Soaring food prices and the rural poor: feedback from the field
Recent price volatility on international markets is putting pressure on global food security. For the 2 billion people who live and work on small farms in developing countries, life has become more precarious. But with the right investments, policies and development programmes in place, smallholder farmers have a huge potential to increase food production, improving their lives and contributing to greater food security for all.
The aim of this short paper is to contribute to improving understanding of what soaring food prices at the global level mean for poor rural people across the developing world. Such an understanding serves as a basis both for strengthening IFAD's capacity to engage in an informed international policy dialogue, and for identifying actions that it can take, in collaboration with its member governments, at national and local levels.
A questionnaire was sent out to IFAD's Country Programme Managers, Country Presence Officers and other colleagues, with a request that they provide information on the impact of rising food prices on poor rural people in their countries. Within a week, responses were received for over 40 countries, from all five IFAD regions. This paper has been compiled on the basis of these inputs. It complements, rather than draws upon, the considerable body of analysis of food prices that has been undertaken in recent months.
Some of the anecdotal information provided may not stand up to close scrutiny. Nevertheless, the responses do provide a flavour of some of the issues that poor rural people are currently facing as a result of soaring global food prices. This paper seeks to synthesize these responses and present them in an easily accessible manner.
It is clear from the responses received that in almost all developing countries food prices have increased during 2007 and early 2008. In some cases, prices have more than doubled, and in a few countries there have been absolute scarcities of foods available on local markets. Yet at the same time, it is not immediately apparent that poor rural people face a single and uniform crisis of food prices. On the contrary, the situation varies considerably from one country to another, and of course, in the urban and rural areas of each country. Not only does the extent of the price hikes differ enormously, but also the factors shaping these prices vary profoundly. Some of the factors are those which are recognized as contributing to the current high level of global food prices; others less so.
Feedback from many countries suggests that increasing fuel prices are a major driving force behind rising food prices. This has affected both input prices and transport costs. In Kenya for example, the cost of the most commonly used fertilizer has more than doubled over the last year. In Azerbaijan, soaring petroleum prices have contributed to the increase in prices of most agricultural crops: on one hand, by raising input costs, on the other, by boosting demand for agricultural crops used as feedstock in the production of biofuels. The high fuel costs have also led to a doubling of freight rates, contributing to further increases in food import bills. In South Africa and neighbouring countries, petrol prices nearly doubled. In one of those countries, Mozambique, food price increases have clearly followed increases in transportation costs.
In a few countries, such as Kenya and next-door Uganda, and Chad, civil unrest has also undermined both production and transportation of foodstuffs, and has played an important role in pushing up prices.
But in the final analysis, food prices are ultimately determined - today as they have always been - in large part by production levels, and in a number of countries, rising prices reflect above all else unfavourable agro-climatic conditions. Drought was a key factor behind prices rises in Chad and Tanzania. Mozambique, in contrast, was hit by floods. Ghana suffered a triple disaster of drought, flood and then drought again, with the northern part of the country particularly affected by floods. In Angola too, the main cereal producing area was hit by both drought and flood. Frost hit parts of the Middle East: Jordan's cereal production was adversely affected by this, and in Syria, wheat production is expected to fall in 2007-08 to 1.8 Mt against a yearly average of 2.5 Mt, because of combined drought and frost. What we now know about climate change suggests that these factors will become ever more important as determinants of production levels, food prices, and food security for poor rural people.
IFAD target group and food markets
In the majority of countries, IFAD's target group – poor rural people are both sellers of food commodities and buyers of food stuffs, at different times of year. Typically, they sell immediately after harvest, to meet their immediate cash requirements, and buy food in the months prior to the following harvest. In some, such as Cameroon, IFAD's target group is made up of net sellers, in other, such as Egypt, net buyers. Thus the livelihoods of all of these people are acutely determined by both farm-gate prices to producers, and the prices at which they are obliged to buy food as consumers.
However, in countries as diverse as Angola, Kenya, Pakistan and the countries of the Andean region, there is a sizeable proportion of the IFAD target group who only buy food: small farmers, who need to buy at certain times of the year, and landless people, who buy food throughout the year. In Kenya for example, almost 75 per cent of IFAD target group are buyers of food throughout the year. Their concerns therefore, are exclusively those of consumers rather than producers.
In all regions, and in most countries, prices paid to food producers have increased over the past year. The extent to which they have increased varies considerably country by country and crop by crop. Thus in China, producer prices for staples have increased only by 10 per cent or so, in Kenya 10-50 per cent; in Cameroon and Mali 15-20 per cent, in Jordan 30 per cent. At the other extreme, in Nigeria producer prices for staples (e.g. millet, maize, sorghum) have increased by about 100 to 200 per cent over the past year; in the Andean region and in Nicaragua the price of maize has increased by over 100 per cent; in Egypt wheat prices have more than doubled; while in Angola maize prices have increased by five times in the last year.
