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Agricultural prices and food security – a complex relationship

2023-08-01

High agricultural prices affect developed and developing countries alike, but the problem is aggravated for the latter through the lack of or inadequate resilience measures. Our authors explain what can be done to mitigate the negative effects on food security in poor countries.

For farms, price increases can be both a catalyst and a barrier © GIZ / Martin Godau

By Dr Fatima Olanike Kareem

Dr. Fatima Olanike Kareem holds a PhD in economics. She works as a senior researcher at AKADEMIYA2063, Rwanda, in her research area of development economics.

All contributions

By Dr Olayinka Idowu Kareem

Dr Olayinka Idowu Kareem is a food economist from Nigeria. His research areas include international trade, trade policy, regional integration and development.

All contributions

This interview appeared first in Rural21 and is part of a media cooperation between Rural21 and foodfortransformation.org.

Agricultural prices are pertinent tools in supply chains with an edging impact on food security. Rising agricultural prices – inputs and food alike – push more people into the poverty trap and food insecurity. This is evidenced by the Covid-19 pandemic and the Russia-Ukraine crisis, in which prices skyrocketed and became volatile particularly during the early period of the latter crisis, with a resultant effect on food security in many parts of the globe, especially in developing countries. Yet the implications of changes in agricultural prices on the populace are heterogeneous, affecting consumers, producers, income earners and regions differently, depending on their social capital and on aspects such as social insurance, preparedness and resilience. Thus, this article divulges into the pattern of global agricultural prices, their benefits and the challenges to food security.

Price transmission of food and input prices

Higher global agricultural prices can transmit to domestic prices, where the consumers and producers act as price takers. Their behaviour, the level of domestic markets’ integration into the global economy, trade policies, exchange rates, trade costs and consumer/producers’ price controls, among others, will determine the corresponding domestic prices. In addition, the responsiveness of domestic prices to international prices would be aggregated for net food importers, which many African countries are. This makes them more susceptible to international price shocks due to high import dependency and low domestic food sufficiency. Such price transmission is seen with the Russian-Ukraine and global financial crises, which have pushed more households into poverty and malnutrition, reduced income and escalated food insecurity for countries, especially for net importing ones. Besides, nationally, spatial price transmission is observed from one food market to another in the face of national conflicts and climate-induced drought or rain, which put constraints on food prices and agricultural production. Nonetheless, price transmission varies across commodities and markets – for instance, oilseeds and cereals have been shown to have more globalised markets than meat products.

Consequences of high agricultural prices

Rising agricultural prices increase food production costs and reduce productivity, which puts pressure on food prices and food security. However, high agricultural price levels have their pros and cons for producers and consumers. For consumers, rising food prices usually result in a fall in the preferred food and the number of meals consumed, leading to wider food insecurity gaps for both urban and rural populations, particularly for the (urban) poor, who are majorly net food consumers. In addition, high agricultural prices, especially food prices, decrease net income and purchasing power, and they might lead to lower calorie intake or dietary diversity as consumers adjust their consumption patterns to rising prices. All these adjustments can be improvised by consumers, particularly by the poor, thereby increasing their food security status. However, relative to high-income countries, consumers in low-income countries are hurt disproportionately as households in the former spend about 44 per cent of their income on food, while the latter spend 16 per cent on food. Nonetheless, some high agricultural prices might be beneficial for the poor since they increase the demand for unskilled labour, which characterises the skill-set of the majority of the poor, consequently leading to a rise in wages.

Furthermore, for producers, agricultural price hikes can be a catalyst or barrier depending on whether the increase is in the form of agricultural input prices (such as fertilisers or labour) or output prices (such as food). Input prices increase production costs and might dampen profit and producers’ welfare. However, output price hikes such as for food can raise their profit margin, but spikes in commodity prices can harm them as well, because smallholder producers are also consumers of their products. This can have an effect on poverty and food security aggravated for smallholder farmers. In fact, the effect of such an output price increment can be dampened or negative if it is accompanied by an increase in agricultural input prices. This is expected as some input prices have recently outstripped output prices. According to the World Bank, smallholder farmers constitute two billion of the world's population or about 500 million smallholder households world-wide. Most are highly dependent on agricultural commodities as income sources – which increases their susceptibility to commodity price hikes and volatility.

