Well known development economist Dani Rodrik writes a blog and invites guests to contribute to it. It contains a fascinating series of posts and debates cataloguing the debate about the impact of food prices.
It seems that the debate on the impact of food prices is in some disarray. Commentators such as the World Bank, Oxfam and others appear not to be able to decide whether high food prices increase or decrease food security.
Conceptually, for an individual household the result depends on whether the household is a net seller or net buyer of food. High prices cause net food sellers – e.g. rural farmers – to tend towards food security, all things equal, but high prices tend to cause net food buyers – e.g. urban households, to suffer. The empirical question is whether, after an increase in food prices, all things equal, you add up all these effects on individual households, globally, you get a net increase or decrease in food security.
There is also the question of whether increased food prices increase growth, for poor agricultural countries, thus leading to indirect increases in income – and decreases in food security – even to net food buyers, which could even offset the negative effect of the increased food prices on food security.
Theoretically, therefore, the answer is not clear; it can only be determined empirically. What have people been saying in the messy real world?
According to a paper by Johan Swinnen, “the dramatic increase of food prices in 2006-2008 appears to have fundamentally altered views on the impact of food prices on global poverty. Only a few years ago the widely shared view was that low food prices were a curse to developing countries and the poor. However, since 2008 the vast majority of analyses and reports state that high food prices have a devastating effect on developing countries and the world’s poor.” Swinnen concludes that such organisations accentuate the negative in the media for strategic purposes.
Dani Rodrik writes:
“In 2005, Oxfam International wrote:
‘US and Europe[‘s s]urplus production is sold on world markets at artificially low prices, making it impossible for farmers in developing countries to compete. As a consequence, over 900 millions of farmers are losing their livelihoods.’
Three years later, following a substantial rise in food prices, Oxfam International’s view was that:
‘Higher food prices have pushed millions of people in developing countries further into hunger and poverty. There are now 967 million malnourished people in the world….’ “
There are other examples from generally respected international agencies.
So, what does the empirical data say?
The short answer is that food security has declined: two opposite effects have operated on it: the positive effect of economic growth has outweighed the negative effect of increased food prices.
A World Bank study from 2008 by Ivanic and Martin states that:
“Results using household data for ten observations on nine low-income countries show that the short-run impacts of higher staple food prices on poverty differ considerably by commodity and by country, but, that poverty increases are much more frequent, and larger, than poverty reductions. The recent large increases in food prices appear likely to raise overall poverty in low income countries substantially.”
Rodrik writes that Ivanic and Martin have extrapolated from these results to estimate the 2008 rise in food prices will increase the global poverty headcount by more than 100 million (equivalent to a loss of almost seven years of poverty reduction). These estimates have been cited by World Bank president Zoellick and many others to shape the global policy agenda.
A May 2011 study by Derek Heady, disavowing the methodology of the World Bank study and others including FAO, finds an alternative approach using the Gallup World Poll. His key result is that on the basis of self-reported food security for a large number of developing countries, he estimates that food security actually went down between 2005-6 and 2007-8. Heady writes:
“In my paper I make use of the Gallup World Poll surveys conducted in a large number of developing countries both prior to (2005/06) and during the food crisis (2007/08). Gallup (2011) asks a highly useful question on food insecurity: Have you or your family had any trouble affording sufficient food in the last 12 months? Inevitably, there are obvious caveats to any self-reported indicator, as well as some not-so-obvious caveats such as an overly large decline in self-reported food insecurity in billion-plus China. But in the paper I show that changes in this variable have the attractive property of being robustly explained by both food inflation and economic growth. Moreover, even if I make very conservative assumptions about food security trends in China and India, or if I predict changes with an econometric model (which irons out any outliers), then I still find that self-reported food insecurity went down by 63-87 million people, if not more (see the table). In short, I find the exact opposite of the World Bank and USDA/FAO simulations, apparently because economic growth more-than-compensated for any adverse effects of higher food prices. So . . . new data, new doubts. Is it time for international agencies to seriously rethink their approach to measuring food insecurity?”
Perhaps. However, given the predicted increase in food prices over the next 20 years, the policy recommendation for the Pacific is clear: incentives are increasing for Pacific islands to produce, consume and export their own food.
Two other guests on Rodrik’s blog, Martin (same guy who wrote the World Bank paper mentioned above) and Zaman, reply with what I consider to be the core of the confusion:
“food-price simulations ask whether changing food prices alone hurt or help the poor. By contrast, changes in the Gallup World Poll data reflect changes in all relevant factors between 2005-6 and 2007-8 (SPC LRD: that includes economic growth).”
However they still find it puzzling that the Gallup World Poll showed a decline of 400 million in food-insecure people between 2005-6 and 2007-8, specially as global food prices spiked in 2007-8; the poorest households spend 60-70% of their income on food; and that energy prices were also rising in the period.
Derek Heady replies in the comments section by emphasising the powerful opposite effect of economic growth, and that his results are actually consistent with those of the World Bank study because the positive effect of economic growth on food security can offset even a powerfully negative effect on food security of increased food prices.
So there we have it: we have agreement that high food prices are generally bad for food security but growth is good for it. Thus a situation is possible in which we have simultaneously decreasing food security and increasing food prices.
What is happening right now, after the financial crisis really hit economic growth, then food prices started to come back up in 2010/11, would be interesting to know. Using both World Bank style simulation/regression analysis, and Heady’s use of Gallup World Poll data. Lets hope these analysts update their studies with recent data soon.
How food prices and economic growth interact is a separate question (e.g. do increased food prices increase economic growth in net food exporting economies?) but again it is clear that the Pacific region, which is economically vulnerable to the outside world, should steer away from importing food, towards effectively substituting for imports and exporting food.
The raw Gallup World Poll data is below. Note that without India and China, food insecurity did rise overall for 68 countries.
Table 1—Some alternative estimates of global trends in self-reported food insecurity
|Estimation scenarios||Estimated change in global food insecurity, 2005/06 to 2007/08|
|Raw results, 70 countries||-408 million|
|Raw results, 70 countries, plus assumptions for 16 omissions||-326 million|
|Raw results, 68 countries, after excluding China and India||+9 million|
|Raw results, 69 countries, after excluding China||-132 million|
|Raw results, China and India trends adjusted by error margins||-250 million|
|Raw results, China and India reductions=3 percentage points||-63 million|
|Predicted change with econometric model, 88 countries||-87 million|
Source: Headey (2011) estimates from Gallup World Poll data.