Reflecting the different levels of price increase to producers, there is considerable variation in food prices to the consumer. Thus in Uganda staple food prices have increased only 10-20 per cent (though it is noted that the price of matoke, the main staple, fluctuates by season and can vary by a factor of four over the year), in Jordan by 80 per cent, in Nicaragua by 100 to 200 per cent, and in Nigeria by about 200 per cent.
In most countries, consumer prices have risen by more than producer prices. Thus in Ghana, while staple food prices for sellers has increased by 50 per cent, consumer prices have increased by 100 per cent, the difference being accounted for, at least in part, by the additional internal transport costs incurred as a result of increased fuel prices. In Mali producer prices and consumer prices have increased by 15-20 per cent and 20-50 per cent respectively. The only exceptions are those countries which have actively intervened in the market - either through subsidizing food prices or increasing government prices to producers: countries such as such as China where grain prices for producers and consumers have increased by 10 per cent and 6 per cent respectively; of the Philippines, where paddy prices have increased by 50 per cent and consumer prices for rice by 20-30 per cent.
Across most of the countries responding, there is not a problem of food availability per se. There are a few exceptions: Yemen reports that food is not as available as it was; in Egypt, there are shortages of subsidized food such as bread; and in the Andean region, there are problems of food availability in those countries that have price controls such as Bolivia, and to a lesser extent, Ecuador. Pakistan reports that food generally available, except wheat at certain times of year. In 2007 a wheat crisis arose following the export of wheat in early the early part of the year, on the assumption of a bumper crop and reduced world prices. The situation was eventually eased by importing 2 billion tons, but this was at a cost of $1 billion, creating major fiscal problems.
Just as the reasons for the price increases for the principal staples differ, so the impact on other food prices varies considerably from one country to another. Thus in Yemen, where higher prices for agricultural inputs were the main factor responsible for increased food prices, the prices of all other agricultural commodities have increased. In the Andean region, chicken and egg prices have increased, like maize, by 100 per cent. In Senegal the prices of the majority of foods are up by 100 per cent. In China, where grain prices for consumers rose by only 6 per cent, the prices of meat, oils and vegetables increased by over 40 per cent, and it is thought that higher food prices are leading to increases in the prices of (downstream/ upstream) products and services
In contrast, in a number of countries, the prices of some foods have increased only minimally. Thus in the Andean Region some vegetable products have shown no significant increases. In Congo, the price of some staple foods (rice, peanut and maize) have increased for producers (14 to 28 per cent over 2007/2008), yet the price of cassava has not increased yet. In Angola too, the price of cassava is virtually unchanged – despite the fivefold increase in maize prices. In Mauritania it is observed that the increases in prices are only in cereals (wheat and rice); while Uganda reports no relationship between rising prices for staples and other crops.
Impact on poor rural people
To the extent that poor rural people engage in the market, they risk losing out, and in some cases doubly. Clearly, those who are buyers of staple food products have to pay more for their food needs; in some cases considerably more. Yet those who are sellers find that the terms of trade have moved against them, and that selling produce to meet cash needs has become a less attractive prospect. Food buyers, and net food buyers, clearly are suffering the most. Though in some countries, where the increased producer prices are actually official government procurement prices, small farmers risk losing out once more as market intermediaries take the greater part of the increase. This was cited as a problem both in Pakistan and Philippines.
How are poor rural people responding, as food consumers? Across the board, households are spending a higher proportion of their limited incomes on their food needs; they are consuming smaller quantities, less frequently; and they are eating cheaper and in many (but by no means all) cases, less nutritious foods.
Across Africa households are reducing their daily food intakes. In Cameroon, some eat only once a day, while others eat only what they can afford to buy, irrespective of quality. In Ghana, people are reducing both the quality and quantity of their food intake. In Togo, many households cook with cheaper foods, and cook only one meal (dinner) at home, a practice that also reflects the high cost of wood and charcoal. In Kenya most households are limiting their food intake to one or two meals a day and leaving out the more costly, but nutritious, food items (meat, dairy, poultry, fruits and vegetables). In Senegal, rural people are no longer eating bread, and they are switching to eat only twice per day; while in Ghana it appears that more people are buying local cassava-based and other similar products (sweet potato, yams) rather than bread and imported rice.
The same is happening in Asia. In China households are reducing their non-staple foods (meat, oil etc); in Pakistan households are devoting a greater proportion of resources to food and cutting back on consumption; and in the Philippines households cope by cutting down the quantity and quality of food, or number of meals. Similar responses are found in the Andean region, where rural people are substituting more expensive foods for cheaper foods; and in Yemen, where households limit eating to one meal a day, reduce intake of meat, vegetables and fruit.
The impact is already being seen in increased levels of malnutrition and under-nutrition: this was the case in Mali, for example. In Pakistan the number of food insecure people increased from 60 million to 77 million in 2007/08 – and here the likely result is one of increased levels of malnutrition.
