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Asia & the Pacific Policy Studies, vol. 4, no. 1, pp. 4–19 doi: 10.1002/app5.161

Original Article Food Security, Structural Transformation, Markets and Government Policy C. Peter Timmer* Abstract

1. Introduction

Food prices are a key signal about what is happening to food security, and two dimensions are important: their average level (and whether this is rising or falling in the long run) and their volatility. Food price instability slows down economic growth and the structural transformation that is the pathway out of rural poverty. The best approaches to improving food security depend on which global food price regime is likely to drive policy formation between now and 2050. The historical path of structural transformation with falling food prices, leading to a ‘world without agriculture’, is an obvious possibility. But continued financial instability, coupled with the impact of climate change, could lead to a new and uncertain path of rising real costs for food, with a reversal of structural transformation. Management of food policy, and the outlook for sustained poverty reduction, will be radically different depending on which of these global price regimes plays out.

Modern analyses of food security list five essential components: availability of food on farms and in markets, access to that food by all households (urban and rural), effective utilization of the food within the household (a function of food safety, nutritional status and health), the sustainability of the food system that delivers these components and its stability (Timmer 2012, 2015a). This definition stresses the elements that individuals and households require to be food secure, but food security is also an important objective at the national level, where political leaders can be held responsible for failures and successes in maintaining accessible supplies of staple foods at stable prices, especially in major urban markets where many consumers procure their food. At the global level, considerable attention is focused on both short-run and long-run balances between food production and food consumption. Rising food prices suggest the production race is being lost to rapid gains in food consumption—a ‘Malthusian’ world where population growth and higher income cause food demand to outstrip the resource base for food production. Falling food prices, on the other hand, suggest that expanded agricultural land, better water control and improved technologies are generating food surpluses. In this ‘Sen-ian’ world, access becomes the limiting factor for household food security, not availability (Sen 1981). In both worlds, food prices are a key signal about what is happening to food security. Two dimensions of food prices are important: their average level and their volatility. Price

Key words: food security, economic development, government policy, market prices, climate change, structural transformation

* Thomas D. Cabot Professor of Development Studies, Emeritus, Harvard University, Cambridge, MA, USA and Non-Resident Fellow, Center for Global Development, Washington, DC, USA; email

© 2017 The Author. Asia and the Pacific Policy Studies published by John Wiley & Sons Australia, Ltd and Crawford School of Public Policy at The Australian National University. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

Timmer: Food Security, Transformations, Markets and Policy spikes and collapses can create risks and poverty for consumers and farmers even when average prices are affordable to the poor and create adequate incentives for farmers. Highly unstable food prices have serious negative consequences at the micro level for household decision-makers. But food price instability also has a deeper and more insidious impact: it slows down economic growth and the structural transformation that is the pathway out of rural poverty (Timmer 1989, 1995, 2009a). Thus, food price instability hurts the poor in both short run and long run. 2. The Role of Government Policy in Food Security Consider a simple model of food security that focuses on the short run versus the long run, and on the macro level (of policy-makers) versus the micro level (of household decisionmakers) (Figure 1). When the global economy is reasonably stable, and when food prices are well behaved, policy-makers at the national level can concentrate their political and financial capital on the process of long-run, inclusive growth. Keeping the poor from falling into irreversible poverty traps is easier and less costly in a world of stable food prices, and the poor are able to use their own resources and entrepreneurial abilities to connect (via the small horizontal arrow) to long-run, sustainable food security for themselves.1 If the food economy is highly unstable, constantly in crisis, policy-makers spend all of their time and budget resources in the NorthWest box, trying to stabilize food prices and to provide safety nets for the poor. During food crises, vulnerable households often deplete their human and financial capital just to stay alive. This is the world of poverty traps and enduring food insecurity. We are also trapped 1. The small arrows, vertical and horizontal, reflect decisions made by individual households in the context of market forces they see. The broad arrows show linkages induced by macroeconomic and policy forces. The diagonal arrow reflects an ‘ideal’ technocratic world where policymakers respond to the needs of poor households seeking to improve their food security and, when successful, are rewarded by those households with political support.

