Food and Agriculture Organization of the United Nations (FAO)

Transcription

1 Food and Agriculture Organization of the United Nations (FAO) Topic A: Food Price Volatility Chair: Ethan Ritz Moderator: Tom Hyman Vice Chairs: Grace Sunken, Emery Weinstein April 10 13, 2014 Ritz 1

2 Food Price Volatility Introduction: For many developing nations with fragile economies, even a slight increase in the price of food can lead to widespread famine as its citizens struggle to keep up with the rising costs. As the population of the world skyrockets to over 7 billion, food production and distribution methods have struggled to keep up, resulting in an increased demand for what supply is available. Without the safety of knowing how much the next meal could cost and the appropriate safeguards to ensure minimal impact from a price increase, many citizens must struggle to find the means to feed their families Over the past fifteen years, prices have increased more than 50% in real terms (according to the FAO Food Price Index) for some goods such as meat, dairy, and cereals, with no guarantee of long-term price stabilization in sight. These increases have been felt throughout the world in developed and developing countries alike. The FAO and other UN bodies such as the World Food Programme, and World Bank have worked tirelessly to combat these fluctuations with resources and programs for struggling countries to take advantage of which provide both direct and indirect aid measures. Within the past year, food prices have stabilized compared to years past, coupled with slight decrease in the overall FAO Food Price Index. Programs already enacted by the FAO and other governing bodies may be attributed to recent success. However, this lull does not mean the end of future price volatility. Now is the time to enact measures to protect against future price swings and ensure the stability of prices for years to come. FAO Director-General José Graziano da Silva, in a meeting to address international food prices, urged the international community to take up this Ritz 2

3 approach. International prices have declined but they are still above their historical levels. And prices are expected to remain volatile over the next years, he cautions. If higher and volatile prices are here to stay, then we need to adapt to this new pattern. Background and Current Situation: Causes of Food Price Volatility Population Shifts As developing countries grow economically, more people can move from poverty to the middle class. Although this sort of trend is generally seen as positive, there are certain challenges that come along with it. People with higher disposable incomes can afford more expensive foods like meat, which a larger middle class can then afford. This not only increases demand for meat itself, but also on the crops needed for livestock feed like corn, sorghum, and barley. These crops are critical for both human and animal consumption. In addition, the movement of people from rural areas to urban centers, especially in the developing world, has had an impact on food price volatility. The decreasing number of farmers must now take on a greater burden of food production. This can present a challenge in developing nations that may not have the technology to achieve greater production amongst a smaller number of people. Markets and Trade Just as in the stock market, investors can essentially "bet" on changes in commodity prices in order to make a profit. This speculation can often times exacerbate shifts in food prices without regard to humanitarian needs for food. In addition, many countries place strict limits on food exports to protect themselves from swings in the market. This type of behavior has lead to a lack of Ritz 3

4 interdependence, where countries can act selfishly. This especially hurts countries that rely on food imports because they can be forced into paying higher prices due to the limiting of available supply in the international market. Weather and Climate Change Poor weather conditions can obviously place a detrimental effect on food production and alter prices. Massive droughts, flooding, and natural disasters can be devastating to crop yields. Although actions taken by people can contribute to climate change, it is not something that can easily be controlled in the short term. Countries must find strategies to try and keep the food base secure knowing the challenges that may be faced due to climate change. Historical Background In the past century, food prices have fluctuated tremendously. The green revolution of the 1960s led to an increase in food production that in turn lowered food prices. However, in the 1970s, several successive years of bad weather caused a drop in crop production of 33 million metric tons. The sharp rise in food prices that this caused was further exacerbated by an increase in the price of oil. Developing nations could no longer afford the petroleum-based herbicides and pesticides required of high-yield, green revolution farming. Food prices stayed high until the early 1980s, when they began to descend, reaching a historic low in the early 2000s. In 2006 food prices began to increase again, rising seven percent on the FAO food price index. This increase accelerated dramatically in 2007, with the FAO food price index jumping 27 percent. For consumers accustomed to the extremely low prices of the early 2000s, this spike was shocking and caused many economists to proclaim a global food crisis. Not only were prices high, but they were also unpredictable. By early 2008, the volatility of wheat and rice prices approached near record highs, with wheat volatility levels at twice that of 2007 and rice volatility levels five times Ritz 4

