High Food Prices

Joachim von Braun, director general of IFPRI, launched the policy seminar by stating that both supply and demand factors are contributing to the current food price crisis. This crisis comes at a time when the world’s income distribution is more unequal than ever, and it compromises progress toward achieving the poverty and hunger Millennium Development Goals. In response to high food prices, von Braun noted that IFPRI has recommended two sets of policy actions. The first set is an emergency package that can yield immediate impact:

expand emergency responses and humanitarian assistance to food-insecure people and people threatening government legitimacy;
eliminate agricultural export bans and export restrictions;
undertake fast-impact food production programs in key areas; and
change biofuel policies.
The second set of actions is a resilience package that should be undertaken immediately but whose impact will take longer to be felt:

calm markets with the use of market-oriented regulation of speculation, shared public grain stocks, strengthened food-import financing, and reliable food aid;
invest in social protection;
scale up investments for sustained agricultural growth; and
complete the Doha Round of World Trade Organization (WTO) negotiations.
Mark Rosegrant, director of IFPRI’s Environment and Production Technology Division, said that efforts to promote agricultural production growth should focus on three actions. The first action is to initiate fast-impact food production programs in key areas. In the short term, decisionmakers should improve access to seeds, fertilizers, and credit for the small farm sector. They should adopt procurement programs for small farmers through which agricultural products will be sold at guaranteed minimum prices that reflect long-term international market prices. Targeted subsidy programs for seeds, fertilizers, irrigation, and water should be focused on and limited to least-developed countries.

The second action to promote agricultural production growth is to change biofuel policies. Measures should be taken to make more grains and oilseeds currently used for fuel available for food and feed. Biofuel production could be frozen at current levels or reduced, or a moratorium could be imposed on the use of grains and oilseeds for biofuels. Such a moratorium may require compensating investors. Europe and the United States should remove blending mandates, import tariffs, and biofuel blending subsidies. And more support should go toward developing bioenergy technologies that do not compete with food.

The third action is to scale up investments for sustained agricultural growth. Governments should expand public funding for rural infrastructure, services, agricultural research, science, and technology. Crop management practices like water harvesting, minimum tillage, and integrated soil fertility management should be promoted.

Maximo Torero, director of IFPRI’s Markets, Trade, and Institutions Division, presented a set of three actions designed to promote agricultural trade and calm markets. First, countries should eliminate agricultural export bans and export restrictions, which may account for about 30 percent of the current price increases. This action should not be undertaken country by country or added to the Doha Round of the World Trade Organization (WTO). Rather, it should be addressed by an ad hoc forum of global players negotiating according to a code of conduct and in spirit of mutual building.

Second, countries should calm markets through market-oriented regulation. Market behaviors like speculation and hoarding contribute to the price rise, and governments are increasingly curbing hoarding. Market-calming measures could include commodity exchanges, which can help create fair, orderly, and efficient food markets. The main grain-producing countries should make a coordinated set of pledges for a modest grain reserve at global or regional levels.

Third, the Doha Round of WTO negotiations should be completed. A world short in supply and facing regional and country-specific fluctuations needs more opportunities for trade, not fewer. The current price situation should be viewed as an opportunity, because it should be easier for countries to agree to lower agricultural tariffs when market prices, especially for sensitive commodities, are high.

John Hoddinott, deputy director of IFPRI’s Food Consumption and Nutrition Division, spoke about social protection. Faced with a price shock of this magnitude, the poor are forced to adopt coping strategies. These strategies may avert hunger in the short term, but they risk irreversible consequences, like the loss of productive capital, the withdrawal of children from school, and increased levels of malnutrition. The role of social protection is to avert this “quiet crisis” through protective actions to mitigate short-term risks and preventive actions to prevent longer-term negative consequences. Protective actions involve financing the global safety net and strengthening national responses. Preventive actions involve preserving the productive capital of the poor, ensuring that children stay in school, and preventing malnutrition.

Highlights of the discussion follow:

One person stated that people seemed to be blindsided by the food price crisis and asked what lessons could be learned from that. The IFPRI presenters responded that in fact IFPRI had raised the issue several years earlier but that few outside the research community were listening. It was noted that people tend not to respond to early warning of food crises, but rather wait until crisis hits.
Some discussion concerned how the present food crisis differs from the food crisis of the 1970s. Whereas the earlier food crisis took place in a bipolar world, this one occurs in a multipolar world, and in this case China and India were the first countries to respond through new investments in agriculture. The current crisis is also different from past crises because many countries now have safety net programs that they can build on.
On the role of trade, discussants generally agreed that more open and less distorted trade would help the situation. One person noted that the WTO was designed on the assumption that countries want to export and thus is not well equipped to combat export bans.
Raising agricultural productivity, discussants stated, requires more than just providing access to inputs. In particular, it requires addressing women farmers’ rights to land and water and access to inputs like seeds and fertilizer, especially in Africa.
The question was asked whether investments should be made in large commercial farms or small-scale farms. Several discussants agreed that investments were needed in small farms. Moreover, bringing private agribusinesses in earlier could play an important role in helping raise the productivity of small farms.
Some questions concerned the U.S. farm bill and the food aid system. Presenters noted that the Food Aid Convention, which governs food aid, lacks transparency. It discourages donors from managing food aid as effectively as possible for beneficiaries and from providing micronutrients. In fact, food aid shipments have been falling since 2000. Whereas the U.S. farm bill has some positive aspects in terms of food aid, it leaves much to be desired overall.
Finally, it was noted that the cost of agriculture has vastly increased, owing in part to higher oil prices. Given that world agriculture faces a cost constraint, social protection measures are essential.