Download What are food prices?

School of Oriental &
African Studies
Agricultural labour
productivity and food
prices: development
impacts and indicators
12th April 2012
Andrew Dorward
Centre for Development, Environment and Policy
School of Oriental and African Studies
University of London
1
Questions
 What are the impacts of the food price spikes?
 What are food prices?
 What are the likely micro & macro impacts of food
price changes?
 What has happened to food prices?
 What have been the short term impacts of food price
spikes?
 What are the long term impacts?
 What are the implications of this?
 What indicators can we use to better reflect/ monitor
these impacts?
 Agricultural development
 Food price impacts
April 2012
2
What are food prices?
 Measures of value relative to consumer incomes & other
goods and services consumed
 Measures of value relative to producer incomes, other
commodities produced by food producers, and inputs
used in production (land, labour, energy, capital items)
 Standard measurement problematic when relative values
of different comparators change over time
 What are the critical comparators?
Prices of other consumer goods (which
consumers)?
Consumer incomes (which consumers)?
Prices of producer inputs?
Prices of alternative products?
April 2012
3
What has happened to food (grain) prices?
April 2012
4
What has happened to food (grain) prices?
April 2012
5
What has happened to food (grain) prices?
April 2012
6
What has happened to food (grain) prices?
April 2012
7
What are the likely micro impacts of food price
rises?
 Direct effects
 Consumers:
Substitution effect
Income effect
 Producers:
Substitution effect
‘Cost’ or ‘profit’ effect
Producer effects may be lagged or capital
constrained or damped by price volatility / risk
April 2012
8
What are the likely micro impacts of food price
rises?
Sufficient access to capital
Insufficient access to capital
Product
Labour Labour Product
Labour Labour
Income
Income
-ion
demand supply
-ion
demand supply
Season
Producers
with
surplus
Producers
with
deficits
Pure
consumers
1
2
1
2
1
2
1
2
large
+++
+++
+++
na
= ++ ++
++
= ++ na na
+
small
++
++
++
na
=
+
+
++ =
small
+
...
…
…
=
-
-
-
large
+
-
na
+
-
-
--
--
na na
na
---
na
++
--
--
na na ++ ++
Na na
-
+
na Na
-
+
+
+
+
April 2012
9
What are the likely micro impacts of food price
rises?
 Indirect effects – linkages
 Consumers (negative)
 expenditure linkages
 Producers (positive)
 expenditure linkages
 upstream linkages - labour, inputs, land
April 2012
10
Factors influencing likely impacts of
exogenous food price increases
Positive impacts of high
food prices: increased real
incomes & reduced
poverty
more access to capital
more surplus producers
more wealthy consumers
more wealthy economy
falling input (eg fertiliser)
prices
low price volatility
Negative impacts of high
food prices: reduced real
incomes & increased
poverty
less access to capital
more deficit producers
poorer consumers
less wealthy economy
rising input (eg fertiliser)
prices
high price volatility
Good & bad impacts multiplied by strong linkages in the economy
and by strong price transmission from external markets
February 2011
11
What are the likely micro impacts of food price
rises?
Indeterminate, but …
high price volatility reduces benefits of high prices to surplus
producers without benefits to deficit producers or consumers
 improved producer access to seasonal capital improves benefits
to surplus & deficit producers without harming consumers
 more equitable land and income distribution likely to reduce
negative effects & promote positive effects of high prices:
 with more equitable land distribution
 benefits to surplus producers more widely distributed in
the economy
 production responses likely to be more labour & less
capital intensive (promoting labour demand to benefit
land poor farmers & landless labourers wage incomes);
 more equitable income distribution among consumers
means fewer very poor consumers


April 2012
12
What are the likely macro impacts of food price
rises?
Fixed rate tax/ subsidy
Tax
Subsidy
Importing
country
Exporting
country
Ad valorem tax/ subsidy
Tax
Subsidy
Increase in
Increase in
Some
Some
tax income
subsidy per
reduction in
reduction in
per tonne
tonne
tax income if subsidy cost
imported but imported but
increased
if increased
some
some
price reduces price reduces
reduction in
reduction in
demand
demand
imports
imports
Some
Some
Increase in
Increase in
increase in
increase in
tax income
subsidy cost
tax income if subsidy cost
per tonne
per tonne
increased
if increased
exported and exported and
price
price
also in tonnes also in tonnes
increases
increases
exported
exported
supply
supply
April 2012
13
What were / are the short term impacts of
high food prices?
 Modelling / simulations (‘hunger’ and ‘poverty’ estimates)
 High food prices good for producers of food - farmers …
 But bad for food buying producers …
 Poverty impacts
 Hunger impacts
 Malnutrition impacts
 But not so bad after allowing for wage impacts???
 Field studies
 High prices bad for both rural & urban poor
 Poverty, hunger, malnutrition education ….
 Gallup Welfare Poll: self reported food insecurity (Headey)
 High food prices increase it, economic growth reduces it
 Increased food insecurity in Africa
 Decreased food insecurity in Asia
 Lower global increase in food insecurity than FAO/WB
April 2012
14
What has happened to food (grain) prices?
February 2011
15
What has happened to food (grain) prices?
April 2012
16
What has happened to food (grain) prices?
April 2012
17
What has happened to food (grain) prices?
April 2012
18
What has happened to food (grain) prices?
April 2012
19
What has happened to food (grain) prices?
April 2012
20
What has happened to food (grain) prices?
 Fallen relative to expenditure baskets of consumers with





