1. The world food price situation and its implications for action Joachim von Braun International Food Policy Research Institute Seminar at IFAD Rome February 19, 2008 Rome February 19, 2008

2. Joachim von Braun, IFPRI, February 2008 Overview 1.The new world food equation 2.Energy - biofuels - food security 3.Climate change - biomass – agriculture 4.Pro-poor policy and program actions

3. Joachim von Braun, IFPRI, February 2008 Cereal Price - Index 1905 - 2000 (All proces = 100 in 1960)

4. Joachim von Braun, IFPRI, February 2008 Surge in cereal and oil prices Source: Data from FAO 2007 and IMF 2007 Source: Data from FAO 2007 and IMF 2007. Commodity prices (US$/ton) New trend?

5. Joachim von Braun, IFPRI, February 2008 Changing supply, demand and price for cereals 2000 - 2006 100 D 2000 S 2000 D 2006 S 2006 153 P 2,070 million tons 2000=100 1,917 Q Source: Based on data from FAO 2003, 2005-07.

6. Joachim von Braun, IFPRI, February 2008 Changes in food and agriculture equation ProductionDemand Trade and processing

7. Joachim von Braun, IFPRI, February 2008 ProductionDemand Income growth Poverty and inequality Consumer behavior Bioenergy Biomass (CO 2 ) …and Policies Trade and processing Changes in food and agriculture equation

8. Joachim von Braun, IFPRI, February 2008 ProductionLandWaterInputsWorkforce Climate change Agrarian structure Technology …and Policies Demand Income growth Poverty and inequality Consumer behavior Bioenergy Biomass (CO 2 ) …and Policies Trade and processing Changes in food and agriculture equation

9. Joachim von Braun, IFPRI, February 2008 Demand Income growth Poverty and inequality Consumer behavior Bioenergy Biomass (CO 2 ) …and Policies Trade and processing -Information & Standards -Supermarkets -Bioenergy & Biomass …and Policies ProductionLandWaterInputsWorkforce Climate change Agrarian structure Technology …and Policies Changes in food and agriculture equation

10. Joachim von Braun, IFPRI, February 2008 Drivers of change: Income growth Growth (2004-06 per annum) - 9% in Asia - 6% in Africa - 2% in industrialized countries India: 2000 – 2025 - Meat 176% - Milk and vegetables 70% - Grain 27% Sources: IMF 2007; Kumar, et al. 2007.

11. Joachim von Braun, IFPRI, February 2008 Consumption: 2005/1990 ratios of per capita consumption Consumption: 2005/1990 ratios of per capita consumption IndiaChinaBrazilNigeria Cereals1.00.81.21.0 Meat1.22.41.71.0 Milk1.23.01.21.3 Fish1.22.30.90.8 Fruits1.33.50.81.1 Vegetables1.32.91.3 Source: Data from FAO 2007. Future grain consumption is driven by income growth, population growth, and feed for meat and dairy production

12. Joachim von Braun, IFPRI, February 2008 The world eats more than it produces: cereal stocks decline Source: Data from FAO 2003, 2005-07. * Forecast. Million tons Total stocks China

13. Joachim von Braun, IFPRI, February 2008 World cereal production: not growing enough Source: Data from FAO 2003, 2005-07. * Forecast. Million tons Total Million tons

14. Joachim von Braun, IFPRI, February 2008 Disruptions in production (2004-06) However, coarse grain output 12% in China and rice output 9% in India. Wheat Coarse grains US 16% 16% 12% 12% EU 14% 14% 16% 16% Australia 52% 52% 33% 33% Source: Data from FAO 2006 and 2007.

15. Joachim von Braun, IFPRI, February 2008 “corporate” world food system “corporate” world food system Sales of top 10 companies (billion $US) Source: Planet Retail 2007, Morning Star 2007, company financial reports. 20042006 Agricultural input industry Food processors and traders Food retailers 1,091 409 40 777 363 37

16. Joachim von Braun, IFPRI, February 2008 What price for food in the future? Projections have underestimated price increases. FAPRI: Wheat and corn to by 2 and 4% by 2016 OECD-FAO: Wheat and coarse grain to by 20 and 34% by 2016 Projections need to accommodate the new complex nature of the world food equation; past trends do no longer inform about future

17. Joachim von Braun, IFPRI, February 2008 IFPRI’s modeling of cereals price changes (2000-05 and 2006-15 ) Source: M. Rosegrant (prelim. results with IMPACT-WATER). US$/ton

18. Joachim von Braun, IFPRI, February 2008 US$ and EURO prices and … so what? December 2000- December 2007 change Wheat US$/ton nominal : +244 % Wheat US$/ton “real” : +176 % Wheat EURO/ton : + 139 % What matters really for the poor? Purchasing power! - How to measure? PPP; Bigmac (urban bias) Egg-onomics: 1US$ buys 6 in US, 7 in Ethiopia, 14 in Bangladesh, 20 in China; Change in the ratio of [poor peoples’ food prizes / unskilled wages] !

