chapter 00033 - food security, market processes, and the...

Food Security, Market Processes, and the Role of Government PolicyCP Timmer, Harvard University, Cambridge, MA, USA, and Australian National University, Canberra, Australia

r 2014 Elsevier Inc. All rights reserved.

Introduction

Modern analyses of food security list five essential com-ponents: availability of food on farms and in markets, accessto that food by all households, effective utilization of the foodwithin the household (a function of food safety, nutritionalstatus, and health), the sustainability of the food system thatdelivers these components, and its stability (Timmer, 2012).This definition stresses the elements that individuals andhouseholds require to be food secure, but food security is alsoan important objective at the national level, where politicalleaders can be held responsible for failures and successes inmaintaining accessible supplies of staple foods at stable prices,especially in major urban markets where many consumersprocure their food. (This will be chapter 33 in the Encyclopediaof Agricultural Sciences to be published by Elsevier. It draws onmuch of my research and writing over the past several decades,and especially on Timmer (2000 and 2013). David Dawe andCasey Friedman provided very helpful comments, but are notresponsible for the arguments here).

At the global level, considerable attention is focused onboth short- and long-run balances between food productionand food consumption. Rising food prices suggest that theproduction race is being lost to rapid gains in food con-sumption – a ‘Malthusian’ world where population growthand higher incomes cause food demand to outstrip the re-source base for food production. Falling food prices, however,suggest that expanded agricultural land, better water control,

Short run

Food price stability and the role of

grain reserves and international trade.

Budget costs of safety nets to protect

the poor, and impact of these transfers.Macro

Receipts from safety nets (including

from the government), vulnerability to

price shocks, and resilience in the face

of other shocks to household welfare. Micro

Figure 1 Basic framework for understanding food security issues.

Encyclopedia of Agricult324

and improved technologies are generating food surpluses. Inthis ‘Sen-ian’ world, access becomes the limiting factor forhousehold food security, not availability (Sen, 1981).

In both worlds, food prices are a key signal about what ishappening to food security. Two dimensions of food prices areimportant: their average level and their volatility. Price spikesand collapses can create risks and poverty for consumers andfarmers even when average prices are affordable to the poorand create adequate incentives for farmers. Although highlyunstable food prices have negative consequences at the microlevel for household-level decision makers, food price in-stability also has a deeper and more insidious impact: it slowsdown economic growth and the structural transformation thatis the pathway out of rural poverty (Timmer, 1989, 2009a).Thus, food price instability really hurts the poor in both theshort run and the long run.

To see this, consider a very simple model of food securitythat focuses on the short run versus the long run, and on themacro level (of policymakers) versus the micro level (ofhousehold decision makers) (see Figure 1). When the globaleconomy is reasonably stable, and when food prices are wellbehaved, policymakers at the national level can concentratetheir political and financial capital on the process of long-run,inclusive growth. Keeping the poor from falling into irreversiblepoverty traps is easier and less costly in a world of stable foodprices, and the poor are able to use their own resources andentrepreneurial abilities to connect (via the small horizontalarrow) to long-run, sustainable food security for themselves.

Long run

Sustained poverty reduction and

regular access to nutritious and

healthy food. This is the definition of

sustainable food security.

Policies for creating inclusive

economic growth, including

fiscal policy, management of price

stability, the exchange rate, and the

role of international trade.

ure and Food Systems, Volume 3 doi:10.1016/B978-0-444-52512-3.00033-4

MAC_ALT_TEXT Figure 1

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Food Security, Market Processes, and the Role of Government Policy 325

If the food economy is highly unstable, constantly in crisis,policymakers spend all of their time and budget resources inthe ‘upper left’ box, trying to stabilize food prices and providesafety nets for the poor. During food crises, vulnerablehouseholds often deplete their human and financial capitaljust to stay alive. This is the world of poverty traps and en-during food insecurity. One is also trapped in short-run crisismanagement, both macro and humanitarian. Donors such asUnited States Agency for International Development can betrapped in crisis mode as well as governments, and end upspending their human and financial resources on emergencyrelief rather than longer-run development strategies andinvestments.

With success in achieving the objectives in the upper rightand lower left boxes, market forces gradually – over decades –bring the poor above a threshold of vulnerability and intosustained food security (connecting macro to micro and shortrun to long run). The goal is to get to the ‘lower right’ boxwhere households have sustainable access to food in the longrun. That is, they are food secure.

This result is achieved by using a ‘food policy perspective’(Timmer, Falcon and Pearson, 1983). This perspective stressesthe need for analytical and policy flexibility to cope withmarket instability. Such flexibility is not a natural feature ofdomestic policymaking, in the food sector or elsewhere, andproviding the analytical tools for understanding how to createflexible responses to both high and low price environments isa real challenge. The starting point is usually to understand thefood marketing system, which transforms commodities in afarmer's field in time, place, and form, into food on the table.It is impossible to understand the challenges facing efforts toeliminate hunger without understanding the role of marketsand how the food marketing system operates. This is the foodpolicy perspective.

The food policy agenda includes rapid and sustained pov-erty reduction. There are four basic food policy objectives, andall four are important:

1. Faster economic growth (the ‘efficiency’ objective),2. More equal distribution of income from that growth (the

‘welfare’ objective’),3. A guaranteed nutritional floor for the poor (the ‘safety net’

objective), and4. Secure availability and stable prices in food markets (the

‘food security’ objective).

There are many trade-offs (and overlap) among theseobjectives, and substantial analysis of a country's food sys-tem is necessary to understand, if even roughly, the magni-tudes of the trade-offs. The central organizing theme of theanalysis is the ‘food price dilemma,’ an explicit recognitionthat a single market-clearing food price cannot satisfy all fourobjectives simultaneously – a ‘pure’ market solution does notwork. Additional policy instruments are needed, but they allneed to operate compatibly with market prices. The mostimportant lesson is the centrality of food prices – and thesignals they send to farmers, traders, consumers, and financeministers. The behavior of these decision-making agentsdictates market outcomes, but also responds to those marketoutcomes. The ‘macro’ food system that food policy analysts

need to understand encompasses micro behavior on the farmand in the household, market-level behavior by traders,processors and retailers, and macroeconomic responses bypolicymakers.

In a market economy (the only kind of economy with asuccessful track record of raising labor productivity, and henceliving standards, over many generations), markets play three keyroles: First, as stressed by technical planners, they play an en-gineering role by moving inputs to farmers and food to con-sumers. Even socialist, planned economies have to use marketsin this role.

However, there are two deeper roles for markets that pro-vide market economies their distinguishing strengths (andoften harsh outcomes). First is the role of markets in pricediscovery – what is a commodity (or service) ‘worth’ inmonetary terms? These terms dictate the rate of exchange anddetermine such important values as the price of rice or ofwages for unskilled labor. Price discovery is about scarcity, thedistribution of incomes, and who gets what.

However finally, markets serve as the arena for allocatingsociety's scarce resources to meet the virtually unlimitedneeds and desires of consumers. This allocation process,when joined to reasonably efficient price formation, is thereason market economies have outperformed other forms ofeconomic organization over the long haul. Efficiency in re-source allocations is simply critical to raising economic out-put in a sustainable fashion, and thus to reducing povertyand hunger.

Simply ‘getting prices right’ in markets will not solve theproblem of hunger. However, it is also not possible to ‘plan’one's way out of hunger by making markets do one's will. Thetrick, and only a few countries (mostly in East and SoutheastAsia) have managed it smoothly, is for government policyand markets to work together to bring poor households intoa growing economy that is based on a productive, sustain-able, and stable food system. Only then can one end hunger,and keep it ended.

