Food Prices: What information and regulations to avoid extreme - - PowerPoint PPT Presentation

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Food Prices: What information and regulations to avoid extreme - - PowerPoint PPT Presentation

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FOODSECURE Final Conference Brussels, October 12, 2016 Food Prices: What information and regulations to avoid extreme events Maximo Torero m.torero@cigar.org International Food Policy Research Institute Website: foodsecure.eu foodsecure.eu

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Website: Conference blog:

FOODSECURE Final Conference Brussels, October 12, 2016

Twitter: @foodsecureeu #FOODSECURE, #FSFC16 foodsecure.eu foodsecureblog.wordpress.com

Food Prices: What information and regulations to avoid extreme events

Maximo Torero m.torero@cigar.org International Food Policy Research Institute

foodsecure.eu foodsecureblog.wordpress.com

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FOODSECURE Final Conference Brussels, October 12, 2016

Introduction: Real Price Evolution in US$ 2015

0.00 500.00 1000.00 1500.00 2000.00 2500.00 3000.00 1960M01 1960M12 1961M11 1962M10 1963M09 1964M08 1965M07 1966M06 1967M05 1968M04 1969M03 1970M02 1971M01 1971M12 1972M11 1973M10 1974M09 1975M08 1976M07 1977M06 1978M05 1979M04 1980M03 1981M02 1982M01 1982M12 1983M11 1984M10 1985M09 1986M08 1987M07 1988M06 1989M05 1990M04 1991M03 1992M02 1993M01 1993M12 1994M11 1995M10 1996M09 1997M08 1998M07 1999M06 2000M05 2001M04 2002M03 2003M02 2004M01 2004M12 2005M11 2006M10 2007M09 2008M08 2009M07 2010M06 2011M05 2012M04 2013M03 2014M02 2015M01 2015 USD per Metric Tons

Soybeans (US$/mt) Maize (US$/mt)

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FOODSECURE Final Conference Brussels, October 12, 2016

Introduction: Periods of Excessive Food Price Volatility

Please note Days of Excessive volatility for 2014 are through March 2014

Source: Martins-Filho, Torero, and Yao 2010. See details at http://www.foodsecurityportal.org/soft-wheat-price-volatility-alert-mechanism.

Please note Days of Excessive volatility for 2014 are through March 2014 2014 2015

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FOODSECURE Final Conference Brussels, October 12, 2016

Introduction: Climate Variability and Risk

Please note Days of Excessive volatility for 2014 are through March 2014 Please note Days of Excessive volatility for 2014 are through March 2014

  • Moderate consensus that

temperate regions will have increased variability in temperature and rainfall

  • No consensus on tropical

regions (IPCC AR4)

  • But increased mean

temperature increases risk

Source: Torero, (2016). SCENARIOS ON CLIMATE CHANGE IMPACTS FOR DEVELOPING APEC ECONOMIES

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FOODSECURE Final Conference Brussels, October 12, 2016

Introduction: On Agriculture: Climate Change Price Impacts - Scenario Results

Please note Days of Excessive volatility for 2014 are through March 2014 Please note Days of Excessive volatility for 2014 are through March 2014 Impacts of climate change on global yields, area, production and prices of the 5-crop aggregate relative to baseline values in 2050 for each Shared Socioeconomic Pathway (SSP) and Representative Concentration Pathway (RCP) compared across five models

Note: ENV = ENVISAGE, FAR = FARM, IMP = IMPACT, MGN = MAGNET, MGP = MAgPIE. Source: Work in progress by IFPRI, LEI-WUR, PIK, Purdue, USDA-ERS, IDS

Source: Torero, (2016). SCENARIOS ON CLIMATE CHANGE IMPACTS FOR DEVELOPING APEC ECONOMIES

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FOODSECURE Final Conference Brussels, October 12, 2016

Introduction: Different problems but same policies

2014 Please note Days of Excessive volatility for 2014 are through March 2014

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FOODSECURE Final Conference Brussels, October 12, 2016

Introduction: Effects on world prices of trade policy reactions for selected countries

Please note Days of Excessive volatility for 2014 are through March 2014

0% 10% 20%

Exogenous demand increase [initial perturbation] Effects of increases in export taxes to mitigate the shock on domestic prices Effects of decrease in import duties to mitigate the shock on domestic prices Interaction effects between import and export restrictions

Policy Effects

“Natural” Shock

Source: Bouet and Laborde, 2009. MIRAGE simulations

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FOODSECURE Final Conference Brussels, October 12, 2016