Rising agricultural prices are a major problem for global food security because they have the greatest impact on smallholder farmers who both produce and consume their products.

In terms of distribution, evidence suggests that severe food insecurity is on the rise globally and also in all continents, with Africa being the most affected. Furthermore, following the pandemic and the resultant supply distribution and rising food prices, the severity of food insecurity has risen since 2020, with low-income food-deficit countries being more affected.

Subsistence production, cash cropping and food security

Among smallholders, subsistence production is a viable option for increasing livelihood and can buffer the negative effect of high food prices, thus reducing the vulnerability of households to food insecurity. However, its role might be limited in ensuring dietary diversity given that it leaves little room to earn enough. As increased monetary income is important in reducing food insecurity, cash cropping might thus be more advantageous in improving food security relative to subsistence food production. Cash cropping has higher market value and monetary returns which can help smallholders finance their food expenditures (food accessibility), increase their household dietary diversity (food utilisation) and enable them to fight their way out of food insecurity.

However, increased income does not necessarily translate to food security, as there are other uses of household income besides food purchases. In addition, an increase in cash cropping can crowd out food crop production as land for the latter declines, affecting food availability, especially in African countries with limited technology to improve yields. Such a reduction in food production pushes up food prices, and the income earned from cash crops may or may not be enough to offset such price increments, and may thus undermine food security.

Besides, the exact effect of income from such cash cropping on food security will depend on whether government policies support cash or food crops, farm and household size, gender, trade policies, etcetera. For instance, evidence suggests that access to resources by females increases household allocation to food purchases, which can thus ensure more household food security. In addition, access to (global) markets can be deterred by trade policies, particularly food safety measures, which can be very stringent and costly, and might exclude smallholders from the global supply chain.

Implications for relief efforts and the role of agribusiness operators

The global shocks such as Covid-19, climate change, plagues and the Russia-Ukraine war have led to an increased need for relief efforts. However, higher food prices are making support and palliative programmes, food aid, and subsidies and social protection expensive as the price increment strains the budget of governments, donor institutions and development partners in relieving the burden of the vulnerable. This drives the level of poverty and food insecurity upward.

Commodity price changes are sometimes influenced by the nefarious activities of some operators in the commodity value chains involving supply chain disruptions, hoarding, formation of cartels and/or oligopolistic scenarios and monopolies. Such activities often influence the availability and stability of food, creating artificial scarcity and higher prices. To mitigate these challenges, there is a need for an adequate and extensive regulatory framework that governs the activities of food supply chain operators and curbs exploitative behaviour in the food systems. Moreover, there is the risk of higher future food prices and food insecurity if the Black Sea Grain Arrangement collapses and access to fertilisers is restricted. Overcoming the challenges entails a reduction in trade restrictions and removal of supply chains and/or market access challenges/ bottlenecks.

Conclusion

High agricultural prices affect developed and developing countries alike, but the problem is aggravated for the latter through the lack of or inadequate resilience measures. Institutionalising price stabilisation support mechanisms such as agricultural output and price support are germane interventions that could stabilise incomes, incentivise farmers, particularly smallholders, to invest and increase agricultural production amidst high agricultural prices. In the short run, subsidising consumption, engaging in cash transfers and other food support to the vulnerable might be viable options. Long-run interventions could include the implementation of minimum price models that enable farmers earn a premium over production costs, implementing crop insurance schemes and input subsidies to make farmers more resilient to price shocks. These measures are important to hedge farmers and consumers against income and price fluctuations and food insecurity. In addition, using a common national market platform to trade can help minimise direct price shocks to producers and leverage profits.

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Agricultural policy belongs in prime time

An interview with Dr. Julia Köhn

Four interviews kick off the relaunch under the new name „Food4Transformation“, asking the same questions from different perspectives. Dr Julia Köhn, Chair of the German AgriFood Society, points out in the interview: Only if innovation and transformation are profitable in the medium term can they close the food gap in the long term.

