The Global Food Crisis and
Policy Implications
Per Pinstrup-Andersen
2008 J.W. Fanning Lecture
University of Georgia
October 17, 2008
Extended Annual FAO Food Price
Index 1998-2000 = 100
-- Nominal
-- Real
- -x August 2008
Wheat, Maize, and Rice Prices
July, 2007 – December, 2008 ($/Ton)
Futures* - For December 2008 Delivery
Futures*
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
Wheat
Maize
Rice
Jul-07
1000
900
800
700
600
500
400
300
200
100
0
Causes of Food Price Increases (1)
 Supply Side Factors:
 Adverse Weather (Climate Change?)
 Rapidly Falling Prices 1974-2000
 Green Revolution
 OECD Policies
 Limited Investments
Causes of Food Price Increases (2)
 Demand Side Factors:
 Biofuel
 Meat and Dairy Products Demand
 Feed Demand
Causes of Food Price Increases (3)
 Market Factors:
 Reduced Storage of Food Commodities
 Capital Market Transfers
 Falling Dollar Value
FAO Food Price Index
Adjusted for Changes in the exchange Rates Between US
Dollar and SDR and CFA
Causes of Food Price Increases (4)
 Public and Private Action
 Little action towards achieving MDG
 Export bans and restrictions
 Panic buying
Rice Prices and Recent Policy
Responses
$/Ton; January 2004-August 2008
← 835 (July 2008)
← 787 (August 2008)
Causes of Food Price Increases (4)
 Public and Private Action
 Little action towards achieving MDG
 Export bans and restrictions
 Panic buying
 Reduced import tariffs
Causes of Food Price Increases (4)
 Public and Private Action
 Little action towards achieving MDG
 Export bans and restrictions
 Panic buying
 Reduced import tariffs
 Price controls
 Rationing
 Food riots
 Hoarding
Causes of Food Price Increases (4)
 Public and Private Action
 Little action towards achieving MDG
 Export bans and restrictions
 Panic buying
 Reduced import tariffs
 Price controls
 Rationing
 Food riots
 Hoarding
 Media frenzy
Consequences of Food Price
Increases

HH Welfare Change:

Urban Consumers

Budget shares and value added
Consequences of Food Price
Increases

HH Welfare Change:

Urban Consumers


Budget shares and value added
Food security and dietary quality
Consequences of Food Price
Increases

HH Welfare Change:


Urban Consumers


Budget shares and value added
Food security and dietary quality
Rural population groups

Net sellers or net buyers
Percent of Rural Households
that are Net Staple Food Sellers
Selected Countries
Malawi (2004)
Bangladesh (2000)
Zambia (1998)
12
19
30
Ghana (1998)
Vietnam (1998)
Average (12 Countries)
44
51
31
Source: FAO (2008).
Consequences of Food Price
Increases

HH Welfare Change:


Urban Consumers


Budget shares and value added
Food security and dietary quality
Rural population groups


Net sellers or net buyers
Length of run, induced innovation
Consequences of Food Price
Increases

HH Welfare Change:


Urban Consumers


Budget shares and value added
Food security and dietary quality
Rural population groups



Net sellers or net buyers
Length of run, induced innovation
Price transmission
Estimated Rice Price Transmission Q4, 2003
to Q4, 2007 for Selected Countries (%)
Country
∆ Domestic Price/
∆World Price ($)
∆ Domestic Price/
∆World Price (DC)
Philippines
6
30
India
9
20
Vietnam
11
12
Indonesia
41
64
Bangladesh
43
44
Thailand
53
100
China
64
88
Source: FAO (2008).
Consequences of Food Price
Increases

HH Welfare Change:


Urban Consumers


Budget shares and value added
Food security and dietary quality
Rural population groups




Net sellers or net buyers
Length of run, induced innovation
Price transmission
Production costs
Approximate Fertilizer Prices
($/Ton)
January
2007
January
2008
August
2008
Urea
280
400
800
Diammonium
Phosphate
250
400
800
Potash
170
300
840
Source: IFDC
Consequences of Food Price
Increases


HH Welfare Change:

Urban Consumers


Budget shares and value added
Food security and dietary quality

Rural population groups

Net exporters and net importers
 Net sellers or net buyers
 Length of run, induced innovation
 Price transmission
 Production costs
National Welfare Change
Percent of Major Grains Imported by
Selected Countries (2001-2003)
Eritrea
Niger
Botswana
88
82
76
Haiti
Tanzania
Malawi
72
14
7
Source: FAO (2008).
Consequences of Food Price
Increases


HH Welfare Change:

