Posts Tagged ‘economic crisis’
The UN Food and Agriculture Organization (FAO), the International Fund for Agricultural Development (IFAD) and the World Food Programme (WFP) have released ‘The State of Food Insecurity in the World 2011’ (SOFI).
This year’s report focuses on high and volatile food prices, identified as major contributing factors in food insecurity at global level and a source of grave concern to the international community. “Demand from consumers in rapidly growing economies will increase, the population continues to grow, and further growth in biofuels will place additional demands on the food system,” the report said.
Moreover, food price volatility may increase over the next decade due to stronger linkages between agricultural and energy markets and more frequent extreme weather events.
Price volatility makes both smallholder farmers and poor consumers increasingly vulnerable to poverty while short-term price changes can have long-term impacts on development, the report found. Changes in income due to price swings that lead to decreased food consumption can reduce children’s intake of key nutrients during the first 1000 days of life from conception, leading to a permanent reduction of their future earning capacity and an increased likelihood of future poverty, with negative impacts on entire economies.
Small import-dependent countries, especially in Africa, were deeply affected by the food and economic crises. Some large countries were able to insulate themselves from the crisis through restrictive trade policies and functioning safety nets, but trade restrictions increased prices and volatility on international markets.
High and volatile food prices are likely to continue. Demand from consumers in rapidly growing economies will increase, population will continue to grow, and further growth in biofuels will place additional demands on the food system. On the supply side, there are challenges due to increasingly scarce natural resources in some regions, as well as declining rates of yield growth for some commodities. Food price volatility may increase due to stronger linkages between agricultural and energy markets, as well as an increased frequency of weather shocks.
Price volatility makes both smallholder farmers and poor consumers increasingly vulnerable to poverty. Because food represents a large share of farmer income and the budget of poor consumers, large price changes have large effects on real incomes. Thus, even short episodes of high prices for consumers or low prices for farmers can cause productive assets – land and livestock, for example – to be sold at low prices, leading to potential poverty traps. In addition, smallholder farmers are less likely to invest in measures to raise productivity when price changes are unpredictable.
Large short-term price changes can have long-term impacts on development. Changes in income due to price swings can reduce children’s consumption of key nutrients during the first 1,000 days of life from conception, leading to a permanent reduction of their future earning capacity, increasing the likelihood of future poverty and thus slowing the economic development process.
High food prices worsen food insecurity in the short term. The benefits go primarily to farmers with access to sufficient land and other resources, while the poorest of the poor buy more food than they produce. In addition to harming the urban poor, high food prices also hurt many of the rural poor, who are typically net food buyers. The diversity of impacts within countries also points to a need for improved data and policy analysis.
High food prices present incentives for increased long-term investment in the agriculture sector, which can contribute to improved food security in the longer term. Domestic food prices increased substantially in most countries during the 2006–08 world food crisis at both retail and farmgate levels. Despite higher fertilizer prices, this led to a strong supply response in many countries. It is essential to build upon this short-term supply response with increased investment in agriculture, including initiatives that target smallholder farmers and help them to access markets, such as Purchase for Progress (P4P).
Safety nets are crucial for alleviating food insecurity in the short term, as well as for providing a foundation for long-term development. In order to be effective at reducing the negative consequences of price volatility, targeted safety-net mechanisms must be designed in advance and in consultation with the most vulnerable people.
A food-security strategy that relies on a combination of increased productivity in agriculture, greater policy predictability and general openness to trade will be more effective than other strategies. Restrictive trade policies can protect domestic prices from world market volatility, but these policies can also result in increased domestic price volatility as a result of domestic supply shocks, especially if government policies are unpredictable and erratic. Government policies that are more predictable and that promote participation by the private sector in trade will generally decrease price volatility.
Investment in agriculture remains critical to sustainable long-term food security. For example, cost-effective irrigation and improved practices and seeds developed through agricultural research can reduce the production risks facing farmers, especially smallholders, and reduce price volatility. Private investment will form the bulk of the needed investment, but public investment has a catalytic role to play in supplying public goods that the private sector will not provide. These investments should consider the rights of existing users of land and related natural resources.
The price of a basket of staple foods has become crippling in rural and urban India. The government’s response is to favour agri-commodity markets, greater retail investment and more technology inputs. For food grower and consumer alike, the need for genuine farm swaraj has never been greater.
