In 2004, the UN Food and Agricultural Organization looked back on a long bear market for food: forty years in which real prices of agricultural commodities had fallen 2% per year, or 50% between 1961 and 2002.

Innovation had driven up yields and productivity; growing numbers of suppliers had flooded onto global markets; and subsidies were keeping production levels artificially high. It was good news for consumers, but bad news for farmers and for poorer countries reliant on food exports, where low prices had “battered income, investment and employment.”

In his introduction to the State of Agricultural Commodity Markets 2004, the FAO’s director general, Jacques Diouf, delivered a homily on the chronic oversupply of food. Prices in the mid-1990s were lower than at any time since the Great Depression, he complained, eroding the viability of rural communities and fuelling migration to cities.

There were winners and losers of course, but more of the latter than the former:

The main beneficiaries of lower food prices have been consumers in developed countries and in urban areas of developing countries.

However, for the vast majority of the world’s poor and hungry people who live in rural areas of developing countries and depend on agriculture, losses in income and employment caused by declines in the prices of the products they market generally outweigh the benefits of lower food prices when commodity prices fall.

FAO wanted the problem of oversupply fixed. It called for rich countries to cut subsidies and take land out of production. Poor countries needed to stimulate demand for food, it said, and equip their farmers to export cash crops – preferably processed ones – to the West.

The next State of Agricultural Commodity Markets came out in 2006, by which time the FAO could see that times were a-changing. In real terms, food prices had bottomed out in May 2002, and had jumped 34% by the end of 2005. Good news? Well, no.

Oversupply had not been tackled as the FAO had recommended. “Concern is rising among [food exporters] about the short-term sustainability of the current market situation,” it warned, “for market analysts anticipate that the price bonanza may not continue.” (In his preface to the volume, Dr Diouf did not mention prices at all, but stuck to safer ground: how to make a success of the Doha trade round.)

The price bonanza not only continued, however, it intensified. Prices peaked in June 2008 – 2.6 times higher than they were in 2002 and at the highest level for thirty years. The result was a catastrophe. In his foreword to the 2009 State of Agricultural Commodity Markets (understandably, the publication had skipped a year), Dr Diouf instructed us to:

Imagine the impact on the poor in developing countries who were already spending, in some cases, up to 80 percent of their meagre incomes on food. FAO estimates that soaring food prices pushed another 115 million people into chronic hunger in 2007 and 2008. This means that today the world has nearly one billion hungry people.

Now, leave aside the fact that we know these numbers to be pretty shaky, surely by Diouf’s own logic, there should have been some upside (“for the vast majority of the world’s poor and hungry people who live in rural areas of developing countries and depend on agriculture,” for example.)

Unfortunately, not. “High food prices were not an opportunity seized by the majority of poor farmers in developing countries,” the FAO informed us. “Their supply response was limited in 2007 and virtually zero in 2008.”

So for the rural poor, it was all downside when prices fell for forty years and all downside when much, but not all (see graph) of that fall was wiped out in just six years. How so? The FAO gives two reasons.

First, it simply reversed its position from 2006 that declining commodity prices ‘generally outweigh’ the benefits of cheaper food for the rural poor:

The evidence suggest that most households in the developing world and especially the poor are net buyers of food, and this holds even for rural households that are mostly engaged in agriculture.

For net sellers of food in rural areas, “the impact could in principle be positive” (note the weak formulation). But for net buyers, including those in rural areas, “the impact is unequivocally negative” (no doubt there, then).

Second, it found that, while a few large landholders had benefited from higher prices, the majority of developing country farmers had not. The expected supply response had not materialised, with cereal production up only 1% in 2008 in developing countries and most countries cutting production.

FAO gives a number of reasons for the lack of a supply response. Across the developing world, smallholders are isolated from global and regional markets, with price increases at these levels having ‘no effect’ on them. Input prices had risen as fast as food prices – and these are passed on ‘fully and quickly’ to producers.

The situation was bleakest in Africa (as always). Farmers tend to be “elderly with little or no knowledge of farming practices”, lack access to credit, and to make “minimal use of inputs (including fertilizers)”. They also are suffering from decades of underinvestment in technology and infrastructure.

