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Food Prices Set to Rise Further

Sabina Zaccaro

ROME, Oct 10 2011 (IPS) - Food price volatility featuring high prices is likely to continue and probably increase next year, making poor farmers even more vulnerable to poverty and food insecurity, the global report on food insecurity released Monday by the United Nations’ three Rome-based food agencies predicts.

Prices rise as food gets more scarce. Credit: © FAO

Prices rise as food gets more scarce. Credit: © FAO

Small, import-dependent countries, particularly in Africa, are especially at risk. “Many of them still face severe problems following the world food and economic crises of 2006-2008,” the UN Food and Agriculture Organisation (FAO), the International Fund for Agricultural Development (IFAD) and the World Food Programme (WFP) said in preface to The State of Food Insecurity in the World 2011 (SOFI).

“The main reason for increased price volatility is that supply production cannot catch up with demand,” FAO senior economist George Rapsomanikis told IPS. “What is happening is that we have a steady increase in demand, mainly due to increase in the population, and also a change in the diet of population in emerging economies who are gradually changing their diets, including more meat and more grain.

“On the other side, production cannot catch up with consumption. The global stock levels are becoming lower, lower than they used to be ten years ago and if there is an external shock in the market, this is going to generate volatility. So tighter markets means more volatility in the future.”

High and volatile food prices are identified as major contributing factors in food insecurity at the global level. Price volatility makes both smallholder farmers and poor consumers increasingly vulnerable to poverty while short-term price changes can have long-term impacts on development, the report says.

Changes in income due to price swings and decreased food consumption can reduce children’s intake of key nutrients during the first thousand days of life from conception.

But price swings affect countries, populations and households very differently. According to the report, the most exposed are the poor and the weak, particularly in Africa, where the number of undernourished increased by 8 percent between 2007 and 2008.

“Countries that import food are going to be the most vulnerable. Low income, food importing countries are going to suffer for this, mainly because they are going to experience very high import prices. And they cannot plan their own future – if the world prices are volatile, then it is very difficult to plan,” Rapsomanikis said.

The report also finds that further growth in biofuels will place additional demands on the food system.

Food price volatility may increase over the next decade due to stronger linkages between agricultural and energy markets, according to Rapsomanikis. “There are markets and markets. Brazil utilises sugarcane to produce ethanol; in the European Union we have oil seeds; in the U.S. we have maize.

“The U.S. are the largest importer of maize, and about 30 percent of the maize production becomes ethanol. Since both energy markets and the food markets use maize as an input, if there is a shock in the oil market, the shock will be transmitted quite rapidly to the food market.”

The report also stresses that investment in agriculture remains critical to sustainable, long-term food security and asks governments to facilitate and increase investments. “The first thing that governments should do is to increase investments on the agricultural sector,” the FAO expert told IPS.

“According to our earlier estimates about investments, in order for production to meet demands, investments need to increase in developing countries by about 50 percent. And this includes investments in inputs, fertilisers and extension services; it is about accessing facilities, market, storage, it is about the whole food system. And there is also a need for investments in public goods like transport infrastructure, communication infrastructure and large scale irrigation projects, especially in Africa.”

Key areas for directing such investments, the report says, should be cost-effective irrigation, improved land-management practices and better seeds developed through agricultural research. “That would help reduce the production risks facing farmers, especially smallholders, and mitigate price volatility.”

The private sector can be of help as well. According to FAO, part of these investments can come from official development assistance (ODA), but that is not going to be enough, because an investment gap remains.

“ODA is being reduced and the share of agriculture is only four percent,” Rapsomanikis said. “What is needed above and beyond ODA and the national expenditure on agriculture, is the involvement of the private sector. And not only companies, farmers are private sector. Countries should create an environment to increase private investments in order to achieve productivity growth, through good structural and financial policies, and effective government systems. This would create and enabling environment for people to invest.”

But smallholders are facing so many constraints that it is hard to see them as investors. “Many smallholder farmers are not integrated in the market, they do not have access to output market and even to inputs, to technology, to financing and credit. This is where governments and the private sector could help – through public-private partnerships that provide transportation infrastructure to farmers who are in remote areas, the report suggests.

FAO’s best estimate of the number of hungry people for 2010 remains at 925 million. For the 2006-2008 period FAO calculates the number of hungry were 850 million. The report says “methodology FAO uses for calculating the prevalence of hunger is currently under revision,” and so no estimates have been produced for 2011.

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