The world food and financial crises - Department of Agricultural

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The world food and financial crises - Department of Agricultural Powered By Docstoc
					                   AGEC 640
     Agricultural Development and Policy
                Thurs., August 30, 2012

   Some context for the semester ahead:
The world food and financial crisis of 2007-09




                                   ?
      Our goal for today:
           much data, a few hypotheses
         The 2007-09 crises, in one picture

  DBA index = four major
  crops, in US dollars


  USD index = six major
  currencies, per US dollar                                                         S&P500 index = all major
                                                                                    companies, in US dollars

                        all rise     commodities rise
                                     as stocks fall         all fall, then
                                                            move together



                  Our goal for today:
                       much data, a few hypotheses
Source: Computed from data at www.google.com/finance.
Note: The DBA index is corn, wheat, soy and sugar (25% each). The USD DNX index is the currencies of Europe (57.6%), Japan
(13.6%), Britain (11.9%), Canada (9.1%), Sweden (4.2) and Switzerland (3.6%), per US dollar. The S&P 500 is a value-weighted
sum of large U.S. companies.
                                                                                                                               2
                 Let’s start with the
                economy as a whole
GDP growth in the United States
(pct./year, quarterly data)




                                                                        Things
                                                                        have
                                                                        improved!




     Reprinted from IMF (2009), Country Report: United States (July).    3
     http://www.imf.org/external/pubs/ft/scr/2009/cr09229.pdf
               The global economy is now
                 relatively synchronized

                                                                           Who
                                                                           is
                                                                           doing
                                                                           best?




                                                                            4
Source: http://www.imf.org/external/pubs/ft/weo/2010/update/02/index.htm
                                                                               5
Reprinted from IMF(2009), World Economic Outlook Update (July, www.imf.org).
In the U.S.,
consumption
and employment
DRIVE policy choices,
especially interest rates…
 Reprinted from SIFMA (2009), Economic Outlook (June).
 http://www.sifma.org/research/pdf/EconOutlook0609.pdf   6
 A new aspect of the recent/current crisis was the
 collapse of mortgage-backed securities in the U.S.




                                                       Residential




                                                       Commercial




Reprinted from SIFMA (2009), Research Quarterly (August)
                                                                     7
http://www.sifma.org/research/pdf/RRVol4-8.pdf
         …and the collapse of a large
   “shadow banking” sector on other assets




Reprinted from SIFMA (2009), Research Quarterly (August)   8
http://www.sifma.org/research/pdf/RRVol4-8.pdf
…which made all financial transactions
         unusually risky

                                    Perceived
                                    bankruptcy risk
                                    for banks




   Perceived
   bankruptcy risk
   for U.S. companies




 Source: Federal Reserve Bank of St. Louis, 2009.                 9
 (http://research.stlouisfed.org/publications/es/09/ES0924.pdf)
…and remember we are all connected




 Source: NY Times “Europe’s Web of Debt” (May 1, 2010)   10
    Looking within the food price crisis




                                                       Rice rose first and    Other crops
               Note typical spike-and-valley pattern   spiked highest         rose/fell in sync

                                                                  Hold that thought…we’ll return to it later
                                                                  in the semester

Reprinted from P.C. Abbott (2009), Development Dimensions of High Food Prices. Paris: OECD.                    11
      A pre-history of the current crisis
     Index of real international food prices, 1900 to 2005 (1977-79 =100)




                                           Not yet any sign of the 2007-08 price rise




Source: K. Anderson (2006), “Reducing Distortions to Agricultural Incentives: Progress, Pitfalls and Prospects.”
<www.worldbank.org/agdistortions>. Data shown are an index of export prices in US dollars for all major traded
agricultural products, deflated by the MUV index which is the unit value of manufactures exported from France,
Germany, Japan, UK and US, with weights based on those countries’ exports to developing countries.                 12
       A pre-history of the current crisis
      Index of real international food prices, 1900 to 2005 (1977-79 =100)

February 1917                                                                          April 1973




