Causes, consequences and political response on rising food prices in global and European context

1

• Causes, consequences and political response on
  rising food prices in global and European context

Mária Kadlecíková FAO Regional Representative for
Europe and Central Asia  
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Soaring food prices

• The recent rapid increases in the international
  prices of many basic food commodities have raised
  many questions from policy-makers, the media, the
  public, and the farmers. Those who have the most
  reason to be concerned are the vulnerable people
  who have to adjust to the consequences of their
  decreased purchasing power, which in some cases,
  affects their ability to buy enough food to feed
  their families. The most frequently asked
  questions have been
• Why are food prices rising??
• What role has increased demand for biofuels
  played in the increases?
• What kind of influence do emerging economies
  exert on the global food markets?
• Has climate change played a significant role in
  influencing those developments?
• Are the prices likely to continue rising in the
  future?
• What is the impact of high world food prices -
  who benefits (e.g. producers) and who loses (e.g.
  consumers)?
• How are the policy-makers responding in order to
  cope with negative consequences of those
  developments?

3
The facts
Annual FAO Food Price Index 1998-2000100

• Agricultural commodity prices rose sharply in
  2006 and continued to rise even more sharply (by
  40) in 2007 and will stay high in medium term
  according to forecast. While the increased prices
  are threatening consumers and make political
  decision makers worry, the farmers and
  agricultural producers feel, that hey finally
  enjoy fair remuneration for their work, and
  increased motivation for agricultural
  investments.

4
Rising food prices
The FAO Food Price Index fell to a 6 month low of
213 in July 2008, down 3 percent from the revised
estimate in June, but still 37 percent above the
corresponding value last year. Declines in cereal
and vegetable oil prices were for the most part
responsible for the drop in the index. 
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Causes - On the supply side

• It appears that a confluence of different forces
  has created the unique developments that have
  been observed over the past two seasons. These
  can be summarized as follows
• Weather-related production shortfalls
  (agricultural production has been affected by
  climate change - floods, droughts, harsher
  winters, cyclones, hurricanes, earthquakes)
• Gradual reduction in the level of stocks.
  (Cereals stocks stand at their lowest level since
  1980, dropping down by 3.4 per year mainly of
  cereals)
• Increasing fuel costs. (raised costs not only of
  producing agricultural commodities, but also of
  transporting them)
• Lack of investments in the agricultural sector
  (from over US9 billion per year in the early
  1980s, investment to agriculture fell to less
  than US5 billion in the late 1990s)

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Causes - As concerns demand

• The worlds population is increasing
• Changing structure of demand. (economic
  development and income growth in important
  emerging countries have been gradually changing
  the structure of demand for food commodities.
  Migration and urbanization, new food market
  structures and consumption patterns)
• New demand for biofuels (commodities, which have
  predominantly been used as food, are now being
  grown as feedstock for producing biofuels)

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Causes - At international market level

• Operations on financial markets (support from
  OECD countries to their farmers in terms of
  Total Support Estimate (TSE) was US372 billion
  in 2006, while duties, tariffs and technical
  trade barriers have also discriminated against
  agriculture in developing countries. It seems
  more likely, though, that speculators contribute
  more to raising spot price volatility rather
  contributing to price levels.)
• We have to stress, that markets in short term are
  still reflecting the demand and supply relation,
  and the lowering rate of US contributes to the
  deepening crisis on the trade side.

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Was it an unexpected process, or the world could
have avoided it somehow?

• It did not happen in one day.
• World Food Summit- five years later in 2002 -
  FAO Director General already drew the
  international communitys attention to the
  situation and underlined the absence of political
  will and resources to fight food insecurity .
• World Food Day 2003 - International Alliance
  against Hunger
• World Food Day 2004 - Biodiversity for Food
  Security"
• World Food Day 2006 - Investing in agriculture
  for food security
• 17 December 2007, FAO drew international
  attention to the importance of the 2008 harvest,
  and launched the Initiative on Soaring Food
  Prices. FAO, despite not being a financing
  institution, was contributing US17 million to
  the initiative to increase agricultural
  productivity and appealed for the mobilization of
  US1.7 billion.

