Food price volatility – implications for poor farmers in developing

countries

Bettina Prato, Ph.D - SKMO, IFAD

1

Price volatility: what and whence

• Volatility ≠ variability: extreme variation + uncertainty• To a degree not new in many developing countries because of:

­ Environmental and climatic shocks (volatile supply)­ Imperfect decisions by producers and other market actors­ Low elasticity of demand­ High transfer costs

• Domestic factors of volatility generally prevalent in terms of impact on poor food producers• BUT, international volatility may also be transmitted, variably

­ by country, commodity, value chain segment, over time

2

Is volatility increasing? Perhaps not, but:

• New sources of volatility in int’l markets: oil-food price link, financialization of ag commodities, climate change• Drivers of high prices: environmental scarcities + rising demand

(food, feed, feedstock)• At domestic level: extreme weather events/climate change,

environmental degradation, incomplete or failed liberalization• ALSO, unpredictable policies seeking to respond to price hikes• Not new: poor resilience of production base, weak coordination

of market actors, information, policies, infrastructure

•Much attention now to “new” int’l factors – need broader focus

Implications for small farmers

• Small farmers/poor rural people disproportionately represented among food insecure• Hence – hurt by price spikes as food consumers• Note – price spikes from int’l markets often reach consumers’

markets more than producers’• Plus, uncertainty undermines resilience of production:

­ Higher risk, while risk mgt and coping tools are weak­ Disincentive to invest to increase production­ Disincentive to produce for the market

• Also, volatility not a reliable signal of fundamentals – prices do not fulfil their proper role in conveying information to farmers

In short:

• Price volatility threatens the food security of small farmers, and• undermines their ability to contribute to more resilient food

supply in developing countries (which would mitigate volatility)• Hence, addressing volatility essential both for short-term food

security of poor rural people and for longer-term resilience• Need to:

­ Understand factors behind price volatility in specific context ­ Strengthen market environment (policies, regulations,

transportation, market infrastructure, information systems)­ Promote coordination and information flows in value chains­ Strengthen resilience of supply (climate, energy, scarcities)­ Strengthen risk mgt capabilities (insurance, safety nets,

organization, information, contracts)