From this policy perspective, food security as a globalissue presents an enormous paradox. At one level, steadyprogress has been made in the past half century in bringingmuch of the population out of poverty and hunger. Measuredby the key determinants of food security – improved avail-ability, access, utilization, and stability – food security hasbeen improving. Large pockets of food insecure populationsremain, especially in Sub-Saharan Africa and South Asia, butbecause of rapid economic growth, aggressive food pricestabilization efforts, and/or safety net programs that deliverfood to the poor, the rest of Asia and Latin America arecoping reasonably well with their food security challenges.

At the same time, food security strategies and policies are inalmost total disarray. A fundamental disconnect exists betweenwhat most countries say their food security strategies are, andwhat policies they are actually pursuing. The disconnect ismost manifest with rice policy in Asia, where high prices forrice farmers are implemented to ‘reduce poverty,’ when in factmost of the poor and hungry in the region are net rice buyers,and thus suffer more hunger and poverty from high rice prices.However, many countries do not have coherent strategies toimprove their food security. An important reason for thisdisconnect is a basic misunderstanding in the political arena of

326 Food Security, Market Processes, and the Role of Government Policy

the interconnected role of markets and government policies inproviding sustainable food security.

An Overview of Food Security Dynamics

The Food and Agriculture Organization's (FAO's) flagshippublication, The State of Food Insecurity in the World 2012,provides a sophisticated new methodology for estimating theprevalence of undernutrition and uses it with the latest data topresent the best indicators available on the state and dynamicsof food security at the country level between 1990–92 and2010–12 (FAO, WFP and IFAD, 2012). Table 1 summarizes thekey data for the world, Latin America, Sub-Saharan Africa, andthe subregions of Asia, for comparative purposes. For each re-gion, data are shown for 1990–92, 2000–02 and 2010–12, withchanges calculated between decades.

Four food security indicators are shown for each region. Firstis the ‘prevalence of undernutrition,’ the ’headline’ indicator

Table 1 Food Security Indicators

Region/Indicator Time period (and change from previous

1990–92 2000–02 (c

WorldPrevalencea 18.6 14.9Food supplyb 114 117Food deficitc 7.2 5.8Food security gapd 6.8 11.2

Sub-Saharan AfricaPrevalence 32.8 29.7Food supply 100 104Food deficit 13.7 12.7Food security gap −13.7 −8.7

Latin AmericaPrevalence 14.6 11.2Food supply 117 121Food deficit 5.4 4.1Food security gap 11.6 16.9

South AsiaPrevalence 26.8 21.3Food supply 106 104Food deficit 10.2 8.6Food security gap −4.2 −4.6

Southeast AsiaPrevalence 29.6 19.2Food supply 100 107Food deficit 12.3 7.4Food security gap −12.3 −0.4

Developing East AsiaPrevalence 20.8 14.3Food supply 107 117Food deficit 8.2 5.2Food security gap −1.2 11.8

aPrevalence of undernourishment.bAverage dietary energy supply adequacy.cFood deficit is the ‘depth of the food deficit in kilocalorie per capita per day’ as a percentadFood security gap¼ (Supply − 100) − Food deficit¼FSgap. When FSgap¼0, there is exSource: Reproduced from FAO, WFP, IFAD, 2012. Economic growth is necessary but not suffithe World 2012. Rome: FAO.

used to measure progress on the Millennium DevelopmentGoals (goal 1, target 1.9). It is the proportion of the populationat risk of caloric inadequacy and is the traditional FAO measureof hunger. Second is a new measure of average dietary energysupply adequacy. This indicator expresses each country's or re-gion's average supply of food calories available for consumption(including imports) as a percentage of average dietary energyrequirements for the population, as calculated by FAO. Third is ameasure of the depth of the food deficit facing the under-nourished, also as calculated by FAO. It indicates how manycalories would be needed to lift the undernourished from theirstatus, normalized by total population, everything else heldconstant. The measure shown in Table 1 uses the ‘depth of thefood deficit in kilocalories per capita per day’ as a percentage ofthe minimum dietary energy requirement (MDER), so that it ison a similar scale as the food supply measure.

Finally, a ‘food security gap’ is calculated for this article toindicate the rough balance between food supplies availableand the depth and extent of hunger. This gap is simply the

time period)

hange) 2010–12 (change)

(−3.7) 12.5 (−2.4)(+3) 121 (+4)(−1.4) 5.1 (−0.7)(+4.4) 15.9 (+4.7)

(−3.1) 26.8 (−2.9)(+4) 109 (+5)(−1.0) 11.8 (−0.9)(+5.0) −2.8 (+5.9)

(−3.2) 8.3 (−2.9)(+4) 125 (+4)(−1.3) 3.2 (−0.9)(+5.3) 21.8 (+4.9)

(−5.3) 17.6 (−3.7)(−2) 107 (+3)(−1.6) 7.1 (−1.5)(−0.4) −0.1 (+4.5)

(−10.4) 10.9 (−8.3)(+7) 120 (+13)(−4.9) 4.3 (−3.1)(+11.9) 15.7 (+16.1)

(−6.5) 11.5 (−2.8)(+10) 124 (+7)(−3.0) 4.0 (−1.2)(+13.0) 20.0 (+8.2)

ge of minimum dietary energy requirement (MDER).actly enough ‘surplus’ food supply to offset the entire food energy deficit.cient to accelerate reduction of hunger and malnutrition. The State of Food Insecurity in


‘surplus’ food supply available (food supply – 100) minusthe food deficit, as calculated and reported in Table 1. Anegative gap means the food deficit is larger than the foodsurplus, with the inevitable consequence that people will behungry even with equitable distribution. Sharply positivelevels of the gap mean there is plenty of food for all. (Notethat the ‘supply’ variable makes no allowance for the state ofnutrition of the population. The ‘population normalized’food deficit measure indicates how much food energy wouldbe needed per capita to bring the undernourished populationup to the minimum energy requirement. Both indicatorsneed to be examined together to gain an understanding of therelative importance of food availability and food access indriving the extent of undernutrition. The ‘food security gap’measure does this in a simple (if crude) way. Substantialhunger (high ‘prevalence’) in these environments suggests ahighly unequal distribution of economic resources. Thismeasure of the food security gap is a particularly sensitiveindicator of progress (or lack thereof) in reducing under-nourishment, and whether availability or access is the limit-ing factor.

It is clear from the data in Table 1 that substantial pro-gress in reducing food insecurity has been made over the pasttwo decades. Prevalence of undernutrition at the global levelhas fallen from 18.6% in 1990–92 to 12.5% in 2010–12, adecline of 6.1% points (almost a third).

Both Southeast Asia and Developing East Asia have madeenormous progress in lowering food insecurity in the past twodecades, with prevalence dropping by 18.7% points and 9.3points, respectively. Most remarkably, both regions moved fromnegative food security gaps to sharply positive ones. In South-east Asia, a very large negative gap of −12.3% was transformedinto a very large positive gap of 15.7 points in just 20 years.Improved supplies (up 20%) and sharply lowered food deficits(down 8%) contributed to this amazing performance.

Significant challenges remain, of course. The prevalence ofundernutrition in Sub-Saharan Africa remains very high,26.8%, although the trend is for modest improvements. InSouth Asia the rate has fallen by 9% points, although it re-mains relatively high at 17.6% undernourished in 2010−12.

