Since 2007, escalating food prices have created budget turmoil, trade imbalances and inflation and provoked panic and social unrest in some countries. Despite bumper harvests of rice and wheat in 2008 that may have alleviated some of the concern, economies are now grappling with a worsening global economic crisis. Is the evolution of lower prices for grains cause for hope, or will the economic crisis provide cause for fear? The food price situation was discussed in Geneva at an ILO meeting last month. ILO Online asked Dr. Riswanul Islam, Special Advisor on Growth, Employment and Poverty Reduction, to take stock of the impact of the global food crisis on decent work and poverty.
Why did food prices rise so much in the first place?
Riswanul Islam: There were a number of factors. Reduced poverty ironically stoked a price increase by increasing demand for food grains, especially in the emerging economies. Increasing prices of fertilizers, water, diesel (due to high oil prices) and electricity also played a major role. At the same time, some countries started producing more biofuels, increasing demand for raw materials such as wheat, soy, maize and palm oil. A decline over the past two decades in both public and private investment in agriculture and rural areas, together with historically low stocks of grains, was another important factor, as was increasing water scarcity, limited land availability and climate change. Finally, we shouldn’t forget that agricultural trade practices and investor behaviour also influence food prices, although opinion is divided over how significant a factor the latter is.
What impact has the food crisis had on the poor?
Riswanul Islam: Everyone has to eat, but the poor pay the most when food prices rise. Their incomes are low and they typically spend a large portion of their income on food—more so than more well-off people. Different groups of poor people will experience the impact of rising food prices differently. The urban poor are invariably net consumers of food staples and therefore particularly vulnerable to rising food prices. In rural areas, a large number of small and marginal farmers typically live below the poverty line and engage in survival-oriented income-generation activities both on and off farm. Of particular concern are landless poor people in rural areas. For many countries, especially where progress in reducing poverty has been slow, the rising food prices have undermined or reversed the poverty reduction gains of recent years.
Food grain prices are still high, but they are declining. Is this the beginning of the end of the food crisis?
Riswanul Islam: Good wheat and rice harvests in 2008 have raised hopes that the food price crisis may wane. However, it is too early to declare the food crisis over. Though prices of food grains in the international market declined substantially in the last quarter of 2008, they remain well above the pre-crisis (i.e., mid-2007) levels. Meanwhile, the pace of adjustment in many domestic markets, particularly in developing countries, has been much slower. We also need more time for appropriate supply responses to materialise and to address the structural causes of the food price increases mentioned before. And although the prices of oil and fertilizers have come down sharply in recent months, international markets remain highly volatile and any rise in input prices would have a direct impact on production costs. Also, in the final analysis, the issue is not just one of prices but also of access to food. Even if prices come down and remain low, the issue of the poor’s access to food would remain to be addressed.
What are the linkages between the financial and economic crisis and the food crisis?
Riswanul Islam: The answer, again, is not simple. At least one of the proximate causes of the sharp rise in food prices in the spring of 2008 was the diversion of speculative money to commodity futures when the financial markets in developed countries were going through a crisis. When the financial crisis turned into a global recession, inflationary expectations got reversed and the rates of inflation started to decline in various countries. The prices of oil and fertilizers also decreased. So, while developments in the initial days of the financial crisis contributed to the food crisis, as the financial crisis led to an economic crisis, conditions became suitable for a decline in food prices. However, we shouldn’t become complacent.
First, reduction in the prices of products may create disincentives for producers and hence have an adverse effect on output in the subsequent periods. Second, the difficult economic situation may lead to a further decline in investment in agriculture. Indeed, there is very little by way of support to agriculture in the so-called “stimulus packages” being formulated and adopted by various countries – China being the exception.
What are some of the policy responses needed to address the food crisis?
Riswanul Islam: In the short term, the priority is to protect the already precarious livelihoods of the poor and the vulnerable and prevent any further widening of the decent work deficits that existed before the crisis. A number of actions should be taken both at the national and international levels. At the national and sub-national levels, policy responses should aim to establish or expand employment creation programmes, provide safety nets for the poor and vulnerable, support increased investment in agriculture, provide access to finance and credit, promote off-farm employment and promote social dialogue. At the international level, governments, international organizations and donors should ensure an adequate flow of food grains, provide budgetary support and compensatory financing, increase donor support, promote trade policy reform and provide support to strengthen the frameworks for employment and social protection. These are just some of the measures that could and should be taken.
What was achieved during this inter-agency meeting at ILO headquarters?
Riswanul Islam: The meeting conveyed to the UN High-level Task Force on the Food Security Crisis the value of Decent Work in developing long-term resilience, particularly through employment promotion and social protection, and explored opportunities for inclusion of the social partners in national level deliberations on the social, economic and employment policies needed to address these issues. Employers and workers – the real economic actors – will obviously play a vital role in addressing food security issues at the global, national and local levels. The meeting was an important contribution to an integrated ILO response to the current economic crisis, as well as to our ongoing crisis monitoring. —ILO Online