Science - August 19, 2010

New food crisis (un)likely

The increase in grain prices may spell a new food crisis, warns Joachim von Braun, former director of the International Food Policy Research Institute (IFPRI). However, LEI researcher Roel Jongeneel doesn't think this prediction will come true.

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Joachim von Braun, who is now director of the Centre for Development Research in Bonn, is an authority in agricultural research. 'As director of IFPRI, he was pro agricultural trade liberalization', says Jongeneel. 'Since the food crisis in 2007/2008, he has however re-adjusted his opinion. He now advocates building reserves of major food crops, a form of intervention to regulate supply and to dampen price fluctuations in the agricultural market.'
Von Braun writes in the Financial Times that since 2008, little has been done to prevent a new food crisis. 'The global grain market is not functioning well. Developing countries have invested too little in food production, and wealthy countries have inappropriate agricultural policies.' The global food market has reached a pathetic state, concludes Von Braun.
Reserves
Roel Jongeneel feels that this analysis is too somber. 'I think that the current situation in the food market is better than in 2007. Firstly, there are now more reserves of grain, soya and rice. Grain reserves are abundant in the U.S.A. and China. The rice reserves in India are so big that they're on the point of rotting. Secondly, the production this year has been higher than that of three years ago. The harvests in Russia and Ukraine are unsatisfactory due to drought and forest fires, but those in the U.S.A. are big. Although expectations of grain harvests have been lowered, the amounts are still high. What does happen is that everyone is holding back grain from the market, and Dutch growers are doing this too. This pushes the price up further. But the grain price is still twenty percent lower than in 2008.'
Commodity market
While higher grain prices are not of great significance in the west, they do pose problems for developing countries. Therefore, Jongeneel agrees with some of Von Braun's suggestions. 'He proposes that countries should build up more grain reserves. This is a good suggestion for regulating supplies. He also proposes to make speculations in food crops more difficult in the commodity market. Currently, buyers on the commodity market need to pay only a small deposit initially, and the rest when the grain is delivered. Raising the deposited sum will curb speculation. This seems to be a sensible regulation.'
Agricultural policy
Von Braun is also right in saying that developing countries have not invested in agricultural development, Jongeneel continues. 'But investments are very difficult to make in a liberal food market where the prices are high in one year and low in the next. These countries therefore need an agricultural policy to dampen price fluctuations, just like in the European Union in the past and the Asian countries during the Green Revolution. Therefore, Von Braun could adjust his thoughts about liberalization here too.'

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