Food Crises and the WTO: World Trade Forum

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Demeke, M. Country responses to the food security crisis: Nature and preliminary implications of the policies pursued. Dollive, K. The impact of export restraints on rising grain prices. Office of Economics Working Paper no. Headey, D.

World food crisis

Rethinking the global food crisis: The role of trade shocks, Food Policy Hertel, T. Global Trade Analysis: Modelling and Applications. Cambridge University Press, Cambridge. Trade policy, staple food price variability, and the vulnerability of low-income households. Karapinar, B. Keeney, R. Kim, J. Recent trends in export restrictions. Krugman, P. Martin, W. Trade distortions and food price surges. Mitra, S. Piesse, J. Three bubbles and a panic: An explanatory review of recent food commodity price events.

Food Policy, 34, Pyakuryal, B. Trade liberalization and food security in Nepal. Food Policy 35, Tanaka, T. Does agricultural trade liberalization increase risks of supply-side uncertainty? Kydd, Jonathan and Dorward, Andrew Lipton, Michael Mitchell, Donald Nagayets, Oksana Parry, M. Prowse, Susan Schmidhuber, J.

Sen, Amartya Serageldin, I.

How to reduce food waste

Swaminathan, M. World Food Programme Available at www. New Delhi: Oxford University Press. Further, in poor countries, there is no guarantee that increases in the prices of staple foods will reduce poverty even among farmers — many farmers consume much or all of their staple food output and are net buyers of food.

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The impacts of food price changes on poverty depend on the distribution and relative intensity of net buyers and net sellers of food among lowincome households and not just on whether net-buying or net-selling households predominate Aksoy and Isik-Dikmelik While the accumulated evidence that higher prices of staple foods increase poverty in the short run is now very substantial see, for example, Ravallion ; Warr ; Asian Development Bank ; Demombynes et al.

The overall effect may also differ considerably between countries depending upon which products poor households buy and sell and the indirect impacts through changes in wage rates for unskilled labour. Because of the counteracting impacts of higher food prices on the welfare of different households, the impacts of changes in food prices on poverty can only be determined empirically.

Averting tomorrow's global food crisis

Once the impacts of price changes on poverty are understood, we can begin to understand how policy changes might affect poverty. A key question is whether the conventional wisdom in favour of relatively liberal trade policies for agriculture needs to be reconsidered in light of the impacts of food price changes on poverty.

We then consider why the results may differ from those of other studies.

Conflicting, Compatible, or Complementary?

Finally, we consider the approaches to policy formulation proposed by economists and international agencies, and their potential contribution to exacerbation or amelioration of the problems highlighted in the current food price crisis. Impacts of food price changes on poverty in poor countries In a recent empirical analysis Ivanic and Martin we used surveys with detailed information on household consumption and production of major agricultural staples. The staple commodities we considered were maize, wheat, dairy products, rice, sugar, beef and chicken. In Figure 2.

Having calculated sales and purchases of staple food and sales of labour for each household in our survey data, we examined: i the direct impact of increases in the price of each staple food on poverty in each country as a basis for assessing the impacts of different changes in the prices of these commodities; ii the direct impacts plus the indirect impacts through effects of commodity prices on wages; and iii the total impact on poverty of the recently observed increases in food prices.

We then calculated the change in its welfare and, hence, the changes in poverty rates and poverty gaps. We considered three possible types of impact of commodity prices on wages paid to unskilled workers: no impacts at all; impacts when labour is completely mobile between agricultural and non-agricultural sectors; and impacts with restricted mobility of labour between agricultural and non-agricultural sectors.

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Where labour market segmentation was assumed, we used an elasticity of transformation estimated for China, an economy in which there are probably greater barriers to urban—rural mobility than in many others. Our results suggested that increases in the prices of most of these food staples generally increase poverty. However, there were exceptions, as noted below. Overall, the impact of a 10 per cent rise in the prices of 28 will martin and maros ivanic all commodities brought about an average increase in overall poverty of 0.

Urban poverty rises by 0. Figure 2. The typical adverse impact of higher prices for staple foods that are more important in consumption than in the net sales of the poorest households is illustrated by the case of rice in Cambodia. Another important exception is the staples that are extensively produced and sold by poor rural households. This is illustrated by rice in Vietnam, where many poor households are net sellers and both rural and national poverty rates fall when prices rise. The case of Nicaragua shows that poor households may be net purchasers of a number of staple foods, making them vulnerable to price increases in a range of these commodities.

Finally, Table 2. Applying the estimated average increase in the poverty rate of 4. Subsequent increases in food prices probably increased the number even further World Bank Change in poverty in percentage points 1 0. Comparison of the average poverty impacts of a 10 per cent food price increase under different labour closure scenarios Why might results differ between studies? The results of our study differ in some respects from those of some recent studies. Country coverage Country coverage matters enormously in studies of the impact of food prices on poverty, as is evident from studies such as those of Ivanic and Martin and Hertel and Winters Part of this difference arises from the importance of different commodities.

Rice prices, for instance, are more likely to have a large impact on poverty in Asia than in Africa.

Another important difference arises from the distribution of productive resources within the country. If poor people are net sellers of rice as, for example, appears to have been the case in Vietnam Minot and Goletti ; Ivanic and Martin ; Vu and Glewwe , then an increase in the price of rice is more likely to reduce poverty than would otherwise be the case. In Brazil, the poor gain more through increases in the demand for their labour Filho and Horridge As emphasised by Anderson , farmers in poor countries tend to use few purchased inputs in production, and consume a large fraction of their output.

