Bridges Weekly Trade News DigestVolume 14Number 33 • 29th September 2010

Food Supply Matches Demand, FAO Tells Governments, Markets


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As world market prices for food continue to climb, the UN Food and Agriculture Organization has moved to reassure governments that a repeat of the 2008 price spikes is unlikely.

Although it estimates the number of hungry people to be declining, the FAO last week brought together experts from 75 countries to find remedies for swings in food prices and to help determine what role the organisation can play amidst the uncertainty.

Prices, markets and trade

In recent weeks, the FAO has released statements aimed at calming markets by emphasising the availability of ample stocks for most cereals. These statements have highlighted the role of “national responses and speculative behaviour rather than global market fundamentals” behind the double digit jumps in food prices. Nonetheless, prices have continued their rise unabated.

Missing from the official documents issued after the 24 September gathering has been the mention of export bans implemented by Russia and contemplated by others.

Sources told Bridges that the closed-doors meeting in Rome was marked by rigorous debates between traditional food exporters and representatives of countries dependent upon imports. Officials from Russia and Argentina sought to avoid including language against export restrictions in the report issued by the expert group.

At issue was the causal relationship between export bans and global price increases. Russia argued that fundamental supply shocks due to the summer’s drought and heat wave were responsible for its inability to meet export commitments. Supply shocks, not the announcement of an export ban, was what drove prices up, the officials claimed.

Other grain exporters, such as Australia, the US and Canada, spoke positively of the role that open markets play in getting food to where it is needed.

FAO member countries also used the meeting to reaffirm the importance of the WTO as the forum where trade in food ought to be discussed. The mandate for the Doha Round of trade negotiations was shaped nearly a decade ago during a period of declining food prices, and the talks have largely refrained from serious discussions on export restrictions driven by high prices.

By many measures and for several different commodities - from grains to sugar - prices are increasing. Current prices, for some commodities, are near early-2008 levels. Avoiding prices that drive more people to hunger is a pivotal concern for many working on the issue.

The FAO and other food-focused institutions, such as the International Food Policy Research Institute, in recent weeks pointed to the fundamental balance between global supply and demand in major food staples. Others, such as the US Department of Agriculture, have noted that while global production for some crops, such as wheat, may fall this year, stocks were replenished by a bumper crop from 2009. However, the USDA also said that the blow from reduced output would be cushioned in part by slackening demand arising from the higher prices.

Number of hungry decreases, but figures contested

The FAO recently released an estimate of the number of undernourished people in the world: 925 million, down from over one billion in 2009.

This figure, in the organisation’s annual State of Food Insecurity report, or SOFI, attributed the fall in the number of undernourished in 2010 to food prices than had come down from the 2008 peaks, along with renewed economic growth in Asia.

The new report shows that although Asia continues to be home to most undernourished people, 578 million, it is also where the greatest improvement has been, both over the past year and historically. Sub-Saharan Africa continues to be the region with the highest prevalence of undernourishment.  Seven countries, Bangladesh, China, the Democratic Republic of Congo, Ethiopia, India, Indonesia and Pakistan account for two thirds of the undernourished. Emerging economic giants India and China have nearly forty percent of the world’s hungry within their borders.

Economists such as William Easterly and Peter Svedberg have challenged the rigour of the FAO estimates. Easterly, in a harshly-worded rebuke questioning the availability of data since 2008, suggested that they were “made-up.” Svedberg has argued that the method of estimating the hungry, through food prices, average caloric needs, among other variables, and reliance on dated and sparse household surveys leaves too much uncertainty in the final tally to be reliable.

David Dawe, the lead FAO economist for the SOFI report, defended the figures as the best possible estimates, given lags in data availability.

ICTSD reporting.

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