  August 1918




                              The spike-and-valley pattern creates cycles of
                              panic and then complacency

                              The 1973 crisis led to investments that brought
                              prices down to unusually low and stable levels




 Source: K. Anderson (2006), “Reducing Distortions to Agricultural Incentives: Progress, Pitfalls and Prospects.”
 <www.worldbank.org/agdistortions>. Data shown are an index of export prices in US dollars for all major traded
 agricultural products, deflated by the MUV index which is the unit value of manufactures exported from France,
 Germany, Japan, UK and US, with weights based on those countries’ exports to developing countries.                 13
                   The spike-and-valley cycles
                  differ somewhat among crops
IMF indexes of nominal commodity prices, January 1992=100




  Source: Reproduced from Ronald Trostle, “Global Agricultural Supply and Demand: Factors Contributing to the Recent
  Increase in Food Commodity Prices”, Outlook Report WRS-0801. Washington, DC: ERS/USDA, July 2008.
                                                                                                                       14
            Other commodities fluctuate
               even more than food

                                                Note how
                                               urea spiked
                                                the most




Reprinted from P.C. Abbott (2009), Development Dimensions of High Food Prices. Paris: OECD.   15
 So far in the 2009-12 recovery, food prices
   have not risen as much as oil & metals
 Index values
 (Jan.2009=100)




                                                                               16
Reprinted from IMF(2009), World Economic Outlook Update (July, www.imf.org).
Relative to other things, food is still cheap
         by historical standards…
Index values
(2007=100)




  Source: Reproduced from IMF, “Food and Fuel Prices—Recent Developments, Macro-           17
  economic Impact, and Policy Responses.” Washington, DC: IMF, June 30, 2008 (58 pages).
      But food prices have rebounded…




Source: Reproduced from FAO “World Food Situation” Rome: FAO (released 07/07/2011).   18
http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
           and still barely affordable for the poorest
  Index values
  (2007=100)
                                                         Major food riots, Jan. 2007-Apr. 2008




March 13, 2002
World: Many Hungry Mouths
Around 815 million people -- 13 percent of the world's
population -- suffer from hunger and malnutrition,
mostly in developing countries, said Jacques Diouf,
head of the United Nations Food and Agriculture
Organization.




       Source: Reproduced from IMF, “Food and Fuel Prices—Recent Developments, Macro-            19
       economic Impact, and Policy Responses.” Washington, DC: IMF, June 30, 2008 (58 pages).
Local crises are driven by underlying world market
     conditions and local “stochastic” events




                                                20
  Looking globally, note that prices in other
currencies have risen much less than in dollars
 Corn price movements in nominal U.S. dollars, real euros and other currencies




       Source: Reproduced from Philip C. Abbott, Christopher Hurt and Wallace E. Tyner,
       “What’s Driving Food Prices?” Oak Brook, IL: Farm Foundation, July 2008 (82 pages).   21
           Local prices don’t always link
         directly to “world market” prices




Source: Reprinted from IFPRI (2008), “An Assessment of the Likely Impact on Ugandan Households of Rising   22
Global Food Prices.” Kampala, Uganda: IFPRI, June 9th 2008 (39 pages).
        Why did food prices spike?
The USDA’s summary of conventional wisdom




Source: Reproduced from Ronald Trostle, “Global Agricultural Supply and Demand: Factors Contributing to the
Recent Increase in Food Commodity Prices”, Outlook Report WRS-0801. Washington, DC: ERS/USDA, July 2008.      23
The stage was set by low world stocks
IMF
price
indexes




Total world
grain &
oilseeds
stocks




  Source: Reproduced from Trostle (2008), from IMF data on prices and USDA estimates on stocks.   24
Stock changes have been mostly in Asia
             USDA estimates of cereal grain stocks per capita, by region, 1961-2008
kg/person
  450
                        Sub-Saharan Africa                       East Asia
  400
                        South Asia                               Southeast Asia
  350                   Rest of World

