Informing humanitarians worldwide 24/7 — a service provided by UN OCHA

Bahamas + 32 more

Double-edged prices - Lessons from the food price crisis: 10 actions developing countries should take

Attachments

The recent sharp increase in food prices should have benefited millions of poor people who make their living from agriculture. However, decades of misguided policies by developing country governments on agriculture, trade, and domestic markets - often promoted by international financial institutions and supported by donor countries

  • have prevented poor farmers and rural workers from reaping the benefits of higher commodity prices. As a result, the crisis is hurting poor producers and consumers alike, threatening to reverse recent progress on poverty reduction in many countries. To help farmers get out of poverty while protecting poor consumers, developing country governments, with the support of donors, should invest now into smallholder agriculture and social protection.

Summary

The attention of the world is currently focused on the global financial crisis, but meanwhile, a large part of the world is also immersed in a dramatic increase in food prices and an equally sharp rise in the price of fuel. Prices of staple foods have seen increases ranging from 30 per cent to 150 per cent in 2007 and 2008. This threatens progress towards achieving the Millennium Development Goals (MDGs). In Cambodia, where half the population relies on bought rice, consumption has fallen, and many families in Burkina Faso are selling off the few cattle they own. Oxfam estimates that 290 million people living in countries most vulnerable to the food crisis are at risk of falling into poverty. In sharp contrast to the plight of poor farmers and communities, many others in the food business appear to be cashing in on the crisis. Thailand's Charoen Pokphand Foods, a major player in Asia, is forecasting revenue growth of 237 per cent this year;1 Nestlé's global sales grew 8.9 per cent in the first half of 2008;2 Monsanto, the world's largest seed company, reported a 26 per cent increase in revenues from March to May 2008.3 UK supermarket Tesco has reported a record 10 per cent jump in profits from last year.4The disastrous impact of this crisis could have been prevented. Millions of families in poor countries depend on agriculture for their living. Global aid to agriculture has declined from 18 per cent of official development assistance (ODA) in the 1980s to just 4 per cent of aid expenditure today.5 If rich countries, donors, and developing country governments had invested in smallholder agriculture over the past two decades, poor countries and communities would now be far less vulnerable. The few developing countries that have followed different paths and have invested in smallholder agriculture and social protection have proved to be more resilient to the crisis than their peers. The global response to the food prices crisis has also been inadequate. This is in stark contrast with the response to the current financial crisis, where huge financial resources have been mobilised by the international community in a matter of days. Countries suffering from the food crisis received promises of just $12.3bn at the Rome FAO conference in June 2008, well short of UN estimates of the $25bn-$40bn needed6 (and five months on, little more than $1bn has been disbursed). The international community has failed to organise itself to respond adequately: developing countries are being bombarded with different initiatives and asked to produce multiple plans for different donors. A coordinated international response must be led by the UN to channel funds urgently to those in need, and to lead on implementation of the longer-term reforms. Poor countries that have abandoned their agricultural systems, cut cereal production, and become highly dependent on food imports are extremely vulnerable to food price shocks. This applies especially to those countries which lack the cash to pay for their food imports. Countries which do not have well-functioning social protection systems and strategic food reserves to reduce the impact of price shocks are even more exposed.

