Identifying Global Impact Pathways

Presentation at Orlando, Florida 7.27.2008
Yang Jun & Jikun Huang, CCAP, Chinese Academy of Sciences
Siwa Msangi & Mark Rosegrant, IFPRI
Scott Rozelle, Stanford University


International cereal and soybean prices have steadily increased since 2006. Global pressure on food prices and supplies is causing growing concern about the welfare and food security of developing countries, as well as social and political unrest. Definite reasons for price rises are unclear, however possible explanations include the rise of China, failing water supplies, weak US dollar, increasing freight rates, and crop failures.

Key questions to address include: What are the causes of the current rises in food prices? What should be expected in the coming years? What is the specific role of biofuels in future price determination? What will be the impact on poor areas of the world? How will it affect malnutrition? What factors are important when researchers are analyzing these issues?

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Biofuels and the World Food Crises: Opportunities and Challenges for the World’s Poor

Presentation for Stanford Institute of Economic Policy Research
Scott Rozelle, Rosamond Naylor, Walter Falcon – Stanford University
Mark Rosegrant, Siwa Msangi – International Food Policy Research Institute
Jikun Huang, Yang Jun, Huanguang Qiu – Center for Chinese Agricultural Policy, Chinese Academy of Sciences

Our goal is to try to tell a consistent story about what is happening and draw out some policy lessons. Plans to meet this goal include: understanding trends of interest, modeling future prices (1) Global prices using the modeling framework, in context of trade; and (2) a case study of impacts and domestic policy in China); and (3) conclusions.

There are reasons to believe that recent trends are different from previous spikes in prices. The real global cereal prices have declined since the beginning of the 20th century when the rediscovery of Gregor Mendel’s work in genetics began revolutionizing agricultural practices. Since the 1960’s, while food prices have declined, food production (measured in total and per capita) has grown and numbers of undernourished people in developing countries has also fallen[1].
Of course, price fluctuations are expected and current real prices are still below the “trend level prices” of the 1970s. However, looking at just the price “spikes,” the distinguishing characteristic of the current price spike is that is not preceded by a major global supply shock (in a major exporting country). [See Figure 1]

Since 2006, there has been a steady surge in prices in many nations around the world such as China, India, Indonesia, Mexico, and the US. The nature of this current price rise appears to be different because unlike in the past, this recent price rise is associated with steady crop production. Between January 2000 and August 2008, world cereal production (corn, wheat, and rice) has either increased slightly or significantly. Other evidence of new global price relations includes: 1) changes in price relations over time, evident by comparing spot and future market prices; 2) despite expected rises of grain and soybean productions in 2008, the prices in commodity future market for 2009-2010 are as high (or higher) as their current pries; 3) markets are clearly expecting prices to stay high — this is obviously not a supply shock-led rise.

In looking at the relationship between “spot” and “future” prices (projected, 2 years after “spot” price) during previous world food crises (i.e. 1974 sport market rice, 1976 future prices in 1974; 1995 spot market price, 1997 future prices in 1995.) This differs from 2008 spot market price & 2010 future prices in 2008, which are higher that expected. This indicates markets do NOT expect prices to come back down to trend, and that the price rise is not due only to a supply shock.

Other explanations in literature include: surging demand in China and India, global water shortages, falling land in agriculture, lagging investment in new technologies, and climate change. All of these reasons may be true to some extent, however all are slow processes whereas the current spike is sudden and therefore unlikely to be due to these factors.

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