The rising price of food has been a subject of many news stories over the past few months, with the intensity of attention ratcheting up recently upon news that the FAO’s food price index has just surpassed its 2008 peak. Stories about this issue – well, at least the good stories – point out the highly variable way in which this increase in the price of food has played out in different places. One good example of this sort of reportage is from Saturday’s Washington Post.
This variability, however, tends to be illustrated instead of interrogated, with explanations remaining remarkably shallow (see my earlier complaints about how explanations related to “local specificity” and “cultural difference” tend to obscure important processes and blame the victims of larger processes). However, a quick examination of the information we have about food prices and their impacts points to the fact that global food prices are not all that useful for understanding the variable food outcomes we see in the Global South. First, we have to understand that the increase everyone is talking about is in an index of food prices – that is, the price data drawn from a number of different foods. Though the index is going up, this does not mean that the prices of all foods are rising equally. As the WaPo and others have noted (and is quite clear in the FAO presentation of the data), when you disaggregate the crops and their prices, the biggest increases globally are in sugar, cooking oils and some fats (there are, of course, local surges in price for particular crops, but those are often independent of the larger global markets). While cereal prices are increasing, they are not rising as quickly as these other foods, and they remain below 2008 levels. So who is hit by these prices has a lot to do with who consumes sugar, or products heavily constituted by sugar and oils. Oils are widely distributed in diets, but sugar is not – the poorest tend to have the least access outside the Global North (ironically, this is reversed in the Global North, as noted by Fast Food Nation and Morgan Spurlock’s Super Size Me). Meanwhile, staple crop prices are not rising anywhere near as rapidly. So the principal drivers of the rising price index are not a huge portion of the diets of those in Global South . . . with one key exception: urban populations. More on that in a second.
Second, who is hit by these prices has to do with the degree to which producers and consumers are linked to global markets. Many rural producers are consumers of their own produce, or the produce of their neighbors. As a result, they are somewhat insulated from shifts in commodity prices. I’ve seen this at work in Ghana firsthand – it is a disaster for incomes in these areas, but not for food security. Instead, people just eat the crops they might otherwise have sold at market. Of course, this comes with other costs, such as in terms of the purchases of needed household goods, and sometimes in terms of children’s education (in places where school fees are still charged). But in terms of food security, not so much. FEWS-NET has offered this same interpretation of the impact of rising food prices on the countries in which it operates, arguing that this increase in this index is not as worrying as what we saw in 2008. This is one of those instances where integration with global markets, long seen as a goal of development programs and a clear pathway to prosperity, can also produce significant new challenges for the global poor . . . or at least that segment of the rural poor whose livelihoods and production are highly integrated with global markets.
So, where people are dependent on global commodities that are internationally sourced for their food or incomes, shifting global food prices are more likely to result in direct shocks to their food security. While there are certainly rural populations that fit this description, once again it is the urban poor who are most generally and directly exposed to this challenge. With little food production of their own, they are dependent on purchased food that has passed through one or more middlemen from the source of production. By definition, their food supply is more commodified, and more connected to global markets, than most of their rural counterparts.
Therefore, there isn’t a whole lot of point to looking at global price indexes to understand the relationship between these prices and food insecurity. Instead, we have to look at who is affected by these prices, and how – the connections are complex and often involve tracing what appear to be unrelated factors as they radiate out from these price changes. This is the only way to appropriately design interventions to address these issues . . .
Don’t tell us that the food price index is rising – tell us why it is rising . . . then we can do something about it.
Category: Food Security
From the aid/development divide to the climate change/development divide
I’ve been going on quite a bit about how we envision the relationship between aid and development – or perhaps more appropriately, how we do not really envision that transition, but assume that it simply happens – quite a bit lately. But pressing on my mind during my work life is the relationship between climate change and development – how do mitigation and adaptation efforts relate to development? The answer, of course, is that they relate to development in many different ways. For example, mitigation efforts include things like land use, which can impact existing agricultural practices, and constrain (or sometimes enable) the options available to the designers of agricultural development projects. Adaptation efforts emphasize the prevention of negative outcomes, a form of coping, but unless this relationship is explicitly considered they do not necessarily rhyme with development projects that seek to build on existing resources and capacity to improve people’s situations.
