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Food crisis in the Sahel

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UN-OCHA map of vulnerability to food insecurity in the Sahel.

ReliefWeb has a series of backgrounders, assessment reports and maps to explain the malnutrition and food crisis in the Sahel. The UN Office for the Coordination of Humanitarian Affairs has said that the Sahel is characterised by long standing chronic food insecurity and malnutrition, poverty and extreme vulnerability to drought. “The localised deficit recorded for the agropastoral season 2011-12 and increasing cereals prices in Mali and Niger could bring millions of people at risk of food insecurity,” said the UN-OCHA briefing.

Throughout the Sahel, acute malnutrition in children reaches its annual peak during the hunger season. Children under two years of age have the highest risk of becoming sick or dying during this period. Malnutrition is caused by inadequate food quality and quantity, inadequate care, as well as unhealthy household environment and lack of health services.

The prevalence of global acute malnutrition met or exceeded the critical threshold of 10% in all of the surveys conducted in the hunger season of 2011 (from May to August). If food security significantly deteriorates in 2012, the nutrition conditions for children could surpass emergency levels throughout the Sahel region.

Affected countries are: Burkina Faso, Cameroon, Chad, Gambia (the), Mali, Mauritania, Niger (the), Nigeria and Senegal.

Food insecurity and malnutrition chronically affect a significant part of the Sahel population. However, several events came in 2011 which exacerbate this vulnerability:

1. In 2011 many parts of the region received late and poorly distributed rains, resulting in average harvests and serious severe shortfall in some areas. Consequently, the Government of Niger as an example has estimated that the 2011 agro pastoral season will record a deficit of 519,600 tons of cereals and of over ten million tons of fodder for livestock.
2. In Mauritania, authorities expect a decrease of more than 75% of the agriculture production and a strong fodder deficit.
3. In areas where harvests are weak, households will run out of food stocks faster than usual and will be forced to rely on markets for supplies, contributing to maintaining the already high prices at the same level.

UN-OCHA map of expected cases of severe acute malnutrition in the Sahel.

Furthermore, the purchasing power of the most vulnerable populations is likely to deteriorate. In addition the lean season is estimated to begin earlier than usual, probably as early as January 2012 in Chad, two months in advance. As the situation gets worse by spring 2012, there will be an increase of infant acute malnutrition, already beyond emergency thresholds in four wilayas in southwestern Mauritania.

Several countries in the Sahel have already announced measures taken to curb the negative effects of the food insecurity and malnutrition on vulnerable populations; who have not had enough time to recover from the 2009-10 crisis, despite the good harvest registered last year. Three countries (Burkina Faso, Mauritania and Mali) have also requested for assistance from the humanitarian community. In late November, the United Nations Central Emergency Response Fund (CERF), administered by OCHA, allocated US$ 6 million to three organisations in Niger – the World Food Program, UNICEF and the Food and Agriculture Organization – for emergency operations to fight food insecurity and malnutrition.

According to a ‘Humanitarian Dashboard – Sahel’ dated 12 January 2012 released by UN-OCHA, early indicators point to a likely food crisis in localised areas of the Sahel in 2012, with people at particularly high risk in Mauritania, Niger, Burkina Faso, Mali, Chad, and localized areas of Senegal. These are:

1. Acute food insecurity already noted in southeastern Mauritania.
2. Deficits in 2011, in agro-pastoral production led to higher market prices, resulting in an earlier than usual need for food aid.
3. Resilience to food insecurity is low in most vulnerable groups.
4. High poverty level in Sahel (51%) impacting on food accessibility due to high prices.

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FAO 2011 October Food Index down, food prices still up, what’s going on?

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FAO has released its Food Price Index for October 2011, saying the index has dropped dropped to an 11-month low, declining 4 percent, or nine points, to 216 points from September. Indeed the index has dropped, declined and has certainly not risen. But does this mean food prices for the poor in many countries, for labour, for informal workers, for cultivators too – has the cost of food dropped for any of them?

The answer is a flat and unequivocal ‘No’. FAO has said so too: “Nonetheless prices still remain generally higher than last year and very volatile.” At the same time, the Rome-based food agency has said that the “drop was triggered by sharp declines in international prices of cereals, oils, sugar and dairy products”.

The FAO has said that an “improved supply outlook for a number of commodities and uncertainty about global economic prospects is putting downward pressure on international prices, although to some extent this has been offset by strong underlying demand in emerging countries where economic growth remains robust”.

Once again, the FAO is speaking in two or more voices. It should stop doing so. A very small drop in its food price index does not – repeat, does not – indicate that prices for food staples in the world’s towns and cities has dropped and people can afford to buy and cook a square meal a day for themselves and their children. Not so at all.

I am going to contrast what FAO has said about its October food price index with very recent reportage about food and food price conditions in various parts of the world.