The retail prices of staple foods rose steadily through 2010, far exceeding in real terms what the Government of India and the financial system call “headline inflation”, and exceeding also the rate of the rise in food inflation as calculated for the country. These calculations ignore the effective inflation and its increase as experienced by the rural and urban household, and they ignore also the considerable regional variations in India of a typical monthly food basket.
Moreover, from a household perspective an increase in the prices of food staples is not seen as an annual phenomenon, to be compared with some point 12 months in the past. It is intimately linked to employment (whether informal or seasonal), net income, and the pressures on the food budget from competing demands of medical treatment, education and expenses on fuel and energy.
When real net income remains unchanged for over a year or longer, the household suffers a contraction in the budget available for the food basket, and this contraction – often experienced by rural cultivator families and agricultural labour – is only very inadequately reflected by the national rate of increase in food inflation.
An indicator of the impact on households is provided by the price monitoring cell of the Department Of Consumer Affairs, Ministry Of Consumer Affairs, Food and Public Distribution. This cell records the retail and wholesale prices of essential commodities in 37 cities and towns in India. Data over a 36-month period (2008 January to 2010 December) for the prices of cereals, pulses, sugar, tea, milk and onions reveals the impact of the steady rise in the Indian household’s food basket.
In 33 cities and towns for which there are regular price entries, the price per kilo of the “fair average” quality of rice has risen by an average of 42% over the calendar period 2008 January to 2010 December. In 12 of these urban centres the increase has been over 50% (Vijayawada, Thiruvananthapuram, Hyderabad, Bengaluru, Patna, Cuttack, Bhubaneshwar, Indore, Bhopal, Shimla, Karnal and Hisar).
The average price rise over the same period for a kilo of tur dal, for 32 cities for which there is regular price data, is 46%. In 11 of these urban centres the increase in the price of tur dal has been over 50% (Puducherry, Bengaluru, Patna, Agartala, Nagpur, Mumbai, Indore, Ahmedabad, Shimla, Jammu and New Delhi). Where wheat is concerned, from among the 27 cities and towns for which there are regular price entries over three years, in 10 the per kilo price rise is 30% and more.
If in search of a comforting cup of tea over which to rue the effect of the steady price rise, this too will cost a great deal more than it did three years ago. For 25 urban centres with regular price data, the average increase over the same period of 100 grams of loose tea leaf is 38% and in 11 of these cities and towns the increase is between 40% and 100%.
The sugar with which to sweeten that cup of tea has become prohibitively expensive over the January 2008 to December 2010 period. For the 32 cities and towns for which there is regular price data, the average price increase for a kilo of sugar is 102%, the range of increase being between 76% and 125%.
This increase for sugar – relatively homogenous for the price reporting centres – exhibits the countrywide nature of the price rise of the commodity. Nor is there a household economy case for substituting sugar for gur, or jaggery. For the 17 towns and cities reporting data for gur prices over the same 36-month period, the increase in price over the period has been an average 118% with 11 of these centres recording an increase of over 100%.
Adding a third element of higher cost to the humble cup of tea is the price of milk. For the 25 towns and cities which recorded increases in the per litre price of milk over the 36-month period (one city recorded a drop) the average rise is 37%. In seven cities a litre of milk costs at least 50% more in December 2010 than what it did in January 2008 – Ahmedabad, Bhopal, Indore, Jaipur, Jodhpur, Patna and Hyderabad.
In conspicuous contrast are the rates of increase in price of cooking media – groundnut oil, mustard oil and vanaspati. Over the January 2008 to December 2010 period the 37 urban centres recorded average price increases of 10%, 9% and 10% respectively for groundnut oil, mustard oil and vanaspati.
Finally, the volatile allium cepa, or common red onion. In 29 cities and towns reporting regularly the per kilo prices of onion, the increase in price of the vegetable has been astonishingly steep. The average increase for 29 cities is 197.5% and in 14 the increase has been 200% and above – New Delhi, Shimla, Ahmedabad, Indore, Mumbai, Rajkot, Agartala, Aizawl, Bhubaneshwar, Cuttack, Kolkata, Chennai, Hyderabad and Vijaywada. In pale comparison is the otherwise worrying average increase of 39.5% for a kilo of potatoes – this is the 36-month average increase recorded by 27 urban centres.