Now, it is hard to resist poking fun at FAO’s prophetic abilities. I especially enjoyed Dr Diouf slapping himself on the back for warning of impending crisis “as early as July 2007”. Prices, after all, were already up by 88% by then.

But there’s a more serious point. Was FAO wrong when it decried low prices as a disaster for the rural poor? Or will a shift to somewhat higher prices indeed have a medium-term benefit for rural areas?

It is easy to accept that, in the short term, a price spike is mostly a bad thing (people who have very few reserves are left with little or no time to adjust). However, I am less convinced by the relentlessly negative slant of FAO’s argument.

I find it hard to believe there won’t be a supply response. Indeed, we are already seeing one. The FAO made much of only seeing a 1% increase in cereal production in developing countries 2008, but there have been big changes since then. Crops were 6% higher in 2010 than the average for 2007-2009, with another 2.3% increase projected for 2011. African cereal production was up a whopping 13% in 2010, although a 1.5% decrease is projected for 2011. It’s hard to be sure whether this is a long-run trend (although FAO had no such scruples in 2009), but the results seem encouraging. And it’s developing countries that have benefited. Rich world cereal production is flat or falling.

It’s unsurprising to see a lag before the supply response kicks in. Agricultural markets have always been bedevilled by the time it takes for supply to match demand. Less sophisticated producers are also likely to react more slowly than sophisticated ones, for all the reasons FAO cites (weaker connection to markets, less credit, etc.). But that doesn’t mean the price signal won’t get through eventually – especially if prices stay high for longer periods. As Africa has the most potential to increase yields (and the most available land), its medium or long-term gains could be the greatest.

Not all the impacts on the rural poor can be negative. Higher prices could be good for agriculture in Africa and other poor countries, but still have a net negative impact on poverty. Even here, I am not fully convinced by the FAO’s case, which relies heavily on (and sometimes stretches the findings of) a 2008 working paper by its in-house economists.

The paper explores the impact of rising prices on the poor in eleven countries (four in Asia, three in Latin America, and two each in Africa and Eastern Europe/Central Asia). It finds that between 7.2% (Malawi) and 67.9% (Vietnam) of rural households are net sellers of the three main tradable food staples in each country.

Broadly speaking, households with land, and those that use more fertilisers and other inputs, do well when food prices go up; poorer households, the landless, and large, poorly educated families are the least likely to benefit.

There are a few caveats in the way that this paper has been interpreted, however:

• It excludes all farmers who don’t grow one of three tradable crops. Net consumers of food must be earning money from somewhere. Presumably some, at least, are selling cash crops and buying staples.
• It also excludes the impact of rising wages. A landless labourer may spend more on food, but this could be fully or partially offset if rural wages increase, which is plausible if agricultural economies are expanding.
• It careful to limit its conclusions to the very short term. Its findings are only relevant to a price shock. None of its finding exclude the possibility that rural areas will become richer if the long slump in agricultural commodities is indeed over, not that this would benefit the rural poor over time. The trend could be positive, in other words, even if the shock has been catastrophic.

There are two bigger questions:

• What is the right price for food? Would a return to very low prices for commodities (and for oil-based inputs) be more likely to feed eight and nine billion people (and to do so sustainably)? Or are somewhat higher prices required to drive the investment this is going to need (with more efficient use of inputs as well)?
• How do we increasing resilience to price shocks? It is important to disentangle long-term price trends from sudden price movements. How can the losers from volatility be best protected? We also need to discuss both growth and poverty. Higher prices could be very good for Africa’s economic prospects, even if the poor suffer in the short term.

The FAO’s next report on the State of Agricultural Commodity Markets should be with us before the end of the year. It has moved from depression about low prices in 2004, through confusion in 2006, to even despair about high prices in 2009. I wonder what its mood will be like in 2011.

Great strides have been made on poverty, as I explained in a recent post, with the proportion of the poor projected to fall to 14.4% of the population of developing countries, from 41.7% in 1990. But what about hunger?

