Overview Soaring international food prices _______________________________ 1.Main features & recent trends 2.Underlying reasons 3.Implications 4.Short- and long-term measures Maurice Saade, FAO, June 2008

Source: FAO Food Outlook, June 2008 Trends in cereal export prices Wheat Rice Maize

Prices of Meat and Dairy products Source: FAO Food Outlook, June 2008

Source: OECD-FAO Agricultural Outlook (May 2008) What about future trends?

Source: OECD-FAO Agricultural Outlook (May 2008)

Underlying Causes ____________________________________________ I. Supply Factors 1.Unusual climatic events ( ) lead to disruptions in production in key exporting countries - world cereal production fell by 3.6 % in 2005 and 6.9 % in Historically low levels of global stocks 3.Increasing fuel costs 4.Increasing costs of fertilizers and ocean freight Maurice Saade, FAO, June 2008

Underlying Causes ____________________________________________ II. Demand Factors 1.Long-term changes in the structure of food demand in developing countries: rapid economic growth has led to diversifying diets away from starchy foods to meat products 2.The biofuel boom Maurice Saade, FAO, June 2008

Soaring international food prices: Who gains? -Farmers in food exporting countries are the main gainers (USA, Canada, France, Australia, Brazil, Argentina, etc) -Multinational Agribusiness, Int’l Grain traders, …. (the “usual suspects”!) + Biofuel industry Source: USDA Long-term projections, February 2008

Soaring international food prices : Who gains? How about farmers in developing countries? Yes…. BUT * If farmers are not isolated from international markets (export restrictions; price control; …) * Net producers (vs. net buyers) * Larger farmers who have the means to invest to expand production (+ high input costs) and benefit from the price increase * Producers of the “right” commodities (cereals; oil seeds) * Producers who have access to markets

Magnitude of Change in Domestic Food Prices – in Near East Countries Changes in Domestic Food Prices Differ Widely Across Countries & Commodities Changes in domestic prices have been higher in countries with relatively less or no interventions in food markets (fig 7) (fig 7) In some of the countries with high increases in domestic prices, the increases in domestic consumer and producer prices have been more than proportional to border prices

Vulnerability to high food prices in the Near East at the Macro Level Difficulty to cope with high increases in food import bills –High Import dependence –High share of food imports in total export earnings Limited and fragile food productive capacity –Scarcity of water and arable land (fig 5) (fig 5) –Environmental risks

Dependence on food import & the ability to pay import Back

Vulnerability to high food prices in the Near East - at the Micro Level High Share of food in household expenditure High proportion of poor and undernourished do not produce food (urban poor and rural non-food producers) –On average, about 35% of the poor in the NE are urban –More than 35% of the rural population are non-food producers

Dependence on food import & the ability to import Back

International Emergency Measures : UN System High Level Task Force FAO, IFAD, WFP, World Bank, IMF, WTO, … “Comprehensive Framework for Action” High-Level Conference (“Food Summit”) at FAO, 3-5 June + several high-level meetings scheduled in the coming weeks/months Main Emphasis: Urgent need to prevent hunger and social unrest (100 million NEW hungry people?) focus on protecting the social safety nets (including existing food subsidies) Make sure that farmers are not isolated from international markets so that they could benefit from price increases to expand production (supply response) Role of IMF and World Bank to support countries with balance of payments (budgetary support as committed by ALL donors under the Paris Declaration)?

Policy Response in the Near East Region Measures to protect consumers (food & fuel prices + inflation): Keeping food prices low: Export restrictions (e.g. rice/Egypt; wheat/Syria) Reduce duties on imports of basic foods Price control (where?) Maintain/expand food subsidies (at much higher costs) GCC, Algeria, Libya Reduce fuel subsidies (Syria, Egypt) Income compensation/support: Salary increase for government employees: GCC, Egypt, Possible negative macroeconomic impact (government revenues, balance of payments, inflation, etc)

Short-term measures to enhance domestic production Increase producer (floor) prices to align them with international prices: main emphasis on cereals (e.g. Egypt, Syria, Jordan, Morocco?) Targeted input subsidies (fuel, fertilizers, seeds, ?) Rescheduling of loan repayments; emergency credit Other Short-term measures: Expansion of buffer stocks

Medium/Long-term issues: Food production: –Sustainability should remain the overarching goal irrespective of high prices –Temptation for policies to expand wheat: decisions should be based on careful assessment of comparative advantage (emphasis on net returns per drop of water – Emphasis on increasing productivity and not horizontal expansion

NE-NA countries Medium/Long-term issues: Other issues: –National food security concerns: Sustainability should remain the overall goal (e.g. decision by Saudi Arabia to phase out wheat by 2012 ) - Trade-off between exports and sustainability (e.g. rice in Egypt) –Lessons from the 1970s: lots of bad policies driven by national food security –Buffer stocks: careful assessment of costs and benefits. Alternative instruments for managing risk (e.g. future markets) –Recent proposals (AOAD): Coordination of cereal imports: NE-NA largest wheat importing block in the world; collective negotiations with suppliers? (would a wheat import cartel be feasible?) Joint regional stocks? How feasible?

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