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Initiative on soaring food prices now covers 54
countries

• FAO has recently approved a series of projects in
  48 countries for a total value of US 21 million
  to help small farmers and vulnerable households
  mitigate the negative effects of rising food and
  input prices.The projects will provide farmers
  with agricultural inputs as of this month for an
  expected duration of one year. Funded by the
  Technical Cooperation Programme i.e. FAO's own
  resources they are part of FAOs Initiative on
  soaring food prices (ISFP).
• The immediate objective of these projects is to
  ensure the success of the next planting seasons
  and, in the longer term, demonstrate that by
  increasing the supply of key agricultural inputs,
  such as seeds and fertilizers, small farmers will
  be able to rapidly increase their food
  production.
• From Europe Armenia is among the beneficiary
  countries.

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Increased food prices threats and opportunities

• There are important differences among
  socioeconomic groups and typologies of households
  within countries.
• Urban poorer households, - wage earners and net
  buyers of food - are likely to be negatively
  affected by the higher costs of their food
  consumption.
• Farmers who are net food producers are likely to
  benefit from higher prices assuming that food
  price increases trickle down to the farm-gate.
  Since farming is the major source of income for a
  large part of the rural population in most
  developing countries, higher prices could help to
  alleviate rural poverty, provided that producers
  are integrated into the market, with the benefits
  being related to the size of farms and the access
  to other agricultural resources (seeds,
  fertilizer, machinery, etc.) that will allow
  farmers to respond to higher prices.
• Is very difficult to imagine, how the situation
  will continue to evolve.

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WHAT ARE THE LIKELY IMPACTS OF RISING FOOD PRICES?

• Implications for vulnerable people
• All studies related to the negative impact of
  climate change are stating, that it has a strong
  negative impact first of all on developing
  countries. Explicitly it means, that the poor
  will be more poor. It can not be and is not the
  standpoint of FAO. We say, that we have to work
  on the changes. And we are working. The
  Initiative on Soaring Food Prices already started
  to act in 17 countries.
• Implications for rural areas
• As long as food prices are effectively
  transmitted at the farm gate then the expanding
  sector is expected to increase its demand for
  labor and subsequently wage earners in
  agriculture are also expected to gain if
  increases in wages outpace the net decline in
  real purchasing power. This outcome is
  particularly important given that poverty
  assessment analysis frequently recognizes the
  poorest as the landless, irregular wage earners
  in agriculture.

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Market responses to high food prices by region in
2007- 8
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FACING THE CHALLENGE POLICY AND PROGRAMME
OPTIONS

• In the long term the best way to achieve a
  decrease of prices is the increase of production.
  
• Tools investments, research and development
  programmes, education and extension services,
  rural infrastructure.
• Results sustainable food safety.
• Short-term measures should be designed to
  complement long term investment needs
• targeting food distribution by linking it to
  education (school meals) or the construction of
  irrigation or rural roads.
• securing access to land and strengthening the
  rights of the poor to agricultural assets and
  resources (land, water)
• In the medium term, it is important to strengthen
  the institutions and organizations of smallholder
  farmers to.
• There is no chance for significant improvement
  without stable agricultural policy, clear
  political will and international alliance.
• It will be essential to consult with the private
  sector, both for short-term effectiveness and
  medium-term catalysis the private sector offers
  the only realistic hope of being able to scale up
  successful approaches quickly.

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The state of affaires in Europe sustainable
development is needed to pull down food inflation

• EBRD and FAO call for bold steps to contain
  soaring food prices .
• Senior government officials from Eastern Europe
  and the CIS met executives from the private
  agribusiness sector to seek concrete proposals to
  boost agricultural investments and unlock unused
  output potential at a conference in London on 10
  March 2008 organised by the European Bank for
  Reconstruction and Development (EBRD) and the UN
  Food and Agriculture Organization (FAO).
• One of the key messages at the conference it is
  crucial to increase investments not only in the
  primary agricultural sector but also in the whole
  infrastructure of agriculture, as well as in the
  processing industry.

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High-Level Conference on World Food Security
the Challenges of Climate Change and Bioenergy

• At the beginning of June, world leaders and
  policymakers converged upon Rome to discuss these
  challenges and to devise ways in which to
  safeguard the worlds most vulnerable
  populations.The High-Level Conference on World
  Food Security The Challenges of Climate Change
  and Bioenergy opened at FAO Headquarters in Rome,
  Italy on 3 June 2008. Throughout the three days
  of events, forty-two Heads of State and
  Government, one hundred high-level Ministers and
  sixty non-governmental and civil society
  organizations from one hundred eighty-one member
  countries discussed the challenges that climate
  change, bioenergy and soaring food prices posed
  to world food security. Following significant
  discussion and negotiations, the Conference
  concluded with the adoption by acclamation of a
  declaration calling on the international
  community to increase assistance for developing
  countries, in particular the least developed
  countries and those that are most negatively
  affected by high food prices.

