Anatomy of the Global Food Crisis

PEDRO CONCEIO AND RONALD U. MENDOZA*

United Nations Development Programme (UNDP)
June 2008

ABSTRACT: This paper offers a preliminary diagnostic of the possible factors behind the
presently unfolding global food crisis. Some of these factors are more immediate and possibly
short-term in nature, such as the volatility in the commodities markets due to possible short-term
financial speculation. Other factors, however, are going to or have already started to impact on
countries food security in the medium- to longer-term. These include rising and changing
patterns of consumption in fast-growing and large developing countries like China and India,
possibly increasing trade-off between biofuels and food, and the unfolding effects of climate
change. In response to the present crisis and keeping in mind the possible structural features of
the food landscape from here on, this paper outlines a possible framework for policy actions,
describing the possible roles of unilateral and collective action in addressing the present food
crisis as well as ensuring future global food security.
Key words: biofuels, cereal stocks, commodity markets, food crisis, food security
JEL: F13, O13, Q18

*Correspondence Address: United Nations Development Programme (UNDP), Office of Development

Studies, Uganda House, New York, NY 10017 USA. E-mail: Pedro.Conceicao@undp.org and
Ronald.Mendoza@undp.org.
Acknowledgements: The authors are grateful to Diego Arias, Barbara Barungi, Paola Deles, John Horton,
Selim Jahan, Bashir Jama, Guido Schmidt-Traub and Shantanu Mukherjee for very useful comments on
an earlier version of this paper, and to Nina Thelen for providing excellent research assistance. The views
expressed in this paper are the authors and do not necessarily reflect the policies of UNDP.

Introduction
Growing protests against high food prices in different parts of the developing world, including in
Burkina Faso, Cameroon, Egypt, Haiti, Indonesia, Ivory Coast, Mauritania, Mozambique, the
Philippines and Senegal have elevated food security as one of the top issues in the international
agenda. Global food price increases in recent months have been astronomicalin March 2008,
the price of traded wheat had gone up by over 130 percent compared to year before levels, while
the price of traded rice had gone up by over 70 percent during the same period.1 The Food and
Agriculture Organization (FAO) reports that the cereal import bill of the worlds poorest
countries is expected to increase by 56 percent in 2007, which is even higher than its 36 percent
increase in the previous year.2 If unabated, these price increases threaten to erase much of the
gains in poverty reduction that have been achieved in the last decade.3
Governments around the world have responded to the immediate crisis by taking a
number of steps to secure their food stockpiles and keep food prices within their borders down,
such as by relaxing tariffs on food imports, or slapping protections on food exports. However,
some of these policies may have exacerbated the broader crisis by further contributing to an
already thin world food market. Furthermore, some of these policies may have undermined the
very incentives that could boost food production, putting an end to the present crisis as well as
possibly helping to prevent future ones.
Addressing the issue of food security requires a critical understanding of the root causes
of the worlds food- and agriculture-related challenges that have been brewing for some time
now.4 To this end, this paper offers a preliminary diagnostic of some of the important factors
both domestic and externalwhich may have contributed to the immediate crisis, and in
addition, describes some aspects which may have repercussions on possible future ones as well.
Some of these factors are more immediate and possibly short-term in nature (e.g. volatility in the
commodities markets due to short-term financial speculation) while others are going to, or have
already started to, impact on countries food security in the medium- to longer-term (e.g. rising
and changing patterns of consumption in fast-growing and large developing countries like China
and India, a possibly increasing trade-off between biofuels and food, and the effects of climate
change). As the crisis is still unfolding, no attempt is made here to try and attribute relative
importance behind any of these possible explanations behind the crisis.
Figure 1 summarizes the content of this paper and illustrates a preliminary anatomy of
the present global food crisis. As will be elaborated herein, two of the main transmission
mechanisms that make the crisis global in nature include the trade in food (e.g. maize, rice,
1

Authors calculations based on the FAOs food production per capita indicator drawn from FAOSTAT Online
[http://faostat.fao.org/].
2
Poorest countries cereal bill continues to soar, governments try to limit impact. FAO, Rome, April 11, 2008
[http://www.fao.org/newsroom/en/news/2008/1000826/index.html].
3
Based on rough estimates by the World Bank, a doubling of food prices in the last three years alone already
threatened to push 100 million people back into poverty (Ivanic and Martin, 2008:20; World Bank 2008a).
4
For the purpose of this paper, food security is defined as: Access by all people at all times to enough food for an
active, healthy life. See Maxwell (1996) for a review of other possible approaches to defining food security in
practice.

wheat, dairy products) or inputs to produce food (e.g. oil, fertilizers), and the effects of climate
change on agricultural productivity. Another potential factor relates to the behavior of financial
investors in our globalized financial and commodity markets but this third aspect receives only
a very preliminary treatment in this paper.

Figure 1. Anatomy of the Global Food Crisis

Source: Authors own elaboration.

While the net impact of all these trends on the world, on individual countries, and within
countries across the poor and the more well-off, are still evolving and our understanding of the
entire picture still being sharpened, at least three things seem clear.

First, it is likely that the appropriate policy mix to respond to these challenges must be
nuanced, responding not just to the symptoms or some of the immediate manifestations of
the crisis, but also the root causes including important long-term factors that have already
begun to unfold. Aspects related to distribution issues are of paramount importance, not
only in terms of income inequality, but also in terms of who are the net producers and the
net consumers, across and within countries. For example, policies to take advantage of
higher prices by increasing government revenue that could finance assistance to the most
vulnerable can backlash with a strong reaction from the producers as we are seeing in
Argentina and undermine the supply incentives that would be expected to come with
higher prices.

Second, unilateral actionincluding by some countries that we have seen in recent

monthsare probably not going to be sufficient. At worst, some of these policies could
even exacerbate the broader problem at hand, transforming tight food supplies into a
3

protracted food crisis. If food insecurity issues are left unaddressed, we might begin to
see replacing older beggar thy neighbor forms of protectionism possible new ones of a
hunger thy neighbor nature. Countries are within their sovereign right to secure their
foodstocks; however, with better foresight and some collective action, there are possibly
better and more effective ways to address the challenges related to food security so that
all countries benefit. This is a typical challenge of supra-national collective action.

Third, the long-term challenge of ensuring food security is not only a simple matter of
lowering prices and increasingly supplyit is fundamentally linked to the challenge of
increasing purchasing power and reducing poverty. Whether one looks at this issue at the
international or intra-national levels, and considering the lessons from history, food
insecurity often occurs amidst abundant supplies. Even when food is plentisome, hunger,
undernourishment and starvation sometimes occur (as it has in the past) when there are
shocks to peoples endowments, which are meager to begin with for the poorest and most
vulnerable segments in society (Sen, 1981;1982). While in the short run, the roots of the
present food crisis may be related to unusually strong supply shocks and depleted stocks
(at least for some grains), the long-term drivers of food security are fundamentally
intertwined with the roots of poverty and inequality. We have always had a food crisis in
many parts of the worlda silent crisis of poverty and hunger even when prices were not
yet dramatically increasing at the global level. Hence, beyond the immediate challenge of
providing humanitarian relief in the countries most ill-equipped to weather the present
crisis (and future ones that are yet to come), it is the broader and long-term challenge of
reducing poverty and hunger that national policymakers and the international community
needs to critically address.

In what follows, section 1 discusses some of the domestic factors that could influence
food security, and it takes Haiti as an illustration of some of the internal challenges faced by a
net food importing low income country. This section also elaborates on how food security is
fundamentally linked to the broader challenge of reducing poverty and inequality. Important
distributional issues come to the fore in analyzing the possible extent and severity within
countries of food crises. Section 2 reviews some of the possible external factors affecting
countries on both the net exporting and net importing sides of the global food equation. These
are the factors that make the present crisis truly global in nature. Short-, medium- and
long-term are used as rough analytical descriptors to help distinguish factors that may be less
permanent from those that countries will increasingly need to deal with. Section 3 briefly touches
on the importance of national and international food market structures, and how this additional
aspect could also affect food security. In its final section, this paper outlines a possible
framework for policy actions, describing the possible roles of unilateral and collective action in
addressing the present food crisis as well as ensuring future food security.

1. Internal Factors
A variety of factors that are internal to a country affect its food security. Net food importing low
income countries like Haiti are likely to face a number of distinct challenges, which, combined
4

with their dependence on external food supplies, leaves them vulnerable to food price shocks.
Notable among these challenges are the lack of investments in the agricultural sector. In addition,
both net food importing and net food exporting countries could be broadly vulnerable because
food security is not just about the abundance of food, nor a matter of being able to produce
enough food to feed the entire population. As noted by Sen (1981), problems related to lack of
access to food are not merely addressed through a scientific discussion of ways to boost food
production, important as they might be: these problems are also critically tied to ownership and
exchange, which are exacerbated in contexts of high levels of poverty and inequality.