  300

  250

  200

  150

  100

   50

    -


        Source: Author's calculations. Grain stock estimates are for the end of the marketing season in the year shown, from
        USDA PS&D database (www.fas.usda.gov/psdonline), matched with mid-year population estimates from US Census
        Bureau, International Database (www.census.gov/ipc/www/idb).                                                           25
On the demand side, food consumption
 is driven by population and income…




Reprinted from The Economist, 8 December 2007.
                                                 26
…and recently by biofuels policy as well

Ethanol (mostly US)                             Biodiesel (mostly EU)




   Source: Reproduced from Trostle (2008), from USDA data and projections.
                                                                             27
Biofuels feedstocks vary, but all use land




 Source: Reproduced from Trostle (2008), from various estimates.   28
The U.S. use of corn for ethanol
has been especially fast-growing




Source: Reproduced from Trostle (2008), from USDA data and projections.   29
  U.S. increased corn use for ethanol accounts
for 30% of world increase in all uses of all grains
                             …about the same share as increased feed use;
                             food use accounts for 44% of growth




    Source: Reproduced from Trostle (2008), from USDA data and projections.   30
           Global trade is mainly into East Asia
                  USDA estimates of cereal grain net trade by region, 1961-2008
  mmt
   100
                      Rest of World
          80          Sub-Saharan Africa
                      South Asia
          60          Southeast Asia
Exports




                      East Asia
          40

          20

           0
Imports




          -20

          -40

          -60

          -80


            Source: Author's calculations. Data are for standard trade years over a 12-month season ending in the year shown, from
            USDA PS&D database (www.fas.usda.gov/psdonline), matched with mid-year population estimates from US Census             31
                      …but on a per-capita basis,
                 Africa imports even more than Asia
                   USDA estimates of cereal grain net trade per capita, by region, 1961-2008
  kg/person
     100
                        Sub-Saharan Africa                 East Asia
                        South Asia                         Southeast Asia
                        Rest of World
           50
Exports




            0
Imports




           -50




          -100


             Source: Author's calculations. Data are for standard trade years over a 12-month season ending in the year shown, from
             USDA PS&D database (www.fas.usda.gov/psdonline), matched with mid-year population estimates from US Census            32
             Bureau, International Database (www.census.gov/ipc/www/idb).
The price rise was due partly to slowdown
    in per-capita production growth…
              USDA estimates of cereal grain production per capita, by region, 1961-2008
kg/person
1,200
                       Sub-Saharan Africa                  East Asia
                       South Asia                          Southeast Asia
1,000
                       Rest of World

  800


  600


  400


  200


    -


        Source: Author's calculations. Grain production estimates are for the country's harvest in the year shown, from USDA
        PS&D database (www.fas.usda.gov/psdonline), matched with mid-year population estimates from US Census Bureau,
        International Database (www.census.gov/ipc/www/idb).                                                                 33
              Yield trends drive production
          USDA estimates of cereal grain average yield, by region, 1961-2008
mt/ha
    5
               Sub-Saharan Africa                 East Asia
               South Asia                         Southeast Asia
               Rest of World
    4



