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The global transmission of high food prices-World Bank’s February evidence

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Higher global wheat prices have fed into sharp increases in domestic wheat prices in many countries, the February 2011 Food Price Watch of The World Bank has said. The transmission rate of global wheat price increases to the domestic price of wheat-related products has been high in many countries, according to the report. “For instance, between June 2010 and December 2010, the price of wheat increased by large amounts in Kyrgyzstan (54%), Bangladesh (45%), Tajikistan (37%), Mongolia (33%), Sri Lanka (31%), Azerbaijan (24%), Afghanistan (19%), Sudan (16%), and Pakistan (16%). Several of these countries have a large share of calories consumed from wheat-based products, particularly for the poor. Global food prices continue to rise, though not uniformly for all grains.”

The World Bank’s Food Price Watch is produced by the Bank’s Poverty Reduction And Equity Group, Poverty Reduction And Economic Management Network. The World Bank’s food price index rose by 15% between October 2010 and January 2011, is 29% above its level a year earlier, and only 3% below its June 2008 peak. A breakdown of the index shows that the grain price index remains 16% below its peak mainly due to relatively stable rice prices, which are significantly lower than in 2008. The increase over the last quarter is driven largely by increases in the price of sugar (20%), fats and oils (22%), wheat (20%), and maize (12%).

Maize prices have increased sharply and are affected by complex linkages with other markets. In January 2011, maize prices were about 73% higher than June 2010. These increases are due to a series of downward revisions of crop forecasts, low stocks (U.S. stocks-to-use ratio for 2010-11 is projected to be 5%, the lowest since 1995), the positive relationship between maize and wheat prices, and the use of corn for biofuels.

Ethanol production demand for corn increases as oil prices go up, with sugar-based ethanol less competitive at current sugar prices. Recent United States Department of Agriculture (USDA) estimates show the share of ethanol for fuel rising from 31% of U.S. corn output in 2008-9 to a projected 40% in 2010-11. Increased demand for high fructose corn syrup from countries such as Mexico, as they substitute away from higher priced sugar, also contributes to higher demand for corn. Prospects of easing in this market depend partly on the size of the crops in Latin America, particularly Argentina, which has been affected by unusually dry weather due to the La Nina effect, and the extent of import demand from China in 2011 as well as oil and sugar price trajectories.

Domestic rice prices have risen sharply in some countries and remained steady in others. The domestic price of rice was significantly higher in Vietnam (46%) and Burundi (41%) between June–December 2010. Indonesia (19%), Bangladesh (19%), and Pakistan (19%) have increased in line with global prices. These Asian countries are large rice consumers, especially among the poor. Rice prices have increased in Vietnam despite good domestic harvests. This is primarily due to the depreciation of the currency, which has fuelled overall inflation and expectations of higher demand from large importers and led  to the minimum rice export price being raised by the Vietnamese government. Rice price increases in Sri Lanka (12%) and China (9%) have been relatively moderate in the second half of 2010, while in Cambodia and the Philippines the retail price of rice remained largely unchanged during this period.

Largest Movers in Domestic Prices, June to December 2010
Kyrgyzstan (retail, Bishkek) 54%
Bangladesh (retail, national average) 45%
Tajikistan (retail, national average) 37%
Mongolia (retail, Ulaanbaatar) 33%
Sri Lanka (retail, Colombo) 31%
Azerbaijan (retail, national average) 24%
Afghanistan (retail, Kabul) 19%
Sudan (wholesale, Khartoum) 16%
Pakistan (retail, Lahore) 16%

Vietnam (retail, Dong Thap) 46%
Burundi (retail, Bujumbura) 41%
Bangladesh (retail, Dhaka) 19%
Pakistan (retail, Lahore) 19%
Indonesia (retail, national average) 19%
Mozambique (retail, Maputo) 14%

