Comments on: The Upside of High Food Prices

By: toby quantrill

toby quantrill — Sun, 23 Jan 2011 17:59:19 +0000

apologies if i have missed something – I have not read the linked articles – but i don’t see much reference to price of agricultural inputs – fertilizers , tansport etc which are largely oil based – which are also rising as part of the overall commodity ‘package’? Most of the comments i have heard from farmers recently would echo much of what Julian says, higher prices are rarely captured in full by smaller producers while cost of inputs, food etc is felt in full. As ever I’d guess whether you are a winner or a loser in this game is likley to depend on the power you wield in the system. The fact that there are ‘winners and ‘losers’ doesn’t exactly make it feel like the imapacts ‘even out’ to me.

By: Sam Gardner

Sam Gardner — Fri, 21 Jan 2011 13:40:29 +0000

Like Julian says, poor farmers are often net buyers of food. Indeed, as the local food prices are seldom competitive, the food production is more for partial self-sufficiency, and cash crops are grown for income. However, when prices rise sufficiently, this balance moves in favour of more food production, suppressing local prices and needs for import, while having only marginal impact on the world food market. However, as the prices for traditional cash crops seem to go up more than food prices, on farms where both can be grown, the balance should move in the other direction: towards less food production.
In any case, the farm income seems to go up, and the incentives to produce too.

By: Julian Oram

Julian Oram — Thu, 20 Jan 2011 17:20:01 +0000

Interesting blog post! I think these arguments have merit at the macro-economic level, but would argue they risk deflecting attention from farmers’ actual experiences of high food prices, which should remind us why high food prices are generally harmful. In particular:

1) At a household level, most farming families in the developing world are net buyers of food. Thus, while they may experience short term increases in farm-gate prices, they are also paying more for what they eat.

2) Volatility is the mortal enemy of the farmer. The timing of high food prices on global markets does not necessarily coincide with investment, planting and harvest cycles for producers. Given how the prices of grains have jumped around over the past year, the promise of a gain today is by no means a guarantee of higher earnings come harvest time 6 months down the line. This is even more pronounced in the case of some soft commodities, where investment and production cycles are far longer.

Of course, the irony is that volatility is increasingly driven by excessive speculation on the futures market, which was initially designed to offset unpredictability of income in agriculture!

3) Structural problems within the global food system radically reduce the translation of positive price movements on international markets to the farm level. The relationship between small scale family farmers and global markets is highly mediated via local middle men, transnational agribusiness, processors, traders, and retailers. As such, in most cases only a fraction of price increases trickle back to farm level.

Worse still, the price increases captured by the more powerful actors in the supply chain are often ‘locked in’, even after prices on world markets fall again, meaning that high food prices remain in place even after farm incomes fall again. This phenomenon has been documented by several notable academics, including the Indian economist Jayati Ghosh, and corresponds with WDM’s field research in Kenya.

By: gawain kripke

gawain kripke — Thu, 20 Jan 2011 17:06:54 +0000

Thanks for this, duncan. Very useful to view high prices as “double-edged” indeed. There are winners and losers, usually not the same people. On balance and at the macro level, it’s great to see that there may be a net benefit for these countries. But, the details and distribution are at least as important.

Another, possibly more important issue is volatility – which affects the ability of producers/exporters to benefit from the prices. If price volatility is high and predictable, this creates risks that can undermine confidence and the ability to capture the benefits of higher prices. I think addressing price volatility is one of the key elements we need to focus on going forward.

By: Miles Teg

Miles Teg — Thu, 20 Jan 2011 16:08:09 +0000

This is good and bad news. The good news is less so especially if prices charged are not really linked to what producers actually get due to forward selling and actions of “middlemen”.
The rich world has allowed large corporations and trade to operatee in an “unregulated” market which hardly takes into account cost of production. It allows large conglomerates to dominate markets, stifles local production with food aid, subsidises its agriculture while prying open markets in poor countries on no less than the theory of comparative advantage. Producers in the South have been decimated and continue to struggle so this is a mild reprieve only with the normal huge blowback…

By: Tom Lines

Tom Lines — Thu, 20 Jan 2011 12:16:25 +0000

Thank you, Duncan, for this timely and necessary corrective to the discussions about commodity prices. As you say, the implications are more complicated than some people make them appear.

By: Milla Perez

Milla Perez — Wed, 19 Jan 2011 16:14:07 +0000

Yes, I agree with Winston. I think that the main issue is his 2nd question: How much of the export price increases are passed on to farmers?
If there is no fair share of incomes with farmer, it doesn’t matter how the market behaves.
And that’s why, I think, we must emphasize on local trades and fair trade.

By: Winston Carroo

Winston Carroo — Wed, 19 Jan 2011 00:40:17 +0000

This may be some good news for farmers and rural communities, but the urban poor – those who have no farms on which to grow export or subsistence crops – are most vulnerable and suffer most. Some questions:
How long will the favourable prices for export crops last?
How much of the export price increases are passed on to farmers? And will the future fluctuations in cereal prices and the value of export crops conicide?

By: Constantino

Constantino — Tue, 18 Jan 2011 10:17:13 +0000

Yes, this is good. It explains well why to consider the possible impact of any crisis it is important to consider food imports AS WELL as exports and how internal food distribution policies (not necesarily within the market only) are defined.