Introduction: A continuous trend towards internationalization of food markets

Please note Days of Excessive volatility for 2014 are through March 2014 Please note Days of Excessive volatility for 2014 are through March 2014

1975 1985 1995 2005 2015

18.2% 13.9% 12.3% 19.1% 16.1%

Share of produced calories crossing an international border

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FOODSECURE Final Conference Brussels, October 12, 2016

Four Key Messages at Global Level

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FOODSECURE Final Conference Brussels, October 12, 2016

Message 1: Physical reserves as buffer stocks

  • Determination of optimum stock, which is politically loaded,

− Predicting supply and demand and where the potential shortfalls in the market may be can be extremely difficult − Reserves are dependent on transparent and accountable governance

  • Level of costs / losses

− Reserves cost money and stocks must be rotated regularly − The countries that most need reserves are generally those least able to afford the costs and oversight necessary for maintaining them − The private sector is better financed, better informed, and politically powerful, putting them in a much better position to compete

  • Uncertainties that strategic reserves can bring about in the market place.

− Reserves distort markets and mismanagement and corruption can exacerbate hunger rather than resolving problems

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FOODSECURE Final Conference Brussels, October 12, 2016

Message 1: Physical reserves as buffer stocks

Regional reserves as an alternative emergency mechanism and not as a mechanism to stabilize prices (ex. ASEAN, ECOWAS)

Benefits: – Better mechanism to cope with risk at the regional level – Has a strong potential to reduce costs compared to national approaches Risks

  • Still requires important cooperation and avoid capture of bigger countries in

the region

  • Requires clear trigger definition
  • Requires clear rules of pricing and delivery
  • Requires clear strategy for replenishment
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FOODSECURE Final Conference Brussels, October 12, 2016

Message 2: Trade Facilitation

  • Pro-trade policies:
  • Improve Availability of food products (quantity). Trade

allows to rely on world supply (large and stable);

  • At a low price;
  • Of improved quality.
  • But trade openness generates winners and
  • losers. It can increase inequalities!
  • Role for redistributive policies and safety nets
  • And some conflicting issues. FDI in land vs “land grabbing
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FOODSECURE Final Conference Brussels, October 12, 2016

Import tariffs on food products: a heavy burden for the poor

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%

Bermuda Central African Rep. Chad Congo Cyprus Equatorial Guinea Iceland India Ireland Israel Japan Kenya Malta Morocco Nigeria Norway Pakistan Portugal

  • Rep. of Korea

Romania Saint Kitts and Nevis Serbia and Montenegro Seychelles Solomon Isds Switzerland Thailand Tunisia Turkmenistan Ukraine United Kingdom

Average Tariff on Calories Average Tariff on Proteins

Source: Deason and Laborde (2010)

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FOODSECURE Final Conference Brussels, October 12, 2016

Message 3: Information transparency Regulation of Future exchanges

Should we reform commodity exchanges by:

  • limiting the volume of speculation relative to hedging through regulation;
  • making delivery on contracts or portions of contracts compulsory; and/or
  • imposing additional capital deposit requirements on futures transactions.

Answer: Requires several conditions to be effective Problem 1: not binding regulation - we have seen triggers were not activated and also not clear incentives. On option is to use the excessive volatility measure as a trigger. Problem 2: Inter-linkages between exchanges requires significant coordination across exchanges to harmonize regulation

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FOODSECURE Final Conference Brussels, October 12, 2016

Message 3: Information Transparency Empowering AMIS

  • Better information of reserves for key staples.
  • The Agricultural Market Information System (AMIS) still

has important room for improvement

  • Early warning system of prices and excessive volatility
  • Modeling and better forecasting prices and volatility
  • Understanding price transmission to consumers and

producers

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FOODSECURE Final Conference Brussels, October 12, 2016

Message 4: Increase resilience to risk: risk coping instruments

Forecasts

  • Keep improving forecasts
  • Analytical data like the one for el Niño

(weather, crop, soil)

  • Market intelligence

Insurance

  • Substantial amounts of uninsured risk in

rural areas specially small farmers

  • How can we create insurance products that:

(i) Smallholder farmers want (ii) Protect farmers in bad years and that allowing them to increase agricultural investment

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Website: Conference blog:

FOODSECURE Final Conference Brussels, October 12, 2016

Twitter: @foodsecureeu #FOODSECURE, #FSFC16 foodsecure.eu foodsecureblog.wordpress.com

Thanks!