Article - Increase in Commodity Prices and Gender
Increase in Commodity Prices and Its Impact on Gender
by Parthapratim Pal1
International commodity prices are on a major upswing since the last few years. IMF index of crude oil prices (base 2005=100) increased from a value of around 36 in January 2002 to more than 230 in May 2008. Non-fuel price index (which include food and industrial input price indices) and the ‘Food and Beverages’ price index have also increased quite significantly over the same period (Figure 1). What is notable from the figure is that the current increase has come after a period of low and sometimes declining international commodity prices.
Closer inspection of international commodity prices data reveal that the current commodity price boom has been broad based as prices of three major commodity groups—metals, foods, and agricultural raw materials—have been jointly booming since early 2005. A recent IMF study indicates that the current boom is likely to be sustained. It says: “In sum, the comparison of the current commodity price boom with earlier ones suggests that the current boom has been more broad-based and longer lasting and that prices have risen by more than usual.” (IMF 2008, pp 9)2.
A number of factors have contributed to this increase in commodity prices. The increase in fuel prices has been triggered by large increases in demand for fuel from both developed and developing countries. Apart from that, there are usual suspicions that issues like OPEC not increasing oil production, speculation with oil prices and some countries hoarding oil, may be having an upward pressure on oil prices.
Increase in fuel prices has led to an increased demand for alternative fuels and as a result, over the past few years, there has been a significant increase in bio-fuel production in the world. According to figures quoted by the World Bank, global Ethanol production has increased from about 4,500 million Gallons in 2000 to around 13,500 million gallons in 2007. Increase in biofuel production has eaten into foodgrains production in some countries. Coupled with this, poor weather in a number of major food exporters like Australia and Ukraine has led to a production shortfall of food3. As there has been increased demand for food from high growth in a number of developing countries, a major supply demand mismatch has happened in the international market.
To make matters more complicated, commodities have emerged as a new form of speculative asset. Over the past few years, the US financial markets are not performing well. Weakening US dollar, a falling rate of interest and a declining real estate market have made commodities attractive speculative assets4. Confluence of these real and speculative factors has led to the unprecedented increased in commodity prices that we are observing nowadays.
This increase in food and commodity prices can have significant implications for the international economy. There will be certain beneficiaries from this increase in commodity prices. For example, World Bank projections indicate that at a regional level, the Middle East and North Africa and, to a somewhat lesser extent, sub-Saharan Africa and Latin America may emerge as the main beneficiaries of the current commodity price boom. However, due to increase in food and fuel prices, inflation is up in many countries and the external balances of most net commodity importers have deteriorated. These developments are affecting the net food importing developing countries very badly. Even within the countries which are expected to benefit, the poorer segment of the society or the net food buyers are likely to suffer from such rising food prices. On balance, poverty is expected to rise in the poorer countries. A recent paper, which attempted to find out the impact of food price rise on poverty, show that the short-run impacts of higher staple food prices on poverty may differ considerably by commodity and by country, but, poverty increases are much more frequent, and larger, than poverty reductions. The authors conclude that the recent large increases in food prices appear likely to raise overall poverty in low income countries substantially5.
World Bank estimate suggests that a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty. Here it is notable that the 2006 edition of the Annual publication of FAO called ‘State of Food Insecurity in the World’ shows that for the years 2001-2003, there were more than 854 million undernourished people in developing countries. This figure is approximately about 17 percent of the total population of the developing countries. The geographical distribution of undernourished people across the world is shown in Figure 2. The World Bank estimates probably indicate that 100 million more people will be added to this 850 million undernourished people.The World Food Programme estimates are even more grim. It projects that 130 million people will be pushed to poverty because of the increase in food prices6. It is also suggested that the increase in food prices will be catastrophic for food and nutrition level of the poor. According to estimates by International Food Policy Research Institute (IFPRI), poor people spend around 75 percent of their income on food products and a 50 percent increases in all food prices across the board (holding income constant) will result in a 30 percent decline in iron intake; this, in turn, will result in a significant increase in the prevalence rate of iron deficiency among women and children7. The real impact is likely to be more severe, as there has been a near doubling of food prices over the past one year.
One worrying fact is that the increase in food prices is likely to hit hard the women and children among the poor. In developing countries across the world, the price rise means that less real income to be spent on food. As a result, families are cutting meals and substituting less nutritious foods. For example, they are substituting more expensive foods such as meat, fruit and vegetables by basic staples such as rice or maize A nutritionist for WFP, Thorne-Lyman says that his has serious implications for child development as without sufficient vitamins and minerals, children are at greater risk of disease and stunted growth8. The move towards inferior food is also expected to negatively affect the nutrition level available to young mothers and pregnant women in these countries. Also, the price crunch means that less purchasing power will be available to fulfil health, education and other non-food requirements of these people. It is only likely that the rise in food prices will worsen the access to health and education services for a significant section of the population who already find it difficult to finance such services. IFPRI (2008) identifies three effects which are of particular concern in such cases. These are: (1) deterioration of the nutritional status of pregnant and lactating women and of preschool children; (2) the withdrawal of children, especially girls, from school; and (3) the distress sale of productive assets. IFPRI expresses concern that these three have potentially irreversible consequences and may compromise the future ability of individuals and households to escape poverty. In sum, the increase in food and commodity prices is not only increasing the incidence of poverty, it is also having a much broad based impact among the underprivileged section of the population. As food is the foundation for at least six Millennium Development Goals (MDGs)9, it is feared that this recent crisis will erode the gains made in the achievement of these MDGs over the last seven years. It is also leading to social tensions and food riots have erupted in at least 25 countries around the world including Haiti, Burkina Faso, Cote d’Ivoire, Cameroon, Gabon, Egypt, Senegal, Indonesia, Bangladesh, India and the Philippines.
