The Food Price Crisis and Trade

December 3, 2008

     By Duncan Green     

Last week I shared a panel on the food price crisis with Alex Evans, a thinktanker who runs the excellent ‘global dashboard’ blog. See here for his excellent post on Obama’s chief of staff, Rahm Emmanuel on the economic crisis as a driver of change. Alex, who has written some excellent stuff on food prices both on the blog and elsewhere, is adamant that the recession-induced easing in food prices is a temporary reprief – climate change and the rising scarcity of land, water and oil will inevitably lead to a resumed upward trend. His full speech is here, but here’s a particularly interesting section on food prices and trade:

‘Until around 2006, we were in a long term commodities slump. Now,with the prospect of limits to supply growth, we’re in a whole new context. We’re moving, in other words, from a buyer’s market, where the subject of most trade squabbles was market access, to a seller’s market, where the arguments are about security of supply.

Look at last week’s newspapers, and the news that South Korea has agreed a lease agreement for fully half of Madagascar’s arable land – an area half the size of Belgium – and you can see that key food importing countries are already preparing for the point when food prices resume their upwards march. Many more deals like this are in the pipeline, with China and a number of Gulf countries also in  especially acquisitive mood.

Other import-dependent countries, meanwhile, are going for autarchy strategies. The Philippines, one of the world’s largest importers of rice, is aiming for self-sufficiency in rice production within just five years. The opposite strategy; the same underlying concern. As yet, there are no neat answers about what kind of strategies will protect us all from the kind of volatility we saw in food trade earlier this year, when over 30 countries had export restrictions in place. But I think we can start to sketch out a few ideas.

First, we’re discovering that as we’ve turned the world food system into the highly efficient, just-in-time supply web that it is today, we’ve also made it less resilient. We’ve stripped out too many of the buffers that prevented shocks from ricocheting across the world, and made it too easy for local or regional perturbations to spread.

One thing we can do about that now is to build up buffer stocks of food – whether at village level, country level, regional level or indeed global level. Today, stocks are at a historically low level; it’s one reason why prices have risen so fast. With prices now easing, it’s a good moment to build stocks up again – if you recall Joseph’s dreams of seven lean years in the book of Genesis, you’ll recall also that he was an enthusiast for strategic grain reserves.

Secondly, we need to take a flexible approach to developing countries’ concerns on security of supply. The Common Agricultural Policy and US farm support still urgently need reform. But low income countries still need to be able to ensure that they keep some agricultural capacity of their own – especially given the effect of recent export restrictions. Not all protectionism is bad.

Third, we urgently need international aid agencies like FAO and the World Bank to get geared up to offer assistance to developing countries undertaking negotiations like the one Madagascar just concluded with South Korea. Alarmingly, reports suggest that South Korea acquired this land for free – the only upside for Madagascar being the promise of extra jobs.

Yet deals like these don’t have to be exploitative. If we get them right, they can bring much needed investment and improve poor farmers’ access to capital, markets, infrastructure, know-how, risk management and so on. But to secure that outcome, developing countries need support in undertaking these complex negotiations.’

Alex has a paper on the food crisis coming out in January, published by Chatham House, with support from Oxfam. It will be well worth reading.


December 3, 2008
Duncan Green