Safeguarding Food Security in Volatile Global Markets

COPING WITH FOOD PRICE SURGES

INTERNATIONAL AGRIFOOD

ECONOMICS

Ariana Alva Ferrari ●Pauline Fidelius ●Sonia HeinebalHarminder Singh Sangha ●Andrea Sicuro

Objective

The focus of the presentation will be to demonstrate the impact of food price volatility onlow-income countries and suggest a possible solution to the best long-term food securitystrategy.

Key Issues

� Food Price and Volatility Experience: Volatile food prices impact acutely poor households and are brought below the poverty level.

� Compensatory Finance Schemes: Attempts to help vulnerable countries experiencing sudden losses because of fluctuating world prices.

� Food Security: Overview of policies available and their impact on food Importing/Exporting countries.

� Market-Based Approach to Food Security: Optimal approach to stabilize volatility in a long term basis.

Food Price and Volatility Experience

• Volatility is the variability of a price and tend to be positively associated. • In poorest economies where daily income is $1.25 per capita, spending 50 percent of its income

erodes living standards.• Uncertainty of food prices affect farmers as well, as it becomes more difficult to make sound decisions

about how and what to produce.

Compensatory Financial Schemes

“Adopted to assist countries in adapting to volatility in the prices of their export goods”

IMF’s CFF

Transfer of money become pro-cyclical, covered only shorfalls in receipt from

EU facilities: STABEX

from 1975 to 2000

The aim was to remedy the harmful effectcovered only shorfalls in receipt from tourism services and work remittances.

The aim was to remedy the harmful effectof the instability of export earnings.

EU facilities: SYSMIN

focused on alleviation of fluctuations in revenue arising from production and sale

of minerals

EU facilities: FLEX

it aims at faster disbursement of funds to eligible countries

They emerged onto the multilateral stage as a specific response to the 2008 financialcrisis and to the coincident rise in the prices of food commodities.

Global safety net schemes

The Vulnerability Financing Facility is a dedicated facility to streamline crisis support to the poor and vulnerable. The VVF organizes under one umbrella the existing Global

The World Bank’s Vulnerability Financing Facility (VFF)

the poor and vulnerable. The VVF organizes under one umbrella the existing Global Food Crisis Program (GFRP) and the new Rapid Social Response (RSR) program focused on social interventions.

The Global Food Crisis Response Program

It was established in 2008 addressing agriculture by:

•reducing the negative impact of high volatile food prices on the lives of the poor in a timely way

•supporting governments in designing sustainable policies that mitigate the adverse impacts of high and volatile food prices on poverty while minimizing the creation of impacts of high and volatile food prices on poverty while minimizing the creation of long-term market distortions, and

•supporting broad-based growth in productivity and market participation in agriculture to ensure an adequate and sustainable food supply response. (WB, 2008)

The Rapid Social Response (RSR) Program

It is “designed to assist countries address urgent social needs stemming from the crisis, and tobuild up capacity and institutions to respond better to future crises” (World Bank, 2009).

Today, the US$61 million RSR fund financed by Russia, Norway and the UK stands out as aprominent example of a successful multilateral partnership, which will evolve to become theumbrella to support the implementation of this strategy.

Operational Procedure

In spite occasional delays and cancellations, RSR stands as a successful instrument (IEG, 2011).

Part of its success comes from its high degree of integration into the World Bank’s core sector strategy and knowledge management network.

An even more important factor in RSR’s success has been the donors—the Russian Federation, Norway, and the UK—who mandated RSR to be flexible and agile.

Food Security policies

Food security exist « when all people at all times haveaccess to sufficient, safe, nutritious food to maintain ahealthy and active life » (World Food Summit 1996)

• If food prices continue to be volatile and high, the Low Income Countries (LICs) andother developing countries will require longer term policies to cope with food security.

• Food security policies can be handled at two different levels :

� At the Household level access problems to food can arise at the household leveleven if a country has potentially adequate food availability

� At the National level a country is said as « food secure » if it can guaranteeadequate food to its citizens with a reasonable degree of certainty over the future

Food importing/exporting countries

• Food-importing countries:- Have few assets on which to fall back to compensate a rise in staple food prices- In those countries, food prices and availability become acutely political issues

• Food-exporting countries:- Domestic policies of those countries can have a high impact on prices volatility andon food availability at the world level

The role of the International Community

• Ways of helping LICs:• Help trade• Provide food aid

• Different schemes launched to assist food imports• Temporally but long-term vision is necessary

• Donors prefer a trade-based food policy • Need a compromise to limit export restrictions • Need a compromise to limit export restrictions

and to adopt a market-based approach to food security

• BUT prevent ownership and offer little value basis

• Give to multilateral agencies an intermediary role

• Work to find and provide appropriate schemes and contracts

• Schemes discretionary or reinvested

Conclusion

Food price volatility and high price level are important and a big issue, it should be handled by the International community at the world level.

There is not enough cooperation between the International organization

The policies made are not enough effective, they should be more focused on specific needs of each countries on their own domestic safety net policies.countries on their own domestic safety net policies.

The market based approach could enable the food importing countries to limit the impact of spikes in world food prices on their domestic markets while being integrated in national food security schemes.

THANKS FOR YOUR ATTENTION