As noted, the most sensitive indicator of changes in foodsecurity status is the ‘gap’ measure. Only Sub-Saharan Africaand South Asia continue to have negative gaps, indicating anoverall shortage of food available in the countries in each re-gion, and even these negative gaps have narrowed signifi-cantly. At one level, the relationship between an improvingfood security gap and reductions in prevalence of malnutritionis obvious. More food and smaller deficits translate into lesshunger. However, there are nuances to the relationship. Inparticular, the relationship is not linear – there are clear di-minishing returns to improving the food security gap in termsof lowering the prevalence of undernutrition. (The statisticalrelationships used to calculate the rate of diminishing returnsare based on annual data for individual countries in each ofthe regions.) Food insecurity becomes less a problem of foodavailability and general poverty, and more a structural prob-lem of people ‘left behind.’ Structural poverty and hunger re-quire a much more sophisticated and targeted approach thanthe ‘propoor growth with stability’ approach that has workedso well in the past, especially in Asia (Timmer, 2004).

The Three Fundamental Transformations Needed toEnsure Food Security

Three basic transformations drive the link between economicdevelopment and food security (Timmer, 2009a): Structural,agricultural, and dietary. Especially in Asia and Latin America,accompanying these three basic transformations have beenrapid changes in the entire food marketing system (led by the‘supermarket revolution,’ see Reardon and Timmer, 2012),and in the growing importance of urban consumers as driversof a country's food system. The ‘endpoint’ of the structuraltransformation – the full integration of factor markets betweenrural and urban areas – is now within sight in the richesttransition countries, but remains a challenge to poor- andmiddle-income countries.

Structural Transformation

The structural transformation involves declining shares ofagriculture in gross domestic product (GDP) and employment,almost always accompanied by serious problems closing thegap in labor productivity between agriculture and non-agriculture. The basic cause and effect of the structural trans-formation is the rising productivity of agricultural labor.Figure 2 presents an especially graphic illustration of thestructural transformation in 86 countries between 1961 and2000. Each red square represents the share of agriculture intotal employment for a particular country and year. Similarly,each blue circle represents the share of agriculture in economicoutput, or GDP, for the same country and year. Finally, eachgreen cross is the difference between these two shares meas-ured so that the value, which is simply the gap in laborproductivity between agriculture and nonagriculture, isnegative

The historical path of structural transformation has beenaccompanied by falling food prices, leading to a ‘world with-out agriculture’ (Timmer, 2009a). However continued finan-cial instability, coupled with the impact of climate change,could lead to a new and uncertain path of rising real costs forfood. Such a path would lead to a reversal of structuraltransformation (Timmer and Akkus, 2008). Management offood policy, and the outlook for sustained poverty reduction,will be radically different depending on which of these alter-natives materialize.

The structural transformation involves four main features:

1. A falling share of agriculture in economic output andemployment,

2. A rising share of urban economic activity in industry andmodern services,

3. Migration of rural workers to urban settings, and4. A demographic transition in birth and death rates that al-

ways leads to a spurt in population growth before a newequilibrium is reached.

These four dimensions of the historical pathway of struc-tural transformation are experienced by all successful de-veloping economies; diversity appears in the variousapproaches governments have tried to cope with the politicalpressures generated along that pathway. Finding efficientpolicy mechanisms that will keep the poor from falling off the

–1

–0.5

0

0.5

1

4 6 8 10 12

Agri. GDP share (LCU) Agri. employment share

Agri. GDP share (LCU) minus agri. employment share

LNGDPpc (constant US$-2000)

Figure 2 The structural transformation in 86 countries from 1965 to 2000. Reproduced from Timmer, C.P., Akkus, S., 2008. The structuraltransformation as a pathway out of poverty: Analytics, empirics and politics. Working Paper 150. Washington, DC: Center for Global Development.


pathway altogether has occupied the development professionfor decades. There are three key lessons.

First, the structural transformation has been the mainpathway out of poverty for all societies, and it depends onrising productivity in both the agricultural and nonagriculturalsectors (and the two are connected). The stress on productivitygrowth in both sectors is important, as agricultural labor canbe pushed off the farms into even lower productivity informalservice sector jobs, a perverse form of structural transformationthat has generated large pockets of urban poverty, especially inSub-Saharan Africa and India. (Both of these cases have beendocumented in the Stanford Symposium Series on GlobalFood Policy and Food Security in the twenty-first century(Badiane, 2011; Binswanger-Mkhize, 2012).) It is no accidentthat these are the two regions of the world where food in-security remains severe.

Second, in the early stages, the process of structural trans-formation widens the gap between labor productivity in theagricultural and nonagricultural sector – a process shown inFigure 2. This widening puts enormous pressure on rural so-cieties to adjust and modernize. These pressures are thentranslated into visible and significant policy responses thatalter agricultural prices. The agricultural surpluses generated inrich countries because of artificially high prices then causeartificially low prices in world markets and a consequentundervaluation of agriculture in poor countries. This under-valuation over the past several decades, and its attendantreduction in agricultural investments, is a significant factorexplaining the world food crisis in 2007–08 and continuinghigh food prices.

Third, despite the decline in relative importance of theagricultural sector, leading to the ‘world without agriculture’ inrich societies, the process of economic growth and structuraltransformation requires major investments in the agriculturalsector itself. This seeming paradox has complicated (and ob-fuscated) planning in developing countries as well as donoragencies seeking to speed economic growth and connect thepoor to it. Owing to active policy concerns about providingfood security to their citizens, countries in East and SoutheastAsia largely escaped much of this paradox, but Sub-SaharanAfrica has not.

For poverty-reducing initiatives to be sustainable over longperiods of time, the indispensable necessity is a growingeconomy that successfully integrates factor markets in the ruralwith urban sectors, and stimulates higher productivity in both.That is, the long-run success of poverty reduction, and with it,improvements in food security hinge directly on a successfulstructural transformation. The historical record is very clear onthis path.

Managing the ingredients of rapid transformation andcoping with its distributional consequences have turned out tobe a major challenge for policymakers. ‘Getting agriculturemoving’ in poor countries is a complicated, long-run processthat requires close, but changing, relationships between thepublic and private sectors. Donor agencies are not good atthis. More problematic, the process of agricultural develop-ment requires good economic governance in the countriesthemselves if it is to work rapidly and efficiently. Aid donorscannot hope to contribute good governance themselves – andmay well impede it.


3000

1100

400

150

Ln o

f agr

icul

tura

l out

put p

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ecta

re (

2004

−200

6 in

t. do

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)

Ln of agricultural output per worker (2004−2006 int. dollars)

55

20150 400 1100 3000 8100 22 000

Australia

and New ze

aland

North Americ

a

Former Soviet Union

Latin A

mericaW

orld

AsiaChina

Sub

-Sah

aran

Afr

ica

60 000

1100

405

150

55

207.52.71.00.3750.136Hectare per worker

Eastern europe

Japan

Western Europe

Figure 3 Land and labor productivity in agriculture, 1961–2010. Reproduced from Philip, P., 2011. African agricultural productivity growth andR&D in a global setting. Stanford Symposium Series on Global Food Policy and Food Security in the 21st Century, October 6, Stanford University.


The strong historical tendency toward a widening of in-come differences between rural and urban economies duringthe initial stages of the structural transformation is now ex-tending much further into the development process. Con-sequently, with little prospect of reaching quickly the turningpoint, where farm and nonfarm productivity and incomesbegin to converge, many poor countries are turning to agri-cultural protection and farm subsidies sooner rather than laterin their development process. The tendency of these actions tohurt the poor is then compounded, because there are so manymore rural poor in these early stages.

