The current food crisis: Challenges and opportunities for agricultural development
Address to the Conferencia Magistral
by Jacques Diouf
Director-General
Food and Agriculture Organization of the United Nations (FAO)
Havana, Cuba, 21 July 2008
Your Excellency Mr. Rubén Zardoya, Rector of the University of Havana,
Your Excellency Mr. Oswaldo Martínez, Member of the Cuban Parliament and President of the Economic Commission,
Representatives of Governmental Institutions,
Colleagues from the United Nations'Agencies in Cuba,
Professors and students of the University of Havana,
Ladies and Gentlemen,
Once more the world is facing a profound food crisis. It is not the first, but it is a particularly sad and tragic one: it was predictable and we predicted it, and it was avoidable but the world failed to avoid it.
In 1996, I called the world to gather in Rome for the first World Food Summit. The Heads of State and Government of 112 countries and the representatives of 186 Members of the Organization solemnly pledged to reduce by half the number of hungry in the world by the year 2015 and adopted a programme to achieve that target. But already in 2002, we had to convene a second world summit to draw the international community's attention to the fact that resources to finance agricultural programmes in developing countries were decreasing instead of rising. If continued, such a trend would mean the Summit target would only be reached in 2150. An "anti-hunger programme", with financial requirements estimated at 24 billion dollars per year was prepared for that meeting.
Sad but true, we failed to live up to our promises. Rather than providing more help, we witnessed a stubborn decline in the attention paid to agriculture: aid to agriculture fell from 8 billion dollars in 1984 to 3.4 billion dollars in 2004, representing a reduction in real terms of 58%. Agriculture's share of Official Development Assistance fell from 17% in 1980 to 3% in 2006. The international and regional financial institutions saw a drastic reduction in resources allocated to the activity that constitutes the principal livelihood of 70% of the world's poor.
Today, the consequences of inaction speak for themselves: Soaring prices for food and inputs produced a bitter crop of protests, riots and deepening global hunger. In our forthcoming Report on the State of Food Insecurity in the World we show that the number of hungry people rose by about 50 million in 2007. The lion's share of this increase can be attributed to high food prices. The numbers may further rise in 2008 because after months of rising prices, countries have drawn on their budget reserves and households on their savings. With such buffers no longer in place, many more people could go hungry.
Food prices have soared. Just over the last 12 months the FAO food price index rose, on average, by 52 percent. Prices for some commodities, notably for maize continued to rise during the first half of 2008. Until mid-June 2008, maize prices rose by more than 70%, approaching a record level of nearly US$8/bushel. Likewise, prices for soybeans and soybean oil were at or near record levels by mid 2008.
The global food import bill has surged to 820 billion dollars in 2007, the highest level in history. Costs are projected to rise by another 26% in 2008 and could reach the all-time-high level of 1035 billion dollars in 2008. The most economically vulnerable countries are set to bear the highest burden in the cost of importing food, with total expenditures by Least-Developed Countries (LDCs) and Low-Income Food-Deficit countries (LIFDCs) anticipated to climb by 37 - 40 percent from 2007, after rising by 30 percent and 37 percent, respectively, already last year. The sustained rise in imported food expenditures for both vulnerable country groups constitutes a particularly worrying development, since, on current expectations, their annual food import basket could cost four times as much as it did in 2000.
No doubt, high food prices do not have to be bad news for all, and farmers normally stand to benefit. But this time only very few farmers managed to benefit from higher prices. Most of them have been squeezed by soaring costs. Again, the fact speak for themselves: Prices for fertilizer, seeds and animal feed have risen by 98, 72 and 60 percent, respectively since 2006. For some inputs these price rises even accelerated in 2008. On average, the FAO input price index doubled in the first four months of 2008, compared to the same period in 2007; US dollar prices of some fertilizers more than tripled. Small subsistence farmers in developing countries are always particularly hard-hit by soaring input prices: they have to pay a lot more for the seeds, fertilizer and diesel they need without being able to benefit from high output prices.
There was no time to be lost. We acted immediately. To avert a deepening disaster, FAO in December 2007 launched its Initiative on Soaring Food Prices (ISFP). Allow me here to illustrate its main features.
