1

School of Oriental & African Studies

Reducing Food Price Volatility

for Food Security & Development: G20

ActionDecember 2010

Andrew DorwardCentre for Development, Environment and

PolicySchool of Oriental and African Studies

University of London

Questions

What are the sources of food price instability? What has happened to food prices? What are the prospects? What to do, by/ with who, how, where? Why?

2Paris, 1st December 2010

Causes of the 2008 spike?

3

Paris, 1st December 2010

Environmental changes

Policy changes

Population growth

Economic growth

Causes of the 2008 spike?

4

Paris, 1st December 2010

Environmental changes

Policy changes

Population growth

Economic growth

Water scarcit

y Oil prices

Causes of the 2008 spike?

5

Paris, 1st December 2010

Environmental changes

Policy changes

Population growth

Economic growth

Biofuels

Reduced subsidie

sWater scarcit

y Oil prices

Reduced R&D

Causes of the 2008 spike?

6

Paris, 1st December 2010

Environmental changes

Policy changes

Population growth

Economic growth

Loss of

land

Biofuels

Reduced subsidie

sWater scarcit

y

Rising deman

d

Oil prices

Reduced R&D

Causes of the 2008 spike?

7

Paris, 1st December 2010

Environmental changes

Policy changes

Population growth

Economic growth

Higher prices Low

stocks

Stagnant productivi

ty

Falling supply

Loss of

land

Biofuels

Reduced subsidie

sWater scarcit

y

Rising deman

d

Oil prices

Reduced R&D

Causes of the 2008 spike?

8

Paris, 1st December 2010

Volatility: price spikes

Environmental changes

Stakeholder

stocking

Financial speculati

on

Production lags

Policy changes

Population growth

Economic growth

Higher prices Low

stocks

Stagnant productivi

ty

Falling supply

Loss of

land

Biofuels

Reduced subsidie

sWater scarcit

y

Rising deman

d

Oil prices

Reduced R&D

Causes of the 2008 spike?

9

Paris, 1st December 2010

Volatility: price spikes

Weather shocks

Environmental changes

Stakeholder

stocking

Financial speculati

on

Production lags

Policy changes

Population growth

Economic growth

Higher prices Low

stocks

Stagnant productivi

ty

Falling supply

Loss of

land

Biofuels

Reduced subsidie

sWater scarcit

y

Rising deman

d

Oil prices

Reduced R&D

Oil prices

Biofuels

Drivers of food price changes Long term drivers

Policies Environmental eg climate change Population Economic growth Energy prices Technical change / labour productivity

Short term drivers Weather shocks Policy shocks Stocks

Distinguish between Low, middle, high income economies / people? Long and short term food prices

What has happened to food prices?

10Paris, 1st December 2010

What has happened to food prices?

Long term trend

Decline relative to income, due to labour productivity increases

from energy substitution &

technical change

Short term spike

More expensive relative to other goods and services, relative

to inputs

11Paris, 1st December 2010

What has happened to food prices?

12Paris, 1st December 2010

What has happened to food prices?

Rich buyers, sellers

Long term trend

Decline relative to income, due to labour productivity increases

from energy substitution &

technical change

Short term spike

More expensive relative to other goods and services, relative

to inputs

13Paris, 1st December 2010

What has happened to food prices?

14Paris, 1st December 2010

What has happened to food prices?

15Paris, 1st December 2010

What has happened to food prices?

Rich buyers, sellers

Less / emerging

poor (buyers & sellers)

Poor (net buyers)

Long term trend

Decline relative to income, due to labour productivity increases

from energy substitution & technical

change

Always high relative to

income

Short term spike

More expensive relative to other goods and services, relative to

inputs

More expensive relative to

income, more difficult to

afford

16Paris, 1st December 2010

What is going to happen?

Impacts on labour productivity, incomes, equity, economies, food security, food stocks, price variability?

Implications for international policies: Increase stocks

Raise supply - productivity Whose productivity where?What constraints? Low productivity traps, price tight ropes?What policies, what technologies?

Reduce demand? Manage risk

17Paris, 1st December 2010

Rising energy prices? Population growth Water scarcity? Economic growth

Climate change impacts?

What to do, how, by/with who, where?

18

Paris, 1st December 2010

Volatility: price spikes

Weather shocks

Environmental changes

Stakeholder

stocking

Financial speculati

on

Production lags

Policy changes

Population growth

Economic growth

Higher prices Low

stocks

Stagnant productivi

ty

Falling supply

Loss of

land

Biofuels

Reduced subsidie

sWater scarcit

y

Rising deman

d

Oil prices

Reduced R&D

Oil prices

Biofuels

Prevent Cope

Market

State

transparencyagricultural

R&Dinfrastructure

insurance, options

macro-economicmanagement

consistency

rules

inputsA

output markets

finance

insurance

safety nets

institutions

DC

B

Notes: Work in progress - stylised contents & location, instruments extend across & contribute to both prevention & coping; roles & providers differ between contexts (eg poor, less poor economies) & between levels (eg farm, national, regional, international) - especially for finance & insurance. Politicians are critical! Civil society?