Agricultural Transformation

Although the structural transformation is a general equi-librium process that is not easily visible from inside the agri-cultural sector, the changing demand and productivity patternsinduce significant change within the sector itself (Timmer,1988). This agricultural transformation is driven by changingdomestic demand, opportunities for international trade,commercialization of decision making, and technical changethat is both commodity specific; for example, ‘green revo-lution’ varieties of wheat and rice; and sector-wide-better in-puts, improved knowledge, communications, infrastructure,and financial intermediation. Nonstaple commodities, such aspalm oil, and nonfood commodities such as coffee and rub-ber, play larger roles in certain circumstances. The potentialfor commodities to be grown as raw materials for biofuelproduction – especially maize, palm oil and cassava – mightbe a future driver of the agricultural transformation (withhighly uncertain consequences for food security).

No single measure of the pace and extent of agriculturaltransformation captures the complexity and heterogeneity ofthe process – much is country and time specific. The mostgraphic and general representation of the process of agri-cultural transformation is the ‘Ruttan-a-gram,’ which measuresproductivity per hectare on the vertical axis and productivityper worker on the horizontal axis (see Figure 3). This two-dimensional perspective on agricultural development was de-veloped by Hayami and Ruttan (1985), where it was used as apowerful tool to demonstrate the multiple paths to successfulagricultural transformation. The ‘Asian Path’ relied heavily onnew biological and chemical technologies to raise yields inland-scarce, labor-surplus environments, whereas mechanicaltechnologies were used to raise labor productivity in land-abundant, labor-scarce environments. Japan characterized theformer approach for raising agricultural productivity; theUnited States, Canada, and Australia/New Zealand character-ized the latter. Western Europe was, appropriately, in betweenthese two more extreme approaches.

Figure 3 shows the pathways of productivity change in theagricultural sectors of major regions, as well as the world total.Two things are striking. The first is the rapid pace of gain inmost regions (indicated by the overall length of the line foreach country or region because both axes are measured inlogarithms). Japan and China have both seen major gains inlabor and land productivity over the past half century, al-though average farm size has only started to increase in Japanin the past several decades; most of Europe has seen gainsin labor productivity via larger farm size, although EasternEurope and the Former Soviet Union suffered severe reversalsafter the fall of communism. The most striking feature ofFigure 3, however, is the stagnation of growth of labor



productivity in Sub-Saharan Africa. Although yields per hectareare increasing slowly, there has been virtually no gain in laborproductivity in agriculture in half a century.

The second striking feature is that land consolidation hasbarely begun at a global level. Indeed, farm size continues toget smaller on average, driven by the gradually shrinking farmsin Asia and the more quickly falling farm size in Africa. Farmsize has been virtually constant in Latin America. Uncertainland ownership and tenancy laws in Asia and Sub-SaharanAfrica may account for some of this ‘stickiness’ in reportedfarm size. Outmoded statistical definitions may also be afactor: workers may be counted in the agricultural labor forceeven if most of their income is derived from off-farm sources.

Dietary Transformation

The basic drivers of changed dietary patterns are Engel's Law(the share of food in budget expenditures falls with higherincomes, thus providing a buffer against the welfare impact ofsudden changes in food prices) and Bennett's Law (the share ofstarchy staples in the diet falls with higher incomes, as a deep,perhaps ‘hard-wired,’ desire for diversity in the diet can beexpressed), but long-run changes in relative prices, changingdemographics, as well as exposure to ‘foreign’ eating patternsalso seem to have an impact.

As with the agricultural transformation, no single measurecaptures the complexity of dietary changes, and much is spe-cific to local customs and tastes. As one example of the com-plex changes that are underway in a rapidly developing part ofthe world, Figure 4 presents several important dimensions ofthe dietary transformation that is underway in Southeast Asia,with the area of each pie chart proportional to average energyintake per capita for each of the 6 years depicted. Four thingsare striking. First, total caloric intake has risen steadily over thepast half century, by 0.8% per year. In 1961, average foodavailability per capita, as measured by FAO Food Balance

1961 1970 1980

20092000

Wheat

Rice

Oils and fats

Pulses

Other animal products

Other (plant products)

1990

Figure 4 The dietary transformation in Southeast Asia. FAOSTAT,‘Food Balance Sheets,’ FAO of the United Nations.

Sheet data, was just 1814 cal per day. Most citizens of South-east Asia would have been chronically hungry then. By 2009,the most recent year for which data are available, food avail-able per capita per day reached 2657 cal. At that level, hungerwill not be common and obesity will be a rising problem.

Second, the starchy staple ratio – the share of caloriescoming from cereals and starchy roots – fell from 74.8% to62.1%. Intake of animal protein nearly tripled. The quality ofthe diet in nutritional terms has improved markedly, althoughthe doubling of fat in the diet is a worrisome sign.

Third, rising consumption of animal products will require amodern feed industry to supply domestic producers of poultry,livestock, and aquaculture products, unless imports of finalgoods increase drastically. Domestic farmers have a rapidlygrowing market for feedstuffs, but at the moment a very largeproportion of Southeast Asia's feed ingredients, especiallymaize and soy meal, is imported.

Finally, wheat calories are increasing 8% per year and wheatconsumption is more than a 10th of rice consumption. South-east Asia imports all of its wheat – Indonesia will surpass Egyptin 2013 as the world's largest importer of wheat. A volatileworld market for wheat will increasingly be seen as a threat tofood security in Southeast Asia, but national agricultural de-velopment strategies cannot be used to cope with that threat.With rice becoming less important to food security in the re-gion, and wheat and feed grains becoming more important,management of food security will increasingly be a trade andmacroeconomic issue rather than an agricultural issue.

The Changing Food Marketing System

The food marketing system is changing rapidly, especially asmodern supply chains evolve to provision supermarkets (seeFigure 5), and as concerns for food safety and origin are re-flected in the purchasing decisions of increasingly affluentconsumers. Modern supply chains and supermarkets changethe nature of farm–market–consumer interactions. The spreadof modern supply chains has the potential to be a real prob-lem for food security.

Increasingly, modern supply chains are transmitting de-mand signals from consumers who are shopping in super-markets, back up the food system, level by level, toprocessors, farmers, and input suppliers. Traditionally, eachcell in the food system depicted in Figure 5 was connectedlocally by small traders operating with minimal capital andprimitive technology (Reardon and Timmer, 2007, 2012).Modern supply chains are far more integrated into the farm-level procurement systems of supermarkets and are co-ordinated by these firms as they seek to ‘drive costs out of thesystem.’

Four important trends emerge from the ‘10-wheeler’ per-spective in Figure 5, when it is overlaid with changing foodconsumption patterns in a given country or region. First, thevertical boxes are increasingly connected by market and non-market forces. One key conclusion for suppliers of technologyin the private sector is that there can be no effective demandfor inputs unless farmers are able to sell surpluses into themarket. This market is increasingly controlled by procurementofficers for supermarket chains, and their tendency to


Food grain economy Non staple commodities

(starchy staples) (Fruits and vegetables, meat/dairy, processed foods)

Farm inputs/

supplies

Smaller area possible

higher yields, stress tolerance

consumer quality

More value/hectare, but what

role for small farmers (what

‘assets’ do they need to stay in ?)

Farm production

(management and

knowledge)

Very knowledge-intensive for

good management practices;

Access to inputs by farm size

Knowledge intensive; can there

be effective extension for new

technologies? Role of farm assets

Procurement/

logistics and

wholesalers

Less rural consumption as

workers leave; more transporta-

tion and storage; greater produc-

tion instability with climate change

High transaction costs of dealing

with small farmers; issues of

quality control and product

traceability

Processing and

value added

Milling technology

How to add value; branding?

