Cornell’s Per Pinstrup-Andersen: Don’t Believe the Hype (and Data) Surrounding Food Price Crises

Cites Food Price Volatility as Greater Danger than High Food Prices
May 9, 2013
by Peter Shelton

Beginning in 2007, the world has suffered three rounds of high food prices. These crises were caused by a variety of factors—from extreme weather events to civil conflict—but poor policies by affected countries exacerbated the problem, according to an expert on the subject who spoke at IFPRI last week.

Many policymakers responded to the food price crises in an ad-hoc and self-serving way, enacting policies geared toward protecting their own national interests, and ultimately contributing to more extreme food price volatility, according to Cornell University professor and former IFPRI Director General Per Pinstrup-Andersen.

Pinstrup-Andersen presented findings from a 14-country study that looked at policy responses to price crises in the United States, the European Union and 14 middle- and low-income countries throughout Asia, Latin America, and Africa south of the Sahara. The study investigated why policymakers from different countries responded differently to the crises, and to glean lessons for the international community.

Pinstrup-Andersen’s main concern is not high prices, but the uncertainty, lost incomes, and shortages that come with price volatility. “The worry for the future is not long-term trends in food prices—personally, I don’t think they will continue to go up and up,” he said, “but food price volatility… and how poor people can cope.”

However, many countries’ policies after the food crises did not help the poor cope.

To give governments some credit, they were reacting to poor data. Projections stating that more than a billion people worldwide would be left undernourished following the first major food price spike turned out to be hugely exaggerated, and media reports claiming ever-rising prices added to the confusion. The Food and Agriculture Organization (FAO) of the United Nations has since revised both the methodology and data underlying these estimates.

Nevertheless, prices did rise, and governments worldwide felt the need to respond. Pinstrup-Andersen and his colleagues found that these responses generally fell into two categories: policies designed to (1) slow down domestic food price increases, and (2) reduce the negative effects of high food prices on certain groups.

To slow rising prices, governments released food reserves, expanded production through fertilizer subsidies, banned exports to other countries, and in some cases, tried to directly dictate national food prices. To help those who were hardest hit, governments implemented targeted cash transfers and food subsidies to selected groups.

But policymakers made mistakes with both of these responses, Pinstrup-Andersen said. The policies to slow price spikes interfered with market signals, and ended up “telling producers to produce less—and consumers to consume more—than they otherwise would.” Policies to boost production did so through short-term subsidies instead of longer-term research and development, and unfairly favored larger-scale farmers. And attempts to directly control prices failed, Pinstrup-Andersen said, “as we all learned in Econ 101.”

Cash transfers and food subsidies, meanwhile, benefitted urban low- and middle- class residents—not the rural poor, who most needed them.

Why? When push comes to shove, “protecting government legitimacy is priority 1, 2, and 3,” said Pinstrup-Andersen. To save their jobs, policymakers focused on those who might riot in the streets or kick them out of office. “They paid lip service to smallholders,” he said, “but did nothing for them.”

Policymakers made many more misguided decisions: they took too long to act, enacted policies—such as banning exports—that were costly, bought food at peak prices, and even took simultaneous, conflicting actions, such as buying and selling reserves at the same time.

So what lessons should global institutions take from these findings?
First, when working with governments to suggest policies, global institutions should not assume unitary government decisionmaking. Even in the United States, Pinstrup-Andersen pointed out, the government doesn’t always speak with one voice. Secondly, he said, they should not be “fooled by rhetoric” about helping smallholders, and should encourage governments to implement policies that really support them. One such example included policies designed to help keep food prices artificially low, which helped the urban poor, who are net-buyers of food, while keeping incomes low for the rural poor, who are net-sellers of food.

Most importantly, policymakers need reliable and up-to-date data and information to help guide their decisionmaking. Here Pinstrup-Andersen sees plenty of room for improvement. “We need a data monitoring system from organizations whose funding does not depend on the results,” he said. Otherwise, agencies will “paint the worst picture they can” in an effort to secure more funding, and end up contributing to the vicious cycle of high food price volatility.

For more information on the event, including videos and Per Pinstrup-Andersen’s PowerPoint presentation, see the event page on IFPRI’s website.

You can download the full papers and research briefs on the study findings at the United Nations University website or at Per Pinstrup-Andersen’s Food Policy blog.