To make matters worse, the crisis is showing no signs of abetting. Forecasts by major organizations (OECD, FAO, USDA and the World Bank) tend to suggest that food prices are expected to remain high in 2008 and 2009. If there is adequate supply response and some reduction in demand, then the food prices may begin to decline from their peaks but these prices are likely to remain generally high till 2015. Therefore, unless some major policy interventions are made to improve the income levels of the poor and the underprivileged, the consequence of the rising food prices will be extremely damaging.
Increased demand for biofuel production may become another possible threat to the small farmers of the developing and least developed countries. Increased petroleum prices may lead to an increase in global demand for biofuels. World Bank data show that a quarter of the U.S. maize crop (11 percent of the global crop) went into biofuel production this year, and the U.S. supplies more than 60 percent of world maize exports. It also highlights that U.S. has doubled its biofuels mandate by 201510. There is an apprehension that the high demand for biofuels will lead to a trend of large biofuel plantations in poorer countries, especially in Africa, Asia and Latin America11. The resultant land requirements will put pressure on the small and marginal lands, which provide key subsistence functions to the rural poor. This has a strong gender implication as there has been a ‘feminization of agriculture’ in a number of poor countries across the world. Factors like civil war, rural- urban migration of men in search of paid employment and high prevalence of HIV/AIDS among men has led to a rise in the numbers of female-headed households in the developing world. In a number of African countries like Congo, Mozambique, Malawi, Zaire and Zimbabwe there are more women who are involved in agriculture. This has resulted in an increase in the proportion of households headed by women. If biofuel production displaces these farmers, it will be another shock to the underprivileged groups who are already reeling from the effects of high food prices.
Overall, at appears that the next few years are going to be extremely difficult for the more vulnerable groups of the society. The recent price boom has taken food prices close to their historical peaks and it is expected that this round of price rise is going to sustain for some time. There are a few other things which make this price rise even more damaging. First, according to many economists, this is a man-made crisis12. Long neglect of agriculture has resulted in shifts in global prices and production patterns and has reduced the viability of farming. Removal of trade barriers and sustained subsidization of agriculture by developed countries have made many developing country farmers uncompetitive. This, is fact, has serious ramifications regarding the supply response to higher food prices. FAO in 2005 has published a series of papers under its ‘FAO Import Surge Project’ which shows that import surges of agricultural commodities to developing countries have actually increased after the implementation of WTO. Under the same project, a paper by Sharma (2005)13 has listed a number of case studies where import surges have negatively affected domestic production. For example, he shows that rice production in Haiti and Honduras suffered from import surges and in both these cases, import surges inflicted a permanent damage to the production of rice in these countries. According to Sharma, this situation is known as “material retardation” where imports prevent the revival of the industry following a shock. It is to be noted that in such cases one can hypothesize that a supply response may not take place even if there is an increase in price. If this happens, this will make the stabilization of commodity prices even more difficult in the next few years. Secondly, it is widely acknowledged that commodity speculation is playing a major role in making food prices go up. It is unfortunate that pure speculative activities, which benefit only the very rich, contribute to a situation where a large number of poor and vulnerable, especially women and children, are robbed off their basic necessities of life. In an equitable system, right to food should get priority to right to profit.
1 Assistant Professor, Indian Institute of Management Calcutta
2 World Economic Outlook, April 2008, Chapter 5
3 Between 2004 and 2006, wheat production has gone down in USA and EU by 14 percent each and by 52 percent in Australia. Over the same period, coarse grain production in USA, EU and Australia has declined by 12, 16 and 33 percent respectively (World Bank 2008)
4 According to The Economist, the number of transactions involving oil futures on the New York Mercantile Exchange, the biggest market for oil, has almost tripled since 2004. It is interesting to note that the price of oil has also tripled over the same period.
5 ‘Implications of higher global food prices for poverty in low-income countries’ by Maros Ivanic and Will Martin, World Bank Policy Research Working Paper No WPS4594.
9 Eradicate extreme poverty, Achieve universal primary education, Promote gender equality and promote women, Reduce child mortality and Improve maternal health.
11 See ‘Gender and equity issues in liquid biofuels production: minimizing the risks to maximize the opportunities’ by Andrea Rossi and Yianna Lambrou, FAO, 2008.
12 See “The Global Food Crisis” by Jayati Ghosh
13 ‘Overview of reported cases of import surges from the standpoint of analytical content’ Ramesh Sharma, FAO, 2005.