Large share of consumer food

expenditure is spent in this box

Retail/consumer

welfare and health

dimensions

Supermarkets as suppliers of

food grains? Increased price

stability through private actions?

Problems of access by the poor?

Modern supply chains are funneling

consumer demand back up the

system. The food system is less

supply driven.

Figure 5 Modernizing food supply chains: The ‘10-Wheeler’ Model. Author design.


consolidate suppliers may counter the effort by governmentsseeking to include small farmers. However, successful efforts toreduce the transactions costs of incorporating small farmersinto modern supply chains may simultaneously pay dividendsby making these same farmers more accessible to moderninput suppliers.

Second, there is a clear and rapid shift from the left sidecolumn of Figure 5 to the right side – from the ‘starchy staple’sector to the ‘diversified foods’ sector. This shift reflects Ben-nett's Law (Bennett, 1954). This dietary diversification tends toimprove the nutritional quality of the diet, although moreprocessed foods and highly industrialized meat productionraise nutritional, environmental, and food safety concerns.

Third, this increasingly diversified, market-driven foodeconomy is more reflective of supply chain dynamics andconsumer demand than in the past, which makes it moresensitive to rapid income growth and somewhat less sensitiveto population growth. Especially where population growth isslowing quickly and income growth continues at a rapid pace,understanding the ‘Engel elasticities’ of the various items in

the food shoppers' baskets (i.e., how demand for individualitems responds to income growth), as well as other factorsshaping consumer demand for food such as advertising, agestructure, urbanization, and globalization of tastes, will benecessary for effective planning all the way back the chain toinput supply.

Fourth, as consumers increasingly use supermarkets as thesource of their purchased food staples, some surprising im-plications arise for food security. Traditionally, staples havebeen purchased in small retail shops with multiple gradesand varieties available. Prices fluctuated according to localsupply and demand conditions and often changed daily dur-ing periods of instability. The concentration of purchasingpower into a handful of supermarket chains raises the possi-bility that procurement officers for food staples will encourage(force) their suppliers to maintain large enough stocks so thatsupplies will be reliable and that prices can be kept reasonablystable. Indeed, it is easy to imagine supermarkets, especially inEast and Southeast Asia, where unstable rice prices are a threatto food security, beginning to compete for customers with a



promise of ‘safe, reliable rice supplies, at a stable, fair price.’Rice price stability could become a private good rather thanthe public good it has been historically (Timmer, 1989, 2010).The whole debate over how to provide food security in settingswhere volatile food prices can threaten it will be transformedwhen most food is purchased in supermarkets. We are a longway from that situation in 2013, but supermarkets areincreasingly important as a supplier of basic food staples indeveloping countries.

What Is Driving Food Security? The Changing GlobalEnvironment

The international context for domestic food policy decisionmaking with respect to food security has changed substantiallysince the mid-twentieth century. Six basic trends stand out,especially with respect to expectations in the early 1980s:

1. Surprisingly rapid economic growth occurred, especiallyin Asia, with hundreds of millions of people pulled outof poverty. The strong connection between inclusive eco-nomic growth, especially in rural areas, and rapid reductionof poverty was simply not apparent in the empiricalrecord in the early 1980s. The East Asian Miracle (WorldBank, 1993) did not appear for another decade. Thisrapid growth validated the central theme of the food policyperspective, which is the unsustainability of povertyreduction efforts without higher economic productivityof unskilled, especially rural, labor. That theme remainspowerfully relevant.

2. A communications revolution at both the household andinternational levels has radically reduced transactions costsand increased access to knowledge. Again, the centrality inthe food policy perspective of markets and price formationto understanding food policy design and implementationwas boosted because marketing margins narrowed underimproved and more informed competition. Consumersand farmers both benefited from more competitive localfood markets. The ‘supermarket revolution’ has merelyaccelerated these changes (Timmer, 2009b; Reardon andTimmer, 2012).

3. Global financial markets became interested in ‘emergingeconomies.’ The early 1980s were an era of fixed exchangerates, tight controls on the flow of foreign capital, andvirtually no financial intermediation beyond state banks. Atfirst, the influx of foreign capital in the 1990s was wel-comed as a sign of confidence, but except for foreign directinvestment in ‘real’ assets such as factories and real estate,the global financial interest in emerging economies was atwo-edged sword. A rapid influx could cause currency ap-preciation and a loss of competitiveness; its rapid exit whenthe economy started to decline or foreign investors sawbetter opportunities elsewhere caused a crisis in local fi-nancial markets. Global financial integration came withvery poorly understood risks, and 2009 demonstrated themclearly. The growth of foreign investments in land to pro-duce food and/or biofuels for export – the so-called land-grabs – is controversial, but at least the capital cannot leavethe country quickly. The injection of new capital into

agriculture in poor countries may not be all bad. Much willdepend on who benefits from the new production – for-eigners or local farmers.

4. The rapid emergence in the 1990s of China and India asglobal growth engines meant a gradual shift in the driversof demand for commodities and natural resources. Ad-vanced economies had become more knowledge-drivenand less dependent on energy, metals, and other basiccommodities – including food commodities – to fuel theireconomic growth. The price depression for nearly allcommodities in the 1980s and 1990s reinforced the viewthat the future depended on value added from skills andknowledge, not from exploitation of natural resources.However industrialization, especially as practiced by Chinaand India, is a very intensive user of natural resources (andproducer of greenhouse gases). By the turn of the millen-nium it was increasingly clear that the growth path of de-veloping countries was the primary driver of commodityprices, starting with energy prices but quickly extending tofood prices. The Malthusian challenge was back, but withtwo decades of neglected investments in raising agriculturalproductivity (because of the low agricultural prices), thechallenge is turning out to be hard to meet.

5. High energy prices have turned out to be a ‘game changer’for agriculture and the food economy. Once oil prices werehigh enough to justify using sugar, maize, cassava, orvegetable oils to produce gasoline or diesel substitutes,agricultural commodity prices became directly linked to oilprices. The concern to reduce emissions of greenhousegases to mitigate climate change provided ample motiv-ation to the US and European legislatures to mandate theuse of domestic food crops to produce liquid fuels. Thecombination of legislative mandates, which provided es-sential risk coverage to investors in biofuel facilities, andhigh oil prices, which provided market-based incentives,led to a new set of linkages between agriculture and theenergy sector. (The link between biofuel policies and foodprices is complicated and depends on fundamentals inenergy and food markets as well as on policies. This com-plexity has become the topic of intensive research, for ex-amples, see de Gorter and Just (2010), de Gorter andDrabik (2012), and Naylor (2012).) There had long been alink on the supply side, as energy prices affected fertilizercosts, fuel costs for tractors and trucks, and the economicsof global supply chains. The new link was through thedemand side. Higher prices for energy translated directlyinto greater demand for food commodities to convert intoliquid fuels. There is no way that agriculture can meet thenearly insatiable demand globally for liquid fuels, andhaving the food–fuel price linkage puts poor food con-sumers at serious risk.

6. Climate change is imposing itself as a reality on the in-creased probability of extreme weather events in general,and also on both global and localized food security out-comes in particular. The ecosystem services provided by theclimate are a sine qua non for all agricultural production –

photosynthesis remains the most efficient way to capturesolar energy for human use. The most important effects ofclimate change on agriculture are likely to include a netglobal loss of agricultural land, changing crop suitability,


and an increase in the frequency of natural disasters. It willalso have negative effects on other areas of agriculturebroadly interpreted; climate change will reduce the carryingcapacity of many rangelands and pose threats to fisheriesand aquaculture production systems.

