Chapter Eight

Taming Volatile Food
Prices: A Prerequisite for
Improving Nutrition

Joachim von Braun
Director of the Center for Development Research (ZEF)
Professor for Economic and Technological Change,
University of Bonn, Germany

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“We have the resources and the knowledge to end hunger. We
know how to protect the poorest from the impact of rising
prices. We know how to tame volatile prices. Every child,woman and man has a right to enough nutritious food for an
active and healthy life. Let us act – now.”Ban Ki-moon, World Food Day Commemoration, 2011

Key messages•	Food prices today are not only set by
supply and demand but also influenced
by financial markets.
•	Sudden price rises, or ‘spikes’, cause big
problems for nutrition of the poor.
•	Healthy diets need to be affordable, andthat requires increased productivity in thefood system to prevent high prices.
•	Poor countries are hit worst as theycannot afford adjustment measures.
•	The solution needs to be worked on
globally, and the issue taken more seriously.

There are more than 800 million people seriously
undernourished in the world today, and two billion
suffering from hidden hunger. The price of food is a key
factor in this situation.
Recent years have witnessed extreme fluctuations in theprices of food commodities. The basic cause is lack ofagricultural productivity; additional factors include
financial market volatility, political instability, and armed
conflict. Others are scarcity of natural resources such as
land and water, and rising energy prices.
The situation becomes even more complex when
agricultural subsidies provided by governments in the Westto their own farmers are considered – a factor that played
an important role in the past – or when exports are
restricted, which in recent years led to further scarcity andsudden price hikes in the global market. And it seems thecountries giving out the subsidies are not without theirproblems either. In the US and Egypt, it has been argued
that the artificially low prices can lead to unhealthy
incentives for consumers. When energy-dense foods such as
grains and sugar become cheaper, it is argued that these
attract low-income families, leading to problems withoverweight and obesity.
All of these factors and the price fluctuations that result
have put pressure not just on individuals but on entire
social groupings and, indeed, societies as a whole. Dramaticincreases – or ‘spikes’ – in the cost of commodity foods
have not only impoverished the diet and constrained thepossibilities of many of the world’s poorest and mostvulnerable populations; they have in some instances actually
led to food riots which have triggered major political andsocietal changes. The ‘Arab Spring’ that commenced on
18 December 2010 had complex causes, but food prices did
play some role in triggering the violent change.
This chapter examines the various factors that influence
food pricing, the repercussions experienced when price rises
are deemed excessive, and solutions that could help alleviate
the problem. Food price volatility is an issue that needs tobe addressed on a global scale, rather than by individual
countries only, for it is the poorer nations that suffer mostin the wake of a food pricing crisis, as they are unable tofund the social and economic mitigation. Furthermore, notChapter Eight | Taming Volatile Food Prices: A Prerequisite for Improving Nutrition | Joachim von Braun

Economic Crisis+
Food Insecurity

Coping strategies

Modification ofhousehold behaviors

Poverty
Access to foodIntakeChange in priorities

Vulnerable groups

Food price

Quantitative
Changes
Micronutrient
deficiencies

Poor cognitive development
Negative growth rate
Reversal of previous gains+

Healthcare utilization
Expenditure on education
Expenditure on psychologicalwell being

Quantitative
Changes
Wasting
StuntingLong term
Morbidity
Mortality

Adaptations

The vicious cycle of the economic crisis
Source: Maternal and Young Child Nutrition Adversely Affected by External Shocks Such as Increasing Global Food Prices, Ian Darnton-Hill and Bruce Cogill, Journal of Nutrition 2010

only do the sudden or short-term crises need to be addressed,
but also the chronic situation that needs a coordinated andlong-term response. One feature of that is the relative priceincrease of pulses, animal products and vegetables
compared to calorie-dense foods, which leads to unhealthy
diets of poor consumers, for instance in South Asia.

