Seven steps to prevent recurring food crises

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Shenggen Fan, Jakarta | Mon, 04/25/2011 8:00 AM | OpinionJust three years after the 2007-2008 food crisis, food prices are again increasing and becoming more volatile amid expanding biofuel production, rising oil prices, US dollar depreciation, export restrictions and panic purchasing. In Indonesia, for example, food inflation rose by 14 percent between March 2010 and March 2011.The world’s poorest consumers, who spend some 50-70 percent of their income on food, are bearing the brunt. This is also the case in Southeast Asia, which has made impressive progress in reducing poverty and hunger but where some 80 million people remain food-insecure. It is often said that poor agricultural producers benefit from higher food prices through higher incomes. However, this is possible only if they are net sellers of food and if their input costs do not also rise. In recent years, fertilizer and transport costs have also been high and volatile. Increasing costs coupled with the uncertainty that accompanies excessive price volatility can reduce farmers’ profit margins, distort long-term planning and dampen investment in improved productivity.Decisive action is needed to prevent recurring food crises. Governments in both developed and developing countries, including Indonesia, and international organizations must adopt a comprehensive approach that incorporates seven principal elements:Curtailing subsidies and reforming policies, particularly in the United States and Europe, to minimize biofuels’ contribution to volatility in international and domestic food markets. One measure would be to reward lower carbon intensities in biofuel production resulting from the use of feedstock that is more energy-efficient than grain. In the longer run, the costs and benefits of crop-based biofuel production for food security and environmental sustainability need to be carefully evaluated to determine their real contribution to lowering greenhouse gas emissions and transport fuels’ carbon intensity.Creating or strengthening social protection to protect the most vulnerable groups, including women and young children, in developing countries — something few countries have done during or since the 2007-2008 crisis. In countries lacking established safety net programs, governments should begin the development of these programs immediately, focusing on areas with extreme hunger and drawing on the best practices from other countries. Safety nets should be gender-sensitive and effectively combined with interventions that increase the productive capacity and improve the health and nutrition of vulnerable households. Improving the transparency, fairness and openness of international trade to enhance the efficiency of global agricultural markets. Existing export restrictions should be eliminated and countries should refrain from imposing new ones. Harmful import tariffs and non-tariff barriers should be dismantled. The Doha Round of World Trade Organization (WTO) negotiations should be completed to reduce maximum tariff levels and the risk that governments will resort to policies that destabilize world food markets.Exploring the viability of an international humanitarian emergency grain reserve to protect the most vulnerable people during food price crises. Such a reserve should be managed by an experienced global institution such as the World Food Program (WFP) and could consist of multiple physical reserves strategically positioned near major food-importing poor countries. A small reserve should be started as a pilot project in order to learn how to improve efficiency and effectiveness before it is scaled up to the optimal level. The ASEAN+3 emergency rice reserve, currently under discussion, is an example.Promoting agricultural growth, in particular through improved smallholder productivity. This would involve, for example, improving access to seeds, fertilizer, and other inputs, increasing investment in crop breeding and livestock research and enhancing access to markets by strengthening rural infrastructure.Investment by national governments in climate change adaptation and mitigation using the full potential that agriculture offers.Adaptation involves improved land management, adjusted planting dates and the introduction of new, climate-hardy crop varieties. Mitigation includes improvements in energy efficiency, crop yields and carbon storage. Recent research suggests that US$7 billion per year will be needed to raise calorie consumption enough to offset the negative effects of climate change on the health and well-being of children. Most of these investments also make good economic sense even in the absence of climate change.Establishing an international working group to monitor the world food situation and trigger action to prevent or dampen excessive price volatility. This group would bring together key institutions such as the UN Food and Agriculture Organization, International Food Policy Research Institute, International Fund for Agricultural Development, Organization for Economic Cooperation and Development, UN Conference on Trade and Development, World Bank, WFP and WTO. The group would scrutinize not only food production, consumption (including for biofuels), trade, stocks, prices and policies, but also energy and input prices and financial market speculation.Some of these proposals have been made before, but each outbreak of volatility in world food markets makes them more urgent. Now is the time to act to prevent a replay of the last food price crisis.The writer is the director general of International Food Policy Research Institute (IFPRI).