A Private Sector View of Food Security & Price Volatility Malcolm Bailey May 2014.
A Private Sector View of Food Security & Price Volatility
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Transcript of A Private Sector View of Food Security & Price Volatility
A Private Sector View of Food Security & Price VolatilityMalcolm Bailey
May 2014
Page 2Confidential to Fonterra Co-operative Group
Components of food security
Production efficiency
Open trade environment Food safety
Managing price
volatilityNutritional
security
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Trade policy settings can have significant implications for food security and price volatility
Source: Worldtariff.com
Note: Tariffs are MFN or outside quota rates as appropriate. Specific and compound rates have been converted to ad-valorem at an assumed SMP price of USD 4,000 per tonne
EU export subsidies
Argentina export bans
India export bans
0%
50%
100%
150%
200%
250%Ca
nada
Japan
Mexico
USA
Tariffs on skim milk powder
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Use of food stocks as a policy tool is a costly and inefficient approach to food security
Diversion and leakage of below poverty line (BPL) public distribution stocks, India
Source: World Bank Report (2011) – Social Protection for a Changing India
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Policies such as export subsidies suppress price signals, impacting investment in agriculture
1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103
109
115
0
1,000
2,000
3,000
4,000
5,000
6,000
EU Export Restitution Oceania - WMP Dutch - WMP
WM
P Pr
ice
(USD
/t) EU export restitution subsidy in effect
Export restitution suspended
Impact of the suspension of EU Export Restitution on international WMP Price
EU export restitution subsidy
reinstated
Impact of EU export subsidy on WMP price
Source: Fonterra analysis
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Price volatility remains an issue affecting dairy products
Commodity Dairy Prices
Source: USDA Oceania Series
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan-05
Apr-05
Jul-0
5Oct-05
Jan-06
Apr-06
Jul-0
6Oct-06
Jan-07
Apr-07
Jul-0
7Oct-07
Jan-08
Apr-08
Jul-0
8Oct-08
Jan-09
Apr-09
Jul-0
9Oct-09
Jan-10
Apr-10
Jul-1
0Oct-10
Jan-11
Apr-11
Jul-1
1Oct-11
Jan-12
Apr-12
Jul-1
2Oct-12
Jan-13
Apr-13
Jul-1
3
USD
per m
etric
tonn
e
Butter Cheese SMP WMP
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But dairy is not alone in experiencing price increases and price volatility
Price Index Trends for Agricultural Raw Materials, Metals, Crude Oil
0.00
50.00
100.00
150.00
200.00
250.00
300.00
Jan-
00Ju
n-00
Nov
-00
Apr
-01
Sep
-01
Feb-
02Ju
l-02
Dec
-02
May
-03
Oct
-03
Mar
-04
Aug
-04
Jan-
05Ju
n-05
Nov
-05
Apr
-06
Sep
-06
Feb-
07Ju
l-07
Dec
-07
May
-08
Oct
-08
Mar
-09
Aug
-09
Jan-
10Ju
n-10
Nov
-10
Apr
-11
Sep
-11
Feb-
12Ju
l-12
Dec
-12
May
-13
Oct
-13
Mar
-14
Inde
x Va
lue
Agricultural Raw Materials Index Metals Price Index Crude Oil (petroleum), Price index
Source: IMF Commodity Price Indices
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Dairy price volatility has been driven by a range of factors
Volatility
Dairypolicy
Strong demand fordairy across Asia
Foreign exchange rates
Supply shocks,i.e. weather, disease
Competing usesfor grains
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Price risk management tools are needed to ensure that global food markets function effectively
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Summary
• Food security is a major, global, challenge for the 21st century• A function of farming efficiency and of efficiency in moving food from areas of
abundance to areas of need• Food security is also influenced by the trade environment• Trade policy settings such as export subsidies can have a major impact on
food security, suppressing price signals and impacting investment in agriculture
• Rising price volatility in food remains an issue, and such trade policy settings can also negatively impact price volatility on the international market
• Market-based price risk management tools and responsive pricing signals (like GDT) are important for managing the inherent volatility in agricultural markets and ensuring that global food markets function effectively.
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Thank You