Rising food prices and implications for information needs

Nicholas Minot (IFPRI)

Presented at the seminar“Food security information systems”

31 January 2011 Imperial Royale Hotel, Kampala

Rising food prices on international markets

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Maize (corn), U.S. No.2 Yellow, FOB Gulf of MexicoRice, 5 percent broken milled white riceWheat, No.1 Hard Red Winter, ordinary protein, FOB Gulf of MexicoSoybean Oil, Chicago Soybean Oil Futures (first contract forward) exchange approved gradesFood price index (2005=100) (right axis)Oil (UK Brent)

Food prices in Ugandan markets: mixed trends

Source: FEWS-NET, 2011.

Matoka prices rising & higher than usual

Maize price rising but normal (as of November)

Cassava price stable and normal (as of November)

Food security – Definition

“Food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life”.Source: World Food Summit Plan of Action, Rome, 1996

Food security - Conceptual framework

LandLabor, mgt Inputs Weather Population Preferences Income

Food production Food demand

Food pricesInternational markets & trade

Infrastructure and market efficiency

Farm income Purchasing power of consumers

Food intake

Health

Sanitation

Care practices & nutrition education

Food utilization

Nutrition status

Food security - Policy instruments

Roads, competition policy

Health, sanitation, & educ. spending

Land policyFamily planning

Safety nets

Trade policy

Food aid

Nutrition assistance

Research & extension

Research, irrigation,mkt info

Food security – Sources of instabilityWeather-related supply shocks

Price shocks from world markets

Food security – Types of information needs

Monitoring of food security indicatorsAnalysis and interpretation of food security indicatorsRelationships among food security indicatorsImpact of food & nutrition policy and programmes

1. Monitoring food security indicators

Food security indicators (“boxes” in conceptual framework)

Issues in monitoringHow frequent to monitor them?How many commodities to cover?How many locations to cover?What level of accuracy to seek given trade-off of cost & accuracy

Decisions are often based on:Importance of indicator as a measure of food security Cost of collecting data

1. Monitoring food security indicators

Daily or weekly monitoringDomestic and international food pricesWeather

Monthly monitoringInternational trade

Semi-annual or annualFood and agricultural productionUse of fertilizer and other inputs

Every 5-10 yearsFood consumption, expenditure, and incomeNutrition status at national levelPopulation

2. Analysis & interpretation of indicators

Why is analysis and interpretation important?Policy response depends on cause of the problemNot enough to know the trend, must understand causes behind it

Example: Rising grain prices in Ethiopia 2006-08Alternative hypotheses:

• Part of inflationary trend• Rural households consuming more grain• Rural households storing more grain• Traders hoarding grain to drive up price• New safety net programme increasing demand for grain• Increase in cross-border exports of grain• Shortfall in production

Study methods• Farm survey, trader survey, cross-border trade study, ag sector

model

2. Analysis & interpretation of indicators

Why is analysis and interpretation important?Policy response depends on cause of the problemNot enough to know the trend, must understand causes behind it

Example: Rising grain prices in Ethiopia 2006-08Alternative hypotheses: Findings:

• Part of inflationary trend Contributing factor

• Rural households consuming more grain No evidence

• Rural households storing more grain No evidence

• Traders hoarding grain to drive up price No evidence

• New safety net programme increasing demand for grain Too small to affect

• Increase in cross-border exports of grain Too small to affect

• Shortfall in production Contributing factor

Study determined that causes were:• Inflationary trend and shortfall in production

3. Relationship among food security indicators

Relationships among indicators (black arrows in the conceptual framework)

Examples: What is the effect of changes in world maize prices on domestic maize prices?If rains are 30% less than usual, how will this affect the rice output? What is the effect of higher cassava prices on domestic production? If matoke prices rise 50%, what will be the effect on food consumption and nutrition among different types of households?

MethodsUsually requires good data and statistical analysisExample 1: Analysis of effect of world markets on domestic food prices requires 5-10 years of monthly data and time-series econometrics analysisExample 2: Analysis of the effect of price changes on different types of households requires data from a national household income-expenditure survey

3. Relationship among food security indicators

Sometimes findings go against conventional wisdom (CW)CW: “World markets affect African food prices”

Data: Monthly data on world grain prices & 62 African food prices Method: Error-correction modelResults:

• Only 13 of 62 prices linked to world markets of same commodity• About half of rice prices linked to international markets• Only 10% of maize prices linked to international markets• Explanation: Most African countries are almost self-sufficient in

maize but much of rice comes from world markets

CW: “Farmers benefit from higher grain prices” Data: Household survey data from numerous African countriesMethod: Simulate impact of price change on rural householdsResults:

• 40-60% of households are net buyers of grain & lose from higher prices

• Benefits concentrated among larger farmers

4) Impact of food & nutrition policies & programs

Impact of policy & programs (blue arrows in the conceptual framework)

Examples: What is the effect of the current import tariff on maize? What is the effect WFP purchases of Ugandan maize?What is the effect of school feeding programs in Uganda?

MethodsGood: Analysis of data from one household survey

• Can establish correlation but not causationBetter: Analysis of panel data (2+ surveys covering same households)

• Gives strong indication of causation, but selection bias: participants in programme may be different than non-participants.

Best: Randomized control trials• Randomization ensures similarity of programme participants and

non-participants so outcomes can be compared

Conclusions

Food security conceptual framework helps identify information needsData collection affected by cost of collecting indicatorsFour types of food security information

Food security indicatorsAnalysis and interpretation of indicatorsRelationship among indicatorsImpact of food & nutrition policies on indicators

Trade-off between accuracy and costInformation needs depend on policy issues facing government