FAO: “In the case of cereals, where a record harvest is expected in 2011, the general picture points to prices staying relatively firm, although at reduced levels, well into 2012. International cereal prices have declined in recent months, with the FAO Cereal Price Index registering an eleven month-low of 232 points in October. But nonetheless cereal prices, on average, remain 5 percent higher than last year’s already high level.”

Business Week reported that rising food prices in Djibouti have left 88 percent of the nation’s rural population dependent on food aid, the Famine Early Warning Systems Network said. A ban on charcoal and firewood production, which provides about half of the income of poor people in the country’s southeast region, may further increase hunger, the Washington- based agency, known as Fewsnet, said in an e-mailed statement today. Average monthly food costs for a poor urban family are about 33,907 Djibouti francs ($191), about 12,550 francs more than the average household income, Fewsnet said. Urban residents in the Horn of Africa nation don’t receive food aid, it said.

FAO: “According to [FAO’s November 2011] Food Outlook prices generally remain ‘extremely volatile’, moving in tandem with unstable financial and equity markets. ‘Fluctuations in exchange rates and uncertainties in energy markets are also contributing to sharp price swings in agricultural markets,’ FAO Grains Analyst Abdolreza Abbassian noted.”

A Reuters AlertNet report quoted Brendan Cox, Save the Children’s policy and advocacy director, having said that rising food prices are making it impossible for some families to put a decent meal on the table, and that the G20 meeting [currently under way in Cannes, France] must use this summit to agree an action plan to address the food crisis. Malnutrition contributes to nearly a third of child deaths. One in three children in the developing world are stunted, leaving them weak and less likely to do well at school or find a job. Prices of staples like rice and wheat have increased by a quarter globally and maize by three quarters, Save the Children says. Some countries have been particularly hard hit. In Bangladesh the price of wheat increased by 45 percent in the second half of 2010. In new research, Save the Children analysed the relationship between rising food prices and child deaths. It concluded that a rise in cereal prices – up 40 percent between 2009 and 2011 – could put 400,000 children’s lives at risk.

FAO: “Most agricultural commodity prices could thus remain below their recent highs in the months ahead, according to FAO’s biannual Food Outlook report also published today.  The publication reports on and analyzes developments in global food and feed markets. In the case of cereals, where a record harvest is expected in 2011, the general picture points to prices staying relatively firm, although at reduced levels, well into 2012.”

IRIN News reported that food production is expected to be lower than usual in parts of western Niger, Chad’s Sahelian zone, southern Mauritania, western Mali, eastern Burkina Faso, northern Senegal and Nigeria, according to a report by the World Food Programme (WFP) and the Food and Agriculture Organization (FAO), and a separate assessment by USAID’s food security monitor Fews Net. “We are worried because these irregular rainfalls have occurred in very vulnerable areas where people’s resilience is already very weakened,” said livelihoods specialist at WFP Jean-Martin Bauer. Many Sahelian households live in a state of chronic food insecurity, he said. “They are the ones with no access to land, lost livestock, without able-bodied men who can find work in cities – they are particularly affected by a decrease in production.” A government-NGO April 2011 study in 14 agro-pastoral departments of Niger noted that pastoralists with small herds lost on average 90 percent of their livestock in the 2009-2010 drought, while those with large herds lost one quarter. Those who had lost the bulk of their assets have already reduced the quality and quantity of food they are consuming.

FAO: “Food Outlook forecast 2011 cereal production at a record 2 325 million tonnes,  3.7 percent above the previous year. The overall increase comprises a 6.0 percent rise in wheat production, and increases of 2.6 percent for coarse grains and 3.4 percent for rice. Globally, annual cereal food consumption is expected to keep pace with population growth, remaining steady at about 153 kg per person.”

The Business Line reported that in India, food inflation inched up to 11.43 per cent in mid-October, sharply higher than the previous week’s annual rise of 10.6 per cent, mainly on account of the statistical base effect of the previous year. Inflation in the case of non-food items and the fuels group, however, eased during the latest reported week. According to data released by the Government on Thursday, an increase in the year-on-year price levels of vegetables and pulses contributed to the surge in the annual WPI-based food inflation for the week ended October 15, apart from the base effect. Sequentially food inflation was up 0.25 per cent.

FAO: “The continuing decline in the monthly value of the FAO Cereal Price Index reflects this year’s prospect for a strong production recovery and slow economic growth in many developed countries weighing on overall demand, particularly from the feed and biofuels sectors.”

Al Ahram reported that Egyptian household budgets had mixed news in September with prices for some basic foods tumbling month-on-month and others showing small climbs, according to state statistics agency CAPMAS. Figures released this week show the price of local unpacked rice fell 15.6 per cent to LE4.96 per kilo between August and September 2011. It was the commodity’s first decline in nearly a year, although the per kilo price remains 68 per cent higher than the LE2.95 that rice cost in October 2010. Chicken also fell 5.8 per cent to LE16.26 per kilo between August and September. Other staples, however, continued to rise; the price of potatoes climbed 14 per cent to LE4.89 per kilo, while a kilo of tomatoes gained a monthly 14.8 per cent to cost LE4.65.