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in short-run crisis management, both macro and humanitarian. Donors can be trapped in crisis mode as well as governments and end up spending their human and financial resources on emergency relief rather than longer-run development strategies and investments. With success in achieving the objectives in the north-east and south-west boxes, market forces gradually—over decades—bring the poor above a threshold of vulnerability and into sustained food security (connecting macro to micro and short-run to long run). The goal is to approach and arrive at the south-east box where households have sustainable access to food in the long run. That is, they are food secure. To reach this outcome, analytical and policy flexibility is needed to cope with market instability. Such flexibility is not a natural feature of domestic policymaking, in the food sector or elsewhere, and providing the analytical tools for understanding how to create flexible responses to both high-price and low-price environments is a real challenge. The starting point is usually to understand the food marketing system, which transforms commodities in a farmer’s field in time, place and form, into food on the table. It is impossible to understand the challenges facing efforts to eliminate hunger without understanding the role of markets and the food marketing system (Timmer et al. 1983). Food marketing systems move commodities ‘from the plow to the plate’, which has historically been the task of so-called middlemen who are sometimes accused of exploiting farmers and consumers alike (Chapter 4 in Timmer et al. 1983). Traditional food marketing systems are changing under the pressures from diversifying and more productive farmers and from demanding consumers in urban areas. The ability of particular systems to function efficiently varies widely from country to country, and even within countries. Some systems have modernized rapidly; others remain quite traditional. The pace and impact of change also varies widely within countries and regions but increasingly in Asia and Latin America; food purchases in urban areas are from modern retail establishments, especially supermarkets. Rapid changes in the entire food marketing system have enabled the three basic transformations

© 2017 The Author. Asia and the Pacific Policy Studies published by John Wiley & Sons Australia, Ltd and Crawford School of Public Policy at The Australian National University

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Asia & the Pacific Policy Studies

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Figure 1 Basic Framework for Understanding Food Security Issues. Source: Timmer 2014

that are the historic pathway out of poverty: structural, agricultural and dietary. Each of these transformations has lives of their own, but they are also intimately linked together. The food marketing system is the arena for all three functions which markets must play if economic growth is going to be both efficient and sustainable—transforming food commodities in time, place and form; price discovery to determine which resources are scarce and which are abundant; and signaling to farmers and

2. Modern supply chains have evolved primarily to provision supermarkets. Concerns for food safety and origin are increasingly reflected in the purchasing decisions of affluent consumers in urban areas. The development of modern supply chains, which change the nature of farm–market– consumer interactions, can be an important source of income growth and job creation in both rural and urban areas: but the spread of modern supply chains can also be a challenge to food security if smallholder farmers are excluded from marketing their crops because of hightransactions costs, and modern food processors introduce unhealthy foods into the diets of urban households (Reardon et al. 2003).

consumers, via these prices, efficient choices of what to produce and what to buy and eat.2 Effective food policies achieve rapid and sustained poverty reduction. There are four basic food policy objectives, and all are important: • faster economic growth (the efficiency objective); • more equal distribution of income from that growth (the welfare objective); • a guaranteed nutritional floor for the poor (the safety net objective); and • secure availability and stable prices in food markets (the food security objective); There are many tradeoffs (and overlap) among these objectives, and a comprehensive analysis of a country’s food system is necessary to understand, if even only approximately, the magnitudes of the tradeoffs. The central organizing theme of the analysis is the socalled food price dilemma, an explicit recognition that a single market-clearing food price cannot satisfy all four objectives simultaneously—in other words, a pure market


Timmer: Food Security, Transformations, Markets and Policy solution does not work. Additional policy instruments are needed, but they all need to operate compatibly with market prices. The most important lesson is the centrality of food prices—and the signals they send to farmers, traders, consumers and finance ministers. The behaviour of these decision-making agents dictates market outcomes but also responds to those market outcomes. The macro food system encompasses micro behaviour on the farm and in the household, market-level behaviour by traders, processors and retailers, and macroeconomic responses by policy-makers. A market economy is the only institution with a successful track record of raising labour productivity, and hence living standards, over many generations. In such an economy, markets play three key roles. First, as stressed by technical planners, they play an engineering role by moving inputs to farmers and food to consumers. Even socialist, planned economies have to use markets in this role. But there are two major roles for markets that provide market economies their distinguishing strengths (and often harsh outcomes). First is the role of markets in price discovery—what is a commodity (or service) worth in monetary terms? These terms dictate the rate of exchange and determine such important values as the price of rice or of wages for unskilled labour. Price discovery is about scarcity, the distribution of incomes, and who gets what. Markets also serve as the arena for allocating society’s scarce resources to meet the virtually unlimited needs and desires of consumers. This allocation process, when joined to reasonably efficient price formation, is the reason market economies have outperformed other forms of economic organization over the long haul. Efficiency in resource allocations is simply critical to raising economic output in a sustainable fashion, and thus to reducing poverty and hunger. Simply ‘getting prices right’ in markets will not solve the problem of hunger, but it is also not possible to ‘plan’ our way out of hunger by making markets do our will. The trick, and only a few countries (mostly in East and Southeast Asia) have managed it smoothly, is for

