MARKETS AND DETERMINANTS OF FOOD PRICES - Food Security, Food Prices and Climate Variability - page 97

food expenditures in their total spending. In many countries, the poorest third of the
population spend more than half their incomes on food (see Figure 1.1 ).
• Ruralnetbuyersoffoodbuymorethantheysell,sohigherfoodpricesaffectthemnega-
tively. In general, this group tends to be the poorest, have few productive resources and
earn most of their income from non-farm activities (Egal et al ., 2003; Lay and Scḧler,
2008).
• Ruralnetsellerswhoareabletobeneitfromhigherfoodpricesbysellingmorefood
than they purchase, even if production stays constant. The size of the production effect
depends on the ability of farmers to produce more in response to higher prices. In many
regions where markets are imperfect, the supply response will be low (Von Braun and
Tadesse, 2012). If overall inflation in the region is pushed up with higher food prices it
may be that this group is unable to increase its income and may even experience a decline
in incomes, particularly if agricultural inputs also cost more.
Similarly to different population groups, countries have a differential ability to boost agricul-
tural production in response to higher food price. Countries that are net food importers have
had to find new sources of foreign exchange to be able to afford larger food imports. When
rapid and significant increases in food prices occur, per capita incomes fall for these poorest
segments of the population as the proportion of their incomes spent on food increases further
to maintain minimum consumption. These income reductions reduce tax receipts and have
an overall detrimental effect on national budgets. Plate 11 shows the difference in resilience
to food price shocks across multiple countries.
This recent food price shock affected countries in three ways: those that are resilient, those
that benefited and those that were harmed from the increases in prices. The resilient countries
saw reductions in undernourishment according to the FAO during periods of increased food
prices. Brazil, India and China used a combination of trade restrictions, safety nets and food
stock releases to reduce the impact of food price increases on local populations. They were
also experiencing large rates of economic growth during this time so incomes were able to
keep up with increases in food prices (FAO, 2011).
Countries that experienced a nutrition benefit from increases in food prices are mostly
net food exporters like Thailand and Vietnam. These countries have a relatively equal land
distribution that permitted expansion of areas under production and further investments in
productive capacity. The third group of countries saw increases in undernutrition with
higher food prices. This group has very low incomes, and did not have sufficient stocks or
budgets to protect the poor from rising food prices. The resulting increase in undernutri-
tion was due to a decline in consumption for the poorest, driven by higher food prices.
Many of these countries imported far less from the international market than was actually
needed during this period, causing increases in local food prices due to reduced supply.
Although the world has seen price spikes before, the global food system is more integrated
and income distribution is more unequal with many more poor households net food buyers
today than in the past, which means that the recent increases in food prices have had a
detrimental impact on food security for billions (Von Braun and Diaz-Bonilla, 2008; Barrett
and Bellemare, 2011).
Although it may be too soon to evaluate if food price variability will remain high, it is clear
that increase in food price levels has affected many communities. Prices may not return to
their pre-2008 levels any time soon. Webb (2010) argues that there are four reasons why it is