After seven straight months of growth, global food prices are now at their highest levels since records began.
The U.N. Food and Agriculture Association (FAO) Food Price Index, which measures monthly price changes for a food basket which includes cereals, oilseeds, dairy, meat and sugar, was higher in January than the last previous high, in June 2008. That peak sparked riots across the world, as people who lived on the margin and relied on the market to purchase food were plunged further into poverty.
In 2009, as a result, the number of people in the world suffering from hunger topped one billion for the first time in history.
The signs now are ominous for us all with the FAO expecting the price of agricultural commodities to rise further throughout this year. This will put enormous pressure on the world's poorest, who have had to cope relentlessly with the consequences of higher prices for the past two years. The World Bank has estimated that 44 million people have been pushed into poverty since last summer.
Of course, not everyone loses when prices rise. Irish farmers have seen incomes rise as their output prices have exceeded their input prices and the value of their exports has increased. Even poor countries that export commodities such as sugar or rubber can benefit, as long as they are not reliant on importing food.
But while changes in prices happen, it is the volatility that is causing alarm, with price fluctuations becoming greater and, perhaps more worryingly, less predictable. In this turbulent scenario, it is those who are least able to cope who will fare worst when the seas get rough.
Many things contribute to higher prices and increasing volatility. As markets are increasingly integrated in the world economy, shocks in the international arena can now affect domestic markets much more quickly than before. Extreme weather in productive areas, such as droughts in Russia and Argentina, floods in Australia, and extended periods of snow and freezing conditions across the U.S. can negatively impact global supplies. Changing demographic and consumption patterns, especially in middle-income countries, are increasing demand for food in the long-term. Bio-fuels, which become viable once oil hits $60 per barrel, will continue to compete with food for productive land.
Non-traditional investors, such as banks and hedge funds, have entered the food commodities market, taking advantage of the deregulation of global commodity markets. Contracts to buy and sell foods have been turned into "derivatives" that can be bought and sold among traders who have no connection to agriculture. The EU has recently acknowledged the link between speculation and price volatility, stating that there is a strong correlation between positions on derivative markets and prices of goods in local markets.
While there is much debate about the relative impact of these causes, there is no debating the consequences. For the world's poorest, particularly those who rely on local markets to get food, rising prices and increased volatility are unambiguously negative. This group includes extremely poor people in urban slums, landless laborers in rural areas and subsistence farmers who cannot grow enough food to last the year. These groups already live on the edge. Many of them spend up to 80 percent of their income on basic foods, so even a slight increase in price will have devastating effects.
We know from experience in 2008 what these effects will be. People will have to buy more staple foods at the expense of vegetables and other "luxuries". A diet of carbohydrates might quell hunger pangs. But a lack of nutrients will have a significant impact on long-term cognitive and physical development, especially for children under two. Because of this, mothers will often forego meals to ensure their children can eat. With less money available, families on the margin will do things they know will have long-term consequences. Many will feel they do not have a choice. For example, farmers may sell seeds and tools so they can buy food now, even though it will affect their ability to grow food for next year. Children may be taken from school to work or scavenge, with many finding it very difficult to go back.
Policy responses can determine whether high food prices turn into a crisis or not. At the international level, the forthcoming meetings of the leaders from the G8 and G20 countries must directly address the crisis and must deliver on the promises made at the 2009 G8 Summit in L'Aquila to provide €15 billion for food security programs.
At a regional level, greater integration and cooperation can sustain confidence and mitigate market panic. Harmonization and pooling of data on production, consumption and stocks of food will help market transparency and guide policy choices.
At a local level, social assistance programs run by governments and NGOs can play a vital role in mitigating the worst effects of price increases. India, for example, guarantees 100 days work per year for extremely poor people in rural areas to ensure they have some income in difficult times. NGOs such as Concern Worldwide play their part, ensuring that people are aware of their entitlements and how to access them.
In the longer term, however, investment in agriculture, not just in increased production, but all along the "value chain" can ensure that farmers are able to grow enough food for their families and are protected from fluctuations in local market prices. This is the responsibility of both governments and international donors. When farmers can grow a surplus and are able to access a market, they gain from higher prices and are likely to spend this income on local goods and services, leading to strong multipliers in local income.
Given that rising prices have a direct effect on how much food families have available, we also need holistic and integrated solutions to the problem of hunger. Concern Worldwide and the International Food Policy Research Institute (IFRPI) have recently embarked on a project that targets mothers and children during the critical period from conception to 24 months of age, roughly equivalent to the first 1000 days of life. Its focus is on ensuring that health and agriculture projects work together to achieve improvements in nutrition.
These are just some of the ways in which the world's poor can be shielded from the worst effects of global food price rises. As the world becomes smaller and more integrated, the poor are now more exposed than ever to the dangers of volatile markets. It is of critical importance that we address this problem with a range of solutions to calm the waters, before this storm truly breaks.
The world desperately needs to tackle the problem of food security for the poorest in light of rising prices, more volatile markets, climate change, growing populations and ever-increasing pressures on resources.
In this context, I am looking forward to participating in the World Bank's "Open Forum on Food" at their headquarters in Washington, D.C. this week. I'm excited at the prospect of sharing a panel with the World Bank Managing Director, Ngozi Okonjo-Iweala; Rwanda's Agricultural Minister, Dr. Agnes Matilda Kalibata; World Food Programme Executive Director, Josette Sheeran; Abdolreza Abbassian of FAO; Gavin Maguire, from Reuters; and Professor Calestous Juma of Harvard University and the Gates Foundation.
What is especially intriguing is that we will be presented with solutions submitted by people all over the world, which we will discuss and debate. It promises to be lively and informative; it will be broadcast online Friday, April 15, from 10 a.m. EST to 12 p.m. EST.