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Real threat or false assessment?

• Within the framework of the ISFP,
• TCP/ARM/3202 (E) US500,000 Armenia would like
  to distribute only winter wheat seed. The number
  of beneficiaries increased from 2000 to 4660
  small farmers. The project will be implemented
  from July 2008 to June 2009.
• There is a great risk that the wheat, barley and
  corn seeds available in Armenia would be used for
  food consumption and thus cause additional and
  lack of available seeds during the autumn and
  spring sowing season. Taking into account this
  current emergency situation, the Minister of
  Agriculture for Armenia requests additional
  financial assistance in order to purchase
  adequate quantities of locally produced seeds and
  to distribute them to the most vulnerable rural
  population in Armenia.
• In view of the recent situation after the 12 days
  war conflict between Georgia and Russia, it is
  expected that the food prices would increase in
  an uncontrolled way. The FAO Representation is in
  contact with the respective offices but the
  country is still under the recent war shock.
• Azerbaijan Republic requested assistance for an
  Assessment Mission and development of Country
  Action Plan.
• Regional Office received request from the
  Ministry of Agriculture of the Republic of
  Moldova. In this letter Minister informed about
  the continuation of the negative influence of
  climate changes in the country.

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Real threat or false assessment the case of
Moldova

• The dual challenge of an extreme weather event
  and high international food prices.
• Moldovas 2007 drought was the most severe in
  living memory however, it represented the
  extreme manifestation of a trend to drier weather
  conditions, which began in the early 1990s.
  Aggregate cereal production fell by 63 percent
  compared to the previous year. Reduced yields in
  winter crops (mostly wheat and barley which were
  down by 40 percent and 55 percent, respectively)
  and summer crops (sunflower, maize, grapes, etc.)
  affected overall production and drastically
  reduced returns on leased land and on labour to
  the majority of small holders, who usually
  receive in-kind payments of wheat, corn and oil.
  Household production from home gardens, a
  mainstay of food supply for most rural families
  (70 percent of the population) also fell sharply.
  The lack of pasture fodder and the need to
  purchase increasingly expensive food forced the
  majority of households to sell a substantial
  share of their livestock, notably cattle, but
  also pigs and sheep.

19
Consumer price increase in the CIS Countries in
1st half of 2008
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Consumer prices, general and food indices
If we look at the whole region, the general
consumer price index has been radically increased
in some less developed countries such as Belarus,
Turkey, Romania and the Republic of Moldova.
During one year (from April 2007 till April 2008)
the CPI for food rose more than 45 in Belarus,
Republic of Moldova and Ukraine. In case of EU
countries the Index has not increased that much
during the examined 12 months. In most EU member
states the growth was around 10.
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FAO Conference for Europe,Innsbruck, Austria,
26-27 June 2008

• The Conference noted links between present
  shortages of staple grains on international
  markets, soaring food prices and climate change.
  In addition, it called attention to the relation
  between soaring food prices and the use of
  biofuels and to the impact of food prices on food
  security in low-income food deficit and importing
  countries. The Conference agreed that the present
  food crisis had structural roots and an increase
  of investment in agriculture and rural
  infrastructure, low in recent decades, was
  needed, combined with a new approach to
  sustainable agriculture.
• This current food crisis has many causes,
  economic, social, climatic, demographic,
  diversification of demand for agricultural
  products, to name but a few. In the medium- to
  long-term we must address the causes. Some of
  this can happen naturally if we let it,
  especially through a market response, but the
  markets alone cannot address the problems of the
  poorest, from livelihoods to safety-nets, the
  needs for long-term infrastructure investments,
  climate mitigation and adaptation or natural
  resource management. The main responsibility lies
  with national governments. said the
  Independent Chairman of the FAO Council in his
  statement.
• FAO has principal responsibility to promote the
  right to food and properly to address the food
  crisis and its structural causes. FAO, as the
  United Nations institution responsible for food
  security and the implementation of the Right to
  Food Guidelines, has to assume leadership in
  responding appropriately to the food crisis. Food
  security is more important than trade, and
  therefore FAO should not leave this to the
  Bretton Woods institutions and the World Trade
  Organization. We call on policy makers to respond
  to the world food crisis at the highest political
  levels and to ensure that any future European and
  Central Asian policies will foster food
  sovereignty and never undermine food security.
  (From GENERAL STATEMENT BY THE REPRESENTATIVE OF
  THE FAO/NGOs-CSOs CONSULTATION)

