Download Strategies to reduce food security risks

Strategies to reduce food security risks
- production, trade, finance, and speculation -
Joachim von Braun
Center for Development Research, University of Bonn
“Feeding the world in 2050“, Policy Symposium under the Irish Presidency of the EU,
Dublin, January 15th &16th , 2013
Overview
1. Food security risks: perceptions and
framework
2. Production and productivity
3. Trade and stocks
4. Finance and speculation
5. Scope for EU-engagement
Top 5 global risks 2013 (perceptions by
likelihood and impact in next 10 years)
global leaders
perceptions
changed: Food
shortage crises
listed among top 5
Impact: scale 1 to 5
1. Major systemic financial failure 4.1
2. Water supply crises 4.0
3. Chronic fiscal imbalances 4.0
4. Food shortage crises 4.0
5. Diffusion of weapons of mass distructions 3.9
Global Risks 2013 Eighth Edition, World Economic Forum
Food security risk is the result of several
sets of risks
Source: J. von Braun 2009
J. von Braun ZEF 2013
Food shortage crises among the top 10
most connected global risks 2013
Connections of one global risk with other risks:
scale 0 to 50
Complexity!
1. Global governance failure 44
Food crises
2. Severe income disparity 41
are connected
3. Critical fragile states 40
to all top
4. Food shortage crises 33
connected
5. Mismanaged urbanization 33
global risks
6. Pervasive entrenched corruption 32
7. Extreme volatility in energy and agricultural prices 30
8. Failure of climate change adaptation 30
9. Unsustainable population growth 30
10. Chronic fiscal imbalances 29
J. von Braun ZEF 2013
Global Risks Report 2013, WEF
The 2050 world food equation is risk prone
Supply
=
Land (degradation)
Water (scarcity)
Productivity & technology
Labor & farm structure
Climate change
Demand
Population (growth)
Income (growth, urbanization)
Poverty and inequality
Consumer behavior, waste
Bio-energy
Trade and Markets
Supermarkets
Protection
Financial markets
Food stocks
J. von Braun, ZEF 2013
Changed price regime as a consequence of
changes in the global food equation
1000
300
rice $/tonne
900
wheat $/tonne
800
250
cereal price index
700
200
500
150
Index
400
100
300
200
50
100
0
0
1/2000
5/2000
9/2000
1/2001
5/2001
9/2001
1/2002
5/2002
9/2002
1/2003
5/2003
9/2003
1/2004
5/2004
9/2004
1/2005
5/2005
9/2005
1/2006
5/2006
9/2006
1/2007
5/2007
9/2007
1/2008
5/2008
9/2008
1/2009
5/2009
9/2009
1/2010
5/2010
9/2010
1/2011
5/2011
9/2011
1/2012
5/2012
Price ($/mt)
600
Source:FAO, FAO Giews.
Prices have increased sharply and remain volatile
7
Which „t“ is relevant for
which food security problem?
• Long-term (decade/year):
>nutritional status (stunting);
water-, land-use; climate, technology; polit. change; investments
• Medium-term (months):
>nutrient deficiencies (Cal., micro-nutrients);
weather, grain stocks
• Short-term (weeks, days, seconds):
>nutrition shocks in early childhood;
trade shocks (export bans), shocks in commodity and financial
markets
Optimal balance between short- and long-term action?
Overview
1. Food security risks: perceptions and
framework
2. Production and productivity
3. Trade and stocks
4. Finance and speculation
5. Scope for EU-engagement
The production challenges and
opportunities
1. Cope with the 100% increase in demand by 2050
> labor, land, water, capital, total factor productivity
2. Closing ‘yield gaps’
> reduce differences between current yields and potentials; 45% to 70% for
most crops (Müller et.al. Nature 2012).
3. ‘Sustainable intensification’
>increase yields while decreasing the environmental impacts of agriculture
4. Enhancing the emerging bio-economy
>EU to provide leadership in R&D to deal with the tradeoffs
opportunities from industrial bio-technologies, new plant breeding,
innovation in processing, new products, waste reduction; integration and
connecting value chains to “value webs”
Productivity growth remains central in
view of growing demand
Total
factor
productivity
in world
agriculture
(Source: Fuglie 2010)
The reactions to price change
What impact of price changes for production response?
1. area responses to price change,
2. yield response to price change, and
3. all productivity enhancing responses along the food
value chain.