Challenges of a net food importing low income country

Haiti offers an illustration of developing countries faced with an array of challenges, including
that of ensuring its food security.5 Haitis economy has suffered a protracted stagnation for much
of the last 30 years, and its agricultural sector has experienced a steady decline from the mid1980s to the mid-1990s, with production increasing slightly in the last few years but never really
recovering to the same output levels in the 1980s. Haitis example shows the confluence of two
main factors: a) low and declining incomes with b) high volatility of internal food production
(due to weather shocks, low investments and low productivity).
Agricultural sector growth has also been volatile throughout this period. The volatility
(measured as the coefficient of variation) of the growth in agricultural production has almost
doubled during the period 1990-2005, compared to the period 1980-1989.6 In addition, Haitis
food production per capita has been on a declining path since 1990. The average growth rate of
food production per capita in Haiti during the period 1991-2006 was negative 1.7 percent.7 Haiti
transformed from a net exporter to a net importer of food8, between 1980 and 2005generating
a net food export surplus of 6 percent of imports in 1980/1981, and a net food export deficit of
about 14 percent of imports by 2004/2005.9
A number of factors could have impacted on Haitis agricultural sector, including the
immediate (and possibly short-term) effects of floods and hurricanes, though there were no major
weather-related events occurring in recent months. Medium- to longer-term factors appear to be
more relevant. A first set of these factors centers around the countrys economic policies.

This section provides a brief overview of some of the key challenges faced by Haiti, notably in its agricultural
sector. See Arias and others (2006), IMF (2007), and ODS (2008) for a more detailed analyses of Haitis economy,
its agricultural sector, and its internal and external challenges.
6
Authors calculations based on the FAOs food production per capita indicator drawn from FAOSTAT Online
[http://faostat.fao.org/].
7
Authors calculations based on the FAOs food production per capita indicator drawn from FAOSTAT Online
[http://faostat.fao.org/].
8
Defined as raw food, cash crops, feeds and agricultural raw materials.
9
It is one of 10 low income countries in the world whose agricultural trade deficit is more than 5 percent of its
imports (along with Bangladesh, East Timor, Eritrea, North Korea, Mauritania, Nepal, Niger, Senegal, and Yemen)
(Ng and Aksoy, 2008:11,50).

The opening up of Haitis agricultural sector to international trade, without

accompanying investments in its capability to boost the sectors competitiveness, might be a key
factor behind the agricultural sectors apparent contraction. For example, Haiti imported some
16,000 metric tons of rice in 1980. After two successive phases of trade liberalizationone in
the mid-1980s and another in the mid-1990sHaitis rice imports have risen to well over
270,000 metric tons by 2004, which represents an almost 17-fold increase.10 Consequently,
demographic pressure, decapitalization, and low levels of human resource and infrastructure
investments have all also probably contributed to the declining capacity of its agricultural sector
(Arias and others, 2006).
The impact of environmental damage on Haitis agricultural productivity is also an
important additional factor to consider. Haiti suffers from considerable deforestation: during the
period 1990-2000, its natural forest cover declined by about 50 percent. Based on one estimate
(for 2000), its forest area represents a mere 3 percent of its total land area.11 Under these
conditions, the impact of floods and hurricanes on Haitis agricultural sector have become more
severe. It has been estimated that Haiti loses anywhere from 10,000 to 15,000 hectares of fertile
land each year to soil erosion (Arias and others, 2006: 3).12
While the present focus on Haiti brings some of its unique challenges sharply into focus,
declining or stagnant agricultural sectors is a stark reality for other developing countries, notably
many in Sub-Saharan Africa. In addition, some net food importers are low income countries in
conflict or recovering from conflict, or are mired in debt or are undergoing debt relief, all of
which introduces a broader array of challenges in addition to food insecurity. Figure 2 compares
the cereal yields (expressed in kilograms per hectare) in different developing regions, while
Figure 3 (A-F) and Figure 4 (A-F), provide illustrations of the food production per capita and
agricultural production trends, respectively, of selected net food importing low income countries.
These figures help to illustrate important differences in the nature of the challenge across
countries.
Countries like Haiti and Eritrea have experienced declining food production, and at the
same time agricultural production in these countries appears to have stagnated from previously
higher levels of output. Nevertheless, in countries like Mauritania, food production has gone
down, but agricultural production has gone-up, possibly signaling important structural shifts in
its agricultural sector (such as from producing food crops to cash crops).13 In other countries like
Bangladesh and East Timor, the challenge probably has to do more with volatility in food
10

FAO [http://www.fao.org/ES/ess/toptrade/trade.asp].
World Resources Institute [http://earthtrends.wri.org/pdf_library/country_profiles/for_cou_332.pdf].
12
It is important to note here that a variety of other factors could also come into play, including the absence of a
strong social safety net, lack of fiscal space which could be useful to meet rising cereal import bills, and the existing
tariff and tax structure for food imports and exports.
13
On this point, calculations by Ng and Aksoy (2008:6,9) reveal that 42 of 58 low income countries had a net food
deficit in 2005, but only 24 of the same low income countries had a net agricultural deficit. They define food as raw
food under SITC Revision 2, and it includes meats and dairy products, grains and cereals, and vegetables and fruits
(and excludes cash crops, processed food and seafood). Agricultural trade includes raw food, cash crops and
agricultural raw materials in SITC Revision 2. See also annex 1 for the full table of food and agriculture trade
balances.
11

production (and for East Timor, volatility in agricultural production in general). Country- and
context-specific analyses will be essential in drawing out the array of factors behind these trends,
and for many of the least developed countries that comprise the worlds bottom billion,
broader challenges such as conflict, debt, and poor governance could come to the fore (e.g.
Collier, 2007).

Figure 2. Cereal Yields for Selected Developing Regions, 1961-2005

(In kilograms of cereal production per hectare)

Source: World Banks World Development Indicators Online.

Figure 3. Food Production Per Capita for Selected Low Income Developing Countries,
1980-2006 (100=1999)
a. Haiti

b. Eritrea

c. Mauritania

d. Bangladesh

e. East Timor

f. Sierra Leone

Source: Bangladesh, Haiti, and Sierra Leone: 1980-1989: UN Data [http://data.un.org]; 1990-2006: FAOSTAT
Online [http://faostat.fao.org]. East Timor, Eritrea, and Mauritania: UN Data [http://data.un.org].

Note: Index of gross food production scaled by the population level. Base period is 1999/2001. Countries featured
are the low income countries with agricultural trade deficits more than 5 percent of their imports, identified by Ng
and Aksoy, (2008:11), excluding North Korea and countries not listed in the FAOs list of 37 countries requiring
external assistance (as of April 2008; see http://www.fao.org/docrep/010/ai465e/ai465e02.htm).

Figure 4. Agricultural Production for Selected Low Income Developing Countries, 19802004/2006 (100=1999)
a. Haiti

b. Eritrea

c. Sierra Leone

d. Bangladesh

e. East Timor

f. Mauritania

Source: Bangladesh, Haiti, and Sierra Leone: 1980-1989: UN Data [http://data.un.org]; 1990-2006: FAOSTAT
Online [http://faostat.fao.org]. East Timor, Eritrea, and Mauritania: UN Data [http://data.un.org].
Note: Index of gross food production scaled by the population level. Base period is 1999/2001. Countries featured
are the low income countries with agricultural trade deficits more than 5 percent of their imports, identified by Ng
and Aksoy, (2008:11), excluding North Korea and countries not listed in the FAOs list of 37 countries in crisis
requiring external assistance (as of April 2008; see http://www.fao.org/docrep/010/ai465e/ai465e02.htm).

Nevertheless, an important part of the over-all challenge in some countries, notably in

Sub-Saharan Africa, is to resuscitate their ailing agricultural sectors. A widely acknowledged
aspect of any strategy to accomplish this has to do with undertaking the appropriate public
investments that could underpin the broader development of these countries agricultural sectors
and rural economies (e.g. Sachs, 2005; United Nations, 2005; World Bank, 2007). As the next
section clarifies further, this strategy of boosting these countries agricultural sectors could
generate at least two important benefitsfirst, it could enhance these countries food security
which could be a recurrent challenge if unaddressed; second, and perhaps more importantly, it
might also form part of a broader strategy to reduce poverty in rural areas, where 75 percent of

the worlds poor live,14 while also lowering income inequality in many parts of the developing
world.

Poverty, income inequality and food insecurity

Taking a long-term perspective, hunger and inadequate access to food is not just a matter of food
scarcity or high food pricesthese are only some of its immediate symptoms. Food insecurity is
also critically linked to poverty and low incomes. Indeed, if one looks at the industrialized world
and the fast growing emerging market economies where incomes are either already high or
growing fast or both, then it becomes much clearer that food prices historically did not increase
as fast as real per capita income in these latter groups of countries. Real GDP per capita growth
in high income and middle income countries in the last 40 years or so has actually outstripped
food price growthbut this is not the case for low income countries as a group (Table 1).

Across countries, low income countries are the most vulnerable.

Table 1. Real GDP Per Capita and Food Price Growth, 1961-2006
(Annual growth in percent, and averaged over the period indicated)
GDP Growth, per
group of country
High Income
Middle Income
Low Income
Food price growth

19611970
4.1
3.2
1.7
1.8

19711980
2.6
3.6
0.6
9.6

19811990
2.4
1.1
1.8
-1.9

19912000
1.9
2.4
2.2
-2.3

20012006
1.5
4.5
4.4
4.9

19612006
2.6
2.8
2.0
2.2

Source: Authors calculations based on data from the World Banks World Development
Indicators Online and the IMFs International Financial Statistics Online. Real GDP per capita
figures are expressed in 2000 US$; the year 2000 is the base year for the food price index.

