Download Source: IFDC 2008.

Poverty, Climate Change,
Rising Food Prices, and the
Small Farmers
Joachim von Braun
Director General
International Food Policy Research Institute
International Fund for Agricultural Development
Rome, April 22, 2008
Price developments and causes
Joachim von Braun, IFPRI, April 2008
The new situation: Surge in prices
Commodity prices (US$/ton)
600
100
Corn
Wheat
500
80
Rice
400
Oil (right scale)
60
300
40
200
20
100
Joachim von Braun, IFPRI, April 2008
08
Ja
n-
07
Ja
n-
06
Ja
n-
05
Ja
n-
04
Ja
n-
03
Ja
n-
02
Ja
n-
01
0
Ja
n-
Ja
n-
00
0
Source: Data from FAO 2008 and IMF 2008.
India and China: World vs. domestic prices
India
China
January 2005 = 100
January 2005 = 100
200
200
Overall
Overall
180
Food
Food
160
120
120
100
100
80
80
Ja
05
n
J
5
-0
l
u
Ja
06
n
J
6
-0
l
u
Joachim von Braun, IFPRI, April 2008
Ja
07
n
J
7
-0
l
u
Ja
08
n
Ja
n08
140
Ja
n05
140
World rice price
Ja
n07
World rice price
160
Ja
n06
180
Source: Data from Reserve Bank of India 2008, National
Bureau of Statistics of China 2008 and FAO 2008.
World prices reach into East African countries
US$/ton
300
Kenya, corn
World
Nairobi
300
200
200
100
100
0
Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07
US$/ton
300
Ethiopia, corn
World
Uganda, corn
US$/ton
0
Dec 02
US$/ton
Addis Ababa
World
Dec 03
Dec 04
Kampala
Dec 05
Dec 06
Dec 07
Ethiopia, wheat
500
World
Addis Ababa
400
200
300
200
100
100
0
Dec 02
Dec 03
Dec 04
Joachim von Braun, IFPRI, April 2008
Dec 05
Dec 06
Dec 07
0
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Source: Data from FEWS 2008, EAGC 2008, FAO 2008.
IFPRI’s scenarios
[Models for changes in structural supply and demand factors
(2000-05 and 2006-15)]
US$/ton
300
200
100
0
2000
Rice
Oilseeds
Joachim von Braun, IFPRI, April 2008
2005
2010
Wheat
Soybean
2015
Maize
Source: M. Rosegrant (prelim. results with IMPACT-WATER).
Food price related protests 2007-2008
1
2
3
4
5
6
7
8
9
10
11
11
12
13
Argentina
Bangladesh
Burkina Faso
Cameroon
China
Cote d'Ivoire
Egypt
Ethiopia
Guniea
Haiti
Honduras
India
Indonesia
Italy
Joachim von Braun, IFPRI, April 2008
14
15
16
17
18
19
20
21
21
22
23
24
25
Jordan
Madagascar
Malaysia
Mauritania
Mexico
Morocco
Mozambique
Pakistan
Philippines
Senegal
United Kingdom
Uzbekistan
Yemen
Summing up: causes of imbalances and
volatility in the world food equation
1. Income growth
2. Biofuels*
3. Lack of supply response*
4. Low stocks and trade policy*
5. Climate shocks*
6. Population growth
Joachim von Braun, IFPRI, April 2008
Biofuels
Joachim von Braun, IFPRI, April 2008
The biofuels boom
Ethanol production 1975 - 2007 (billion liters)
Ethanol > 90% of biofuel
production; Brazil and US
dominate the market
Biodiesel production
1991 - 2007 (billion liters)
Biodiesel: EU is the largest
producer and consumer
Source: Global Subsidies
Initiative 2007
Joachim von Braun, IFPRI, April 2008
Biofuels: fundamental change in world
food price determination
Energy prices always affected agricultural
prices through inputs, i.e. P of fertilizer,
pesticides, irrigation, transport
Now, energy prices also affect agricultural
output prices strongly via opportunity costs
Large and elastic energy demand creates price
floors and price bands for agricultural
commodities
Joachim von Braun, IFPRI, April 2008
Source: Schmidhuber 2007.