Emergency meeting to aid Horn of Africa

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A meeting was organised on 25 July 2011 by the Food and Agriculture Organisatioon (FAO) to finalise an immediate twin-track programme designed to avert an imminent humanitarian catastrophe and build long-term food security in the Horn of Africa. The number of Somalis in need of humanitarian assistance has increased from 2.4 to 3.7 million in the last six months.

The meeting was attended by Ministers and senior representatives from FAO’s 191 Member Countries, other UN agencies and international and non-governmental organizations. The food crisis in the Horn of Africa, triggered by drought, conflict and high food prices, is affecting more than 12 million people, with two regions of southern Somalia suffering from famine.

The emergency meeting recognized that “if this crisis is not quickly contained and reversed, it could grow rapidly into a humanitarian disaster affecting many parts of the greater Horn of Africa region and that it is of paramount importance that we address the needs of the people affected and the livelihood systems upon which they depend for survival”.

Emergency meeting agenda and background information
Overview of the food crisis in the Horn of Africa
More stories on the Horn of Africa

The food crisis in the Horn of Africa is escalating, with 12 million people in Djibouti, Ethiopia, Kenya, Somalia and Uganda requiring emergency assistance. Photo: FAO

Famine in Somalia has killed tens of thousands of people in recent months and could grow even worse unless urgent action is taken, the FAO warned on Wednesday. FAO has appealed for $120 million for response to the drought in the Horn of Africa to provide agricultural emergency assistance.

“We must avert a human tragedy of vast proportions. And much as food assistance is needed now, we also have to scale up investments in sustainable immediate and medium-term interventions that help farmers and their families to protect their assets and continue to produce food,” said the FAO. In a special report the FAO-managed Food Security and Nutrition Analysis Unit for Somalia and the Famine Early Warning Systems Network officially declared a state of famine in two regions of southern Somalia, Bakool and Lower Shabelle. The report warns that in the next one or two months famine will become widespread throughout southern Somalia.

Together with ongoing crises in the rest of the country, the number of Somalis in need of humanitarian assistance has increased from 2.4 million to 3.7 million in the last 6 months.  Altogether, around 12 million people in the Horn of Africa are currently in need of emergency assistance.

The number of Somalis in need of humanitarian assistance has increased from 2.4 to 3.7 million in the last six months. Photo: FAO/Ami Vital

Related Links:

Food Security and Nutrition Analysis Unit – Somalia
Famine Early Warning System Network
East and Central Africa – Disaster reduction
FAO Somalia
FAO and emergencies
Global Information and Early Warning System

Contacts:

Erwin Northoff, Media Relations (Rome)
(+39) 06 570 53105
(+39) 348 25 23 616
erwin.northoff@fao.org

Frank Nyakairu, Somalia Communications Consultant
(+254) 20 400000
(+254) 729 867 698 (cell)
frank.nyakairu@fao.org

Shannon Miskelly, Regional Communications (FAO Nairobi)
(+254) 733 400 022 (cell)
shannon.miskelly@fao.org

Written by makanaka

July 26, 2011 at 18:30

Global governance, food security? What do these mean?

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Vendors in Mapusa, Goa

Vendors in Mapusa, Goa. The middle basket contains 'nachne', local millet

Are the current arrangements fit for the job? This is the question posed in a current discussion on FAO’s The Global Forum on Food Security and Nutrition (FSN Forum). The Forum is set up and managed by by FAO’s Agricultural Development Economics Division and, in their words, “is a community of practitioners currently reaching more than 2800 members” around the world.

The short intro to this discussion is: one of the consequences of the 2007-08 food price crisis was the emergence of a number of new institutions and initiatives that were intended to strengthen global capacities to respond to such situations. “You are invited to share views on how an effective global food governance system should work and on what major issues are to be addressed in order to ensure an adequate and safe food supply for all humans at all times.”

Here is my contribution to the discussion on ‘Global Governance for Food Security: are the current arrangements fit for the Job?’.

‘Global governance’ and ‘food security’ are not compatible ideas in present circumstances. If we look at the idea of ‘food security’, which development agencies and social scientists tend to agree is achieved by every family/household having enough to eat – and able to find and purchase that food easily – then this is only part of a way of living. That way of living, where the production and consumption of food is concerned, has for some years now been more aptly called ‘food sovereignty’. The difference between ‘security’ and ‘sovereignty’ is a major one, and governance – as it is commonly understood by UN agencies and development professionals – may apply to ‘security’ but hardly can to ‘sovereignty’.