Unfortunately, this is the case for many developing countries, and it is largely the result of specific policy decisions taken by their governments, often promoted and supported by international institutions and donor countries. Decades of highly protective and trade-distorting agricultural policies in rich countries are also to blame. Rich countries, donors, and poor countries alike must shift course if they are to reach the MDGs. There is a great danger that this lesson will be lost in the turmoil of the crisis and that developing country governments will resort only to short-term fixes in their responses, especially since the international community is so far failing to respond adequately. A new approach is desperately needed, because most developing countries are likely to become even more vulnerable to price shocks due to climate change and its toxic combination of rising temperatures, natural disasters, and erratic rainfall patterns. What can be done? Even before the impact of rising food prices, over 850 million people worldwide lived in hunger. Alleviating the impact of the current crisis involves addressing the chronic vulnerabilities that lie at the root of the problem. This requires structural changes in the ways that governments, international institutions, and donors address poverty and development, address the crucial role that smallholders play in poverty reduction, and recognize the key role of women in agriculture. Although food prices may fall somewhat in the coming months, they will nevertheless remain well above the levels of the previous decade. Developing countries need to increase food production, putting in place a set of agricultural and trade policies that boost the productivity of ill-equipped, small-scale farmers. In Mexico, the PROCAMPO programme provides farmers with 950 pesos (about $95) per hectare for crops such as corn and beans, benefitting 2.5 million farmers and accounting for 28 per cent of Mexico's agriculture budget.7 Brazil's PRONAF scheme provides small-scale farmers with loans, technical services and rural outreach programmes, insurance against crop losses, guaranteed prices, and a system of direct purchase from small farmers in support of food security programmes.8 The policy has led to a significant increase in agricultural spending, leaving Brazil better prepared to tackle the current food crisis. Public expenditure on social protection, including job creation schemes and social insurance programmes, can be extremely cost effective in building poor people's resilience to price shocks. Countries with better social protection programmes have fared better during the current crisis. Food prices, whether high or low seem like a double-edged sword: they hurt either consumers or producers. The false dilemma of which group to support (in practice often leading governments to have an urban bias) can be solved through policies and market interventions that enable both poor consumers and producers to cope in periods of price fluctuations. Poverty will increase in many developing countries unless their governments proactively use the crisis to overhaul agricultural, trade, and social protection policies. The international community needs to support, and not block, such reforms. To build resilience to future shocks, making investments in smallholder agriculture must be the number one priority. Oxfam does not believe that a one-size-fits-all solution exists. However, the following 10 measures, adapted to the local context, could make a huge difference to the millions of poor people hit by the current crisis, and build resilience to future shocks. Poor-country governments, with the support of donors, should:

- Increase public spending on agriculture to generate supply in the short term, and provide support to smallholder farmers in the longer term;

- Properly target farming sector expenditure, both in order to provide the public services required and to reach small-scale producers;

- Invest in social protection programmes to enable citizens to meet their basic needs and protect their livelihoods from potential threats;

- Consider contributing to national or regional strategic food reserves to counteract food shortages and market volatility. Assistance programmes should encourage local communities to design community-based food reserves;

- Adopt trade measures that protect small-scale producers, strategic agricultural sectors, and emerging companies;

- Avoid resorting to trade measures (such as export bans) that could exacerbate the crisis or undermine long-term development prospects;

- Support the creation and strengthening of trade unions, producer organisations, and women's groups in particular, in order that they can take part in the design, implementation, and monitoring of food and agricultural policies, negotiate collectively to bring down the prices of inputs purchased, and obtain better wages and prices for their products;

- Promote access to assets and services, particularly for women farmers. Access to land, water, seeds, fertilisers, technology, loans, infrastructure, and energy is often insufficient, insecure, or too expensive;

- Address the problems of waged agricultural workers, developing and enforcing labour legislation for rural workers and establishing guaranteed employment programmes for people who remain unemployed out of season;

- Build community-level resilience to climate change to ensure that poor producers can benefit from higher food prices and both adapt to and mitigate the impacts of climate change. In addition, rich countries, the World Bank and other donors should:

- Coordinate their action and funding through a United Nations-led mechanism, building on the work done by the High Level Task Force on food prices.

- Increase investment in development assistance to agriculture in developing countries, particularly for smallholders.

- Stop pressing for rapid liberalisation and opposing adequate safeguards for developing countries in multilateral, regional, and bilateral trade negotiations and agreements.

- Reform their agriculture and trade polices that permit dumping, restrict policy space, and hinder growth in developing countries, so that countries can support their own agricultural development and in turn ensure food security.