Thursday, May 13, 2010

WIDER Panel: Global Food Crisis and Response

Per Pinstrup-Andersen (yay!): The Political Economy of Food Price Policy (our next project)
The former and current heads of IFPRI largely agree on where the world is and is heading.
He references my work: almost all the increase in hungry people in Africa is from the Dem Rep of Congo
"I do not believe FAO's recent numbers."
Why? 1 - Price transmission from int'l to national is very low in countries with poor infrastructure and in China
US rice prices spiked highest for international Thai rice, 20% lower in Philippines and Egypt, 60% lower in India and China
But if prices didn't increase in China and India, the number of hungry people must have increased enormously in other countries based on FAO
Wheat prices went up more in Egypt than internationally. Maize prices went up in Kenya but didn't come down for national, not int'l reasons.
Global stock increase: 25% for rice and wheat
Terrible lack of commitment to putting plans into action. (more of my research behind that one)
Agrees with Fan's #1 Priorities. Priority #2: double public investment in ag to increase production sustainably: win-wins are possible
3 - incentives for private sector to invest in sustainable ag (saving and credit institutions for farmers, risk management, public goods)
Need to regulate land grabbing (and enforce them) and internalize environmental externalities (full-costing, PES, polluter pays)
Full costing will have to be international to be effective, and I'm not very optimistic if we can get the agreement.
He puts up our diagram of a modified environmental kuznets curve showing win-win-win: reducing poverty, hunger, and soil degradation at once.
"I'm probably the only one in the room who believes real food prices are going to continue down again. Please talk to me."

Alain de Janvry and Joachim von Braun below the fold

AdJ - Combating transitory food insecurity
The triple crisis in econospeak: the food crisis, climate change, and financial crisis = {[p spike, incr V(p)], incr V(q), y shock]}
The crisis primarily increased transitory, rather than chronic, hunger. The risk is that they move from transitory to chronic.
Causes of chronic lack of food availability: neglect of agriculture and food market failures. lack of access: poverty, low productivity
poor, rural smallholders hit by all three crises
Five groups: pure producers, net sellers, self-sufficient, net buyers, pure consumers
In Guatemala, poor households with large losses are as likely to be farmers as non-farmers.
Transaction costs mean effective purchase price is higher than market purchase price and effective sale price lower than market price.
Higher prices hurt net buyers and consumers while higher variability hurts producers and net sellers (higher income, lower welfare) as well
Finance crisis decreases non-farm incomes, which leads to increased farm production.
To reduce chronic insecurity: invest more in ag, make food markets work, improve access to assets and transfers for rural poor
"Production for home consumption is not a pathway out of poverty, but an effective second-best instrument."
We can improve home consumption as a coping strategy: support subsistence agriculture as part of a safety net system.
He puts forward index-based weather micro-insurance (Mexico and Ethiopia experpimenting) and workfare as additional parts of safety nets
Each crisis causes food insecurity in different ways, so we need different policies to address each type.

Joachim von Braun "Global Food Crisis and Response"
Ag remained largely unglobalized - constant trade shares of staples since the 1960s at 12% - the least traded sector.
We need an independent, nimble, global, strategic body to deal with food policies instead of the hodge-podge of institutions currently.
China prices DID increase: from 250 to 400. Most of Chinese inflation was food.
US, Brazil, and Euro corn futures markets show increased volatility. Prices went up one after another. Chicago decoupled, pulled others up.
Indicators of speculation: ratio volume to open interest/future contracts for Wheat and Rice - more from his ZEF March 2010
Financialization of food: food prices more correlated with economic growth since 1990 than in 90 years before
Farm land prices going up rapidly (x6 in Uganda since 2000) - but terrible statistics
rural food price elasticity between -.6 and -.4
Agree with Per's list of what to do. Focus on risk prevention, management, and social protection.
CO2 market may compete with food, like biofuels, if ill-designed.
We need a multi-layered set of 2nd best strategies to protect the poor. 1st best are difficult because of uncertainties. 1st best a reference

Responses from questions:
Per - four reasons for downward future prices: 1) We have not seen the full supply responses to price increases; 2) research dividends in increasing productivity; 3) demand for building up stocks will go down and some of that will be released sometime soon; 4) I think oil price link will be weaker as biofuels move into 2nd generation. Previous low prices were artificial and kept poor people stuck in low productivity with low investment.
Research by Minot: price increases were for national reasons more than international in Africa

JvB - The poorer the country, the higher the transmission; the more corrupt, the less reversible. [DW - I have to disagree. The poorer the country, the worse the transmission because of lack of market infrastructure.] Ag economists have too long ignored intergenerational, prolonged effects from transitory shocks

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