5 higher. Prices for sugar, vegetable oil, and livestock products were also much more unpredictable than they had been in recent years. These wide price swings led to low-risk production methods which limit entrepreneurship and speculating in food prices which destabilizes cash prices. The effects of food crisis of 2007 and 2008 were devastating and far-reaching. High food prices contribute to inflation, raising the overall cost of living. Prices also indirectly contribute to inflation when they cause wage increases. Rises in interest rates caused by inflation prevent many from investing in agriculture, creating a vicious cycle that keeps millions living in poverty. Another effect of the rise in food prices was an increase in freight costs. This is especially problematic, as the poorest countries tend to be the ones who import the most food. By 2008, food import levels for low-income food-deficit countries reached double their levels from In many poor nations, riots centering on high food prices erupted, and many people were killed or injured. These countries included Indonesia, Senegal, Burkina Faso, and Egypt. In Thailand, the world s largest rice exporter, supermarkets limited the amount of rice customers could purchase. In Haiti, the Prime Minister was forced out of office. Many causes have been attributed to the food crisis, with differing degrees importance being placed on various factors. The shifting of corn and vegetable oil use from food to biofuel has been cited as a major cause, but has been downplayed by many wealthy nations with high demand for biofuel. Because of the economic growth of several large nations, there was also an increased demand for meat from the growing middle class as their diets diversified. This meant that more land had to be diverted for growing livestock feed. Other factors that contributed to the food crisis included severe weather, such as the drought in Australia the lasted from 2005 to 2007, and rising production costs for machinery. Another key factor was various trade policies such as export bans and the stockpiling of food by some governments. This caused producers to withhold food Ritz 5

6 commodities from the market as well as fits of panic buying due to fears of continued price increases. Low rice and wheat yields combined with slow production over the preceding two decades was another important factor in rising food costs. This was due to a long-term low investment rate in agriculture that dated back to the 1950s. In 2009 as prices began to decrease, the third World Summit on Food Security was held at the UN Food and Agriculture Organization headquarters. At this summit, world leaders renewed their commitment to eradicating hunger as quickly and sustainably as possible. Countries also vowed to increase investments in agriculture, especially in poor parts of the globe where hunger is rampant, in order to prevent a crisis like the one of the preceding years from happening again. Current Situation (Graphs on p. 11 display data from October 2012 to October 2013) Since the end of 2011, food prices have continued to fall except for a brief rise in prices globally in late The Food and Agriculture Organization, believes this decline to be driven mainly by diminished prices for grains, soy, and palm oil. A dip in sugar, meat and dairy prices in mid-2013, also contributed to the overall decrease. The FAO Food Price Index began to drastically decrease after April 2013, dropping over 6% in a five-month span. The Index slightly rebounded in October 2013, but still remained lower than where it had been a year ago. Cereals The FAO Cereal Price index slightly increased from September to October Cereal production, especially maize, hit record quantities of supply, while demand for wheat went up significantly. Production for wheat suffered because of a decrease in production in Argentina and the Black Sea region. Rice prices also increased between September and October Ritz 6

