Feeding hunger and insecurity

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2. what caused the global food price crisis?Reduced stock levelsThe short-term impacts of poor cereal harvests ina number of countries in 2007 (explained below)were exacerbated by significantly depleted globalfood stocks – now at only two months of global consumption(Institute for Agriculture and Trade 2008).Global food stocks have been decreasing since themid-1970s (see annex 2). The reduction of stockshas been especially rapid since the 1995 food pricespike, after which stocks have been declining by anaverage of 3.4 percent per annum (FAO 2008e). Lowreserves mean even minor changes in supply have amajor impact on prices.Lack of investment in agricultureShifts in the dominant economic and developmentparadigms from the 1970s till today diverted thefocus of donors away from agriculture (Dresrüsse1995). The share of Official Development Assistance(ODA) to agriculture has declined from 18percent in 1980 to 4 percent today (World Bank2007). DfID’s investment in agriculture fell from almost£50 million to under £20 million from 1996/97to 2005/06 (UK Food Group 2008). The emergenceof the Washington Consensus, market-led growthmodels and the era of Structural Adjustment Policiessignificantly reduced the capacity of governmentsto support the agricultural sector and protectcitizens from domestic food price fluctuations(Dresrüsse 1995).Growing speculation in agricultural commoditymarketsSpeculation in agricultural commodity prices has increasedwith the deregulation and improved transparencyof commodity markets (see annex 3 for abrief explanation of speculation and futures markets).Today, it is possible, not only to complete a transactionbased on an agreed future price for a future deliveryof commodities, but also to sell these contractson the futures market. Food commodity market pricesare now more volatile, free to move with greaterautonomy from supply and demand. The belief thatrising food and oil prices would continue to increasedrew large volumes of money from investors raisingdemand for futures and driving food prices up further(IFPRI 2008c; Institute for Agriculture and Trade2008). The global financial crisis is leading morehedge funds and speculators to enter the commoditymarkets as other forms of investments becomeincreasingly risky (Wahl 2008).Climate changeClimate change is real and already impacting livelihoodsand food production. Severe drought in Australiawas a major trigger behind the sharp spikein prices in 2007/08. Changes in rainfall and temperaturewill continue to have major implications foragricultural production - the Institute for Agricultureand Trade (2008) reports that rain-fed agriculturalproduction in Africa may halve by 2020 as seasonsbecome less reliable. It has been estimated that anincrease in temperature of more than 3°C may causefood prices to increase by as much as 40 percent(Cohen et al. 2008). High food prices are anotherreminder of the fragility of our planet, and of the dangerswe will face in the future if drastic action is nottaken immediately.2.2 Short/Medium-Term FactorsCrop failures in major exporting nationsProduction failure in major grain (particularlywheat) exporting countries is cited as the singlemost important short-term factor behind the foodprice rises in 2007/08 by FAO (2008e). Australia,Argentina and the USA all experienced weatherrelatedlosses, significantly affecting global supply(Institute for Trade and Agriculture 2008). World cerealproduction declined by 4 percent in 2005 and7 percent in 2006, while both Canada and Australiaexperienced yields 20 percent lower than the normin 2007 (FAO 2008e). US maize production laterincreased in response to high prices, but othercountries have not experienced similar supply responses(FAO 2008e).Increasing fuel pricesHigh oil prices were behind much of the increasein food costs (Institute of Agriculture and Trade2008). Nominal crude oil prices reached recordhighs in 2008, peaking at over US$140 per barrel8ACF International NetworkFeeding Hunger and Insecurity
2. what caused the global food price crisis?