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government policy and markets to work together to bring poor households into a growing economy that is based on a productive, sustainable and stable food system. Only then can we end hunger, and keep it ended. From this policy perspective, food security as a global issue presents an enormous paradox. At one level, steady progress has been made since the end of World War II in bringing much of the world’s population out of poverty and hunger. Measured by the key determinants of food security—improved availability, access, utilization and stability—food security has been improving (FAO 2016). Large pockets of food insecure populations remain, especially in Sub-Saharan Africa and South Asia, but because of rapid economic growth, aggressive efforts to stabilize food prices, and/or safety net programs that deliver food to the poor, the rest of Asia and Latin American countries are overcoming their food security challenges. Despite the many successes, food security strategies and policies are in disarray. A fundamental disconnect exists between what most countries say their food security strategies are and what policies they are actually pursuing. The disconnect is most manifest with rice policy in Asia, (and especially in Indonesia and the Philippines) where high prices for rice farmers are implemented to reduce poverty, when in fact most of the poor and hungry in the region are net rice buyers, and thus suffer greater hunger and poverty from high rice prices. But many countries do not have coherent strategies to improve their food security. An important reason for this disconnect is a basic misunderstanding in the political arena of the interconnected role of markets and government policies in providing sustainable food security (Timmer 2000). 3. The Three Fundamental Transformations Needed to Ensure Food Security Three basic transformations drive the link between economic development and food security (Timmer 2009a): structural, agricultural and dietary. Especially in Asia and Latin America, accompanying these three basic transformations have been rapid changes in the entire


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Figure 2 The Structural Transformation in 86 Countries from 1980 to 2010. Source: Author’s Research, with the Assistance of Selvin Akkus Clemens

food marketing system, and in the growing importance of urban consumers as drivers of a country’s food system.3 The ‘endpoint’ of the structural transformation—the full integration of factor markets between rural and urban areas—is now within sight in the richest transition countries but remains a challenge to poor and middle-income countries.4 3.1. Structural Transformation The structural transformation involves declining shares of agriculture in GDP and employment, almost always accompanied by serious problems closing the gap in labour productivity between agriculture and non-agriculture. The basic cause and effect of the structural transformation is rising productivity of agricultural labour. Figure 2 presents an especially graphic illustration of the structural transformation in 86 countries between 1980 and 2010. Each red square represents the share of agriculture 3. Changes in the food supply chain have been led by the ‘supermarket revolution’ (Reardon & Timmer 2012). 4. This is the ‘world without agriculture’ referred to in the title of my AEI monograph (Timmer 2009a). Agriculture becomes a very small share of a modern economy, both in terms of employment and value added.

in total employment for a particular country and year. Similarly, each black circle represents the share of agriculture in economic output, or GDP, for the same country and year. Finally, each green cross is the difference between these two shares, measured so that the value, which is simply the gap in labour productivity between agriculture and nonagriculture, is negative. The historical path of structural transformation has been accompanied by falling food prices, leading to a world without agriculture (Timmer 2009a): but continued financial instability, coupled with the impact of climate change, could lead to a new and uncertain path of rising real costs for food. Such a path would lead to a reversal of structural transformation (Timmer & Akkus 2008). Management of food policy, and the outlook for sustained poverty reduction, will be radically different depending on which of these alternatives materialize. The structural transformation involves four main features: • a falling share of agriculture in economic output and employment; • a rising share of urban economic activity in industry and modern services;


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Figure 3 Land and Labour Productivity in Agriculture, 1961–2010

• migration of rural workers to urban settings; and • a demographic transition in birth and death rates that always leads to a spurt in population growth before a new equilibrium is reached; These four dimensions of the historical pathway of structural transformation are experienced by all successful developing economies; diversity appears in the various approaches governments have tried to cope with the political pressures generated along that pathway. Finding efficient policy mechanisms that will keep the poor from falling off the pathway altogether has occupied the development profession for decades. There are three key lessons (Timmer 2015b). First, the structural transformation has been the main pathway out of poverty for all societies, and it depends on rising productivity in both agricultural and non-agricultural sectors (and the two are connected). The stress on productivity growth in both sectors is important, as agricultural labour could migrate from farms into jobs with even lower productivity in the informal service sector, a perverse form of

structural transformation that has generated large pockets of urban poverty, especially in Sub-Saharan Africa and India.5 It is no accident that these are the two regions of the world where food insecurity remains most acute. Second, in the early stages, the process of structural transformation widens the gap between labour productivity in the agricultural and non-agricultural sector—a process seen in Figure 3. This widening puts enormous pressure on rural societies to adjust and modernize. These pressures are then translated into visible and significant policy responses that alter agricultural prices. The agricultural surpluses generated in rich countries because of high prices caused by support for farmers by government then cause prices lower than would be expected in world markets and a consequent undervaluation of agriculture in poor countries. This undervaluation since the 1980s, and its attendant reduction in agricultural investments, is a significant factor 5. Both of these cases have been documented in the Stanford Symposium Series on Global Food Policy and Food Security in the twenty-first century (Badiane 2011; Binswanger-Mkhize 2012).