In many past cases of famine in certain countries, over-all production or availability of

food was often a poor predictor of the amount of food that the poor segments of the population
could acquire (Dreze and Sen, 1995; Sen, 1982).15 Thus, important distributional issues within
countries also become relevant. Haiti, for example, is characterized by high income inequality
its Gini index is 59.2 placing it among the countries with the highest income inequality in the
world. This also suggests that a significant portion of the purchasing power of the population is
skewed towards a small segment of its population. And because the share of food in the
14

World Bank (2007: 45).

Amartya Sen developed the entitlements approach to analyze food problems, in order to better explain how a
person could starve even during periods of high abundance of food. Entitlements, in a market economy, refers to the
different commodity bundles that a person can acquire in society given his original bundle of ownership, or his
endowment. A person could thus starve (even under conditions of abundant food supplies) through such events as a
fall in his or her endowment (e.g. loss of assets such as land and livestock), or detrimental changes in the conditions
of exchange (e.g. unemployment, wage cuts, food price increases, etc.) (Sen, 1981; 1982). For a discussion of some
of the critiques and counter-critiques to Sens entitlements approach, see also Devereux (2001).
15

10

consumption of the bottom quintile in Haitis population is large (over 50 percent), then this
suggests that the poorest are particularly vulnerable to a food price shock.16
The populations in net food importing low income countries are thus not the only ones
vulnerable to food price shocks. There are two main reasons for this:

First, international trade either in food or in the inputs to produce food (like oil and
fertilizers) implies that factors affecting these international markets could also be
transmitted to any country that trades, spanning both net food importers and net food
exporters. The pass-through of international prices to domestic prices is probably going
to vary across countries depending on factors such as the relative exchange rate
movement vis--vis the recently weakening US dollar (thus also the exchange rate and
monetary policy), domestic physical infrastructure, market structure and government
policies to stabilize prices.

Second, in many other developing countriesincluding large ones like India, Indonesia
and even food exporting onesthe impact of higher food prices will be greatest among
the low income population, and notably the poorest segment of the population, since food
is a large share of their consumption. As table 2 shows, both poverty and inequality are
high not only in low income countries like Bolivia and Sierra Leone (with poverty rates
of 42 and 75 percent respectively, and Gini indexes of 60 and 63 respectively), but also in
middle income countries like South Africa (with a poverty rate of 34 percent and a Gini
index of 58 percent).

In all the countries listed in Table 2, large segments of both the rural and urban
populations are poor, and a large share of their expenditures is devoted to food. For people living
on less than $1.4 (in 2005 PPP $) a day in Nepal, Sri Lanka and India, for example, over 70
percent of household expenditures is devoted to food. Even if we relax the cut-off, to include a
larger swath of the population, i.e. the so-called base of the economic pyramid or BOP
composed of people living on less than $8.2 (in 2005 PPP $) a day,17 the food expenditure shares
is still large, ranging from about 60 to 70 percent of the BOPs expenditures. In development
economics, this is of course a reflection of the Engel curve, to the extent that lower income
households have a higher share of food in their expenditures, while for higher income
households it is the reverse. A significant portion of the developing world is comprised of low
income householdsby some measures numbering about 4 billion peopleand this helps to
shed further light on why food is such an important distributional and also political issue in many
countries, given that a significant majority of their populations are likely harmed by adverse
movements in food prices.18
16

As is the case in most developing countries, a larger proportion of household expenditure among poor households
is allocated towards foodthe bottom quintile of Haitis population allocates 53.4 percent of its expenditures on
food, while the top quintile allocates about 10 percent (IMF, 2007:19).
17
This is one possible definition of the BOP, and others have been used. For further discussion, see for example
Hammond and others (2007).
18
Recent analysis by the Asian Development Bank has also revealed how the share of rice expenditures not just in
food expenditures but in total expenditures is much larger for the poorer households compared to richer onesbased
on a sample of four rice-consuming countries in the region (Bangladesh, India, Indonesia and the Philippines), they

11

The foregoing examines the potential impact from the expenditure side. Another way to
analyze the distributional issues related to the food crisis would be to examine the sources of
income of different segments of the population. Figure 5 (A-F) help to illustrate the relative
importance of farm and agriculture-related income compared to other income sources for
different expenditure quintiles of the populations of six sample countries. For Ghana, Nepal and
Nigeria, farm and agriculture-related income is clearly a more prominent income source for the
poorest expenditure quintile, while not as much for Bangladesh, Pakistan and Indonesia, where
other incomes sources are also relatively large. However, these rough income categories allude
to, but do not yet precisely ascertain the impact of food-related shocks.

found that spending on rice accounts for as much as 20-35 percent of total household expenditures for the bottom
income quintile, while for the top quintile, the share could be as small as 5-10 percent (ADB, 2008:14).

12

Within countries, large segments of the low income population (especially the poorest) are most vulnerable.
Table 2. Poverty Rate, Gini Index, and Share of Food in Bottom and Top Quintiles Consumption for Selected Low Income
and Middle Income Developing Countries
(In rank, percent or index value)
Population below national poverty
line (%)d

Share of household expenditure devoted to food (%)e

People living on X 2005 PPP $ per day, where
X is:

Bangladesh
Bolivia
Cote d' Ivoire
Nepal
Sierra Leone
Sri Lanka

People
living
below the
national
poverty
line

BOP
Population
Share
(% of
National) e

HDI
Ranka

Gini
Indexb

Poverty
Ratec

Rural

Urban

National

X<1.4

1.4<X<2.7

2.7<X<4.1

X<8.2

140
117
166
142
177
99

33.4
60.1
44.6
47.2
62.9
40.2

84.0
42.2
48.8
68.5
74.5
41.6

53.0
83.5
n.a.
34.6
79.0
7.9

36.6
53.9
n.a.
9.6
56.4
24.7

49.8
65.2
n.a.
30.9
70.2
22.7

65
61
61
70
60
72

59
57
54
64
59
67

51
49
46
56
55
60

55
47
49
59
53
58

54
31
47
53
52
55

99.6
82.7
98.2
97.3
98.8
95.5

30
71
53
33
50
43
37

22
68
52
24
46
28
27

70.7
95.0
99.1
69.6
90.4
74.4
75.4

70
57.0
21.2
41.0
17.5
21.5
37
37
33
Brazil
128
36.8
80.4
30.2
24.7
28.6
74
75
73
India
107
34.3
52.4
n.a.
n.a.
16.7
63
57
51
Indonesia
52
46.1
11.6
27.9
11.3
17.6
47
41
36
Mexico
87
52.0
30.6
72.1
42.9
53.1
59
59
53
Peru
121
57.8
34.1
n.a.
n.a.
n.a.
54
50
45
South Africa
78
42.0
25.2
n.a.
n.a.
13.6
57
48
43
Thailand
Sources:
a
Of 177 countries in total. Data for 2005, from UNDP (2007:234-7).
b
Value of zero represents absolute equality; and a value of 100 absolute inequality. Data for various years, from UNDP (2007:281-4).
c
People living on less than $2 a day. Data for the most recent available year during the period 1990-2005, from UNDP (2007:238-40).
d
Population below national poverty line. Data for the most recent survey year, from World Bank (2008b:64-6).
e
Hammond and others (2007).
f
Categorized by the FAO, as of April 2008 [See http://www.fao.org/docrep/010/ai465e/ai465e02.htm]

13

Figure 5. Sources of Income by Expenditure Quintile

(In percent share of mean household incomes)
a.Bangladesh 2000
b. Nepal 1996
100%

100%

80%

80%

60%

Transfers & other

60%

Transfers & other

Nonagricultural income
40%

Agricultural wage labor

Nonagricultural income
40%

Agricultural wage labor

Onfarm income
20%

Onfarm income
20%

0%

0%
Poorest

2nd

3rd

4th

Richest

Poorest

2nd

c. Pakistan 2001

4th

Richest

d. Indonesia 2000

100%

100%

80%

80%

60%

3rd

Transfers & other

60%

Transfers & other

Nonagricultural income
40%

Agricultural wage labor

Nonagricultural income
40%

Agricultural wage labor

Onfarm income
20%

Onfarm income
20%

0%

0%
Poorest

2nd

3rd

4th

Richest

Poorest

2nd

e. Ghana 1998

4th

Richest

f. Nigeria 2004

100%

100%

80%

80%

60%

3rd

Transfers & other

60%

Transfers & other

Nonagricultural income
40%

Agricultural wage labor

Nonagricultural income
40%

Agricultural wage labor

Onfarm income
20%

Onfarm income
20%

0%

0%
Poorest

2nd

3rd

4th

Richest

Poorest

2nd

3rd

4th

Richest

Source: Davis and others (2007:56-8).

Note: For each country, columns represent the bottom fifth to the top fifth of the expenditure distribution.

