Unit 9 Availability of Food (and Access) Flashcards
Global trends in per capita availability and consumption of food
Food production between 1970 and 2010: meat/capita grows, cereal/capita remains stable; Population doubled (3.5 to 7BB); meat rose three fold (26 to 42 kg/capita)
Consumption mirrors production, except when storing or drawing from storage
9.1
Malthusian and Neo-malthusian assumptions, predictions (vs. reality)
Malthus 1798: population growth = exponential; food supply = linear
o How many years it takes for GDP to double: rule of 72 (72/growth rate); China (10): 7 yrs; African average (4): 18; UK (0.5): 144 yrs
o 1970: Concern about rising oil and food prices
o 2 Assumptions in Malthusian argument: (1) continued exponential population rise, (2) continued linear food production; Reality: (1) Population grow exponential until 1950, then linear; expected to level off; (2) agricultural production growth kept pace with, and 70s-90s outpaced, population growth.
o BUT: Unequal distribution of availability, surplus (US) and deficit (Africa, S. Asia) areas; highest population growth in lowest production countries – relevance of Malthusian argument
• Neo-Malthusian argument: environmental constraints to produce enough for growing population
o 1972 Club of Rome: Limits to growth; famine and disaster if growth continues
o Predictions: (1) Institutional and political constraints to take international decisions on global environmental issues – true; (2) environmental concerns to increase (true: water, fish, cc; crop production, environmental challenges due to livestock emissions, pollution)
9.1
Trends in food demand
Drivers?
o Close correlation of production and consumption (besides storage / drawing down form storage)
o Consumption trends vary by country, but general trends and projections in LDCs: Wheat and rice increasing (top carbs), sweet potatoes decreasing; Protein: Milk and meat increasing, pulses decreasing (Kerney 2010).
o Drivers of consumption trends:
- Rising incomes -> meat, fat, sugar
- Rapid urbanization -> less preparation due to opportunity cost -> processed foods
- Technical processing changes, refrigeration, storage -> fresh foods
- Globalisation, large food industry promotes new consumer tastes
o Consumption trends:
- Meat x 8
- Vegetable oils x3
- Sugar x2
- Fruit, vegetables x3
o Livestock feed consumption (maize, wheat, soya) increases due to meat consumption; inefficient: 7:1 calories for beef; More grain for feed than food, trend to continue in DCs and LDCs; DC also Biofuel due to oil price rise, generating food price rise
(9.1.2)
Trends in food trade
o Long distance trade of some staples, e.g. rice: top 5 importers: Nigeria, Iran, China, Philippines, Indonesia; top 5 exporters: Thailand, Vietnam, India, Pakistan
o 1980-2010: 60% increase in global food trade; LDCs spend double share of GDP on imports and export
o 1.3.2. net imports in Africa: spike starts 70s, 80s; reason: open trade (?)
9.1.3
• Causes of rising and volatile food prices
Complex and debated (p.24); widely agreed factors:
o Energy demand –> Oil prise rise –> transport /shipping /Farm activities and inputs / Biofuel switch*
o Economic growth –> increased demand (cereal, soya for food and feed - meat); e.g. economic crisis –> prices tumble until demand recovers
o 19th century food price decline –> reduced agricultural investment –> low production (below demand)
–> low food stock (global):use ratio –> less certainty in trading and more price volatility**
o Lower public food stocks –> overall low world stock:use ratio
o Biofuel demand (EU, US, Brazil : gvt subsidies) –> increased biofuel production –> high production maintained after subsidies cease (also due to oil price rise*) –> biofuel production competes for land, potential to outcompete (larger market) –> world food price rise
o Greater effect of weather shocks because
1. Food trade globalization: large-scale cheap suppliers have high impact in case of bad harvest
2. Lower stock:use ratio –>greater effect on prices in case of weather shock**
3. Climate change –> higher incidence of weather shocks
o Initial price rise exacerbated by panic reactions: export bans, panic buying and stockpiling, reduced import tariff (e.g. 07/08 spike (rice) much due to panic reactions)
o Increased speculation in commodity futures markets –> short-term price rises (disputed but concern!)
o Decline in USD vs. other currencies
long vs. medium vs. short term trends
Price transmission to poor?
Are rising prices reflected in food prices paid by poor in LDC/MDCs? - complex…
- Quick transmission of widely traded international commodities (wheat, rice vs. cassava…) –> consumers buy cheaper substitutes (e.g. local sorghum) –> pushes up prices of local commodities, but later and less.
- Poor market integration –> less exposure
- Currency movements: international (USD) price of rise rising 07/08 while Asian currencies appreciate against USD –> domestic prices rose less than international prices (vice versa elsewhere…)
- Gvt policies to bring down prices (trade restrictions, admin price control, release food from own stocks e.g. India, Indonesia) –> less transmission
BUT majority of poor in most countries impacted – WFP map of nominal price rises over 1 year (9.2.2.1)
- Rises over 20% in 22/37 countries
- Rises over 50% in 9/37 countries – but highest were due to conflict: Somalia, Zimbabwe
9.2.2
Impact of high world food prices on access to food on poor
mention price transmission…
- INCOME EFFECT HH expenditure composition (e.g. urban Afghanistan): increase in food budget share (bread, cereals, oil and fat), decrease in non-food budget share (tobacco, transport, taxes, medical, debt, celebrations, house) [Engel’s law]–> Decreased human capital, increased debt, decreased investment (e.g. property), access to employment (transport) decreased financial / physical capital. Catastrophic if hh already spend 80 on food – strongest effect on poorest! [income elasticity of food measures percentage change in consumption with every % change in income]
- SUBSTITUTION EFFECT: substitution of cheaper staples; degree of effect depends on relative price elasticities for each good: percentage decline in consumption with each percentage price rise; Poor substitute elastic goods (luxuries – meat) with inelastic goods (staples, root crops)
- STIMULATES FOOD PRODUCTION BY FARMERS in medium term; do poor farmers benefit?