The effect of food price increases
Food prices around the globe are tracked by the Food Price
Index, managed by the FAO (Food and Agricultural
Organization). Strange as it may sound, the fact that foodprices are either high or low in absolute terms is not themain destabilizing factor. The most serious problem occurs
when a sudden change or ‘spike’ in prices occurs, forcountries whose nutrition security is already compromisedfind it very hard to cope with these changes. Traditionally,such sudden price increases have been attributable tonatural disasters such as droughts and floods, and to
man-made disasters such as wars. Such occurrences limit
the supply of food available. As supply dwindles but
demand grows due to population and income growth, theresult is inevitably higher prices for such produce.
If this is a phenomenon as old as money itself, there are also
more recent factors that play a significant role in triggering
food price spikes. One is the growing demand for high-end
foods such as meat and dairy products on the part of theburgeoning middle classes of China and India. Another is thehigh price of oil in our oil-based global economy, which drives
up the cost of every type of economic activity. A third was theglobal decline of food stocks in the last decade, for agricultural
productivity growth had been declining worldwide for anumber of years. Perhaps the most important, however, is thenature of the global commodities market.
During the past decade, there have been notable spikes in
the period of 2007–8 and again in 2011. In certain

countries, food prices were found to be three times as highin mid-2008 as the five-year average for that particular timeof year. Prices rose again in mid-2010 because fears regarding
droughts in Russia and parts of Asia affected stock levels.
The relationship between food production and pricing has anumber of important dynamics:
1)When prices rise, the cost of acquiring food poses a
growing problem. This is the most obvious effect. In
order to prioritize the purchase of food within theframework of an unchanged budget, cuts have to bemade elsewhere. On a household level, this can result in a
general lowering of living standards, while governments
may have to reduce funding for certain initiatives not
related directly to the provision of food.
2)If the food in question becomes unobtainable on account of
its increased price, the quality of the diet will deteriorate.
Malnutrition leads to short-term health problems, but it
also lays the foundation for long-term problems such as
stunting and an increased predisposition to noncommunicable diseases such as cardiovascular disease andtype 2 diabetes. The undernutrition rate of the under-fives
also rises, and the increased prevalence of these conditions
has a lasting negative influence not only on the individuals
affected but also upon the entire societies of which they
form a part.

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Chapter Eight | Taming Volatile Food Prices: A Prerequisite for Improving Nutrition | Joachim von Braun

3) Changes in the price of food can also impact the macroeconomy and labor markets, causing wages to rise or fallconcomitantly. The worst-case scenario is when a drop in
job opportunities is accompanied by a rise in food prices, as
was the case in parts of the Arab region in recent years.

social safety net, putting emergency schemes in place for themost economically vulnerable, but poor countries lack theresources for that and the effectiveness and coverage ofsuch measures is often limited. Another response is to tax
or otherwise legislate for the import or export of food,
which has adverse effects for reliable trade flows.

4)Difficulties caused by rising food prices will prompt areaction from government. One response is to widen the260

Food Price Index

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240

FAO Food Price Index from 1990 to 2011240

Haiti 5 , Egypt 3 ,Cote d'Ivoire 1

220

Sudan 3200

Cameroon 40
Yemen 12180

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Algeria 4 , Saudi Arabia 1
Mauritania 1 , Sudan 1 , Yemen 300+
Egypt 800+
Libya 10000+
Tunisia 300+

Oman 2 , Morocco 5
Iraq 29 , Bahrain 31
Syria 900+
Uganda 5

160

220

Mozambique 6

140
120

Mozambique 13

100

200

80

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2005

2010

India 4
Somalia 5

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Double blow to the poor
In the wake of a food pricing crisis, it is the poor that suffer
most. In fact, poor people spend an estimated
50–70 percent of their wages on food, and are unable toadapt to price rises, with wages for unskilled labor also
unlikely to rise. The result is that households tend to limit
their food consumption, eat less balanced diets, and spend
less on goods and services. A vicious cycle of nutritionaland economic deprivation is thus initiated.

The current economic climate can pose further problems,with falling wages and unemployment widespread in many
parts of the world. Some three quarters of the world’s poor
live in rural areas. They are therefore more exposed to theimpact of commodity price increases occurring in the global
economy. China and India both attempted after 2008–9 tocombat the problem of food price spikes by shielding
themselves from the international market, and keeping all
their national produce for domestic use. While successful inthe short term, protectionist measures of this kind cannegatively affect a country’s global trading position, andtherefore its wealth, in the longer term.