The Initiative on Soaring Food Prices essentially provides start-up funds for producers in the world's poorest countries to boost agricultural production over the next two planting seasons. Integrated into existing programmes and harmonised with other efforts, measures worth 40 million dollars have already been deployed in 57 countries. But this can only be a starting point and more than 40 times as much will be needed - 1.7 billion dollars - to develop a much more substantive and comprehensive development package for the future.
When I called a High-Level Conference in June this year, more than 4500 delegates from 181 countries, including 43 Heads of State and Government and 180 Ministers came and renewed their commitment to fighting hunger much more forcefully than in the past. Some 22 billion dollars have been pledged to be available in the fight against hunger, 10,8 billion of which during the FAO High-Level Conference. This was more than five times the level of all ODA going to agriculture in 2006. We hope that the very encouraging pledges will come forward this time around and will be translated into financial and in kind contributions that will reach the poor around the world.
Your Excellencies,
Ladies and Gentlemen
Allow me now to look further ahead into the future. In the next fifty years it could become much harder to feed the world if relevant actions are not taken immediately. Population will grow from 6.5 billion today to 8.3 billion in 2030 and nearly 9.2 billion in 2050. All of that growth will be concentrated in developing countries. Global food production will therefore need to increase by more than 50% by 2030, and nearly double by 2050.
Not only will the entire population growth take place in developing countries, urban population will grow while rural population will actually shrink. That means that fewer farmers will have to produce nearly twice as much food as they do today. This requires much more research and technology, infrastructure (i.e. more dams, irrigation and drainage systems, storage facilities), machinery (tractors, implements, water pumps, etc.) and more rural roads.
Land and water resources still lie untapped in some regions of the world, many others lack the luxury of unused resources. Indeed, some regions face severe and increasing resource scarcity. South Asia and the Near East/North Africa region have already exhausted much of their rain-fed land potentials and depleted a significant share of their renewable water resources. Their food import dependence is high and poised to increase further. But we will also need better skilled and better trained farmers. Those farmers will have to do the job with fewer resources. More than 1.2 billion people today live in river basins where absolute water scarcity and the trend of increasing water shortages are serious concerns. Huge investments will be required for the development of the necessary irrigation schemes and dams in these areas. Expanding land under cultivation is possible in sub-Saharan Africa and Latin America but will require adequate preventive measures and management of environmental risks.
Global agriculture will also have to cope with the burden of climate change. The Inter-Governmental Panel on Climate Change or IPCC documented these impacts in detail in its fourth assessment report published last year, which often makes alarming reading. If temperatures rise by more than 2oC, the global food production potential is expected to contract severely and yields of major crops like maize may fall globally. The declines will be particularly pronounced in lower latitudes. In Africa, Asia and Latin America yields could drop by 20-40 percent. In addition, severe weather events such as droughts and floods are likely to intensify and cause greater crop and livestock losses. These changes require massive investments in improving agriculture's adaptive capacity to climate change. Climate change in fact poses a twin challenge for agriculture -- adapting agricultural production systems to a new agro-ecological environment and helping mitigate the overall impacts of climate change on the world as a whole.
Rising fossil energy prices mean that alternative energies will become increasingly important. The energy market is so large and the demand could be so high that it has the potential to change our traditional agricultural market systems completely. In our upcoming report on the State of Food and Agriculture we have documented that rising oil prices in conjunction with massive and often highly distorting policy incentives have made a growing share of agricultural produce competitive as feedstocks for the energy sector. This has resulted in a situation where nearly 100 million tonnes of cereals have been siphoned-off the food markets and diverted away for energy needs.
High oil prices and the use of agricultural resources for the energy market may indeed introduce a complete new paradigm for world agriculture. If energy prices remain high and feedstock production for the energy market remains an economically viable activity, this will discontinue the long-term downward trend in real prices and mean that food will remain expensive.
Another feature that will remain with us for an extended period of time is higher price volatility. In our latest medium-term outlook for world agricultural markets, that we undertake jointly with the OECD, we examine the problem in detail and provide the explanations. The first and probably most important reason is that we do not expect a significant replenishment of stocks over the next 10 years, at least not without deliberate policy action. Second, we find that demand is becoming increasingly less sensitive to price changes as the commodity share in the final food bill falls and as industrial demand grows; third, weather conditions and agricultural product supply may become more variable with climate change; and finally, we have seen that speculative, non-commercial investment funds enter or leave agricultural futures markets as profit opportunities dictate. All this means that the price swings we have witnessed over the past two years are likely to be with us for an extended period of time.
