The World Food Programme estimates that rising food prices have pushed 44 million people into extreme poverty and hunger since June 2010. The effects of increasingly high and volatile prices of basic foods are felt most by the poorest and most vulnerable people.
The World Food Programme estimates that rising food prices have pushed 44 million people into extreme poverty and hunger since June 2010. The effects of increasingly high and volatile prices of basic foods are felt most by the poorest and most vulnerable people. A poor household in a poor country can spend up to 70% of their income on food, compared with an average of 7% in the United States. Whilst an increase in the global price of grain will slightly affect the price of bread in a US supermarket, for a family living in poverty, it will likely mean buying food at the expense of another basic need.The food security of millions of people worldwide is increasingly dictated by unpredictable global markets.
According to the World Bank Group’s latest Food Price Watch report released in August, food prices have risen significantly threatening the health and well being of millions of people. The report the recent 10 per cent increase (June to July) in overall global food prices notes and high domestic prices in parts of Africa, stressing the risk posed by a potentially similar trend in 2013. The price of maize and wheat rose by 25 per cent, soybeans by 17 percent, whilst the cost of rice fell by 4 per cent. Africa and the Middle East are singled out as the most vulnerable to price fluctuations. Internationally traded commodity prices rose by 6 per cent from last year in July, surpassing the sustained price increases from mid-2010 to February 2011.
The dry weather spell around the world is the main reason for the recent price increases and market volatility in the last two quarters of 2012.Whilst the World Bank does not foresee a repeat of the unprecedented rises of 2008, it does predict Global price increases in 2013 due to the unprecedented summer of droughts and high temperatures in both the United States and the grain producing plains of Asia including Russia, Kazakhstan and the Ukraine.
The 4 per cent fall in rice prices is good news for developing countries. Since only 7 percent of rice output is traded internationally, small changes would result an amplified global impact. The low output, disease and price hikes of 2008 have now turned around with ample inventories and a downward pressure on prices. The recent failed attempt to manipulate global rice prices by the government of Thailand as well as a positive outlook in India’s rice output from the more mechanised and relatively less weather impacted northern region are expected to keep prices down.
The Economist Intelligence Unit (EIU), part of ‘The Economist’ group that produces key analysis and forecasts on International business and world affairs, has a more optimistic forecast than the World Bank. While the EIU maintains that global food prices are set to remain high in 2012 and into 2013, it sees no cause for alarm given the fundamental commodity market indicators; it attributes the price increases to traders factoring a weather risk premium in their food price calculations. However the EIU predicts negative crop yield prospects for 2013 if the lingering weather (drought) conditions continue. It argues that the potentially inflationary conditions that will arise would mean very bad news for central banks that are currently easing monetary policy to help recover economic activity. This would be most apparent in countries with households with high food budget to income ratios. Potential food price increases are also possible due to oil price hikes from geopolitical confrontations (e.g. Iran) affecting operational and fertilizer prices in 2013.
Complementary to the above assessments, Save the Children has reviled that fact that Africa and Middle East are suffering from the price hike in food by comparing basket of food prices in UK to some selected countries. Food prices in the UK are projected to rise by 15 percent early next year (BBC video link). According to the UK charity Save the Children, the average basic food shopping basket worth £7 in the UK costs nearly four times the average salary in some developing nations. For example, the same basket would cost £270 in India, £490 in Mozambique, £1,034 in Somaliland, £200 in the Ivory Coast, £161 in Bangladesh and £20 in Spain. The report released on 16 October, World Food day, stresses that the food items used may not reflect the normal purchases made in the aforementioned countries.
While maintaining weather as a major variable,the EIU offers examples such as high wheat yields in the last 3 years mitigating the 4 per cent less output due to winter weather as well the expected 5 per cent output fall in 2012. Despite the US soybean output being low due to the dry weather conditions, the EIU points that a good harvest in Brazil and Argentina (which have 50 per cent of global soybean production) would stabilise prices.
The overall assessment from the World Bank as well as the EIU (and Save the Children) is that world food prices are set to remain high and potentially increase if the weather impacts around the globe are sustained. Prices have not yet come down, excepting rice, and are potentially set to rise into 2013 due to either actual low yields or expectation of such from bad weather impacts by traders. In either case, Africa and the Middle East will bore the brunt of the price increase along with economies in more developed countries which are also set to suffer from the inflationary drives in their economic recovery efforts.
The unpredictable, international commodities market is responsible for the food insecurity of millions worldwide. The reality of food prices rises should remind policy makers, particularly in poorer countries of the importance of small-holder farms. Whilst poor rural communities in sub-Saharan will be severely impacted by the global price hikes, they can, with the support of their respective governments become champions of resilient, sustainable development, contributing to local and national food security in their own right.