FOOD SECURITY, FOOD PRICES AND CLIMATE VARIABILITY - Food Security, Food Prices and Climate Variability - page 8

Poverty and food prices
Poverty, which can be defined as those households that have insufficient resources to main-
tain adequate food consumption for all members for all meals, is the primary cause of food
insecurity (Ravallion, 1998). In 2012 there were 870 million people in the world who did not
have enough to eat, the vast majority of whom (98 percent) live in developing countries
where 15 percent of the population is undernourished (FAO, 2012b). Many of these hungry
people live in poor countries that have been encouraged to move their economies away from
subsistence agriculture to either cash crops or a more industrial base (Bryceson, 2002;
UNCTAD, 2012). Global investment in agriculture in developing countries has declined
since the 1980s, falling from 18 percent to just 4 percent in the mid-2000s (OECD, 2007).
After increases in commodity prices in 2008 boosted profits for export-oriented agriculture,
investment has rebounded significantly, but precious time has been lost. If investments had
been made to increase the productivity of the millions of poor and subsistence-level farmers
during the 1980s and 1990s, then the vulnerability of these countries to higher food prices
that we are currently experiencing would be far less. Countries that are highly dependent on
food imports are far more vulnerable to food price shocks than if they produce more of the
food they consume (Moseley et al ., 2010). Countries that have inadequate foreign cash reserves
to pay for sharply increased food imports during periods of rapidly increasing commodity
prices are vulnerable to potential reductions in food supplies. Poor people who live in coun-
tries that do not have well-functioning social safety nets, trade policies or strategic food
reserves to reduce the impact of these price shocks are even more vulnerable (Gouel, 2013;
Grosh et al ., 2008; Cavero and Galín, 2008).
Volatility and wholesale increases in local food prices have a negative effect on the amount
of food that families can afford to consume. Without prior planning for large increases in food
budgets, families simply have no choice but to reduce consumption when basic food prices
double over short periods. Households that already devote a high proportion of their income to
food before the price increase occurred are particularly at risk ( Figure 1.2 ). The lower the total
income of a country, the higher the proportion of total expenditures is spent on food (Trostle
et al ., 2011; von Braun, 2008). Countries like Kenya whose citizens already spend nearly 50
percent of their total disposable income on food cannot easily find additional resources to main-
tain consumption. A significant increase in food prices would affect the ability of a large propor-
tion of the population to buy enough food for their families, if no assistance were available.
Globally, the proportion of income spent on food varies from the United States at 6 to 7
percent and Europe at 10 to 15 percent to Kenya at 50 percent (World Bank, 2013). Some
regions of Niger have households that expend 60 to 70 percent of their income on food
(FEWS NET, 2011). Regions with very high proportions of their income spent on food are
more vulnerable to increases in prices on goods available in local markets.
The relationships between food prices, wages, patterns of agricultural production and
income distribution are very complex. Climate variability affects food prices, but also the
broader agricultural economy, availability of wage labor, cost of goods, marketable surpluses
from previous years, risk of production and other relationships (Mellor, 1978). Remote
sensing information can help us quantify the effect of environmental shocks on production,
reducing one source of uncertainty in the economic analyses. Local food price volatility can
be measured, and the next section describes the results shown from an analysis conducted by
Minot in 2012.