Climate change is expected to have highly variable effectson different regions; tropical and equatorial regions willbear the heaviest burdens, with Sub-Saharan Africa probablyfacing the greatest challenges, with some gains in yieldsand land availability in temperate regions. As rural povertyis concentrated in tropical and, in South and SoutheastAsia, coastal areas, climate change is expected to have a dis-proportionate effect on the already vulnerable. The growingurbanization of poverty, the result of dysfunctional structuraltransformations (especially in Africa and India), may changethe geographic incidence of the impact of climate change onthe poor, but probably not the overall level (Ravallion, Chenand Sangraula, 2007; Badiane, 2011; Binswanger-Mkhize,2012).

Agriculture also plays an important role in driving climatechange, accounting for 14% of global greenhouse gas emis-sions, and this figure more than doubles when deforestationand other land-use changes are included. Forests, thus, are acrucial global natural resource for climate change mitigation.At the global level, the challenge of climate change for theinternational architecture in agriculture is to continue pushingtoward an overarching global climate deal, while contributingto other schemes that support and provide incentives to theabsorption and reduction of emissions at the country level. In-country ‘climate-smart agriculture’ adaptation projects andprograms now form part of the food policy agenda. Thechallenge is to design, analyze, and implement these projectsand programs.

The Way Forward

Several policy approaches to improving food security areunder consideration. Which is best will depend on whichglobal food price regime is likely to drive policy formation inthe coming quarter century. The historical path of structuraltransformation with falling food prices, leading to a ‘worldwithout agriculture’ is an obvious possibility (Timmer,2009a). However, continued financial instability, coupledwith the impact of climate change, could lead to a new anduncertain path of rising real costs for food with a reversal ofstructural transformation (Timmer and Akkus, 2008). Man-agement of food policy, and the outlook for sustained povertyreduction, will be radically different depending on which ofthese global price regimes plays out.

Policy Approaches to Food Security in a Volatile PriceEnvironment

There are three basic approaches to coping with the impactof high food prices once they hit world markets: domesticprice stabilization; increasing supplies available in localmarkets; and providing safety nets to poor consumers. All

three are directed at and must be managed by individualcountries themselves, but donors and international agenciescan play a substantial role as well in coordinating activitiesand providing resources, both financial and technicalassistance.

The first approach is for individual countries to use marketinterventions to stabilize their domestic food prices. Suchstabilization requires some capacity to isolate the domestic ricemarket from world markets and can only be implementedthrough government actions (although private traders canhandle most of the actual logistics. Isolation from the worldmarket does not, of course, guarantee more stable prices. In-deed, for most countries, open borders to world markets leadto greater price stability, as local shortages and surpluses canbe accommodated through trade). Such isolation runs directlyagainst the spirit and, for many countries, the letter of WTOagreements. However, it is a very widespread practice. Demeke,Pangrazio, and Maetz (2009) count 36 countries that usedsome form of border intervention to stabilize their domesticfood prices during the 2007–08 crisis.

Such policies can have a large impact on the level of foodinsecurity, even at a global level. India, China, and Indonesiastabilized their domestic rice prices during the 2007–08 foodcrisis by using export bans (or at least very tight controls), thusprotecting well over 2 billion consumers from sharply higherprices. The policies pursued by these three countries demon-strate the importance of understanding local politics in policyformation, especially food policy. Although the end resultswere similar – food prices remained stable throughout thecrisis – the actual policies pursued in each country were quitedifferent (Slayton, 2009; Dawe, 2010a). (The ‘pass through’ ofprice increases in world markets to the domestic economies ofChina, India, and Indonesia from early 2007 to early 2008were 4%, 8%, and 3%, respectively. In each case, however,domestic rice prices were already higher than world prices,before the crisis hit (Dawe, 2010a).)

India, Indonesia, and China are big players in the globalrice market, even if their actual trade is limited. As Dawe(2010b) emphasizes, there is a case to be made simply interms of aggregate global welfare that stabilizing domestic riceprices in these large countries using border interventions mightbe both an effective and an efficient way to cope with foodcrises, even after considering the spillover effects on increasedprice volatility in the residual world market. Dawe points outthat unstable supply and demand must be accommodatedsomewhere, and passing the adjustment to the world marketmay be both equitable and efficient in a second-best worldwhere fast-acting and well-targeted safety nets are not avail-able. One important advantage of successful price stabilizationefforts in Asia is that they also stabilize price expectationsamong the many participants along the entire rice supplychain, and thus prevent the disastrous hoarding behavior thatcan generate extreme market shortages and severe price spikes(Timmer, 2010, 2012).

The second basic approach to coping with a food crisis is tostimulate additional supplies through fast-acting programs.Nearly all countries tried to do something along these linesduring the 2007–08 crisis, whether by subsidizing fertilizer toget a quick production response or encouraging plantingof short-season crops, even urban gardens. If the high prices


for food seen in the crisis actually get to farmers, they havestrong incentives to search out these options themselves, butgovernment assistance in gaining access to inputs or properseed varieties can also help. In Asia, the short-run response ofrice farmers to high prices was surprisingly vigorous, partlybecause of the availability of short-duration rice varieties andirrigated farming systems with multiple-cropping potential(Slayton, 2009). In Vietnam, for example, which has threedistinct cropping seasons for rice, production increased by6.3% in 2007 and by 5.3% in 2008, compared with averageannual increases of just 3.3% per year between 2005 and2011. All of this increase in production, a total of 1.2 mm, wasput on the export market.

Countries can also hold emergency food stocks as part of abroader strategy for providing food security to their citizens.Expectations of higher and more volatile food prices in thefuture should lead authorities to invest in larger food stocksthan in the past. The ‘design rules’ for adding to and disposingof these stocks, and their day-to-day management to avoidlarge storage losses, will be essential to making emergencyfood stocks a sustainable and cost-effective approach (Timmer,2009c). Clear rules on management of public stocks minimizethe displacement of private storage.

One critical element of these rules will be to use inter-national trade in the commodity as part of the provisioningmechanism, thus avoiding the extraordinarily high costs thatcan come from a strategy of total self-sufficiency. Even incountries as large as Indonesia, India, and China, where ahigh degree of food self-sufficiency is required simply becauseof the limited size of world grain markets, some interactionwith these markets through a managed trade regime can lowerthe costs of food security. Managed trade regimes can be openand transparent, with clear rules on the nature of inter-ventions, thus allowing the private sector to handle actualtrade logistics.

The third approach to coping with a food crisis is to pro-vide safety nets to poor consumers, either in cash or throughthe direct provision of food aid. This was the immediate, andalmost only, response of the donor community to the foodcrisis in 2007–08. The safety net approach figures prominentlyin ‘best practice’ recommendations from the World Bank, FAO,and the World Food Program (World Bank, 2005). The logic isclear: let high prices be reflected in local markets to signal thenecessary changes in resource allocations to both producersand consumers, but protect the very poor from an irreversibledeterioration in their food intake status. Efficiency is main-tained, and the poor are protected.

The difficulty is that food crises are relatively short-livedevents (as opposed to chronic poverty). Effective safety netstake a long time to design and implement, and they are veryexpensive if the targeted poor are a significant proportion ofthe population. Unless a well-targeted program with adequatefiscal support is already in place when the crisis hits, it is vir-tually impossible for a country to design and implement onein time to reach the poor before high food prices threaten theirnutritional status. Even when a program is in place, and can bescaled up quickly, as with the Raskin program of rice distri-bution to the poor in Indonesia, operational inefficiencies andsimple corruption in deliveries may mean that the poor arereached only at exceptionally high cost (Olken, 2006).