14

To get at a much finer analysis of the potential impact among potentially vulnerable
groups it is necessary to use a more detailed disaggregation of the poor. Table 3 presents data
that first shows the share of the poors food basket that is internationally traded (thus establishing
the transmission mechanism from international to domestic food markets); and then it
disaggregates the poor according to different categories, spanning urban (i.e. food buyers), rural
landless (i.e. food buyers) and rural smallholder farmers who are either net buyers of food, selfsufficient, or net sellers of food. Based on this small, but illustrative sample of countries, it is
clear once again that the distributional impact even among the poor will not be homogeneous.
For instance, in some countries like Cambodia and Vietnam, a large number of net sellers of food
among the rural poor (at over 30 percent of the entire poor population) could benefit from higher
prices. However, for other countries, net sellers of food comprise a much smaller fraction of the
total poor. In Bolivia, for example, only 7 percent of the poor are food self-sufficient and only
5.6 percent are net sellers, so that a majority of the poor (and indeed a majority of the entire
population according to Table 2 also) could be adversely affected by food price increases.

Table 3. In Some Countries Most of the Poor are Net Consumers of Tradable Food Staples

Internationally traded
staples
(In percent share of the
poors food consumption)

Bolivia

Ethiopia

Bangladesh

Zambia

Cambodia

Madagascar

Vietnam

(2002)

(2000)

(2001)

(1998)

(1999)

(2001)

(1998)

25.5

24.1

41.2

40.4

56.3

62.7

64.4

50.9

22.3

14.9

30

8.4

17.9

6.1

7.2

n.a.

53.3

7.4

11.5

14.8

5.8

29.1

30.1

18.8

28.8

25.8

18.9

35.1

7.1

39.5

4.6

20.8

18

27.3

19.4

5.6

8.4

13

36.3

21.1

33.6

Distribution of poor
(In percent)

Urban (buyers)
Rural landless
(buyers)
Smallholders net
buyers
Smallholders
self-sufficient
Smallholders net
sellers

Total
100
100
100
100
100
100
100
Source: World Bank (2008c:109).
Note: Data refer to people below the national poverty lines. Rice, wheat, maize, and beans comprise tradable staples,
while cassava, potatoes, plantains, sorghum, and teff are excluded. Numbers in parentheses refer to the survey year.

Furthermore, using household data for a sample of 9 developing countries, Ivanic and
Martin (2008) undertake preliminary simulations of the possible direct impacts of changes in the
prices of staple foods on households expenditures, as well as the impacts on poor households
through changes in the wage rate for their net sales of unskilled labor. Their estimates, based on
different assumptions on the over-all food price increase (including the actual price increases in
15

2005 and 2007), reveal initial evidence that poverty measured as people living on less than $1 a
day in most of the countries they study would increase. Peru and Vietnam are potential
exceptions, however, given that the decrease in rural poverty could potentially make-up for the
increase in poverty among net food buyers.19 All this might help to explain why many countries
(including Bolivia) have taken immediate steps to try and temper the effects of food price
inflation, even as they might also have some segments of the population possibly benefiting from
higher prices on the supply side. As for the future, a recent study of rural and urban poverty over
the period 1993-2002 provides evidence that, globally, the poor are urbanizing faster than the
population as a whole (Ravallion, Shen and Sangaraula, 2007). This in turn suggests that more
and more poor people will be concentrated in urban centers and they will constitute a growing
population segment that are net buyers of food and vulnerable to food price shocks.
To briefly recap, the transmission mechanism through trade allows international price
movements to affect not just net food importers like Haiti, but also net exporters of food, like
India and Thailand are for rice. Trade connects domestic food supplies and prices to international
market conditions, and it is because of this that rising international prices might be transmitted to
the developing worlds domestic markets. To illustrate, depending on a countrys food trade
balance, higher international food prices could either exert pressure on domestic prices by
directly making imported food more expensive, or by making it more profitable to export crops
instead of selling domestically. Given this, high poverty and inequalityspanning both net food
exporters and net food importers, as well as low income and middle income countriessuggest
that large segments of the developing worlds population remain vulnerable to food price shocks.
While in some countries, some of the poor could benefit from food price increases, in many
countries, a vast majority of the poor and the national population will clearly be adversely
affected. Hence, as will be discussed further in the next section, in an attempt to secure domestic
supplies and also keep domestic prices low, many countries have recently liberalized their
imports of food, and at the same time curbed their exports of food.

2. External Factors
A variety of external factors could also be behind the presentas well as possible futurefoodrelated crises. There are at least two main transmission mechanisms to consider. One, described
earlier, has to do with the international trade in food and the inputs to produce food, such as oil
and fertilizers (some of which also requires oil to produce). Factors affecting the demand and
supply (hence also prices) of these items will thus affect both net exporters and net importers of
these items, as the present crisis has amply demonstrated. Also, important and possibly rising
environmental externalities linked to climate change and its effect on agricultural productivity
and the worlds food supply is another factor to consider.

19

Countries in the study by Ivanic and Martin (2008) include Bolivia, Cambodia, Madagascar, Malawi, Nicaragua,
Pakistan, Peru, Vietnam and Zambia. To assess the impact of changes in commodity prices, they turn to a partial
equilibrium analysis of the welfare impact of small price changes based on an expenditure function characterizing
household consumption and factor supply behavior, and a profit function representing household production
activities.

16

Short-term external factors exacerbating the crisis

Consumer prices for food in Haiti have experienced a considerable increase over the last years
and are relatively high by regional comparison. In addition to country-specific reasons behind
these food-price increases, there are also other factors that are quite possibly related to the global
commodities markets, which could also influence the price of food in Haiti given that food
products are among its top imports (e.g. rice and wheat).
Figure 6 shows the food price increases in key commodities based on the period from March
2007 to March 2008. Indeed, the FAO has recently reported that the cereal import bill of the
worlds poorest countries is expected to increase by 56 percent in 2007/2008, which is even
higher than its 36 percent increase in 2006/2007 (FAO, 2008a).
Furthermore, based on preliminary calculations of monthly price increases, there is
evidence to suggest that food price increases in recent months are indeed historically high. For
example, the FAOs food price index growth rate of 8.1 percent in February 2008 is the highest it
has been since October 1974 (8.5%). The February 2008 increase in the price of rice, about 22
percent, has not been as high as it was in November, 1993 (25.7%).20 What could be driving
these historically high growth rates in global commodities prices? Recent analyses point to
several potential drivers, and these are classified here as possibly short- to medium-term external
factors that may have played a role in the food related challenges not just in Haiti, but in many
parts of the developing world.21
Figure 6. Commodity Price Increases from March 2007-March 2008

Source: Corn, Rice, Soya, Wheat: Bloomberg (except rice: FAO/ Jackson Son & Co) as quoted
in BBC (2008). Dairy, Meat, Oils and Fats, Sugar: FAO (2008b:13).
20

Authors calculations based on the FAOs food production per capita indicator drawn from FAOSTAT Online
[http://faostat.fao.org/].
21
In addition to this, the FAO (2007a) also notes that movements in exchange rates, notably in the US dollar, has
resulted in higher demand for US agricultural exports. This brisk demand is keeping pressure on supply, even as
prices of most commodities have been increasing.

17

Financial speculation. Recent years have seen how increased liquidity in international
financial markets buoyed investments in securities and derivatives linked to commodities
markets. In more recent months, with the decline in stock markets and depressed housing values,
this has helped to accentuate the lure of commodity futures as an asset class. Thus, financial
speculation is likely to have played an important role in the volatilityand sharp increases
during some periodsfor some agricultural commodity prices (Domanski and Heath, 2007;
FAO, 2007; Helbling and others, 2008). There is suggestive evidence that there is indeed a
speculative bubble at least in some commodities. The evidence for metals is very strong
(Domanski and Heath, 2007; Veneroso, 2008). Ultimately, whether the drivers are fundamentals
or speculation is an empirical question, and at least qualitatively it is possible to argue that both
fundamentals (Tulpule, 2008) and speculation (Veneroso, 2008) are playing a role. It is
nevertheless difficult to reconcile such abrupt volatility and sharp increases in some commodities
with changes in fundamentals. The role of index investors who take long positions and are
largely price insensitive, as long as their portfolio has a desired exposure to commodity indices
has increased substantially, bringing a new class of investor and a new way of investing into
commodity markets. The effects are being felt not only in price volatility, but are also affecting
the extent to which hedging is economically feasible. Recently Bloomberg ran a story that
highlighted that farmers are no longer using exchanges for hedging, because margin calls and the
widening of the spread between spot and futures prices (the basis) widened, making both short
and long hedging expensive; these factors had increased the cost of hedging in May of 2008 for
corn to be delivered in December by three times compared with the same period a year earlier
(Wilson, 2008). As a response, regulators have stepped in by raising margins and pushing for
compulsory delivery of grains in order to help facilitate more orderly price discovery (GabreMadhin, 2008), even though it is difficult for regulators to avoid large speculative inflows, since
often these move into exchanges via over-the-counter derivatives (Epstein, 2008). In fact, the
overwhelming majority of positions are taken in over-the-counter derivatives markets, rather
than in organized exchanges (Domanski and Heath, 2007).
Higher oil prices. On the input side, the higher price of petroleum has helped raise the
costs for producing agricultural commodities (namely the costs of fertilizers, some of which are
petroleum based), thus creating knock-on effects on the cost of production and productivity.
Shipping and freight costs could also have been affected, thus also potentially influencing the
final price of imported agricultural commodities. The Baltic Exchange Dry Index, an indicator of
shipping costs for bulk commodities such as grains and oilseeds, breached the 10,000 mark in
2007, implying that freight rates have increased by over 80 percent from the previous years
levels. In addition, higher oil prices, and the growing political mandate to respond to this trend,
have both helped to boost the demand for agricultural crops that are being used to produce
biofuels, thus creating an additional link on the output side.22
Government policies. Clearly, the challenges related to the broader food crisis should
also be understood in greater depth by focusing on each agricultural crop, given that each implies
some unique challenges. As will be discussed in the next section, food crops like maize,
22

It might be possible to distinguish the presently historically high price of petroleum as a short-run factor, even as
higher demand for energy might also be considered as a medium to long-term trend.

