Does ‘Foodflation’ Call for Agricultural Reforms?

1. Does ‘Foodflation’ Call for Agricultural Reforms?

2. Global and Sri Lankan Food Price Trends Figure 2: Relative movements of real annual average food prices in the world and Sri Lanka

3. Reasons for Global Food Price Rise in 2000s • Demand side • Increasing world population • Increasing income in developing countries • Increasing urbanization • Changing food habits due to 2 and 3 above • Supply side- Short run • Natural disasters • Market speculation • Surging oil price and COP • Expansion of bio-fuel production Contd…

4. Contd… Reasons for Global Food Price Rise in 2000s • Supply side- Long run • Constraints on area expansion and irrigation • Biases in diversification and value addition • Leveling off of yields due to reduced investment in R&D

5. Reasons for Reduced Investment in R&D • Trade liberalization with non-level playing field • Polarization of food production in developed countries (grain 37%, milk 52%, meat 39%) • Heavy subsidies (PSE in US 28,289M$ & EU 137,970m$) • Dumping • Direct and indirect pressure to liberalize agricultural trade Contd…

6. Contd… Reasons for Reduced Investment in R&D • Resulting dependency on developed countries • Misreading the declining real food prices • “Complacency” on world food situation since 1980s • Reduced green revolution spending in developing countries • Increased dependence on the private sector

7. Foodflation 2008 Figure 6: Changes in world food commodity and price index

8. Impact of Foodflation • Do food price fluctuations deserve special treatment? • Supply side-already mentioned • Demand side • Urgency due to food being life sustaining • Food security being a basic need-especially in staples • Distributional consequences • Hitting the poor most • Long term effects on the vulnerable • Favouring food exporters at the expense of importers

9. The Sri Lankan Case-2008 • Common belief: SL Foodflation followed the global Foodflation, especially rice price Figure 7: CCPI for food items (Note: Base year 1952=100, 2008 data is related to the average of first four months) Contd…

10. Contd… The Sri Lankan Case-2008 • Facts • SL’s major food imports are wheat, corn, sugar and milk powder • Major staple rice is 95% self sufficient • Sugar prices were stable throughout 2000s • Milk powder prices started rising in mid 2000s • Conclusion • SL’s Foodflation started around 2004 due to dairy and grain prices • Price index shot up in mid 2007 due to grain prices • Question • What grains?

11. Figure 8 (a) Rising food prices by months 2005-07 (b) Monthly price rises by food type Conclusion: SL Foodflation was “imported” through dairy products first and wheat flour next Figure 9: Shooting up of grain prices; wheat, rice and maize

12. Investment as a Solution • Investment traditionally in land development, irrigation, R&D, institutions and infrastructure • Further expansion of land and irrigation is costly or impossible • Highest returns are for investment in R&D followed by infrastructure (roads) and institutions • Who should invest in these public goods? • Would the private sector invest? • Yes, in agribusiness • No, in basic food production related R&D, due to • Comparatively low returns • Involvement of small producers • Property rights to technology

13. Package of Reforms • R&D to improve productivity • Land vs. water • Conventional breeding vs. GMO • Chemical vs. organic • Primary vs. value added • Physical infrastructure • Physical connectivity • ICT based information flow • Other public goods (storage, transport, etc.) Contd…

14. Contd… Package of Reforms • Institutional framework • Sensible trade policy • International technical cooperation • Streamlined property rights; esp. in GMO • Inclusive agribusiness

15. Thank you