The next food crisis – Is it unavoidable?


Remarks by Angel Gurría, OECD Secretary-General

Davos, 30 January 2009

Good morning ladies and gentlemen.

It is a pleasure to be with you again for the Nestlé Breakfast Discussion in Davos. I am particularly pleased to see the topic for this morning’s discussion: “The next food crisis – is it unavoidable?”. Just a few short months ago, record high food prices were making the headlines on a daily basis, and governments and organisations were calling for action to deal with the urgency of the situation.

However, since September, other events have grabbed public and government attention. Indeed, it now goes without saying that the global economy is witnessing the most severe downturn in decades. But we should not fool ourselves – the food crisis has not disappeared with the recession and falling commodity prices.

On the contrary, the FAO estimates that another 75 million people fell below the hunger threshold in 2008, bringing the total number of those going hungry close to 1 billion. The main problem is food affordability, particularly for poor people, whose incomes will be reduced by the recession, and for poor food importing countries with lower growth and fiscal revenues and more severe balance of payment constraints.

The 2008 OECD-FAO Agricultural Outlook projected prices over the coming 10-year period to be higher, on average, than in the past decade.  With prospects for lower oil prices and slower demand growth, price projections are likely to be lower in the 2009 outlook. But price volatility remains a key challenge to food security.

Growth, even when it resumes in developing countries, will not deliver the widespread poverty reduction essential to sustainable increases in purchasing power. Only sustained growth and development in poor countries can improve the purchasing power of food buyers.

I was asked this morning to say a few words about the issue of productivity growth in agriculture.
Advances in agricultural productivity have led to abundant and affordable food and fiber throughout most of the developed world. Public and private agricultural research has been the foundation and basis for much of this growth and development. Investment is critical to the enhancement of agricultural productivity. But public, private and international investments are declining, at least in developing countries. Low levels of investment in agriculture bode poorly for long-term prospects of achieving food security in the developing world.

OECD work on pro-poor growth finds that the general failure in recent decades to achieve sustained rates of agricultural sector productivity comes from inappropriate policies; inadequate institutions and services; failures to invest in appropriate infrastructure; and failures to invest in the development of the human, social and natural capital that agricultural households need to achieve higher productivity. This is particularly the case in sub-Saharan Africa.

But even in developed countries, agricultural productivity growth is uncertain. While a recent USDA study confirmed that productivity growth has been responsible for increased output over the past half century, in recent years productivity growth appears to have slowed, raising questions about future trends.

Another important constraint on agricultural productivity is climate change and vanishing water resources. Global warming is argued to lead directly to greater incidence of negative yield shocks and sustained negative pressure on production in heat stressed climatic zones. But yields may actually increase in regions with moderate climates, so the net effect on world production is uncertain.

Another issue which warrants close attention is the rapid increase in demand for biofuels, driven in large part by policies. OECD/IEA analysis suggests that the energy security, environmental, and economic benefits of biofuels production based on (first generation) agricultural commodity feed stocks are modest and are unlikely to be delivered by current policies.

Alternative approaches (for example, that encourage reduced energy demand and GHG emissions, provide for freer trade in biofuels, and accelerate introduction of ‘second generation’ production technologies) offer potentially greater benefits without the unintended impact on food prices. Lowering GHG through policy support to biofuels would cost taxpayers and consumers on average between USD 960 and 1 700 per ton of CO2-equivalent avoided in those countries.

Investments in R&D, technology transfer and extension services in particular could do much to increase productivity and output. The use of genetic modification (GMOs) also offers potential that could be further exploited, to improve productivity, to enhance the attributes of crops destined for either food or non-food uses, and to enhance the resilience of crops against stress such as drought.

But we cannot forget the overriding need for further reform in agricultural trade policies. Conclusion of the Doha Round of WTO negotiations would make an important contribution to enabling markets to balance global supply and demand. I must remind you that producer support in OECD countries reached nearly USD 260 billion in 2007, 23% of value of production. In the same year, total support (including general services) was USD 365 billion. This is inefficient policy which must continue to be reformed.

If these reforms are carried through, the possibility of market-driven higher commodity prices could lead to surges in investment and greater technology growth. Some optimists predict that this could lead to another Green Revolution that raises yields in some of the poorest regions of the world, much as the previous one in parts of South and Southeast Asia and Latin America.

The OECD is monitoring these developments closely and working to design a comprehensive agricultural development strategy. We are looking to contribute to an effective and coherent global response, and industry, governments and civil society will play a critical role. I look forward to hearing your views in the discussion this morning and to strengthening our collaboration on this issue which is so fundamental for global prosperity.