According to the UN’s 2011 assessment of the MDGs, the news is not good. In 1990, 828m people were hungry or 20% of the population of developing countries. Progress has been very slow since then:

The proportion of people in the developing world who went hungry in 2005-2007 remained stable at 16 percent [837m people], despite significant reductions in extreme poverty. Based on this trend, and in light of the economic crisis and rising food prices, it will be difficult to meet the hunger-reduction target in many regions of the developing world.

But hang on a minute. Why is the UN trotting out data for 2005-2007? That’s before the global food crisis, which hit at the same time as the financial crisis and has been just as slow to go away.

Food prices hit rock bottom in 1999, but then rose quickly with vicious increases in 2007 and 2008 (20% and 18%) and 2010 and 2011 (17% and 28%) as illustrated in the chart below.  Yet we’re still relying on data from five years ago to estimate hunger.

The UN reported ‘dire’ news of a spike in its 2009 and 2010 MDG reports, with an estimate of more than 1 billion people hungry by 2009. But then it backed off in 2011, simply reporting the old data (which, oddly and without explanation, had been revised up slightly for all years, including 1990).

What gives? The problem is that our data on hunger are extremely patchy and rely on assumptions so heroic that I am left wondering if we are currently able to say anything useful about global hunger at all.

Here’s how it works at the moment. The target on food was set at the 1996 World Food Summit and predates the MDGs. The UN Food and Agriculture Organisation (FAO) has been measuring progress since 1999. Its measurement system has four steps:

• First, it estimates the minimum energy requirement for each member of a population, based on a complex algorithm that takes age, sex, weight, and height into account (with an added allowance for pregnant women).
• Second, it works out how much food is available for human consumption, based on a country’s Food Balance Sheet, which provides an estimate for how much food is available for each person, and how many calories, protein, and fat that food contains.
• Third, it uses household surveys – where they are available – to estimate how evenly food is distributed.
• Finally, it plugs numbers into a formula that estimates the proportion of the population below the minimum energy requirement cut-off point.

There are many problems with this methodology including:

• Micronutrients are left out entirely even though they play a huge role in nutrition, especially for the normal development of young children.
• We often don’t really know how much food a country has available – Food Balance Sheets are poor at capturing data on non-commercial food production; and at estimating how much food is being used for animals, is being stored in reserves, or is wasted.
• People aren’t that good at estimating their own food intake when asked in a household survey (let alone that of family members), while countries do surveys infrequently, if at all. As a result, estimates of the distribution of food are, at best, educated guesses.  Moreover, and as far as I can tell, FAO has not been good at documenting which countries have surveys, or from when.
• It’s hard to know how much food people need – especially as they’ll become less active as their food gets scarce (thus burning less energy).
• In countries where many people go hungry, a large proportion of the population hovers just above and below the minimum energy requirement, making estimates of hunger extremely sensitive to small changes in underlying assumptions.
• Perhaps most importantly for the current crisis, price is not fully considered. As staples become more expensive, presumably the poor consume less and the distribution of food changes markedly.  Hunger may therefore grow much faster than suggested by the fall in average food consumption. Surveys have no hope of capturing the impact of volatile prices.

FAO’s figures have faced sustained criticism for at least a decade. Back in 2004, a somewhat huffy note from a FAO statistician defended its methodology as ‘the best available’ and dismissed various ‘methodologically incorrect’ alternatives.

More recently, however, the damn has burst, with FAO sent back to the drawing board in 2010, by the Committee on World Food Security.  We are promised revised statistics that will improve modelling of the impact of price increases and income shocks, strengthen food balance sheets, integrate more household surveys, and include micronutrients and other factors in the mix.

But in the meantime, the presentation of data is suspended. Estimates for the number of undernourished people in 2009 and 2010 have been withdrawn, and no figures for 2011 have been prepared.

In the midst of the first ever global food crisis, in other words, the lights have been turned off. 837m people were probably hungry four to six years ago. Maybe. That might have gone up above a billion, or perhaps it didn’t. Hunger is either resurgent or it isn’t.

Of course, leaders are using the old figures without too many scruples. Here’s Ban Ki-Moon from just last month:

Even before the food crisis began, eight hundred million people were going to bed hungry at night. Now, a staggering nine hundred and twenty-three million people suffer from chronic hunger and under-nutrition.