(nominal price) in July. High oil prices increase thecost of nitrogen-based fertilisers (from an indexedvalue of 118 in 2000 to 204 in 2006) and raisedthe cost of transporting food (ODI 2008).Bio-fuel productionHigh oil prices also impacted food prices by improvingthe viability of bio-fuels, which the EuropeanUnion and USA continue to subsidiseheavily in a bid to relieve dependence on oil.Schmidhuber (2006) estimated that bio-fuels becomecompetitive when oil prices exceed US$60.The use of cereals for bio-fuel grew by 32 percentfrom 2006/07 to 2007/08 - 95 million tons of cerealswere used for ethanol production in 2008,compared to 72 million and 43 million metric tonsin 2006/07 and 2004/05 respectively (von Braun2008). Estimates of the impact of increased use ofgrains for bio-fuels vary considerably (discussedbelow), but few disagree that the increased proportionof cereals diverted to bio-fuel productionwas a major factor behind the sharp spike in foodprices in late 2007.Export restrictionsThe high prices of basic agricultural produce hasled many governments to impose trade restrictionson food commodities (ranging from new taxes toexport quotas to comprehensive export bans) toensure national food security in a climate whichencourages large-scale exports. Closing bordersand restricting exports has only a limited impacton local food prices and raises prices on the globalmarket (World Bank 2008c). It represents typicalurban-biased policy, protecting urban consumersat the expense of rural producers.While the causes of the Global Food Price Crisisare largely agreed upon, the relative importanceand magnitude of each factor is still being debated.The role of bio-fuels is particularly ambiguous.The Organisation for Economic Co-operation andDevelopment (OECD 2008) suggests that biofuelsexplained approximately 60 percent of theincreased use of cereals and vegetable oil from2005 to 2007 – diverting grain away from food andanimal feed. Simon Johnson of the InternationalMonetary Fund (IMF) estimated that bio-fuels contributedto 20-30 percent of global food price increases– Lipsky suggested this figure was about70 percent for maize prices (Collins 2008). A moreconservative figure of 2-3 percent was given byEdward Schafer, the US Secretary of Agriculture(Martin 2008). Regardless of the precise figures,bio-fuels and bio-fuel subsidies in Europe and theUSA certainly had an impact on global food prices,but remain only two of a multitude of factors.Despite Paul Collier’s (2008) recent claims that thesolutions to high, volatile food prices ought not bedetermined by the underlying causes, identifyingthese causes does provide an opportunity to assesspossible interventions. While short-term supplyfailures may have been the main factor behindthe exceptionally high prices in 2008, the mediumand long-run factors must be understood and addressed.In the medium-term, bio-fuel subsidieshave played a crucial role in forcing food prices upby diverting resources away from food production– there is a need to review bio-fuel policies. Similarly,in the long-run, a lack of investment in agriculturehas led to poor food supplies and steadilyreducing stock levels – the international communityshould reassess their priorities to better serve globalagricultural development, and especially poorsmall holder farmers who have been neglectedby policy for decades. In section 6 of this report,Action Against Hunger presents a set of recommendationsneeded to address hunger. Unfortunately,interventions will likely be influenced bythe ongoing financial and economic crisis, whichmay contract national purchasing power and theglobal financial space for aid that would help tomitigate high food prices in many poor countries.This comes at a time when rapid investment in there-invigoration of national agricultural sectors andsocial safety-nets is desperately needed.Collier’s statement is accurate in one vital respect:the disjuncture between interventions that addressACF International Network Feeding Hunger and Insecurity 9
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Page 6 and 7: Executive SummaryKey MessagesThe cr
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Page 11 and 12: List of FiguresFigure 1.1Figure 1.2
Page 13 and 14: List of AbbreviationsACFCARCFACFSCR
Page 15 and 16: © ACF / S. Hauenstein Swan1. Intro
Page 17 and 18: 1. IntroductionFigure 1.2: Map depi
Page 19 and 20: © ACF / S. Hauenstein Swan2. What
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Page 25: © Julien Goldstein3. Households in
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6. what more is needed?Box 8: Malaw
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6. what more is needed?Table 6.3: T
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6. what more is needed?and local in
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7. ConclusionData from Ethiopia sho
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ReferencesAbebe, Y., Stoecker B.J.,
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Referencesable at: http://www.iht.c
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AnnexesAnnex 1: Real international
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annexesAnnex 5: Percentage househol
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annexesAnnex 7: Harriss’ typology
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A HUNGER WATCH PUBLICATIONhunger Wa
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ACF INTERNATIONAL NETWORKSiège d
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