Corn breakeven prices for ethanol (2007)
Crude oil
($bbl)
20
40
60
80
100
120
Joachim von Braun, IFPRI, April 2008
w/o ethanol
subsidy ($/bu)
<0
0.96
2.01
3.08
4.14
5.20
w/ ethanol
subsidy ($/bu)
1.50
2.56
3.62
4.68
5.74
6.81
Source: Birur, Hertel, and Tyner 2007.
World price changes: 2008 biofuels moratorium on
food crop use compared to baseline
% change
Wheat
Maize
Cassava
Oils
0
-5
-10
-15
2010
2015
-20
-25
Joachim von Braun, IFPRI, April 2008
Source: IFPRI IMPACT Model.
Lack of production response
Joachim von Braun, IFPRI, April 2008
World cereal production: Not growing enough
Total Million tons
Million tons
1,200
2,000
900
1,600
600
1,200
300
0
800
1999
2000
Wheat
Joachim von Braun, IFPRI, April 2008
2001
2002
2003
Coarse grains
2004
2005
Rice
2006
2007*
Total (right)
Source: Data from FAO 2003, 2005-08.
* Forecast.
Productivity growth is declining
6
Average annual growth rate (%)
maize
5
rice
wheat
4
3
2
1
0
1963
1967
Joachim von Braun, IFPRI, April 2008
1971
1975
1979
1983
1987
1991
1995
1999
2003
Source: World Development Report 2008.
R&D investment in developed countries
is too low
Annual growth rates in public agricultural
research spending (% per year)
1991-2000
China
5.0
All developing countries
2.9
All developed countries
-0.6
Joachim von Braun, IFPRI, April 2008
Source: Pardey, 2006
Majority of the world’s farms are small
% of all farms
Number of
farms
(millions)
<2
85
451
2 - 10
12
62
10 - 100
2.7
14
> 100
0.6
3
Total
100
530
Farm size (ha)
Joachim von Braun, IFPRI, April 2008
Source: FAO Agricultural World Census.
And average farm sizes are smaller
Hectare
3.0
Average farm sizes in selected countries
2.5
2.0
1.5
1.0
0.5
India
Joachim von Braun, IFPRI, April 2008
China
Ethiopia
19
20 95
02
-0
3
19
19 77
89
20 92
01
-0
2
19
80
19
90
19
99
19
70
19 71
81
19 82
91
20 92
02
-0
3
0.0
Tanzania
Sources: Fan and Chan-Kang 2003, FAO Agricultural World
Census and Indiastat.
Competition
for land
Field and
pastures: ~40%
Forests: ca. 10
million km2
(~ 20%)
Cities, roads:
2%
Joachim von Braun, IFPRI, April 2008
Foley et al., SCIENCE 309, 2005
Rising farmland values (US Midwest)
Annual increase in 2007 (+16 %) largest in 30 yrs
Joachim von Braun, IFPRI, April 2008
Source: Federal Reserve Bank of Chicago 2008.
Higher input costs: Global fertilizer prices
tripled in 2007
800
700
World Fertilizer Prices, 2000-2008, US$/mt
600
DAP, US Gulf
500
400
300
200
100
Urea, Arab Gulf, prilled
0
Jan-00
Jan-01
Joachim von Braun, IFPRI, April 2008
Jan-02
Jan-03
Jan-04
Jan-05
MOP, Vancouver
Jan-06
Jan-07
Jan-08
Source: IFDC 2008.
Expanding supply: High maize yield
response to increased fertilizer use
Pixel Count
Distribution of Maize Yield Response to N application
Yield response (kg) to 1 kg N fertilizer
Increased fertilizer use can
significantly raise
productivity growth in
smallholder agriculture
Joachim von Braun, IFPRI, April 2008
Source: Harvest Choice, IFPRI.