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Untapped agricultural potential in Eastern Europe
and Commonwealth of Independent States

• Both EBRD and FAO believe that there is
  significant untapped agricultural production
  potential in the Eastern Europe and Commonwealth
  of Independent States (CIS) region, especially in
  countries such as Kazakhstan, Russia and Ukraine.
• In these countries around 23 million hectares of
  arable land were withdrawn from production in
  recent years. At least 13 million hectares could
  be returned to production, with no major
  environmental cost.
• EBRD President Jean Lemierre said There is now
  an urgent need for both the private and public
  sectors to work together to create the conditions
  for sustainable investment that will restore the
  primacy of this region as a crucial centre of
  agricultural production.
• Courageous steps have to be taken now to help
  unlock the untapped agricultural production
  potential. Current predictions for CIS grain
  production point to a rise of seven percent to
  159 million tonnes between 2007 and 2016.
• But let us be bolder and imagine the removal of
  the institutional and financial constraints that
  limit production in the region. The regions
  cereal output and its contribution to world
  exports would then be well above those
  projections, said FAO Director General, Jacques
  Diouf.

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Promising signs
Record wheat production is expected in 2008, the
FAO said.

• World cereal production in 2008 is forecast to
  increase 2.8 percent to a record 2 180 million
  tonnes. Most of the increase is in wheat
  following significant expansion in plantings in
  all regions. Prospects for the 2008 cereal crops
  in the European Union remain favourable. The
  aggregate cereal output of the 27 countries is
  forecast at nearly 296 million tonnes, 13.6
  percent up from the previous year. Most of the
  increase is expected in eastern parts among the
  newest member states, where growing conditions
  have been particularly good this year and yields
  and output are set to recover sharply from last
  years drought-reduced levels. However, among the
  central and northern countries, where the
  compulsory land set-aside requirement was removed
  for the 2007/08 production season, increased
  plantings and better expected yields are also
  contributing to the groups increased harvest
  this year. Of the total cereal forecast, wheat is
  expected to account for 138 million tonnes,
  almost 15 percent up from last year, while output
  of coarse grains is seen to rise to 155 million
  tonnes, nearly 13 percent up from 2007.

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Responsibility of UN, EU and WTO

• The Executive Heads of the United Nations
  specialized agencies, Funds and Programmes and
  Bretton Woods institutions, meeting in Bern on 28
  and 29 April 2008 under the chairmanship of the
  UN Secretary-General, agreed on a common strategy
  in support of developing country governance to
  confront the global food crisis. In order to
  create a prioritized plan of action and
  coordinate its implementation, Ban Ki-moon,
  Secretary-General of UN initiated that a Task
  Force on the Global Food Crisis be established
  immediately bringing together the Heads of the
  United Nations specialized agencies, Funds and
  Programmes.
• In adopting a resolution on rising food prices in
  the EU and the developing countries, Members of
  the European Parliament say that priority should
  be given to investment in agriculture,
  aquaculture, rural development and agribusinesses
  in developing countries. Fairer international
  trade rules and an assessment of the effects of
  speculation on food prices are also underlined by
  MEPs. On agro-fuels, the Parliament wants
  production to be linked to strong sustainability
  criteria and to see second-generation bioenergy
  developed.
• In the period leading up to the July 2008 WTO
  ministerial meeting, the current crisis of
  soaring food prices was used both to argue for a
  speedy resolution of the negotiations, and to
  argue against any further reductions in
  protection that might result from a new
  agreement. It appears that current rules do not
  constrain responses, and that the draft agreement
  under negotiation was unlikely to have changed
  this situation. However, many rules could be
  improved to promote future policy responses that
  are more appropriate both to implementing
  countries and their WTO partners.

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Our role

• We are confident, that for the first time in
  history our generation has all the tools to end
  the hunger. We need for that the political will
  of the countries, and we have to establish
  cooperation between private and governmental
  levels, to achieve favourable institutional,
  economic and trade environment in order to
  motivate the private players from farmers to
  multinational agro trade companies to make
  necessary investments. We need the common will to
  ensure that agriculture will no more be neglected
  after a long time.
• The head of the U.N. Food and Agriculture
  Organization Jacques Diouf said on the food
  summit hosted by British Prime Minister Gordon
  Brown "This is not Greek tragedy where fate is
  decided by the gods and humans can do nothing
  about it. No, we have the ability to influence
  our futures."

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