Managing food price volatility

Food price volatility is a serious threat to food security, economic development and political stability, and one that has been driving sober debate in how such unexpected and unpredictable shocks can be mitigated in the future. Now a new policy brief, Managing food price volatility: policy options to support healthy diets and nutrition in the context of uncertainty, explores policy options that have the potential to both foresee price volatility or market uncertainty and moderate its impact on food and nutrition security. Interventions identified include short-term and long-term strategies that aim to protect the immediate food needs of society while also facilitating the development of more steady and stable food markets and prices.

The report was launched on the 16^th March at an event held at the Houses of Parliament by the Global Panel on Agriculture and Food Systems for Nutrition and the APPG on Agriculture and Food for Development. Chair of the Global Panel and former President of Ghana, John A. Kufuor, was quoted as saying, “We are confident that policymakers could make better use of tools which help predict prices and manage price volatility. Together we can deliver timely and effective policy actions”. Panel member, Emmy Simmons, who is also a Board Member of the Partnership to Cut Hunger and Poverty in Africa/Agree praised the report for its focus on the short- and long-term as well as its recommendation to learn lessons from government efforts to minimise price volatility and its effects on the food intake of poorer households.

The food crisis of 2008 was a wake-up call to the severe impacts of rapidly fluctuating food prices and since then many have tried to address this issue. On the one hand, food prices must be stabilised to some degree so as to make them more predictable while on the other governments must ensure citizens have access to enough healthy food despite the challenges the world’s food system faces – from declining crop production to a dwindling natural resource base to climate change to urban expansion. Price volatility can be especially detrimental to food security for the poorest households who can spend as much as 75% of their total income on food. And both declines, which can reduce household incomes, as well as price rises, which reduce how much food a family can purchase, can impact food and nutrition security.

The difficulty lies in developing policy that meets multiple goals. To date such attempts to ameliorate volatility such as banning food exports or providing short-term input subsidies to boost local production can exacerbate international price volatility, be costly and hard to eliminate in the long-term.

While the mix of strategies employed will depend on the country’s markets and other factors, the Global Panel has identified a variety of policy tools which can help to predict prices and “manage the price volatility that compromises good nutrition and ultimately threatens food system integrity”. Policy actions identified include:

• “Promoting long-term growth in agricultural productivity through, for example, the production of diverse commodities that contribute to healthy diets;
• Fostering efficient and stable food markets, through investment in road infrastructure and its upkeep;
• Encouraging the transformation of agricultural commodities into food products that are affordable, safe and nutritious;
• Providing targeted and flexible food safety nets to ensure access to healthy diets and national nutrition security.”

Overall the Global Panel recommends the following actions to facilitate policymakers in anticipating and mitigating the detrimental impacts on price volatility on food and nutrition security:

• “Invest in market monitoring and market-based insurance systems
• Invest in agricultural productivity growth
• Facilitate efficient food and agriculture markets and trade
• Build food transformation capacity to enhance nutritional quality of foods
• Establish targeted cost-effective consumer protection”

Several new papers also investigate food price volatility, both acute and chronic, on food security and malnutrition. In Malawi and Niger, changes in staple food prices and child malnutrition are linked to international food price variability, the impact of agricultural policies on food supply and prices, seasonality in food prices and to recurrent famines, highlighting the importance of national and local pressures on food prices alongside global. In the book Global Economic Cooperation, a chapter entitled Food Security and Food Price Volatility by Jörg Mayer investigates how interest in managing food price volatility has recently been rekindled due to evidence of the limitations of safety nets in protecting communities. Finally, a new paper by Pieters & Swinnen, 2016, which introduces a model of the trade-off between price distortions and reduced volatility when governments intervene in agricultural markets, finds that for most cases the optimal trade-off is not achieved and there is much room for improvement in developing effective policy.

Clearly the issue and challenge of food price volatility and its impacts on food and nutrition security are far from being resolved. Recent experiences, including failings, of governments and the global food system to predict and mitigate food price volatility are now being used to provide guidelines on effective policymaking. And as challenges both to economies and agricultural systems escalate understanding how to develop policy to combat multiple interconnecting issues will hopefully become more ingrained.