Poor small farmers are hard hit with
increasing input and marketing costs
• Marketing costs in SSA are up to 70% of
crop retail values reducing the effective
price farmers receive for their products
(Minot and Hill 2007)
• Transport costs represent 50 to 60% of
total marketing costs in Benin, Madagascar
and Malawi
(Fafchamps et al. 2005)
Joachim von Braun, IFPRI, April 2008
Expanding supply: High returns to roads
and irrigation investments
Bangladesh - improvement in rural feeder roads:
-
reduced transport costs by 36 to 38%
lowered fertilizer prices by 45 to 47%
Increased staple crop prices by 3 to 5%
Increased per capita expenditure by 11%
Kenya:
- A 1.0 percent increase in irrigation investments
decreases poverty by 3.9 percent
- A 1.0 percent increase in rural road investments
decreases poverty by 2.4 percent
Joachim von Braun, IFPRI, April 2008
Trade policy and stocks
Joachim von Braun, IFPRI, April 2008
Small quantity changes have large effects
on cereal prices
2000=100 P
204
D2006
S2007
D2000
153
100
S2006
D2007
S2000
Joachim von Braun, IFPRI, April 2008
1,917 2,120
2,070
Q million tons
Source: Based on data from FAO 2003, 2005-08.
Cereals: The world eats more than it produces
Million tons
700
600
500
400
Total cereal stocks
300
200
100
China
0
2000
2001
Joachim von Braun, IFPRI, April 2008
2002
2003
2004
2005
2006
2007
2008*
Source: Data from FAO 2003, 2005-08.
* Forecast.
Major producers and net exporters (2004-06)
Cereal producers
Oilseed producers
China
USA *
India *
Russia *
Indonesia
France *
Brazil*
Canada *
Germany *
Vietnam*
Kazakhstan*
USA *
Indonesia
China
Malaysia
Brazil *
India *
Argentina *
in red = restricting exports
Source: FAO 2008.
Joachim von Braun, IFPRI, April 2008
Note: * Indicates that the country is a net exporter of cereals or oilseeds.
Speculation driving prices up?
• Basics of price trends:
- supply & demand
- rising expectations
- market behavior e.g. speculation & hoarding
• In 2007, volume of globally traded grain futures
& options
by 33 & 48%
(Chicago Board of Trade)
• Governments increasingly curb hoarding
(e.g. India, Pakistan, Philippines)
Commodity exchanges can help create
fair, orderly, and efficient food markets
Joachim von Braun, IFPRI, April 2008
More “speculators”
1.
2.
3.
4.
5.
Capital investors
Governments
Traders (small and large)
Farmers
Households
Joachim von Braun, IFPRI, April 2008
A new “global coordinated grain reserve
policy” is needed
• Past arrangements e.g.:
- 1950s: Global Emergency Food Reserve
proposal by FAO Council
- 1975: Int’l Grain Reserve proposal by US
Congress delegation
- I976: Int’l Emergency Food Reserve created
(IEFR) pending ’75 negotiations
- 1980s: Proposals to strengthen IEFR were not
approved
- 1990s EU surpluses
- 2000s ??? none
Joachim von Braun, IFPRI, April 2008
Climate Change – getting ready
for the long run
Joachim von Braun, IFPRI, April 2008
Impacts and vulnerability to climate change
and variability
• Rich countries emit majority of GHG
• Poor countries are more vulnerable
- Geography (hotter, less rain, more variation)
- Greater dependence on agric. and natural
resources
- Limited infrastructure
- Low income, poverty and malnutrition
- Thus, lower adaptive capacity (also including
inadequate complementary services, like health
and education)
Joachim von Braun, IFPRI, April 2008
Climate change risks for production
Expected impact on cereal production
1990-2080
(% change)
World
–0.6 to –0.9
Developed countries
2.7 to 9.0
Developing countries
–3.3 to –7.2
South Asia
Sub-Saharan Africa
Latin America
–18.2 to –22.1
–3.9 to –7.5
5.2 to 12.5
This will have further price increasing effects
Joachim von Braun, IFPRI, April 2008
Source: Adapted from Tubiello and Fischer 2007.
