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Food Price Spikes and Food Security: an Illustration from Niger

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Food Price Spikes and Food Security: an Illustration from Niger Seventh Multi-year Expert Meeting on Commodities and Development 15-16 April 2015 Geneva Food price spikes and food security: an illustration from Niger By Catherine Araujo Bonjean CNRS, CERDI The views expressed are those of the author and do not necessarily reflect the views of UNCTAD. Food price spikes and food security: an illustration from Niger Catherine Araujo Bonjean CNRS, CERDI Multi-year Expert Meeting on Commodities and Development 15 – 16 April 2015, Geneva, Palais des Nations. CENTRE D’ETUDES ET DE RECHERCHE EN DEVELOPPEMENT INTERNATIONAL CNRS – UNIVERSITE D’AUVERGNE Introduction Price and food insecurity: a complex relationship An illustration from Niger Conclusion • Since 2008, food prices have attracted much attention. High food prices are generally considered as a threat to food security. • But high food prices is neither a necessary nor a sufficient condition for food insecurity. • And prices do not necessarily reflect food availability • Need for disaggregated approaches and strengthening market’s institutions Introduction The entitlement approach to hunger Price and food insecurity: a complex relationship High food prices are not a sufficient condition for food insecurity An illustration from Niger High food prices are not a necessary condition for food insecurity conclusion Food prices may not reflect food scarcity The entitlement approach of hunger • According to Sen’s entitlement approach to hunger, famine can occur without any decline in food supply and food price increase. • A sufficient condition for famine is a decline in food entitlements which itself results from a worsening in the endowment set and/or the entitlement mapping of a group of people • The entitlement set of a person is the commodity bundles she can legally acquire from her initial endowment through trade, production and transfer i.e. her entitlement mapping. Introduction The entitlement approach to hunger Price and food insecurity: a complex relationship High food prices are not a sufficient condition for food insecurity An illustration from Niger High food prices are not a necessary condition for food insecurity conclusion Food prices may not reflect food scarcity The Endowment set Entitlement Mapping The Entitlement Set: all resources legally the conversion rates at The set of all possible owned by a person: which the resources of combinations of goods and services that a • physical assets: the endowment set can person can legally equipment, animals, be converted into goods and services: obtain by using the • Natural resources: resources of his • input-output ratios in land, endowment set farm production • human capital: labor force knowledge, skill, • relative price of: • social network, … • Food and cash crops • Food and wage • Transfer Introduction The entitlement approach to hunger Price and food insecurity: a complex relationship High food prices are not a sufficient condition for food insecurity An illustration from Niger High food prices are not a necessary condition for food insecurity conclusion Food prices may not reflect food scarcity High food prices are not a sufficient condition for food insecurity • An increase in food price may benefit to poor groups Badolo and Traore (2014) have shown that the 2008 rice price increase had positive impact on poverty and inequality in the rice producing areas of Burkina Faso. • Food price increase may be compensated by an increase in the price of cash crops or in wage Boom famines: in a booming region/country, income and the price of non tradable goods increase (dutch desease). The entitlement set of those working in the booming sector improves, but the entitlement set of rural workers deteriorates. The whole community may be better off. Introduction The entitlement approach to hunger Price and food insecurity: a complex relationship High food prices are not a sufficient condition for food insecurity An illustration from Niger High food prices are not a necessary condition for food insecurity conclusion Food prices may not reflect food scarcity High food prices are not a necessary condition for food insecurity • A worsening of the Entitlement-mapping may occur without any increase in food price. A slump famine originates from a contraction in the purchasing power of population. Prices are kept low leading to exports of food from the famine-affected region. • Many other factors may contribute to a deterioration in the entitlement mapping: drop in the price of cash crops, wage, loss of employment, etc Introduction The entitlement approach to hunger Price and food insecurity: a complex relationship High food prices are not a sufficient condition for food insecurity An illustration from Niger High food prices are not a necessary condition for food insecurity conclusion Food prices may not reflect food scarcity Food prices may not