But I think it’s pretty clear that, until the FAO comes back with new and better data, the ‘correct’ answer to the question ‘how many people are hungry?’ is – ‘we simply don’t know’. Apparently, the matter will be considered at an International Scientific Symposium in Rome in January next year.

Let’s hope FAO pulls its finger out and we don’t go that much longer without any data.

Today, for example, the papers report that the two main political parties (the ruling PPP, and its arch opponents, PML-N) have come together to try and fix an economic crisis that they admit has its main roots back in the 2008 resource price spike:

Sources said the government had told almost all parties that most of the economic pressure had built up because of carryover of huge fiscal deficit from the previous government which did not pass on energy prices to consumers even when international oil prices increased from $90 to $147 a barrel and the current government was facing a similar situation. Most public sector corporations have since been bleeding mainly because of this single factor.

Power companies are getting so desperate for fuel oil (which they are using to replace gas, whose shortage has led to an electricity crisis), that they’re signing sovereign-backed contracts for imports on deferred payments, going against the express wishes of the state-run Pakistan Oil Company, and, seemingly, without explicit permission from the government.

In Punjab, meanwhile, grain markets are grinding to a halt, as the government attempts to tax agricultural production in order to plug its yawning fiscal hole and – I suspect – to make it politically easier to raises taxes on urban consumption. Traders are on strike, accusing the government of destroying the ‘backbone’ of the economy.

The impact on ordinary people is marked. The gas shortage is pushing urban residents back towards a reliance on biofuel. “I am purchasing stove to use firewood in the 21^st century thanks to the government,” complains one resident of Rawalpindi.

Fortunately, food shortages are yet to hit one of the citizens of nearby Islamabad: President Zardari. He has his own camel in the Presidential Palace, because he thinks the milk is healthier.

The President House also has a herd of black goats. One goat is slaughtered everyday when Mr Zardari is there.

Earlier, his trusted personal servant, Bai Khan, used to buy a goat from Saidpur village every day, but now a herd has been kept in the presidency to avoid frequent visits to the animal market. The animal is touched by Mr Zardari before it is sent to his private house in F-8/2 for slaughtering.

Good to see one man, at least, taking resilience seriously.

To see why, first take a look at what the oil price has been doing over the last year (Brent crude futures, $/barrel; h/t BBC):

Then, put that against the longer term background of what’s been happening since 2000 (slightly older data here, via Mongabay, but usefully puts the BBC graph above in context):

As the second graph shows, today’s level of just under $80 per barrel already brings us back to where we were in around July 2007 – and that’s during a still shaky recovery from what’s generally agreed to have been the worst global recession since the early 1930s.

This is a striking rebound in such weak economic conditions – and calls to mind the consistent warnings from the IEA over the past 18 months that the collapse in investment in new supply during the financial crisis and subsequent downturn has set the stage for a new oil price crunch as soon as recovery gets underway (not to mention the fact that IEA’s chief economist thinks we’re looking at peak oil as soon as 2020).

With the oil price headed upwards, food prices can be expected to follow – because higher oil prices make biofuels more attractive, and raise the prices of on-farm energy use, fertilisers, transportation, distribution and various other elements of our energy-intensive food supply chains.

Sure enough, if we take a look at the latest FAO food price index, we find that it too has been quietly heading upwards over the last few months – and is now likewise back at where it was in July 2007. At that point, of course, the food spike was already well underway, with the tortilla riots in Mexico City that served as a wake-up call for many policymakers having come almost six months earlier.

On top of this, remember the really key point that the fall in food prices that took place during the global downturn gave minimal respite to the world’s poorest people – precisely because even as prices fell, they were also getting hammered themselves by the downturn.

The starkest indication of that is in the global total of undernourished people (shown here in a graph from the FT); when you realise that we haven’t just lost the progress of the last few years, but are in far worse shape that at any time since the last 60s, you start to see just what a catastrophe the combination of  food / fuel price spike followed by global downturn has been for development:

As I’ve argued in numerous previous posts, we were never out of the woods on the food / fuel pincer movement; it was the collapse in prices following the credit crunch that was the blip, not the price spike that preceded it. And what’s most frustrating now is the extent to which policymakers have frittered away the chance we had to get onto a more secure footing.