Of particular interest to IFAD is to understand how poor rural people are changing their production systems. Here, responses were extremely varied. In many countries, rising input costs without commensurate increases in producer prices are pushing farmers – and particularly the poorer farmers – to shift away from market-oriented production, and produce food crops for home use under lower-input, lower output production systems. In Senegal, millet, which had been largely abandoned as a crop, is being taken up again. In the Philippines, the poorer households are reducing the level of inputs they apply. In Congo, the few households in the project zone who were both producers and sellers have now substantially reduced their sales and are gearing their production towards home consumption. In Nigeria too, and in Mozambique, the story is similar: increasing numbers of farmers are growing only food crops for home consumption and storage, and reducing the levels of purchased inputs applied.
In some countries, where the opportunities permit, the opposite response is also evident. In China for example, the better off farmers are taking advantage of market opportunities for higher prices for e.g. pork. In the Philippines too this group is moving into high value crops. In Kenya, this market-oriented response appears not to be limited to the better-off. Reliable markets, combined with extremely small holding sizes, have encouraged many producers to shift from subsistence farming into more market oriented production, which has higher returns per unit area of land. In Uganda, producers have a similar response: they sell high value food staples (matoke) and buy cheaper foods (maize or cassava flour). In Yemen farmers are responding by intensifying production and by switching to more high value crops, particularly the lucrative and mild narcotic cash crop qat. And in Pakistan farmers have shifted away from wheat and into sugar cane and sunflower – this the result of the government's failure to announce a new official procurement price for wheat before the sowing date in November.
Finally, the other measures that poor rural households are obliged to take in response to rising food prices should be remembered. In Egypt, families are spending less on other essentials, such as health and education. In Yemen too, households are taking their children out of school and pushing them to work. In Ghana, affected populations are resorting to early sale of productive animals to purchase food; while in Senegal, rural families are sending their children to the cities or abroad to look for work in ever greater numbers. The migrants are ever more needed to support their rural relatives.
The impact of rising food prices on land ownership and management
It appears that rising food prices are already stimulating a supply response – in Ghana for example, the corporate sector is reacting quickly, especially in the maize sector. In many parts of the developing world this is reflected in an increasing demand for land, particularly from large scale investors. In Senegal the demand is particularly for irrigated land. In Egypt, both the purchase and rental prices for land are soaring; and both here, and in Yemen, it was thought likely that this will have an impact on the access and security of tenure for poor rural people. Cases were cited from the Philippines of agrarian reform farmers who sell their land because of lack of capital to produce themselves; and from Nigeria of poor rural people who lease their land to commercial producers.
It is in Latin America that this process appears to be most detrimental to the interests of the rural poor – even if it is not all immediately and directly linked to food prices per se. In Colombia, where there is unequal land distribution, industrialists such as palm oil producers, displace campesinos and indigenous groups from their lands, sometimes using violent methods. In the Mercosur area, large agribusiness can react to increasing food prices much more quickly and effectively than small farmers. This is leading to a very fast concentration of land ownership, particularly into foreign hands, and a rapid process of displacement of small farmers from their lands. Land prices are increasing, and this makes it increasingly difficult for IFAD's target group to access new land. This process is particularly apparent in Paraguay (expansion of soya bean from Brazil) and Uruguay, where reportedly 5 million ha of arable land, or one third of the country's total, has passed on to foreign control in the past few years - 1 million ha in 2007 only. This phenomenon is rapidly erasing the effects of land reform processes in the region in recent years. It is also generating strong feelings against market-based policies, free trade agreements, and regional integration agreements such as Mercosur or Pacto andino.
The immediate effects of increasing food prices are also negative in terms of land conservation and natural resource management. In the Mercusur area again, price rises have turned marginal and fragile lands into financially viable productive ones, and have increased the rate of destruction of original rainforest in Argentina and the Amazon. On other continents too the same processes have been set in motion. In Kenya for example, increasing prices and the demand for increased production have led to over-exploitation and/over-utilisation of natural resources including over-cultivation leading to poor soil content, over-dependence on irrigation, poor practices of clearing forest areas for cultivation and charcoal etc among others.
The degree to which governments have sought to address the issue of food prices varies considerably. At one extreme there are a limited number of countries that appear to have taken little or no action. But most countries have taken some measures, mostly of a social nature. These include the reduction or elimination of taxes and duties on imports of foodgrains (e.g. Cameroon, Senegal, Mali, Tanzania, Colombia and Peru); restricting exports (e.g. Bolivia, Egypt, Azerbaijan, Ghana), imposing and enforcing price controls (Philippines) and consumer subsidies (e.g. Nicaragua, Mauritania, Togo); increasing the supply using stocks (e.g. Chad); setting up or expanding a range of social programmes (e.g. Panama, Pakistan). Some of these measures, particularly the trade measures, have not only contributed to the instability on global markets, but have also undermined the prices that producers are able to realise.
On the other hand, a number of governments – principally those which have an interventionist approach in the market – have taken more medium- and long-term measures aimed at promoting domestic production and market supply. Measures include promotion of credit, as in Yemen or China; offering subsidies for production, including higher purchase prices, such as in these countries plus Pakistan, the Philippines and Jordan. And taking an alternative approach, in land-rich Mozambique expanded production of biofuels represents an explicit element of the government's strategy to reduce its dependence on imported fuels.