Improving the Supply Outlook

A number of chapters in this Encyclopedia treat various di-mensions of increasing agricultural output and food supply.The cursory discussion in this section focuses mostly on thechallenges facing that task as they relate to food security. Inkeeping with the basic framework of the chapter, there areshort-run and long-run dimensions, and issues at the micro,macro, and global level. Only the global and long-run topicsare treated here.

The long-run issue is whether supply responses can meetthe outlook for rapid growth in demand, especially at theglobal level (although this will obviously be made up of variednational responses). In the past, when food prices spiked andtalk of an impending Malthusian crisis arose, output re-sponded to bring world food prices back to their long-rundownward trend, though with a lag. Now, expectations arethat such a benign output response may not be forthcoming,for three basic reasons: limited land available for expandingarea; stagnant yields; and high-cost inputs.

A quarter of a century ago Hayami and Ruttan (1985)pointed out that area expansion as a source of increasedagricultural production was drawing to a close, with futureincreases needing to come from higher yields on existingfarmland. More than a decade into the twenty-first century, itis clear that there is little high-quality, unutilized agriculturalland now available for farming. Even existing agricultural landis under threat in many regions from overexploitation anddegradation, expanding recreational use, urbanization, evenspeculative demand from investment funds. Where there isgood land available for expansion, especially in Africa and afew areas in Southeast Asia, vigorous competition, especiallyfrom foreign companies and sovereign investment funds(‘land grabs’), is making that land inaccessible to local farmers.

Yields at research stations of existing agricultural technol-ogies have essentially been unchanged for decades because ofthe paucity of investment in research during this time. Thusraising yields from actual farmer practices to the presenttechnology potential is the only source of increased outputuntil new agricultural technologies are developed. New tech-nologies, however, are at least a decade away. Moreover, theyield gap to full potential has largely been closed except forAfrica.

The costs of essential inputs – fuel, fertilizer, and water – toobtain greater yields are both high and growing rapidly. Inaddition, prolonged periods of high grain prices are likely toraise land rents and rural labor costs.

Managing Demand: Biofuels and Food Policy

Biofuels are not new. Although coal was known in China inprehistoric times, and was traded in England as early as thethirteenth century, it was not used widely for industrial pur-poses until the seventeenth century. Until then, biofuels werevirtually the only source of energy for human economic ac-tivities, and for many poor people they remain so today.However, the widespread use of fossil fuels since the IndustrialRevolution has provided a huge subsidy to modern economicactivities as coal and later petroleum were so cheap – a subsidywhich seems to be nearing an end.


The role of biofuels going forward, and the impact onagriculture, will depend on the structure of agriculture in indi-vidual countries. In the extreme, the demand for biofuels in richcountries to power their automobiles has the potential to raisethe price of basic agricultural commodities to such a level thatthe entire structural transformation could be reversed. If so, thegrowing use of biofuels has two alternative futures: it couldspell impoverishment for much of the world's population be-cause of the resulting high food prices, or it could spell dyna-mism for rural economies and the eventual end of rural poverty.Which future turns out to be the case depends fundamentallyon the location, technology, economics, and politics of biofuelproduction (and whether new energy sources and technologies,such as cheap natural gas or more efficient batteries to storesolar and wind energy, come on stream).

The potential devastating effects of biofuels are easy toconceptualize (Naylor, 2012). The income elasticity of de-mand for starchy staples (cereals and root crops for directhuman consumption) is less than 0.2 on average, and fallingwith higher incomes – it is already negative in much of Asia.Adding in the indirect demand from grain-fed livestockproducts brings the average income elasticity to approximately0.5, and this is holding steady in the face of rapid economicgrowth in India and China. Potential supply growth seemscapable of managing this growth in demand.

However, the demand for biofuels is almost insatiable inrelation to the base of production of staple foods. The incomeelasticity of demand for liquid fuels for automobile and truckfleets, not to mention power generation, is greater than one indeveloping countries. The average for the world is rising asmiddle class consumers in China, India, and beyond seek tograduate from bicycles to motorbikes to automobiles. Onesimple calculation shows the dimension of the problem: if allthe corn produced in the US were used for ethanol to fuelautomobiles, it would replace just 15% of current gasolineconsumption in the US. Something has got to give.

If this were a market-driven process, it is easy to see whatwill give. High grain prices will make ethanol productionuneconomic, driving down the demand (and returns on in-vestments in ethanol processing plants). Greater profitabilityof grain production will stimulate a supply response, althoughthis may take several years if improved technologies are nee-ded. Grain prices will reach a new equilibrium, with demandfrom the biofuel industry having only a modest impact.

This is not the scenario most analysts see. Instead, politicalmandates to expand biofuel production in many countries willcontinue to drive investments in processing facilities and theneed to keep these profitable in the face of high raw materialprices will require large public subsidies. Rich countries will beable to afford these more easily than poor countries, so acombination of inelastic demand for fuel and a willingness topay large subsidies will keep grain prices very high (Naylor,2012; de Gorter and Just, 2010).

If this scenario plays out, the consequences for economicgrowth, poverty reduction, and food security in developingcountries depends on the role of agriculture in individualcountries, the pattern of commodity production, and the dis-tribution of rural assets, especially land. It is certainly possibleto see circumstances where small farmers respond to highergrain prices by increasing output and reaping higher incomes.

These incomes might be spent in the local, rural nonfarmeconomy, stimulating investments and raising wages fornonfarm workers. In such environments, higher grain pricescould stimulate an upward spiral of prosperity.

An alternative scenario seems more likely however, partlybecause the role of small farmers has been under so muchpressure in the past several decades. If only large farmers areable to reap the benefits of higher grain prices, and their profitsdo not stimulate a dynamic rural economy, a downward spiralcan start for the poor. High food prices cut their food intake,children are sent to work instead of school and an inter-generational poverty trap develops. If the poor are numerousenough, the entire economy is threatened, and the structuraltransformation comes to a halt. The share of agriculture inboth employment and GDP starts to rise, and this reversalcondemns future generations to lower living standards. Therewill be much more ‘structural’ poverty, and countries deter-mined to cope with it will find themselves supporting expen-sive and long-term safety nets for the poor.

A reversal of the structural transformation as the regular pathto economic development and reduced poverty will be a his-torical event, countering the patterns generated by market forcesover the past several centuries. Such an event is likely to havestark political consequences, as populations do not face thesustained prospect of lower living standards with equanimity. Itis possible, of course, that new technologies will come on-stream and lower energy costs across the board and thus allowthe biofuel dilemma to disappear quietly – the natural gasrevolution in the US certainly holds significant potential.However, it looks like a rocky couple of decades before re-newable energies are available and competitive with fossil fuels.

A Food Policy Response to Climate Change

The biofuel challenge to food policy analysts stems from ef-forts to mitigate climate change. Equally challenging will beefforts to adapt agriculture to the dual effects of climate change– higher temperatures and greater variability in rainfall. Inpulling together their final thoughts on the impact of climatechange on food availability, food access, and food utilization –

the three main factors that determine food security – Lobelland Burke make the following observation:

…one thing appears almost certainly true in the twenty-first century;if agriculture and food security are to thrive, they will have to do soin a constantly warming world. The level of climate stability that hasbeen experienced since the dawn of agriculture is a thing of the past;the future will be one of constant change. This need not spell disasterfor food security, but we would be wise not to underestimate theenormity of the challenge at hand (Lobell and Burke, 2010, p. 1960).

Food policy analysis that understands this challenge andoffers insights into how best to cope with it will be a key driverof how successfully society adapts to climate change.

