The halving of world oil prices over the last six months raises questions about the implications for food prices and the welfare of poor people.
Do lower oil prices mean lower food prices? To a certain extent. But for low-energy cropping systems common in most developing countries, and in areas where food is not transported far, the impact will be dampened. For large oil exporters, however, food prices may increase. In general, lower oil prices should lower the cost of moving food from producers to consumers and reduce on-farm fuel and fertilizer costs. But a countervailing factor is that cheap oil may also induce people to drive more, and as fuel ethanol mandates link biofuel use to overall fuel use, ethanol use and the volume of maize used to produce it would also go up. In countries where oil is a large share of exports, real exchange rates may depreciate, which will disproportionately increase the price of traded goods like grains relative to other prices.
Is the downturn in agriculture commodity prices necessarily bad for farmers who produce food? A major downturn in commodity prices would not be great for farm incomes, and high crop yields would be needed to help dampen the effect on farm profits. Lower fertilizer and transport costs may help mitigate any negative impacts.
How long will oil prices remain low? While there is no certainty in forecasts, current estimates suggest fuel prices will remain low for 2015, increasingly slightly in 2016. There are three main drivers of the oil price decline which are structural: Significant increases in US shale oil production, receding concerns of oil supply disruptions in the Middle East, and a change in OPEC policy to maintain rather than cut production.
Food prices in international markets have spiked three times in the past five years: in mid-2008, early 2011 and mid-2012 (Figure 1). The first of those spikes – when rice prices more than doubled – prompted urban riots in dozens of developing countries. It may have contributed even to the unrest that led to the Arab Spring. The most common government response was to alter trade restrictions so as to insulate the domestic market from the international price rise. And the most common justification for that action (tighter export restrictions or lower import barriers on food staples) was that it would reduce the number of people who would fall into poverty. Not only are food prices politically sensitive, but many poor people are vulnerable to higher food prices, because the poorest people spend a large fraction of their incomes on food.
In the last five years, higher food prices have provoked government interventions in agricultural markets across the globe, often in the name of protecting the poor. But do higher food prices actually hurt the rural poor?
Food price spikes, price insulation, and poverty
This paper looks into the impact of changes in restrictions on staple foods trade during the 2008 food price crisis on global food prices and also analyzes the impact of such insulating behavior on poverty in various developing countries and globally.
The United Nations estimates that with the population reaching 9 billion by 2050, global food demand will double, with much of that growth in developing countries.
While the gloom-and-doom predictions of Malthus and a long line of neo-Malthusians have failed to materialize, still, one does have to wonder how all those hungry mouths are going to be fed.
What will it take to ensure that the recent food crises do not become permanent features of the world of the future? While countries in Latin America and the Caribbean are quite heterogeneous in their production potential, overall they are well equipped to contribute to meeting this challenge.
- latin america
- food prices
- food crisis
- Agriculture and Rural Development
- Latin America & Caribbean
- Venezuela, Republica Bolivariana de
- Trinidad and Tobago
- St. Vincent and the Grenadines
- St. Lucia
- St. Kitts and Nevis
- St. Helena
- El Salvador
- Dominican Republic
- Costa Rica
- Bahamas, The
- Antigua and Barbuda
Ace IDS researcher Naomi Hossain introduces the first results of a big Oxfam/IDS research project on food price volatility
If the point of development is to make the Third World more like the First, then we aid-wallahs can pack our bags and go home. Job done.
The most striking finding of Squeezed, the first year results from the four year Life in a Time of Food Price Volatility research project, is how like the people of the post-industrial North the people from the proto-industrial South now sound:
- Stressed and tired
- Juggling work and home
- Surrounded by selfish individualists, led by uncaring politicians
- In strained relationships
- Constantly pressed for time
- Never enough money, even for the basics.
Has the rise in international food prices since the mid 2000s hurt the poor, or helped them? Until recently, everything we knew about this topic came from simulation analyses rather than survey data. Simulation approaches invariably predict that poverty and food insecurity increases as the result of higher food prices, but there are many reasons why these predictions might not eventuate. On the other hand, standard household surveys yield information only after long lag periods. In light of these constraints, in some of my work I use an indicator of self-assessed food security from the Gallup World Poll (GWP). Since 2005, Gallup has survey men and women in a large number of developing countries and asked them (among other things) whether they have had “any trouble affording sufficient food in the last 12 months?” I take the percentage of respondents who answer yes to this question as a measure of national food insecurity.
Guest post from Oxfam Research Policy Adviser Richard King (right)
Today the UN’s Food and Agriculture Organisation (FAO) is celebrating World Food Day, and is playing host to the latest Committee on World Food Security meeting. Last week, to warm things up, the FAO, World Food Programme, and International Fund for Agricultural Development launched their joint 2012 ‘State of Food Insecurity in the World’ (SOFI) report, with the FAO’s latest estimates of global hunger. If you’re familiar with oft-cited facts such as ‘nearly one in seven people go to bed hungry’, or ‘nearly a billion people don’t have enough to eat’ reverberating around the echo chamber, they’re based on the calculations in previous editions of this publication.
The annual report has commanded a lot of interest over the past few years, partly because we’re living through a time of extraordinary food price volatility, but also because some of the FAO’s estimates of hunger (or more properly ‘undernourishment’) during the global food and economic crises have raised eyebrows. I won’t rehash here previous critiques of the recent estimates; suffice to say the shortcomings have been increasingly recognised by the FAO itself, and they’ve been beavering away behind the scenes to improve both their calculations and the data that they rely on. So it was with much anticipation that we waited to see what changes last week’s report would bring. And [fanfare!] here they are…
There is no arguing that high food prices are taking a heavy toll on Latin America’s families, business and governments, fueling ripple effects on people’s budgets and the economy as a whole.
But behind the cold hard numbers of price increases, shrinking budgets and inflationary fears, the simple truth is high food prices can kill –or severely impair- people, especially kids from underprivileged environments.