In these countries, the poor frequently spend up to three-quarters of their incomes on food. In poor countries, therefore, the gains if any to farmers from higher food prices are modest and the costs to the poor both rural and urban who are not engaged in farming can be very high.

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As countries become richer, all of these characteristics change. Farmers become more market-oriented, increasing their use of purchased inputs 32 will martin and maros ivanic and focusing more on selling their output in the market, hence creating leverage between farm prices and their net income.

The share of spending on food also falls sharply as incomes rise, making households less vulnerable to increases in food prices as they grow richer. Commodity coverage Commodity coverage is another potentially important source of differences in results. As shown above, our analysis suggests that the impacts of increases in the prices of staple foods are likely to be povertyincreasing in poor countries.

It seems less clear that increases in the prices of relative luxuries will be poverty increasing. This difference is seen in a number of countries, even in our results for staple foods Ivanic and Martin Another potentially important difference is whether cash crops such as coffee and tea or non-food cash crops such as cotton are included in the analysis.

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Increases in the prices of cash crops directly increase the incomes of the farmers selling them, and may have little or no adverse impact on the living costs of consumers. Differences in commodity coverage may be somewhat more subtle than the stark contrast above. Hertel et al. Methodology The methodology used in the analysis is another potentially important source of differences in results. Here, a key distinction is that between the nature of the changes in the exogenous variables used to represent the policy experiment and the methodology used to assess their impacts.

However, the experiment performed in this analysis involved eliminating tariffs on agricultural imports in these countries, and hence reducing the prices of imported goods relative to world prices. Once the appropriate set of exogenous changes has been formulated, a wide range of different approaches have been used, including: i approaches that shift the entire distribution of income in line with a change in the average income of a representative household; i approaches that use information from household surveys on income and expenditure patterns of people living near the poverty line e.

Ivanic ; ii partial equilibrium approaches that use household data on commodity prices and, possibly, net sales of labour to assess the impacts of price changes on the poor e. Ravallion ; Chen and Ravallion ; Ivanic and Martin ; and iii general equilibrium analyses in which the income and spending behaviour of households are determined within the model. The proportional change approach is used in many studies seeking a very broad estimate of the impact on poverty, such as an assessment of the impact of a trade reform on global poverty see, for example, Anderson, Martin and van der Mensbrugghe The approach using information on the income sources and expenditure shares of people near the poverty line is a substantial improvement as it takes into account the impacts of price changes on incomes and the cost of living.

It has allowed practitioners such as Ivanic to perform analyses using larger numbers of sample countries than would be the case with approaches using information on the income sources and expenditure patterns of all people. When using partial equilibrium approaches, a key distinction is between studies that consider only the demand side, and those that consider both impacts on expenditures and incomes. Studies such as that of Friedman and Levinsohn , which focus on the demand side, can provide important and valuable insights, and are feasible in cases 34 will martin and maros ivanic where surveys do not include income sources.

Studies using information from household surveys on both expenditure and income patterns are perhaps the most common in analysis of the impacts of changes in food prices or in agricultural trade policy on poverty. Many of these studies rely on general equilibrium model-based analysis to estimate the price and wage changes faced by households see, for example, Chen and Ravallion In this situation, a key requirement is for consistency between the commodity and factor shares in the model and those in the household surveys Hertel and Reimer This top-down approach has the advantage of allowing use of the full richness of the household survey data where these are available with a level of disaggregation appropriate to the question at hand.

Full general equilibrium treatment with detailed information from the household surveys fully incorporated is clearly desirable. One approach to resolving this problem has been to use a small number of representative households, whose incomes change equiproportionately. Clearly, this method has the disadvantage of reducing the variability in the income and consumption that can be crucial to accurately capturing the impacts of changes in food prices on poverty.

Perhaps the most promising longterm solution to this problem is to incorporate individual households within a general equilibrium model see, for example Bourguignon et al. However, this is relatively demanding in terms of modelling resources, and most analyses have tended to use the top-down approach suggested by Hertel and Reimer A full general equilibrium treatment has other potential advantages because of its ability to capture potential second-best impacts such as changes in levels of employment resulting from changes in food prices. In a study of India, Polaski et al.

Crisis and intersectoral linkages While it is widely believed that labour markets in developing countries are strongly segmented between urban and rural, at least some of the limited evidence available suggests that these markets are more integrated than they are generally assumed to be Bertrand and Squire While changes in food prices have a positive impact on the overall wage rates for all commodities in our analysis — meaning that a rise in the price of the commodity translates into an increase in the returns on factors used in the production — these second-order effects are very small, especially for mobile factors such as labour.

Even if the labour market is split into agricultural and non-agricultural labour with restricted movement between the two, the wage gains to those employed in agriculture are on average 7 per cent of the change in the commodity price with a maximum of 50 per cent. Long-term impacts of food price rises on poverty While the overwhelming body of evidence appears to suggest that the short-term effects of rising prices of staple foods on poverty in poor countries are adverse, the longer term impacts may differ as households change the mix of commodities that they produce and consume.

Another potentially important difference between the short term and the medium term highlighted in the literature is the possibility that agricultural wage rates will increase more over the medium term than in the short term when agricultural prices rise Ravallion Studies that compare the long-term and the short-term impacts of higher food prices on poverty are unfortunately rare.

Current work by 36 will martin and maros ivanic the authors seeks to extend the analysis of Ivanic and Martin from the short to the medium term.