Food spike 2.0 – what you need to know (updated)

The FT’s big front page splash today (“Fears grow over global food supply“) has sent a ripple of interest through the wider media – expect to hear a lot about the issue on the broadcast media over the course of the day. So is this a repeat of 2008? In a word, no – though it could yet become one, and even if it doesn’t, we need to regard this as a wake-up call. Here’s a quick summary.

What’s going on? Wheat prices are soaring. A year ago, a tonne of wheat cost €141; today, it costs €231, and most of the rise has happened over the last few weeks. Meanwhile, meat prices have hit their highest level in 20 years. The overall FAO Food Price Index rose 5% during August, and is back to where it was in late autumn 2007 (when the food price spike was well underway) – though it’s still some way off its peak during summer 2008.

So why are prices rising? For wheat, the main driver has been adverse weather – principally in Russia, but also in parts of the EU, Kazakhstan, Australia and Ukraine. The effect has been compounded by export restrictions, again with Russia (which has banned wheat exports outright) the main driver. On meat, the issue’s more to do with demand (especially in emerging economies, where people are increasingly shifting to meat-rich ‘western diets’) – though the supply side has also lagged.

But why the sudden spike in media coverage? Media interest has stepped up over the last 24 hours because of two things that just happened: a food price riot in Mozambique that left 7 dead, and Russia’s announcement that it will extend its export ban on wheat for 12 months.

Is this 2008 all over again? No. Despite the adverse weather in Russia and other countries, the world as a whole is on course for a bumper crop this year – the third highest on record, according to the International Grains Council. Stock levels are also much more comfortable than they were in 2008, providing more of a buffer. And the 2008 food spike was greatly amplified by a concurrent oil price spike (reaching $147 at the top), which made food more expensive by upping fertiliser, energy and transport costs, as well as making it more attractive to put crops into biofuels. Today, by contrast, oil is at $76 – still high, by historical standards, but a long way off 2008 levels.

So there’s nothing to worry about? No, that’s not the case either. The situation could still get a lot more serious – if more harvests get damaged by extreme weather, if price bubbles develop through investors going long on futures markets, if the oil price starts rising, or if more countries start implementing export bans or restrictions.

Looking to the longer term – with food demand forecast to rise 50% by 2030, even as trends like water scarcity, climate change, intensifying energy security risks and competition for land constrain supply growth – there are strong reasons to think that 2008 wasn’t “just a blip”.

Most of all, remember that for many poor people, the food price spike didn’t end in 2008. The number of undernourished people in the world was 850m before the food spike; today, it’s over a billion – not surprising, when you reflect how high food prices have been since then by historical standards (again, see the FAO Food Price Index), or on the fact that poor people typically spend 50-80% of their household income on food.

So what do we need to do? See The Feeding of the Nine Billion for a full answer to this – but the short answer is, a) invest in a 21st Century Green Revolution that produces more food, more sustainably, more resiliently, and in a way that works for small farmers; b) scale up targeted social protection systems to protect people like the ones rioting in Maputo (and which make a lot more sense than price controls or economy-wide subsidies); c) start getting serious about making international agricultural trade more resilient, especially through better crisis management mechanisms and probably including new rules against sudden export restrictions; and d) do a serious global deal on climate change. And get a move on. Continue reading

OECD / FAO food outlook – a lot worse than this time last year

This year’s OECD / FAO agricutural outlook, which looks ahead over the period from 2010 to 2019 (news release; summary), didn’t get terribly extensive coverage in the media – unsurprisingly, given that its key message (“real commodity prices to remain below recent peaks but well above recent decades”) is exactly the same as it was in last year’s report. 

But as soon as you start to delve into the quant projections, you see that there’s actually a big difference between this year’s and last year’s report – and not an encouraging one.

Last year, the 2009 to 2018 outlook (summary) projected that over the decade ahead, “average crop prices are projected to be 10-20% higher in real terms relative to 1997-2006, while for vegetable oils real prices are expected to be more than 30% higher”.

This year?  “Average wheat and coarse grain prices are projecte to be nearly 15-40% higher, while for vegetable oils real prices are expected to be more than 40% higher”. Most media coverage didn’t pick up on this (though the FT, as usual, did).

That’s a big deterioration of the outlook in just twelve months. So what explains it? I can’t immediatelymake out the reason, so I’ve emailed FAO’s press office to see if we can get some more detail for them. But as I noted in The Feeding of the Nine Billion (pdf), the OECD / FAO outlook is in some ways unduly optimistic – as in the past it has “largely overlooked the potential impact of long-term resource scarcity trends, notably climate change, energy security and falling water availability”.

The Feeding of the Nine Billion

Today sees the launch of The Feeding of the Nine Billion, my Chatham House pamphlet on food prices and scarcity issues, which brings a year-long research programme to its conclusion.  This morning’s Financial Times has a piece on the report here, and there’s a BBC World Service interview with me here (scroll to 9.42; you need RealPlayer installed).

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. Continue reading