65646 Food Price Watch POVERTY REDUCTION AND EQUITY GROUP POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK MAY 2010 Summary: Analysis of domestic staple food price data since 2006 suggests that food price volatility is a growing concern. In recent months domestic food prices have risen sharply in South Asia and in parts of Sub-Saharan Africa, even though global grain prices have declined over the past year. The reasons behind these local price spikes include domestic supply disruptions and macro-policy factors. In countries where staple food prices have risen rapidly, estimates suggest undernourishment (hunger) could increase by between 2-3%. Recent volatility of domestic staple prices appears Figure 1: Volatility of the Price of Main Staples in 26 higher than that prevailing before the 2008 global Countries food price crisis. Average food price volatility for a sample of 26 low income countries has been higher Standard Deviation of the First Differences of over the past year than it was in 2006/07 (see figure 1). Price volatility creates additional risks and is a particular Average Monthly Staple Prices burden for low income producers who are least able to hedge against these fluctuations, as well as for poor consumers. Increased volatility tends to lead to greater government intervention in agricultural markets often with sizeable fiscal costs. Staple food prices fluctuated most in the Democratic Republic of Congo, Zimbabwe and Uganda in the 12-month period leading up to February 2010 (table 1). Table 1: Countries with highest volatility of domestic prices in the 12-months up to NOTE: All domestic prices are in USD. The chart shows the standard deviation of the first difference of the average monthly staple food price in the previous February 2010 12-month period e.g. the February 2007 estimate is based on February 2006-February 2007 prices. Coefficient of variation of Prices of main food staples are rising rapidly in South main staple Asia and parts of Sub-Saharan Africa. In the one year prior price to February 2010 wheat prices rose by 24% in Lahore, Democratic Republic of Pakistan and by 14% in Mumbai, India. Sharp increases Congo 0.48 in sugar and pulses prices led to food price inflation rising Zimbabwe 0.26 to about 20% in India in early 2010. Rice prices rose by Uganda 0.21 27% in Bangladesh between October 2009 and February 2010. In Burundi, the price of beans increased by 58 Burundi 0.19 percent in the four months leading up to February 2010. Nigeria 0.17 Sharp increases in the price of staples have also Malawi 0.17 occurred in Zimbabwe, Sudan, Chad, Haiti and Somalia over the past quarter and in Tanzania, Chad, Mali and Food Price Watch produced by the Poverty Reduction and Equity group at the World Bank is a series which aims to draw attention to trends in domestic food prices in low and middle income countries and their policy implications. Contact person – Hassan Zaman (hzaman@worldbank.org) Table 2: Countries with the largest increase in the price of the main food staple Price Increase, Annual average up to year ending Feb. 2010 Price Increase, October 2009-February 2010 % % Location Commodity Increase Location Commodity Increase Sudan (Khartoum) Sorghum 39.8% Burundi (Bujumbura) Beans 58.0% Pakistan (Lahore) Wheat 23.9% Zimbabwe (Harare) a/ Maize 36.0% Tanzania (Dar es Salaam) /a Maize 21.2% Sudan (Khartoum) Sorghum 28.2% Chad (Abeche) Sorghum 20.8% Bangladesh (Dhaka) Rice 26.9% Mali (Bamako) Millet 17.0% Chad (Abeche) Sorghum 23.5% Kenya (Nairobi) /a Maize 16.3% Haiti (Port-au-Prince) Rice 22.9% India (Mumbai) Wheat 13.6% Somalia (Lasanod) Sorghum 20.6% NOTE: a/ USD price as LCU data unavailable. b/ Of the 58 countries monitored by FAO / GIEWS, this table only considers countries for which price data was available at least up to February 2010. All price increases reported correspond to current LCU prices. Kenya over the past year (see Table 2). Among countries and Thailand. Sugar prices dropped 25 percent between that were on our “watch list� in the previous quarter, the February and March 2010 due to the supply response price of the main staple has declined in Uganda (-54%), resulting from the sharp increase in global sugar prices Nigeria (-32%) and Kenya (-11%) while countries like in 20091. Sudan, Tanzania and Chad continue to remain on the list. The reasons behind these domestic price spikes include climatic shocks, conflict and macro-policy These domestic price increases appear unrelated factors. Burundi, Chad, Somalia, Sudan and to global grain price movements which have declined Zimbabwe suffer from