19. Joachim von Braun, IFPRI, February 2008 Looking beneath the $1 a day line Poor ($.75 cents – $1) 485 million people Medial poor ($.50 cents – $.75 cents) 323 million people Ultra poor (less than $.50 cents) 162 million people Source: Ahmed, et al. 2007.

20. Joachim von Braun, IFPRI, February 2008 The growing number of the poorest in SSA Living below US$.50/day (1990-2004) Source: Ahmed et al. 2007.

21. Joachim von Braun, IFPRI, February 2008 Impact of price increase: the poor are mostly net buyers Source: Adapted from World Bank 2007. Country- and crop-specific outcomes Staple foods Bolivia 2002 Ethiopia 2000 Bangladesh 2001 Zambia 1998 % of total expenditure of all poor Purchases by all poor net buyers 11.310.222.010.3 Sales by all poor net sellers 1.4 1.4 2.8 2.8 4.0 4.0 2.3 2.3

22. Joachim von Braun, IFPRI, February 2008 Overview 1.The new world food equation 2.Energy - biofuels - food security 3.Climate change - biomass – agriculture 4.Pro-poor policy and program actions

23. Joachim von Braun, IFPRI, February 2008 History of world primary energy supply Hydro+ means hydropower plus other renewables besides biomass Energy supply grew 20-fold between 1850 and 2000. Fossil fuels supplied 80% of the world’s energy in 2000. (Holdren 2007)

24. Joachim von Braun, IFPRI, February 2008 Source: Global Subsidies Initiative 2007 The biofuels boom Ethanol production 1975 - 2007 (billion liters) Biodieselproduction Biodiesel production 1991 - 2007 (billion liters) Ethanol > 90% of biofuel production; Brazil and US dominate the market Biodiesel: EU is the largest producer and consumer

25. Joachim von Braun, IFPRI, February 2008 Countries’ plans for expansion Ethanol Biodiesel Ethanol Biodiesel USA: 16%USA: 19% EU: 45%EU: 37% Brazil: 8%Malaysia: 248% India: 15%Indonesia: 143% China: 3%Thailand: 70% Source: USDA, 2006; 2007. Annual growth in biofuel production…2010/12

26. Joachim von Braun, IFPRI, February 2008 Political forces of biofuels Energy security Environment/ Climate Agriculture Actual welfare effects Biofuels will hardly contribute to energy security The share of biofuels in road transport: ca. 3-4% in 2030 Agriculture Environment/ Climate Energy security

27. Joachim von Braun, IFPRI, February 2008 Biofuels: fundamental change in world food price determination Energy prices always affected agricultural prices through inputs, i.e. P of fertilizer, pesticides, irrigation, transport Now, energy prices also affect agricultural output prices strongly via opportunity costs Large and elastic energy demand creates price floors and price bands for agricultural commodities Source: Schmidhuber 2007.

28. Joachim von Braun, IFPRI, February 2008 Corn breakeven price for ethanol at crude oil price of $60/barrel (and subsidies) Source: Hurt, Tyner, Doering 2006.

29. Joachim von Braun, IFPRI, February 2008 2 nd generation?? Reducing the food-fuel competition Second-generation technologies shall:Second-generation technologies shall: - utilize waste biomass - use less land (and water?) resources 2 nd generation technologies will not overcome the food-fuel competition unless they are very smart (e.g. joint product technology like sweet sorghum, or salt water algae)

30. Joachim von Braun, IFPRI, February 2008 Land conversion: Payback period for biofuel carbon debt (years) Indonesia/ MalaysiaBrazilUSBrazil Peatland rainforest Tropical rainforest Central grassland Cerrado wooded Tropical rainforest 423 319 9386 17 Source: Fargione et al. 2008.

31. Joachim von Braun, IFPRI, February 2008 IFPRI IMPACT-Model: Biofuel scenarios by 2020 ScenarioBiofuel expansion Price changes (% by 2020) 1 Actual plans & assumed expansions Actual plans & assumed expansions corn: +26 sugar: +12 sugar: +12 oilseeds: +18 oilseeds: +18 2 Doubling of Scenario 1 expansion Doubling of Scenario 1 expansion corn: +72 sugar: +27 sugar: +27 oilseeds: +44 Source: IFPRI IMPACT–model projections; Rosegrant et.al..

