Global Trends and Investment High Food Prices and Agriculture Investment Implications J.R. Deep Ford

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Global Trends and Investment High Food Prices
and Agriculture Investment Implications J.R.
Deep FordSenior EconomistFAO Investment
CentreGeorgetown, 6 June, 2008
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• Outline/Four Points
• High Global Food Prices
• A good remedy to high prices is high prices
• Supply Chain Performance/Competitiveness
• Logistics are more important than costs
• Public/Private Investment Synergies
• Private Investment is essential, Public
  Investment is critical
• Regional/National Coordination for Action
• Effective coordination is a first step to trust
  and successful action

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Almost all basic food commodities have seen their
international prices rise significantly over the
past two years
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An alternative view of the price changes
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Reasons why...On the supply side

• Unusual weather events
• Increasing prices of cereals
• Increase in meat production slowed
• Low stocks of cereals and oilseeds globally
• Increases in petroleum prices (which doubled over
  the past 3 years)
• -- and increased key input prices
  fertilizer, transportation

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Reasons why... on the demand side

• Increases in crude oil prices have influenced
  prices of biofuels and agricultural feedstocks
• Changing structure of demand in many emerging
  developing countries
• Market volatility associated with increased
  speculation on commodity markets
• Policy Measures in Response to Price Hikes
• Exchange rate impacts

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What is on the horizon ?

• Given the depth of the shortages
• it will take some time for food stocks to be
  replenished, especially if unusual weather events
  continue to occur over the next few seasons
• biofuel demand is likely to be important for some
  time, if
• petroleum prices continue increase and policies
  supporting biofuels sector are maintained
• more energy efficient new generation biofuels
  that do not compete with land resources for food
  production do not become widely available
  commercially for many more years

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longer term factors

• Population and income growth, as well as
  intensifying urbanisation
• Climate change impact on agricultural yields in
  different parts of the globe
• Land and water resource constraints that
  determine the nature of supply response
• Ability to increase yields of agricultural
  products through more effective use of existing
  technologies and/or adoption of new technologies

all point to high prices for some time to come
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Under certain assumptions for these factors,
baseline OECD/FAO medium term projections suggest
prices of all major food commodities in relative
terms will remain high over the next decade...
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Impacts --- short term

• positive for net food producer countries/household
  s foreign exchange earnings and producer
  revenues increase
• negative for net food consumer countries/household
  s, especially for
• countries that are food insecure, net importers
  of petroleum products and food
• poor and vulnerable households that spend 70-80
  percent of their income on food

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In per capita terms, global milk and milk
products consumption is growing
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Prices - Summary

• Prices forecasted to be high (over ten years)
  an opportunity
• Some Commodity prices more attractive -
  specific products/markets
• Support investment and vulnerable consumers
  appropriate policy

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Managing Competitiveness - Supply Chain
Performance

• World Bank - Doing Business Indicators
• World Economic Forum Global Competitiveness
  Index
• The Logistics Performance Index

Institutions Rank Infrastructure
Rank Macroeconomy Management Rank Health Primary
Education Rank
Technological Readiness Rank Higher Education
Rank Training Rank Business Sophistication Rank
Barbados, Dominican Republic, Guyana, Jamaica,
Suriname, Trinidad and Tobago
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Doing Business in Small Island Developing States
Time to Import Procedures

• Conclude Purchase Contract and Transmit LC
• Assemble and Process Documents for Import
• Vessel Waiting Time to Enter Berth
• Berthing and Unloading
• Terminal Handling Activity
• Customs Inspection
• Technical Control
• Inland Transportation

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Use of Business Support Services in Grenada
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The Logistics Performance Index
Measures Overall Reliability of the Supply Chain
Rank across 150 Countries Singapore 1(highest
in the world) Chile 32 (highest in
LAC) Panama 54 (highest in CA) Dominican
Republic - 96 (highest in Caribbean) CARICOM
Countries in the analysis between 100 -150
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Caribbean Agricultural Trade Shares
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Caribbean Food Imports
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Representation of OECS Tropical Fruits Supply
Chain Pineapple (USD/lb)
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Pricing Structure for Imported Pineapples into
the OECS (US per pound)
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Summary Managing Supply Chain Performance

• Availability of quality and competitive
• Private Services
• Source Make Deliver Processes
• Input mobilization
• trucking
• customs brokering
• warehousing
• marketing
• and Public Services Incentives to Invest
  Processes
• sanitary and phytosanitary support,standards
• technology development support
• transparent and predictable policy and
  regulations
• industry and sector information benchmarking
  studies

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Caribbean Regional Investment Process Coordination
Private Public Interface on Investment is
essential
CCS
CSME
CROSQ
CFNI
CARDI
CAHFSA
CDB
CCCC
CRNM
UWI
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FAO is not a financing agency but its investment
centre provides technical assistance (advise,
training, studies) on

• industry and sector investment strategy
  preparation
• investment identification and assessment
• preparation and financial evaluation of projects
• commodity value chain mapping and benchmarking
• investment negotiations with financing agencies
• investment supervision, monitoring and evaluation

and has agreements with the IFIs and bilateral
funding agencies.
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Thank you!
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Thank you!
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EXAMPLE OF POTENTIAL IMPLEMENTATION PROJECTS
FOLLOWING AN INDUSTRY VCA
DOWNSTREAM ACTION ON

• Trade policy (tariffs, agreements)
• Infrastructure
• Labor policy
• Innovation
• Governance
• Land Policy
• Linkages
• Firm level / Bus. Association
• capacity building

• Trade Logistics
• Industry Specific Licensing
• Product Quality Standards
• Taxes
• CSR (Labor or Env. Standards
• FDI Promotion
• Competition Policy
• Investment Law
• Land Admin. barriers

• Lending
• Investments

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Getting Investment Going Public Private
Partnership
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Caribbean Regional Policy Imperatives
Regional Interface on Food Policy is essential
CSME
CROSQ
CFNI
CARDI
CAHFSA
CARICOM
CCCC
CRNM
UWI
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Are these developments unique?

• High price events are not unique. They happened
  during
• 1973-75 in three consecutive years 1988 1995
  and in 2007 and 2008 consecutively
• Although nominal international food prices have
  reached their highest since 1961, real/relative
  prices are still below those of late-70s
• This time hikes occurred for nearly all basic
  food commodities
• Prices may remain high even after effects of
  short-term shocks dissipate Why ?

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Thank you!
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Global Competitiveness Index (GCI) efficiency
and innovation factors