Rising food prices and developing countries

Speech by Angel Gurría, OECD Secretary-General, delivered at the DAC High Level Meeting breakfast discussion

OECD Conference Centre, 21 May 2008
  

Good morning ladies and gentlemen,

It is a pleasure to be with you to discuss the crucial challenge of rising food prices.

In a world where half its population lives with less than 2 dollars a day and where nearly 5 billion people live in developing and very poor countries the current picture of both food scarcity and mounting prices is not looking good.

Global food shortages and steep price increases have surprised most economic forecasters. Policy reactions require multilateral coordination and decisions. That is why I am very pleased to see that the DAC is giving serious attention to the impacts ─and outlooks for developing countries─ of the current spike in food prices.

The situation is already having serious consequences. It could set back welcome progress in many developing countries towards growth, development and poverty reduction.

Although we have projected that food prices will fall back from the present high levels, it seems clear that they will remain well above earlier trends. On average, over the coming ten year period, prices of cereals, rice and oilseeds are projected to be 10% to 35% higher (in real terms) than in the past decade. National governments and the international community will thus need to work closely together to tackle this problem.

The causes of the problem are complex and varied - with cyclical and structural dimensions that are mutually reinforcing. They include droughts in grain producing areas, low stocks, increased use of feedstock for biofuels, rising oil prices, a depreciating US dollar and increasing demand from large and fast growing developing countries. And the policy responses of some producer countries of curtailing exports, although domestically understandable, are exacerbating a situation that needs concerted international action.

The consequences for developing countries have many dimensions; some good, some bad.

Higher prices should promote badly needed investment in agriculture and increased supply over time. For some, “the solution to high prices is high prices”. This is a commonly accepted principle.

But poor people, particularly those living in urban areas, are already suffering; either directly, from reductions in the amount and quality of food they can afford; or indirectly from having less money to spend on health, education and other longer term determinants of their ability to get out of poverty. 

The crisis demands quick and effective policy responses.

First, there are immediate and urgent needs for food aid and humanitarian assistance to stop poor people going hungry. The donor community has so far responded promptly and generously to the call of the UN and the World Food Program.

But we also need to actively communicate a strong, evidence-based analysis of the causes and consequences of rising food prices, with a particular focus on effective policy responses.

Therefore, at the upcoming Ministerial Meeting of the OECD council, I am proposing to launch a serious multidisciplinary (“horizontal”) project on this issue. It will include monitoring developments in the short term and convening a series of high level events where governments of member and major non member countries can jointly consider solutions (in areas like subsidies, seed technology, water and land use, yields and productivity, economic and financing issues, agricultural policy issues and trade). 

For the medium term, we have to make sure the purchasing power of poor food consumers is improved so they have better access to food, even at higher prices. A broad approach will be necessary, to relate the food price issue with a strengthened agenda to promote development in poor countries. This is an especially challenging task for the development co-operation community.

Rising food prices are turning into a real planetary emergency. The variety and complexity of its causes demand a major collective response. The OECD is uniquely positioned to provide such a broad assessment and the necessary multidisciplinary solutions.

As we develop a horizontal OECD initiative to produce medium term, whole-of-government policies, I will be counting very much on the DAC to explore and support innovative options to help countries address this calamity. With the same creativity and sense of opportunity with which some investors are now trading in futures of wheat, soya beans and livestock, we must engage our knowledge and inventiveness to help the most vulnerable countries in addressing their long-term food security issues, while turning their agricultural sectors, where possible, into genuine engines of development.

Thank you very much.