Near Record High Food Prices Keep Poorest People on the Edge

Global food prices are at high levels and when combined with continued volatility, put the poorest people in the developing world at continued risk, according to the World Bank Group’s Food Price Watch released today.

While the emergency in the Horn of Africa was triggered by prolonged droughts, especially in areas struggling with conflict and internal displacement such as Somalia, food prices that are near the record high levels seen in 2008 also contributed to the situation, the report said. Over the last three months, reportedly 29,000 children under five have died in Somalia and 600,000 children in the region remain at risk in the ongoing crisis that is threatening the lives and livelihoods of more than 12 million people.

"Nowhere are high food prices, poverty and instability combining to produce tragic suffering more than in the Horn of Africa,” said World Bank President Robert B. Zoellick. “The World Bank is stepping up with short term help through safety nets to the poor and the vulnerable in places like Kenya and Ethiopia, along with medium term support for economic recovery. Long term support is also critical to build drought resilience and implement climate-smart farming."

The Food Price Watch says global food prices in July 2011 remain significantly higher than a year ago. Prices overall remained 33 percent higher than a year ago with commodities such as maize (up 84 percent), sugar (up 62 percent), wheat (up 55 percent) and soybean oil (up 47 percent) contributing to the increase. Crude oil prices are 45 percent higher from July 2010 levels, affecting production costs and the price of fertilizers, which increased by 67 percent over the same period. Prices from April through July settled roughly five percent below the recent spike in February 2011 due to modest declines in grains, fats and oil, and other foods such as meat, fruits, and sugar. However, prices of some commodities remained volatile during this period. For example, maize and wheat prices declined in June and then increased in the first half of July. The price of rice fell from February to May, but has since increased.

“Persistently high food prices and low food stocks indicate that we’re still in the danger zone, with the most vulnerable people the least able to cope,” Zoellick said. “Vigilance is vital given the uncertainties and volatility that exists today. There is no cushion.”

The quarterly report warns that vigilance is needed as global food stocks remain low and expected volatility in the prices of sugar, rice, and petroleum products could have unexpected effects on food prices in the months ahead. Uncertainties about the global economy combined with the political situation in the Middle East and North Africa region will likely to keep oil prices volatile in the short term, it added.

Domestic food prices continued to be volatile across countries. Maize prices, for instance, were up more than 100 percent in Kampala, Mogadishu and Kigali markets in the 12 months to June; while prices for maize fell 19 percent in Port-au-Prince and Mexico City. In the midst of these large price variations, domestic prices of key staples increased sharply in a number of regions in the past quarter, notably in Central and South America and East Africa. The report also says sustained increases in food prices are driving up inflation in a number of countries such as Ethiopia and Guatemala among others.

In Somalia, prices of locally produced cereals have continued to increase in all regions since October 2010 and have now exceeded their 2008 peak levels. Prices of the two major commodities that are domestically produced, red sorghum and white maize, have increased up to 240 percent and 154 percent respectively. Prices of imported commodities, such as rice, sugar, wheat flour, vegetable oil, and petrol, are also higher than a year ago.

Out of 3.7 million people in crisis in Somalia, 3.2 million are in urgent need and 2.8 million of these people are in the south. Poor farmers with no stock and no means to purchase food are among the worst affected, as are the displaced given their difficulties accessing food. The urban poor are suffering from increases in the cost of living and falling wages.

The World Bank Group is providing $686 million to save lives, improve social protection, and foster economic recovery and drought resilience for people in the Horn of Africa. Initially, the Bank will target the most vulnerable by enhancing safety nets. Economic recovery will be the focus over the next two years. In the longer term, the Bank will focus on building resilience to droughts, including investments in drought risk reduction and risk financing, as well as climate-smart agricultural practices.

“We are stepping up to address this crisis with a sense of urgency,” said Zoellick, who has been advocating for the G20 to put food first since the beginning of this year.

The G20 Agriculture Ministers meeting in June agreed to exempt humanitarian food aid from export bans and to pilot small regional emergency food reserves that could be used to replenish national safety nets. The ministers also agreed on more transparency, more coordination, stronger risk management instruments and more investment in production. The G20 Heads of State are due to meet on these issues in November.

How the World Bank Group is helping to put food first

•The World Bank Group is providing $686 million to save lives, improve social protection, and foster economic recovery and drought resilience for people in the Horn of Africa. More than 12 million people are affected by the crisis.

•A first-of-its-kind World Bank Group risk management product, provided by International Finance Corporation (IFC), will enable up to $4 billion in protection from volatile food prices for farmers, food producers, and consumers in developing countries.

•The Global Food Crisis Response Program (GFRP) is helping some 40 million people through $1.5 billion in support.

•The World Bank Group is boosting its spending on agriculture to some $6 to $8 billion a year from $4.1 billion in 2008.

•Supporting the Global Agriculture and Food Security Program (GAFSP), set up by the World Bank Group in April 2010 (at G20’s request) to assist country-led agriculture and food security plans and help promote investments in smallholder farmers. To date, six countries and Gates Foundation have pledged about $925 million over the next three years, with $520 million received.

•The World Bank Group is coordinating with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with NGOs.

For more information, please visit: www.worldbank.org/

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