(I confess that I am deeply concerned that development is rapidly being subsumed under adaptation in some quarters, which is a real problem as they have two different missions. To refocus development projects on adaptation is to shift from an effort to improve someone’s situation to an effort to help them hang on to what little they might have. But this is a post for a different day.)
There is a danger, in this era of enhanced attention and funding toward climate change, of using climate change funds to continue doing the same development work as we were doing before, only under a new label (i.e. calling agricultural development “agricultural adaptation”, then using climate change funds to support that program even though nothing about it has really changed). It is an annoying habit of people in agencies, who are often cash- and personnel-strapped, to try to use new initiatives to support their existing projects. There is also a danger, in places where climate change has a greater emphasis than development, that development dollars aimed at particular challenges will be repurposed to the end of addressing climate change, thus negatively impacting the original development goal. A year ago, Bill Gates wrote warned against just such an outcome in his 2010 Annual Letter as co-chair of the Gates Foundation. On first read, it is a reasonable argument – and one that I largely agree with. We live in a world of finite donors, and new dollars to address climate change often have to come from some other pot of money funding another project or issue. These are difficult choices, and Gates has every right to argue that his pet interest, global health, should not lose funding in favor of climate change related efforts. However, his argument sets up a needless dichotomy between development/aid (in the form of public health funding) and efforts to address the impacts of climate change:
The final communiqué of the Copenhagen Summit, held last December, talks about mobilizing $10 billion per year in the next three years and $100 billion per year by 2020 for developing countries, which is over three quarters of all foreign aid now given by the richest countries.
I am concerned that some of this money will come from reducing other categories of foreign aid, especially health. If just 1 percent of the $100 billion goal came from vaccine funding, then 700,000 more children could die from preventable diseases. In the long run, not spending on health is a bad deal for the environment because improvements in health, including voluntary family planning, lead people to have smaller families, which in turn reduces the strain on the environment.
Well, sort of. I could make a pretty brutal counterargument – not spending on health, such as HIV/AIDS leads to a lot of deaths in the productive segment of the population pyramid, leaving a lot of fallow land to recover its nonagricultural ecological functions. This sort of land use change is actually visible in places like Swaziland, but very hard to quantify because the studies aren’t there yet – nobody wants to be seen as potentially supporting this sort of nightmarish conservation argument. I certainly don’t – but that is not my point. My point was that Gates’ argument is pretty thin.
In making a political point, Gates is being a bit selective about the relationship between climate change and health. What he is completely ignoring is the fact that mitigation efforts might limit the future range of disease vectors for any number of illnesses, thus saving tremendous numbers of lives. This is especially true for diseases, like malaria, where a vaccine has proven elusive. Further, he ignores the ways in which coherent, participatory adaptation programs might address health issues (by managing everything from nutrition to sanitation) in an effective manner. While I am not arguing that mitigation and adaptation efforts could completely address the impacts caused by the loss of $1 billion in vaccination funding, his argument for 700,000 extra deaths* rests upon the assumption that nothing in the climate change portfolio will address the causes of such deaths through other means. He’s creating an either/or that does not exist.
Again, Gates is making a political point here – which is his right. But that political point sets up a false dichotomy between aid/development and efforts to address climate change that even Bjorn Lomborg has abandoned at this point. We can argue in the interest of our agencies and organizations all we want, but the problems we are trying to address are deeply interlinked, and in the end creating these false dichotomies, and claiming that one issue is THE issue that must be addressed, shortchanges the very constituencies we claim to be working with and working for.
*I must admit I loathe this sort of quantification – it is always based on horribly fuzzy math that, at best, is grounded in loose correlations between an action and a health outcome. I raise this issue and take it apart at length in my book . . .
Challenging development dogma
On his blog Shanta Devarajan, the World Bank Chief Economist for Africa, has a post discussing the debate about the performance and results of the Millennium Villages Project (MVP). The debate, which takes shape principally in papers by Matt Clemens and Gabriel Demombynes of Center for Global Development and Paul Pronyk, John McArthur, Prabhjot Singh, and Jeffrey Sachs of the Millennium Villages Project, questions how the MVP is capturing the impacts of its interventions in the Millennium Villages. As Devarajan notes, the paper by Clemens and Demombynes rightly notes that the MVP’s claims about its performance are not really that clearly framed in evidence, which makes it hard to tell how much of the changes in the villages can be attributed to their work, and how much is change driven by other factors. Clemens and Demombynes are NOT arguing that the MVP has had no impact, but that there are ways to rigorously evaluate that impact – and when impact is rigorously evaluated, it turns out that the impact of MVP interventions is not quite as large as the project would like to claim.