Here focus on 1. as the biggest potential short run effect
Example: area allocation to wheat
in countries by months
60
EU27
Planted Wheat Area (Million Hectares)
Bangladesh
Ethiopia
50
Brazil
Uzbekistan
40
Argentina
Egypt
30
Kazakhstan
Turkey
Ukraine
20
Australia
Pakistan
10
Canada
0
2002M1
2002M2
2002M3
2002M4
2002M5
2002M6
2002M7
2002M8
2002M9
2002M…
2002M…
2002M…
2008M1
2008M2
2008M3
2008M4
2008M5
2008M6
2008M7
2008M8
2008M9
2008M…
2008M…
2008M…
2010M1
2010M2
2010M3
2010M4
2010M5
2010M6
2010M7
2010M8
2010M9
2010M…
2010M…
2010M…
USA
Source: Haile, Kalkuhl and von Braun, ZEF manuscript (work in progress) 2013
J. von Braun ZEF 2013
Russia
India
China
Area Response to Prices and to Price
Volatility
Global annual (area) response (price elasticities)
Wheat
Corn
Rice
Future price
-0.01
0.04*
Spot price
0.06***
0.07**
0.03***
Volatility
-0.17**
-0.06
-0.08**
Source: Haile, Kalkuhl and von Braun, ZEF manuscript (work in progress); further variables (lag
area, fertilizer prices, time trend and constant are omitted)
• Prices increase matters: (+10% price > 0.1 % response
and .5 % long run)
• Volatility reduces response!
J. von Braun ZEF 2013
Transnational Land-Investments
are a response to food security risks
and opportunities
Need for
transparent
and fair land
markets,
domestic and
international
J. von Braun ZEF 2013
Source: Land Matrix Homepage (accessed May 6, 2012)
Data: Land Matrix Project, April 2012
Implications of findings about
price responses
The production system does respond to increasing
prices (incentives) but that response is reduced
by volatility:
• Market disruptions undermine incentives
• Need for more public R&D to increase TFP
J. von Braun ZEF 2013
Overview
1. Food security risks: perceptions and
framework
2. Production and productivity
3. Trade and stocks
4. Finance and speculation
5. Scope for EU-engagement
All now build high stocks: e.g. China, India
Both countries have high stocks and influence global prices
Total Cereal Stocks
300
China
Million metric tonnes
250
India
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
At least need more transparency on stocking data
2010
2011
2012
Source: AMIS
Sound global grain reserves policy needed
• Intra-annual storage and ‚normal‘ harvest
fluctuations captured mainly by private stockholders
• Reserves in case of rare extreme events to assure
supply for food security needed by public
What global trade & stocking regimes?
Scenario
Trade
Stocks
Fiscal
Burden
Price Risk
Autarcic supply
Low
high;
public
high
low for IND, CHN;
high for ROW
Optimal policy
portfolio
moderately
regulated
coordinated with
CHN, IND, ROW;
public and private
low/moderate calculable risks
Total
liberalization
free & high
low;
private
low
high
G20+ should talk about:
• Explore optimal portfolio of price, trade and storage policies
• Improve coordination between EU, India, China, USA, Russia (beyond AMIS)
J. von Braun ZEF 2013
Overview
1. Food security risks: perceptions and
framework
2. Production and productivity
3. Trade and stocks
4. Finance and speculation
5. Scope for EU-engagement
There are different price movements
Price of wheat
Price spikes
Price volatility
Price trend
Price of US HRW wheat in US$
per metric tone
Change of the price level
relative to the previous
period (here: month)
Deviation of a price series
from the annual mean
smooth, long-term average
movement of prices over
time
0.3
300
500
0.3
400
0.2
300
0.1
250
0.2
0
200
100
0
1985 1990 1995 2000 2005 2010
-0.1
200
0.1
150
-0.2
-0.3
1985 1990 1995 2000 2005 2010
0.0
1985 1990 1995 2000 2005 2010
100
1985 1990 1995 2000 2005 2010
Classification of different price dynamics (adopted from von Braun and Tadesse 2012).