Chapter Eight | Taming Volatile Food Prices: A Prerequisite for Improving Nutrition | Joachim von Braun

Food prices and the Arab Spring

How are food prices set?

While there were other contributing factors to the recent
Arab Spring uprisings, food prices and the inability of
governments to react to their increase were definitely part ofit. The Middle East and North Africa are more dependenton imported food than other regions, and in 2007–8 when
global food prices spiked, countries like Egypt were facedwith rises in local food prices of 37 percent. With
unemployment in the country rising also, people depended
on the government to supply subsidies, but it was widely
felt that not enough was being done. Food inflation in
Egypt continued to rise, and was 18.9 percent when
President Mubarak gave up his seat.

Food pricing today is no longer set by the straightforward
dynamics of supply and demand only. A report published by
the United Nations Conference on Trade and Development in2000 and entitled Commodity Exchanges in a Globalized
Economy provides an introduction to the topic.

Other countries experienced difficulties, with Bahrain,
Yemen, Jordan and Morocco all staging fooddemonstrations during 2008. Many governments offeredsubsidies, but as in the case of Egypt, these were deemed
low quality and not enough. In Egypt and Yemen, over
40 percent of the population live below the poverty line andsuffer malnutrition, while 30 percent of Egyptian adults and35 percent of Jordanians are obese. According to the Gallup
World Poll, between half and three quarters of the Arab
population say they are unhappy with their government’s
poverty reduction efforts. “The food-price spike was the final
nail in the coffin for regimes that were failing to deliver on
their side of the social contract,” Jane Harrigan of London’s
School of Oriental and African Studies told the Economist.
Sources: http://www.economist.com/node/21550328, http://www.guardian.
co.uk/lifeandstyle/2011/jul/17/bread-food-arab-spring“Modern commodity exchanges date back to the trading ofrice futures in the 17th century in Osaka, Japan, although
the principles that underpin commodity futures trading andthe function of commodity markets are still older. The firstrecorded account of derivative contracts can be traced tothe ancient Greek philosopher Thales of Miletus in Greece,
who, during the winter, negotiated what were essentiallycalled options on oil presses for the spring olive harvest. The
Spanish dramatist Lope de Vega reported that in the 17th
century options and futures were traded on the Amsterdam
Bourse [Stock Exchange] soon after it was opened.”
It continues:“Futures’ trading is a natural application to the problems of
maintaining a year-round supply of seasonal products like
agricultural crops. Exchanging traded futures and options
provides several economic benefits, including the ability toshift or otherwise manage the price risk of market or
tangible positions. With the liberalization of agricultural
trade in many countries, and the withdrawal of government
support to agricultural producers, there is a new need forprice discovery and even physical trading mechanisms, aneed that can often be met by commodity exchanges.
Hence, the rapid creation of new commodity exchanges.”
Commodity exchanges are places where commodities andderivatives are traded. This generally covers agricultural
produce and other raw materials (e.g. wheat, sugar and maize)and contracts based on them. These contracts may be the basis
for a range of sophisticated financial products including, forinstance, futures, interest rates and swaps. Futures are futurecontracts on a crop that has not yet been harvested. They set
the sale price in advance for both the producer (the farmer)
and the purchaser (e.g. a food processor). Both producer andpurchaser are thereby protected from potential pricefluctuations at the moment of sale. The price of grain crops– especially of wheat, corn and soy – is set in this manner.
Food commodities are assets worth investing in, and aretreated in the same way as stocks or bonds. Investors will buy
a package of food commodities through a hedge fund, and ask
them to be traded at a time that is financially opportune.

Can containing fortified vegetable oil
Source: Mike Bloem Photography

Milk prices, by contrast, are derived from feed prices, while
rice prices are set at a national level, as rice is such animportant staple food in so many parts of the world.

