Global food crisis not caused by increased demand – Report

A new report has refuted earlier hypotheses that the global food price crises of 2007 to 2008, was primarily caused by increased demand in rising economies such as China and India, by falling agricultural yields or food stocks, and by futures market speculation.

Instead, using recently available data, the new report released by the International Food Policy Research Institute (IFPRI) in Washington, titled Reflections on the Global Food Crisis, has attributed the crisis to a combination of increased energy costs, growing demand for biofuels, depreciation of the U.S. dollar, trade shocks related to export restrictions, panic purchases, and unfavourable weather.

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, with the greatest consumption losses falling on women and girls, says the report.

It adds that countries were particularly vulnerable to rising prices when these coincided with existing problems such as conflict, drought, or poor economic policies.

However, other countries were protected by strengthening currencies, a diversified food base, and a limited dependence on food imports and while the effects of the crisis were varied, a number of countries in Africa, Asia, and Latin America were severely affected, the report states further.

Commenting on the report, Derek Headey, IFPRI research fellow and co-author stressed, “Poor people face a perpetual food crisis, and this situation pushed millions more into hunger.”

Identifying the key causes of the price surge, its consequences for the world’s poor people, and the implications for future policies, the study comes amid renewed volatility in and concern about food prices. Announcing release of the new report, a statement issued by the IFPRI said since June, the price of wheat has increased by 60 percent and maize by 50 percent.

The report however, 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.

Meanwhile, authors of the report 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, which 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,” he said.

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 thus recommends the establishment and use of strategic grain reserves to deal with humanitarian emergencies and to smooth out volatility.

Specifically, Shenggen Fan, director general of IFPRI and report co-author, said: “In times like these, when food prices are rising but stocks are high, countries like India and China should release grain to calm markets.”

While Shenggen Fan expressed the belief that “Future food price crises can be prevented,”
To avert a recurrence, the report recommends: and that without key reforms, “it is only a matter of time before another food price crisis hits,” the report recommends some modifications that will prevent a recurrence.

It listed the reforms as 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.

The new report also suggests that 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.

Biofuels, it adds, should be made more “food friendly” by minimising the diversion of food crops and by involving smallholder farmers in their production.

The report further urges donors to honour their financial pledges despite the global economic downturn.

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

By Edmund Smith-Asante

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