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Rising food prices in developing countries: causes, consequences and solutions

14.05.2008
What lies behind the current price rises?

It would be easy to look for a scapegoat. There are many reasons, both structural and conjunctural. Firstly, the purchasing power of people in emerging countries (Brazil, China, India) has increased in recent decades. As a result, their food consumption has also increased. In Asia, it was up from 2150 kilocalories per head per day in 1970 to almost 2800 kilocalories in 2000.

Diets have also changed, with more meat being consumed. Calories of animal origin accounted for just 5% of total calorie intake in Asia in 1970. Thirty years later, the figure had more than doubled, to 11.7%. It is worth remembering, too, that it take seven calories of plant origin to make one calorie of animal origin. The same phenomenon has been observed in other developing countries, albeit mainly in urban areas. Urbanization is continuing apace. Demand for food is growing faster than population levels and this trend will continue. The agricultural production is less surplus than ten years ago. The market is more stressed.

"Report" resource: Feeding towns in the South

If prices have rocketed in recent months, it is also because of a conjunctural effect. Several countries have recently been hit by freak weather conditions (drought in Australia, typhoon in Bangladesh, cold winter in China and Vietnam), resulting in poor harvests. In turn, this has boosted demand from importing countries, such as Bangladesh in the case of rice, and a fall in supplies from major exporters such as Australia as regards wheat. Some exporting countries, along with cereal brokers, anticipated the price rise by limiting the volumes released onto the market. Vietnam and China froze their rice exports, and are waiting until the second harvest (April/May) to review their position. Speculators on the agricultural commodity futures markets see this sector as lucrative, given the rising demand for biofuels and the fall in supplies mentioned above. The reason why prices have risen so much is due to the slight fall in supplies and to a rise in demand, but also, and above all, to increased price volatility due to a lack of market regulation: as a result of liberalization, governments no longer intervene, and cereal stocks are running very low. We are now firmly in an era of unstable prices, with long-term risks of occasional explosions.

What part have biofuels played in the crisis?

It is not the current volumes of agricultural products being used to make biofuels that are responsible for the price rises, except on a local level, among maize suppliers in the United States, the leading biofuel producers. According to estimates released by Agrimonde, a prospective study being conducted by CIRAD and INRA, of the total number of calories of plant origin produced worldwide, just 5% are for non-food use, including biofuels. Human food consumption represents 55% of the total, and animal consumption 30%. Furthermore, the volumes produced for biofuels are still low. For instance, according to the International Energy Agency, in 2005, just 1% of cultivated land worldwide was being used for biofuels, replacing 1% of global fossil fuel consumption. However, the forecasted rise in cereal use to make biofuels has boosted the attraction of the agricultural commodities market as far as financial speculators are concerned. It is thus our anticipation of the rise in demand rather than the actual rise that accounts for the recent price rises.

"Recommendations" resource: Enjeux et perspectives des biocarburants pour l'Afrique

What about the impact of rising oil prices?

Oil is a major factor in agricultural production, particularly in industrialized countries, where agriculture is both mechanized and highly input-intensive. Rising oil prices obviously affect the cost of transport, but also of fertilizers, irrigation by pumping, and agrifood processing. They therefore also have an impact on agricultural commodity prices. The aim now is to invent a form of agriculture and an agrifood processing and marketing system that are less energy-intensive. This is a huge challenge.

Although developing countries use less fossil energy in their farming systems, they are also hard-hit by oil price rises. Those rises affect local commodity production, processing and marketing costs.

What are the consequences of these prices for people in developing countries?

It is those countries that import huge quantities of food products to feed their population that have been hardest hit, particularly their poorest inhabitants, who no longer have any room for manoeuvre. This is not the first price rise to have hit these countries. In 1994, the 50% devaluation of the CFA franc, the currency in French-speaking Africa, almost doubled imported food prices. While this rise had serious repercussions for food security in these countries, notably for children, it did not lead to rioting, as is currently the case. Things have changed now: people are suffering the after-effects of several decades of economic crisis, and have very little room to manoeuvre. In any event, that was what lay behind the food crisis in Niger in 2005. Niger saw a rise in prices due to increased demand from neighbouring Nigeria. After years of strain, people no longer had the solutions they had resorted to in the past in order to cope: using their emergency reserves, spending their savings, or calling on family members in towns. They were hit head-on, with the usual consequences in terms of nutrition, notably thousands of severely malnourished children. Today's riots are undoubtedly show that these people are exhausted by decades of crises, and have had enough.

What are the consequences for the agricultural sector?