This is not all that shocking, really – it happens all the time, and it is NOT evidence of malfeasance on the part of the MVP. It just has to do with a simple debate about how to rigorously capture results of development projects. But this simple debate will, I think, have long-term ramifications for the MVP. As Devarajan points out:
In short, Clemens and Demombynes have undertaken the first evaluation of the MVP. They have shown that the MVP has delivered sizeable improvements on some important development indicators in many of the villages, albeit with effects that are smaller than those described in the Harvests of Development paper. Of course, neither study answers the question of whether these gains are sustainable, or whether they could have been obtained at lower cost. These should be the subject of the next evaluation.
I do not, however, think that this debate is quite as minor as Devarajan makes it sound – and he is clearly trying to downplay the conflict here. Put simply, the last last two sentences in the quote above are, I think, what has the MVP concerned – because the real question about MVP impacts is not in the here and now, but in the future. While I have been highly critical of the MVP in the past, I am not at all surprised to hear that their interventions have had some measurable impact on life in these villages. The project arrived in these villages with piles of money, equipment and technical expertise, and went to work. Hell, they could have simply dumped the money (the MVP is estimated to cost about $150 per person per year) into the villages and you would have seen significant movement in many target areas of the MVP. I don’t think that anyone doubts that the project has had a measurable impact on life in all of the Millennium Villages.
Instead, the whole point here is to figure out if what has been done is sustainable – that is the measure of performance here. Anyone can move the needle in a community temporarily – hell, the history of aid (and development) is littered with such projects. The hard part is moving the needle in a permanent way, or doing so in a manner that creates the processes by which lasting change can occur. As I have argued elsewhere (and much earlier that in this debate), and as appears to be playing out on the ground now, the MVP was never conceptually framed in a way that would bring about such lasting changes. Clemens and Demombynes’ work is important because it provides an external critique of the MVP’s claims about its own performance – and it is terrifying to at least some in the MVP, as external evaluations are going to empirically demonstrate that the MVP is not, and never was, a sustainable model for rural development.
While I would not suggest that Clemens and Demombynes’ approach to evaluation is perfect (indeed, they make no such claim), I think it is important because it is trying to move past assumptions to evidence. This is a central call of my book – the MVP is exhibit A of a project founded on deeply problematic assumptions about how development and globalization work, and framed and implemented in a manner where data collection and evaluation cannot really question those assumptions . . . thus missing what is actually happening (or not happening) on the ground. This might also explain the somewhat non-responsive response to Clemens and Demombynes in the Pronyk et al article – the MVP team is having difficulty dealing with suggestions that their assumptions about how things work are not supported by evidence from their own project, and instead of addressing those assumptions, are trying to undermine the critique at all costs. This is not a productive way forward, this is dogma. Development is many things, but if it is to be successful by any definition, it cannot be dogmatic.
On Aid and Development
An interesting post at Blood and Milk yesterday led a commenter to note that we shouldn’t use the terms “international development” and “aid” interchangeably – that the “real big story about development is exactly that it is NOT all about aid, but about domestic elites establishing pro-growth rules.”
For me, this raises two issues – the first is about the relationship between aid and development, and the second about the character of development itself. Alanna Shaikh, who writes the Blood and Milk blog, added a new post today that addressed the first. In this post, Shaikh argues “You can, and do, get development without aid. I’m pretty sure you don’t get it without economic growth.” Well, sort of. I currently work in one of the world’s largest development/aid organizations. I am the climate change coordinator for the Bureau most directly responsible for our aid activities (as opposed to our development activities). This puts me in something of an odd position – I am a development/environment person tasked with thinking and program-building for the long-term in an aid organization that is often reactive in its programming and its mandate. Why, then, did I take this position? Because of the need to better connect aid to development (and vice versa). Right now, aid and development exist in very different worlds – even in the same building, there is little communication or coordination between these two missions. This galls people on both sides of the divide, from leadership down the line. The vision of an agency like mine is that aid should transition to development, ideally seamlessly (though at this point we would take any sort of transition). Adaptation to climate change is one area where such transitions can be created out of existing programs – our aid teams work on hydrometeorological disaster risk reduction (DRR), and our development side works on adaptation to climate change. These are very similar areas of work, differentiated largely by timeframe. One of my jobs over the next few years will be to better connect our hydromet DRR and adaptation programming to build one connection between aid and development – a thread that we might use to close other aid/development gulfs (such as in food aid and agricultural development).
