Food prices: reining in volatile markets

In 2008, record food prices pushed an estimated 105 million people into poverty. Subsequent rises in 2011 led to 48 million more people falling below the poverty line and put the lives of 400,000 children at risk (pdf).

These events led to a debate on food price volatility.

The World Bank declared it a 'new normal' while NGOs such as Oxfam launched campaigns on how commodity index funds encourage banks to gamble with food, and biofuel policies were shown to make food prices more volatile (pdf).

At Save the Children, the concern was the impact on food security and malnutrition – the underlying cause of 45% of child deaths (pdf). In Sahel, pastoralists were selling livestock to purchase food (pdf), depleting their resilience to further shocks, while families skipped meals and prioritised staple foods (pdf), such as rice, over vegetables and meat. In Bangladesh, when the price of rice increased by 94% in 2009, the prevalence of malnutrition increased from 13.5% to 21% (pdf).

We found that 73% of low-income countries were highly vulnerable to price rises, and that the prevalence of malnutrition more than doubled. The risks affect the poorest disproportionately – they spend as much as 55% of their income on food, while the richest spend 15%. Surveys in Kenya, Rwanda, Nigeria and Pakistan found those in the poorest groups had less income than the cheapest nutritious diet would cost.

With a rapidly increasing world population and increasingly precarious agricultural production, some NGOs consider the food system to be broken. Oxfam's 2011 report 'Growing a better future' (pdf) paints a grim picture of what a future of worsening climate change and increasing resource scarcity holds for hunger. It predicts international price rises of key staples in the region of 120-180% by 2030.

In summary, we are dealing with a food system which is complex and becoming less resilient, in a context where environmental and economic shocks are likely to increase in frequency and severity.

If we assume that food price volatility is a 'new normal', we need to answer two questions: how can policy responses reduce food price volatility; and how can governments respond to spikes when they occur?

The idea of publicly held food stocks is controversial: high maintenance costs (20% of the value of the stock) competes with other spending priorities, and if poorly managed can lead to waste or corruption. Yet, food stocks, if managed correctly, can provide a cushion (pdf) and avoid panic in the market. Mali and Ethiopia successfully implemented strategic food reserves that mitigated the impact of a major drought in 2005. The same drought devastated neighbouring Niger and led to a third of the country's population of 12 million requiring food aid.

Social protection in the form of cash transfers can also support the poorest during price spikes. Brazil's Bolsa Familia programme, not only protected those most vulnerable to the 2008, it also provided credit lines for food producers through its 'more food' programme.

The decision to implement a social protection programme depends on the basic issue of competing budget priorities.

Food price spikes tend to follow oil prices – because of transport costs increase and staples getting diverted to biofuel production. The global food price spikes in April and July of 2012 added $8bn (£5bn) to the food import bills of low-income countries – impacting on their fiscal balances and ability to provide basic services to their populations. No credible finance minister will want an expensive social protection programme without the budget to support it.

A windfall tax on oil producing countries could be an effective way to underwrite these costs during times of crisis in some low-income countries. If the G20 were to work with Opec to implement such a measure, it could avert crises for millions.

The challenge lies in oil producing countries agreeing to divert revenues to a global fund which will benefit those outside their borders. However, given the links between food price spikes and political instability (pdf), this may be a price worth paying.

The International Conference on Nutrition in November 2014 could be a critical moment in this regard. Preparations are currently mired in UN bureaucracy; outcomes could focus on only UN agencies and how they work together. But it could be a moment to change the nature of the conversation on our food system, the roles and responsibilities of the UN, governments, and businesses.

Ultimately, we need to increase the slack in the system by increasing yields, investing in stocks, and improving the resilience of the world's poorest people. This requires public investment in seeds, roads, storage systems and other infrastructure.

David McNair is head of growth, equity and livelihoods at the Scaling Up Nutrition civil society network and Follow @SUNCSN on Twitter

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