BMZ releases video on the transformation of agricultural and food systems

A contribution by GIZ

The Federal Ministry for Economic Cooperation and Development (BMZ) has released a video on the transformation of agricultural and food systems. In the video, Federal Minister Svenja Schulze also speaks about the urgent need to combat global hunger and contribute to resilient agricultural and food systems.

“More of the same is not enough - we need to rethink”

An interview with Dirk Meyer

Four interviews kick off the relaunch under the new name „Food4Transformation“, asking the same questions from different perspectives. Dirk Meyer, Federal Ministry for Economic Cooperation and Development, thinks: less individual solutions are needed, but more systemic approaches. Because in addition to the goals for food security, the issues of climate and biodiversity must also be taken into account.

Strengthening the market linkages of smallholders in the face of global supply shocks

A Contribution by Niladri Sekhar Bagchi

The consequences of the Russian invasion of Ukraine have enabled many countries to open up new export markets for their agricultural goods. However, smallholder farms have been largely left out. Drawing on his experience in India, our author gives a brief overview of how this can be changed.

Innovative donor approaches and sustainable finance – A Review of UNFSS+2

A contribution by the Global Donor Platform for Rural Development

Two years following the UN Food Systems Summit, the Global Donor Platform for Rural Development and the Shamba Centre for Food & Climate hosted an official side event at the UNFSS+2. The event explored how public donors can increase the impact of their investments.

“It created hope. It created a life”

An interview with Ally-Raza Qureshi, WFP

Iraq suffered many years of war, sanctions and economic crises. However, Ally-Raza Qureshi from the World Food Programme in Iraq sees progress. But now the effects of climate change are becoming apparent in the country. What is to be done?

What is needed for a long-term fertiliser strategy?

A contribution by Michael Brüntrup

The world is currently experiencing a historic food crisis. High fertiliser prices are part of the problem. In addition to the necessary short-term aid measures, the crisis ought to be made use of to develop and implement longer-term fertiliser strategies for sustainable, in particular smallholder increases in production in the Global South.

New Podcast – Out now!

A Podcast by Food4Transformation

In a world facing crises – from pandemics, armed conflicts, and climate change – how do we ensure everyone has enough food within planetary boundaries? A new podcast by Food4Transformation discover solutions talking to government officials, scientists, NGOs and farmers around the world.

What the Middle East conflict means for the children in Gaza

An Interview by Jan Rübel

The Gaza Strip depends heavily on humanitarian aid, more than ever with the current war. Gaza population is very young: Half of them are children. What is their situation on the ground? Questions for Lucia Elmi, Unicef Special Representative to the State of Palestine.

Agricultural Financing – from a broader Perspective

A Contribution by GIZ

In Sub-Saharan Africa, not all financial institutions (FIs) have access to knowledge about how to implement processes to enhance rural financial inclusion. The pan-African Community of Practice (CoP) plays a pivotal role in supporting these institutions along this transformative journey.

Agriculture is more than Culture or Tradition

A Contribution by Simeon Kambalame

How can agriculture engage more young people in rural areas? Advocacy and education campaigns can play an important role here. Simeon Kambalame, Timveni Child and Youth Media Organisation, has launched such a campaign in Malawi.

Gender Justice – a Precondition for Resilience

A contribution by IFPRI

Women and girls in poorer countries are affected in particular ways by the multiple crises the world is currently facing. Uncovering the linkages between gender, resilience and food security, experts from International Food Policy Research Institute (IFPRI) look at ways to support women and girls’ capacity to respond to crises.

Where can international cooperation in Gaza come in, Ms. Asseburg?

An Interview by Jan Rübel

The armed conflict between Israeli forces and the Hamas is escalating. What does this mean for a Gaza, region that was already heavily dependent on external aid? Questions for Dr. Muriel Asseburg, Senior Fellow at the German Institute for International and Security Affairs (SWP) in Berlin.

Podcast: Fighting world hunger together

Chancellor Angela Merkel in the Podcast of the Federal Government

At the start of World Food Week around World Food Day on 16 October, Chancellor Angela Merkel stressed that the fight against global hunger will only be successful with international responsibility and solidarity (german only).

Nature conservation around the world

A Contribution by WWF

From measures to promote biodiversity in Germany to more sustainable cocoa cultivation methods in Ecuador: WWF works at many different levels. At the Green Week, it will be demonstrated just how multifaceted nature conservation work is and what role each individual's decision plays.