Aid may not be the same thing as development, but it should not be seen completely separately from development – my Bureau sees its constituency as that component of the population that is largely left behind by economic growth programming. Nobody debates that a significant percentage of the population slips through the cracks of economic development programming – our job is to ensure that those who slip through the cracks do not remain there, but have an opportunity to recover and participate in society, politics and the economy. So, when I hear someone argue that there can be development without aid, I strongly disagree – at least at the national scale (communities are a different issue). At the national scale, you cannot have socially or environmentally sustainable development that abandons a significant portion of society to its fate. Aid is critical to development – or it should be, if only we could better coordinate aid and development efforts.
Second, I am deeply concerned by the continued connection of development to economic growth. The linkages between human well-being and economic growth are shaky at best (most correlations can be readily challenged and dismantled) – largely because development, globalization and growth do not really work the way people seem to think they do (my book is an exploration of this point). Further, economic growth cannot be eternal. 3% growth per year for everyone forever is simply beyond the physical capacity of the planet. I’m pretty sure that development is going to have to detach itself from economic growth (ironically, this would mostly entail simply acknowledging the reality of what’s been happening around the world for the last 60 years) if it is ever to accomplish its end goal – the improvement of the human condition in this world.
Finally, a thought on the two metastories of development that Shaikh raises at the end of her post. I agree that development is neither all success or all failure – it plays out differently in different places, and we have better understandings of why in some areas (health, for example) than in others (transportation development, for example). I would argue that this is a symptom of a larger problem – we really don’t understand what is happening in the Global South most of the time, and as a result we are often measuring and analyzing the wrong things when we do project scoping or evaluation work. Our assumptions about how the world works shape the way we frame our questions about the world, and the data we gather to answer those questions. The problem, simply put, is that we are often asking the wrong question. Sure, every once in a while our assumptions align with events on the ground, and a project works. But the rest of the time, our assumptions do not align with reality, and we run into difficulty understanding what is happening in particular places, and why particular projects fail. The end result? A seeming random set of project outcomes, where things work in one place but not another for reasons that seem hard to discern. There are more fundamental metanarratives of development out there than success or failure – they are narratives about how globalization works and how development works that shape our very ability to assess success or failure. And those narratives actually misinform many of our best efforts.
Where accountability goes to die
The subtle airbrushing of market manipulation out of the public consciousness continues apace. Despite clear evidence from IFPRI that market manipulation is creating the conditions of uncertainty that are driving up global food prices, nobody seems to want to address this in a forceful manner – and heaven forbid you raise this in any food security discussions in a development agency. People will blindly argue that there is no evidence (except, of course, there is), and then when confronted with the IFPRI study will make absurd arguments like the uncertainty is creating the appearance of manipulation because, you know, IFPRI wouldn’t bother to make sure they had the causality going in the right direction before they published.* So, we will just keep plugging away at the issues of supply to address global food issues, because why address the only factor that IFPRI could identify as having a causal effect on the rising food prices in 2008?