So there is a difficulty with how this has been framed. Global governance is I’m sorry to say neither feasible under current economic conditions nor desirable from a cultural diversity point of view. It may have been a guiding principle in the mid-1930s when the League of Nations was created, and has been re-articulated in many forms – sometimes grandly, at other times in attempts to find peace and end conflict. The idea lies at the heart of many of the multidisciplinary efforts led by UN agencies, especially concerning human development, environment, healthcare, the right to education. It is at the core of the Millennium Development Goals programme. It remains, as it was more than 70 years ago, a fuzzy notion that does more to distract than to build. FAO needs to have nothing to do with such an idea.

Rice is still planted and harvested in the coastal talukas, but fields such as these are threatened by urbanisation

Rice is still planted and harvested in the coastal talukas, but fields such as these are threatened by urbanisation

The food crisis of 2007-08 is a point of extreme stress in the steady progress of the consolidation of the factors of food production and the organisation of the consumers of food products. In many ways, the ‘crisis’ began when the first fields were harvested with Green Revolution hybrids, and that was a long time ago. It is the growing concentration of capital in the post-harvest sequence – rather than in the people and households and villages who cultivate – that has led to the extreme food impoverishment which we first recognised in 2007-08 and promptly called a ‘crisis’.

This systemic difficulty continues simply because the same forces that, in public fora, in UN agencies, in corporate-industrial circles and within national policy, call for governance are also the forces that create legislation, treaties, trade agreements and multilateral institutions designed to sabotage all expressions of food sovereignty.

I have no doubt that within the ‘number of new institutions and initiatives’ there are also a number of people with the will and intention to help solve a problem that is found in many countries, many provinces and states. However, that does not make it a ‘global problem’. Some of the forces at work are international in scope and scale, such as the reach of the giant fertilisers corporations, the impact of the world’s major agricultural commodities exchanges, the dense links between grain trading cartels and the financial markets. These operate internationally, and the effects of deprivation and food price inflation are also seen in many countries. There are common elements, no doubt, but it is useful to distinguish elements that are common from the idea of ‘global’, for there will not be an inter-agency solution.

Identification of these problems, the reform of economic systems which permit such deprivation, and the creation and maintenance of social institutions (council of village elders for example) can only form locally and work locally. At best, there may be an exchange for methods and practice, available to all to participate in. That I think is what FAO should aim for on this subject.

The return of the Food Aid Convention

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A man from the Balochistan province of southwestern Pakistan carts home food rations for his family with a pair of mules that were spared by the floodwaters. Picture: World Food Programme/Copyright: Amjad Jamal

A man from the Balochistan province of southwestern Pakistan carts home food rations for his family with a pair of mules that were spared by the floodwaters. Picture: World Food Programme/Copyright: Amjad Jamal

The TripleCrisis site has an entry on the little-known Food Aid Convention. Negotiators from member countries of the Food Aid Convention (FAC) are meeting to hammer out details of a new agreement. The FAC is an obscure international treaty that dates back to 1967 under which donors pledge a certain amount of food aid. It is the only international agreement where donors pledge to provide a minimum amount of aid.

Last renegotiated in 1999, the FAC is now more than 10 years out of date. It was supposed to have been updated in 2001, but instead has limped from extension to extension on the hopes that the Doha Round of trade talks, which include new rules on food aid, would be completed first. Finally, following a major food crisis in 2007-08 and continued food price volatility, donors have realized that the FAC must be updated to take the new situation into account, even in the absence of a Doha agreement. Read the rest here.

Written by makanaka

February 26, 2011 at 11:05

The hammer blow of the triple crisis, food in February 2011

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FAO-food-price-index-201102The FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4% from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990.

Prices of all the commodity groups monitored registered strong gains in January compared to December, except for meat, which remained unchanged. Changes in the composition of  the meat price index (read more) have resulted in adjustments to the historical values of the FFPI. One implication of this revision is that the December value of the FFPI, which previously was the highest on record, is now the highest since July 2008.

The Cereal Price Index averaged 245 points in January, up 3% from December and the highest since July 2008, but still 11% below its peak in April 2008. The increase in January mostly reflected continuing increases in international prices of wheat and maize, amid tightening supplies, while rice prices fell slightly, as the timing coincides with the harvesting of main crops in major exporting countries. The Oils/Fats Price Index rose by 5.6% to 278 points, nearing the June 2008 record level, reflecting an increasingly tight supply and demand balance across the oilseeds complex.

FAO-food-price-index-deflated-201102

FAO food price index deflated, 2011 February

See earlier posts on food, grain and prices:

Food production and grain trade / FAO food price index tops the 2008 peak / Food inflation crippled India’s households in 2010 / Early price indicator for 2011 foodgrain / Only 16 points under the 2008 peak, FAO’s food price index / Bringing nutrition back into climate change talks / Grain market outlook, end October 2010 / How the World Bank is leveraging the new food crisis.

The Dairy Price Index averaged 221 points in January, up 6.2% from December, but still 17% below its peak in November 2007. A firm global demand for dairy products, against the backdrop of a (normal) seasonal decline of production in the southern hemisphere, continued to underpin dairy prices. The Sugar Price Index averaged 420 points in January, up 5.4% from December. International sugar prices remain high, driven by tight global supplies. By contrast, the Meat Price Index were steady at around 166 points, as falling prices in Europe, caused by a fall in consumer confidence following a feed contamination, was compensated by a slight increase in export prices from Brazil and the USA.

