RISING FOOD PRICES:

14 March 2008

 

 

IMPACT ON THE HUNGRY

 

Rising food prices, rooted in increased energy prices, competition between biofuels and food, rising demand from economic growth in countries such as China and India, and increasing climatic shocks such as droughts and floods are affecting millions of people – hitting hardest those living on the razor thin line of poverty.

 

As never before, policymakers are being confronted by increasingly complex challenges occurring simultaneously – globalization, climate change, and rising energy and fuel prices – all in addition to increasing poverty and hunger in the developing world.

 

Due to increased prices of food and fuel, WFP now estimates it needs at least half a billion dollars more than it had anticipated to meet approved projects in 2008 (US$375 million for food plus US$125 million for transport).

 

This is in addition to the $2.9 billion WFP estimated last year it needed to meet those same needs in 2008.The cost increase of half a billion dollars does not include new needs arising as a result of soaring food prices (or for that matter, natural disasters etc). WFP’s operational budget for 2008 now stands at US$3.4 billion. Commodity costs alone have gone up by 40 percent since mid 2007 when WFP originally prepared its cost estimates. This year, WFP has approved projects to feed 73 million people in 78 countries.

 

    WFP is actively working to avoid the need to cut rations or to reduce the number of people to be fed. We are doing everything possible to mobilize world attention and support – through governments, the private sector and individuals – to stave off such drastic measures.

 

    WFP has held meetings with experts from a number of think tanks, academic and operational organizations and NGOs including the Food and Agriculture Organization, the USAID Famine Early Warning System (FEWSNET), the Overseas Development Institute and the International Food Policy Research Institute to gain a better understanding of the situation.

 

    Higher food prices are already causing social unrest in a number of countries, with food riots reported on recent weeks in Burkina Faso, Cameroon, Senegal and Morocco.

 

    Food reserves are at their lowest for 30 years and commodity markets extremely volatile, subject to sudden spikes and speculation. The situation has been exacerbated by the falling value of the dollar, which is the currency in which all major commodities are traded.

 

 

The way forward

 

• WFP is working with traditional donor governments, the private sector, foundations and academic institutions, as well as governments in beneficiary countries. This is both to meet the new funding needs and to help
  provide safety nets for the poorest and most vulnerable.
  

 

• The high price phenomenon is already taking its toll – poor families are eating less food and specifically less nutritious food. The resulting undernutrition will affect young children in particular – effects that will be felt for years in the form of longer-term poverty and lower economic growth [new IFPRI research shows that kids given proper nutrition up to the age of two earned 50% more wages thirty years later]. Thus an urgent expansion of safety nets is necessary.
  

   

• While high prices on national and international markets are an opportunity to refocus on agriculture and rural development in poor countries, with a particular emphasis on small farmers, continued and persistent investments will be required. In the shorter term, efforts to protect the livelihoods of those suffering the effects from price hikes are a top priority.
  

 

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Major drivers of high food prices:

 

1)    rise in oil and energy prices which affect the entire value chain of food production, from fertilizer to harvesting to storage and delivering;

2)    economic boom in nations
such as India and China, creating increased demand for cereals (ie change in diet to include higher valued foods like meat);

3)    weather-related events meaning bad harvests eg multiple Australia droughts;

4)    competition between food and fuel — shift to biofuels production leading to market speculation, eg food prices such as palm oil set at fuel prices.

 

 

Additional points

 

    For WFP, the impact of higher food and fuel prices will not just be felt in operational costs, but is likely also increase the incidence and depth of food insecurity.

 

    Poor households are likely to allocate greater expenditure to food to the detriment of non-food expenditure. Thus the effects of price rises may first be seen in lower school attendance or asset depletion, rather than in decreased food consumption

 

    Among the poorest households, we are already seeing a direct impact on food security, because they already buy more food than they sell, spend a larger proportion of income on food and have fewer coping mechanisms to fall back on.

 

    These groups include the rural landless, pastoralists and the majority of small-scale farmers. But the impact is greatest on the urban poor.

 

 

Useful Stats

 

• Of the 5.1 billion people who live in the developing world, 1.2 billion still confront the ravages of poverty every day.
  

 

• Approximately 1 billion people still live on less than US$ 1 dollar a day, the threshold defined by the international community as absolute poverty, below which survival is in question.
  

 

• 162 million of those are the ‘ultra poor’, living on less than dollar a day, and trapped in a vicious cycle of hunger and poverty.
  

 

• 854 million people in the world are food insecure while 170 million children are undernourished.
  

 

• The world’s urban population has grown more than the rural population; within the next three decades, 61 percent of the world’s populace is expected to live in urban areas.
  