Urban Consumers


Budget shares and value added
Food security and dietary quality

Rural population groups


Net exporters and net importers
Stability
 Net sellers or net buyers
 Length of run, induced innovation
 Price transmission
 Production costs
National Welfare Change
Consequences of Food Price
Increases



HH Welfare Change:

Urban Consumers


Budget shares and value added
Food security and dietary quality

Rural population groups


Net exporters and net importers
Stability
 Net sellers or net buyers
 Length of run, induced innovation
 Price transmission
 Production costs
National Welfare Change
Agri-business
Policy Response to Food Price
Increases
 Maintaining government legitimacy
 Emphasis on Short-term measures
 Price controls, export bans, lifting import tariffs, rationing, food
distribution
 Emphasis on short-term transfers to urban lower middle
class
 Continued neglect of the rural poor
 Expanding food production
 Renewed interest in national self-sufficiency
 Reserve stocks, acquisition or control of land across borders
Proposed Policy Priorities (1)
 For short-run impact
 Food distribution targeted on rural and urban poor
 Poverty relief programs for rural and urban poor
 Safety nets for rural and urban poor
 Rural public works
 Time-limited input subsidies
Proposed Policy Priorities (1)
 For short-run impact
 Food distribution targeted on rural and urban poor
 Poverty relief programs for rural and urban poor
 Safety nets for rural and urban poor
 Rural public works
 Time-limited input subsidies
 Discontinuation of export bans
Proposed Policy Priorities (1)
 For short-run impact
 Food distribution targeted on rural and urban poor
 Poverty relief programs for rural and urban poor
 Safety nets for rural and urban poor
 Rural public works
 Time-limited input subsidies
 Discontinuation of export bans
 Release of Japanese rice stocks
Proposed Policy Priorities (1)
 For short-run impact
 Food distribution targeted on rural and urban poor
 Poverty relief programs for rural and urban poor
 Safety nets for rural and urban poor
 Rural public works
 Time-limited input subsidies
 Discontinuation of export bans
 Release of Japanese rice stocks
 Postpone biofuel blending mandates
 Eliminate biofuel subsidies
Proposed Policy Priorities (2)
 For long-run impact
 Improved land tenure
Proposed Policy Priorities (2)
 For long-run impact
 Improved land tenure
 Expanded investment in:
 Rural infrastructure
 Agricultural research and technology
 Alternative energy sources
 Rural education, sanitation and health care
Proposed Policy Priorities (2)
 For long-run impact
 Improved land tenure
 Expanded investment in:
 Rural infrastructure
 Agricultural research and technology
 Alternative energy sources
 Rural education, sanitation and health care
 International trade agreements
 Completion of Doha Round
 Avoidance of ad.hoc. export bans and restrictions
Proposed Policy Priorities (2)
 For long-run impact
 Improved land tenure
 Expanded investment in:
 Rural infrastructure
 Agricultural research and technology
 Alternative energy sources
 Rural education, sanitation and health care
 International trade agreements
 Completion of Doha Round
 Avoidance of ad.hoc. export bans and restrictions
 International grain storage agreement
Future Perspectives
 Significant supply response
 Falling real food prices
Approximate Wheat Prices
January 2000
$100/ton
$2.50/bushel
January 2007
$200/ton
$5.00/bushel
February 2008
$500/ton
$12.50/bushel
August 2008
$300/ton
$7.50/bushel
December 2008
(Futures)
$240/ton
$5.95/bushel
Percent Decrease in Price Between
the Highest and October 6, 2008
Decrease Since
Then (%)
Commodity
Wheat
Highest Month
February, 2008
Maize
June, 2008
47
Soybeans
June, 2008
44
Rice
April, 2008
23
54
A Note on Arithmetic
A 100% increase is offset by a 50% decrease.
A 200% increase is offset by a 66% decrease.
A 300% increase is offset by a 75% decrease.
Future Perspectives
 Significant supply response
 Falling real food prices
 Strong links between oil and food prices
Crude Oil – Maize Price Breakeven
Points for US Ethanol Production (2007)
Crude Oil Price
(US$/Barrel)
Breakeven Price for
Maize Without
Subsidies (US$/bushel)
Breakeven Price for
Maize with Subsidies
(US$/bushel)
40
0.96
2.56
60
2.01
3.62
80
3.08
4.68
100
4.14
5.74
120
5.20
6.81
Source: Tyner and Taheripour (2008).
2008:
1/3 of US Maize Used for Biofuel (12% of global
production)
60% of EU Rapeseed Oil (25% of global)
Future Perspectives
 Significant supply response
 Falling real food prices
 Strong links between oil and food prices
 Continued urban bias in policy interventions
Future Perspectives
 Significant supply response
 Falling real food prices
 Strong links between oil and food prices
 Continued urban bias in policy interventions
 Return to government complacency