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 Twitter: @foodsecureeu #FOODSECURE, #FSFC16 Conference blog: foodsecureblog.wordpress.com foodsecureblog.wordpress.com
2015 USD per Metric Tons 1000.00 1500.00 2000.00 2500.00 3000.00 Introduction: Real Price Evolution in US$ 2015 500.00 0.00 1960M01 1960M12 1961M11 1962M10 1963M09 1964M08 1965M07 1966M06 1967M05 1968M04 1969M03 1970M02 1971M01 1971M12 1972M11 1973M10 1974M09 1975M08 1976M07 1977M06 1978M05 1979M04 FOODSECURE Final Conference 1980M03 1981M02 Brussels, October 12, 2016 1982M01 1982M12 1983M11 1984M10 1985M09 1986M08 1987M07 1988M06 1989M05 1990M04 1991M03 1992M02 1993M01 1993M12 1994M11 1995M10 1996M09 1997M08 1998M07 Maize (US$/mt) Soybeans (US$/mt) 1999M06 2000M05 2001M04 2002M03 2003M02 2004M01 2004M12 2005M11 2006M10 2007M09 2008M08 2009M07 2010M06 2011M05 2012M04 2013M03 2014M02 2015M01
Introduction: Periods of Excessive Food Price Volatility 2014 2015 Please note Days of Excessive volatility for 2014 are through March 2014 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 . FOODSECURE Final Conference Brussels, October 12, 2016
Introduction: Climate Variability and Risk • 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 Please note Days of Excessive volatility for 2014 are through March 2014 Source: Torero, (2016). SCENARIOS ON CLIMATE CHANGE IMPACTS FOR DEVELOPING APEC ECONOMIES Please note Days of Excessive volatility for 2014 are through March 2014 FOODSECURE Final Conference Brussels, October 12, 2016
Introduction: On Agriculture: Climate Change Price Impacts - Scenario Results 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. Please note Days of Excessive volatility for 2014 are through March 2014 Source: Work in progress by IFPRI, LEI-WUR, PIK, Purdue, USDA-ERS, IDS Please note Days of Excessive volatility for 2014 are through March 2014 Source: Torero, (2016). SCENARIOS ON CLIMATE CHANGE IMPACTS FOR DEVELOPING APEC ECONOMIES 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 FOODSECURE Final Conference Brussels, October 12, 2016
Introduction: Effects on world prices of trade policy reactions for selected countries Exogenous demand increase [initial perturbation] Policy Effects Effects of increases in export taxes to mitigate the shock on “Natural” domestic prices Shock Effects of decrease in import duties to mitigate the shock on domestic prices Interaction effects between import and export restrictions Please note Days of Excessive volatility for 2014 are through March 2014 0% 10% 20% Source: Bouet and Laborde, 2009. MIRAGE simulations FOODSECURE Final Conference Brussels, October 12, 2016
Introduction: A continuous trend towards internationalization of food markets 19.1% 18.2% 16.1% 13.9% 12.3% Please note Days of Excessive volatility for 2014 are through March 2014 1975 2005 2015 1985 1995 Please note Days of Excessive volatility for 2014 are through March 2014 Share of produced calories crossing an international border FOODSECURE Final Conference Brussels, October 12, 2016
Four Key Messages at Global Level 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 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 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 FOODSECURE Final Conference Brussels, October 12, 2016
Import tariffs on food products: a heavy burden for the poor 80.00% Average Tariff on Calories Average Tariff on Proteins 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 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 Source: Deason and Laborde (2010) 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 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 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 FOODSECURE Final Conference Brussels, October 12, 2016
FOODSECURE Final Conference Brussels, October 12, 2016 Thanks! Website: foodsecure.eu Twitter: @foodsecureeu #FOODSECURE, #FSFC16 Conference blog: foodsecureblog.wordpress.com
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