Economic Implications of Food Security in the 21st Century

Jeffrey Vitale

Presentation Outline

• What is food security?• Food security: Current status• Global challenges for food security• Role of economics in enhancing food security• Opportunities• Next steps

What is Food Security?

• “When all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life”. The World Food Summit of 1996.

Economists like this definition since it is strong and comprehensive, especially this last part. By removing constraints on nutrition, food security enables societies to fully develop their human capital. This definition goes far beyond a “survival” definition of food security.

However, this is a general definition and it’s vague on how to quantify achievement.

Indicators & Determinants

FOODSECURITY

DIRECT ACCESS• Home production (Yields & area)• Household transfers

INDIRECT ACCESS• Distribution• Market prices• Disposable income• Food aid

STABILITY• Supplies over time• Access over time

UTILIZATION• Nutrient content• Food safety• Human health

ADEQUACY• Consumption

Food Security Quiz

• Let’s take a look at some questions on food security to get our minds focused on the topics.

Critical Needs for Sub-Saharan Africa

• Virtually all of the food security indicators are underperforming in SSA:– Direct access to food is weakened by low

productivity, i.e. low crop yields– Indirect access to food is weakened by low

disposable incomes, high transportation costs, and global price shocks

– Food consumption inadequate for even basic energy requirements, let alone improved nutrition

– SSA diet remains starch-based, lacking in nutrition.

Direct Access of Food: East Africa

1992 1997 20050

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120

Kenya Tanzania Uganda

Per-C

apita

Mai

ze P

rodu

ction

(kg/

pers

on)

Current performance is weak.

Typically need 212 kg per person of cereals per year.

This leaves a significant gap ...

Maize Imports

1991-96 1997-02 2003-080

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Kenya Tanzania Uganda

Impo

rts (

000

MT)

Gaps in domestic production are made-up through food imports that are risky when prices rise ...

World Maize Price ($ per MT)

$2.25 per bu

As the world witnessed in 2008 and perhaps may see again soon

Price shocks leading to social and political unrest

World Food Prices

Here’s an illustration of how different food access and disposable income vary “North to South”

Territory size shows the proportion of all people living on PPP US$ 100-200 a day worldwide that reside there.

Distribution & Marketing

Oklahoma: transportation costs $0.20 per ton mile

In East Africa, the red areas are about $2.40 per ton mile

Compare with previous slide and see that transportation costs are more than the world price of maize.

Graph illustrates shipping cost from port of entry to destination.

Entry point is either Dar es Salaam or Mombasa, whichever has lowest cost.

Source: Stan Woods, IFPRI

Critical Needs for Sub-Saharan Africa

• Virtually all of the food security indicators are underperforming in SSA:– Direct access to food is weakened by low productivity, i.e. low crop

yields– Indirect access to food is weakened by low disposable incomes, high

transportation costs, and global price shocks– Food consumption inadequate for even basic energy requirements,

let alone improved nutrition– SSA diet remains starch-based, lacking in nutrition. Barb Stoecker will

be discussing this.

• Unfortunately, achieving food security milestones will become increasingly difficult over the coming decades

Future Challenges & Constraints: Has Malthus Returned??

• Feeding the world over the next few decades is going to be a major challenge

• Some even expect that food security could be a “North country” problem as well

• World will need to produce substantially more food over the coming decades to feed increased population (9 billion by 2050) as well increased demand from higher incomes, including large increases in demand for meat (primarily from Asia)

• Numerous constraints and challenges will limit the capacity to increase food supply in the future

• Can the world, as Malthus doubted, feed itself over the coming decades?

Constraints & Challenges to Global Food Security

• Shrinking land supply from urban encroachment • Environmental degradation• Global climate change• Water scarcity• Rising energy prices and its effect on fertilizer and other

input prices (high fertilizer use in food on quiz)• Competing uses of agricultural land from energy crops and

“neo-colonial” enterprises • Urbanization and decline of farm population • Pest damage

Rising Energy Prices ($ per barrel)

What happens if/when oil reaches $250 per barrel and stays there??