growing incomes
Constant relative to expenditure baskets of poor
consumers
Fallen relative to incomes of consumers with growing
incomes (!!)
Constant / lower fall relative to incomes of poor
consumers
No clear trend relative to other agricultural commodities
Wide fluctuations but general fall relative to oil and
fertiliser prices
April 2012
21
Long term drivers of food price changes
 Context of growing populations with growing grain
consumption per person in growing economies
 Increased demand counteracted by
 Area change
 Technical & institutional change
April 2012
22
Area and Technical & institutional change
Annual
change
Cereal
land
Arable
land
Cereal
land
Arable
land
Cereal
yield
Period
19612009
19612008
20002009
20002008
19612009
20002009
High
income
(OECD)
Upper
middle
income
Lower
Low
middle
World
income
income
-0.08%
0.77%
0.79%
1.63%
0.65%
-0.09%
1.77%
0.65%
0.95%
0.60%
-0.28%
0.49%
0.53%
2.43%
0.55%
-0.46%
-0.12%
0.25%
1.22%
-0.02%
1.90%
2.30%
2.04%
0.96%
1.85%
1.43%
1.73%
1.60%
1.18%
1.38%
April 2012
23
Technical, institutional & structural change
 Innovation driven by production incentives with high food
prices, depressed by low food prices?
 Low food prices relative to incomes are a global public
good that require globally coordinated public investment
by national governments
 Low food prices relative to incomes
Non rival and non excludable
Global
Good
 High prices immediate harm with long term
effects on individual & hence national welfare &
development
 Low food prices relative to incomes the basis
for economic growth, development and wider
processes of structural change
April 2012
24
Energy, materials,
capital, technology,
knowledge, institutions
COORDINATION
processes, scale, locations, populations, timing
increased / constant per
capita food availability
higher labour
productivity in
food production
falling food
prices relative to
wages/income,
releasing labour for
production of other
goods and services
AGRICULTURAL
REVOLUTIONS
Later (?) Negative feedbacks
Natural resource use,
Waste, Environmental
degradation, Biodiversity loss,
Health? Inequity? ?
Globalisation?
Earlier(?) Positive feedbacks
Capital, Technology,
Knowledge, Health? Poverty
reduction, Globalisation?
increased income
available for purchase
of non food goods &
services
Increased demand for &
supply of non-food goods
& services
increased income
available for purchase
of goods & services
Long term
impacts of high
food prices?
releasing labour
for production of
other goods &
services
falling ‘other’
prices relative to
wages/income,
INDUSTRIAL,
SERVICE,
KNOWLEDGE
REVOLUTIONS
higher labour
productivity,
other goods &
services
increased / constant per
capita ‘other’ availability
COORDINATION
processes, scale, locations, populations, timing
Energy, materials, capital,
technology, knowledge,
institutions
Implications?
 High food prices relative to income are bad for the poor in
both the short and long term,
 Increasing food or food equivalent productivity of agricultural
workers is critical for low food prices, food security &
development
 Small farm development (increasing their aggregate
productivity of labour & land) is normally a critical but
temporary stage in this
 What does this mean for agricultural development policies
with
 Climate change?
 Environmental / resource threats?
 Growing food demand by rising, more affluent population?
 Climate change mitigation?
 Environmental / resource threat mitigation?
April 2012
26
Energy, materials,
capital, technology,
knowledge, institutions
COORDINATION
processes, scale, locations, populations, timing
Earlier(?) Positive
feedbacks
Capital, Technology,
Knowledge, Health?
Poverty reduction,
Globalisation?
increased / constant per
capita food availability
higher labour
productivity in
food production
AGRICULTURAL
REVOLUTIONS
falling food
prices relative to
wages/income,
releasing labour for
production of other
goods and services
Later (?) Negative
feedbacks
Natural resource use,
Waste, Environmental
degradation, Biodiversity
loss, Health? Inequity? ?
Globalisation?
increased income
available for purchase
of non food goods &
services
Increased demand for &
supply of non-food goods
& services
increased income
available for purchase
of goods & services
releasing labour
for production of
other goods &
services
falling ‘other’
prices relative to
wages/income,
INDUSTRIAL,
SERVICE,
KNOWLEDGE
higher labour
productivity,
REVOLUTother goods &
IONS
services
increased / constant per
capita ‘other’ availability
COORDINATION
processes, scale, locations, populations, timing
Energy, materials, capital,
technology, knowledge,
institutions
Conclusions
 We need to pay attention to
 different relative food price changes for poor/ rich
consumers and producers
 the short / medium term poverty and food insecurity
impacts of high food prices
 the long term developmental impacts of high food
prices
 Short term impacts are serious but can be ameliorated by
economic growth
 Long term undermining of growth is particularly worrying
and challenging and demand a rethink of current
development models
 Smallholder agriculture offers critical but temporary
and challenging opportunities
 How can we simultaneously raise agricultural labour
force productivity and agricultural yields and reduce
energy and material inputs?
April 2012
28
Fundamental (long term structural) challenges
need holistic indicators
April 2012
29
Cereal Equivalent Productivity of Agricultural
Labour (CEPAL) - value added
February 2011
30
Cereal Equivalent Land Yield (CELY) - value
added
February 2011
31
Cereal Equivalent Productivity of Inorganic
Fertiliser (CEPIF) - value added
February 2011
32
Illustrative sustainable agricultural
productivity targets (added value)
April 2012
33
Fundamental (long term structural) challenges need
holistic indicators
April 2012
34
Food price measure: Food Expenditure Ratio,
Decile 1 (FERD1)
April 2012
35
Food price measure: Food Expenditure Ratio,
Quintile 3 (FERQ3)
April 2012
36
Explanations for extreme values
 Costs of calorific requirements calculated with