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explaining the world food crisis in 2007–2008 and the high-food prices that continued for nearly a decade after the crisis (Timmer 2010). Third, despite the decline in relative importance of the agricultural sector, leading to the world without agriculture in rich societies, the process of economic growth and structural transformation requires major investments in the agricultural sector itself. This seeming paradox has complicated (and obfuscated) planning in developing countries as well as donor agencies seeking to speed economic growth and connect the poor to it. Because of active policy concerns about providing food security to their citizens, countries in East and Southeast Asia largely escaped much of this paradox, but Sub-Saharan Africa has not. For poverty-reducing initiatives to be sustainable over long periods of time, the indispensable necessity is a growing economy that successfully integrates factor markets in the rural with urban sectors and stimulates higher productivity in both. That is, the long-run success of poverty reduction, and with it, sustainable improvements in food security, hinges directly on a successful structural transformation. The historical record is very clear on this path (Timmer 2004). Managing the ingredients of rapid transformation and coping with its distributional consequences have turned out to be a major challenge for policy-makers. Getting agriculture moving in poor countries is a complicated, long-run process that requires close, but changing, relationships between the public and private sectors. The process of agricultural development requires good economic governance in the countries themselves if it is to work rapidly and efficiently. Aid donors cannot hope to contribute good governance themselves—and may well impede it. The strong historical tendency toward a widening of income differences between rural and urban economies during the initial stages of the structural transformation is now extending much further into the development process. Consequently, with little prospect of reaching quickly the turning point, where farm and non-farm productivity and incomes begin to converge, many poor countries are

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turning to agricultural protection and farm subsidies sooner rather than later in their development process. Such actions hurt many rural poor. 3.2. Agricultural Transformation The agricultural transformation is driven by changing domestic demand for food, opportunities for international trade, commercialization of decision-making and technical change. Innovations can be commodity specific, such as green revolution varieties of wheat and rice (Timmer 1988). No single measure of the pace and extent of agricultural transformation captures the complexity and heterogeneity of the process—much is country-and-time specific. The most graphic and general representation of the process of agricultural transformation is the ‘Ruttan-agram’, which measures productivity per hectare on the vertical axis and productivity per worker on the horizontal axis (Figure 3). This two-dimensional perspective on agricultural development was developed in Hayami and Ruttan (1985), where it was used as a powerful tool to demonstrate the multiple paths to successful agricultural transformation. The Asian Path relied heavily on new biological and chemical technologies to raise yields in land-scarce, labour-surplus environments, whereas mechanical technologies were used to raise labour productivity in land-abundant, labour-scarce environments. Japan characterized the former approach to raising agricultural productivity; the United States, Canada and Australia/New Zealand characterized the latter. Western Europe was, appropriately, in between these two more extreme approaches. Figure 3 shows the pathways of productivity change in the agricultural sectors of major regions, as well as the world total. Two things are striking. The first is the rapid pace of gain in most regions (indicated by the overall length of the line for each country or region because both axes are measured in logarithms). Japan and China have both seen major gains in labour and land productivity since 1961, although average farm size has only started to increase in Japan since the 1990s; most of Europe has


Timmer: Food Security, Transformations, Markets and Policy seen gains in labour productivity via larger farm size, although Eastern Europe and the Former Soviet Union suffered severe reversals after the fall of communism. The most striking feature of Figure 3, however, is the stagnation of growth of labour productivity in SubSaharan Africa. Although yields per hectare are increasing slowly, there has been virtually no gain in labour productivity in agriculture in half a century. The second striking feature is that land consolidation has barely begun at a global level. Indeed, farm size continues to get smaller on average, driven by the gradually shrinking farms in Asia and the more quickly falling farm size in Africa. Farm size has been virtually constant in Latin America. Uncertain land ownership and tenancy laws in Asia and Sub-Saharan Africa may account

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for some of this ‘stickiness’ in reported farm size. Outmoded statistical definitions may also be a factor: workers may be counted in the agricultural labour force even if most of their income is derived from off-farm sources. A ‘stylized’ variant of the Ruttan-agram provides a very informative framework for understanding how land and labour productivity will need to increase in agriculture if key objectives in the post-2015 sustainable development goals (SDGs) are to be realized (Figure 4). Significant increases in labour productivity will be needed between 2015 and 2030 if the poverty reduction targets in the SDGs are going to be achieved. That is, a successful structural transformation will be the key ingredient to achieving the SDGs.