reflect food scarcity • Market failures may be at the origin of price spikes or may have an amplifying effect leading to “Market famines” . Most frequent market failures relate to: • Non competitive trade/processing sector: excess margins and asymmetric price transmission to consumers • High transaction costs leading to autarky/remoteness: barriers to trade (export ban, formal and informal taxes, exchange rate control…), information cost … Introduction The entitlement approach to hunger Price and food insecurity: a complex relationship High food prices are not a sufficient condition for food insecurity An illustration from Niger High food prices are not a necessary condition for food insecurity conclusion Food prices may not reflect food scarcity Food prices may not reflect food scarcity: information’s cost • Food crops are storable commodities, arbitragers (farmers and traders) participate to price regulation • Storage decisions depend on price expectations that are conditional to available information (future harvest, prices near and far …) • Imperfect or biased information leads to errors in price expectations, inefficient arbitrage, and/or wait and see attitudes Introduction Millet: the main food crop in Niger Price and food insecurity: a complex relationship Main features of millet price An illustration from Niger Apparent anomalies in the price patterns Conclusion The speculative bubble hypothesis Millet: the main food crop in Niger • Millet is the main food crop and the staple diet. • It is not traded on international markets, its price is given by regional conditions of supply and demand • Millet price is positively correlated with other local grain prices, and negatively correlated with the price of livestock, held as buffer stock. • The possibilities for substitution in consumption are limited, while livestock sales do not compensate for large grain price shocks Introduction Millet: the main food crop in Niger Price and food insecurity: a complex relationship Main features of millet price An illustration from Niger Apparent anomalies in the price patterns conclusion The speculative bubble hypothesis Main features of the millet price 400 • Positive trend 350 • Seasonal pattern 300 • Recurrent price spikes: 1997, 1998, 250 2001, 2002, 2005, 200 2012, 2013 150 • Spatial correlation 100 50 0 92 94 96 98 00 02 04 06 08 10 12 Niamey (Katako) Agadez Diffa Tillaberi Maradi Tahoua Introduction Millet: the main food crop in Niger Price and food insecurity: a complex relationship Main features of millet price An illustration from Niger Apparent anomalies in the millet price Conclusion The speculative bubble hypothesis Apparent anomalies in the millet price Weak correlation between price Strong seasonal pattern and rainfall shocks 170 60 1998 160 2013 40 2012 ) 1997 g k 150 / 2005 2002 A 2001 F 20 C ( 140 t r 1990 a 1991 e y 0 1996 130 1992 t a 2014 k 2010 20092000 c 2004 120 o 1994 1993 h -20 2008 J F M A M J J A S O N D s 19992006 2003 1995 Bamako Niamey Ouagadougou e 2011 c i r P -40 monthly averages Fcfa/kg 2007 -60 -200 -100 0 100 200 Rainfall shock at year t-1 (mm/km²) Introduction Millet: the main food crop in Niger Price and food insecurity: a complex relationship Main features of millet price An illustration from Niger Apparent anomalies in the millet price Conclusion The speculative bubble hypothesis Price gap relative to fundamental value 350 Fundamental value estimated as function of: 300 • rainfall in the mil basin of 250 Niger and Nigeria, 200 • price of Thai rice, • real exchange rate 150 relative to naira, 100 • oil price, 50 • seasonal dummies • trend 0 90 92 94 96 98 00 02 04 06 08 10 12 millet price in Maradi (CFA/kg) fundamental value (CFA/kg) Introduction Millet: the main food crop in Niger Price and food insecurity: a complex relationship Main features of millet price An illustration from Niger Apparent anomalies in the price patterns conclusion The speculative bubble hypothesis The speculative bubbles hypothesis • Prices go well above the millet’s fundamental value (for instance 2005 and 2013) should we have a good estimation of the fundamental value • We argue that arbitragers (farmers and traders) had over- optimistic price expectations, they hold excess inventories, leading to self-fulfilling expectations (Araujo-Bonjean & Simonet 2011). • Non competitive trade sector favor this type of behavior but is not a necessary condition Introduction Policy recommendation Price and food insecurity: a complex relationship An illustration from Niger Conclusion To conclude • Need for a desegregated approach to the food price issue: – Identification, monitoring and compensation of vulnerable socio-economic groups. – Controlling food prices (subsidies, trade restrictions ..) is costly and not efficient • Need for appropriate policy responses to market failures: – Strengthening market’s institutions: competition laws, information systems – Transparency in trade and fiscal policy, and in food aid management Thank you for your attention .
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