Rise in Food Prices: Broad Concerns, Implications, Solutions

March 25, 2008

Action Against Hunger Offers Perspectives On Complex Issues

Food prices have risen dramatically around the world in recent months, fueling widespread concern and social unrest in communities confronted with devastating price increases when buying provisions. Exactly what accounts for this wild upswing in market prices and what do these trends hold for those already living in precarious conditions?

Action Against Hunger offers the following perspectives on these complex issues.

Broad Concerns & Global Trends

There seem to be a number of factors contributing to the sudden rise in food prices:

Increased Demand: Demand for foodstuffs has increased generally, and especially among the increasingly affluent sectors of China, India, and Brazil (in addition to existing demand from the US and Europe), where greater purchasing power and increased demand for meat diverts foodstuffs for use as fodder over human consumption. This is generally a positive development (i.e., it indicates greater affluence), but it also contributes to higher prices and greater vulnerability for the poor.
A Shift Toward Biofuels: Market forces have also generated greater demand for biofuels, and owners of productive land have responded by producing greater quantities of non-food crops (e.g., in Indonesia, this can be seen among small farmers growing crops for the biofuel market). The growing biofuel market has also contributed to higher food prices as less productive land is available to produce foodstuffs, cutting global supplies and raising prices.
Global Warming: Global bodies like the World Bank and the UN expect crop reductions in the near future due to shifting climate patterns. This is cause for concern for vulnerable communities dependent on agriculture.
Sky-Rocketing Oil Prices: As an essential, inelastic input for commercial agriculture around the world, more expensive oil drives up the cost of food production and transport, making the end product (food) more expensive generally.
Poor Harvests in 2007-08: Global production of foodstuffs was down in 2007 and 2008 as compared to previous periods. Global production was hurt by poor weather patterns and a slew of natural disasters, all of which contributed to smaller stocks of global staples.

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Humanitarian Implications

What does this mean for the global safety net—that array of policies, practices, and funding sources supporting humanitarian action?

Increased Vulnerability for the Already Vulnerable: Vulnerable communities often spend 70-80% of their household budgets on food. As prices rise the global poor often find themselves priced out of local markets, with reduced access to food, greater insecurity, and more susceptible to the ravages of hunger and disease. In a context of broad international scarcity, many more families may be in need of assistance at a time when food stocks are low; this may necessitate new approaches to short- and long-term food security strategies.
Increased Vulnerability for Urban Populations: Urban communities have seen an upswing in social unrest as a result of the rise in food prices in a number of countries. Populations dependent on food imports are the hardest hit as costs increase, and urban populations were the first to respond globally. Communities with fixed income are now faced with much more precarious circumstances.
Worrisome Indicators and Uncertainties: While overall trends are cause for global concern and action, Action Against Hunger wishes to emphasize that there is still much we don’t know about this complex set of issues: with little hard data, it is more difficult to make firm policy recommendations beyond adjusting food aid policies to meet shifting needs while investing in greater agricultural production at the local level.
Public Policy Goals Must Reflect a Concern for the Most Vulnerable: Whatever the political solutions may be—the World Bank, for example, is calling for a greater emphasis on agriculture-driven development—Action Against Hunger states categorically that public policy must be defined in partnership with the most vulnerable and reflect their needs.

What Can Countries Do To Prepare?

- Governments: Broadly speaking, to reduce risk and ensure populations are less susceptible to prices spikes, governments ought to:
  - Invest in local agricultural production: Africa is essentially full of untapped potential, but building capacity requires support: access to credit, agricultural extension programs, training and retooling, programs that reinforce local capacities, etc. This is the only way to ensure future self-sufficiency and avoid dependencies on external sources of food.
  - Ensure Proper Management of Reserves and Buffer Stocks: Most countries have strategies in place that can easily be reinforced to avert crises: maintenance of buffer stocks and agricultural reserves that can temporarily ease the shock of price spikes.
- International Food Aid: The crisis in food prices should convince the international community to rethink food aid: no longer can we afford to transport surpluses from industrial countries only to disrupt local economies in the name of humanitarian action. The funds available for food aid could be better spent investing in agricultural capacity instead of being spent on transportation and overhead—especially given rising fuel prices.

“It’s long been Action Against Hunger’s position that food aid should be restricted to emergencies: where there’s a total lack of food, where populations have no or limited access to productive assets, and where needs are acute—e.g., in refugee camps or in specialized treatment or supplementary feeding centers. Cash-based interventions and/or local purchases of food should be prioritized whenever and wherever possible.” —Devrig Velly, Senior Food Security Advisor Action Against Hunger-USA

Action Against Hunger: Building Community-Based Capacity: Another part of the solution is to reinforce activities like Action Against Hunger’s Food Security programs which bolster agricultural production, reinforce livelihoods, and foster healthy markets to ensure that vulnerable families become self-sufficient once again.If food prices and reliance on external food assistance are growing problems, greater investments in local agriculture—and the programs that reinforce these activities—should be part of the overall solution to these worrisome trends.

Investing in Agricultural Production

If international funds for food aid were used to develop sustainable agriculture instead of financing shipments of food aid there would be far less need to ship food long distances from Western countries.

“The transport costs associated with food aid could be better used to improve local production techniques and agricultural systems. The promotion of local seed production and markets, small scale irrigations systems, training and local capacity building, and the diversification of production and income for local populations would be a better investment in the future food security and livelihoods of the vulnerable population we assist in our interventions,” —Silke Pietzsch Food Security Advisor Action Against Hunger-USA

From a humanitarian perspective, to invest in agriculture means ensuring the availability and accessibility of nutritious foods for communities confronted with impending or recurring crises.

Investing in agriculture would involve activities, policies, or initiatives that:

Increase production levels and yields (in agriculture, horticulture, livestock, fishing, etc.)
Increase access to quality seeds and tools
Improve the management of local resources
Diversify diets and incomes through the diversification of production
Link small farmers to the local markets
Develop capacity in food processing, transformation, and locally or regional marketing
Invest in scientific and economic research related to food and agriculture (e.g., seeking an effect response to phyto-sanitary diseases)
Adoption of development policies (subsidies, investments, research, coordination, etc.) at local, regional, and national levels.

Impacts of Rising Food Prices on Action Against Hunger’s Programs

Action Against Hunger uses food aid only when responding to emergencies where food is not readily available or accessible for the most vulnerable populations—i.e., we do not oversee blanket distributions of food aid, rather our programs target the most vulnerable instead:

While we see the immediate impact on many segments of the populations, our programs have not yet been affected.
Action Against Hunger works on the livelihood side of the equation (i.e., we do not purchase food for our programs), strengthening agricultural production and enhancing income-generating activities. As such, market impacts tend to be indirect on our activities.
A rise in food prices does put more pressure on our Food Security programs in that many of our activities (Cash Transfers and Income-Generating Activities, for example) are calibrated with a specific food basket value—if prices suddenly rise, we may have to adjust the income objectives for our programs, but not our overall approach.
As an agency that targets the most vulnerable, we expect to see increased demand for humanitarian assistance if this crisis deepens—essentially, any population dependent on external sources of food will be negatively affected by a rise in prices on basic staples.

To summarize: our teams see these realities affecting populations in most of the countries we work in, but because we already work with the most vulnerable, we’re not seeing any major changes yet in terms of our program design – but we see the writing on the wall and its potential to affect our work.