    3



    2



    1



    0


    Source: Author's calculations, from grain production and area estimates for harvests in the year shown, from USDA PS&D
    database (www.fas.usda.gov/psdonline), matched with mid-year population estimates from US Census Bureau,
    International Database (www.census.gov/ipc/www/idb).                                                                   34
     But not all farmers are net sellers!
                                                Table 1.
Proportion of households who produce, sell or are net sellers of food, 1998-2001
                                      Ethiopia (2000)      Madagascar (2001)   Zambia (1998)
                                       Total Rural          Total Rural        Total Rural
Rural population (% of total)              50.7                 75.8                47.8
All foods
   producers      (% of all hhlds)     78.1    97.0         71.2    83.1       66.5    89.4
   sellers        (% of all hhlds)     68.4    87.9         58.1    68.5       36.7    53.9
   net sellers    (% of all hhlds)     40.6    53.2         41.4    49.1       7.9     12.6
   net sellers    (% of poor hhlds)    44.3    51.5         54.5    56.2       10.6    12.5
Main staple foods
   producers      (% of all hhlds)     55.4    71.5         64.4    75.7       47.5    69.5
   sellers        (% of all hhlds)     28.5    36.9         35.1    41.7       28.8    42.5
   net sellers    (% of all hhlds)     23.1    27.3         31.7    37.6       19.1    29.6
   net sellers    (% of poor hhlds)    21.8    24.3         41.0    42.7       23.9    28.1
Note: Poor households are defined as the lowest 40% of income per capita; staple crops are wheat and
maize (Ethiopia), rice, maize, groundnut and beans (Zambia) and rice and maize (Madagascar).
Source: Reproduced from W.A. Masters (2008), “Beyond the Food Crisis in Africa.” African Technology
Development Forum, 5(1-2): 3-13. Data shown are compiled from M.A. Aksoy and A.Isik-Dikmelik (2008),
"Are Low Food Prices Pro-Poor? Net Food Buyers and Sellers in Low-Income Countries" Policy Research
Working Paper 4642. Washington, DC: The World Bank, June 2008 (30 pages).                            35
 The poor sell little, or are net buyers
                          Farm household net crop sales in Tanzania, by income level

           All Crops,                                                                   Staple Food Crops,
           1991-92                                                                      1991-92




                                                                                                        Net buyers




           All Crops,                                                                   Staple Food Crops,
           1992-93                                                                      1992-93




                             Net buyers                                                                        Net buyers



Note: All data are from the Kagera Health and Development Survey (www.worldbank.org/lsms); results shown are a local polynomial regression with its 95%
confidence interval, for surveyed households with agricultural production (579 in 1991-92, and 557 in 1992-93). Staple food crops are maize, cassava,
cooking bananas, millet, sorghum, and yams or potatoes. The household’s expenditure per capita is measured in 2006 U.S. dollars converted at PPP prices.
Source: Reprinted from A. Rios, W.A. Masters and G.E. Shively (2008), “Agricultural Prices and Income Distribution among Farmers .” Working Paper
available online at www.agecon.purdue.edu/staff/shively/RMS.pdf.
                                                                                                                                                           36
Aid has risen, but not for food & ag.
    ODA commitments to all LDCs in selected sectors and total, 1973-2006
    (real US dollars per capita)
 10.0                                                                                                       20
                Health                       Agriculture
                Food Aid                     Debt Relief
                Total ODA (right axis)
  7.5                                                                                                       15




  5.0                                                                                                       10




  2.5                                                                                                       5




   -                                                                                                        -
           1975          1980           1985          1990           1995          2000              2005
   Source: Author's calculations, from OECD Development Assistance Committee (2008), Bilateral ODA
   commitments by Purpose (www.oecd.org/dac), deflated by OECD deflator (2005=100) and divided by                37
   midyear population estimates for all LDCs from the U.S. Census Bureau, International Database.
Aid to ag. in Africa has fallen the most
    ODA commitments to Africa in selected sectors and total, 1973-2006
    (real US dollars per capita)
   20                                                                                                         40
                    Health                               Agriculture
                    Food Aid                             Debt Relief
                    Total ODA (right axis)
   15                                                                                                         30




   10                                                                                                         20




   5                                                                                                          10




    -                                                                                                         -
           1975           1980           1985           1990           1995           2000           2005
   Source: Author's calculations, from OECD Development Assistance Committee (2008), Bilateral ODA
   commitments by Purpose (www.oecd.org/dac), deflated by OECD deflator (2005=100) and divided by                  38
   midyear population estimates for Sub-Saharan Africa from the U.S. Census Bureau, International Database.
            Whew! Conclusions?
• There’s a lot of data out there
  – not everything is measured, but much is known
  – relationships between variables remain questionable
• Hw #1 will give you experience using those data
  – write-ups should describe what you see in the data;
    inferring causality is risky (avoid saying “because”); it is
    far more honest to speak of “association”
• Next week, we begin systematic search for links
  between economic growth, agricultural
  development and government policies…
                                                               39

				
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