Figure 4 Increases in Land and Labour Productivity Needed to Achieve Post-2015 Sustainable Development Goals


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Table 1 Food Balance Sheet data from FAO (using domestic rice production as base) Country Japan

Malaysia

Year 1990 2009

South Korea

Indonesia

Indonesia (household expenditure surveys of rice consumption)

Kg per capita per year, milled rice equivalent 65.2 54.0

83.1 74.0

97.2 81.3

3.3. Dietary Transformation As with the agricultural transformation, no single measure captures the complexity of dietary changes, and much is specific to local customs and tastes. In general, two basic regularities have been observed in food consumption patterns as countries have become richer: Engel’s law: the share of food in budget expenditures falls with higher incomes, thus providing a buffer against the welfare impact of sudden changes in food prices, and Bennett’s law: the share of starchy staples in the diet falls with higher incomes, as a deep, perhaps ‘hardwired’ desire for diversity in the diet, can be expressed (Bennett 1954).

Less well-established regularities also suggest that long-run changes in relative prices, changing demographics, as well as exposure to ‘foreign’ eating patterns have an impact. Table 1 illustrates the complex dietary changes in Southeast Asia, a rapidly developing part of the world. This dietary transformation is in a region that has made substantial progress in reducing hunger. The most challenging and controversial changes have been in rice consumption. The following data compare representative rice consumption data from food balance sheet (FBS) sources (using reported rice production as the foundation) with data from the one large country (Indonesia) where the FBS data can be compared directly with household expenditure data that report rice consumption directly. Indonesian rice consumption from the FBS data, based on reported rice production, overstates the level of rice consumption as reported in the household surveys. More troublesome, the bias has increased dramatically in the two

127.2 127.4

115.4 91.6

decades between 1990 and 2009. It would seem that something is wrong with how Indonesia collects its rice production data, a fact now acknowledged by the government of President Joko Widodo. The advantage of looking at rice consumption levels in the more advanced countries— Japan, Malaysia, South Korea—is that they offer a perspective on the future for the lagging countries—Indonesia, China and India. The future of rice consumption in Asia will be largely determined by these three countries. Four other striking observations come from Table 2. First, total caloric intake has risen steadily, by 0.8 per cent per year. In 1961, when average food availability per capita was just 1,814 calories per day, most citizens of Southeast Asia would have been chronically hungry. By 2011, the most recent year for which data are available, food available per capita per day reached 2,678 calories.6 At that level, hunger would not be common, and obesity would be a rising problem. Second, the starchy staple ratio—the share of calories coming from cereals and starchy roots —fell from 74.8 per cent in 1961 to 61.2 per cent in 2011. In 40 years, intake of animal protein nearly tripled. The quality of the diet in nutritional terms improved markedly, although the doubling of fat in the diet is worrisome. Third, rising consumption of animal products would require a modern feed industry to supply domestic producers of poultry, livestock and aquaculture products, unless imports of final goods increase drastically. Domestic farmers have a rapidly growing

6. Caloric intake data are from FAO food balance sheets.


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Table 2 The dietary transformation in Southeast Asia Dietary transformation in Southeast Asia

1961 Food supply,(kcal/ cap/day)—Total Cereals (ex. Beer) Rice Rice kcal as % of total kcal Starchy roots Wheat Starchy staple ratio Food supply, gm/cap/day Animal protein Fat Wheat as of rice%

1841

1970 1953

1980 2136

1990 2178

2000 2377

2009 2609

2010 2678

2011 2678

Average% change/year 1961 to 2011 0.75

1189 1308 1407 1379 1462 1518 1536 1536 1071 1162 1218 1193 1232 1241 1239 1244 58.2 59.5 57.0 54.8 51.8 47.6 46.8 46.5

0.51 0.30

187 133 145 102 89 99 103 104 31 62 82 66 107 126 134 129 74.7 73.8 72.6 68.0 65.3 62.0 61.8 61.2

1.17 2.89

8.5 27.6 2.89

10.2 29 5.34

10.6 32.8 6.73

13.0 40.7 5.53

16.8 46.2

22.8 58.8

23.5 59.2

24.1 60.5

2.11 1.57

8.69 10.15 10.82 10.37

Source: FAO food balance sheets.