FAO-food-commodity-price-index-201102The Index averaged 231 points in January and was up 3.4% from December 2010. This is the highest level (both in real and nominal terms) since FAO started measuring food prices in 1990. Prices of all monitored commodity groups registered strong gains in January, except for meat, which remained unchanged. “The new figures clearly show that the upward pressure on world food prices is not abating,” said FAO economist and grains expert Abdolreza Abbassian. “These high prices are likely to persist in the months to come. High food prices are of major concern especially for low-income food deficit countries that may face problems in financing food imports and for poor households which spend a large share of their income on food.”

“The only encouraging factor so far stems from a number of countries, where – due to good harvests – domestic prices of some of the food staples remain low compared to world prices,” Abbassian added. FAO emphasized that the Food Price Index has been revised, largely reflecting adjustments to its meat price index. The revision, which is retroactive, has produced new figures for all the indices but the overall trends measured since 1990 remain unchanged.

How the World Bank is leveraging the new food crisis

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Soon after the FAO’s Committee on Food Security (CFS) meeetings, the World Bank has said that it is “reactivating” its Food Fund (called the Global Food Crisis Response Program) “to run through June 2011”. What does this mean? In short it means that the World Bank is leveraging the food supply and food price rises for staple cereals of 2010 in much the same way it did in 2008, during the earlier food crisis.

The Global Food Crisis Response Program list

“In response to the severity of the food crisis and the need for prompt action, the World Bank Group set up the Global Food Crisis Response Program (GFRP) in May 2008 to provide immediate relief to countries hard hit by food high prices” is how the Bank puts it. There’s a lot of cross-referencing in order to legitimise its actions, such as “The Bank response has been articulated in coordination with the United Nations’ High-Level Task Force (HLTF) on food security. Through its response, the Bank is supporting the implementation of the joint Comprehensive Framework for Action (CFA)”.

According to the Bank, the GFRP has approved US$1,238.2 million in 35 countries as of 09 September 2010. The Bank says that “grant funding has also been made available through several external-funded trust funds in support of the full range of interventions available under the GFRP”. There’s more cross-referncing to make it all sound happily multi-national: a “Multi-Donor Trust Fund (MDTF) has received contributions” of AUD 50 million from the Australian government, €80 million from the government of Spain, 3 billion Korean Won from the Republic of Korea, CAD 30 million from the government of Canada, and $0.15 million from International Finance Corporation (IFC).

The point is, how are governments of small countriess with populations vulnerable to the price volatility of global food market being pressurised by the Bank? Take the case of Honduras, one of the 35 countries. The Bank calls it “Honduras – Food Prices Crisis Supplemental Financing to the First Programmatic Financial Sector Development Policy Credit”. US$10 million in “development assistance” for “budget support”.

From the project document for this assistance, here is the objective: “2. Proposed objective(s). The proposed SDR [XXX] million (US$10 million equivalent) operation would support the Government’s commitment to maintain macroeconomic stability and persevere in its Financial Sector DPC’s (development policy credit) development objectives and allow the government to respond to the food price crisis. As such, the supplement will be processed under GFRP procedures.”

World Food Day 2010

16 October is World Food Day 2010

We’re seeing two objectives here: (1) macroeconomic stability and (2) response to food price crisis. Nowhere in the project documentation (there’s only one document publicly available) is there an explanation of why the World Bank thinks the macroeconomic stability of Honduras is threatened by the rise in prices of food staples, and nowhere is there mention of the Honduran government’s own response.

A new objective appears soon after: “Honduras is committed to a reform program aimed at strengthening the financial sector so as to ensure that it contributes to long-term growth and poverty reduction. The authorities have expressed their intention to continue the implementation of the financial sector reform program and more specifically their intention to strengthen supervisory activities, keeping updated the database of related parties, and further strengthening banking resolution including through fully capitalizing the recently created bank capitalization fund.”

This has to do with rising food prices? Any government can make any number of commitments to ‘growth’ and ‘poverty reduction’, but what’s the financial sector reform doing in a Global Food Crisis Response Program? The Bank doesn’t say.

The Honduras project document continues in its two track logic: “This commitment is particularly important because of the new challenges that the food crisis is creating for the financial sector, as higher food prices negatively affect the portfolio of consumer loans and the country’s macroeconomic stability.” If there is a connection between consumer loans being affected by rising food prices (repayments?) how much over how long from how many?) there’s no explanation) and ‘macroeconomic stability’ (which has to do with a variety of other factors), the Bank has not bothered to explain them.