Your Excellencies,
Ladies and Gentlemen
How can we rise to such challenges? We have already made a number of proposals in this respect. In 2002, when I called for a follow-up meeting to the World Food Summit, we presented a comprehensive approach designed to reduce the number of undernourished to the level aimed at by the WFS in 1996. In this investment plan, which we called the Anti-Hunger Programme, we advocated a two-pronged strategy, which is now often referred to as a "Twin-track approach".
Let me now explain how such a twin-track approach could work, what it would entail and how large the investment requirements would be. As this proposal was developed five years ago, allow me here to focus on the selection of investment areas and instruments and their relative importance rather than on the absolute amounts.
When we prepared the Anti-Hunger Programme (AHP) in 2003, we estimated that an annual overall investment envelope of nearly US$24 billion would be needed to accomplish the goal of halving hunger by 2015. This amount, allocated over five distinct areas was estimated to generate an overall benefit of US$120 billion. We have just updated these estimates and, by adjusting them for inflation only, raised the annual total to US$30.5 billion.
Investments would be spread over five principle areas addressing long-term needs.
The first area of investment would be to improve agricultural productivity and enhance livelihoods and food security in poor rural communities by increasing the quantity and improving the quality of locally available food. It also provides a foundation for equitable economic growth.
Starting up such a process requires an initial injection of capital, to enable small farmers to build up productive assets on their farms, to finance seeds of improved varieties, manure or fertilizers; small-scale on-farm equipment (e.g. land levelling, treadle pumps); breeding stock or contributions towards community-led measures to improve food security (e.g. school gardens). Adjusted for inflation, the original estimate would amount to 2.9 billion dollars per year.
The second investment pillar would go to develop and conserve natural resources. If food demand is to be met in the future, increased outputs will have to come mainly from intensified and more efficient use of the land, water and genetic resources (plant, animal, fisheries and forestry) that farmers in developing countries have at their disposal. At the same time, action must be taken to arrest the destruction and degradation of the natural resource base. To this end, we currently foresee an investment need to the tune of 9.5 billion dollars per year.
The third element of our investment strategy foresees to expand rural infrastructure and to broaden market access. A high investment is needed because rural infrastructure is also one of the most neglected areas in many developing countries. It would go into construction of rural roads, improvements of market infrastructure (transport facilities, storage capacity, cold chains, conditioning to respect standards of food quality and safety, slaughterhouses, fishing ports, etc.) as well as the maintenance and rehabilitation of both. All in all, this is the most expensive part of the strategy and would cost about 10 billion dollars per year. Another US$300 million would cover the cost of capacity building, support for policy assistance, institution strengthening and measures to improve plant and animal health.
The fourth major investment area in our long-term strategy is capacity building, knowledge generation and dissemination in particular for small-scale farmers. This requires the provision of effective knowledge-generation and dissemination systems, aiming to strengthen links among farmers, agricultural educators, researchers, extension workers and communicators. It will require 1.43 billion dollars per year.
Fifth and finally, there is a continuing need to ensure access to food for the most needy. They include various options, including targeted direct feeding programmes such as school meals, feeding of expectant and nursing mothers as well as children under five through primary health centres; soup kitchens; and special canteens. For safety nets and other direct assistance we calculated a need of 6.6 billion dollars per year.
Your Excellencies,
Ladies and Gentlemen
Despite the many grave problems we face, let me conclude on a positive note. No doubt, we are confronted with the unprecedented challenges of feeding more people, better, at higher prices, with more expensive inputs and limited resources while simultaneously battling climate change. But at the same time we should remember that an era of unprecedented opportunity is also opening up for agriculture. High prices can make farming much more profitable and turn agriculture into a key opportunity in the fight against hunger. But for this to happen, we have to create the environment that allows farmers to reap the benefits of high prices. We at FAO have made the proposals to accomplish this. If fully funded, the Initiative on Soaring Food Prices will help address the most acute and immediate needs, and the Anti-Hunger Programme would help us meet the long-term challenges. But we have to act, and we have to act now.