Wanted: institutions for balancing global food and energy markets

Food Security, Sep 2009

The increasing demand for biomass for energy use is further escalating existing food security risks. Managing these risks is a task for global institutions. These should ensure timely investment in the world’s capacity for producing biomass and balance the use of this biomass for foods and for non-foods. To achieve this, institutional arrangements for global food markets must fulfil two important goals: reduce the short-term price instability of food markets and prevent a structural scarcity of food in the long term. This paper analyses how agro-food markets, energy markets and biofuel markets are currently regulated. As this regulation is ill-suited to manage food price instabilities and balance food and non-food use of biomass, new institutions need to be put in place. A coordinated system of global commodity management — not unlike the Commodity Control Organization proposed by Keynes for the post-WWII era — is proposed to deal with these coming challenges.

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Wanted: institutions for balancing global food and energy markets

Niek Koning Arthur P. J. Mol The increasing demand for biomass for energy use is further escalating existing food security risks. Managing these risks is a task for global institutions. These should ensure timely investment in the world's capacity for producing biomass and balance the use of this biomass for foods and for non-foods. To achieve this, institutional arrangements for global food markets must fulfil two important goals: reduce the short-term price instability of food markets and prevent a structural scarcity of food in the long term. This paper analyses how agro-food markets, energy markets and biofuel markets are currently regulated. As this regulation is ill-suited to manage food price instabilities and balance food and non-food use of biomass, new institutions need to be put in place. A coordinated system of global commodity management not unlike the Commodity Control Organization proposed by Keynes for the post-WWII era is proposed to deal with these coming challenges. - Food prices have major effects on food security. High prices make food inaccessible for poor consumers. Low and unstable prices hamper investment that should increase employment and moderate the cost of food production in poor countries. Since the late 19th century, international agricultural prices have fluctuated downward. As a reaction, many countries have stabilized and/or supported their domestic agricultural prices. In most of them, rapid agricultural development contributed to overall growth, reducing poverty and food insecurity (Koning 2007; for Asian Green Revolution countries, Dorward et al. 2004). Conversely, poor countries that failed to stabilize and/or support farm prices have seen their agriculture stagnate. The plight of farmers was exacerbated by over-taxation and dumping practices of countries that failed to combine farm income supports with an adequate management of their supply. Agricultural stagnation dragged the rest of the economy with it, leaving large parts of the population poor and vulnerable to fluctuations in food prices. After several decades with very low prices, the year 2008 saw a sudden spike in global food prices. Although prices have meanwhile come down again, this has rekindled concerns that the long-term decline in food prices might give way to increased scarcity. Population growth and an increasing consumption of livestock products may double the global demand for biomass for food up to mid-century. Whether the global supply will keep pace with this is uncertain (Koning et al. 2008; Rosegrant et al. 2006). One important reason for this is the competition from agro-fuels (crop-based biofuels). The production of these has strongly increased since 2000. At first, this was seen as a possibility to improve farm prices that had become too low to get agriculture in poor countries moving. However, the role of the agro-fuel boom in the 2008 price spike made clear that agro-fuels might also exacerbate food price instability and make food prices prohibitive for the poor (Banse et al. 2008a; Mitchell 2008; Rosegrant 2008). To be sure, various strategies may moderate the risks that the evolution of agro-food markets involves for global food security. On the supply side, there are many possibilities for raising food production in developing countries (cf. InterAcademy Council 2004; World Bank 2007). More generally, there remains considerable room for increasing the global supply of food through sustainable yield increases, bio-refinement and new non-farm biomass production systems. On the demand side, an increase in food scarcity can be countered by policies that mitigate the increase in consumption. Most importantly, effective poverty reduction could moderate the growth of world population and the ensuing increase in demand. Poverty is the main factor that is holding back the decline in demographic fertility in many low-income countries. In addition, the growing consumption of livestock products that involve especially unfavourable feed conversion ratios, such as feedlot beef, could be mitigated. The development of effective meat substitutes is a possibility, but a shift to poultry or herbivore fish would also help (Koning et al. 2008). Also with respect to biofuels, various options are available for protecting the food security of the poor. Governments could stop supporting first-generation agrofuels, and channel the development of bio-based non-foods towards feedstocks that minimally compete with food (e.g. waste, algae). At the same time, small-scale techniques for the decentralized pre-processing of biomass could be developed to allow small farmers to benefit from the growth in bio-based non-foods (Sanders et al. 2007). However, key conditions for steering global food security safely through the storms are timely investment in global capacities for food production and stable international agricultural prices. The latter should be high enough to stimulate agricultural development in p (...truncated)


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Niek Koning, Arthur P. J. Mol. Wanted: institutions for balancing global food and energy markets, Food Security, 2009, pp. 291-303, Volume 1, Issue 3, DOI: 10.1007/s12571-009-0024-0