And now we see the same blindness spreading into our discussions of the financial markets. In the January issue of Wired Felix Salmon and Jon Stokes return to the Flash Crash, the sudden near-600 point drop in the Dow that occurred back in May. The regulatory agencies assigned to policing market manipulation more or less abdicated their responsibilities and absolved everyone of blame in their report. This was absurd, and doesn’t hold up to the slightest bit of logic. Now Wired is on board, running a “blame the algorithms” story that uses the flash crash as exhibit A. They argue that Waddell and Reed (the managers of the mutual fund that made the trade)
used an algorithm to hedge its stock market position. The trade was executed in just 20 minutes – an extremely aggressive time frame, which triggered a market plunge as other algorithms reacted, first to the sale and then to one another’s behavior
Sure – this is exactly how it played out. But the issue here is not that the algorithms themselves were to blame. Someone had the PROGRAM THE ALGORITHM FOR THE FIRST TRADE. The algorithm did not decide to dump all of those futures contracts in 20 minutes. The person who designed the algorithm (or, more likely, his/her employer) made that decision. Once set in motion, I have no doubt that this trade cascaded through other, more conventionally designed algorithms, triggering all sorts of “irrational” behavior as they tried to adjust to the rapidly-changing market conditions. I also have no doubt that whoever set up the original algorithm had some idea that this is exactly the sort of chaos that would ensure from their insane trade. Everyone is now focused on events after the initial trade, and how trading algorithms might need more controls or oversight. I think that is a reasonable position, but it does nothing to address the behavior of individuals willing to initiate market chaos by setting up insane trades.
Incidentally, nobody in their right mind would set up an insane trade for no reason. I wonder if the SEC spent any time looking into who was short on the Dow that day and made out big (including people who made out huge before a bunch of trades later in the crash were invalidated), and then examined the connections those folks might have had to Waddell and Reed. Then again, it seems few folks in major development agencies want to seriously examine market manipulation and its impact on food security.
At what point does willful obliviousness turn into criminal negligence?
*these were actual arguments raised when a colleague of mine attempted to address the issue of market manipulation at a meeting in one of our major development agencies. Really. How the hell, exactly, does uncertainty create the appearance of manipulation?
Well, this should be interesting . . .
Ah, The Leaks that Shall Not Be Named (if you work for the US Government, at least) seem to have some amusing data on one of our banks here in the US. This is not new news – Assange mentioned this last month. But I like this piece on DealBook on who really is freaked out by this . . . turns out it is the government, again. I agree completely with the author – pretty much nothing that is dumped would surprise me or much of the public anymore. We know we got screwed . . . well, at least some of us have figured this out. The rest of the population seems to be preoccupied by . . . well, honestly I have no idea what the hell people are looking at anymore. Where is the collective rage? Why hasn’t Congress rammed serious regulation of the financial industry through in fear of a pitchfork-wielding constituency? Oh, right, Simon Johnson covered that . . .
All that aside, as the piece in DealBook points out this new dump of documents might shed some light on just how close the relationship between the financial industry and the government really is. If, as Johnson claims, the financial industry has more or less captured the government in a sort of quiet coup, there may well be evidence of this – such as clear instances of regulators ignoring evidence of illegal acts, or warning institutions to change their behaviors before the regulators were forced to act.
Who knows what is in the documents . . . but given the remarkable Officer Barbrady impression pulled by the SEC in the “flash crash” case, I have a feeling something ugly is in there. I just don’t believe the regulators are that blind, or that stupid . . .
But here’s what I am wondering – and I’ve not seen it raised yet: what if these documents contain evidence of the conscious manipulation of wheat pricing that triggered the 2008 global food price spike, and appears to be behind at least some of the current food price increases we are seeing. It is one thing to screw around with financial instruments until you collapse the economy . . . but it is entirely another to quite literally starve people to death for profit. It would be interesting to see if such behavior qualified as a crime against humanity. It damn well should.
This strikes me as especially pertinent because the document dump, by placing the documents in the public realm, makes them usable by various governments (including our own) in prosecutions of criminal acts. While the documents were illegally obtained, they were not obtained at the behest of the government (I think we can all agree that Assange and the US Government are not colluding on much of anything these days) and therefore may not be “fruit of the poisoned tree.” Would regulators/the Justice Department dare ignore evidence there for all to see? Would the ICC get involved? And how ugly would this get, if indeed there was evidence of collusion between the regulators and the financial institutions? Are the regulators liable for actions in commodities markets if they allowed manipulation to take place?
Thousands of ways to get this done
Well, the Cancun Conference of the Parties (called COP for short) is upon us, where everyone will sit down and accomplish pretty much nothing on a global climate change agreement. There is real concern circulating in the diplomatic world that this meeting could see the fracturing of the push for a global agreement such that it never happens – at least from this framework. This outcome is problematic in all sorts of ways, not least of which in the chaos it will unleash in the development world, where a huge amount of money was slated to be used for adaptation to climate change under what amounted to a glorified memorandum of understanding coming out of Copenhagen. If the whole process bites the dust, it isn’t very clear what happens to that money or the programs and projects under development to use it.
