IFPRI Study Challenges Conventional Wisdom on Food Crisis Causes

This study comes amid renewed volatility in and concern about food prices. Since June, the price of wheat has increased by 60 percent and maize by 50 percent.

19 Nov 2010 --- A new report by the International Food Policy Research Institute (IFPRI) challenges previous analyses of the food price crisis of 2007-08. Using recently available data, Reflections on the Global Food Crisis identifies the key causes of the price surge, its consequences for the world’s poor people, and the implications for future policies.

The report attributes the crisis to a combination of increased energy costs, growing demand for biofuels, depreciation of the U.S. dollar, and trade shocks related to export restrictions, panic purchases, and unfavorable weather. Contrary to many earlier hypotheses, it was not primarily caused by increased demand in rising economies such as China and India, by falling agricultural yields or food stocks, nor by futures market speculation.

This study comes amid renewed volatility in and concern about food prices. Since June, the price of wheat has increased by 60 percent and maize by 50 percent.

“Future food price crises can be prevented,” said Shenggen Fan, director general of IFPRI and report co-author.

To avert a recurrence, the report recommends:
•    making trade in agricultural commodities more free yet more secure;
•    addressing climate change, resource degradation, and other long-term threats to agricultural productivity;
•    scaling up social safety nets in potentially food-insecure countries; and
•    encouraging agricultural production in at least some of the countries now heavily dependent on food imports.

“Without these key reforms, it is only a matter of time before another food price crisis hits,” said Fan.

The report finds that increased demand for meat products in China and India did not trigger the crisis, although China’s demand for oil and other non-food commodities played a role.

“On China and India, the evidence is now unequivocal: they weren’t buying up the world’s grains,” noted Derek Headey, IFPRI research fellow and report co-author.

The authors find that financial market speculation may have played some role, but not a dominant one. However, they contend that export restrictions and panic purchases turned a critical situation into a full-blown crisis. This was especially true of rice but also applied to wheat and maize.

“Rice is a particularly small market internationally, so the shocks were large relative to the volume traded,” explained Headey. “But somewhat more surprisingly, we also found large surges in demand for U.S. wheat and maize exports in late 2007.”

Lower grain stocks were an outcome of the crisis more than a cause although buffer stocks could still be an important means of preventing further crises, according to the report. It recommends the establishment and use of strategic grain reserves to deal with humanitarian emergencies and to smooth out volatility.

“In times like these, when food prices are rising but stocks are high, countries like India and China should release grain to calm markets,” said Fan.

Estimates of the number of people who were pushed into malnutrition by rising food prices in 2007 vary from around 75 million to 133 million. The greatest consumption losses fell on women and girls.

Countries were particularly vulnerable to rising prices when these coincided with existing problems such as conflict, drought, or poor economic policies, the report finds. However, other countries were protected by strengthening currencies, a diversified food base, and a limited dependence on food imports. While the effects of the crisis were varied, a number of countries in Africa, Asia, and Latin America were severely affected.

“Poor people face a perpetual food crisis,” Headey stressed, “and this situation pushed millions more into hunger.”

Investments that raise agricultural productivity in developing countries remain the best means of improving the food security of poor people in both rural and urban areas, says the report. Biofuels, it adds, should be made more “food friendly” by minimizing the diversion of food crops and by involving smallholder farmers in their production.

The report also exhorts donors to honor their financial pledges despite the global economic downturn.

“To their credit, many aid donors have said they would increase agricultural aid,” said Fan. “In 2009, the G-8 nations made US$20 billion in commitments to food security and agriculture. They need to keep their promises.”

The International Food Policy Research Institute (IFPRI) seeks sustainable solutions for ending hunger and poverty. IFPRI is one of 15 centers supported by the Consultative Group on International Agricultural Research, an alliance of 64 governments, private foundations, and international and regional organizations.