32. Joachim von Braun, IFPRI, February 2008 Change in agricultural value added, 2020, biofuel expansion compared with baseline (%) Source: IFPRI IMPACT Projections Country/R egion CropsLivestockTotal Brazil9.3-7.06.6 China5.0-3.82.8 India5.5-1.84.1 USA9.2-7.43.7 SSA4.2-0.83.4 EAP5.7-3.73.5 ECA4.5-6.11.3 MENA3.5-4.21.8

33. Joachim von Braun, IFPRI, February 2008 IFPRI IMPACT Model: Calorie consumption changes in 2020 compared to baseline (%) Source: IMPACT-WATER.

34. Joachim von Braun, IFPRI, February 2008 Price-effects for Bangladesh five-person household living on one dollar-a-day per person Spend…their $5 $3.00 on food $.50 on household energy $.50 on household energy $1.50 on nonfoods A 50% increase in food and energy prices requires them to cut $1.75 of their expenditures A 50% increase in food and energy prices requires them to cut $1.75 of their expenditures Cuts will be made most in food expenditures: Reduced diet quality, and Reduced diet quality, and Increased micronutrient malnutrition Increased micronutrient malnutrition

35. Joachim von Braun, IFPRI, February 2008 Overview 1.The new world food equation 2.Energy - biofuels - food security 3.Climate change - biomass – agriculture 4.Pro-poor policy and program actions

36. Joachim von Braun, IFPRI, February 2008 Impacts and Vulnerability to Climate Change & Variability Rich countries emit majority of GHGRich countries emit majority of GHG Poor countries are more vulnerablePoor countries are more vulnerable - Geography (hotter, less rain, more variation) - Greater dependence on agriculture and natural resources - Limited infrastructure - Low income, poverty and malnutrition - Thus, lower adaptive capacity (also including inadequate complementary services, like health and education)

37. Joachim von Braun, IFPRI, February 2008 Climate change will reduce production growth in many of the poorest countries and regions Percent change in agricultural production due to climate change, 2080 This will have further price increasing effects Source: Cline 2007

38. Joachim von Braun, IFPRI, February 2008 Much Adaptation is Extension of Good Development Policy Promoting growth and diversificationPromoting growth and diversification Investing in research and development, education and healthInvesting in research and development, education and health Creating markets in water and environmental servicesCreating markets in water and environmental services Improving international trade systemImproving international trade system Enhancing resilience to disasters and improving disaster managementEnhancing resilience to disasters and improving disaster management Promoting risk-sharing, including social safety nets, weather insurancePromoting risk-sharing, including social safety nets, weather insurance

39. Joachim von Braun, IFPRI, February 2008 Effective Adaptation Strategies Requires judicious selection of measures within a policy context and strategic development frameworkRequires judicious selection of measures within a policy context and strategic development framework Must go beyond good development policy to explicitly target the impacts of climate change, particularly on the poorMust go beyond good development policy to explicitly target the impacts of climate change, particularly on the poor Market signalsMarket signals - essential factor in determining the necessary responses to a changing environment - but involves potentially expensive time lags and overlooks equity - but involves potentially expensive time lags and overlooks equity Climate change adaptation must therefore be proactive, not merely reactive

40. Joachim von Braun, IFPRI, February 2008 Critical Step toward mitigation: Post-Kyoto International Climate Change Regime Emissions targets, rates of convergence, and rates of growth in developing-country emissionsEmissions targets, rates of convergence, and rates of growth in developing-country emissions Level of emission allowances for developing countriesLevel of emission allowances for developing countries Level of caps by sector and industryLevel of caps by sector and industry Sector-specific mitigation optionsSector-specific mitigation options Incentives for international carbon tradeIncentives for international carbon trade Transparency and complexity of administrationTransparency and complexity of administration  All influence the regime’s impacts on economic growth, agriculture, food security, and poverty in developing countries

41. Joachim von Braun, IFPRI, February 2008 Sources of GHG Emissions Sources: World Resources Institute 2007; World Development Report 2008 60% 18% 14% 4%

42. Joachim von Braun, IFPRI, February 2008 Pro-Poor Climate Mitigation Policy Climate change policy can generate income for small farmers and investment flows for rural communitiesClimate change policy can generate income for small farmers and investment flows for rural communities Requires effective integrationRequires effective integration  from global governance of carbon trading,  to sectoral and micro-level design of markets and contracts, and  investment in community management