Admittedly, they committed $20bn over three years for agriculture and food security at this year’s G8 in L’Aquila (although as a friend at the ONE campaign reminded me yesterday, even that cash isn’t new or additional). But what they’ve absolutely failed to do is recognise the fact that a great deal of what we have to do is at the transboundary level as well as on the ground in developing countries. For example:

- They haven’t taken advantage of lower food prices to invest massively in a new multilateral emergency food stock. Nor have they tried to agree new WTO trade rules to prevent sudden export restrictions – something which NAFTA did years ago, and which could have been done separately from the ailing Doha trade round.

- OECD countries haven’t faced up in any way to the massive contribution their biofuel support policies made to the food price spike: take a look at the US State Dept’s shiny new food security consultation document and see if you can find the words “biofuel” or “ethanol”.

- No-one’s set any serious analytical work in train to figure out exactly how a pretty much permanent move to triple digit oil prices would affect food prices – e.g. whether the biggest pinch point will come in fertiliser or in maritime trade costs, or in which crops will be most affected.

- And hardly any policymakers are yet willing to talk about the fact that the world’s middle classes – that’s you and me – are going to have to make some pretty significant changes to our diets if we don’t want prices of staple foods to lurch out of reach of the world’s poorest (that’s significant spelled l-e-s-s m-e-a-t).

Now, on top of all of that, it looks like policymakers are also in the process of fudging the one policy process that could manage oil scarcity and climate change at the same time: the Copenhagen talks on the UNFCCC post-2012 commitment period.

The problem, of course, is that once prices for oil and food rise beyond a certain level, we all go back into kneejerk / panic mode – and try talking about the need for cooperative long term frameworks then. Sigh. #Fail.

Update #1: the FT’s Alphaville blog notes that long-dated oil contracts are now trading at $100 / barrel, and that Goldman Sachs predict corn (as well as oil) will head skyward too:

Despite the large expected harvest, we continue to anticipate a decline in US and global stocks/usage from already low levels primarily driven by rising biofuel demand. Combined with our constructive views on energy, we believe that risks to our corn forecasts are skewed to the upside.

Update #2: the Guardian has an exclusive from an unnamed “senior official” at the International Energy Agency, who says that peak oil is already here:

“The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year,” said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. “The 120m figure always was nonsense but even today’s number is much higher than can be justified and the IEA knows this.

“Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources,” he added.

Alphaville notes that the report has created “quite a stir in the oil market” today, and gives some credibility to the idea that IEA should have been massaging the numbers.

Update #3: transpires that only $3 billion of the $20 bilion G8 food security pledge is new money, according to Avaaz, who are (justly) furious about it – sign their petition ahead of FAO’s food summit here. And while you’re at it, WFP really need your help too…

But still, perhaps one may be permitted a small chuckle of surprised delight upon receiving a press release from a UN agency proclaiming its assistance to the UN’s food task force – when the agency in question is the International Atomic Energy Agency.

Apparently the IAEA has helped 24 African countries to eradicate the deadly cattle disease rinderpest. Alas, details of how this has been achieved were not provided.  But there is much enjoyment to be had in speculating.

IAEA have also provided this photo with their press release, which shows Dr. Chiklu Mba, the head of IAEA’s Plant Breeding Unit. Rather fabulously, the caption explains that he is ”examining mutant banana samples”.

Join us here again at the same time next week, when the World Food Programme will be with us to set out their ambitious plan for making a success of the Nuclear Non-Proliferation Treaty review conference in 2010.

The report’s key diagnosis is that while food prices have fallen significantly from their peak last year, they remain acutely problematic for poor people and por countries at their current levels – and poised to resume their upwards climb when the world emerges from the downturn.  Accordingly, the last thing policymakers can do at this stage is to heave a sigh of relief – on the contrary, they need to treat the current easing in prices as a window of opportunity in which to agree the comprehensive, long-term collective action needed to ensure food security for all in the 21st century.

