Raising food prices to end hunger

The doctrine that food prices should be kept as low as possible to end hunger is wrong, says former FAO agricultural economist Andrew MacMillan.

Andrew MacMillan

Most governments prefer to keep food prices “affordable” for their people. Many subsidise their farmers’ incomes to let them make a decent living while they sell their output for little more than it costs them to produce it. Countries justify these measures and relatively low taxes on foods as means of preventing poor people from suffering from hunger.

When international food prices rose sharply from 2007-08 onwards, the United Nations braced themselves for a big jump in hunger, predicting a record 1.02 billion hungry in 2009. Food riots took place in the cities of many developing countries. But as time went by, revised estimates showed a steady fall in the number of hungry in spite of the jump in prices.

In practice, policies that keep consumer food prices low, especially when combined with further downward pressure on prices from supermarkets as they compete for customers, may raise the incidence of hunger and malnutrition in the medium- to long-term.

Writing on the Free Speech Wall: High food prices have provoked violence and debate.

This is mainly because over 70% of the 842 million people now suffering from chronic hunger live in rural areas. Food production is usually the dominant economic activity. Two factors determine the health of such rural economies – the volume of farm output and the farm-gate prices of the main products. Even if production remains steady, falling prices have a disastrous effect, putting downward pressure on wages, cutting employment opportunities and discouraging new investment on farms and in rural infrastructure and services.

Why work so hard for next to nothing?

When food prices fell in real terms over more than 20 years up to 2007-08, farming became less and less attractive and rural-urban migration accelerated in many developing countries. Even in industrialised countries farm labourers and people working in the food industry, whether in processing, retailing or fast-food restaurants are amongst the lowest income earners.

Plenty for some: many producers in the food chain are getting a raw deal.

With this in mind, I have been trying to argue that a deliberate rise in consumer food prices, passed back up the value chain in line with fair trade principles, would offer one of the best means of cutting the incidence of hunger by creating greater rural economic prosperity. I have recently found good evidence for this: Derek Headey of the International Food Policy Research Institute (IFPRI) shows that, contrary to expectations, the recent food price rises have significantly reduced poverty and inequality in the long run!

Most consumers in industrialised and emerging economies typically spend less than 20% of their disposable income on food. They could easily absorb a substantial rise in food costs – even if they might complain loudly! Rising prices will also discourage food over-consumption, cutting future health costs from the overweight and obesity epidemic now affecting more than 1.5 billion people.

Higher food prices will also reduce the 20-30% of food wasted in industrial countries at household level. This will take pressures off natural resources while making a win-win cut in the greenhouse gas emissions that drive climate change processes – once in growing the discarded food and then in disposing of it in landfills.

Subsidies in the right place

Rather than continue to effectively subsidise all consumers and indirectly perpetuate rural poverty, it seems better to promote higher food prices. However, until the economic benefits start to show up in hunger reduction, policies must ensure that all poor families can eat adequately by providing them with income supplements, indexed to local food prices.

Local food producer at marketGates Foundation on Flickr
Higher food prices or better targeted subsidies could give more to local producers in the long term.

In recent years, many developing countries from Brazil to Ethiopia and Vietnam, are showing that they can put in place increasingly reliable social protection programmes that do just this.

Sceptics will claim that social protection on this scale is unaffordable. But this too is nonsense.

I surprised myself when I calculated how much extra food is needed to close the hunger gap globally. The average food gap between what chronically hungry people are now eating and the hunger threshold is around 300 kcals per person per day. This is equivalent to about 75g of wheat or rice, or roughly 30kg of grain per year. Closing the calorie gap for 1 billion people would need no more than 30 million tons of grain per year – well below 2% of global cereal output.

Even if you triple it and diversify the diet, it’s no big deal. It would still cost less than about 10% of the OECD countries’ farm subsidies for which tax payers coughed up US$415 billion in 2012!

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About Andrew MacMillan

Andrew MacMillan is an agricultural economist specialised in tropical agriculture, and former Director of the FAO’s Field Operations Division. He recently co-authored a book with Ignacio Trueba entitled How to End Hunger in Times of Crises – Let’s Start Now, by Fastprint Publishing.