Behavioral Dimensions to Food Security

Perhaps the most important element of food security in theminds of most citizens is the fear of a food crisis, when pricesspike or staple foods (especially rice) disappear from the


market. Accordingly, preventing food crises through betterunderstanding of their fundamental causes, thus allowingimplementation of better food policies, should be a highpriority for food policy analysts. Once a food crisis hits, copingwith its consequences becomes the main task at hand, withemergency food aid and other forms of safety nets hastilybrought into play. However, preventing food crises in the firstplace, especially by preventing sharp spikes in food prices, isobviously a superior alternative if a way can be found to do it.Understanding the behavioral dimensions of food security isan important step in learning how to prevent food crises. Newinsights from behavioral economics explain why governmentsshould stabilize basic food grain prices (Timmer, 2012). Witha better understanding of ‘why,’ it is possible to suggest betterapproaches to ‘how.’

It is conceptually possible to hedge the risks fromunstable food prices, or to mitigate their welfare consequencesfor the poor using safety nets, but there are no markets inwhich to purchase stability in food prices directly. The messageis clear. Citizens would willingly go to the market to buy foodprice stability, but such a market does not exist, no doubtbecause the private coordination costs are too high. Food pricestability is a public good, not a market good. Understandablythen, citizens turn to the political market instead, although thecosts of providing price stability as a public sector activity canalso be very high, especially if public food agencies are poorlymanaged and become highly corrupt. However, only politicalaction and public response from governments can providestable food prices. Thus, food becomes a political commodity,not just an economic commodity, and a ‘behavioral politicaleconomy’ is needed to understand how food policy canachieve and sustain food security.

Understanding the behavioral foundations of formation ofprice expectations will be critical to building this new politicaleconomy. In particular, the dynamics of herd behavior and thetendency of bad news – about terrorism, wild fires, or a suddenrise in rice prices in local markets – to serve as a ‘focusingevent’ in stimulating simultaneous, spontaneous behavior thatresults in panics, provide robust insights into how individualsform price expectations and respond to them (Tversky andKahneman, 1986).

Governments that fail to stabilize food prices have failed inthe provision of a quite basic human need that is rooted inbehavioral psychology – the need for a stable environment.Governments that are successful in stabilizing food prices areusually rewarded politically; witness the landslide victories ofPrime Minister Manmohan Singh in India and of PresidentYudhoyono in Indonesia in early 2009. Both candidatescampaigned openly on their ability to bring their countriesthrough the world food crisis with minimal impact on do-mestic food prices. Clearly, other factors contributed to theelectoral success in both countries, but it is equally clear thatthe governments' abilities to provide stable food prices whenthe rest of the world was experiencing a food crisis werepolitically popular.

The trick, of course, is to provide stability in domestic foodprices at low cost to economic growth, participation by thepoor, and government finances. By and large, Asia has figuredout how to do this as a domestic endeavor, but with largenegative spillovers to world markets (Timmer, 2009c). African

countries do not have a viable strategy for stabilizing their do-mestic food prices, and the continent suffers even more fromthe instability in world markets transmitted from the Asianapproach to food price stabilization (Jayne, 2009). Indeed, theresource riches of Africa are attracting sizable investments fromAsia (and elsewhere), but there seems to be little linkage be-tween these investments, especially in land to produce foodcrops for export, and local food security.

The food security challenge is thus twofold: (1) to help Asiafind more efficient ways to stabilize their domestic food prices,especially for rice, with fewer spillovers to world markets (andnow including investment spillovers as well as price spillovers)and (2) to help Africa find a way to stabilize their domesticfood prices without introducing serious distortions to theirfood economies or retarding the development of an efficientprivate food marketing sector. Neither of these challenges canbe met without a basic rethinking of development approachesby academics, government policy circles, NGOs and com-munity leaders, and citizens themselves. Ending hunger is hardbecause it is so complicated, deeply entwined with how weorganize economic activities and regulate them through publicpolicies. However, it is not impossible either, with betterunderstanding of these complications and concerted efforts toresolve them.

See also: Agricultural Labor: Demand for Labor. Agricultural Labor:Gender Issues. Agricultural Labor: Labor Market Operation.Agricultural Labor: Supply of Labor. Agricultural Mechanization.Agricultural Policy: A Global View. Changing Structure andOrganization of US Agriculture. Climate Change: AgriculturalMitigation. Climate Change: Cropping System Changes andAdaptations. Climate Change, Society, and Agriculture: An Economicand Policy Perspective. Computer Modeling: Policy Analysis andSimulation. Consumer-Oriented New Product Development.Economics of Natural Resources and Environment in Agriculture. FoodChain: Farm to Market. Food Marketing. Food Security: Food Defenseand Biosecurity. Food Security: Postharvest Losses. Food Security:Yield Gap. From Foraging to Agriculture. Global Food Supply Chains.Government Agricultural Policy, United States. Green Revolution: Past,Present, and Future. Human Nutrition: Malnutrition and Diet.Industrialized Farming and Its Relationship to Community Well-Being.International and Regional Institutions and Instruments for AgriculturalPolicy, Research, and Development. International Trade. Investmentsin and the Economic Returns to Agricultural and Food R&DWorldwide. Land Use, Land Cover, and Food-Energy-EnvironmentTrade-Off: Key Issues and Insights for Millennium Development Goals.Markets and Prices. Policy Frameworks for International Agriculturaland Rural Development. Production Economics. Root and Tuber Crops

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Timmer, C.P., 1988. The agricultural transformation. In: Chenery, H., Srinivasan, T.N. (Eds.), Handbook of Development Economics, vol. 1. Amsterdam: North-Holland, pp. 275–331.

Timmer, C.P., 1989. Food price policy: The rationale for government intervention.Food Policy 14 (1), 17–27.

Timmer, C.P., 2000. The macro dimensions of food security: Economic growth,equitable distribution, and food price stability. Food Policy 25 (4), 283–295.

Timmer, C.P., 2004. The road to pro-poor growth: The Indonesian experience inregional perspective. Bulletin of Indonesian Economic Studies 40 (2), 177–207.

Timmer, C.P., 2009a. A World without Agriculture: The Structural Transformation inHistorical Perspective Washington, DC: American Enterprise Institute WendtDistinguished Lecture.

Timmer, C.P., 2009b. Do supermarkets change the food policy agenda? In: Reardon,T., Barrett, C.B., Berdegué, J.A., Swinnen, J.F.M. (Eds.) Agrifood IndustryTransformation and Small Farmers in Developing Countries, November. WorldDevelopment 37(11), 1812−1819.

Timmer, C.P., 2009c. Management of rice reserve stocks in Asia: Analytical issuesand country experiences. Paper presented to the Experts' Meeting on ‘Institutionsand Policies to Manage Global Market Risks and Price Spikes in Basic FoodCommodities’ by the FAO Trade and Markets Division, 26−27 October, 2009.Rome, Italy: FAO Headquarters.

Timmer, C.P., 2010. Reflections on food crises past. Food Policy 35 (1), 1–11.Timmer, C.P., 2012. Behavioral dimensions of food security. Proceedings of the

National Academy of Sciences 109 (31), 12315–12320 (Agricultural Developmentand Nutrition Security Special Feature).

Timmer, C.P., 2013. Food security and sociopolitical stability in east and southeastAsia. In: Barrett, C.B. (Ed.), Food Security and Sociopolitical Stability. Oxford:Oxford University Press.

Timmer, C. P., Akkus, S., 2008. The structural transformation as a pathway out ofpoverty: Analytics, empirics and politics. Working Paper 150. Washington, DC:Center for Global Development.

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Relevant Website

http://foodsecurity.stanford.edu/events/series/global_food_policy_seriesCenter on Food Security and Environment.


























































































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