Two Solutions for Countering High Food Prices
Co-written with Prabhu Pingali
Originally published on impatientoptimists.org, August 30, 2011
The recent release of the Food Price Watch report by the World Bank serves as a stark reminder that continuing high and volatile food prices are putting the poorest in the developing world at risk.
After peaking in early 2008, prices for wheat, rice and maize fell sharply, only to have wheat and maize prices rebound to new heights in 2011. Although both the price spikes and the volatility have historical precedents, the recent ups and downs have the most tragic consequences for people in developing countries.
How do we manage high and volatile food prices? In the long term, we must invest in agricultural research and rural infrastructure so that food production increases as fast as demand.
However in the immediacy of sudden spikes in food prices, such as the crisis of 2008, governments and donors focus on designing, funding and setting up food safety nets, and lose focus on long-term poverty alleviation through investments to raise agricultural productivity. Feeding the poor during sudden these times is an important way to keep them from sliding irreversibly into poverty. But funding and implementing these programs comes at a high opportunity cost in terms of both finances and policy attention — and longer term solutions.
Led by France, the agriculture ministers of the G20 recently discussed this dilemma and proposed several innovative steps that provide long-lasting, durable ways to address some of these problems.
Two initiatives show particular promise. First, the Agricultural Marketing Information System (AMIS), housed in the UN's Food and Agriculture Organization (FAO), will rapidly improve the quality and timeliness of basic data on food production, trade, stocks and consumption in the G20 countries. The commitments from China, India, Indonesia and Brazil to participate in this initiative are especially welcome because they are big players in the world food economy. If big players make hasty decisions, such as curtailing exports or increasing stocks, based on inaccurate data, they can actively destabilize world prices.
Up to now, many countries have regarded domestic food data as sensitive (or unreliable). If the quality of these basic data improves, and governments actively cooperate and share information, all participants in the world food system, public and private, will have sharply improved market intelligence on which to base trade decisions and policy actions, which can in turn can stabilize food prices. By making price discovery more transparent — market players will no longer be able to arbitrage commodity positions on the basis of inside data. Although the initial agreement is just with the G20 countries themselves, active steps will be taken to bring other countries and the private sector into the data gathering and analysis.
Second, the G20 member countries have committed to keep borders open to food trade, even in times of a global food crisis. A so-called "rapid response forum" composed of the G20 agricultural ministers, will meet regularly to assess the global food situation, and can meet in emergency session when a crisis erupts.
This initiative is already bearing fruit: they have already agreed to "remove food export restrictions or extraordinary taxes for food purchased for non-commercial humanitarian purposes by the WFP (World Food Programme) and … not to impose them in the future."
This action essentially means that the WFP can more quickly deliver food to those who need it most, and signals a first step towards freer trade in food commodities. Especially as climate change introduces greater variability into many agricultural systems, significantly more trade in food commodities will be needed to even out supply and demand across countries and regions. The G20 can help put us back on the pathway towards more open global trade in food.
The development community needs to support these steps, beginning with agreement at the upcoming G20 meeting in France this November. This initial show of support by leaders in Cannes could signify a crucial step towards recognizing that food price volatility is a serious problem that needs to be addressed through better and more timely data and appropriate government actions.
Peter Timmer, Thomas D. Cabot Professor of Development Studies, Emeritus, Harvard University, was Principal Advisor to the 2010 Asia Society Task Force report Never an Empty Bowl: Sustaining Food Security in Asia.
Prabhu Pingali is the deputy director of the Agricultural Development Policy and Statistics.