6 thoughts on “Raising food prices to end hunger

  1. This is a really thought provoking article and certainly the facts about the amount needed to fill the food gap are surprising. One issue not mentioned by Andrew is the stifling of innovation in farm production methods when subsidies are in place. We have been promoting the use of controlled traffic farming for nearly ten years but despite its proven economic and yield benefits as well as its soil health gains, uptake still only represents a small proportion of the cropped area in the EU countries. One can only surmise that subsidies have a lot to do with this and the fact that those adopting it have openly stressed that they see controlled traffic as a means of gaining farm profit over and above subsidy.

  2. Certainly there is a need to examine how farm subsidies are reducing the incentives for farmers to shift towards more efficient and sustainable farming systems, including controlled traffic farming and zero tillage/conservation agriculture. This applies particularly to farm fuel subsidies (running, for instance, at $1 billion per year in the USA).

  3. Great piece, but my worry would be that higher food prices would mean more money for the middleman not those at bottom of chain…

  4. The issue of higher prices for farmers is a very important one as our research highlights it for the case of the dairy sector in Malawi.

    The implications of low prices are quite clear and can be seen in the answer by Brian Lewis (advisor with the Shire Highlands Milk Producer Association who we interviewed in June 2013), to the question what the main driver for producers (e.g., more cows, better feeding, better training) were. He answered: “the main driver? is price, when the milk price is good, farmers want to produce, they feed their cows better, get their cows in calf quicker, everything works; there’s money to pay for veterinary bills, to rear the heifers properly, the whole thing works. When the price of milk is poor everything is the opposite, farmers don’t want to spend money on treatment for their cows, so the cows don’t do very well, the heifers grow in four years instead of two years, the cows are producing eight litres instead of fifteen litres after they calf. It comes the time to do AI [artificial insemination] and they say I cannot afford it […] the fundamental thing is money”.

    More information can be found at:

    http://theconversation.com/you-wont-help-farmers-in-africa-by-just-throwing-money-at-them-30691

  5. Tom raises a real concern. However,if the cake is bigger, probably everyone involved will end up with a bigger slice, including both the middleman and the farmer. Fair trade – when it works well – goes one step further by altering the relative sizes of each of the players’ slices http://www.wfto.com/index.php?Itemid=14&id=2&option=com_content&task=view , and shows that this is an effective way of raising farm incomes and inducing investment in local infrastructure and services.
    An alternative is for governments to become involved in contracting food procurement from low-income farmers, thereby influencing price formation. There is growing interest in African countries in adapting Brazil’s procurement system (for school meals, hospitals, army etc)http://paa-africa.org/about/paa-brazils-food-purchase-programme/ as a means of stimulating small-scale farming.
    Cesar’s reference to Malawi’s dairy farmers confirms that farmers respond with increased output and investment when they get worth-while prices. Where I live in Italy, sheep farming is being abandoned because it simply doesn’t pay. The farmgate price for a litre of sheep milk won’t even buy a small cup of espresso coffee in the local bar!

  6. I think its surprising people find this article surprising. Its logical. And well framed. The answer to urban food poverty is not always food but lies elsewhere and in the economic model. But we need the means to achieve the right prices to ensure rural prosperity – not via volatile food price crises.
    One issue to discus is how to ensure ‘fair trade’? Setting prices as in official fair trade systems is one way. In the UK we have a new Grocery Code adjudicator and a Grocery code of practice. It is far too limited and weak right now but is a step for developing something regulatory that could work to ensure the money goes to the producer. That and other measures you outline above eg on procurement and also retail planning rules to ensure retail diversity and reduce local and national monopolies etc Also trade rules to favour regional trading etc.
    I work for Friends of the Earth in UK and we pursued the need for legislation to curb supermarket power. Its a clear driver of harm in affluent societies and increasingly elsewhere.
    We need this at EU and even global level. As well as national and regional policies to deliver the kind of fair, sustainable pricing system advocated here. @vickihird

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