Together for food security in Zambia

A Contribution by Claudia Jordan (GIZ)

The Agriculture and Food Security Cluster of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH in Zambia shows how synergies among different projects and partner organisations can help people to eat healthier, diversified food. A delegation of the Bonn based Division of Agriculture and Rural Development learned this in a field visit in the Eastern Province of the Southern African country.

Felix Phiri and two decades of Agriculture

A Conversation with Felix Phiri

Felix Phiri has been Head of the Department of Nutrition, HIV and AIDS at the Ministry of Health in Malawi for almost 20 years. A conversation about constants and change.

Policy against disasters

Interview with Thomas Loster

Insurance companies could provide protection during droughts in Africa. How exactly this could be done is what the industry is currently trying to figure out. First experiences are available. An interview with the Managing Director of the Munich Re Foundation, Thomas Loster

„You must be multisectoral in your thinking”

Interview with Adriano Campolina (FAO)

For years, place-based approaches to development have been considered important features in development cooperation, at the BMZ and in FAO. Both organisations are aiming at advancing these approaches: an interview with Adriano Campolina from the FAO on territorial and landscape perspectives.

Is the international community still on track in the fight against hunger?

Interview with Miriam Wiemers (Welthungerhilfe)

The Global Hunger Index (GHI) 2020 shows that the world is not on track to meet the international goal of “zero hunger by 2030”. If we continue at our current speed, around 37 countries will not even have reached a low hunger level by 2030.

COST-BENEFIT ANALYSES FOR MORE SOIL CONSERVATION

With the help of sustainable farming methods, soils can be preserved and made fertile again. The investment required is also worthwhile from a financial perspective.

A project of GIZ

Revolutionising Humanitarian Aid

A contribution by Ralf Südhoff

Financial innovations can prevent a crisis turning into a catastrophe. The livelihoods of people in affected areas may well depend on intervention before a crisis – and on risk funds.

One Health – What we are learning from the Corona crisis

A contribution by Dr. May Hokan and Dr. Arnulf Köhncke (WWF)

Due to the coronavirus crisis, the connection between human and animal health has gained new attention. Politicians and scientists are joining forces to propagate the solution: One Health. But what is behind the concept? And can it also guarantee food security for all people worldwide?

School Feeding: A unique platform to address gender inequalities

A contribution by Carmen Burbano de Lara (WFP)

Besides the well known impacts of Covid19 lockdowns for the adult population, the associated school closures led to 90 percent of the world’s children with no access to schools. However, school meals are in often the only daily meal for children. Without access to this safety net, issues like hunger, poverty and malnutrition are exacerbated for hundreds of millions of children.

Not waiting for a savior

An article by Lidet Tadesse

While Africa is the least affected region by Covid-19 so far, the number of confirmed cases and deaths on the continent is quickly rising. Despite the challenges many African countries continue to face, the African response to the coronavirus pandemic displays innovation and ingenuity.

Good health is impossible without healthy food

A contribution by Heino von Meyer

Corona makes it even more difficult to achieve a world without hunger by 2030. So that this perspective does not get out of sight, Germany must play a stronger role internationally - a summary of the Strategic Advisory Group of SEWOH.

Quinoa could have a huge potential in Central Asia, where the Aral Sea Basin has been especially hard-hit by salinisation.

Planetary Health: Recommendations for a Post-Pandemic World

A contribution by Dr. Kathleen Mar and Dr. Nicole de Paula

Against the backdrop of the COVID-19 pandemic, health is receiving unprecedented public and political attention. Yet the fact that climate change is also affecting the environmental and social determinants of health in a profound and far-reaching way deserves further recognition.

How can the private sector prevent food loss and waste?

An interview with David Brand (GIZ)

From a circular food system in Rwanda to functioning cooled transports in Kenya: The lab of tomorrow addresses development challenges such as preventing food loss and waste

Building Better Resilience to Transboundary Threats

A Contribution by the TMG Think Tank for Sustainability

Fuelled by climate change, desert locust plagues become increasingly frequent. A plaidoyer for a paradigm shift on handling transboundary crises.

