Exploring the complexity of food security

According to the Food and Agriculture Organisation (FAO), food security “…exists when all people, at all times, have access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.”

The key word here is “access”. It has two components: the first is the physical availability of food; and the second is that people have sufficient income to turn physical need into effective purchases, sufficiency depending in part on prices. The distinction is important in explaining how food availability and famine can co-exist.

Since the end of the world food crisis in the mid-1970s, the availability of food at the global level has not been a concern. A combination of the ‘green revolution’ in wheat and rice production in developing countries, together with the excessive price-support policies for farmers in most developed economies has ensured, until recently, a plentiful supply of food on world markets. For most poor net-importing countries, a combination of the associated low world prices as well as food aid, such as that provided through the United Nations World Food Programme, has helped to ensure availability.

However, a slackening of investment in agricultural research and, since 1995, limits placed by the World Trade Organization (WTO) on the extent to which governments are permitted to support their farmers through price intervention mechanisms, have each caused the rate of growth of output to slow. At the same time, there has been an increase in the growth rate of demand.

An important characteristic of food markets is that, in the short run, the percentage change in price is substantially greater than the percentage change in quantity. This characteristic provides one explanation, among several others, for the upward spike in food prices that occurred in 2007-08 and again in recent months.

Between 1990 and 2005, the price index for food products (i.e., the weighted average price of individual food items) constructed by FAO was approximately constant at 106, where 2002-04 = 100. This means that over the period 1990 to 2005, prices were six per cent higher than in 2002-2004. By 2008, the index had doubled to 200, thereafter falling to 157 in 2009, before increasing to 185 in 2010 and to 233 at the beginning of this year.

However, averaging weekly or monthly data to yearly data masks some very high short-run volatility. For example, the price of rice more than doubled during the first five months of 2008. Averaging across commodities can also mask short-run volatility. For example, the price of sugar is more volatile than the average price for cereals.

The effects of this volatility on food security in poor countries are not altogether straightforward. It is necessary to separate poor households into those that are net suppliers of food and those that are net buyers. When prices rise, the former gain and the latter lose, while the outcome is reversed when prices fall. The net suppliers are the larger farm households, while the net buyers live in both rural and urban areas. With poor households spending about 70 per cent of their incomes on food, a doubling of food prices in a short period causes considerable distress, malnutrition and even starvation.

The policy implications for governments are not straightforward either. When market prices are low, governments want to raise them to some “fair” level to help producers and when they are high, they want to reduce them for poor consumers to some “fair” level. These outcomes can only be achieved through separating producer prices from consumer prices. To do so in a way that does not cause a distortion of the market is extremely difficult however and few governments have been successful.

Many governments continue to exacerbate the volatility of world prices by pursuing policies of self-sufficiency and domestic price stability for staple foods. Unfortunately, such policies discourage other governments from implementing more open trade policies that would moderate international price volatility. In 2007-08, most governments in developing countries intervened at the border: exporters taxed or banned exports while importers reduced tariffs.

Both had the effect of reducing the size of the price increases in their respective domestic markets but magnifying the size of the increase in the international market. As a consequence, there is now pressure in the Doha Round trade negotiations in the WTO to introduce new trade rules to prevent governments from restricting exports of food products when international prices are rising sharply. Such a rule would prevent importing countries from losing faith in the international market and pursuing costly self-sufficiency policies.

Food availability in the future will depend on the availability of inputs (land, labour, capital, technology, water and the management skills of producers); the quality of these inputs; the efficiency of the distribution system, currently losing approximately one-third of production to spoilage; global warming; the demand for biofuels; and the economic signals given by markets and by governments to producers.

There is growing awareness that, unless there are substantial developments in, and adoption of, new technologies in production and distribution, and improved economic signals to encourage adoption, the rate of growth of food production will continue to decline especially in the poor countries in which population growth is highest.

Effective demand for food in the future will depend on population size and the level of per capita income. The world’s population is forecast to grow from seven billion today to nine billion by 2050. However, the effect of such an increase in population does not translate as a simple linear relationship into the required increase in food production.

The FAO has estimated that this population increase will require a 70 per cent increase in food production because, as per capita incomes increase, consumers’ preferences for different types of food change. There is increased demand for animal products which leads to an increased demand for cereals for animal feed, a decreased demand for cereals for direct human consumption but an overall increase in the demand for cereals.