7 Vegetable Oils The Vegetable Oil Price Index increased from October to September 2013 due to palm oil prices increasing by 5% because Southeast Asian production was less than expected. Soy oil values tanked because soybeans are expected to be produced in greater supplies this and next year. Dairy The FAO Dairy price index has remained relatively constant except for a spike in mid Demand for whole milk powder has risen, especially in China, increasing prices of that and as well as butter. Meat The FAO Meat Price Index was quite volatile over the past year, but seems to have stabilized in recent months. The price drops were likely due to the decrease in poultry and pork prices due to decreases in feed prices. Rising prices can be explained by bovine and ovine price increases due to limited supplies. Sugar The FAO Sugar Price Index remained relatively stable over the past year, with a slight increase in late The sugar price increase was largely attributed to poor weather conditions in the center-south region of Brazil and a fire in one of the main sugar warehouses in Santos port in Brazil that destroyed its supply of sugar. Recent Actions In 2011, FAO estimated that by 2050 global food production must increase by 70% in order to supply the population of the world, which is expected to reach 9.1 billion, with sufficient food. The FAO has tried to resolve problems in food price volatility in the past. It has supported the EU Ritz 7

8 Food Facility with 232 million euros. In 2009, the 1 billion euro EU Food Facility was established. This two-year program was created to help developing nations create long-term food security and diminish the record high rises in food prices in Help from the FAO has allowed the organization to assist almost 9 million people by working in 28 countries in rural regions of Africa, Asia and Latin America. Bloc Positions: Middle East and North Africa Due to the arid climate and poof farming conditions, many of these countries rely on imported food. These countries would not likely be significantly benefited from newer agricultural technologies, as their environmental conditions are not well suited for farming. In addition, many of these countries are experiencing political unrest due to high food prices which may impair trade relations with other countries. Small Industrialized Nations (Manny countries in Western Europe, Japan and South Korea) These countries tend to have booming urban populations, but likely not enough arable land to be self-sufficient. However, these countries have sufficient financial resources to import the food that they need. Because of this, these countries would be likely more in favor of strategies to regulate food prices, as significant swings could hurt other factors of their economy. Sub-Saharan Africa and Other Poor Countries The main concern for many of these countries is widespread hunger. These countries often lack the financial and infrastructural resources to import sufficient amounts food as well as the technology and resources to produce enough food on their own. These countries are likely to seek Ritz 8

9 aid from wealthier countries to combat hunger. They would likely be in favor of a more interdependent global food market that would expand food resources available to them Large Producers of Food (USA, China, Russia, India) These countries can likely play the largest role in food price volatility, as they usually have the largest control of the total supply going into the global market. For these countries, food production is a vital economic interest. However, the participation of these countries is crucial in developing global solutions to food security. Questions to Consider: What food resources does your country have, and what do they need to import? What have the barriers been to reducing food price volatility? How can food prices be protected from natural, economic, and political disasters? How can current stability in certain food sectors be used to ensure long term security? How can commodity markets be held responsible for humanitarian concerns? What responsibilities do countries with significant agricultural resources have? How can food price security be used as a tool to combat hunger? Recommended Sources: - Data and reports on food prices - Agricultural information by country Ritz 9

10 - Articles about food price volatility - Humanitarian efforts to resolve food price volatility - Technical reports on food prices - Efforts taken by the World Bank to aid in food security Bibliography: Johnson, Toni. "Food Price Volatility and Insecurity." Council on Foreign Relations 16 Jan Web. < Lacey, Marc. "Across Globe, Hunger Brings Rising Anger." New York Times. 18 Apr Web. < 18food html?pagewanted=all&_r=2&>. Shah, Anup. "Global Food Crisis 2008." Global Issues. 10 Aug Web. < The State of Agricultural Commodity Markets 2009: High Food Prices and the Food Crisis -- Experiences and Lessons Learned. Rome, Italy: Food and Agriculture Organisation of the United Nations, Web. <ftp://ftp.fao.org/docrep/fao/012/i0854e/i0854e.pdf>. The State of Food Insecurity in the World: How Does International Price Volatility Affect Domestic Economies and Food Security? Rome: Food and Agriculture Organization of the United Nations, Web. < Ritz 10

11 Food Price Index Cereals Vegetable Oils Dairy Meat Sugar Ritz 11