Statement by IFPRI Director General Shenggen Fan
October 1, 2010
The recent volatility of agricultural commodity prices has caused some observers to wonder if another food crisis, similar to the one that occurred in 2007–08, is looming on the horizon. Three years ago, a variety of factors combined to create a “perfect storm” in food prices. This time, natural disasters—amplified by harmful trade policies—are fueling concern. Massive flooding in Pakistan affected about 15 million people and ruined more than 1.6 million acres of monsoon-season crops, while severe drought and wildfires in Russia generated large losses in the country’s wheat crop and led to a temporary ban on grain exports. Food prices have sharply increased in some countries; food inflation has now reached 15 percent in India, and food prices have risen by 34 percent in Mozambique during the past 6 months, contributing to massive protests.
There is no reason for another food crisis to occur, based on an examination of market fundamentals. Russia accounts for only 11 percent of world wheat exports, and the Food and Agriculture Organization of the United Nations (FAO) projects global grain production this year to be the third highest on record. In addition, the latest estimates from the U.S. Department of Agriculture (USDA) indicate that global wheat production in 2010–11 will be 7 percent higher than it was during the food-price crisis in 2007–08, even after tallying all known losses. Today, there are 175 million metric tons of global wheat stocks—nearly 50 million metric tons more than in 2007–08. While price volatility is a major concern, IFPRI research suggests that the global wheat supply is secure and that the long-run expectations of food-commodity traders are not as negative as recently reported in the media. Global production of rice and maize is also projected to exceed 2007–08 production by 5 and 4 percent, respectively, according to the USDA.
However, caution is warranted. The current global food situation could trigger a crisis if countries impose export bans and make panic purchases and if uncontrolled, excessive speculation re-emerges. Thus, careful and appropriate measures are urgently needed:
- Countries with large grain stocks (such as China and India) should release some of their reserves to calm down domestic prices and send positive signals to global markets. When distributing public food supplies, it is important to properly target poor people.
- Effective social safety nets are needed to protect the most vulnerable groups, including women and children. In the long term, these safety nets should be combined with other interventions that increase productive capacity and improve the nutrition and health of the poor.
- Smallholder productivity-enhancing mechanisms are needed to sustainably reduce hunger and poverty. Investments should be scaled up to improve smallholder access to inputs such as seeds and fertilizer, as well as financial and extension services and crop insurance. New agricultural technologies suitable for smallholders in developing countries should also be strongly promoted, and rural infrastructure should be strengthened to increase access to markets.
- An international working group, comprised of key institutions such as FAO, IFPRI, the World Bank, the World Food Programme (WFP), and the World Trade Organization, should come together to regularly monitor food production, stocks, prices, and policies in a coordinated, transparent, and timely fashion. Close attention should be paid to the policies of large food importers and exporters. In particular, governments should be encouraged to eliminate existing export bans and refrain from imposing new ones.
- New institutional arrangements should be created to decrease price volatility in agricultural commodity markets and to deal with humanitarian emergencies. A global, coordinated grain reserve, owned and managed by the WFP, should be established through donations from large food producing countries, such as the United States and China. The reserve should be physically located in these large food producing countries, as well as in food importing poor countries, such as Ethiopia and Bangladesh, for easy access in times of emergencies. Regional reserves for specific commodities could be set up first, then scaled up to the global level. Better regulations should be designed to avoid excessive commodity speculations by noncommercial institutions. A global market-analysis unit could be created to help forecast prices, identify price abnormalities, and trigger market intervention.