market for feedstuffs, but at the moment, a very large proportion of Southeast Asia’s feed ingredients, especially maize and soy meal, is imported. Fourth, calories from wheat increased 8 per cent per year as diets become more ‘westernised’, and by 2011 consumption of wheat was more than a 10th of rice consumption. Southeast Asia imports all of its wheat, and Indonesia surpassed Egypt in 2013 as the world’s largest importer of wheat. A volatile world market for wheat will increasingly be seen as a threat to food security in Southeast Asia, but national agricultural development strategies cannot be used to cope with that threat. Because rice is becoming less important to food security in the region, and wheat and feed grains are becoming more important, management of food security will increasingly be a trade and macroeconomic issue rather than an agricultural issue.7

Finally, the demand for livestock feed to enable the dietary transition raises an obvious issue: feed for livestock can also serve as ingredients for bio-fuel production. The potential for commodities—especially maize, sugar, palm oil and cassava—to be grown as raw materials for production of bio-fuels needs to be seen as a direct competitor for their use as food and as feed for livestock (and fish). Continued political support for production of bio-fuels is a challenge to the dietary aspirations of hundreds of millions of households with new discretionary incomes that permit livestock and aquaculture products to be served on their table. The consequences for food security are highly uncertain (To & Grafton 2015).

7. Malaysia is an especially interesting case study in the growing importance of wheat products in the local diet. Many different items are available in markets and as street foods—bread, cakes and cookies, dumplings and buns, and noodles. The widespread availability and low cost of instant noodles has contributed to the rapid growth in wheat consumption and the decline in rice consumption. Nutritionists worry about the high-salt content of most instant noodle dishes and the tendency of many young consumers, especially students, to basically subsist on them. This pattern is not unique to Malaysia (Timmer et al. 2010).

The international context for domestic food policy decision-making with respect to food security has changed substantially since the mid-twentieth century. Five basic trends stand out, especially with respect to expectations in the early 1980s. Understanding these trends is absolutely fundamental to understanding where the world food economy is headed after 2020:

4. What Is Driving Food Security? The Changing Global Environment


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• Surprisingly rapid economic growth occurred, especially in Asia, with hundreds of millions of people pulled out of poverty. The strong connection between inclusive economic growth, especially in rural areas, and rapid reduction of poverty was simply not apparent in the empirical record in the early 1980s. The East Asian Miracle (World Bank 1993) did not appear for another decade. This rapid growth validated the central theme of the food policy perspective, which is the unsustainability of poverty reduction efforts without higher economic productivity of unskilled, especially rural, labour. That theme remains powerfully relevant. Hunger and poverty cannot be eliminated in a sustainable fashion without higher productivity for rural labourers. • A communications revolution at both household and international levels has radically reduced transactions costs and increased access to knowledge. Marketing margins narrowed under improved and more informed competition. Consumers and farmers both benefited from more competitive local food markets. The widespread availability of cell phones to even poor, smallholder farm households has sharply improved their bargaining power over prices in local markets.8 • Global financial markets became interested in emerging economies. The early 1980s were an era dominated by fixed exchange rates, tight controls on the flow of foreign capital, and virtually no financial intermediation beyond state banks. At first, the influx of foreign capital in the 1990s was welcomed as a sign of confidence, but except for foreign direct investment in “real” assets such as factories and real estate, the global financial interest in emerging economies was a ‘two-edged sword’. A rapid influx could cause currency appreciation and a loss of competitiveness; its rapid exit when the economy started to decline or foreign investors saw better opportunities elsewhere 8. The ‘supermarket revolution’ has merely accelerated these changes (Timmer 2009b; Reardon & Timmer 2007, 2012).

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caused a crisis in local financial markets. Global financial integration came with very poorly understood risks, and 2009 demonstrated them clearly. The growth of foreign investments in land to produce food and/or bio-fuels for export—so-called land-grabs —is controversial, but at least the capital cannot leave the country quickly. • The rapid emergence in the 1990s of China and India as global growth engines meant a gradual shift in the drivers of demand for commodities and natural resources. Advanced economies had become more knowledge-driven and less dependent on energy, metals and other basic commodities— including food commodities—to fuel their economic growth. The price depression for nearly all commodities in the 1980s and 1990s reinforced the view that the future depended on value added from skills and knowledge, not from exploitation of natural resources: but industrialization, especially as practiced by China and India, is a very intensive user of natural resources. By the turn of the millennium, it was increasingly clear that the growth path of developing countries was the primary driver of commodity prices, starting with energy prices but quickly extending to food prices. The Malthusian challenge was back, but with two decades of neglected investments in raising agricultural productivity (because of the low agricultural prices), the challenge is turning out to be hard to meet. • High-energy prices turned out to be a game changer for agriculture and the food economy. Once oil prices were high enough to justify using sugar, maize, cassava or vegetable oils to produce gasoline or diesel substitutes, agricultural commodity prices became directly linked to oil prices. The concern to reduce emissions of greenhouse gases to mitigate climate change provided ample motivation to American and European legislatures to mandate the use of domestic food crops to produce liquid fuels. The combination of legislative mandates, which provided essential risk coverage to investors in bio-fuel facilities, and high-oil prices, which provided market-based