international not national grain prices.
Index grain weights determined by relative international
not national production and consumption patterns,.
In poor agrarian economies with significant numbers of
poor food deficit producers, a substantial proportion of
calorific requirements may be own produce not
purchased, reducing vulnerability to price increases
(though capital constraints and hungry periods may still
make them very vulnerable to price increases)
Poor people do reduce their FER with damaging ‘coping’
responses - switches from more diverse diets, reduced
intake of more nutritious food, borrowing, drawing on
savings, asset sales, withdrawal from school, etc.,
First decile consumption share estimates in SSA may be
too low
April 2012
37
Fundamental (‘long term’ structural) challenges
 Raise agricultural labour productivity in poor countries
 Maintain / increase yields per ha
 Increase yields per unit energy and material inputs
 Lower food prices for the poor
 Improve targets and indicators (post 2015 IDGs)
 Extend analysis to include water & energy use/
productivity, land rights/ access, micro nutrients …..
 Reduce inefficiency
 Reduce waste
 Reduce consumption of inefficient (grain
consuming) livestock products
 Work together to take climate change, environment,
justice seriously in in all sectors & in our lifestyles
 Seriously question all development models
April 2012
38
School of Oriental &
African Studies
Dorward, A.R. (2012). The short and medium term impacts of rises in
staple food prices. Working paper http://eprints.soas.ac.uk/13478/
Dorward, A.R. (2012). Agricultural labour productivity and food prices:
fundamental development impacts and indicators. Working paper,.
http://eprints.soas.ac.uk/13483/
39
Consumer impacts: substitution effect
April 2012
40
Consumer impacts: income effect
April 2012
41
Producer impacts: substitution effect
April 2012
42
Producer impacts: profit effect
April 2012
43
What has happened to food (grain) prices?
April 2012
44
What has happened to food (grain) prices?
Deflated by US CPI or stylised high
food expenditure CPI?
April 2012
45
Messages
 We need to pay attention to
 different relative food price changes for poor/ rich
consumers and producers
 the short / medium term poverty and food insecurity
impacts of high food prices
 the long term developmental impacts of high food
prices
 Short term impacts are serious but can be ameliorated by
economic growth
 Long term undermining of growth is particularly worrying
and challenging and demand a rethink of current
development models
 How can we simultaneously raise agricultural labour
force productivity and agricultural yields and reduce
energy and material inputs?
 Smallholder agriculture offers critical but temporary
and challenging opportunities
April 2012
46
Causes of the 2008 spike?
Policy changes
Reduced
R&D
Water
scarcity
Reduced
subsidies
Oil
Oil prices
prices
Stagnant
Weather
productivity
shocks
Falling
supply
Biofuels
Biofuels
Loss of
land
Population
growth
Economic
growth
Production
lags
Higher prices
Low stocks
Rising
demand
Environmental
changes
Financial
speculation
Volatility:
price spikes
Stakeholder
stocking
April 2012
What has happened to food prices?
Rich buyers, sellers
Decline relative to income,
Long due to labour productivity
term
increases from energy
trend substitution & technical
change
Short More expensive relative to
term other goods and services,
spike
relative to inputs
Less /
emerging poor
(buyers &
sellers)
Poor (net
buyers)
Always high
relative to
income
More expensive
relative to
income, more
difficult to afford
April 2012
48
What is going to happen?


Rising energy prices?
 Population growth
Water scarcity?
 Economic growth
 Climate change impacts?
 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
April 2012
49
What to do, how, by/with who, where?
Policy changes
Reduced
R&D
Water
scarcity
Reduced
subsidies
Oil
Oilprices
prices
Stagnant
Weather
productivity
shocks
Falling
supply
Biofuels
Biofuels
Loss of
land
Population
growth
Economic
growth
Production
lags
Higher prices
Low stocks
Rising
demand
Environmental
changes
Financial
speculation
Volatility:
price spikes
Stakeholder
stocking
April 2012
What to do, how, by/with who, where?
Prevent
Market
Cope
A
inputs
output markets
insurance
B
finance
State
rules
transparency insurance,
agricultural
options
consistency
R&D finance institutions
infrastructure
safety nets
macro-economic
management
C
D
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?