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Case study
Case study: Guatemala
A study conducted in Guatemala in 2008 revealed thatthe price of a diet based on a corn tortilla, vegetable oil,vegetables and beans – containing key recommended
micronutrients – is twice the cost of a less nutritious dietbased only a tortilla and oil. The cost of the diet for one
person with beans and vegetables is also around a third of
the total household income of a family living on $1 a day.
If a person were to eat the diet based only on the tortillaand oil, they would receive no vitamin A and C, andvery low levels of other essential nutrients. This will putthem at risk in terms of health problems and illnesses,
some of which can be long term.
Source: Erick Boy, IFPRI, based on Guatemala City market prices in
November 2008; and data from FAO/WHO 2002

Abstract
A food crisis occurs when rates of hunger and malnutrition
rise sharply at local, national, or global levels. Thisdefinition distinguishes a food crisis from chronic hunger,
although food crises are far more likely among populations
already suffering from prolonged hunger and malnutrition.
A food crisis is usually set off by a shock to either supply or
demand for food and often involves a sudden spike in foodprices. It is important to remember that in a market
economy, food prices measure the scarcity of food, not its
value in any nutritional sense. Except in rare circumstances,
the straightforward way to prevent a food crisis is to have
rapidly rising labor productivity through economic growthand keep food prices stable while maintaining access by thepoor. The formula is easier to state than to implement,
especially on a global scale, but it is good to have both theobjective, reducing short-run spikes in hunger, and the deep
mechanisms, pro-poor economic growth and stable foodprices, clearly in mind. A coherent food policy seeks to use
these mechanisms, and others, to achieve a sustained
reduction in chronic hunger over the long run while
preventing spikes in hunger in the short run.
Source: J. Nutr. 140: 224S–228S, 2010.

Chapter Eight | Taming Volatile Food Prices: A Prerequisite for Improving Nutrition | Joachim von Braun

It is ironic that the prices of many food commodities aretoday partly decided by financial markets that have nothing
to do with the process of producing food by agriculture orwith the procedure for distributing it physically within an
economy. Cuts in food prices can have a drastic effect on
the farmers who actually grow the food. At the same time,
sharp increases in food prices can threaten the well-being of
the poorest sections of society, who have no means toincrease their income in response to the rising cost of food.

Developed nations

Links between the food and financial crises

Sales promotions encourage customers to purchase excessive
quantities, which generates wastage of perishable foodstuffs.
Between 30% and 50% of food bought in developed countries
is thrown away.

Looking at the dates where the worst spikes in rising foodprices occurred recently, in 2007–8 and 2011, one could
easily assume that a direct connection must exist between
the rise of food commodity prices and the more widespread
global economic crisis which occurred during the same period.
The relationship is somewhat more complex, however.
Before the global recession, the consumption of agricultural
products increased in line with income and population
figures, rising energy prices and subsidized biofuel production.
Pressure was placed on production, however, by natural
resource constraints, underinvestment in rural infrastructure
and agricultural science, and weather disruptions.
The much wider financial crisis of 2008, which started in
the USA and resulted in the collapse of the housing andfinancial markets in many parts of the world, led toincreased speculation surrounding agricultural commodities,
introducing volatility and making prices rise further.

Global Food: Waste Not, Want Not
Feeding the 9 Billion: The Tragedy of Waste
By 2075, the United Nations’ predicts human numbers will
peak at about 9.5 billion people – an extra 3 billion mouths tofeed. Substantial changes are anticipated in the wealth,calorific intake and dietary preferences of people in developing
countries. However 30–50% (or 1.2–2 billion tons) of all foodproduced never reaches a human stomach.
Developing nations
In less-developed countries, wastage occurs primarily at thefarmer-producer end of the supply chain due to inefficient
harvesting, inadequate local transportation and poor
infrastructure. As development increases, the problem generally
moves further up the supply chain with regional and national
infrastructure deficiencies having the largest impact.