High energy prices result in higher production costs and ultimately impact grain prices when ending stocks are low…

Fertilizer prices explode: phosphates up from $390/ton in 2006 to $1,727/ton in April 2008

Climate Change

• 2004 study I was involved with at Texas A&M

• Forecasts of what is expected to happen to agriculture over next 50 years in SSA, including Kenya

Global Climate Change

Change in Rainfall

KENYA

• Changes in Crop Yield (%) (Under Canadian GCM projection out to 2050)

-24.9

-27.7-26.3

-29.0

-27.1

-35

-30

-25

-20

-15

-10

-5

0

Maize Millet Sorghum Beans Wheat

Cereal Production

• Changes in Cereal Production (%)

-10.0

-11.7

-13.0-14

-12

-10

-8

-6

-4

-2

0

Mali Senegal Kenya

Cereal Import

• Changes in Cereal Import (%)

16.5

60.2

19.8

0

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70

Mali Senegal Kenya

Price Index

• Price Index (Base = 100)

146.6

274.0

177.1

0

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300

Mali Senegal Kenya

Role of Economics in Food Security

• Allocate scarce resources under competing uses to meet societies needs and wants

• Guide policy makers towards making optimal use of resources under scarcity and imposed constraints

• Identify agricultural alternatives and policies that generate highest social rate-of-return

Economic Framework

• Economic implications and policy outcomes are assessed in a supply-demand framework

• Demand: How much food needs to be produced given population, economic growth, and food security goals (policy)

• Supply: How much food can actually be produced given the availability of inputs (land, water, labor, etc.), the condition of the natural resource base, and climatic factors

Economic FrameworkThink of demand as our goals and objectives: determines how much food do we need to produce

Think of supply as how much food the world can produce

Both supply and demand will depend on price, but do so in opposing ways.

Demand decreases when prices rise but supply increases.

Supply

Demand

Economic FrameworkMarket outcomes are determined where supply and demand meet.

The market outcomes tell us how much food is produced and what price consumers paid.

Both market price and quantity are highly important indicators and measures of food security.

We need to have affordable food for consumers so they can satisfy their requirements while giving producers ability to produce at low costs.

Supply

Demand

Policies have traditionally been biased towards keeping food prices low but as we will see that is difficult unless supply is strengthened.

Economic Framework

• Economic implications and policy outcomes are assessed in a supply-demand framework

• Best to think of demand as what and how much we need to do and the supply as how we go about meeting our needs

• The economic framework paints either a gloomy or hopeful picture depending on whether you believe Malthus or Boserup

Demand: How much food needs to be grown?

• Higher incomes in merging and emerged countries means increased demand for food

• Population growth will be an issue in many parts of the world, including SSA.

• More diverse diets (i.e. red meat) at least in Asia

• This means that demand will increase significantly over the coming decades

Income and population growth will continue to be key drivers of increased food consumption

Where would Kenya and Uganda be located on the graph??

Globally, meat consumption is forecast to increase by more than 2% per annum between 2005 and 2015 or over 60 billon MT

• Demand growth from diet change combined with population growth

• Meat consumption to increase from 50 kg per capita to 56kg between 2005 and 2015

• Poultry continues to take share from beef, albeit at a reduced rate. Pork gains due to China

• ~ 20% more feed grains will be needed to meet this demand

Source: FAO, FAPRI, OCED

Trend expected to continue, with only a modest leveling off

Economic Framework: Inc DemandVirtually all projections have global food demand increasingly significantly over the coming decades.

For economists, we have to rework our modeling framework to account for the growth in demand.

Supply

Demand

Demand curves shift outward, indicating that the quantity demanded by consumers is increasing. The effect is an increase in food prices. We can’t say how much prices will increase until we consider how supply will change over time, which we’ll look at in some upcoming slides.

Supply Considerations

• For sake of discussion, we can consider two opposing view points: Malthus vs. Boserup.

• Malthus argued that the world would run out of food since the supply of land is fixed. We’ll look at his supply curve on next slide.

• Boserup argued that through science and technology, societies are able to overcome limits on land supply by increasing ag productivity. We’ll also look at her supply on the next slide.

Econ Framework: Malthus vs. BoserupMalthus believed that because land has a fixed supply, there is only so much food that can be produced once land supply is exhausted. So his supply curve bends up.

In Malthus’ world, prices would skyrocket as demand increases over time. World won’t be able to feed itself once land has been used up.

Supply

Demand

Increasing Global Demand for Food

Econ Framework: Malthus vs. BoserupBoserup believed that with science and technology supply can be increased. Boserup’s supply curve is to the right, meaning that it produces more food at cheaper prices.

In Boserup’s world, prices would only increase modestly with increasing demand. Consumers would pay a premium for more intensive production. World should still be able to feed itself.