Effective adaptation strategies
• Requires judicious selection of measures within a
policy context and strategic development framework
• Must go beyond good development policy to explicitly
target the impacts of climate change, particularly on
the poor
• Market signals
- essential factor in determining the necessary
responses to a changing environment
- but involves potentially expensive time lags and
overlooks equity
Climate change adaptation must therefore be
proactive, not merely reactive
Joachim von Braun, IFPRI, April 2008
Critical step toward mitigation: Post-Kyoto
International Climate Change Regime
• Emissions targets, rates of convergence, and rates
of growth in developing-country emissions
• Level of emission allowances for developing
countries
• Level of caps by sector and industry
• Sector-specific mitigation options
• Incentives for international carbon trade
• Transparency and complexity of administration
 All influence the regime’s impacts on economic
growth, agriculture, food security, and poverty in
developing countries
Joachim von Braun, IFPRI, April 2008
Pro-poor climate mitigation policy
• Climate change policy can generate income
for small farmers and investment flows for
rural communities
• Requires effective integration:
from global governance of carbon trading,
to sectoral and micro-level design of
markets and contracts, and
investment in community management
Joachim von Braun, IFPRI, April 2008
Policy and programs
Joachim von Braun, IFPRI, April 2008
Price-effects for Bangladesh five-person
household living on one dollar-a-day per person
Spend…their $5
$3.00 on food
$.50 on household energy
$1.50 on non-foods
 A 50% increase in food and energy prices requires
them to cut $1.75 of their expenditures
Cuts will be made most in food expenditures:
 Reduced diet quality, and
 Increased micronutrient malnutrition
Joachim von Braun, IFPRI, April 2008
970 mln people live on $1 or less a day
Subjacent poor
($0.75 and <$1):
485 mln in 2004
LAC
19 mln
ECA
3 mln
EAP
109.3
mln
MENA
3.3 mln
SSA
87.0
mln
SA
263.6
mln
Medial poor
($0.50 and <$0.75):
323 mln in 2004
LAC ECA 1. 1 mln MENA
0 . 9 mln
16 . 6 mln
EAP
5 1 mln
SSA
9 0 . 2 mln
SA
16 2 . 9 mln
Ultra poor
(<$0.50):
162 mln in 2004
ECA 0.4 mln
LAC
11.5 mln
MENA
0.2 mln
EAP
8.8 mln
SA
19.7 mln
SSA
121 mln
Source: Ahmed et al. IFPRI, 2007.
Joachim von Braun, IFPRI, April 2008
Impacts of high prices on the poorest
The consequences of increased prices for the
poorest and hungry are driven by some initial
conditions and by adjustments in labor,
finance, and goods markets, and…
•
•
•
•
•
Level of inequality below the poverty line (up)
Exclusion and discrimination (women)
Level of diet (high) and nutritional deficiencies (low)
Wage rate adjustments among unskilled labor to
changing prices (slow)
Capability to respond to market opportunities (small)
Joachim von Braun, IFPRI, April 2008
Policy actions to correct and mitigate the
food price problem
Global policies and international aid
1. Trade: Eliminate agricultural trade barriers,
and export bans; revisit grain based biofuels
2. Agriculture growth: Expand aid for rural
infrastructure, services, agricultural
research and technology (CGIAR)
3. Protection of the vulnerable: Expand
food and nutrition related development aid,
incl. safety nets, child nutrition, employment
programs
Joachim von Braun, IFPRI, April 2008
A production components of a
program
Taking global action with international organizations,
national governments, regional and sub-regional
organizations, private sector now
1. Crash programs for key production areas with
subsidized seeds, fertilizer, and credit, and guarantee
the purchase of outputs. [Worked in the early Green
Revolution. A start, but not sustainable, not viable]
2. Rely on the current high food prices to give a jump
start in the short run, but immediately move to a
investment plans for agriculture: agricultural
research, rural roads, irrigation infrastructure, etc.
Joachim von Braun, IFPRI, April 2008
What will it cost?
Investments for agric. production growth to meet MDG 1
(requires about 50% agric. productivity growth):
A 2005 IFPRI estimate (to be updated):
Incremental investments:
$16 billion per year, 2005-15 for agric. research,
rural roads, irrigation infrastructure [assumes
continued policy reform and enhanced economic
growth].
Of this approximately $8 billion for SSA, $5 billion
for South Asia, & $3 billion for others
2008 updated estimate would need to take account of
• of changed US$ value
• changed economic and poverty circumstances
• might be up to twice the above quoted values
Joachim von Braun, IFPRI, April 2008