FOOD SECURITY, FOOD PRICES AND CLIMATE VARIABILITY - Food Security, Food Prices and Climate Variability - page 9

x10 4

5 50

Total expenditure (dollars)
Percent spent on food

4.5
4
3.5
3
2.5
2
1.5
1
0.5

45
40
35
30
25
20
15
10
5

0 0

FIGURE 1.2 Average total household expenditures and percent of expenditures spent on food for
seven select countries (source: data from World Bank, 2013; Meade, 2011).

Food price volatility and recent changes

In this volume, the term “volatility” will be used as a synonym for unpredictability. Although
the term is often employed in the news media and in policy circles, its meaning is often not
explained. Price volatility can mean changes in prices between markets, or may capture sea-
sonal differences in prices that occur every year and are thus predictable. When food prices in
a market increase significantly over short periods of time, it typically is caused by a decrease
in local supply, an increase in local demand, an increase in the import and/or export parity
price, or some change in government food policies. Since changes in demand for food are
rarely large over short periods, changes in supply from unobserved causes are more often the
source of the price change (Kshirsagar and Brown, 2013). Uncertainty in food prices is a cause
for concern, since when producers, consumers and market intermediaries cannot accurately
forecast cereal prices and consequently they are unable to make decisions regarding invest-
ment, savings and labor allocations, it creates significant economic impediments. Volatility
also causes substantial short-term reductions in food consumption in households with low
incomes or constrained access to resources. Thus food prices and their predictability are a
critical element of food security analysis.

Changing food price levels

Regional price indices provide evidence of widespread increases in the base price levels in
food insecure regions. Increases in the actual price of food are far more detrimental to food
security than simply volatility (Barrett and Bellemare, 2011). Figure 1.3 shows five regional
indices from FEWS NET that use locally relevant commodities, including sorghum, millet,