Global Food Crisis: Causes, Consequences and Policy Choices
The Institute of Microfinance (InM) organized a special seminar titled “Global Food Crisis: Causes, Consequences and Policy Choices” at PKSF auditorium on the 16th July, 2008.
The seminar was presided over by the Chairman of the Institute, Prof. Wahiduddin Mahmud. Dr. Hassan Zaman, Lead Economist, the World Bank, was the keynote speaker of the seminar.
Key note Speech:
Dr. Zaman presented that world food prices were three times higher by May 2008 than that in 2000. On the other hand the fertilizer and crude oil prices doubled over the past year. This price hike is a function of multifarious factors such as energy costs, declining dollar value, rising demand for bio-fuel, export restrictions on food grains, carrying cost, climate change, etc. Concerns over oil prices, energy security and climate change have prompted governments to encourage production and use of bio-fuel.
Coupled with this bio-fuel obsession, export restrictions imposed by India, Vietnam, Russia, and Argentina, and increase in speculations have intensified the price rise. He also mentioned that hoarding of food items at farmer, household, trader and exporter levels contributed to a virtual collapse of normal market mechanisms. Citing the example of China, Dr. Zaman mentioned that the carrying and marketing cost are other significant factors that pushed the price of food grains up.
The price rise has widened the gap between the export and import value in the food grain importing countries which has affected the terms of trade and foreign exchange reserve. The fiscal impact of this price hike leads to the reduction of taxes on food grain import and a rise in subsidies in the production of the same. Referring to a recent IMF survey on the poverty and distributional impact of price hike, Dr. Zaman mentioned that food price rise has raised the income of the net sellers but it has badly affected the consumer groups.
Dr. Zaman showed an estimated increase in global $1/day poverty head count by 4.5 percentage points, that is, 105 million additional poor has been added to the pool of the world poor. This results in increasing inequality where large farmers accrue greater benefit than the small farmers and the urban poor. It is empirically evident that females are worse off during economic hardships. Dr. Zaman focused on four types of policy options to cope with the current situation: lowering food prices by lowering all types of taxes, enhancing safety net programs, increasing food production, and ensuring longer term food security. To reduce the domestic food price, all kinds of import tariffs, VAT and other taxes can be reduced to a significant extent. In some cases, grain subsidy can be provided to the target group. For long run safety the food grain stocks can be raised and, in safety net programs, the cash based transfer and near cash like food stamps, vouchers can be used as alternatives.
In the open discussion, one of the participants argued that in India feed demand has tremendously increased and this has led to substitution of food grains as feed, causing a rise in other easily obtainable food items like wheat and maize. This activity has a long term effect. A representative of the UNICEF has identified that the presenter has ignored the impact of food price rise on children and women. Children and women have less coping capacity. She said that with the food price rise, the vulnerability of children and women increases. As policy options, she emphasized the community based intervention and building strong information system.
The Managing Director of Palli Karma Shahayak Foundation (PKSF) argued that the situation is complex and there is no single solution to this problem. He mentioned that the world food supply has decreased by only 5% of total world production because countries producing rice and consuming it themselves. He urged that the government should perform more efficiently and has to take actions so that the market performs properly. The CEO of Institutional Development Services Linkage (IDSL) drew the attention towards monitoring the production that would give proper signal to the market.
Comments of the Chair
Dr. Wahiduddin Mahmud said that though Bangladesh imports a lion’s share of its import of rice from India at low cost, recently India raised stocks and asked for unfairly higher price. In Bangladesh, the main sources of calorie are rice and wheat. Thus in spite of a rise in wheat and rice price, people still consume rice and wheat. Therefore, the food price rise affects the poor extensively.
Dr. Mahmud suggested that the government should begin selling rice from its stock right at this moment to keep the local market stable. He argued that price of both rice and wheat has recently begun to decline in the international market and the government should take the opportunity and import the two items to keep the local market stable. Otherwise, the private sector would charge higher price if they are allowed to import. Dr. Mahmud criticized the methodology of assessing poverty followed by the government agencies. Government agencies show that poverty in Bangladesh has declined from 50% to 40% in Bangladesh. But the situation is not too much optimistic because the proportion of people starving is increasing.
Food crisis is a national as well as an international problem. To reduce the extent of the effect of the crisis, some short term and long term measures can be taken.
Short term measures:
- The government should begin selling rice from its stock and import food grains right at this moment to keep the local market stable.
- The dependency on private food importers should be lessened to avoid the artificial volatility of the local markets.
Long term measures:
Strategic land policy formulation
- Increasing the adoption of hybrid rice, improving crop management practices and access to high quality seed are essential.
- Deepening fertilizer dealer network to improve timely access to fertilizer and focusing on high quality seed availability.
- Continuation of the organic fertilizer subsidy and assuring the proper mixture of various kinds of fertilizers.
- Adequate buffer stock of rice and wheat can be built.
- Encouraging and facilitating higher levels of public and private investment in agricultural support services such as research, extension, market information, and reduction of post harvest losses.