Supply

DemandScience & Technology

Increasing Global Demand for Food

Lessons Learned• Nearly all development economists believe Boserup: with science

and technology agricultural production can be increased and prices kept loweven when land supply has been exhausted.

• Evidence from the science-led agricultural development of the US in 20th century and the Green Revolutions in Mexico, Brazil, and Asia make it hard to dispute Boserup’s viewpoint

• For SSA, lesson is clear. As population grows, there is a need for a science based agricultural revolution to increase productivity.

• However, as we discussed earlier, the constraints to future growth are a source of concern for even strong believers in Boserup.

Achievements of a Science-Based Agriculture

How can we grow more food: Is Boserup correct?

• To satisfy demand, most estimates suggest that crop yields will need to increase by an average of 2% per year over the coming decades to satisfy world food needs.

• Daunting challenge since developed countries such as US averaged only a 2.1% yield increase since World War II

Africa’s Green Revolution (AGRA)

• Nearly all agree that the needs are so large that they cannot be met with the status quo.– Clear need for a Green Revolution in Africa– Asian revolution not transferred to Africa– Need new innovations to meet challenges

What Might Africa’s Green Revolution Look Like?

• Biotechnology• Irrigation• African led, science-based research and development • Address “orphan crops” that have been ignored by developed countries • Energy efficient• Water efficient• Better policy • Better physical infrastructure• Reinforce existing capacities

– Extension– Research and development (inc gdp share)

• Increased commercialization • Public-private partnerships• Continued support from foundations (Gates, Buffet, etc)

Alternatives

• Put in a nice table of alternatives

Empirical Evidence

• Bt cotton in West Africa• Bt maize in Kenya• Striga in maize

Bt Cotton in Burkina Faso

• An initial glimpse of what the Green Revolution could look like Bt cotton in West Africa

• Private firm, Monsanto, assisting in transferring technology

• Cooperation between technology provider and government, public research institutues, and smallholder prodcuers.

Benefits to Producers

• An initial glimpse of what the Green Revolution could look like Bt cotton in West Africa

• Private firm, Monsanto, assisting in transferring technology

• Cooperation between technology provider and government, public research institutues, and smallholder prodcuers.

Summary• Without more investments in agriculture in agriculture, including in science-based R&D,

it’s difficult to be optimistic about future food security in SSA

• Develop your own definition of food security and QUANTIFY even though it’s not easy

• Identify food security indicators

• Assess future food needs (demand) in your region

• Identify policy alternatives and new technology options

• Get farmers involved and strengthen extension

• Assess and rank constraints to production, including climate change

• Quantify whenever possible

• Everyone needs to think globally

Next Steps

• Surveys

The End

Global protein consumption per capita is highly correlated to the change in GDP per capita

Protein Consumption Vs GDP Growth

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% Chg GDP Per Capita % Chg Protein Consumption Per CapitaSource: Goldman Sachs

China (along with India) has become a major global economic force…with much more to come over the next 30 years

Glo

bal G

DP

Gro

wth

The protein value chain...

Impact of raising commodity prices?

Lower per capita income

Higher per capita income

Developing countries and the poor disproportionably feel the impact of food inflation - When food prices raise by 33% living standards are reduced 3% in rich

countries and over 20% in poor countries – G. Becker Nobel economics laureate Univ. of Chicago

Country Expenditure Per Capita on Food

Percentage of Household Final Consumption

Expenditures

United States $ 1,918 5.7%

United Kingdom $ 2,054 9.1%

South Africa $ 490 18.7%

Mexico $ 1,004 24.9%

China $ 153 26.4%

Russia $ 736 28.5%

Philippines $ 268 37.7%

Indonesia $ 378 55.1%

Source: USDA Economic Research Service, 2004 Data – Household final expenditures spent on food at home. Represented as fraction of household expenditures on goods and services.

Value Chain

Food insecure regions and countries at risk by climate event

Phenomenon Region/Country Projected impact

Hot days & nights

Warm spells /heat waves over most land areas

Countries of arid and semi-arid and sub-tropical Asia, Sub-Saharan Africa

Decreased crop and livestock yields due to water and heat stress

Extreme events - Droughts

- Floods

Semi-arid and sub-humid Africa(particularly southern Africa) and South Asia

Low-lying areas, deltas, river valleys &lake basins of Africa and Asia

Land degradation, crop damage and failure leading to lower yields

Increased livestock deaths

Damage to crops & food stores Soil erosion, inability to

cultivate land due to water logging