 

• While poverty has traditionally been concentrated in rural areas, the urban share of the poor increased from 19 percent in 1993 to 25 percent in 2002. Still, 75 percent of the poor in developing countries continue to live in rural areas.
  

 

• With increased risk of droughts and floods due to rising temperatures, crop-yield losses are expected eg in more than 40 developing countries, mainly in sub-Saharan Africa where some experts expect cereal yields to decline with average loses of about 15 percent by 2080.
  

 

• By 2025, there will be 1.6 billion more people on the planet, putting even more stress on limited resources.
  

 

 

 

 

 

 

 

The impact on WFP operations in West Africa :

 

 

-In West Africa, WFP’s food and operations costs are now 30 percent higher than at the same time last year because of increases in basic food commodities. An additional $183 million are therefore needed for the region.

-High prices of basic commodities are also having an impact on people’s purchase power, especially in countries depending on imports to feed themselves (Mauritania imports 70% of its food needs). In certain part of the region, survival strategies are already at play such as reduced number of meals per day and sales of productive assets.

-WFP and its partners, together with governments, have sent several teams to different countries to determine exactly the impact of high food prices on vulnerable households, to identify people, their locations and tailor the appropriate response to their needs.

-If the prices continue to rise, the 2008 lean season could start early for many households.

-Governments in the region have already taken measures to prevent a sustained increase in food prices, such as reconstituting cereal stocks in at-risk zones before the rainy season begins, providing price subsidies, and increasing the purchasing power of vulnerable populations by supporting off-season cash-crop agricultural production.

-If WFP does not receive additional funding, it will become extremely difficult to help people as the situation deteriorates. Not only WFP has already a funding shortfall but the higher cost of fuel for transport will also weigh a lot on our budget as many countries depending on imports are landlocked; an additional challenge to the upcoming rainy season.

 

 

Mauritania

 

 

• Food insecure households have increased by 15 percent compared to last study conducted in July 2007 by WFP jointly with the National Food Security Observatory (NFSO) and the National Office of Statistics. WFP, and the NFSO, are currently assessing food needs of the most vulnerable linked to the impact of increased prices through a joint WFP/Government/National Office of Statistics Survey (results to be known mid march).
  

 

• The government has taken some measures to curb this worrying trend.  There
  are already no taxes on cereal imports since 2007. In addition, the
  Government has allocated USD 3.2 million budget, equivalent to 4,500 MT, to
  the replenishment of the National Food Strategic Reserve (NFSR) and is also reinforcing 1,200 Community-based Food Security Stocks put in place by WFP since 2005.
  
• In Mauritania over the next 5 months, WFP Mauritania faces a deficit of 6,400 tons, or US$6 million, to cover life-saving activities and preposition food by July to carry out essential activities during the rainy season (nutrition, free distribution and returnee programmes) when most vulnerable areas are no longer accessible. If these funds are not made available and the prices continue to increase the ability of WFP to help the government to support severely food insecure households will be seriously hampered.
  

 

 

 

BURKINA FASO

 

 

• The purchasing power of the vast majority of the population is very low. With the food price increases and the decline of the cotton market, households will start again to grow food crops rather than cash crops. However, even if household cereal production can be maintained to cover consumption needs, under-nutrition is very likely to further increase due to people’s inability to access micronutrient-rich food.
  

 

• The Government has already implemented a mechanism of subsidized sales, which is activated every year where and when market supplies are reduced and/or prices too high. At present the Government has also some 30,000 tons of cereals as food security stock.
  

 

• If additional resources were available to WFP, supplementary feeding and school feeding would be the most appropriate response to complement subsidized sales. WFP activities would be targeted to those population groups that are losing the most out of the price increase.
  

 

• WFP in Burkina Faso in 2008 will assist 600,000 beneficiaries (through school feeding and MCH) if resources are available.
  

 

 

 

SIERRA LEONE

 

• In December 2007, the price of rice increased by almost 40 percent compared to December 2006. In the same period the price of palm oil increased by about 50 percent, and that of bread (wheat flour) by 25 percent. In January 2008, the Bread Manufacturers Association called its members out on strike against the rising price of wheat flour, which is manufactured locally with imported wheat.
  

 

• Any further price increases in food commodities would badly impact the majority of the population, who live below the national poverty line. Among these are some 120,000 smallholder farm households who produced less than 50 percent of their rice consumption requirement for the year and an estimated 20,000 low income urban households.
  

 

• Domestic cereal harvests meet about 67 percent of consumption needs (some 530,000 tons). The annual consumption gap, to be filled through commercial imports and food aid, is estimated at 175,000 tons. WFP supplies approximately 15,000 Mt of food annually.