A New Mindset to Reform Agriresearch

A Contribution by Lennart Woltering (CGIAR)

In context of the 15th CGIAR System Council Meeting, Lennart Woltering shares his assessment of the ongoing One CGIAR reform process.

Building climate-resilient and equitable food systems: Why we need agroecology

Agroecological methods target diversity and resilience and can thus promote the protection of forests, water and soil. Julia Tomalka and Christoph Gornott, Potsdam Institute for Climate Impact Research (PIK), on the potential of agroecology to safeguard against climate change and build resilient agri-food system.

How are transformation and crisis intervention related, Dr. Frick?

An Interview by Jan Rübel

Martin Frick has been director of the WFP office in Berlin for a year – since then one hunger crisis has followed another. What are the diplomat's answers? A conversation about opportunities in agriculture, the interplay of multiple crises, the importance of resilience and tighter budgets.

The Power of the Urban

An Interview by Jan Rübel

Cities play an important role in the transformation of food systems. But what exactly are the potentials and challenges? A three-way discussion between Ruth Okowa (Gain), Delphine Larrousse (World Vegetable Center) and Conrad Graf von Hoyos (GIZ).

How much private investment is the agricultural sector able to bear?

By Pedro Morazán

Small farmers in developing countries must modernise their farming methods, but poorly understood reforms could exacerbate poverty instead of alleviating it.

Enough of being poor

By Marcellin Boguy

In western Africa a new middle class is emerging. Their consumer behaviour is determining the demand for products – home-produced and imported goods, on the internet or at the village market. The people of Ivory Coast in particular are looking to the future with optimism.

Slaves do not produce quality

By Tilman Wörtz

Every child in Germany knows Ritter Sport – but most of the children harvesting cocoa on western African plantations have never even eaten chocolate. Can a chocolate manufacturer change the world? Conversation with Alfred Ritter about the power and powerlessness of a businessman.

Reference values: A building block on the road to social equality

A contribution by Friederieke Martin (GIZ)

A quick and cost-effective method calculates living wages and incomes for many different countries. The GIZ together with Fairtrade International and Richard and Martha Anker have developed a tool that companies can use to easily analyse income and wage gaps.

Supermarket Scorecard on Human Rights

A contribution by Dr. Franziska Humbert (Oxfam)

Oxfam’s supermarket scorecard, which is in its third year, shows one thing in particular - it works! Supermarkets can change their business policies and focus more on the rights of those people around the world who plant and harvest food. However, this does not happen without pressure.

From start to finish: a vision of interconnectivity

A contribution by Tanja Reith

At the moment, the agricultural industries of African countries exist in relative isolation. Imagine peasant farmers digitally connected to the value chains of the global food industry. How could this happen? A guidebook.

Ms Rudloff, what are the benefits of a supply chain law?

By Jan Rübel

The Federal Government is fine-tuning a law that would require companies to ensure human rights – a supply chain law. What are the consequences for the agricultural sector? Dr Bettina Rudloff from the German Institute for International and Security Affairs (SWP) discusses linking policy fields with added value.

Wanted: German investment in African agriculture

Interview with Stefan Liebing

Stefan Liebing is chairman of the Africa Association of German Business. The manager calls for a better structure of African farms. Jan Rübel asked him about small farmers, the opportunities for German start-ups and a new fund.

Bitter fruit

A contribution by Frank Brunner

Why aren’t bars of chocolate made where cocoa is grown? Author Frank Brunner analyses the industry’s fragile value chain from the plantation to the supermarket

Freed from trade? Towards a fairer EU Trade Agenda

A contribution by Dr. Jan Orbie (University Gent)

‘Fair’ and ‘sustainable’ are key words in Germany’s EU Council Presidency. At the same time, Germany pursues ‘modernization’ of the WTO and ‘rapid progress’ on free trade agreements. Are these goals really compatible? Can we be concerned about fairness and sustainability while continuing with ‘business as usual’?

Can this end world hunger?

A report by Stig Tanzmann

Time to dig deeper: We can only benefit from technical progress if we have a solid legal framework for everybody. But so far, none is in sight - in many countries. Instead, international corporations grow ever more powerful.