New insights when price changes are decomposed into
spikes, volatility, trends
J. von Braun ZEF 2013
500
1000
Price movements are hard to explain today
Rice
100
200
200
400
300
600
400
800
Wheat
1993m7
1998m1
2002m7
time
nominal wheat price ($/mt)
2007m1
estimated price
2011m7
1993m7
1998m1
2002m7
time
nominal rice price ($/mt)
2007m1
2011m7
estimated price
Estimated ‘fundamental’ monthly wheat and maize prices according to global cumulative supply in the preceding
12 months (H), stock-to-use ratios (STU) and nominal GDP (monthly interpolation). Source: own calculations
based on crop calendar disaggregation data of Mekbib, Kalkuhl & von Braun (2012).
Observed price spikes not much explained by fundamentals
J. von Braun ZEF 2013
Food price drivers: old and new
Old Fundamentals
• Supply / demand / stocks remain drivers
• The source of old fundamentals is changing from US to
emerging economies such as China, India, EU, Brazil, etc.
New Fundamentals
• Energy market linkages
• Financial market linkages
• Speculation, in combination with trade policy
J. von Braun ZEF 2013
Speculation and oils prices contribute
to food price SPIKES
Drivers
Commodity
Maize
Wheat
Supply Shock
(Millions of tons)
Excessive volume of speculation
(Thousands of contracts)
Crude oil price (%)
Soybeans
Rice
*
***
**
***
N/A
**
**
***
*
Samples from January 2000 to December 2009; *,**,*** significant at 10%, 5% & 1%
Food price spikes were driven mainly by excessive speculation
and by demand shocks (oil price) but less by supply side shocks
J. von Braun ZEF 2013
Source: von Braun and Tadesse 2012
Global to local? Transmission of international prices
to domestic food prices
0
0.04
0.16
0.36
0.64
1
Combined transmission elasticities from CBoT Rice, Wheat,
Soybean and Corn futures to domestic food price indices.
Transmission elasticities to Indian Food Price Index:
Maize
Rice
Wheat
Soy
0.33
0.11
0.00
0.10
J. von Braun ZEF 2013
Source: own calculations (Kornher/Kalkuhl, ZEF, work in progress)
The poorest and marginalized are
more visible now
V. Graw, C. Ladenburger: ZEF Working Paper 88, 2012
Joachim von Braun, ZEF, 2013
Implications of Food Price Spikes
• Price spikes can lead to increasing
malnutrition and stunting
• Price spikes hurt the poor most
• Macro-economic impacts (inflation, welfare
spending, instability)
28
Overview
1. Food security risks: perceptions and
framework
2. Production and productivity
3. Trade and stocks
4. Finance and speculation
5. Scope for EU-engagement
Towards resilience: the complex food
security risks call for complex responses
Addressing
of, and
coping with
food security
risks with 4
sets of policy
actions
J. von Braun 2013
Strategic food and nutrition security agenda
1.
Risk prevention: Promotion of agriculture productivity across
value chains with research and technology and investment
(public and private) to address price levels and risks on supply
side in sustainable ways.
2.
Risk management: Facilitation of reduced market volatility
and spikes with appropriate stocks, more trade openness,
appropriate regulation, and international cooperation.
3.
Social protection: productive safety nets, (conditional) cash
transfers; expanded action for nutrition security of children.
4.
Insurance systems: insurance of crops, peoples health and
disabilities, public insurance mechanisms for catastrophic
events in poor countries (e.g. regional droughts, climate
shocks)
J. von Braun, ZEF 2013
What EU can do for
UN and G20 initiatives
1. “Ending Hunger“ - a post MDG 2015 goal! (ending caloric
deficiencies, reduced stunting, reduced micro-nutrient
deficiencies)
2. Implement G20 committments re commodities futures
markets regulations (caps, transparency, etc.)
3. Support for responsible international investments for food
security (foreign land investments)
4. Attention to food and nutrition insecurity in G20 countries
themselves (G20 countries are home of about 50 % of the
world‘s hungry people)
5. EU to drive the global science agenda for food and nutrition
security
EU science agenda:
key for international food security
• Sustainable food security under climate change:
modelling, benchmarking and policy research,
• Sustainable growth and intensification of agricultural
systems under current and future resource
availability,
• Assessing and reducing trade-offs between food
production, biodiversity and ecosystem services,
• Adaptation to climate change and Greenhouse gas
mitigation
See: FACCE – JPI, Strategic Research Agenda. Agriculture, Food Security, and Climate Change 2012 www.faccejpi.com
J. von Braun ZEF 2013