News - August 26, 2010

Food crisis not imminent

Rising grain prices carry the threat of a new food crisis, warns Joachim von Braun, director of the Centre for Development Research in Bonn. LEI researcher Roel Jongeneel does not think this prediction will come true.

┬┤As director of the International Food Policy Research Institute (IFPRI), Von Braun backed the liberalization of agricultural markets. But since the food crisis of 2007/2008 he has changed his mind. He now argues for stockpiling essential foodstuffs, which is a form of intervention to regulate supplies and moderate price fluctuations.'
'Von Braun claims in The Financial Times that little has been done since 2008 to prevent another food crisis. He concludes that the world food market is in a terrible state. That conclusion is too gloomy. I think that the current state of the food market is better than it was in 2007. For a start there are bigger stocks of grains, soya and rice. The US and China have large grain stocks; in India the rice stocks are so big it is almost going to rot. Secondly, production has been higher this year than three years ago. Harvests in Russia and the Ukraine are low due to drought and wildfires, but those in the US are high. What is true is that everyone is holding back before putting their grain on the market, including Dutch arable farmers. And that sends prices even higher. But grain prices are still twenty percent lower than they were in 2008.'
Western countries can absorb higher grain prices, but they are much more of a problem for developing countries. For this reason, Jongeneel supports some of Von Braun's proposals. 'He suggests that countries should stockpile larger amounts of grain. That is a good way of regulating supplies. He also wants to make it harder to speculate on food crops on the futures market. At present buyers on the futures market only have to pay a small proportion of the price up front; the rest is paid when the grain is delivered. By raising the level of the deposit you reduce the amount of speculation, and that strikes me as a useful measure.'
'Another thing Von Braun is right about is that developing countries have not invested enough in agricultural land. But that kind of investment is very tricky in a liberal food market in which prices are high one year and low the next. So those countries need an agricultural policy to control price fluctuations, just as was done in the early days of the EU and in Asian countries during the green revolution. Von Braun will have to adjust his liberalization thinking on that point as well.'