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Food Prices and the 7 Billionth Baby

Otaviano Canuto's picture

Photo: World BankTurmoil is not solely circumscribed to Wall Street and stock markets around the world. Volatility is also affecting global food prices, and with them, millions of people in developing countries. So, just as the world marks the birth of the 7 billionth baby this week, his or her family might be struggling to put food on the table.

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The poor in the most vulnerable countries have been the most affected, first by the record highs of 2008, and then by the 2011 February spike. Although global food prices have dropped from the February peak and dipped marginally in September of 2011, they remain 19 percent above September 2010 levels, and are now very volatile, especially in the poorest countries.

According to the World Bank Group’s new Food Price Watch quarterly report, released this week ahead of the G-20 Summit in Cannes, France, the price of grains rose 30 percent (September 2010–September 2011), maize prices increased by 43 percent, rice by 26 percent and wheat by 16 percent. Soybean oil went up by 26 percent as well. Over the last quarter, however, an increase of 3 percent in the price of grains was roughly offset by a 3 percent decline in the prices of fats and oils.

So if some prices are up and others down, that’s better than just having prices going through the roof, you might think. Well, volatility creates uncertainty, and we have all experienced what uncertainty can do to the markets and the economy in general. In terms of food prices, volatility and uncertainty can scare away essential mid- and long-term investments in agriculture, and force desperate measures for poor families in the short-term, such as taking children out of school. Likewise, in a volatile environment, the benefits of high prices for food producers are fleeting so nobody ends up benefiting in the end.

Adding to the uncertain future of baby 7 billion, born already in the middle of the global economic turmoil, are the developments in Thailand and the Horn of Africa. Thailand has just experienced the worst flooding in 50 years, with estimated production losses of between 16 to 24 percent of total production. In the meantime, the food crisis in the Horn of Africa continues, affecting over 13.3 million people in the region–an additional million since August.

So what’s next? Latest forecasts show some global stocks, like those of wheat, and the production of maize and rice, to get a boost, which should relieve some pressure on food prices. In addition, the weak recovery from the global economic crisis could dampen demand and push food prices down. This, plus the expected efforts by the G20 and the international community to improve food security and food crises responses, should help. Hopefully, such measures will ensure that the 7 billionth baby—and millions of others who are poor and vulnerable—can live in a less volatile and uncertain world.
 

Comments

Submitted by Anonymous on
Interesting reading...

Otaviano, Is it possible to use traditional derivative products to partially hedge this volatility? Dollar-cost average into the delivered price of food through an umbrella agency with purchase commitments from local vendors - savings and/or costs passed through?

Submitted by Otaviano on
Traditional - esp. vanilla-type - derivatives can certainly help hedge producers from volatility. However, there may also be a dark side of the moon when it comes to the interaction between sophisticated finance and food producers. May I suggest you look the Economic Premise released today (November 9)? Check: www.worldbank.org/economicpremise

Submitted by Anonymous on
How does speculation in commodity markets get assessed in the formulation of plans such as the Economic Premise listed above ? Thank you--I am new to this area of development.

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