widespread lack of access to marginally in the year leading up to March 2010. food on account of ongoing civil and military strife, and The World Bank index of grain prices was 10 percent lower adverse weather patterns in major food growing regions in March 2010 compared to a year earlier while the in 2009/10 led to staple food price rises. In Chad, Niger overall food price index was 8 percent higher (figure 2). and Mali poor rains in 2009 have led to a sharp drop in Recent months have seen declines in global food prices output. FAO estimates that Chad’s foodgrain output in - since January the World Bank food price index declined 2010 has fallen by 12% and the influx of refugees from by 7%. Rice prices fell by 6% between February Sudan’s Darfur region and from the Central African Republic and March 2010 due to increased supply by Vietnam is creating additional pressures on food security. Figure 2: Trends in Food Prices in International Markets Source: World Bank, DECPG POVERTY REDUCTION & EQUITY GROUP * WWW.WORLDBANK.ORG/POVERTY 2 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP Box 1: Unpacking Food Price Inflation in India Inflation as measured by the wholesale price index (WPI) was just under 10 percent in March 2010 with the largest contributor coming from food price increases. The wholesale food price increase was close to 20 percent in January 2010 driven primarily by the prices of sugar, pulses, and cereals. A poor monsoon in FY2008/09 and the worst drought in decades in FY2009/10 led to lower agricultural output e.g. food grain output is estimated to have declined by 7.5 percent in FY2009/10. Sugar production also declined by 2 percent, 18 percent, and 12 percent, respectively, in the three years since FY2007/08. Sugar prices increased 42 percent in the fiscal year leading to February 2010 and with a share of 15 percent in the WPI-Food, sugar on its own constituted 41 percent of the food price increase. Pulses registered an average rate of price rise of 28 percent, while cereals increased 14 percent in the fiscal year leading to February 2010. In the four major cities for which FAO monitors the price of staples, the average retail price of rice increased by 19 percent in Chennai in the 12-months leading up to February 2010 while the price of wheat increased by 12.7 percent in Chennai and 13.6 percent in Mumbai. Egg, meat and fish also registered high price increases, but their share in the index is small. The high cost of food was the reported reason behind demonstrations in several cities in April 2010. Main source: India Economic Update (2010 forthcoming), The World Bank The price rise in Haiti is likely due to the January Exchange rate movements have also contributed to earthquake. In South Asia, India has suffered from domestic grain price rises – for instance the value of the crop shortfalls due to poor rains leading to higher Pakistani rupee fell by 7% against the US dollar in the year cereals prices while the spike in sugar prices played a leading up to February 2010. Tariffs on foodgrains also play major part in the increase in the wholesale food price a role. In Kenya domestic maize prices have declined index (see Box 1). Drought has affected wheat output sharply due to the lifting of the duty on maize imports and prices in Pakistan. coupled with favorable weather conditions in late 2009. Table 3: Estimates of the Impact of Main Staple Food Price Increases on Undernourishment % Increase in the Additional price of the main undernourished % Increase over staple in 2009 people 2008 Pakistan (wheat) 23.9 462,419 2.1 Tanzania(maize) 21.2 229,613 2.2 Mali (millet) 17.1 73,293 1.9 Kenya (maize) 16.3 311,929 3.3 Estimates of the impact of these higher staple increase in main staple prices on undernourishment prices on undernourishment illustrate the importance (hunger). We present the results for four countries where of strengthening food security policies. A model prices have risen sharply in the year leading up to February which links changes in food prices to changes in 2010 and find that the increase in the number of hungry calorie intake2 is used to estimate the impact of the people increases by between 2-3% in these countries. Note 1. Source: Commodity Markets Review, April 2010, Development Prospects Group, The World Bank 2. Estimation is based on the model developed in Tiwari and Zaman (2010), “The Impact of Economic Shocks on Global Undernourishment�, Policy Research Working Paper #WPS5215, World Bank. POVERTY REDUCTION & EQUITY GROUP * WWW.WORLDBANK.ORG/POVERTY 3 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP