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The FAO’s battle against Food Price Volatility. Interview with Hafez Ghanem 0

Food price volatility is one of the most critical economic and food security challenge facing global policymakers today. Between 2007 and 2008, the prices of cereals and other food products not only doubled but in some cases more than doubled, only to plummet just a few months later. Why do prices increase this much? Has production decreased to such an extent that foodstuffs have become precious and rare? And how can the situation be eased? The assistant Director-General of FAO responsible for the Economic and Social Development Department, Hafez Ghanem, answers to these topic questions in an interview released to Afronline.org, Le Républicain (Niger), Sud Quotidien (Senegal), Les Echos du Mali and Addis Fortune (Ethiopia).

What factors contribute to the volatility of food commodities? Is it exclusively a case of bad harvests or of financial speculation? What mechanisms does the FAO have to mitigate the effects of this volatility?

There are a number of reasons and several explanations for the fact that food prices have been more volatile over the past 5 years. Explanations include increased speculation, rises in biofuel production which tie food prices to oil prices, a fresh upsurge of extreme climate events, plus macro-economic factors.

I personally believe that the basic reason is that in the past few decades the productivity of cereals has grown at a lower rate than that of demand. In the nineteen-seventies cereal productivity was growing at 3 per cent per year: by 2011, the increase was a mere 1.8 per cent, while demand grew by 2 per cent. If demand is greater than productivity for a prolonged period of time, the market will become stressed. If you factor insufficient stocks into the picture, as is the situation today, the effect on prices is quick to make its appearance.

How can the situation be eased?

We must invest in agriculture again. A return to high food production growth rates is essential. From this point of view, Africa has considerable potential, because current output there is very low. At the FAO we have been devoting a great deal of our work to this aspect of productivity since 2006. In the wake of the Paris G20, the Ministers asked us, together with the Organisation for Economic Cooperation and Development (OECD), to coordinate ten national organisations with a view to drawing up a set of recommendations focusing on productivity. As a priority, the report which, issued last November, insists on the need to boost investment in agriculture.

Do you think that rising global food prices are trickling down to farmers in poor countries and what are you doing to prevent this in the drought-stricken region of the Horn of Africa?

The available data show that the situation is different in each country. In some countries, price rises have meant higher prices for farmers, while in others this is not the case, which is generally the result of the fact that governments are hindering the transfer from the global market to the farmers. Rising prices should be an opportunity for the farmers, but this will only happen if the international price makes its way to the producers, and price rises lead to greater productivity. And yet again I have to point out that all this is possible only if the producers, the farmers, have access to infrastructures whereby they can sell their produce, and to input – seed, fertiliser, etc., – as well as other variables which essentially allow them to boost production.

Within the OECD (there are 34 member countries, mostly developed, representing 80 per cent of world GDP – editor’s note) price rises are reflected in productivity in only 10 per cent of the group. In other words, ensuring that this kind of effect takes place is all the more difficult for the developing countries, which lack the same access to resources.

The decisions regarding the volatility of food prices issued following the G20 Agricultural Forum on 22-23 June in Paris were very encouraging. Now that France is about to pass the presidency of the G20 to Mexico, what are the first lessons that can be drawn from the good Parisian ideas that the French Agricultural Minister Bruno Lemaire seemed so hopeful of following the forum?

The G20 has given rise to some important results. In the first place, the fact that food security has been adopted as a top priority by the G20 is in itself an important factor. This initiative thus encourages donors and institutions to invest in the vital sector, agriculture. It is equally important to be aware of the fact that between 1980 and 2000, the share of donor funding dedicated to agriculture slumped from 18 per cent to 5 per cent. Since then we have seen institutions such as the African Development Bank, the Islamic Development Bank, the World Bank and others decide to spend more money in the agricultural sector.

Where are we with measures such as the creation of a data bank for agricultural products? On the same topic, an important warning was expressed in favour of effective and coordinated control of market prices. Where do we stand now and what disagreements have there been if any?

In the wake of G20, and at their request, a new Agricultural Market Information System, AMIS, has been set up. Although regional initiatives exist, AMIS has been organised with a view to tackling the shortage of reliable, updated information on supply and demand, on stocks and the availability of product for export. It is also, however, intended to deal with the lack of information on stocks, national prices and the connections between international and national markets. And it is also hoped that it will make up for the inadequacy of responses or of uncoordinated responses at policy level with regard to the crisis in the market.

AMIS has five goals: to upgrade agricultural market information, analyses and forecasts; to flag abnormal conditions in the international markets; to strengthen powers to trigger early warnings at world level; to assemble political information, promote dialogue and the coordination of international policies and, lastly, to create a space for collecting data in the participating countries. 28 countries have been invited to be a part of AMIS (the G20, Spain and seven other countries, who represent the main players). However, the data harvested by the organisations in these countries are available to all the members of the FAO, some 131 countries! This means that it is a public service at world level. Our ultimate goal is to supply data that is the best possible, with the obvious aim of preventing crises and shaping policies.

AMIS has only just been launched. A number of problems are yet to be solved, such as defining ‘abnormal conditions’ in a market and the role of the private sector. At the beginning of 2012 the AMIS information group will meet for the first time to launch the work of developing its powers.

Global food price volatility is burdening the public finances of poor countries such as Ethiopia with rising import bills. At the same time, agricultural productivity in these countries remains too low for centuries. How are you working to bridge these gaps?

This is a question which is concerned with policies adopted by governments. What did we see during the 2007/2008 food crisis? A large number of countries implemented policies which made the crises worse rather than solving them. Depending on the food situation of the country, some decided to impose embargos, either on exporting or importing certain foodstuffs. In both cases, the measures helped to cause prices to rise. In a crisis, we suggest that there are two things countries should do. The first, and most important, is to create safety nets for the poorest and most at-risk sectors of society.

This is particularly important in Africa, where people spend 70 per cent of their income on food. These safety nets should protect them. The second is to help farmers to respond to price rises by boosting production. In 2008, the FAO launched an initiative designed to tackle food price rises. The aim of this initiative, funded by the European Union, is to help farmers to produce more. It targets a number of countries, mostly in Africa.

There is an aggressive effort across African countries to establish commodity exchanges as a strategic means to fight price volatility, where in the Ethiopian Commodity Exchange (ECX) is playing a pioneering role. Yet, governments are afraid that exchanges could fuel speculation on top of the continuous food price rise. Where does the FAO stand in the debate?

A raw materials exchange is an important initiative, because it allows farmers to hedge their risks. The problem for farmers is to cover the time between investment and production on the market, which can extend to six or eight months. It should be borne in mind that farmers must face a greater risk than most producers.

The exchange allows them to cover themselves. But these exchanges have a negative effect, or rather a secondary negative effect: speculation, which can lead to greater volatility in food prices. We are very keen to see raw materials exchanges regulated. Such regulations provide for greater transparency and the establishment of safeguards to lessen, or at least to limit, the opportunities open to speculators. In other words, raw materials exchanges are a very important tool as long as they are well supervised.

Does the volatility of prices influence humanitarian aid? Is there any way in which, in a paradoxical twist of fate, countries in the South could profit from such speculation? If so how?

Naturally, price volatility affects food aid, and it does so in a variety of ways. In the first place, the food crisis of 2008 meant that over 100 million extra people found themselves in an emergency situation, giving rise to an increase in the demand for aid, specifically emergency humanitarian aid. At the same time, this situation meant that the supply of food aid was reduced. If you turn up in the field with food products, this discourages local farmers from producing.

It is for this reason that humanitarian aid increasingly takes the form of cash rather than produce. This obliges people to supply themselves from the local markets; and that encourages the markets to produce more. It is the old saying – give a man a fish and you feed him for a day; teach him to fish and you feed him for ever. This means that it is very important to try to wean countries off their dependence on humanitarian aid. Once again, it is our job to concentrate on measures that help the countries to produce more locally. Increasing support must be given to the local economy.

In 2011 Mr Jacques Diouf, General Director of the FAO welcomed the fact that a dozen African countries, including Malawi, benefited from a cycle of abundance in response to the issue of food insecurity. Can you say what the secret of these countries is? Which countries are they and what are their peculiarities both before and today?

Notwithstanding the fact that Africa still has a long way to go in the battle against hunger, even so, despite everything, it has recorded some successes in this area. Take the case of Ghana in particular. This country has succeeded in achieving its Millennium Development Goal aiming to cut the proportion of its population suffering hunger by half between 1990 and 2015. It did so by supporting its farmers in two important and priority sectors: public investment, particularly in R&D, and ad-hoc policies, which specifically allowed farmers access to seed and the market. These were measures which had been adopted in other countries and explain their relative success.

By Marie-Martine Buckens (Afronline.org), in collaboration with Sud Quotidien (Senegal), Les Echos du Mali (Mali), Le Républicain (Niger) and Addis Fortune (Ethiopia)

© Sud Quotidien (Senegal), Les Echos du Mali (Mali), Le Républicain (Niger), Addis Fortune (Ethiopia) and Afronline.org (Italy)

This article is published in the framework of an editorial project supported by the Technical Centre for Agricultural and Rural Cooperation (CTA) in the framework of Brussels Development Briefings, but does not necessarily reflect the views of the this organisation.

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