, 2009
2005
2006
2007
2008
Consumption
10
Crop yield growth
Source: FAO
annual rate of growth ( % )
5%
4%
3%
2%
1%
0%
1961-72
Wheat
T. Haniotis
1973-84
Rice
1985-96
Maize
IATRC - June 22-23, 2009
1997-08
Barley
Cotton
11
Yield compared to demand growth
Source: FAO
annual rate of growth ( % )
5%
4%
3%
2%
1%
0%
1961-72
Wheat yields
T. Haniotis
1973-84
Wheat use
Rice yields
1985-96
Rice use
IATRC - June 22-23, 2009
1997-08
Maize yields
Maize use
12
Assessing myths, realities and uncertainties

The myth: strong food demand drives future food challenges
–
–
–

The reality: supply response is the main food challenge
–
–
–
–

World population will grow towards 2050 at half its corresponding past rate
World GDP growth in the future is also expected to be slower than in the past
Emerging economies are already at income levels of marginal food demand growth
Lagged supply response characterises agricultural markets, but area reserves exist
Yields grow faster where food pressures are higher (except for SSA)
Food grains and the livestock sector are not the challenging sectors
Maize and soybeans are the sectors raising most (policy-related) questions
The uncertainty: the link of agriculture to the macro environment
–
–
–
The price of oil sets a new “band” for agricultural commodities - but at what ceiling?
Policy responses to climate change will affect the maize/oil price link - but how?
Climate change will affect agricultural supply – but what will the overall balance be?
T. Haniotis
IATRC - June 22-23, 2009
13
…and an eventual impact on the real economy
Commodity prices ( 2000 = 100 )
GDP ( annual % growth )
9
350
300
6
250
200
3
150
100
0
50
Real GDP growth
Source: World Bank
T. Haniotis
Real non-energy commodity prices
IATRC - June 22-23, 2009
2009f
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
0
1967
-3
Real energy commodity prices
14
Searching for the drivers of food prospects

If stronger food demand were the main challenge, then…
–
–
–

If weaker supply response were the main challenge, then…
–
–
–

Shifts in demand growth patterns would drive supply response
Pressures for more intensive production methods would be inevitable
Quantity considerations would tend to overwhelm quality concerns
Productivity growth should better balance environmental concerns with food demand
Technology should promote a balanced supply response for both quantity and quality
The link to energy should provide incentives for both output and input adjustments
When supply and demand interact, it is essential that…
–
–
–
Price signals could be allowed to do the main job of driving supply responses
Policy response could mainly focus where market risks to fail (environment; poverty)
Climate change impact could still remain uncertain (posing risks of policy failure)
T. Haniotis
IATRC - June 22-23, 2009
15
Implication for policy priorities and responses

On trade, development and research priorities
–
–
–

Is price volatility the “market failure“ we want to address?
–
–
–

Policies distorting price signals among commodities confuse market response
Most poverty issues are linked to access to food, not availability of food
The new “green” revolution needs to also be environmentally green!
Price volatility depends on the “mean“ - thus the level of the price outlook matters
Product price support is irrelevant under both competing price outlooks for agriculture
Type of a non-product safety net for price volatility depends on farm price outlook
Safety nets for income or for revenue?
–
–
–
Income safety nets are more representative because they also account for costs
Revenue safety nets are easier to implement, but ignore input costs (thus oil link)
The outlook of both output and input prices matters for future policy design
T. Haniotis
IATRC - June 22-23, 2009
16