What to do, how, by/with who, where?

finance

Why?

Low stable food prices critical for Welfare of the poor – incomes, nutrition, health, child

development, education, …….. Development processes International relations & security Welfare / lifestyles of developed economies founded

on cheap mobile energy, cheap food, Technology & technical changeInstitutions & institutional change

A critical G20 issue

20Paris, 1st December 2010

higher labour productivity in

food production

Energy, materials, capital, technology,

knowledge, institutions

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

higher labour productivity in

food production

increased / constant per capita food availability

Energy, materials, capital, technology,

knowledge, institutions

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

higher labour productivity in

food production

increased / constant per capita food availability

releasing labour for production of other goods and services

falling food prices relative to wages/income,

Energy, materials, capital, technology,

knowledge, institutions

COORDINATION processes, scale, locations, populations,

timing

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

higher labour productivity in

food production

increased / constant per capita food availability

releasing labour for production of other goods and services

falling food prices relative to wages/income,

increased income available for purchase of non food goods &

services

Energy, materials, capital, technology,

knowledge, institutions

COORDINATION processes, scale, locations, populations,

timing

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

higher labour productivity in

food production

increased / constant per capita food availability

releasing labour for production of other goods and services

falling food prices relative to wages/income,

increased income available for purchase of non food goods &

services

Energy, materials, capital, technology,

knowledge, institutions

COORDINATION processes, scale, locations, populations,

timing

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

Increased demand for & supply of non-food goods

& services

higher labour productivity in

food production

increased / constant per capita food availability

releasing labour for production of other goods and services

falling food prices relative to wages/income,

increased income available for purchase of non food goods &

services

Energy, materials, capital, technology,

knowledge, institutions

COORDINATION processes, scale, locations, populations,

timing

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

increased / constant per capita ‘other’ availability

releasing labour for production of

other goods & services

falling ‘other’ prices relative to wages/income,

increased income available for purchase

of goods & services

Energy, materials, capital, technology, knowledge,

institutions

COORDINATION processes, scale, locations, populations,

timing

INDUSTRIAL, SERVICE, KNOWLEDGE REVOLUT-

IONS

Increased demand for & supply of non-food goods

& services

higher labour productivity in

food production

increased / constant per capita food availability

releasing labour for production of other goods and services

falling food prices relative to wages/income,

increased income available for purchase of non food goods &

services

Energy, materials, capital, technology,

knowledge, institutions

COORDINATION processes, scale, locations, populations,

timing

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

increased / constant per capita ‘other’ availability

releasing labour for production of

other goods & services

falling ‘other’ prices relative to wages/income,

increased income available for purchase

of goods & services

Energy, materials, capital, technology, knowledge,

institutions

COORDINATION processes, scale, locations, populations,

timing

INDUSTRIAL, SERVICE, KNOWLEDGE REVOLUT-

IONS

Increased demand for & supply of non-food goods

& services

Earlier(?) Positive feedbacks

Capital, Technology, Knowledge, Health? Poverty reduction,

Globalisation?

higher labour productivity in

food production

increased / constant per capita food availability

releasing labour for production of other goods and services

falling food prices relative to wages/income,

increased income available for purchase of non food goods &

services

Energy, materials, capital, technology,

knowledge, institutions

COORDINATION processes, scale, locations, populations,

timing

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,

other goods & services

increased / constant per capita ‘other’ availability

releasing labour for production of

other goods & services

falling ‘other’ prices relative to wages/income,

increased income available for purchase

of goods & services

Energy, materials, capital, technology, knowledge,

institutions

COORDINATION processes, scale, locations, populations,

timing

INDUSTRIAL, SERVICE, KNOWLEDGE REVOLUT-

IONS

Increased demand for & supply of non-food goods

& services

Later (?) Negative feedbacks

Natural resource use,Waste, Environmental

degradation, Biodiversity loss, Health? Inequity? ?

Globalisation?

Earlier(?) Positive feedbacks

Capital, Technology, Knowledge, Health? Poverty reduction,

Globalisation?

29

School of Oriental & African Studies

Reducing Food Price Volatility

for Food Security & Development: G20

ActionDecember 2010

Andrew DorwardCentre for Development, Environment and Policy

School of Oriental and African StudiesUniversity of London