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Food price volatility and FNS
Joachim von Braun Center for Development Research, University of Bonn
Brussels April 26 , 2013
Demand Population (growth) Income (growth, urbanization) Poverty and inequality Consumer behavior, waste Bio-energy
Trade and Markets Supermarkets Protection Financial markets Food stocks
Supply = Land (degradation) Water (scarcity) Productivity & technology Labor & farm structure Climate change
The 2050 world food equation is risk prone
J. von Braun, ZEF 2013
Which „t“ is relevant for which food security problem?
• Long-term (decade/year): >nutritional status (stunting); water-, land-use; climate, technology; polit. change; investments • Medium-term (months): >nutrient deficiencies (Cal., micro-nutrients); weather, grain stocks • Short-term (weeks, days, seconds): >nutrition shocks in early childhood; trade shocks (export bans), shocks in commodity and financial
markets Optimal balance between short- and long-term action?
The reactions to price change What impact of price changes for production response? 1. area responses to price change, 2. yield response to price change, and 3. all productivity enhancing responses along the food
value chain. Here focus on 1. as the biggest potential short run effect
Price impacts on production
• Area volatility, not just yield variability
Monthly Planting Pattern: Wheat 2010 Jan Feb Mar
Apr May Jun
Jul Aug Sep
Oct Nov Dec
0 1 0.43 0.14 0.03
(values normalized to maximum area planted)
Global cropping calendar dynamics as a modelling basis
Area Response to Prices and to Price Volatility
Wheat Corn Rice Future price -0.01 0.04* Spot price 0.06*** 0.07** 0.03*** Volatility -0.17** -0.06 -0.08**
Source: Haile, Kalkuhl and von Braun, ZEF manuscript (work in progress); further variables (lag area, fertilizer prices, time trend and constant are omitted)
Global annual (area) response (price elasticities)
• Prices increase matters: (+10% price > 0.1 % response and .5 % long run)
• Volatility reduces response!
J. von Braun ZEF 2013
Price impacts on Production Variables Wheat Maize Soybeans Rice
Acreage (t-1) - - - Wheat price + - - Maize price + - Soybean price + Rice price + Fertilize price index - Own price volatility - - Red: strong (elast.>0.3) Orange: medium (elast.> 0.15) Yellow: low (elast. > 0); missing entries represent insignificant outcomes or excluded variables
• Volatility reduces maize and rice area • International prices have strong impact on maize and soy production
All now build high stocks: e.g. China, India
Both countries have high stocks and influence global prices
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Mill
ion
met
ric to
nnes
Total Cereal Stocks
China
India
Source: AMIS At least need more transparency on stocking data
Sound global grain reserves policy needed
• Intra-annual storage and ‚normal‘ harvest
fluctuations captured mainly by private stockholders
• Reserves in case of rare extreme events to assure supply for food security needed by public
Food price drivers: old and new
Old Fundamentals • Supply / demand / stocks remain drivers • The source of old fundamentals is changing from US to
emerging economies such as China, India, EU, Brazil, etc.
New Fundamentals • Energy market linkages • Financial market linkages • Speculation, in combination with trade policy
J. von Braun ZEF 2013
Changed price regime as a consequence of changes in the global food equation
13
0
50
100
150
200
250
300
0
100
200
300
400
500
600
700
800
900
1000
1/20
005/
2000
9/20
001/
2001
5/20
019/
2001
1/20
025/
2002
9/20
021/
2003
5/20
039/
2003
1/20
045/
2004
9/20
041/
2005
5/20
059/
2005
1/20
065/
2006
9/20
061/
2007
5/20
079/
2007
1/20
085/
2008
9/20
081/
2009
5/20
099/
2009
1/20
105/
2010
9/20
101/
2011
5/20
119/
2011
1/20
125/
2012
rice $/tonne
wheat $/tonne
cereal price index
Pric
e ($
/mt)
Index
Source:FAO, FAO Giews.
Prices have increased sharply and remain volatile
200
400
600
800
1000
1993m7 1998m1 2002m7 2007m1 2011m7time
nominal rice price ($/mt) estimated price
100
200
300
400
500
1993m7 1998m1 2002m7 2007m1 2011m7time
nominal wheat price ($/mt) estimated price
Price movements are hard to explain today
Observed price spikes not much explained by fundamentals
Estimated ‘fundamental’ monthly wheat and maize prices according to global cumulative supply in the preceding 12 months (H), stock-to-use ratios (STU) and nominal GDP (monthly interpolation). Source: own calculations based on crop calendar disaggregation data of Mekbib, Kalkuhl & von Braun (2012).
𝑝𝑖,𝑡 = �𝐻𝑖,𝑡−𝑠
11
𝑠=0
+ �𝐻𝑗≠𝑖,𝑡−𝑠
11
𝑠=0
+ 𝑆𝑆𝑈𝑖,𝑡 + 𝑆𝑆𝑈𝑗≠𝑖,𝑡 + 𝐺𝐺𝑃𝑡
Wheat Rice
J. von Braun ZEF 2013
There are different price movements
Price of wheat Price spikes Price volatility Price trend
Price of US HRW wheat in US$ per metric tone
Change of the price level relative to the previous period (here: month)
Deviation of a price series from the annual mean
smooth, long-term average movement of prices over time
0
100
200
300
400
500
1985 1990 1995 2000 2005 2010-0.3
-0.2
-0.1
0
0.1
0.2
0.3
1985 1990 1995 2000 2005 20100.0
0.1
0.2
0.3
1985 1990 1995 2000 2005 2010100
150
200
250
300
1985 1990 1995 2000 2005 2010
Classification of different price dynamics (adopted from von Braun and Tadesse 2012).
New insights when price changes are decomposed into spikes, volatility, trends
J. von Braun ZEF 2013
Speculation and oils prices contribute to food price SPIKES
Drivers Commodity
Maize Wheat Soybeans Rice
Supply Shock (Millions of tons) *
Excessive volume of speculation (Thousands of contracts) *** ** *** N/A
Crude oil price (%) ** ** *** *
Samples from January 2000 to December 2009; *,**,*** significant at 10%, 5% & 1%
Food price spikes were driven mainly by excessive speculation and by demand shocks (oil price) but less by supply side shocks
Source: von Braun and Tadesse 2012 J. von Braun ZEF 2013
Todays extreme volatility (Maize)
Todays media hotspots of food security(FOODSECURITYPORTAL.COM)
Global to local? Transmission of international prices to domestic food prices
0 1 0.04 Combined transmission elasticities from CBoT Rice, Wheat, Soybean and Corn futures to domestic food price indices.
0.36 0.16 0.64
Source: own calculations (Kornher/Kalkuhl, ZEF, work in progress)
Maize Rice Wheat Soy
0.33 0.11 0.00 0.10
Transmission elasticities to Indian Food Price Index:
J. von Braun ZEF 2013
Volatility and Nutrition
Implications of Food Price Spikes
• Price spikes lead to increasing malnutrition
• Price volatility (risk) reduces price incentives, perpetuates supply and productivity problem
• Macroeconomic Impacts (e.g. high inflation requires increase in welfare spending; imbalances)
21
What EU can do for UN and G20 initiatives
1. “Ending Hunger“ - a post MDG 2015 goal! (ending caloric deficiencies, reduced stunting, reduced micro-nutrient deficiencies)
2. Implement G20 committments re commodities futures markets regulations (caps, transparency, etc.)
3. Support for responsible international investments for food security (foreign land investments)
4. Attention to food and nutrition insecurity in G20 countries themselves (G20 countries are home of about 50 % of the world‘s hungry people)
5. EU to drive the global science agenda for food and nutrition security