The Bank then says: “In particular, strong supervisory activities and a well capitalized bank capitalization fund are crucial stabilizing factors for the financial system, because they signal to the market that the authorities would be able to respond to banks in difficulties and avoid a systemic crisis.” Here the Bank trots out the typical systemic crisis bogey, implying that without its intervention, in the name of Food Crisis Response, Honduras would be in serious trouble. How easily one crisis of external making get translated into another of deliberate design.

Warning from a commodity trader

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Many young male adults have left their villages in search of subsistance means after the poor raining season in 2009 prevented them from harvesting. In the village of Garin Dagabi, north of Tanout in Southern Niger, the population at the beginning of 2010 was mainly made of old people, women and children. Photo: © Anne Isabelle Leclercq/IRIN

Many young male adults have left their villages in search of subsistance means after the poor raining season in 2009 prevented them from harvesting. In the village of Garin Dagabi, north of Tanout in Southern Niger, the population at the beginning of 2010 was mainly made of old people, women and children. Photo: Anne Isabelle Leclercq/IRIN

The news source Emerging Markets has a report based on an interview with financial speculator and commodity trader Jim Rogers. He is reported as saying that “the world is on the brink of a serious food crisis” caused by “decades of failure by governments to invest in farming during an era of low prices” which Rogers explains has now left the world “with insufficient capacity to deal with a likely surge in demand for commodities from both households and investors”.

“I’m worried about the world’s agricultural situation,” he told Emerging Markets. “The world is on a knife-edge. We could have gigantic food problems worldwide.” Commodity prices will rise whatever happens to the global economy, Rogers believes. If the recovery kicks in, then demand for basic foods will rise. On the other hand, if the economy fails to recover and governments ratchet up quantitative easing, the extra liquidity will end up in real assets such as commodities.

“There are shortages of farmers developing, because farming has been such a horrible business for 30 years. If things are going to get worse, then prices are going to go higher,” he said. “The main reason [for that] is a shortage of investment for 30 years.” Rogers founded his own index, the Rogers International Commodity Index. Emerging Markets – which is run by the Euromoney magazine, covers the meetings of the IMF and World Bank. It said that Rogers’s comments “come as the World Bank plans to use this week’s meeting to highlight its concerns over rising food prices”.

Resident Adam Mustafa says recent floods near Kemisse in Ethiopia's Amhara region are the worst in his lifetime. Photo: © Ben Parker/IRIN

Resident Adam Mustafa says recent floods near Kemisse in Ethiopia's Amhara region are the worst in his lifetime. Photo: Ben Parker/IRIN

The report also drew a link between Rogers’ comments and the World Bank’s report, released last month, about the growth of large-scale farmland purchases in the developing world – which the Bank said was alright if managed. Rogers says that politicians who blamed speculative investors for making money out of higher commodity prices would simply deter much-needed investment. “Agricultural prices are going to go up a great deal because of terrible fundamentals over the past 30 years. We even have a shortage of farmers. Politicians will blame the evil speculators, but they had better kiss investors’ feet. Without someone investing and driving up prices, we will soon have no food at any price.”

Meanwhile, The Guardian reports that accurate and timely information on the food stocks held by major grain exporters and importers, or “food intelligence”, could help prevent the sudden and abnormal price hikes that threaten food security. This was one of the proposals put forward at a day-long meeting of the inter-governmental groups (IGGs) on grains and rice at the UN Food and Agriculture Organization (FAO), held in Rome on 24 September.

A rice farmer in Bangladesh. Rice is a staple part of the Bangladeshi diet. Photo: © Matt Crook/IRIN

A rice farmer in Bangladesh. Rice is a staple part of the Bangladeshi diet. Photo: Matt Crook/IRIN

“We need better information on the food stocks, especially from the CIS countries [Commonwealth of Independent States – a regional organisation comprising the Russian Federation and other members of the former Soviet Union] and many other major exporters, such as China and India, and importers of grains,” said Abdolreza Abbassian, an economist who is also secretary of the IGG on grains. “The big drive of commodity price volatility, and of price spikes, is storage volumes, on which we have terribly unreliable and incomplete statistics,” said food security expert Chris Barrett.

“If FAO could develop credible, timely reports on global storage volumes – at least commercially and publicly held – that would help more than … earlier production reports,” he commented. FAO produces reports on crop estimates every two months. “It’s probably too much to ask for reasonable estimates of residential consumer holdings, which can cumulatively have significant effects on the market, as may well have been part of the story in … 2008,” said Barrett, who teaches applied economics at Cornell University in the US.

Abbassian suggested that the FAO should report every month on the area planted in major grain producing and importing countries, rather than every two months. Maximo Torero, head of the markets, trade and institutions division at the International Food Policy Research Institute (IFPRI), a US-based policy thinktank, said an independent “strong, research-based ‘intelligence unit’ was needed to provide information on stocks around the world”.