18

sugarcane, sugar beet, cassava, and wheat could be used as feedstock crops for the production of
biofuels. Some of these crops are important components of the food basket in different parts of
the world, thus suggesting a possible trade-off between food and fuel use.
On the other hand, rice is a highly political crop in some parts of the worldany
instability in its supply could cause widespread political unrest, so much so that many countries
seem to have over-reacted by restricting exports or building up stockpiles, in order to prevent any
blowback from a possible rise in domestic rice prices. This seems to be the case, for example, for
big rice producers where rice is also a staple. India and Vietnam, respectively accounting for 14
percent and 15 percent of the global rice supply, for example, have both slapped restrictions on
their exports in recent months.23 In the case of Thailand, which is the largest rice exporter in the
world (accounting for about 30 percent of the global rice supply), its recently elected populist
government has not yet applied, but is nevertheless discussing possible export restrictions.24 On
the other hand, Pakistan, which is the fifth largest rice exporter in the world (behind Thailand,
Vietnam, India and the United States in that order) has not slapped any restrictions on rice
exportsrice is not a staple in the country; instead, wheat is. In addition, the Philippines, a major
rice importer (accounting for about 6 percent of total global imports of rice25), has also likely
contributed to bidding up international rice prices in recent months as a result of its aggressive
strategy to increase its stockpiles by tapping the global market.26 Clearly, when these export and
import giants move, smaller and ultimately more vulnerable countries like Haiti could be
trampled in the process.
Governments in the developing world have thus responded in a variety of ways to meet
the challenges related to the recent increases in cereal prices.27 Some of these policies are meant
to secure the countrys food stocks and keep domestic prices affordable, including applying taxes
on exports, export ceilings or bans. Nevertheless, to the extent that the countries implementing
these policies are major suppliers or presently major consumers of certain commodities, then
these recent policies by a number of major commodity producers could have also helped to
precipitate tightness in global supply. Indeed a casual review of the key policy moves by large
rice exporters and trends in rice prices for different varieties suggest, at least in a very
preliminary way, that the two are clearly linked, even as the direction of causality is still not
clear (Figure 7).

23

India, it seems, has also done this in anticipation of rising wheat prices owing to bad harvest on this other staple
food in the country.
24
See Cereal Offenders. The Economist, March 27, 2008. [Available at:
http://www.economist.com/finance/displaystory.cfm?story_id=10926502].
25
Shares of global rice exports calculated using figures for 2007, and taken from FAO (2007b:31).
26
RP unwittingly driving up international rice prices Philippine Daily Inquirer, May 2, 2008 [Available at:
http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20080502-134024/Thais-to-snub-RPs-rice-bid].
27
See annex 2 for a description of policy moves by a selection of developing countries.

19

Figure 7. Rice Price Quotes for Selected Varieties

(Simple average of weekly quotes in US$ per metric ton)

Sources: Data for the figure was collated from different sources by US Department of Agriculture (2008a: table 6).
Text in the boxes was excerpted from indicated sources.
Notes: Data for April 2008 are preliminary. Data on Vietnam long grain 5% brokens is incomplete.

Medium- to Long-Term External Factors Affecting Global Food Security

Over the medium- to longer-term, on the demand side, rising and changing patterns of food
consumption in the developing world and evolving patterns in biofuels development, as well as
supply side factors such as the impact of climate change on agricultural productivity across
different food crops and different regions in the world, might also play (or might have already
played) a role in the food-related challenges faced by countries like Haiti in recent months, and
also in the years to come.

20

Rising and changing patterns of food consumption. The economic rise of developing
countriesnotably countries with large populations like China and Indiaare creating a
burgeoning demand for raw materials and commodities, as well as undergoing rising and
evolving demand for food, thus contributing to the commodity boom (Avendano, Reisen and
Santiso, 2008; Gale and Huang, 2008). During the period from 2001-2007, China, India and
countries in the Middle East accounted for 56 percent of the growth in oil; and during 20002006, Chinas alone accounted for 90 percent of the increase in global copper consumption. In
2006, China also accounted for one-fifth of the global consumption of wheat, corn, rice and
soybeansin terms of the latter, it alone accounts for 40 percent of the total global consumption
(Helbling and others, 2008:11-12).
China offers an interesting case in terms of rising and changing patterns in food demand.
It is the top rice consuming country in the world, and its rice consumption rose from about 50
million metric tons per year in the 1960s, peaked at about 137 million metric tons by 2001, and
in 2007 stood at about 127 million metric tons.28 China has traditionally been a net rice exporter,
but in recent years, its net exports have declined markedly, from about 3.5 million metric tons in
1997 to about 0.7 million metric tons in 2007. These figures are miniscule compared to Chinas
total rice consumption, but they are large relative to recently thinning world rice markets. To
give a better sense of this, a decline of about 3 million metric tons amounts to about 11 percent
of the total global rice trade in 2007.29
Furthermore, during the last thirty years, Chinas poultry, beef and pork consumption has
increased markedly, reflecting its evolving food demand. For instance, between 1990 and 2007,
its share of global poultry consumption has nearly doubled (from 9 percent to 17 percent) and its
share of global beef consumption has increased six-fold (from 2 percent to 12 percent). In 2007,
China accounted for about half of the global consumption of pork. All this helps to explain, in
part, Chinas increasing demand for other crops that are used for feedstock. As shown in Table 4,
other fast growing countries with large populations like Brazil and India are also beginning to
account for larger shares in global meat consumption. The United States is included in Table 4 as
a comparator country.

28

Data was taken from the US Department of Agriculture Production, Supply and Distribution Database
[http://www.fas.usda.gov/psdonline/psdQuery.aspx].
29
Authors calculations based on data from the US Department of Agriculture Production, Supply and Distribution
Database [http://www.fas.usda.gov/psdonline/psdQuery.aspx].

21

Table 4. Poultry, Beef and Port Consumption for Selected Countries, 1975-2007
(In percent share of global consumption)
a) Poultry
Brazil
China, Peoples Republic of
India
Russian Federation
United States
b) Pork
Brazil
China, Peoples Republic of
India
Russian Federation
United States
c) Beef
Brazil
China, Peoples Republic of
India
Russian Federation
United States

1975
5
0
0
0
34
1975
2
18
0
0
14
1975
5
1
1
0
29

1980
7
0
0
0
31
1980
2
23
0
0
16
1980
7
1
1
0
26

1990
7
9
1
5
28
1990
2
35
0
5
11
1990
10
2
4
10
22

2000
10
18
2
3
22
2000
2
47
0
2
10
2000
11
10
3
4
23

2007
11
17
3
4
20
2007
2
46
0
3
9
2007
12
12
3
4
21

Source: FAOSTAT Online [http://faostat.fao.org].

Forecasts by the US Department of Agriculture (2008b) from 2008-2017 expect that total
rice consumption in China might not increase as markedly as in the past years, once declining
per capita rice consumption ( in part from changing food consumption patterns) offsets the
impact of population growth. However, India, Indonesia, and Bangladesh, the next top riceconsuming countries in the world after China, will see increasing demand for rice, as will SubSaharan Africa, the Philippines, and Iran, over the next 10 years.
Looking to the future, according to the recently released UN inter-agency report on the
International Assessment of Agricultural Knowledge, Science and Technology for Development
(IAASTD), global demographic changes and changing patterns of income distribution over the
next 50 years is expected to lead to an increased general demand for food, as well as different
patterns of food consumption (notably greater consumption and demand for meat and dairy
products).30 It is predicted that global cereal demand will increase by 75 percent between 2000
and 2050, while global demand for meat doubles during that same period. The increase in
demand for the latter also implies a concurrent additional increase in feedstock demand. About 7
kilograms of grain is required to produce one kilogram of beef; and it takes about 4 kilograms
30

With rising incomes, there will be greater demand for meat products and other goods, which in turn could increase
the demand for crops to be used for animal feeds.