In fully developed countries such as the UK, a larger
proportion of the food produced reaches markets andconsumers. However produce is often wasted through retailand customer behavior.
Major supermarkets often reject crops because they do notmeet exacting marketing standards. Up to 30% of the UK’svegetable crop is never harvested as a result of such practices.
Globally, retailers generate 1.6 million tons of food waste
annually in this way.

Better use of our finite resources
Wasting food is a waste of land, water and energy. Tackling offood waste involves addressing key resource issues:
Effective land usage
Over the last five decades, improved farming techniques and
12% expansion of farmed land have increased crop
production. Further expansion of crop land would impact on
the world’s natural ecosystems. Per capita calorific intake frommeat consumption is set to rise 40% by mid-century, and meatproducts require significantly more resources and land to
produce. Considerable tensions are likely to emerge, as the needfor food competes with demands for ecosystem preservation andbiomass production as a renewable energy source.
Water usage
Over the past century, fresh water withdrawal for human use
has increased at more than double the rate of population
growth. The demand for water in food production could reach
10–13 trillion m3 annually by mid-century. This is 2.5 to 3.5
times greater than the total human use of fresh water today.
About 40% of the world’s food supply is currently derived
from irrigated land. However, water used in irrigation isoften sourced unsustainably, and we continue to use
wasteful systems. While drip or trickle irrigation methods
are more expensive to install, they can be 33% more
efficient and carry fertilizers directly to the root.
In the production of foods besides crops, especially in meatproduction, there are large additional uses of water. Moreeffective procedures, and recycling and purification of water
will be needed to reduce wastage.

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Energy usage
An average of 7–10 calories of input is required in the
production of one calorie of food. This varies dramaticallydepending on crop, from three calories for plant crops to 35
calories for beef.
High productivity in agricultural crops requires appropriate
fertilizer use. In the modern industrialized agriculturalprocess the making and application of agrochemicals suchas fertilizers and pesticides represents the single biggest
energy component. Wheat production takes 50% of its
energy input from these two items alone. Fertilizer
manufacturing consumes 3–5% of the world’s annual
natural gas supply. With production anticipated to increaseby 25% between now and 2030, sustainable energy
sourcing will become an increasingly major issue.
Source: Aggidis G, Arbon I, Brown, C et al, Global Food – Waste Not, WantNot, The Institution of Mechanical Engineers, January 2013

The long-term health risks of risingfood prices
Micronutrient deficiencies can lead to a wide number healthproblems, including impaired cognitive development, lower
resistance to disease, and increased risks during childbirthfor both mothers and children.
It is essential that governments do not undervalue or
underestimate the long-term effects to the population
caused by rising food prices. There is a short-term effectthat food will be hard for the population to budget for andthat bad diets may be eaten, with a serious risk of longterms problems arising from this situation. Carefulmonitoring and assistance should be provided bygovernments when a food pricing crisis is under way, andalso for a suitable length of time afterwards.
This would require funds set aside by the government toensure its recovery from the crisis and also that of the
population. Data will need to be collected, and assessed, in
addition to the right aid and support, and potentially
supplementary foods provided, to limit any long-term effects.
Source: Overcoming the World Food and Agriculture Crisis through Policy
Change, Institutional Innovation, and Science, Joachim von Braun, TAAS
Lecture. New Delhi, March 6, 2009. http://www.taas.in/documents/fdl4_
jvbraun.pdf

How does climate change affectfood prices?
Food production is very sensitive to climate change, and asmall crop yield as the result of drought, too much rainfall,or extremes like flooding or storms, can push prices up. The
effect of global warming is resulting in greater weather
extremes than ever before, with bigger impacts on foodproduction, felt around the world. In Russia in summer
2012, a heat wave destroyed around a third of its crop
yield, while in the US, the worst drought experienced by thecountry in 50 years destroyed almost half the corn crop anda third of the soya bean crop.
Richard Tiffin, director for the Centre of Food Security at
the University of Reading in the UK said:“It should be a major warning that climate change isincreasingly having a global impact on the food supply. If
the problems in Russia and the US were combined with afailure of the Indian monsoon, we could see a major global
food crisis that would have an enormous impact on foodprices and badly affect poor people around the world.”
A recent study by Stanford University suggests that the
global production of maize and wheat since 1980 would
have been 5% higher if not for climate change. Increases incarbon dioxide in the atmosphere is actually said to bebeneficial to the production of certain crops, such as rice,soybean and wheat, but climate change will affect thelength and quality of the growing season, and the overall
effect of climate change on world agricultural production isclearly negative.
Sources: http://www.guardian.co.uk/environment/damian-carringtonblog/2012/oct/10/food-price-rise-uk-crop-harvest
http://www.guardian.co.uk/environment/2012/sep/19/climate-change-affectfood-production