In an extraordinary meeting, FAO sizes up the turmoil in world cereal markets

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The FAO’s Committee on Commodity Problems has just concluded its Extraordinary Joint Intersessional Meeting of the Intergovernmental Group on Grains and the Intergovernmental Group on Rice (held in Rome, 24 September 2010). The Food and Agriculture Organization of the UN does not, it appears, want to cause any alarm bells to be rung in countries already worried by food inflation, and that is why its overall advise is at odds with the details highlighted during the day-long consultations.

Here are the main points of an advisory titled ‘Turmoil in Global Cereal Markets: Outlook for 2010-11, Short-Term Risks & Uncertainties’:

La Nina (colder-than-normal sea-surface temperatures in the Pacific Ocean) often results in drier periods in Argentina and southern Brazil but wetter weather in Asia. It may strengthen through January
Any downgrading of wheat crops in southern hemisphere countries before harvest this year- Western Australia not so good
The final maize harvest in the USA (and China) – production may end up lower
Adverse growing conditions affecting secondary rice crops in Asia and main crops in southern hemisphere
Drought in Russia and delayed winter grain sowing (down 20%) – but some rains have arrived
Crop damage in Pakistan: implications for next season
Faster/slower economic recovery influencing demand prospects for feed and fuel: tightening maize supplies in the US if demand for ethanol rise faster than predicted
Larger than currently expected import purchases, maize by China for example
Trade measures, in particular further exports restrictions
Developments in outside markets such as currency (US Dollar), equity, energy and other commodity markets

UN Millennium Development Goals Report 2010 / UNICEF Photo

UN Millennium Development Goals Report 2010 / UNICEF Photo

The rhetorical question is asked – “Are we ready?” – and the points supplied are: (1) We are not in a food crisis and grain prices may even come down a bit, (2) But all indications point to still high prices and volatile markets with many uncertainties lying ahead, (3) Food security under growing market instability and price volatility: Are we ready?

The extraordinary joint meeting briefly explained what it meant by “Increased volatility & speculation” with the following points: Markets liberalisation, decline of price supports; Deregulation of the financial service sectorl Declining margins in securities tradingl Rising demand for food in emerging marketsl Under-investment in agriculture; Lack of price transmission to producers; Sudden governmental interventions in export marketl Ease of access to electronic market place; Exchanges restructured today as for-profit corporations.

The dangers, current and expected, are set out in the briefing paper on ‘Agricultural Futures: Strengthening market signals for global price discovery’. This said:

Volatility in commodity foodstuffs is a result of both fundamental factors and speculative inflows of managed money. Sharply differing opinions exist on how institutional money flows have changed the nature of the markets, particularly since the expansion of limits. While financial firms argue that they add volume and liquidity to the market, others maintain that large order size creates volatility and jagged price swings. In the August 2010 price hike of wheat, the CME wheat price moved up limit and down limit within two consecutive days. High frequency trading is also a controversial issue – one that a CFTC editorial recently stated needed “reining in,” commenting that “parasitical trading does not truly contribute to fundamental market functions.”

Global undernourishment (image: Nature)Much debated also is the effect of passive fund money (index funds and swaps dealers), with experts on both sides arguing whether they have caused chronic price elevation and steep contango in some futures contracts. In its 2009 Trade and Development Report, UNCTAD contends that the massive inflow of fund money has caused commodity futures markets to fail the “efficient market” hypothesis, since the purchase and sale of commodity futures by swap dealers and index funds is entirely unrelated to market supply and demand fundamentals, but depends rather on the funds’ ability to attract subscribers. Despite the risk transfer nature of futures trading, in which gains and losses are equally offset, passive funds have successfully packaged and sold futures contracts as an alternative investment class to institutional investors. However, most would agree that these passive funds do not affect volatility levels since their only trading activity is a forward “roll” of their positions and the timings of these rolls are announced in their prospectus.

This is worrying because the FAO is now being a great deal clearer about the same problem it tried to describe in 2007-08,

Finally, Olivier de Schutter, the United Nations Special Rapporteur on the Right To Food, has released a briefing paper entitled ‘Food Commodities Speculation and Food Price Crises: Regulation to reduce the risks of price volatility’. His recommendations:

1. Given the numerous linkages between agriculture, oil, and other financial markets demonstrated above, comprehensive reform of all derivatives trading is necessary. The very first step would be to require registration, as well as clearing to the maximum extent possible of OTC derivatives, so that there is real time reporting of all transactions made, without information privileges for OTC traders, and in order to allow for effective supervision. The small minority of derivatives that cannot be cleared must nevertheless be reported without a time lag.

Islamabad Water Carrier

Islamabad Water Carrier: World Water Day was just another Monday for Nasir Ali, who was photographed on March 22 hauling water to his home in an Islamabad slum. Water shortages have become common for many people in the capital who must gather their daily water from government tankers or private trucks—when the precious resource is available at all. The nation’s acute rainfall shortage has also cut water supplies at hydroelectric dams, exacerbating disruptive power shortages and forcing officials to implement some rather dramatic solutions. Photograph by Aamir Qureshi, AFP/Getty Images

2. Regulatory bodies should carefully study and acquire expertise in commodity markets, instead of regulating commodity derivatives and financial derivatives as if they were the same class of assets. It may be appropriate to assign the task of regulating commodity derivatives to a specific institution staffed with experts in commodity regulation, rather than have a single body regulating both financial and commodity derivatives.