That said, if it all goes totally bad in Cancun it doesn’t mean that we are beyond creating meaningful paths toward a lower-emissions future that might be manageable. Indeed, one might argue that the death of the global framework might be the only way forward. States like California, and cities like New York, are now starting to implement policies and programs to cut their own emissions without a national mandate. They are creating locally-appropriate policies that maximize environmental benefit while minimizing the local “pain” of the new policies. This is all well and good for these cities, but what I find interesting is that there is some evidence – however loose- that this city-by-city, state-by-state approach might actually be more efficient at achieving our climate goals than a global agreement.
I was part of the Scenarios Working Group for the Millennium Ecosystem Assessment – my group was tasked with running four future scenarios for ecosystem services (the goods and processes we get from ecosystems) under different future political, economic and social conditions. Once we got our baselines and assumptions for each scenario in place, a team of modelers ran the scenarios for various issues (temperature change, water availability, etc.) and then we attempted to link the model runs to meaningful statements about how ecosystems might fare under each scenario.
This is relevant here because, interestingly, we had a “global orchestration” scenario that, to some extent, looks like what the world was going for with Copenhagen and Cancun. We also had another scenario called “adapting mosaic”, which assumes decentralized control and adaptive management of environmental resources. Neither scenario was a clear winner – each had strengths and weaknesses. An “adapting mosaic” approach is great at managing new and emerging environmental challenges, whether from climate change or other issues. It might also serve as the very legitimate basis of a bottom-up approach to an eventual global accord on climate change. However, this approach risks ignoring global commons like fisheries, which often leads to the loss of that resource through overuse. There is a real risk that inequality will go unaddressed, at least across countries and at the global scale, but at the same time economic growth will not be as robust as under other scenarios. Global orchestration is good at maximizing income. While I dissented from this view*, the group argued that under global orchestration a Kuznets Greening Curve would kick in (as people get wealthier, they pay more attention to the environment – thus, economic growth and consumption can result in better environmental quality), and we would have strong global coordination on everything from trade to environmental issues. However, this approach is much more reactive, and focused on the global scale – thus it is not very good at dealing with local surprises. In my opinion, adapting mosaic looks better, over the long run, than global coordination (especially if you factor in my concerns about the Kuznets Curve assumption).
In short, in the efforts of California and New York we are seeing the emergence of a de facto adapting mosaic as the global orchestration efforts of Cancun and Copenhagen fall by the wayside. This actually might be a good thing.
In uncertainty, there is hope.
*the Kuznets curve rests on a key assumption – that with enough wealth, we can undo the damage we do while building wealth to the point that we start caring about the environment. Kuznets has no answer for extinction (a huge problem at the moment), as that is gone forever. Further, the Chinese are starting to provide an object lesson in how to blow up the Kuznets curve by damaging one’s environment so badly that the costs associated with fixing the problem become overwhelming – and those are the fixable problems. Basically, assuming a Kuznets Greening Curve allowed those framing these scenarios to put an overly-happy face on the global orchestration scenario for political reasons – they wanted to provide support for a global effort on climate change. A more honest reading of the data, in my opinion, would have made adapting mosaic look much better.
Page proofs . . .
are killing me. But, the book is here, and I am cleaning it up. I hate page proofs. Deeply. This is the sort of detail work I loathe – combing back through 90,000 words looking for misspellings and erroneous punctuation. It is taking days, because you can only focus that hard for so long. And at the same time, I am cleaning up the index.
Oh, and that is on top of the article that was due back in today – I worked with two of my Ph.D. students, Mary Thompson and Manali Baruah, to produce a paper that examines how REDD+ functions as a form of unacknowledged environmental governance (defining legitimate terms and actors within debates over how to implement terrestrial carbon sequestration projects in forest areas). We’ll see how it does in this round of peer review.
And then there is the talk I am supposed to be giving at UNC – Chapel Hill on Friday. I’ll be discussing how we think about livelihoods in development, how current framings might have carried us as far as they are going to, and what a new framing might look like. Yeah, it is coming together, but not as quickly as I’d hoped.