43. Joachim von Braun, IFPRI, February 2008 Estimated Potential Emission Savings and Costs by Sector Sector 2050 Annual Emissions Savings (GtCO 2 ) Average Annual Cost($/tCO 2 ) ~2025-2050 Deforestation3.5-5.0 2-4 2-4 Afforestation and Reforestation 1.0-2.05-15 Land management practices 1.0-2.020-27 Agriculture (methane & nitrous oxide) 1.0 27 27 Bioenergy2.0-3.025 Waste and fugitive emissions, industrial processes 4.13-5 Fossil fuel related, excluding bioenergy40.022-33 Source: Adapted from various estimates, Stern Review, pp. 244-63 by Rosegrant

44. Joachim von Braun, IFPRI, February 2008 So far minimal carbon trades in agriculture in developing countries Only 3-4% of carbon trading is sourced from agriculture, land use, land use change, agroforestry and forestryOnly 3-4% of carbon trading is sourced from agriculture, land use, land use change, agroforestry and forestry Only 3% of carbon trading is sourced from AfricaOnly 3% of carbon trading is sourced from Africa

45. Joachim von Braun, IFPRI, February 2008 IFAD – IFPRI proposed 3 objectives of research and outreach cooperation 1.Identifying and disseminating policy options enabling the rural poor to benefit from climate change mitigation and carbon markets 2.Identifying and disseminating policy options to enable the rural poor including women farmers and communities to access agricultural markets on better terms 3.Strengthening country program capacity to address policy issues in agricultural and rural development by sharing policy knowledge and innovation

46. Joachim von Braun, IFPRI, February 2008 IFAD – IFPRI proposed Program Outputs A set of policy options enabling the rural poor to engage in and benefit from climate change mitigation and carbon marketsA set of policy options enabling the rural poor to engage in and benefit from climate change mitigation and carbon markets A set of policy options and institutional arrangements) to enable the rural poor to access agricultural markets on better termsA set of policy options and institutional arrangements) to enable the rural poor to access agricultural markets on better terms A set of tools and methods to improve impact assessment and scaling up in projects in pro-poor market accessA set of tools and methods to improve impact assessment and scaling up in projects in pro-poor market access A business model to implement carbon offset projects that are beneficial to the poorA business model to implement carbon offset projects that are beneficial to the poor

47. Joachim von Braun, IFPRI, February 2008 Overview 1.The new world food equation 2.Energy - biofuels - food security 3.Climate change - biomass – agriculture 4.Pro-poor policy and program actions

48. Joachim von Braun, IFPRI, February 2008 What policy response not to choose to deal with the high prices? Not: Export stops (starving your neighbor)Export stops (starving your neighbor) Food subsidies for vocal middle classFood subsidies for vocal middle class Slow change in outdated production control policiesSlow change in outdated production control policies Continued public underinvestment in agriculture productivity increasesContinued public underinvestment in agriculture productivity increases Exclusion of agriculture from climate change mitigation strategiesExclusion of agriculture from climate change mitigation strategies

49. Joachim von Braun, IFPRI, February 2008 Biofuels: policy implications Global trade regime with transparent biofuel standards Criteria to internalize all + & - effects of biofuels 1.Slow down on biofuels with current technology now ! (because of environment and the poor) 2.Accelerate agriculture productivity investments and R&D broadly and in biofuels! Source: IEA 2004, Henniges 2005.

50. Joachim von Braun, IFPRI, February 2008 Investing in Climate Change for the Poor Climate change policy can create new value- added for pro-poor investmentClimate change policy can create new value- added for pro-poor investment Increases profitability of environmentally sustainable practicesIncreases profitability of environmentally sustainable practices Employ advanced ICT to streamline measurement and enforcement of offsets, financial flows, and carbon credits for investorsEmploy advanced ICT to streamline measurement and enforcement of offsets, financial flows, and carbon credits for investors Enhance global financial facilities and governance to increase and manage funding flows for both mitigation and adaptationEnhance global financial facilities and governance to increase and manage funding flows for both mitigation and adaptation

51. Joachim von Braun, IFPRI, February 2008 Pro-poor policy actions to adapt and mitigate food price problem 1. Developed countries - Eliminate agricultural trade barriers, - expand / re-visit aid priorities for agriculture and rural services, incl. social protection 2. Developing countries - Increase investment in agriculture, rural infrastructure and market access for small farmers - Expand social protection (rural and urban) for the poorest 3. Science and Technology (CGIAR and NARS) - Facilitate production response by agriculture science- and technology-based solutions (China, India, Africa)