Nice pieces from agricultural economist Steve Wiggins on the ODI and Guardian blogs, which I quote at length, because I think it’s an important correction to the discussion on the current food price spike.
‘In 2008 developing countries, and poor people within them, were hit hard by the price spike in the international cereals market. Once again food prices are moving up, not that far short of the levels seen three years ago, so does this mean another bout of hardship? Not quite: there’s a difference this time.
Why? It is not just cereals prices, nor just food prices, that are rising, but almost all agricultural prices – including those of the main tropical exports: cocoa, coffee and tea; cotton; palm oil; sugar; and rubber. Most low income countries, leaving aside the few with minerals and oil, depend heavily on these for their export earnings. Often, much of the production comes from small farmers. Higher prices mean windfall gains for them, gains that are likely to be spent on local goods and services, with strong multipliers in additional jobs and incomes for others on low incomes.
On the other hand, most of these countries are net importers of cereals and will suffer from higher prices on these items.
So where will the balance between extra costs and windfall gains fall? Let’s consider five countries: Burkina Faso; Ghana; Indonesia; Kenya; and Nicaragua; then see the likely impact through changes in the value of their trade in 10 of the most commonly traded items – maize, rice, wheat; palm oil; tea, coffee, cocoa; sugar; cotton, and rubber.
Look at the data and it is clear that all five countries get a large boost to their export revenues – by around 20% in two cases, by 40% in another two, and by more than 100% in Burkina Faso – the latter thanks to it being so heavily dependent on cotton, the price of which has risen dramatically over the past six months.
None of this will provide much solace to those who are feeling the brunt of price increases. We should focus efforts to ease the consequences of another price spike on those we know are most prone to shocks. By identifying those countries with the highest existing levels of hunger who are also major consumers of cereals and dependent on cereal imports we can pinpoint the areas where need is likely to be greatest. Overseas Development Institute studies show these countries are clustered in West Africa, the Horn of Africa and South Central Asia.
When may prices come down from current levels? Provided that the harvests of 2011 are not hit by bad weather, then prices of cereals should come down substantially by the late summer: from experience in 2008, farmers can be expected to produce large harvests in response to higher prices.”
Conclusion? An obvious point, but one that often gets lost – we need to consider the net impact of price changes on both producers and consumers and on the economy as a whole (eg are commodity exports properly taxed and the proceeds spent progressively? To what extent do high prices reach small farmers and landless labourers?). Reality is, as researchers and wonks love to stress, complicated.