An October 13 New York
Times headline article warned that an increasing volatile market for grains
could lead to a repeat of the 2008 food price run-up. That price spike left
over 1 billion people in a state of food insecurity-a threshold symbolic in its
extreme order of magnitude and in the challenges it presents for combating
global hunger in the future. In a paper released December 20 in Population and Development Review FSE
director Rosamond L. Naylor and deputy director Walter P. Falcon provide insight into
the causes and consequences of these volatile events.
"Price variability, particularly spikes, has enormous
impacts on the rural poor who spend a majority of their income on food and have
minimal savings," said Naylor. "Impacts at the local level have not been well
measured, yet are key to improving food security globally."
Expectations--often faulty--have played a key role in price
volatility over the past decade. Uncertain exchange rates and macro policies
added to price misperceptions, as did flurries of speculative activity in
organized futures markets, particularly as a result of the growing biofuels
market.
"These events highlight new linkages between agriculture-energy
and agriculture-finance markets that affect the world food economy today,"
explained Falcon. "More importantly, volatile markets compound problems of low crop
productivity, increase reliance on food imports, and aggravate other internal
causes of instability--conflict, weak institutions, and inadequate
infrastructure--that typically plague the world's poorest countries."
To see how the rural poor were impacted on a local scale,
Naylor and Falcon looked at Ghana, Uganda, Malawi, Guatemala, and India. Price
changes at the local level during the 2008 price spike were frequently half
that of international prices, primarily as a consequence of domestic food and
trade policies.
"The price bubble was undeniably grim for poor consumers,
particularly for households living under $1/day or $2/day, but not as
debilitating as many commentators suggested," said Falcon. "Unfortunately, most
price stabilization efforts aimed at the poor, however well intended, ended up
helping larger net producers much more than those at the margin."
Additionally, domestic self-sufficiency polices tended to
have long-term negative impacts on the international market when governments
lacked the resources to defend a targeted price or were ‘large actors' with
significant shares of global production or consumption.
For example, in the spring of 2008, the Indian government
placed a ban on rice exports--a major staple in the country--when it feared
significant increases in grain prices and a spread of Ug99 (wheat rust). This
ban affected food prices from Asia to Africa, created mini-panics within food
importing countries, and added to global grain price variability. It underscored
the growing food-security and crop interdependencies among nations arising from
pathogens, prices, and policies.
The extreme heat wave that hit Russia and Eastern Europe
in the summer of 2010, coupled with floods in Pakistan, declining estimates of
maize stocks in the U.S., and uncertainties about global GDP growth have
captured the attention of many analysts and policymakers. What will happen to
prices in terms of spikes, trends, and variations during 2011-2013 and beyond
is uncertain.
What is known, said Naylor, is that the causes and
consequences of food-price variability deserve much more attention if we are
going to alleviate global food insecurity in the future.