But, without further ado, the first few hundred words of Delivering Development:
Global food prices again . . . but maybe a solution!
New Scientist has an interview with the authors of a recent report that blames food price shifts on financial market manipulation and speculation. Worth reading – they are quite clear in their argument.
Is this another crisis like the one we had in 2008?
Not quite. Maximo Torero of the International Food Policy Research Institute (IFPRI) in Washington DC notes that oil, the real driver of food prices and of the 2008 crisis, is relatively cheap, at around $75 a barrel, not over $100 as it was in 2008.
In 2008, both immediate grain prices, and the prices offered for future grain purchases in commodities markets, climbed steadily for months, whereas now they are spiking and dipping more unpredictably, which economists call volatility.
“The market fundamentals – supply and demand – do not warrant the price increases we have seen,” says Torero. Not all harvests have been bad, and after 2008 countries rebuilt grain stocks. “There are enough stocks in the US alone to cover the expected losses in Russia.”
The food riots in Mozambique were not due to world grain prices, he says, but because Mozambique devalued its currency, making imported food more expensive.
So what has been happening this year?
Markets are responding nervously to incomplete information. First there was a series of shocks: Russia’s export ban, lower maize forecasts, then, days later, a US ruling to allow more bioethanol in fuel which seemed likely to further reduce the maize – the main source of bioethanol – available for food. Meanwhile there was no reliable information about grain stocks, which is strategic information that most countries keep secret.
The result was nervous bidding and sporadically surging prices in commodity markets. And that attracted the real problem: investors wielding gargantuan sums of speculative capital and hoping to make a killing. When speculation exacerbated the price crisis of 2008, Joachim von Braun of the University of Bonn, Germany, then head of IFPRI, predicted that it would continue causing problems. “We saw that one coming and it came,” he says. “Food markets have new design flaws, with their inter-linkages to financial markets.”
Volatility also makes it harder to solve the long-term, underlying problem –inadequate food production – by making farmers and banks reluctant to invest in improved agricultural technology as they are unsure of what returns they will get. “Investment in more production alone will not solve the problem,” says von Braun. As long as extreme speculation causes constant price bubbles and crashes, either farmers will not get good enough returns to continue investing in production, or consumers will not be able to afford the food.
“Without action to curb excessive speculation, we will see further increases in these volatilities,” he says.
h/t to Resilience Science
This is very interesting, but what I found intriguing about this article was the researchers’ suggestion for how to address this uncertainty – transparency and information about supplies via remote sensing:
All the major producers already use remote sensing technology to watch each other’s fields. If countries would reveal just once what stocks they hold, says Torero, the satellite images can be used to calculate whether those stocks have risen or fallen, as growing conditions change. “All we need to know is the baseline,” he says. Reliable information about stocks could offset unwarranted jitters about crop failures, such as the ones that are contributing to the current market volatility.
Von Braun goes farther: he says there should be a global technical organisation that keeps track of world grain stocks and production, and which decides, using complex computerised models of world food markets, what range of grain prices are actually warranted by real supply and demand. Then if speculation starts to drive prices up out of this band, countries could intervene on markets, buying and selling just enough to counter speculative pressure. “This doesn’t stop speculation, just extreme speculation,” he says.
He thinks it would take a fund of $20-$30 billion to do the trick. In September the World Bank extended a $2 billion fund to respond to food price crises, but that is aimed at helping the poorest survive price spikes rather than intervening to stop them happening.
You may or not like the idea of a global organization or fund, but the idea of actually monitoring the supplies of the commodities to examine if pricing reflects actual market dynamics (supply/demand controlled for expected future conditions) is fantastic and already possible. The only people who would lose here are those whose only skill set is in exploiting the uncertainty and lack of information in the market for their own profit – especially those willing to exacerbate uncertainty and opacity to generate larger profits.
Great new (to me) resource
For those interested in things environment and development, the Environmental Change and Security Program at the Woodrow Wilson Center here in DC (actually in the Ronald Reagan Building along with USAID and EPA) runs a very cool, interesting blog The New Security Beat. It’s going in the blogroll to the right – check it out . . .