Since imported product prices are rising, families will no doubt switch to local products. Commercial food crop farming, which has been overlooked by agricultural policies over the past twenty years or so, is thus once again centre-stage. The World Bank hit the nail right on the head when it placed agricultural questions at the heart of the issues for developing countries, and indeed for the planet as a whole, in its annual report.

"News" resource: Agriculture, a major tool for development, according to the World Bank. Comments from Denis Pesche, a sociologist at CIRAD.

However, food crop production chains supplying the domestic market, and particularly urban areas, did not wait for help before trying to satisfy the explosion in demand following the unprecedented rate of urbanization. These chains have developed considerably in the past thirty years: they have innovated, adopted mechanization, and structured their operations so as to supply products adapted to an urban lifestyle and tailored to urban consumers' purchasing power. In value terms, the domestic market is now much more significant than the export market in many countries. However, politicians continue to promote agricultural development geared towards export outlets. The dynamism of commercial market garden crop production, particularly in Africa, goes against the grain of the pessimists who feel that agriculture in Africa is at a standstill.

"Example" resource: Fonio
• Website: Fonio
• Information sheet: La transformation du fonio en Afrique de l'Ouest
• Scientific project: INCO-Fonio
What will it take for food crop production to replace imports?
Before suggesting miracle technical solutions, it is important to exploit the existing possibilities of boosting productivity. They are many and various: there are areas left to plant, significant potential yield gains with existing material, and means of reducing losses. However, that potential cannot be fully expressed. Most farmers are poor and do not have access to inputs, credit, insurance or advisory services. Their environment does not favour their operations, and does not provide any security for the risks they would take in investing more in the sector. When all is said and done, agriculture is still a risky business.

Moreover, the resources available are not always sufficient. In many cases, there is a shortage of technical solutions, of improved planting material and of ways of controlling diseases so to clear the bottlenecks and improve yields. Investment in research into these production chains has so far been insufficient.

"Example" resource: Le cas du Burkina-Faso

Does the problem lie solely in agricultural production?

The food crop sector is not limited to farmers. This fact is often overlooked. It also concerns a large number of other activities that connect producers and the market: agrifood processing (oil extraction, cereal milling, root and tuber crop crushing, fish drying, etc), marketing and distribution, and catering. On the one hand, it is this sector that ensures that products circulate, are transferred to markets, are stored, are adjusted to suit consumer demand, and are distributed. On the other hand, it is through these activities that market demand is passed on to producers, in terms of the quantities, quality and prices required. The sector is trapped in a paradoxical situation: it plays a crucial role in driving the agricultural sector, by developing domestic markets. However, it is almost universally overlooked in official policy, which often restricts itself to considering rural agricultural producers on the one hand and urban consumers on the other, forgetting this sector that links the two and serves to regulate supply and demand.

There is thus significant room for manoeuvre to be found in these processing and marketing activities, in creating an environment that favours their development, in building transport and storage infrastructures, and in agricultural product processing technologies. This sector is largely occupied by women, and a major share of that room for manoeuvre is in their hands. However, its strong growth in the past twenty years or so has attracted a few large-scale operators who speculate and tend not to pass on consumer price rises to producers. What is needed are policies that allow the market to operate more efficiently, rather than the current lack of intervention, which allows the most powerful stakeholders to profit from their advantages and exacerbates existing inequalities.

What are the possible means of managing and finding a way out of the crisis?

In the short term, emergency steps have to be taken: the crisis risks having drastic consequences in terms of nutrition among the most vulnerable populations. However, emergency food aid will not solve the problem.

It is also necessary to exploit the room that exists to improve productivity in the commercial food crop sector, in terms of production, processing and marketing. Although there are no miracle solutions, all that it would take to make the commercial food crop sector respond would be to give farmers access to a little more fertilizer, phytosanitary products, good roads, processing facilities, credit, advisory services, insurance and information on prices, and to cut police taxes on roads and the cost of diesel. Moreover, farmers have been made poorer by the fact that politicians have overlooked the agricultural sector for years. It is thus the whole concept of agricultural support in countries where food security is under threat that needs to be revitalized, rather than continuing with the policy of rapid liberalization of the sector, making it subject to the vagaries of global markets. Agricultural development has to become a priority on the global agenda.

In the longer term, it will no doubt be difficult to escape from the question of better resource distribution. It is because some large, densely populated countries are beginning to consume in the same way as industrialized countries that we have realized that the system has its limitations. The people suffering now bear little, if any, responsibility for what is making them suffer. The aim now is not to transfer the agroindustrial model and extend it to the planet as a whole, but to work together to build a more sustainably equitable system.

Helen Burford | alfa
Further information:
http://www.cirad.fr/en/actualite/communique.php?id=920

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