Food Security in an Age of Falling Commodity and Food Prices

• Published date: 01 March 2016
• Author: Stefan Tangermann
• DOI: http://doi.org/10.18278/wfp.2.2.3.1.9
• Date: 01 March 2016

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World Food Policy - Volume 2 Issue 2/Volume 3 Issue 1, Fall 2015/Spring 2016

In recent years, international markets

for commodities and food have gone

through exciting if not worrying price

swings. e well-known secular decline

of prices in real (i.e., ination corrected)

terms and a period of several years of price

depression were suddenly interrupted by a

dramatic increase of prices in 2007. Food

prices, in particular those of cereals and

rice, reached a peak in 2008, far above the

real prices that had prevailed in the last

20 years or so. In a number of developing

countries food security was severely

threatened or actually undermined.

Several governments around the world

responded in panic and adopted measures,

both domestically and at the border, aimed

at keeping food prices under control. e

Stefan TangermannA

Food Security in an Age of Falling Commodity and

Food Prices

A Professor Emeritus, Department of Agricultural Economics and Rural Development, University of

Göttingen, Göttingen, Germany. Paper presented at the World Food Policy Conference, 17–18 De-

cember 2015, Bangkok.

International prices of food and agricultural commodities had reached an

extremely high level in 2007-08 and subsequent years, but have more recently

embarked on a declining trend. It is, though, not certain that they will reach the

lower levels again that prevailed before the price peak. It appears conceivable

that international markets have experienced a structural shi towards a longer-

term higher price level. While there is no certainty that prices will remain at

such a higher level it appears that the international community should at least

be prepared for such an outcome. High international food prices can undermine

global food security as developing countries overall, and low-income countries

in particular, are net importers of food and agricultural products. eir net

imports keep growing, above all those of cereals. In many developing countries,

even rural households are net buyers of food. An increase in food prices reduces

welfare and impacts negatively on food security in net importing countries and

among net-buying households. As far as policy implications are concerned, this

means that high-price policies, implemented through import taris and domestic

measures, cannot be recommended for developing countries. e international

community needs to invest more in agricultural development and food security

in developing countries. We must not repeat he experience of the mid-1970s,

when the promises to do more for agricultural development aer a similar

period of food price peaks were soon forgotten aer prices declined again.

Keywords: International food prices; global trends on food markets; net imports

of food in developing countries; welfare implications of changing food prices;

policies to improve food security

doi: 10.18278/wfp.2.2.3.1.9

136

Food Security in an Age of Falling Commodity and Food Prices

international community was deeply

concerned about global food security

and the world’s capacity to feed a growing

population. Several high-level meetings

were held, all the way up to the ranks of

heads of state and government, to consider

programs that could improve the state of

aairs. And indeed, all sorts of promises

were made to assist countries in need, to

calm down the situation on international

food markets and to foster the productivity

of world agriculture.1

Aer their 2008 peak, food prices

on international markets as well as prices

of other commodities declined again

for some time, though by far not to the

much lower levels that had prevailed

before 2007. But then prices began to

rise again, and for a number of years

they uctuated around rather high levels,

with an extraordinary degree of volatility.

Beginning in 2014, though, commodity

and food prices embarked on a declining

trend that appears to continue, if not to

accelerate, until these days. While the

precarious situation of food consumers

was a major matter of concern in the years

following 2007, the fate of farmers around

the world has come into sharp focus as

agricultural commodity prices appear to

be ever declining. Yet, as many farmers,

in particular in developing countries, are

also poor food consumers, the pressure

that declining farm product prices impose

on farm incomes may also have negative

implications for their food security. is

complex web of relationships between

changing market trends and food security

was the theme of the presentation to the

Bangkok World Food Policy Conference

in December 2015 on which this article is

based.

When discussing this theme,

three specic questions would appear

to be particularly relevant. (1) Is the

price decline experienced in the recent

past likely to continue? (2) What are the

implications for world food security?

(3) How should policies, both domestic

and international, respond? e article is

structured along the lines of these three

questions. e focus will be on prices

of food and agricultural commodity

prices, while other commodities will be

mentioned only in passing. Given the

limited time available for the presentation,

the treatment of the theme dealt with here

is necessarily somewhat selective if not

eclectic.

Is the Current Price Decline Likely

to Continue?

One of the most frequently cited

sources of information on

international market prices for

food and agricultural commodities is the

Food and Agriculture Organization (FAO)

of the United Nations. A frequently used

FAO graph showing price developments

is reproduced in Figure 1. A quick view

at the lines in this graph may suggest that

prices of major food commodities have

declined dramatically in recent months. A

naive observer might get the impression

that they are in free fall, possibly even

approaching zero. It is, though, important

1 For a discussion of the factors that had triggered the price spikes on international food markets as

well as an analysis of domestic and international policy responses that could potentially cure the re-

sulting problems for world food security, see Tangermann (2011) and the literature referenced there.