Chapter Eight | Taming Volatile Food Prices: A Prerequisite for Improving Nutrition | Joachim von Braun

What happens next?
While challenges regarding food reserves and pricing have
populated the headlines in recent years, many experts believethat more risks are on the way.
Food consumption is said to have exceeded growth for six ofthe past 11 years, with yields of most crops, excluding rice,
falling. According to the FAO, food prices rose 1.4 percent in
September and 6 percent in July.
The key to solving the global food crisis and preventing prices
from escalating further lies at a global level. It is important that
all countries come together and accept shared responsibility. The
risks regarding food price spikes and their repercussions were
known many years before the dangerous increases occurred, butgovernments failed to give them sufficient credence. For example,
only twice in the past 10 years has food been listed in the top fivefactors for the Global Risk Report.
A potential solution to rising food prices lies in thefollowing areas:
1. Promote sustainable intensification of agriculture growth
Governments should increase their investments in R&D,
rural infrastructure, rural institutions, and information
monitoring and sharing of scientific insight. Smallholders
need improved access to affordable finance. Investments
in agriculture would increase output, helping countries toemerge from poverty.
2. Reduce market volatility
A lack of information can lead to market inefficiencies
and reduce the extent of mutually beneficial exchanges.
Investors need more transparency about market
information and stocks. Appropriate regulation ofcommodity exchanges is called for.
3. Expand social protection and child nutrition action
Preventative actions are needed to address both shortterm and long-term issues. This could include conditional
cash transfers, pension systems and employment programs,
while children could benefit from supplementary feedingin the first two years, school feeding, and increasedfood education.
In addition to this framework, borders must remain open, andsharing scarcity through trade should not be reduced. Export
restrictions should be avoided, as this leads to a smaller
import/export market, which keeps prices high. Food aid
should be allowed to flow freely between countries. The
solution to the problem of food price spikes lies in our hands,
but it will take a global effort of concentrated willpower tomake those hands work effectively together.

My personal view
Joachim von Braun

Director of the Center for Development Research (ZEF)
Professor for Economic and Technological Change,
University of Bonn, Germany

Food security – the availability of andaccess to sufficient and healthy foods
and good nutrition – is central to thewell-being of nations and people. Food
insecurity has increased in the context
of the inter-linked food price andeconomic crises of 2007–08 and again
in 2010–11. The food price crisis ismainly a consequence of neglected
investment in agriculture in many developing countries,
inappropriate agriculture energy subsidization policies inindustrialized countries, and then triggered by adverse
weather events and exacerbated further by export
restrictions. The consequences are volatile and spiking
food prices that undermine food and nutrition security ofthe poor. A comprehensive assessment of the costs of pricevolatility is called for; including human costs, adverse
investment effects, macro-economic and fiscal effects, andmarket distortions such as speculation. Empirical analysisof the inter-linkages of food, energy and financial markets
suggests that food security policy needs to go beyond
traditional mitigation of demand- and supply-side shocks.
And a comprehensive portfolio of policy actions forprevention of price spikes is proposed here, including
better regulation of commodity exchanges and innovative
food reserves policies.

Further reading
IFPRI website: www. foodsecurityportal.org
Food and Agriculture Organization. The State ofFood Insecurity in the World. Rome: FAO 2012.
von Braun J. Increasing and More Volatile Food
Prices and the Consumer. In: The Oxford Handbookof the Economics of Food Consumption and Policy,
2012. DOI:10.1093/
oxfordhb/9780199569441.013.0025

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