22 November 2012

Africa: Food Price Spikes and the Poor

analysis

A review the type of policies and mechanisms that poor, net food-importing countries might use to overcome food security challenges in periods of high prices.

With recent UN figures showing food prices still near historic highs, how can governments help ensure poor people have enough to eat? In a new paper for the International Centre for Trade and Sustainable Development, we review the type of policies and mechanisms that poor, net food-importing countries might use to overcome food security challenges in periods of high prices.

We argue that governments should heed the lessons of the 2007-8 price spikes, if - as predicted - prices remain high and volatile in the years ahead. Consumers in net food-importing countries, such as in sub-Saharan Africa, have most at stake. Farmers in the big exporters, such as Argentina and Brazil, have most to gain.

Our research shows that 89 of 136 countries examined worldwide are net importers of both food and non-food agricultural products. In addition, there are 22 countries that, while being net exporters of agricultural goods, are nevertheless net importers of food. And since a decade ago, 20 countries have switched from net exporters to net importers of agricultural goods.

Nations affected by civil war or political unrest feature heavily on this list of countries that have moved away from exporting farm commodities, with Somalia, Sudan and Zimbabwe among them. Other countries are now net importers of agricultural goods simply due to changes in their competitiveness in other activities relative to food.

On the positive side, with higher incomes people have diversified their diets, cushioning the international price shocks that affect basic commodities. More worrisome is the case of poorer, "captive" consumers of basic grains. Even in middle-income countries the food component of cost-of-living indices has risen faster than other prices, with a consequent rise in poverty levels.

Of course, even in food-importing countries, farmers could gain with access to rising world prices. Government policies and poorly-integrated markets might mean, however, that world prices are not passed on to poor producers - especially those in remote areas. Moreover, the poorest in rural areas are often those who spend more on buying food than they make in selling it, and price hikes harm more than they help.

What can governments do? In the case of exporting countries, what we do know is that there are negative externalities of export restrictions, which have exacerbated global price spikes, and undermined the reliability and credibility of world food markets.

There is a vicious circle: unreliable markets propel countries to shift toward self-sufficiency, incurring high social costs - domestically and internationally. The resulting enhanced world price volatility reinforces the domestic political incentives to insulate national markets.

Although there are studies of the policy responses to the recent price spikes, the household welfare effects are not well understood. But importing-country policies can lessen the short-term impacts on the most vulnerable, as well as boost farm productivity in the longer-term. Beyond lowering import tariffs, governments can use 'safety nets' to assist with cash transfers for those in need.

These importing countries should find that increased spending on farm advisory services or improved access to seeds and fertilisers is money well spent in the longer-term: by boosting yields, farm incomes rise, allowing poor farmers to respond effectively to growing demand. The extra investment could make the difference in the future between what could be merely a food price rise and what could be another food price spike crisis.

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