Food Price Volatility a Growing Concern,WB Stands Ready to Respond

Given the exceptional drought in the US, current crop conditions in other grain producing regions, and the resulting increase in international food prices, the World Bank today expressed concern for the impacts of this volatility on the world's poor, who are highly vulnerable to increases in food prices.

"When food prices rise sharply, families cope by pulling their kids out of school and eating cheaper, less nutritious food, which can have catastrophic life-long effects on the social, physical, and mental well being of millions of young people," said World Bank Group President Jim Yong Kim. "The World Bank and our partners are monitoring this situation closely so we can help governments put policies in place to help people better cope."

"In the short-term, measures such as school feeding programs, conditional cash transfers, and food-for-work programs can help to ease pressure on the poor," continued Kim. "In the medium- to long-term, the world needs strong and stable policies and sustained investments in agriculture in poor countries. We cannot allow short-term food-price spikes to have damaging long-term consequences for the world's most poor and vulnerable."

Thus far, crop projections do not indicate the potential for actual shortages in the major grains; however, stocks are low, and the harvests will continue to be dependent upon global weather, which leaves prices more vulnerable to higher volatility.

Food price volatility creates unpredictability in the market and poses fundamental food security risks for consumers and governments. Volatility also discourages needed investment in agriculture for development due to increased financial risks and uncertainty for producers and traders.

While the prices of many food staples have risen sharply, the Bank noted that the current conditions differ from the 2008 crisis. In 2008, while other grains increased in price, rice and wheat prices rose the most, although the price fell quite substantially in 2009 due to a notable supply response by farmers seeking to benefit from higher prices. In 2012, prices have risen across all the non-rice grains - wheat, corn and soybeans:

• Wheat prices are up over 50 percent since mid-June;

• The price for corn has risen more than 45 percent since mid-June; and

• Soybeans are up almost 30 percent since the beginning of June and up almost 60 percent since the end of last year.

As recently as early June, analysts had expected price declines after the new harvests, not spikes. There had been early planting of corn and some soybeans in the United States, and the disastrous drought was unpredictable at that stage. Price increases will affect not only bread and processed food, but also animal feed and ultimately the price of the meat.

In 2008, the price of rice more than tripled, which had a huge negative impact on the poor, especially in Asia. Although current rice prices remain at elevated levels, existing rice stocks are relatively comfortable. In addition, current prices of crude oil, fertilizers and international freight are at lower levels than in 2008, which will both ease the costs of importing food, and also the sowing and growing of next season’s crop.

The impact of the US drought on global markets is exacerbated by other countries also currently suffering from weather-related production issues. Almost continuous rain is causing problems for the wheat crop in many European countries, whereas the wheat crops in Russia, Ukraine and Kazakhstan have been hit hard by a lack of rain. In India, monsoon rainfall is about 20 percent below the long-term annual average. July is the critical planting month and there may be major negative implications if rains do not pick up.

Should the current situation escalate, the World Bank Group stands ready to assist client countries through measures such as increased agriculture and agriculture-related investment, policy advice, fast-track financing, the multi-donor Global Agriculture and Food Security Program, and risk management products. We are also coordinating with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with non-governmental organizations, as well as supporting the Partnership for Agricultural Market Information System (AMIS) to improve food market transparency and to help governments make informed responses to global food price spikes.

The World Bank has long cautioned that we can expect to see volatile, higher than average grain prices until at least 2015. In the poorest countries, where people spend up to two-thirds of their daily income on food, rising prices are a threat to global growth and social stability. However, higher prices can bring desperately needed income to poor farmers, enabling them to invest, increase their production and thereby become part of the global food security solution.

There are nearly one billion hungry people worldwide. More than 60 percent of the world's hungry are women. Malnutrition contributes to infant, child and maternal illness; decreased learning capacity; lower productivity and higher mortality. One-third of all child deaths globally are attributed to under-nutrition, and up to 80 percent of our brain architecture develops during the first 1,000 days of life, making access to nutritious food critical, particularly for young children.

How the World Bank is helping

• In FY12, which ended June 30, new Bank Group commitments to agriculture and related sectors reached over US$9 billion. This exceeded projected lending in the Bank's Agriculture Action Plan, which foresaw an increase from an average of US$4.1 billion annually in FY06-08 to US$6.2-US$8.3 billion annually in FY10-12. IBRD/IDA assistance in FY12 was the highest in 20 years.

• In response to drought in the Horn of Africa, the WBG is providing US$1.8 billion to save lives, improve social protection, and foster economic recovery and drought resilience.

• A first-of-its-kind risk management product provided by the IFC will enable protection from volatile food prices for farmers, food producers, and consumers in developing countries.

• The Bank is supporting the Global Agriculture and Food Security Program (GAFSP), set up by the WBG in April 2010 at G20's request. Seven countries and the Gates Foundation have pledged about US$1.2 billion over 3 years, with US$752 million received.

• The Global Food Price Crisis Response Program (GFRP) has reached 40 million people in 47 countries - through US$1.6 billion in emergency support. From July 2012 onwards the Bank's emergency response is channeled through the International Development Association's Crisis Response Window and the recently approved Immediate Response Mechanism that will provide basis for emergency assistance in the future.

• The Scaling Up Nutrition (SUN) framework for action to address under-nutrition was endorsed by over 100 partners, including the World Bank.

• The WBG is coordinating with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with non-governmental organizations.

• Supporting the Partnership for Agricultural Market Information System (AMIS) to improve food market transparency and help governments make informed responses to global food price spikes.

• Advocacy for more investment in agriculture research -- including through the Consultative Group on International Agriculture Research (CGIAR) – and monitoring agricultural trade to identify potential food shortages.

• Supporting improved nutrition among vulnerable groups through community nutrition programs aimed at increasing use of health services and improving care giving. As part of its response to the food crisis, the Bank has supported the provision of some 2.3 million school meals every day to children in low income countries.

• IFC will invest up to US$1 billion in the Critical Commodities Finance Program, aimed to support trade in key agricultural and energy-related goods, to help reduce the risk of food and energy shortages, as well as improve food security for the world's poorest.