Timmer: Food Security, Transformations, Markets and Policy incentives, led to a new set of linkages between agriculture and the energy sector.9 There had long been a link on the supply side, as energy prices affected fertilizer costs, fuel costs for tractors and trucks and the economics of global supply chains. The new link is through the demand side. Higher prices for energy translate directly into greater demand for food commodities to convert into liquid fuels. The food-fuel price linkage puts poor food consumers at serious risk at high-energy prices. 5. The Way Forward What policy approaches to improving food security are likely to be most successful? The answer depends on which global food price regime is likely to drive policy formation in the coming quarter century. The historical path of structural transformation with falling food prices, leading to a world without agriculture, is one possibility (Timmer 2009a), but continued financial instability, coupled with the impact of climate change, could lead to a new and uncertain path of rising real costs for food, with a reversal of structural transformation (Timmer & Akkus 2008). Management of food policy, and the outlook for sustained poverty reduction, will be radically different depending on which of these global price regimes plays out. 5.1. Improving The Supply Outlook The long-run issue is whether supply responses can meet the outlook for rapid growth in demand, especially at the global level. In the past, when food prices spiked and talk of an impending Malthusian crisis arose, output responded to bring food prices in world markets back to their long-run downward trend, with a time lag. Such a benign output response may not be forthcoming as a 9. The link between bio-fuels policies and food prices is complicated and depends on fundamentals in energy and food markets, as well as on policies. This complexity has become the topic of intensive research—for example, see de Gorter and Just (2010), de Gorter and Drabik (2012) and Naylor (2012).

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long-run response, for three basic reasons: limited land available to expand the farming area, declining growth in yields and high cost of inputs. Hayami and Ruttan (1985) that showed farm area expansion as a source of increased agricultural production was drawing to a close, with future increases needing to come from higher yields on existing farmland. More than a decade into the twenty-first century, it is clear that there is little high-quality, unutilized agricultural land now available for farming. Where there is good land available for expansion, especially in Africa and a few areas in Southeast Asia, vigorous competition, especially from foreign companies and sovereign investment funds, is making that land inaccessible to local farmers. Yields at research stations of existing agricultural technologies have essentially been unchanged for decades because of the paucity of investment in research during this time. Thus, raising yields from actual farmer practices to the present technology potential —closing the yield gap—is the only source of increased output until new agricultural technologies are developed. New technologies, however, are unlikely to be commercially important before the mid-2020s (Asia Society and International Rice Research Institute 2010). 5.2. Managing Demand: Population, Incomes And Bio-fuels Malthus observed if food demand grew faster than food supplies there was famine. Because his observation in the early nineteenth century, global food supplies have actually grown faster than food demand. This demand has been driven largely by population growth and by increases in income per capita, which translate into demand for higher quality foods, especially livestock products. Population growth has slowed dramatically since the 1970s, but income growth has accelerated in precisely those parts of the world that demands more animal protein in their diets. If demand for livestock feed, and its attendant call on agricultural


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resources to produce it, is going to be slowed, meat consumption in rich countries will need to decline. Most development economists think any slowing of demand for meat products is highly unlikely, but health specialists are beginning to make progress with a message that resonates with the educated, wealthier parts of rich countries that now consume the great bulk of livestock products: reduced consumption of red meat will lead to longer and healthier lives. It is certainly possible that reduced meat intake in rich countries can free up enough feed resources to permit significant gains in consumption of livestock products in low income and medium income countries. The balance going forward is likely to be tenuous, but the dietary diversification underway in transition countries does not seem to be a threat to global food security. Bio-fuels remain a potential disruptor to global food security. The potential devastating effects of bio-fuels are easy to conceptualize (Naylor 2012). The income elasticity of demand for starchy staples (cereals and root crops for direct human consumption) is less than 0.2 on average, and falling with higher income—it is already negative in much of Asia. Adding in the indirect demand from grain-fed livestock products brings the average income elasticity to about 0.5 and appears to be unchanging despite rapid economic growth in India and China. Potential growth in supply of grain seems capable of managing these sources of growth in demand. The challenge of biofuels and government support for their production or consumption is that the structural transformation could be reversed as more and more labour and land will be needed for agricultural production if there are high-energy prices. If this is the case, the share of agriculture in both employment and GDP will start to rise, and this reversal then could condemn the rural poor to lower living standards. There will be much more structural poverty, and countries which are determined to cope with it will find themselves supporting expensive and long-term safety nets for the poor.

