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AGEC 640 – Nov 21, 2013 The World Food Crisis revisited…

AGEC 640 – Nov 21, 2013 The World Food Crisis revisited… High Food Prices: Gone Today, Here Tomorrow?. Thomas Malthus (1766-1834). English demographer and economist, graduated from Cambridge in 1788 Friend of Hume & Rousseau

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AGEC 640 – Nov 21, 2013 The World Food Crisis revisited…

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  1. AGEC 640 – Nov 21, 2013 The World Food Crisis revisited… High Food Prices:Gone Today, Here Tomorrow?

  2. Thomas Malthus (1766-1834) English demographer and economist, graduated from Cambridge in 1788 Friend of Hume & Rousseau Major work (published anonymously in 1798) An essay on the principal of population as it affects the future improvement of society

  3. Malthusian argument Reproductive capacity of humans puts continual pressure on the “means of subsistence” Human numbers increase by geometric progression. Subsistence increases only arithmetically. “Land, unlike people, cannot breed.”

  4. The Malthusian principle Pop,food Population Food Time

  5. Checks on population 1. War 2. Seasons of sickness 3. Epidemics 4. Pestilence 5. Plague And the “ultimate” check:6. Famine

  6. What Malthus missed 1. Birth control and voluntary limits on population growth (i.e. pop. growth < geometric) 2. Agricultural productivity (i.e. growth in food prod. > arithmetic)

  7. Pop,food Population Food Time The Malthusian principle, revisited Food Pop Malthusian “near miss”

  8. Fast Forward to 2008 “World Hunger is increasing…FAO’s most recent estimates put the number of hungry people at 923 million in 2007..High food prices share much of the blame…threatening long-term global food security.” FAO, 2008The State of Food Insecurity in the World

  9. 2002 start

  10. Which crystal ball? crystal ball #1 crystal ball #2

  11. Driving Forces Demand-side forces “Long-term structural trends” D↑S↓ Supply-side forces “Short-term cyclical factors”

  12. Projected stocks-to-use ratios (in %) for Corn, Soybeans, Wheat, Cotton, Sugar and Rice for the 2012/13 Marketing Season: Supply Side 1: Stock levels at a historic low Now higher, but not by much! Stock to use ratio

  13. Supply Side 2: Production shortfallsWeather and disease issues in 2006-2007 With stocks low, these shocks were passed through to prices Reactions to isolate domestic markets made the situation worse

  14. Ban: March 2008 ($900/ton)Peak: April 2008 ($1080/ton)Lifted: June 2008 ($795/ton) CBOT “Rough Rice” India – ban on exportsVietnam (#2) - ban Thin market7% traded

  15. Supply Side 3: PETROLEUM!Food prices and energy prices have become increasingly correlated over time.Why? mechanized production (tractors!) chemical fertilizers trade/transport Shift OF supply curve, not just ALONG!

  16. Food vs. Fuel

  17. Demand Side 1: Consumption PatternsIncome growth and urbanization …almost everywhere, and especially in China and India …increased demand for meat and dairy which are cereal-dependent calorie conversion ≈ 4:1 chicken 11:1 beef

  18. Demand Side 2: BiofuelsGrowth is a driver for sugar, corn, and oil seeds Currently uses about 5% of world cereal production - not a lot, but remember that prices are set AT THE MARGIN

  19. Other factors Speculation Global trading in agricultural futures and options more than doubled between 2001-2006 good or bad? Jury is still out…Agricultural Researchlarge surpluses in the 1980s led to complacency and a fall-off in ag research no easy or quick fixes for thisUS $ Depreciation – mixed evidence

  20. Summary Demand-side forces 1. Changing consumption patterns 2. Biofuels Supply-side forces 1. Low stocks 2. Production shortfalls 3. Petroleum prices  www.indexmundi.com/commodities

  21. Impacts Inflation Core inflation low in US but higher elsewhere, especially developing countries Food Expenditures US: 10% of income Bangladesh: 60% of income This largely explains patterns of food riots worldwide

  22. MauritaniaSierra LeoneLiberia EritreaAfghanistanBurmaNorth Korea

  23. Net buyers of staple foods Hold this thought

  24. Source: FAO The State of Food Insecurity in the World 2008

  25. Simulated impact of 10% price rise recall: only 32% of rural households are net buyers Source: FAO The State of Food Insecurity in the World 2008

  26. Tradeoffs Governments can: 1. reduce agricultural subsidies result: food insecurity? 2. reduce investments in public goods result: slower income growth? 3. maintain both result: macroeconomic imbalances?

  27. Key Message “In the medium-to-long term, the focus should be on strengthening the agricultural sectors of developing countries to enable them to respond to growth in demand.” FAO, 2008The State of Food Insecurity in the World

  28. Potential gains Source: FAO The State of Food Insecurity in the World 2008

  29. Some source material:Abbott, Hurt, and Tyner (2008) What’s Driving Food Prices?www.farmfound.orgFAO (2008) The State of Food Insecurity in the World www.fao.org Masters and Shively (2008) Introduction to the Special Issue on the World Food Crisis of 2007-08. Agricultural Economics (2008) Volume 39, supplement. Data: http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/

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