22

and 2 kilograms of grain to produce pork and chicken respectively.31 Hence, the growing demand
for other foodstuff, such as meat and dairy products, creates knock-on effects on the demand for
certain crops, like maize. More than three-fourths of this growth in demand for both cereals and
meat will be accounted for by developing countries.32 Already, China and India have become
large players not just on the supply side, but alsoand increasingly so according to these
projectionson the demand side of the global food equation.
Trends in biofuel development. Rising global energy demand not just among the
industrialized countries but also among the fast growing emerging market economies, combined
with efforts to address climate change by trying to minimize carbon emissions, has prompted
growing interest and policy emphasis on alternative fuel sources. One of these sources, biofuels,
could also affect the supply of food in at least two important ways. First, certain food crops like
maize, sugar and cassava could be directly used in biofuel production, and there is a potential
trade-off between food versus fuel in terms of the use of the final output. For example, in terms
of global maize usage during the 2004-2007 period, biofuel production in the US alone
accounted for 50 million tons while other uses (including for food and feedstock) accounted for
an additional 33 million tons. Since only 51 million tons of maize was produced during this
period, these consumption statistics imply a significant decline (by over 30 million tons) of the
global stockpile. Second, to the extent that land area devoted to biofuels as opposed to food
production might become an increasingly binding trade-off, this might also exert possible
pressure on resources critical to food production. Countries policies, notably biofuel subsidies,
will also be a factor to consider here, given that biofuel production receives considerable
subsidies. According to one un-official estimate for the case of the United States, its biofuel
industry received the equivalent of about $6.3 to $7.7 billion in government support in 2006, and
most of this (about 90 percent) was directed at ethanol production. To put this in perspective, this
amount was about 30 percent of US foreign aid for that year.33 Based on existing policies, it is
expected that biofuel subsidies could range anywhere from $67 to $82 billion during the period
2006-2012 (Koplow, 2007:29).
Forecasting into the future, recent estimates by the International Food Policy Research
Institute (IFPRI) suggest that if existing biofuel investment and production plans by the major
producing countries is carried out, by 2020, world prices for feedstock crops will have increased
by: 11 percent for cassava, 26 percent for maize, 18 percent for oilseeds, about 12 percent for
sugar and 8 percent for wheat (Table 5). Higher price changes could take placeup to 72
percent for maize for exampleif more aggressive biofuel expansion takes place. An important
consideration in anticipating the evolving impact of biofuel development trends is the
commercial viability of new technologies coming online. Substantial increases in crop yields due
to investments in new technology, or increased efficiency in ethanol production, such as by using
alternatives like nonfood crops residues, grasses and forest products when these become
commercially viable, might help to mitigate at least part of these expected price increases.
Alternative biofuel sources like switchgrass might help to increase the efficiency of biofuel
31

World Watch Institute [http://www.worldwatch.org/node/1626].

See FAO, GEF, UNDP, UNEP, UNESCO, World Bank, and WHO (2008: 8).
33
Net disbursed official development assistance (ODA) for the US in 2006 was $23.5 billion (see
http://www.state.gov/r/pa/prs/ps/2007/dec/98156.htm).
32

23

production, as well as ease the pressure on the use of food crops for biofuels; however, land use
for biofuel production will nevertheless also impact on food production to the extent that, at least
in certain areas, one might be considered the opportunity cost of the other in terms of crop
production. In addition, alternative to biofuels altogether, such as solar and wind energy, might
also help to ease the food versus fuel trade off.34

Table 5. Changes in World Prices of Feedstock Crops and Sugar by 2020

(In percent compared to baseline levels)
Crop
Cassava
Maize
Oilseeds
Sugar
Wheat

Scenario 1:
Biofuel expansiona
11.2
26.3
18.1
11.5
8.3

Scenario 2:
Drastic biofuel expansionb
26.7
71.8
44.4
26.6
20.0

Source: IFPRI IMPACT projections in constant prices drawn from Von Braun
(2007:9).
Note:
a
Assumptions are based on actual biofuel production plans and projections in
relevant countries and regions.
b
Assumptions are based on doubling actual biofuel production plans and projections
in relevant countries and regions.

In 2006, global cereal stocksespecially wheatwere at their lowest levels since the
early 1980s. Stocks in China, which constitute about 40 percent of total stocks, declined
significantly from 2000 to 2004 and have not recovered in recent years (Von Braun, 2007:2).
Similarly, in recent years, global production has not caught up with global demand, so that global
ending stocks for the major food crops have been declining since the early 2000s.35 Part of the
reason for this is that world cereal production has only been expanding modestly, while growing
demand for food and for crops to be used as either feedstocks or biofuels has crept up.
Significant drawing down on the stockpiles for major crops like corn, rice and wheat has
occurred in the last 7 years so that these crops present ending stocks are close to their levels in
the mid- to late-1980s despite significant growth in consumption from those years until today
(Figure 8). This also helps to explain the presently thin world market for these commodities.

34

It must also be noted that there are issues related to the effectiveness of using crops like corn to generate biofuels.
Recent scientific studies suggest that in the production process (which may be land and fertilizer intensive), there is
the possibility that much more carbon emissions could result that be prevented (Searchinger and others, 2008;
Fargione and others, 2008).
35
Ending stocks are calculated on an annual basis so that, roughly, it is the sum of total production for the year and
the beginning stocks for the year, less consumption for the year. The figures above are based on the authors
calculations using data from US Department of Agriculture (2008c).

24

Figure 8. Global Ending Stocks for Wheat, Corn, Rice and Soybean, 1960-2007
(In 1000 metric tons)

Source: USDA Production, Supply and Distribution Database

[http://www.fas.usda.gov/psdonline/psdQuery.aspx].

Climate change and agricultural productivity. Compounding these medium- to longterm demand trends are also important factors on the supply side. The staple foods for the vast
majority of the global population is comprised of wheat, coarse grains like maize and sorghum,
and riceabout half of the calories consumed by the worlds poor is accounted for by rice,
maize and wheat (Lobell and others, 2008:608). Each of these crops has its own important
demand and supply drivers which determine the path of their total global stocks over time. Some
of the major suppliers and some large consumers of agricultural crops in the world markets have
suffered lackluster or poor harvests, notably because of recent bad weather and drought.
Examples include poor wheat harvests in Ukraine and Morocco, and dry weather affecting wheat
output in large exporters like the US, Canada and the Russian Federation. In some cases, the
effects of protracted bouts of drought seem to be at play, such as in Australia for its rice crops.36
The combination of weak supply and strong demand (in some cases precipitated by policies to
ensure adequate domestic stockpiles) has thinned the world export markets for key agricultural
crops, thus contributing to the consequent increases and volatility in prices. Wheat and course
grain stocks held by its main exporters, for example, have declined by well over 30 percent in
2007, based on preliminary estimates of the 2007 stocks.37
Various scientific studies have highlighted strong evidence that the impact of climate
change on agriculture in the relative short run (as well as in the long run if this challenge is not
addressed) will be quite severe in some of the poorest and most food insecure regions in the
36

Drawn from various editions of the FAOs Crop Prospects and Food Situation [Available at:
http://www.fao.org/giews/english/cpfs/index.htm].
37
Authors calculations based on data reported in FAO (2008b:39).

25

world. For instance, detailed crop- and region-specific forecasts of the possible effects of climate
change by the Woods Institute for the Environment at Stanford University suggest that certain
food crops in particularly food insecure regions will have a high probability of being hit hard by
climate change (see also annex 3): wheat in Central and South America; rice, maize and millet in
parts of West and South Asia; maize, wheat and sorghum in different parts of Africa; and maize
and rice in Southeast Asia. Furthermore, projections by the Intergovernmental Panel on Climate
Change (IPCC) until 2080 suggest that the additional population that will be at risk of hunger
because of climate change is greatest in Africa (157 million people), followed by Asia (78
million), and South America (27 million) (Yohe and others, 2007:825).38
In addition, an influential study by Cline (2008: 25) suggests global warming could
diminish world agricultural productivityin terms of output per hectare, declining by anywhere
from 3-16 percent depending on the intensity of carbon fertilization. An examination of the
distribution of these predicted effects also reveals that most losses will be concentrated in
developing countries: industrial countries lose about 6 percent in terms of output per hectare,
while developing countries lose up to 26 percent (ibid: 24). Of the latter, countries in Africa,
where many net food importing low income countries are located, could be affected the most.
Clines study predicts that the African region could see declines in agricultural output potential
in order of magnitude of about 28 percent (going down to 17 percent with carbon fertilization)
(ibid: 24). Finally, climate change could also affect different crops in different ways. There is
already some evidence, for example, that the El Nio-Southern Oscillation (ENSO; commonly
referred to as El Nio) phenomenon, which has been scientifically linked to climate change,
could also lead to lower agricultural productivity, notably for crops like rice that are highly
reliant on precipitation.39 In addition, it has also been predicted that climate change will cause
land suitable for wheat production to almost disappear (Von Braun, 2007:3; Yohe and others,
2007).

3. National and International Food Market Structure

An additional important point pertaining to the national and international food market structure
requires a brief elaboration here. The effects of a food crisis could also be exacerbated by
bottlenecks and malfunctions along the domestic food supply chain. In Haitis case, and indeed
possibly true for many other developing countries, the rice import market is dominated by a few
major players. Consequently, the practice of high mark-up on imported goods, as well as
possible hoarding at various points of the supply chain have also possibly exacerbated the rise in
food prices, further marginalizing those with least ability to pay and with no immediate access to
food. In other countries, the mere threat of possible food scarcity leads not only to opportunistic
hoarding by some retailers, but also to hoarding by panicked consumers. In many cases, this
38

More recent empirical estimates by Tubellio and Fischer (2007:1041) suggest that the number of people at risk of
hunger in Africa because of climate change could be even much largerincreasing from 188 million in 2000 to over
400 million by 2080.
39
In the case of rice production, the adverse impact of environmental factors such as El Nino and atmospheric
brown clouds has been found in some empirical studies (e.g. Auffhammer, Ramanathan and Vincent, 2006; Datt and
Hoogeveen, 2000; Tan Chua, 2007).

