Is Another Food Crisis Brewing?

A severe drought in the U.S. Midwest has cut projected grain yields dramatically. The impact of the U.S. drought on global markets is exacerbated by the fact that other major food producers are also currently suffering weather-related production issues. Almost continuous rain is causing problems for the wheat crop in many European countries, whereas the wheat crops in Russia, Ukraine and Kazakhstan have been hit hard by a lack of rain.  In India, monsoon rainfall is about 20 percent below the long-term annual average, which will likely affect poor farmers.

In 2008, a sharp increase in food prices caused riots in some countries and raised questions about the use of crops to make biofuels.

Food price volatility affects all families, but especially those who are poor—because poor people spend so much of their entire incomes, often 50 percent to 70 percent, on food. It is very difficult for them to adjust to rapid price increases because there is little discretionary spending in the household budget. There are also indirect economic costs. When food prices increase and families have less to spend on other goods and services, there is further weakening of already fragile local and national economies. In many low-income countries, high food prices are a major direct contributor to hunger and poverty.

The World Bank points out that the current conditions differ from the 2008 crisis.  In 2008, although other grains also increased in price, rice and wheat prices rose the most. In 2012 however, prices have risen across all the non-rice grains:

• Wheat prices are up over 50 percent since mid-June;
• The price for corn has risen more than 45 percent since mid-June; and
• Soybeans are up almost 30 percent since the beginning of June and up almost 60 percent since the end of last year.

Photo Credit: FAO

As recently as early June, analysts had expected price declines after the new harvests, not spikes.The Bank stresses that price increases will affect not only bread and processed food, but also animal feed and ultimately the price of meat.

In a statement last week, the World Bank President Jim Yong Kim emphasized that this problem demands both short-term and long-term interventions. The Bank’s contribution includes:

• In FY12, which ended June 30, new World Bank Group (WBG) commitments to agriculture and related sectors reached over $9 billion. This exceeded projected lending in the Bank’s Agriculture Action Plan. IBRD/IDA assistance in FY12 was the highest in 20 years.
• In response to drought in the Horn of Africa, the WBG is providing $1.8 billion to save lives, improve social protection, and foster economic recovery and drought resilience.
• A first-of-its-kind risk management product provided by the International Finance Corporation (IFC) will enable protection from volatile food prices for farmers, food producers, and consumers in developing countries.
• The Bank is supporting the Global Agriculture and Food Security Program (GAFSP).
• The Global Food Price Crisis Response Program (GFRP) has reached 40 million people in 47 countries - through $1.6 billion in emergency support.
  
• The Scaling Up Nutrition (SUN) framework for action to address under-nutrition was endorsed by over 100 partners, including the World Bank.
• The WBG is coordinating with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with non-governmental organizations.
• Supporting the Partnership for Agricultural Market Information System (AMIS) to improve food market transparency and help governments make informed responses to global food price spikes.
• Advocacy for more investment in agriculture research -- including through the Consultative Group on International Agriculture Research (CGIAR) – and monitoring agricultural trade to identify potential food shortages.
• Supporting improved nutrition among vulnerable groups through community nutrition programs aimed at increasing use of health services and improving care giving.
• IFC will invest up to $1 billion in the Critical Commodities Finance Program, aimed to support trade in key agricultural and energy-related goods.

  Faustine Wabwire is senior foreign assistance policy analyst at Bread for the World Institute.