2.4 The resilience challenge



The creaking global food system has come under increasingly dramatic stress, with disastrous consequences for the most vulnerable. Volatile food prices have delivered two global crises in the space of three years, while in the background climate change relentlessly gathers pace.

Increasing fragility

Who bears the brunt of increasing fragility in the food system is no surprise. Most vulnerable are countries with large populations of women and men living in poverty, and which depend on international markets for much of their food needs. Their food import bills increased by 56 per cent in 2007–08 compared with the previous year, which itself saw a 36 per cent jump.91 The World Bank estimated that the 2008 price spike pushed over 100 million people into poverty, 30 million of them in Africa.92

The real costs are borne at the family level. Poor households spend up to three-quarters of their income on food,93 making them extremely vulnerable to sudden price changes. In addition to the expected impacts – cutting back on food, struggling to pay health and education costs, taking on debt, or selling off assets – research on the tragic consequences of the 2008 crisis found increases in the abandonment of children and elderly people, crime, and risky sexual behaviour.94

For poor farmers, the food price crisis brought an abrupt end to decades of artificially low prices, depressed by rich countries’ agricultural dumping. Sadly, few could turn higher prices to their advantage because most were net consumers of food and nearly all lacked the resources to turn the threat into an opportunity. Price volatility and unpredictable weather discourage poor farmers from investing or taking risks, particularly since that may quite literally entail betting the farm.

Box 5: Profits from volatility and volatility from profits

Price volatility causes havoc for women and men living in poverty, but presents big opportunities for agribusiness firms, such as Cargill, Bunge, and ADM that according to one estimate control nearly 90 per cent of global grain trading between them.95 In times of price stability, trading margins are razor-thin, but instability allows the largest traders to exploit their unrivalled knowledge of reserve levels and expected movements in supply and demand.96 In the second quarter of 2008 Bunge saw its profits quadruple compared with the same period in 2007. The surge in crop prices during the second half of 2010 helped Cargill to its best results since 2008, which Chairman and CEO Greg Page attributed to a ‘resurgence in volatility across agricultural markets’.97

Similarly, when the 2010 Russian wheat harvest failed, Bunge’s profits ballooned and the company attributed the windfall to ‘crop shortages related to the drought in Eastern Europe’. ‘I hate to say we benefit,’ said CEO Alberto Weisser in an interview.98

Some companies’ activities create volatility in the first place, such as the diversion of food crops to biofuels. The biofuel lobby consists of an unlikely alliance of agribusiness, farmers’ unions, energy companies, and input companies.99 Its successful push for mandates for biofuel content in gasoline and diesel introduced inelastic demand into food markets, while the subsidies and tax breaks won by the biofuels lobby help transmit price movements from oil markets. Both result in increased volatility.

Attention has also recently turned to pension funds and other institutional investors, because many now aim to have 3–5 per cent of their investments – representing trillions of dollars – invested in commodities, including food commodities. The UN Special Rapporteur on the Right to Food and others argue that this sudden flood of demand is destabilizing and has contributed to price surges. Concerned that increasing volatility in food markets may pose risks to their portfolios, some investors, such as the French state pension fund FRR, the Dutch state pension fund ABP, and the California teachers’ fund CalSTRS, have chosen to limit investments in commodities.

Food prices gone wild

Certainly, the fundamentals that determine long-term food prices are shifting, especially rising demand in emerging economies, although it is not a convincing explanation for short-term price spikes. The dependency of the food system on oil for transport and fertilizers is a key factor in both, as oil prices are expected to rise in the long term and to become increasingly volatile (see Figure 20).

At the same time, food stocks have declined – in 2008 world stock-to-use ratios for wheat, maize and rice were at their lowest since the 1970s to early 1980s.100 Without reserves to smooth supply, any shock is transmitted directly to prices. Recently, countries have started to panic buy on open markets in an attempt to build up reserves, introducing even more demand into the market. Nervous anticipation of the next crisis is exacerbated by a lack of transparency about the levels of reserves countries hold – nobody really knows how big anyone else’s buffers are.


Climate chaos

Supply shocks are already a problem, and will become a much bigger one as climate change gathers pace. Poor wheat harvests in 2006 and 2007 were identified by some as contributing factors to the last crisis. A record-breaking heatwave in Russia in 2010 reduced the country’s wheat crop by 40 per cent,101 prompting the government to impose export restrictions. Nobody knows what the shock next will be, or when and where it will hit. What if the 2010 heatwave had been centred on the American Midwest – the world’s breadbasket – instead of Moscow? Lester Brown estimates that this would have pushed world carryover stocks of grain to below 52 days of consumption – far below the 62 days of stocks that set the stage for the 2008 crisis.102 Other recent extreme weather – devastating floods in Pakistan and Australia, dry weather in Brazil, heavy rain in Indonesia – has pushed up international prices and disrupted national production.