Developing country responses to the food price spike: what have we learned?

29 January 2010 13:00 - 14:30 GMT+00
Public event
Streamed live online

Speakers:

Steve Wiggins - Research Fellow and Programme Leader, ODI

Rachel Slater - Research Fellow and Programme Leader, ODI

Jonathon Coulter - Ex-Natural Resources Institute

Chair:

Andrew Dorward - Professor of Development Economics, SOAS

Description

When cereal prices rose dramaticallyon world markets in late 2007 and early 2008, many developing countries reacted energetically to moderate the impact ondomestic food prices and ameliorate hardships to local consumers. This public meeting presented the key messages from a two-day workshop hosted by ODI on theresults of research into the  reactions of developing country governments and non-governmental organisations, asking what was done and how effective these measures were.

1. Background: A technical workshop looking at developing country responses to the international food prices spike of 2007/08 was held at ODI in the two days leading up to this public meeting.

  • Country studies examining responses by governments, NGOs, and other actors were discussed by participants from number of organizations including: PPRC (Bangladesh), Nitlapan (Nicaragua), Concern (Sierra Leone), FAO (GIEWS, ESC, ESA), the UN High Level Task Force, DFID, IADB, WAU, IDS, NRI, and the UK Hunger Alliance.  This public meeting was held to present results from the workshop.

2. Steve Wiggins began with a general introduction. Questions posed included: What measures have been taken in response to the international spike? How were they meant to work? What was the experience of implementing them—i.e. how effective have they been, on economies and societies?

3. ODI in partnership with the Hunger Alliance commissioned 3 country case studies: Bangladesh, Nicaragua and Sierra Leone, which represent the focus for most of this presentation.

Bangladesh saw a severe spike in rice (its key staple) prices from late 2007 to early 2008; partly a reflection of world market events, but partly a result of domestic factors including floods and Cyclone Sidr. Bangladesh was also effected by India’s export ban.Nicaragua—again domestic factors including Hurricane Felix played as large role in staples prices, though for imports of rice, international prices were particularly important. Sierra Leone is a particularly unusual case—heavily dependent on rice as a staple, and heavily dependent—to the tune of about 30% on imported rice

4. He introduced the framework used for looking at different responses: Firstly, there are three types of interventions that are generally made by governments; 1) Trade/border/market interventions, 2) Food production, and 3) Social protection.  Secondly, there is another category of responses that are equally or more important; those encompassing coping strategies of individuals and households.

5. Jonathan Coulter then talked about food price stabilization, using material produced in collaboration with George Rapsomanikis and David Dawe of FAO, and Gerdien Meijerink of WAU. He began by outlining some facts about the food price crisis: Some Asian countries—such as China and Indonesia—were relatively successful in managing the instability. In Africa, the main imported instability occurred in the rice market—where prices are almost always formed on the basis of import parity.  Many poor people in Africa however eat mostly coarse grains—and in the case of coarse grains, the price spikes seen recently were certainly not unprecedented.

  • Across Africa there exist big differences in country ability to manage price variability, using for example mechanisms such as buffer stocks.
  • There are also big differences in consumption patterns, which makes price spikes impact very differently. He cited the example of consumers in Uganda having a more varied diet—including relatively large shares of matooke and root crops as well as maize—as opposed to traditional diets in Malawi, which are overwhelmingly maize-based.

6. He set out a number of implications for African policy including:

  • Recognising that price shocks are largely of domestic/regional origin
  • Recognising limitations in managing price instability
  • Focussing on mitigating price instability over medium to long-term via for example: encouraging private players to develop market institutions, generating legal frameworks to help rights of private traders, improving storage technologies, and developing microfinance institutions.

7. Rachel Slater then discussed the experience of social protection over the food price crisis—with a focus on procedures that were predominant—mainly social assistance, and within this specifically cash transfers.

  • The country case studies provided gave examples of three types of approach to social protection: 1) Where there are existing social assistance programmes in place (Bangladesh), 2) Where social assistance has been reduced in the context of liberalisation (Nicaragua), and 3) Where social assistance doesn’t already exist (Sierra Leone).
  • In Bangladesh, there was relatively big expansion building on existing programmes—VGD and VGF (Vulnerable Group Development and Feeding respectively)
  • In Nicaragua, there was some historical use of conditional cash/food transfer programmes—but these effectively ended in 2006. The other existing response programmes—including school feeding and emergency social assistance programmes—were very much focussed on natural disasters and haven’t been used as a mechanism for dealing with food price shocks—which raises a question of how these systems are set off—and if there can be an economic focus, or if they are solely linked to natural disasters. They were also very urban-focussed, although the deepest poverty in Nicaragua occurs in rural areas.
  • In Sierra Leone there was a rapid pushing out of a planned cash for work programme—but this ended up having very little coverage, of about point-one percent of the population.