Burundi (retail, Bujumbura) 48%
Cameroon (retail, Yaounde) 43%
Uganda (wholesale, Kampala) 38%
Kenya (wholesale, Nairobi) 22%

Brazil (wholesale São Paulo) 56%
Argentina (wholesale, Rosario) 40%
Rwanda (wholesale, Kigali) 19%

The food-agritech-aid stakes, a return to the 1950s

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Undernourished population (image: Nature)At the end of July 2010, the United States government together with the Bill & Melinda Gates Foundation made an announcement that has far and wide implications for the agriculture and development sectors. The announcement was the launch of the ‘Global Agriculture and Food Security Program (GAFSP)’. The US Under Secretary for International Affairs (Lael Brainard) and the president of the Global Development Program at the Bill & Melinda Gates Foundation (Sylvia Mathews Burwell) met ambassadors and embassy officials from more than a dozen African countries to discuss how they could use the new fund.

Described as “a new fund to tackle global hunger and poverty”, the GAFSP was created following the meeting of the G20 in Pittsburgh, USA, in 2009. Launched in April 2010 with US$880 million in commitments from the United States of America, Canada, South Korea, Spain, and the Bill & Melinda Gates Foundation, the GAFSP “represents a global effort to aid vulnerable populations afflicted by hunger and poverty”.

Calorie availability (image: Nature)Moreover, it is being positioned as a key element of the Obama Administration’s initiative to, in its own words, enhance food security in poor countries, raise rural incomes and reduce poverty. Laudable aims, but food and food aid and agricultural technology has for most of the 20th century been a tool of foreign policy. South Asia knows that well with the role of the American philanthropic foundations and their role in ushering in the Green Revolution.

The fund’s first round of grants (total US$224 million) were awarded in June 2010 to Bangladesh, Haiti, Rwanda, Sierra Leone and Togo. In October 2010, approximately US$120 million will be available for allocation to countries “eligible” for the GAFSP. More than 25 countries are expected to apply for assistance, but there are conditions. Funding “will be prioritised” for those countries that demonstrate the highest levels of need, the strongest policy environments and the greatest level of country readiness. What does readiness mean? The country will need to draft and frame an agricultural development strategy and country investment plan.

Agriculture research (image: Nature)Rural realities and living conditions are usually very different from the sketches contained in funding documents. Poverty is the main source of hunger now, not a lack of food. Efficiency has become a central theme, which means getting higher yields on small plots with fewer inputs of water and chemical/synthetic fertiliser. It hasn’t helped that government investment in basic research and development on agriculture, in the countries of the South, is very little.

1. In 2009, more than 1 billion people went undernourished — their food intake regularly providing less than minimum energy requirements — not because there isn’t enough food, but because people are too poor to buy it. At least 30% of food goes to waste. Although the highest rates of hunger are in sub-Saharan Africa — correlated with poverty — most of the world’s undernourished people are in Asia and particularly South Asia.

Global undernourishment (image: Nature)2. The percentage of hungry people in the developing world had been dropping for decades even though the number of hungry worldwide barely dipped. But the food price crisis in 2008 reversed these decades of gains.

3. Scientists long feared a great population boom that would stress food production, but population growth is slowing and should plateau by 2050 as family size in almost all poorer countries falls to roughly 2.2 children per family. Even as population has risen, the overall availability of calories per person has increased, not decreased. Producing enough food in the future is possible, but doing so without drastically sapping other resources, particularly water, will be difficult.

4. An outlook published in 2009 by the Food and Agriculture Organization (FAO) of the United Nations and the Organization for Economic Cooperation and Development (OECD) says that current cropland could be more than doubled by adding 1.6 billion hectares — mostly from Latin America and Africa — without impinging on land needed for forests, protected areas or urbanisation. But Britain’s Royal Society has advised against substantially increasing cultivated land, arguing that this would damage ecosystems and biodiversity. Instead, it backs “sustainable intensification,” which has become the priority of many agricultural research agencies.