26

leads to the very crisis that people fear, and further harms the poor as they have the least
capability to either engage in or adjust to these activities. Clearly, markets develop and function
only with adequate investments in market underpinning public goods, including critical
regulatory (e.g. consumer protection) and physical infrastructures. Yet, in many parts of the
developing world market institutions remain underdeveloped. In a much broader sense, these
malfunctioning markets are also a fundamental reason why the poor are often trapped in low
return economic activities (often of a subsistence nature), as they have little access to functioning
credit and insurance markets, and remain marginalized in the broader market economy (e.g.
Armendariz de Aghion and Morduch, 2005; Barrett, forthcoming; Fafchamps, 2004; Hoff and
Stiglitz, 1993).40
In addition to this, the structure of the international food supply chain could also play an
important role in precipitating or amplifying the transmission of shocks related to food. Only a
fraction of total global food production is actually tradedin the case of rice, global exports
have been increasing since the late 1990s but remains at only about 5-7 percent of total global
rice production in recent years (Figure 9).

Figure 9. Global Exports of Soybean, Wheat, Corn and Rice, 1960-2007

(Expressed as a share of total global production in percent)

Source: USDA Production, Supply and Distribution Database

[http://www.fas.usda.gov/psdonline/psdQuery.aspx].

Exports as a share of world production of corn has hovered at around 9-10 percent in
recent years, while that of wheat and soybeans at about 12-13 percent and 20-21 percent
40

Other private sector actors in the food supply chain could also end-up charging much higher costs due to factors
such as poor infrastructure, lack of access to credit (owing to an underdeveloped financial sector more broadly), as
well as lack of competition (e.g. Dawe and others, forthcoming; Fafchamps, 2004).

27

respectively. Of this already thin global food trade market, export supply is also highly
concentrated. About 90 percent of corn and soybean exports are accounted for by only three
countries: Argentina, Brazil and the United States. Five countries (India, Pakistan, Thailand,
United States, and Vietnam) account for over 80 percent of global rice exports. And as
mentioned earlier, because the rice export market is thin, even China, which accounts for only
about 3.6 percent of global rice exports, could have a significant impact on the global rice
supply. As for wheat exports, over half of the global total is accounted for by five countries
(Argentina, Canada, the EU, Russian Federation and the United States). Any changes in export
policies or in the harvest fortunes of major producing countries could have a large impact on the
international food markets.41

4. Towards a Coherent Policy Response

The preceding offers a preliminary diagnosis of what might have been some of the underlying
factors behind the worlds present food challenges. What emerges is a complex story whereby
many factors could be at play, including:
Domestic and country-specific factors, such as the state of Haitis agricultural sector, and
external factors such as recent trends in and affecting global commodities markets; and,
Short-term factors such as the recent and probably temporary policy moves of key
consumers and producers of certain crops, as well as medium- to longer-term factors such
as the rise of large developing countries as global consumers, biofuel development and
climate change.
Designing the appropriate immediate, as well as medium- to longer-term policy responses
will need to consider the nature of these different factors, as well as the extent of the evidence
and our understanding of the over-all trends as this unfolds. Figure 10 helps to illustrate a
possible framework for thinking about matching the nature of the response (unilateral or
collective action) with the extent of the challenge (short-term or medium- to long-term).

41

Authors calculations based on data from USDA Production, Supply and Distribution Database
[http://www.fas.usda.gov/psdonline/psdQuery.aspx].

28

Figure 10. Policy Matrix to Respond to the Global Food Crisis

Source: Authors own elaboration.

Drawing on this policy matrix as well as the preceding discussion, there is probably
enough information to outline a few points to take forward.

Prices will begin to calm, but will probably settle on slightly higher levels compared to
the past. In some parts of the developing world, immediate humanitarian aid is required,
and collective action by the international community is necessary in order to prevent
further harm and suffering (quadrant C in figure 4). More broadly, countries will need to
think about the development of social safety nets so that these may be able to help
mitigate the effects of food-related shocks such as the presently unfolding one (quadrant
B in figure 4). These safety nets could involve direct transfers ensuring that the poorest
and most vulnerable groups in society, notably children, get adequate food and nutrition.
More evolved mechanisms might also be possible, such as market-based hedging
instruments that would cover the excess fiscal costs of food subsidies in case the price
increased or an adverse climate event affects domestic production.42
Nevertheless, in response to the high prices, a strong supply-side response is already
expected to boost global cereal production in the coming year (e.g. FAO, 2008b:4). As
immediate concerns about food stockpiles subside somewhat, and with eventual calm in
the financial markets, this will likely contribute to a tempering effect on food prices.
However, medium- and long-term factors taking stronger effect could mean that food

42

We are grateful to Diego Arias for bringing this type of innovation to our attention.

29

prices will probably not settle on previously low levels of the 1980s and 1990s. As food
demand from developing countries surges, and biofuel development and climate change
begins to impose a tightening effect on the food supply side, food prices could remain
somewhat higher than in the past. This precludes, of course, a variety of actions that
could help mitigate these forces, including a significant productivity boost based on
existing land used, or a major expansion in crop acreage, or a combination of these two.
These responses, even when implemented immediately, will probably take some time
before it contributes to the recovery in global food stocks, and relaxes global food
supplies and prices once again.

Achieving food security requires addressing important distributional issues across and
within countries. Low income countries, notably those emerging from or presently in
conflict, are particularly vulnerable to food price shocks including those transmitted
through trade or arising from other sources (e.g. weather). And within most developing
countries, both net food importing and net food exporting alike, much of the base of the
economic pyramid (BOP) still maintains a significant portion of their expenditures on
food, which suggests that large groups of the population will be adversely affected. A
finer disaggregation might also reveal that vast numbers of the urban poor as well as the
rural net-food-buying poor are also vulnerable. These distributional dimensions suggest
that targeted strategies are required in order to reach the most vulnerable, both across and
within countries.

Investments in agricultural productivity could be timely and effective in boosting food

supplies and reducing poverty and inequality. For some countries, the increased food
prices could provide an opportunity for a positive supply response to be developed in the
medium- to longer-term. Some countries are in a position to do this on their own
(quadrant B in figure 4); however, others may require official development assistance
from the international community (quadrant D in figure 4). The latter group is likely to be
comprised mostly of least developed countries, including net food importing ones like
Haiti. For these countries, important investments to boost agricultural productivity,
combined with the terms of trade improvement for agricultural products, could
incentivize and help poor farmers to produce and supply more. If the supply responses
come from smallholder farmers, and accompanying public and private investments are
able to boost the broader rural economy, it could generate important gains not just in
boosting food security, but also in reducing poverty and improving the income
distribution in many developing countries.43

Countries need to take important steps, but unilateral action is likely to be insufficient.
Policies designed to build adequate social safety nets in response to the present crisis as
well as in response to possible future food supply shocks are urgently required in order to
mitigate their effects on the most vulnerable segments in society. These types of urgent
responses probably fall under quadrant A in figure 4. Yet, some of these immediate

43

Many have emphasized the important links across agricultural productivity growth, food security, political
stability, poverty alleviation and economic growth. See for instance Birdsall, Ross and Sabot (1995) and Timmer
(2000).

30

responses to the crisis which have sought to secure national food stocks such as through
export taxes or bans may have also contributed to even tighter international suppliesa
possibly new form of protectionism of a hunger thy neighbor nature. These types of
policies undermine the very incentives necessary to implement a strong supply response
in order to boost food supply. They also only address the short-term symptoms of the
present food challenge, but do not respond to the underlying long-term factors behind it.
The previous review of different crisis factors in this paper clearly underscores that the
latter are well beyond the capacity of any one country to address. Collective and
coordinated actionnotably among the major producers and consumersis probably
necessary in order to avoid exacerbating already tight food supplies, as well as address
growing food challenges in a sustained way. These types of actions will likely fall under
quadrant D in figure 4.
Examples of possible collective action initiatives to enhance food security include joint
investments in agricultural R&D, as well as the possible creation of regional grain
reserves or insurance mechanisms.44 Volatility in the international food markets
combined with the limits of unilateral attempts at food self-sufficiency will make these
cooperation initiatives increasingly important options.

Policy coherence is essential in order to address complex and evolving food and energy
issues. Oil used to be linked to the input side of global food production (including
through inputs of oil-based fertilizers, or transportation of foodstuff); however, oil today
and going into the future could become more tightly linked on the output side as well, as
biofuels begin to offer a more cost-efficient and widely used substitute for traditional
fossil-fuel based energy sources. However, in the absence of significant technological
advancements, biofuel uses for food crops (or the de facto competition on land use) could
result in a more binding trade-off between food and fuel. In moving forward in this area,
it is important to consider how policies designed to develop viable energy alternatives do
not end-up creating adverse effects on human development on other fronts. Collective
action is key, but so too is coherent action. Hence, in the design of countries individual
responses, policy coherence will need to be ensured (quadrant B in figure 4).