8. She went on to explain that safety nets aren’t safety nets unless they exist before a crisis. The Progresa programme in Mexico, probably the world’s largest social protection programme, was able to scale up 25% in response to the food price shock, from 4 to 5 million households.
In all likelihood, since additional coverage was limited and benefits relatively small, safety nets likely had very limited effects on household consumption.

9. Some questions this raises: One of targeting—do transitory shocks obscure the chronically poor? Social protection or social protecting? Social protection can be examined as a group of policies designed to address the problem within the 3-tier framework:

  • Risk reduction
  • Risk mitigation
  • Risk coping

In which the first two (via for example increasing food production or reducing price volatility) may be just as important as safety nets in being socially protecting.

10. Steve Wiggins went on to talk about stimulating production, specifically what happened in the case study countries.

  • In Nicaragua there was some seed and livestock distribution, though with very limited coverage. In Sierra Leone there was limited distribution of seeds and tools—some of which arrived too late for the planting season. Bangladesh in contrast was more successful. There, distribution of seed and fertiliser—and more importantly the government increasing the procurement price—resulted in a startling increase in the main (Boro) rice harvest to the tune of about 17% on the previous year—which was apparently an average year.

11. The last category of response Steve Wiggins discussed were the coping strategies adopted by households and individuals. These included cutting spending on non-food items (food intake going down, switching to less-preferred staples), reducing frequency of meals, going into debt, seeking more work, taking children out of schools or reducing complementary expenditures such as buying notebooks. At this stage there are not many cases of irreversible strategies being adopted—such as households loosing assets—but this is a tentative finding.

12. Finally he outlined some initial findings as follows:

  • There appears to have been a bias in responses towards urban areas and consumers—and yet, paradoxically, there has been a revival of interest in farming and a focus on food security greater than seen in the past.
  • Country context is very important—illustrated by the political history: in Bangladesh, the spectre of past famines in recent history makes rising staple prices a highly sensitive political issue. In Nicaragua we have the case of a country that used to be statist, became liberalised, and is now operating somewhere between the state and free market. In Sierra Leone we have the case of a very poor country still recovering from recent conflict which appeared to follow a textbook of responses—but with very limited ability.
  • On markets—volatility in prices is just as important as price levels—particularly in terms of how it impacts consumer confidence and influences the balance between short-term pressures and long-run wisdoms in policy response.
  • The studies threw up many puzzles: How did Sierra Leone manage to keep its price rise in rice to less than 70% when prices in the world market were tripling? How can we explain happenings on Nicaragua’s rice market except by oligopoly?
  • Regarding feasibility and effectiveness of responses, we saw three key things:
    • Instruments already in place could be built upon
    • For governments, being seen to act is very important—particularly for consumer confidence
    • Coping by individuals and households was terribly important; posing very big questions for policy makers on public response.

13. An interesting discussion ensued. For example, David Roberts wondered what impact implementation of the current draft modalities of DOHA would have on the landscape—especially with respect to the imbalance in trade rules with strong interdictions on import restrictions but weak ones on export restrictions. Duncan Green from Oxfam said that the ODI findings had an uncanny resemblance to work done in Oxfam, whereby most of the resilience to crisis came from people’s own coping strategies rather than the actions of government. He also posed the question of; Is the global food crisis is coming back? Sheila Page of ODI was slightly puzzled as to whether Rachel was implying social protection for only 2 or 3 percent of the population was the problem.

14. In response, Steve Wiggins talked about trade rules and responses, saying that in most places import tariffs have been cut so far already, any additional reductions have very little impact on volumes imported. As for export bans, which got a very bad name in the case of the international spike, there is some indication that regardless of WTO rules, bans on export bans are not likely to work in practice. Jonathan Coulter advised that those worried about a repeat of the food prices spike should watch the oil price—which could act as a trigger—though he doesn’t think we are heading for another at the moment, it is always a possibility. Rachel Slater clarified that when talking about coverage, trying to address volatility may be more consumer protecting than targeted (non-blanket) measures like transfers. Also if using targeted social protection in response to a shock, there is some indication that it is better to be targeting well above the poverty line. There is however another issue about whether or not the food crisis can be used as a way of getting more long term social protection delivered in countries, since in recent years there has been a shift away from ad hoc programmes towards more predictable resources—which may be threatened if such longer term programmes are not developed if responses are only implemented from one shock to the next.

15. In conclusion, Andrew Dorward made a few points;

    • The framework for looking at the different types of responses was very useful.
    • There are strong contradictions between governments needing to be seen to have done something, and their actions actually fuelling the problems
    • High food prices can be good or bad, depending on how they appear—and on which segment of society impacts are measured
    • There is a huge diversity in responses and impacts across countries and types of consumer.