Long term demand drivers, above all a population set to reach over 9 billion by mid-century and the rising affluence and expectations of a growing ‘gloal middle class’ are half the story, with the World Bank forecasting 50% higher demand for food by 2030. 

On the other hand, scarcity issues will present increasing challenges on the supply side.  Oil prices are also set to resume their climb after the downturn, given that investment in new production has collapsed as oil prices have fallen, setting the stage for a future supply crunch; food prices can be expected to follow them, as biofuels, fertiliser prices and transport costs all play their part.  Climate change, water scarcity and competition for land will all also push prices upwards.

So what needs to be done?  The report sets out a ten point agenda for action at the international level and in developing countries, but overall I think of the challenge in four key areas.

The first is to get a 21st century Green Revolution underway, and fast.  Spending on agriculture by aid donors and developing country governments has collapsed over the last 25 years; it’s a similar story on R&D. At the same time, we need to move from today’s input-intensive model of agriculture to one that’s instead knowledge-intensive. People always ask whether that means GM crops, and I don’t rule out that they may have a part to play; but for equitability and social resilience, I think more ecologically integrated approaches (like integrated soil fertility management) often score higher. 

Second, we need to scale up social protection systems in developing countries. Today, nearly a billion people don’t have enough to eat.  But as you can see from the fact that about the same number of people are overweight or obese, the problem is not that there’s insufficient food to go around; rather, it’s that poor people find food prices beyond their reach. Social protection systems are a better bet for developing countries than price controls or economy-wide subsidies because they target help where it’s needed (and don’t break the bank) – but as yet, only 20% of the world’s people have access to them.

Third, we’ve got a lot to do in the trade context.  One option that policymakers ought to be thinking about is a globally coordinated system of food stocks -  a bit like the IEA’s emergency stocks in the oil context – as a way of building resilience to the spate of export restrictions we saw last summer when panic over food prices really set in.  They also need to think about ways of that trade rules can help manage the risk of export suspensions, given that WTO trade rules were really built to resolve disputes over market access, not security of supply.  But at the same time, it remains imperative for developed economies – above all the EU and US – to reform their iniquitous farm supprt policies, which structurally undermine developing country agriculture.

Finally, there remains the observation that (as Gandhi once put it), there’s enough for everyone’s need, but not for everyone’s greed. The global consumer class has barely begun to recognise that its western diet, rich in meat and dairy products, is far more resource intensive than everyone else’s diet – whether you’re looking at grain intensity, water use, energy consumption or greenhouse gas emissions.  That doesn’t mean everyone has to be vegetarian – but there are nonetheless fundamental issues of fair shares involved.  Exactly the same point applies on biofuels: not all biofuels are bad, but inefficient options like corn-based ethanol simply have no place in a sustainable or equitable agriculture system.

I finished this project with the conclusion that the worry that prompted me to do this work in the first place – that scarcity issues would make the future outlook for food much, much harder – is well supported by the data. But in spite of that, I’ve also come away feeling more hopeful than I did when I got started. 

Part of the reason is a deeper understanding of the astonishing story of innovation that lies at the core of the history of agricuture – without which there is no way on earth we could have increased our numbers from 5 million to 6 billion – and of the prospects for more such innovation in the future.  But at the same time, I also finished the project with a firm conclusion that technical innovation on its own isn’t sufficient.

Innovation always creates winners and losers. We saw that in the agricultural context with the 20th century Green Revolution (which despite huge improvements in yield also put huge numbers of agricultural labourers out of work; benefited larger farmers first and small farmers only later, if at all; and for the most part bypassed Africa altogether). So the other side of the coin is all about politics.  It’s not enough for the world’s food system to become more productive, more resilient and more sustainable, though it needs to do all of those things; it also needs to become more equitable.

Admittedly, I found little evidence so far of the political will needed to make that a reality, either in developing countries or at the global level. But the reason why even then, I still feel more hopeful now than when I started the project, is the realisation that creating the more equitable food system that we need isn’t that far out of reach. 

It wouldn’t take huge sacrifice; we know more or less what we need to do; with sleeves rolled up, I don’t think it’s remotely absurd to think that we could do it within a decade. And actually – in cheerful defiance of the gloomy clouds gathering overhead – I think we might actually do it.

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