Food prices for poor people are not coming down – new data from the FAO

March 24, 2009

     By Duncan Green     

It’s been bugging me for months that we are still talking about a ‘food price crisis’ even though world commodity prices, including food, have come down a long way since their peak in mid 2008. Should we still be talking about 150m people being pushed below the poverty line by high food prices? Won’t they have reemerged from poverty as food prices come down again? In turns out that the answer is no – retail prices seem to have become delinked from world prices, according to a new FAO database.

According to the FAO’s Henri Josserand, ‘Although prices for all 55 countries have declined somewhat in the second half of 2008, they have, in the vast majority of cases, declined relatively much less than have international food commodity prices. Since most of the countries in the sample of 55 are low income, net importing countries, the obvious implication is that the ‘food crisis’ is indeed far from being over, for poorer households in these countries, which spend the better part of their incomes on food.

The reasons for this ‘stickiness’ are not fully understood at this time. We hypothesize that there are several factors, possibly interacting in complex way. So far, we have not found any set of explanatory variables that apply to the whole sample. Actually, we are pretty sure that understanding the reasons will require in-depth analysis at the national or regional levels.’

According to a summary in the Financial Times, ‘Retail rice in Malawi was quoted at 210 kwacha ($1.50, €1.11, £1.05) a kilogram, almost double that of a year ago. In Zambia, white maize, the main staple, cost in local markets 28,185 kwacha ($4.97, €3.69, £3.48) per 20kg, up from 17,500 kwacha a year ago.

In Kenya, wholesale maize prices were at $367 (€273, £258) a tonne, up from $222 a year ago, while in Burkina Faso, the cost of sorghum, the country’s staple, had risen to 13,500 CFA francs ($27.71, €20.58, £19.43) per 100kg, up from 11,500 CFA francs a year ago.

The situation was similar in Central America, where prices remained at levels similar to last year in spite of a drop in international benchmarks. However, food prices had fallen in most Latin American countries.

In Asia, local food prices were mostly higher than a year ago, although they had fallen in a few countries, including China. The cost of rice in India had risen to 22 rupees ($0.43, €0.32, £0.30) a kilogramme, from 18 rupees a year ago. The cost of wheat in Pakistan, the country’s staple, was 24 per cent higher than a year ago.’

There goes the silver lining – the global economic crisis has not just hit growth, government revenues, remittances, jobs etc etc, but it has not even brought down prices for poor consumers (although it’s hard to imagine that this stickiness will persist for ever) – the rise in global hunger experienced in 2008 will persist as one shock is laid on top of another that has already left poor communities vulnerable and hungry. What about farmers, especially small producers? Are they seeing the prices they receive fall in line with world markets, or stay high along with retail prices? The FAO is collecting data on the link between world and farmgate prices, but it is not yet ready.

To add to the confusion, an agriculture guy from the World Bank recently told me that his real worry was volatility, not absolute prices. Many large farmers planted at the top of the market, paying big money for fertilizers etc, but have now lost money as crop prices have fallen. His concern is that they will not be planting this time around, and output may fall.