3. Access to commodities futures markets should be restricted as far as possible to qualified and knowledgeable investors and traders who are genuinely concerned about the underlying agricultural commodities. A significant contributory cause of the price spike was speculation by institutional investors who did not have any expertise or interest in agricultural commodities, and who invested in commodities index funds because other financial markets had dried up, or in order to hedge speculative bets made on those markets.

4. Spot markets should be strengthened in order to reduce the uncertainty about future prices that creates the need for speculation. However, these markets must also be regulated in order to prevent hoarding. Spot markets must be transparent, and holdings should be subject to strict limits in order to prevent market manipulation.

5. Physical grain reserves should be established for the purpose of countering extreme fluctuations in food price, managing risk in agricultural derivatives contracts, and discouraging excess speculation, as well as meeting emergency needs. Such measures and the abovementioned reform of commodity derivatives markets should be seen as complementary.

MDGs, hunger and the global food system

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Rawal Dam Running Dry

Rawal Dam Running Dry: A canoe near the former bank edge of Rawal Dam reservoir was left high and dry when waters receded to dangerously low levels due to the prolonged drought afflicting much of Pakistan. Officials of Pakistan’s Small Dams Organization (SDO) told the nation’s English-language Dawn newspaper that dam water was just 20 feet (6 meters) above the dead level and that the current supply might last only until mid-July. The reservoir has reached such low levels only once before, during the drought year of 2003. Photograph by Aamir Qureshi, AFP/Getty Images

A new report from the International Food Policy Research Institute (IFPRI, a US-based think-tank), discusses meeting the UN Millennium Development Goal to halve hunger. The report is called Business As Unusual.

The report says that the global food governance system itself needs to be reformed to work better. Reforms should include (1) improving existing institutions and creating an umbrella structure for food and agriculture; (2) forming government-to-government systems for decision-making on agriculture, food, and nutrition; and (3) explicitly engaging the new players in the global food system-the private sector and civil society-together with national governments in new or reorganised international organizations and agreements. A combination of all three options, with a leading role for emerging economies, is required.

The first step in reducing poverty and hunger in developing countries is to invest in agriculture and rural development. Most of the world’s poor and hungry people live in rural areas in Africa and Asia and depend on agriculture for their livelihoods, but many developing countries continue to underinvest in agriculture. Research in Africa and Asia has shown that investments in agricultural research and extension have large impacts on agricultural productivity and poverty, and investments in rural infrastructure can bring even greater benefits.

After the 2006-08 crisis, when staples such as maize, rice and wheat climbed to their highest prices in 30 years, many donor countries, aid agencies and analysts suggested that the existing Committee on World Food Security (CFS) be reformed. The CFS is a technical committee of the FAO, and serves as a forum in the UN system for the review and follow-up of policies on world food security, food production, nutrition, and physical and economic access to food.

Islamabad Water Carrier

Islamabad Water Carrier: Water shortages have become common for many people in the capital who must gather their daily water from government tankers or private trucks, when it's available at all. The nation’s acute rainfall shortage has also cut water supplies at hydroelectric dams, exacerbating disruptive power shortages and forcing officials to implement some rather dramatic solutions. Photograph by Aamir Qureshi, AFP/Getty Images

Jacques Diouf, director-general of FAO, announced last week that the CFS was being reformed to make it a “global platform for policy convergence and the coordination of expertise and action in the fight against hunger and malnutrition in the world”.

Uncoordinated policy actions of governments across the world during the 2006-08 food crisis made prices even more volatile and affected access to markets, said a new joint Agricultural Outlook for the next 10 years, produced by the Organization for Economic Cooperation and Development (OECD) and FAO. Food prices have come down, but are still high, according to FAO.

“While food prices have dropped, incomes because of the recession have been reduced by a much higher rate,” said Holger Matthey, an economist at the UN Food and Agriculture Organization (FAO). Some aspects of this “business as unusual” approach have already been successful in a few countries, but they need to be scaled up and extended to new countries to have a real impact on the reduction of global hunger.

Scaled-up investments in social protection that focus on nutrition and health are also crucial for improving the lives of the poorest of the poor. Although policymakers increasingly see the importance of social protection spending, there are still few productive safety net programs that are well targeted to the poorest and hungry households and increase production capacity.

The OECD-FAO Outlook has acknowledged that the 2006-08 food price crisis “was due to the contemporaneous occurrence of a panoply of contributing factors, which are not likely to be repeated in the near term. However, if history is any guide, further episodes of strong price fluctuations in agricultural product prices cannot be ruled out, nor can future short-lived crises”.