Responding effectively to the challenge of ensuring adequate global food supplies

requires a careful context-specific understanding of some unique challenges on the ground, as the
case of Haiti underscores. The present food crisis is not just an issue of high prices, though this
latter point seems to grab much of the headlines and media coverage. More importantly perhaps,
the present crisis manifests part of the long standing challenges faced by many developing
countries whose agricultural sectors have contracted or have remained stagnant, and concurrently
of people mired in poverty and whose incomes have remained low.
There are also important international aspects to this issue. As some parts of the
developing world become richer, growing and evolving food demand could create a greater gap
between the food haves and the food have nots. Biofuel usage for crops might also be seen
44

For a discussion of some of these regional initiatives, see for instance see Hanpongpandh (1982) and Konandreas,
Huddleston and Ramankura (1978) and more recently, Mendoza (2008).

31

as a manifestation of evolving global demand not just on food but on scarce resources more
generallyspanning food and inputs to produce food, as well as energy sources. Ensuring
adequate access to food is still obviously a high priority in many of the poorest parts of the
world, while in the industrialized and fast-growing economies, the demand for energy is much
more pronounced. Addressing broader challenges of meeting the food and energy demands of the
world in a sustainable way will likely require not just coherent policies, but also decisive
collective action.

32

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36

Annex 1. Food and Agricultural Trade

A majority of the countries in the world are net food importers. Of 196 countries for which data for 2005
was available, 131 countries (or about 67 percent) were net importers of raw food, where raw food
includes meats and dairy products, grains and cereals, and vegetables and fruits. Nevertheless, countries
may still be able to adjust their food production to the extent that their broader agriculture sector is not
only producing raw food, but might also include output such as cash crops and agricultural raw materials.
If one examines the broader agricultural trade balance, spanning raw food, cash crops and agricultural raw
materials, about 50 percent of the countries in the world are net exporters and the other half are net
importers. Focusing just on low income countries, about 78 percent (42 of 58 countries) are net raw food
importers, while 40 percent (24 of 58) are net agricultural importers. Twenty low income countries have a
raw food trade balance exceeding 5 percent of their total imports (of which 3 are oil exporters and 4 are
countries in conflict). Only 6 low income countries have a raw food trade balance exceeding 10 percent of
their imports; these include: Yemen (and oil exporter), Eritrea and Haiti (countries in or recovering from
conflict), and Benin, Guinea-Bissau and Senegal.
Food and Agriculture Trade Balances, 2005
Country Group
Industrial Countries
Middle-income, all
Oil Exporters
Civil Conflict States
Small Islanders
Other Middle-income
Low-income, all
Oil Exporters
Civil Conflict States
Other Low-income
World, Total
Country Group

No. of Countries in Raw Food Trade

Net Exporter
Net Importer
Total
13
20
33
36
69
105
3
17
20
1
3
4
5
25
30
27
24
51
16
42
58
2
5
7
1
7
8
13
30
43
65
131
196
No. of Countries in All Agricultural Trade
Net Exporter
Net Importer
Total
16
17
33
41
64
105
5
15
20
0
4
4
8
22
30
28
23
51
34
24
58
4
3
7
2
6
8
28
15
43
91
105
196

Industrial Countries
Middle-income, all
Oil Exporters
Civil Conflict States
Small Islanders
Other Middle-income
Low-income, all
Oil Exporters
Civil Conflict States
Other Low-income
World, Total
Source: Ng and Aksoy (2008:6,9).
Note: Raw food is defined under SITC Revision 2, and it includes meats and dairy products, grains and cereals, and
vegetables and fruits (and excludes cash crops, processed food and seafood). Agricultural trade includes raw food,
cash crops and agricultural raw materials in SITC Revision 2.

37

Annex 2. Policy Responses to Food-Related Challenges in the Developing World

Governments all over the world have responded to the recent increase in the international prices of cereals
by implementing various policy measuressome in combination. The following provide illustrative
examples:
EXPORT CEILINGS OR BANS
Cambodia announced on 26 March a two -month ban on rice exports and the release of rice stocks to
curb rising domestic prices.
China introduced a series of quotas/bans on grain exports, has recently announced additional
agricultural production support measures, including increases in the minimum purchase prices of wheat
and rice, and agricultural inputs subsidies.
India banned non-basmati rice exports in late March, set the minimum export price for basmati rice at
USD 1 200 per tonne, and authorized duty-free imports of rice.
Pakistan, which had raised duties on wheat exports, has also recently raised wheat support prices by 23
percent in an attempt to build up strategic reserves.
Ukraine imposed an export quota on its wheat and barley in June 2007.
Viet Nam has extended a ban of rice exports until June, and announced in late March that total rice
exports, eventually permitted in 2008, would be cut to 3.5 million tonnes from 4.5 million tonnes last
year.
Zambia reinstated the export ban which had been in place most of the previous marketing season. It has
also implemented large input subsidy schemes to foster cereal production this year.
IMPORT TARIFF REDUCTION
Brazil removed the 10 percent import tariff on 1 million tonnes of non-Mercosur wheat until June 30.
Cte dIvoire temporarily suspended import duties on essential foodstuffs following recent social
unrest in response to sharp increases in oil and milk prices.
El Salvador, Guatemala, Nicaragua and Honduras jointly agreed to cancel the import levy on wheat
flour until the end of the year.
Liberia recently suspended the USD 2 tax levied on a standard bag of rice.
Senegal subsidized wheat flour by 40 percent, waived tariffs and imposed price controls.
CONSUMER SUBSIDIES
Bangladesh is selling rice at subsidized prices in urban areas.
Ecuador has raised the subsidy on wheat flour introduced last October from USD 10 to USD 14.3 per
50 kg.
Malaysia continues to regulate the price of rice which is subsidized and has not suffered variations in
recent months, despite price hikes in international prices. The Government is planning to increase its
stocks.
Thailand will release 650 000 tonnes of rice from state stocks to be sold at subsidized prices.
Zimbabwe controls maize imports, wheat and sorghum which are sold at subsidized prices.
PRODUCTION SUBSIDIES
Malawi continued with the large scheme to subsidize fertilizers and quality seed in the current
agricultural season.
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COMBINATION OF POLICIES
Argentina delayed the reopening of its wheat export registry until 21 April from the previous
scheduled date of 17 March. It has introduced a new scheme of variable levies for oilseeds and grains to
boost state revenue while commodity prices are soaring. As an attempt to partially offset the negative
impact of this scheme on farmers profits, the Government is considering a 20 percent subsidy on the
price of fertilizers. It has also imposed a 44 percent tariff on soybean exports.
Bolivia authorized the tariff-free imports of rice, wheat and wheat products, maize, soybean oil and
meat until the end of May, while a ban on exports of grains and meat products has been introduced.
Egypt increased wheat flour subsidies, and announced at the end of March a ban on rice exports from
April to October 2008. Earlier in the month, it had ordered the army to bake bread for the population.
Ethiopia has recently cancelled the value-added and turnover taxes on food grains and flour, as well as
all taxes on cooking oil, and surtax on soap. Earlier, the Government took actions to stabilize cereal
prices and to increase the purchasing power of the poor, including expenditures of USD 38 million to
subsidize wheat, and USD 366 million to subsidize fuel. Monthly distribution of 25 kg of wheat to 800
000 low-income urban dwellers introduced in March 2007 will be maintained.
Mexico removed quotas and tariffs for food imports, and it has made agreements with traders to
increase maize imports and reduce retail food prices. It has also recently announced food production
support measures and its intention to reduce fertilizers prices by a third.
Peru announced in late March the launching of a programme to distribute food to the poorest strata of
the population. It had earlier removed the tariff on cereal imports.
Philippines, is analyzing the reduction of rice and maize import tariffs, that stand at 50 percent and 40
percent respectively, and has encouraged the private sector to participate in importing 163 000 tonnes of
rice together with the National Food Authority (NFA). The NFA is also selling its rice stocks at
subsidized prices.
Russian Federation has announced high purchase prices for grain from domestic producers and is
currently selling stocks to millers, after prices of wheat reached record highs in late March, in spite of
the introduction of a 40 percent export tariff at the end of January.
Tanzania authorized duty-free imports of some 300 000 tonnes of maize, and banned exports of
agricultural commodities.
Source: Excerpted from FAO (2008b) and Precious grains: How export curbs are exacerbating the food crisis.
Financial Times, April 14, 2008.

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Annex 3. Projected Impact of Climate Change on Five Major Food Crops by 2030 for Selected Regions.
Lobell and others (2008) examined 94 crop-region combinations and assessed the impact of climate, notably through the temperature and rainfall effect on crop
yield by 2030. They generated a probability distribution of the crop production changes in 2030 using a Monte Carlo procedure. In order to facilitate
comparisons, they expressed production changes for all crops based on the average values for 1998-2002. For each crop, the dark vertical line indicates the
middle value out of 100 separate model projections, boxes extend from 25th to 75th percentiles, and horizontal lines extend from 5th to 95th percentiles. The
number in parentheses is the overall rank of the crop in terms of importance to food security, calculated by multiplying the number of malnourished in the region
by the percent of calories derived from that crop.

Source: Lobell and others (2008). Reproduced with permission from the authors. +amdg

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