• Most poor smallholders are net food buyers, have no surplus due to lack of land /inputs
• Poor farmers are slow adopters: takes time to risk investment in greater production, volatility is issue
9.2
recent evolution of international prices of food commodities
o Price doubles since turn of century til 2012 after 20 year decline by 1/3–> 06-08, 10-11 spike
o Consequence: social unrest in international headlines, followed by policies and program implementation
Economic perspective: understanding international food price data; complications?
FAO, IMF, WB, USDA collect and publish food prices;
Complications :
1. Commodity basket and weighting? What foods are in the basket, how are they weighted on the food price index? What quality of foods, or what form? Quantity: Wholesale or retail prices?
- Currency? USD most traded –> change in prices due to currency fluctuation or prices?
- Nominal (actual) or real (deflated, adjusted) prices? Deflated, real prices allow comparison of prices over time (removes inflation); Need deflator (e.g. CPI) = price of basked compared to base year price;
• Real price = (current food price)/(100% + percentage increase in CPI since base year)
• Food price indices: base year is set as 100 , calculate real and nominal prices (see 9.2.1.3); inflation makes difference between real and nominal price index- 130% (nominal) or 210% (real) food price rise 1990-2012, in part. since 02;
• Are nominal or real food prices more meaningful? Real prices: useful for economists, can separate food price rises from inflation; nominal prices: meaningful to consumers, if wages do not change; e.g. real wheat price rise 140%, wages only 10% 06-08 in Karachi - Choice of deflator? CPI basket is not typical basket of poor –> separate inflation index for poor; Dorward: USA CPI use leads to underestimation of price rise severity (2008 spike said to be half as severe as 1973 spike for poor communities)
- 2
Importance of estimating # of people affected
- Identify worst affected areas and hh to target and design assistance and policy responses
- Estimation of resources needed to mitigate impact, incl international assistance
9.2
Modelling number of estimated people affectec by price rises: involves which assumptions?
Modelling number affected: complex, involves assumptions: • Price transmission • Currency • Seasonality • Marketing/transport costs • Short/medium term responses
Net Benefit Ratio
what does it measure?
limitations?
- Shows average gain/loss from price rise
- NBR = (P/I)-(C/I) where P= production, I= income, C= consumption; P/I= production as % of income
• E.g. Vietnam: NBR (short-term winners and losers) from rice price rise
o Importance of rice = main staple: grown by 80% of rural, 85% of total food production; 75% of calorie share
o Following 90s price liberalization, price rises
o Calculation of average NBR for different groups by location (urban -14, rural +6), occupation (farmer +9, non-farmer -18); income group (poorest quartile +2.1, richest +2.5) –> ON AVERAGE, farmers and rural are winners
o IBUT ndividual households:
Hh rice surplus –> positive NBR (P >C) net sellers
Hh rice deficit –> negative NBR (C >P) net buyers: 95% urban, 52% rural, 47% farmer, 99% non-f
Hh no net sales –> NBR = 0 (C=P) subsistence
Not only urban, non-farmers, but also MOST (52%) RURAL ARE NET BUYERS –> Most hh lose from price rises
• Shortcomings of NBR (besides it giving averages, not %hh affected, see above)
o Does not allow for substitution effect common with price rices
o Does not account for wider effects, e.g. on wages, behavior changes (migration, increased production)
• Intuitive appeal of NBR –> used by many authers, numerical estimates of “ first order effects”
9.2
Other approaches of estimating number affected by price rise
Numbers of hungry not as serious as seriously thought?
(1) NBR
(2) Gallup Data approach: Headey (2011)
• Data of number of people reporting increased hunger and food security by region (9.2.2.4)
• Difficulty: very populous countries with fast economic growth (China, India, Indonesia) reduce % of food insecure –> Headey reports drop by 60MM in worldwide number of hungry between 05 and 09. In terms of %, most regions report increased food insecurity (% prevalence)
(3) FAO, WFP and IFAD 2012 revise downward the estimated number of hungry people, based on revised methodology for estimating FBS and individual dietary requirements; FAO: from 150MM additional hungry due to prices, now number of hungry have stayed broadly similar, slight decline in developing countries;
–> Numbers of hungry not as serious as seriously thought? NO, SERIOUS, but
- GVT policies shield from full effect (food export bans, release of stock, SP)
- Few populous growing countries affect total number; many other countries experienced increased insecurity
- Numbers reflect headcount/prevalence, not debth of poverty and hunger, which increased
- Future: uncertain that economic growth will keep pace with rising prices, even in China, India
9.2
Q4 Look again at the figures in 2.1.1 and 2.1.2. What questions would you ask about the way that the price indices were calculated?
( international food price trends since 1980, IMF food price commodity index of monthly nominal prices indexed to 2002 base)
(food prices and riots around the world, 2008)
(a) What basket of commodities was used and what was the weight of each commodity in the basket?
(b) What was the specific form and quality of commodities?
(c) Where and when were prices collected?
(d) If prices were not all collected in one currency, what exchange rates were used?
(e) What deflator was used to calculate the price index? (n/a if nominal prices)
(see slide 9 Economic perspective: understanding international food price data; complications?)
SAQ 1
What are the major drivers of the demand for increased global food production?
(a) population increases
(b) income increases – growing consumption per capita of many foods
(c) the switch to animal foods: a lot more grain is needed for feed than when used directly for human food
(d) other uses of staple foods, such as biofuels (maize and sugar) and industrial uses