The communicator

A contribution by Jan Rübel

What do electrical engineering, telecommunications and agriculture have in common? They arouse the passion of Strive Masiyiwa: Thirty years ago, he started an electrical installation company with $75, later riding the telecommunications wave as a pioneer. Today he is committed to transforming African agriculture.

The 'Grey Gold'

A contribution by Maria Schmidt (GIZ)

The Cashew Council is the first international organisation for a raw material stemming from Africa. The industry promises to make progress in processing and refining cashew nuts - and answers to climate change

“They said: You can do it”

A contribution by Bread for the World

As President of the IABM cooperative in Muhanga, Alphonsine Mukankusi is not simply focused on the figures. She has learned how to deal with people and how to take on responsibility. At the same time, her work helps her to come to terms with the past

Read more “They said: You can do it”

No rainforest for our consumption

A contribution by Jenny Walther-Thoß (WWF)

In the tropics rainforests are still being felled for the production of palm oil, meat and furniture. It is high time to act. Proposals are on the table.

Successful Blueprints for African Agriculture

A Contribution by GIZ

At the 8th German-African Agribusiness Forum (GAAF) representatives from business and politics discussed successful investment models to improve living conditions in Africa.

Our Food Systems are in Urgent Need of Crisis-Proofing: what needs to be done

An Artikel by TMG

Based on a scientific study by TMG Think Tank, the authors highlight various challenges in the fight against the hunger crisis. The findings show that climate change, conflict and covid-19 are increasing food and energy prices.

2022, a year of crisis – What does it mean for African trade and food security?

A Contribution by Ousmane Badiane

The Africa Agriculture Trade Monitor 2022 (AATM) was published by IFPRI and AKADEMIYA2063. The report analyses the short- and long-term trends and drivers of African agricultural trade flows, including regional policies and the role of global markets.

David versus Goliath: Consequences of mainstream agricultural export commodities and niche products

An Artikel by the Initiative for Sustainable Agricultural Supply Chains (INA)

A study published by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) examines the differences between globally traded agricultural commodities and domestic niche products in terms of economic, environmental and social impact on the region of origin. The results provide new evidence to make supply chains more sustainable.

COVID-19 and Rising Food Prices: What’s Really Happening?

A Contribution by IFPRI

Taking a look at the data (as of February 11th 2022) what the current price hike means for world hunger and what can be done to prevent from another food crisis.

Côte d’Ivoire: Sweet Temptation without a Bitter Taste

A Story by GIZ

Until Easter 2022, GIZ publishes a new episode every fortnight introducing people who are committed to fair and sustainable cocoa in Côte d'Ivoire and Germany.

The fight against illegal fishing

A Report

The oceans are important for our food supply, but they are overfished. To halt this trend the global community is now taking action against illegal fishing. Journalist Jan Rübel spoke with Francesco Marí, a specialist for world food, agricultural trade and maritime policy at "Brot für die Welt," and others.

Controversy: Do supply chains need liability rules?

Discussion about the potential supply chain law

The German government is struggling to pass a supply chain law. It is intended to address violations of human rights, social and environmental standards. What would the consequences be for business? A double interview with Veselina Vasileva from GEPA and economics professor Andreas Freytag.

The Principle of Sharing

A contribution by gebana

gebana, a Swiss fair trade company, follows the principle of "sharing" with its corporate philosophy: farming families in the Global South participate directly in the sales of their online shop. Caroline Schaar, Marketing at gebana, explains the company's approach.

Earth’s well, all’s well!

A Contribution by Fairtrade Germany

With the annual topic "Earth’s well, all’s well!", Fairtrade Germany is focusing on the concept of agroecology at all levels - and is thus taking the next step towards achieving greater global sustainability. At the Green Week trade fair, Fairtrade Germany will show how this can be achieved taking the cocoa supply chain as an example.

Agricultural prices and food security – a complex relationship

By Dr Fatima Olanike Kareem

By Dr Olayinka Idowu Kareem

Price transmission of food and input prices

Consequences of high agricultural prices

Subsistence production, cash cropping and food security

Implications for relief efforts and the role of agribusiness operators

Conclusion

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