Global Food Crisis, 2011-12

Only after the last tree has been cut down, only after the last river has been poisoned, only after the last fish has been caught, only then will you find that money cannot be eaten. Cree Indian prophecy

Group Members Aditi Sarathy Imbaraj Anpalgan Vipin Agrahari Yogesh Baduge Shivraj Barik Dipti Bhandari Pranav Bhedi Prathamesh Birwatkar Ankit Chadha Madhur Chauhan 10-801 10-802 10-803 10-804 10-805 10-806 10-807 10-808 10-809 10-810

Why we decided on this topic

Food is something that man cannot do without food security the availability of food and ones access to it is therefore of utmost importance.

Poor households in developed countries spend between 60 % to 80 % of their income on food, compared to only 10 % to 20 % in most industrialized countries.

Backdrop of the Food Crisis

The food crisis, for the many things it was, was not a sudden one. Food prices had been rising for a while, as can be seen from the Average Food Price Index below, and these earlier warnings fell on inattentive ears.

The Extent of the Crisis

The years 2011-12 saw dramatic increases in world basic food prices. Despite several record-breaking harvests, world cereals production between 2000 and 2007 fell well short of consumption. The shortfall has forced the depletion of world grain stocksa useful proxy for global food securitywhich are now at their lowest levels in 25 years. It left another 925 mn hungry, according to the United Nations Food and Agriculture Organization (FAO). Thirty-seven countries - 21 of which are in Africaare in a food security crisis, according to the FAO. According to the FAO food price index, there was an increase of 12% from 2005 to 2006, 24% in 2007, and a rise of about 50% in January to July 2008. World Bank figures state an 83% increase in the last three years. The cost of wheat by 130%, soya by 87%, rice by 74%, and corn by 31%.

And the figures

Commodity April 2012 July 2012 (%) June 2012 July 2012 (%) Feb 2011 July 2012% July 2011 - July 2012

Indices Food Grains Fats and Oils 7 18 3 10 16 9 1 10 0 6 11 19

Other Food
Fertilizer Prices Maize Rice (Thai, 5%) Wheat (U.S. HRW) Sugar (world) Soybean Oil Crude Oil, average

-1
-7

5
-2

-9
10

-7
-11

22 5 30 1 -5 -15

25 -4 25 12 5 7

14 9 -1 -22 -9 -1

11 7 14 -19 -7 -10

Price Change of Key Food Commodities

Source: World Bank DECPG.

The causes of the Food Crisis The world saw a perfect storm of factors that all came together to push food prices up:

(a) The increase in the price of oil (which manifested in increased fertilizer and fuel costs) and
commodity market speculations (b) Increased demand for meat and dairy products in the developing world, which requires more grain be fed to livestock (c) The Green Revolution (d) Multilateral trade rules (e) Falling world food stock piles The Demand and Supply Imbalance (f) Adverse weather conditions

(a) Rise in the price of oil and Commodity Market speculations

An increasing investment in the production of alternative fuels such as those of plant origin, eg. Ethanol, that came into direct competition with production of food-grains. Speculation in commodity markets funds diverted from weak markets in 2008. money

from hedge funds looking for new markets

Subsidies for ethanol production

Less maize available as food

Farmers abandoning soybean and wheat for maize production

Rampant demand for ethanol as fuel- subsidized programmes in US and EU. 7b$ in subsidies in US. America's ethanol programme alone account for over half the world's unmet need for cereals. 335 m tones of maize produced up by more than a quarter over previous year 85 million tonnes of maize used for ethanol in 2008 In US (largest maize exporter). Up from 15m tonnes in 2000 IFPRI (full form)study - the expansion of ethanol and other biofuels could reduce calorie intake by another 4-8% in Africa and 2-5% in Asia by 2020

(b) Increasing demand for meat and dairy products

8 kg of grain = 1 kg of beef 5 kg of grain = 1 kg of pork 200m-250m tonnes more grain diverted towards animal feed as compared to 20 years ago. Chinese consumer who ate 20kg (44lb) of meat in 1985 ate over 50kg of meat in 2007.

(c) Green Revolution

Farming in emerging markets is riddled with market failures and does not react to price signals as other businesses do. a new report by the International Food Policy Research Institute (IFPRI)-a 10% rise in prices yields a 1-2% increase in supply Reduction in green revolution spending- Spending on farming as a share of total public spending in developing countries fell by half between 1980 and 2004.

(d) Trade Liberalization

Many developing nations have gone from being food independent to being net food importing economies Developing nations have become dependent upon food imports

(e) Falling world food stock piles

More recently, due to a faster pace of food growth and ease of importation, less emphasis is placed on high stockpiles. In February 2008 wheat stockpiles hit a 60-year low in the United States

(f) Adverse weather conditions

Bangladesh Australia California Kerala Myanmar Stem rust reappeared in 1998 in Uganda, Kenya

Impact of world food crisis

21 of 36 countries in a food security crisis are in Sub-Saharan Africa, according to FAO. The region imports 45% of its wheat and 84% of its rice. A 2 kg bag of rice now costs half the daily income of a poor family in Bangladesh Riots erupting The measures of today's crisis are misery and malnutrition.

Who gains and who loses?

Net exporters

Net importers

Exporters gain from benefit farmers get to keep the gain Helps to mitigate the growing income gap between urban and rural societies

Rich countries like Japan and Saudi Arabia absorb the high price but countries in (Bangladesh and Nepal) and Africa (Benin and Niger) werent able to do so World Food Programme- cost of its operations has increased by more than half in the past five years and will rise by another third in the next two

Political response

Price control can lead to shortages in the long run and increase in black markets. muffling the signals that would otherwise have encouraged farmers to grow more food Export restrictions and taxes
Right Morocco fixed bread prices (the food of the poor) during Ramadan, the Muslim month of fasting; at the same time, it cut tariffs on food imports to increase competition. Wrong Russia imposed across-the-board price controls on milk, eggs, bread and other staples, benefiting everyone whether they needed help or not

The way forward

Additional funds to the World Food Programme (WFP) building better safety nets. Providing subsidies in cash rather than in seeds Provide financing for the small landholder provide basic technology: executing capital-intensive irrigation projects too large for poor individual farmers to undertake, or paying for basic science that helps produce higheryielding seeds Looking for GM solutions Use the opportunity of higher prices to cut down subsidies in the developed countries.