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6. Climate Change and the Outlook for Commodity Producers Historically, countries that have relied heavily on the production and export of basic commodities—coal and petroleum; copper and iron ore; coffee, cocoa and rice, for example—have had a difficult time developing their economies in an equitable and sustainable fashion. There are two main approaches to explaining this difficulty: economists posit ‘Dutch Disease’ as a macroeconomic force that biases exchange rates against production of labour-intensive tradable goods, such as products from smallholder farms or export-oriented industrial output. Political scientists tend to use a ‘Resource Curse’ as the explanation for poor performance among commodity exporters, as corruption and rent-seeking are stimulated by the exploitation of natural resources that are often under the control of a weak state. Both explanations have significant explanatory power. But two other forces have also been in play. First, commodity prices on export markets have tended to be highly unstable. If commodity exports are important in macroeconomic terms to a country, this global instability in commodity prices is transmitted directly into their economy, with serious negative effects on the efficiency of investments because of ‘signal extraction problems’ (Dawe 1996). Second, technological innovations have tended to find substitutes for scarce natural resources, with land-based commodities especially seemingly facing a long-term decline in their terms of trade with the rest of economic output (Prebisch 1950). Although the Prebisch hypothesis has often been disputed because the decline depends on commodities chosen and the starting and ending dates for the trends, there is little controversy that agriculture in particular has suffered significant price declines since the 1950s. How will climate change affect these basic forces facing commodity producers and exporters? Climate change increases the probability of extreme weather events in general, with locally severe consequences. The ecosystem services provided by the climate are


Timmer: Food Security, Transformations, Markets and Policy essential for all agricultural production. The most important effects of climate change on agriculture are likely to include a net global loss of agricultural land, changing crop suitability and an increase in the frequency of natural disasters. It will also have negative effects on other areas of agriculture broadly interpreted; climate change will reduce the carrying capacity of many rangelands and pose threats to fisheries and aquaculture production systems. Climate change is expected to have highly variable effects on different regions. Tropical and equatorial regions will bear the heaviest burdens. Sub-Saharan Africa probably faces the greatest challenges, because rural poverty is concentrated in tropical and, in South and Southeast Asia, coastal areas. Thus, climate change is expected to have a disproportionate effect on the already vulnerable. There may be some gains in yields and land availability in temperate regions.10 Agriculture plays an important role in driving climate change, accounting for about 15 per cent of global greenhouse gas emissions, and this figures more than doubles when deforestation and other land-use changes are included. Forests, thus, are a crucial global natural resource for climate change mitigation. The challenge is to design, analyze and implement in-country climate-smart agriculture adaptation projects and programs (Lipper et al. 2014). Challenges typically come with opportunities. The biofuel challenge ostensibly comes from efforts to mitigate climate change. Equally challenging are efforts to adapt agriculture to the dual effects of climate change— higher temperatures and greater variability in rainfall. As noted by Lobell and Burke, …one thing appears almost certainly true in the twenty-first century; if agriculture and food security are to thrive, they will have to do so in a constantly warming world. The level of 10. The growing urbanization of poverty, the result of dysfunctional structural transformations (especially in Africa and India), may change the geographic incidence of the impact of climate change on the poor, but probably not the overall level (Ravallion et al. 2007; Badiane 2011; Binswanger-Mkhize 2012).

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climate stability that has been experienced since the dawn of agriculture is a thing of the past; the future will be one of constant change. This need not spell disaster for food security, but we would be wise not to underestimate the enormity of the challenge at hand [Lobell & Burke 2010, p. 1960].

7. Conclusions: Why Is Food Security So Precarious? Despite abundant food supplies at a global level, food security in dozens of countries and hundreds of millions of households remains elusive, for two quite separate reasons. First, food supplies are allocated to consumers primarily by market forces, and many households are simply too poor to afford it (or to produce it on their own land). This is the problem of chronic hunger. Significant progress has been made since WWII in reducing the extent of chronic hunger, but the challenge of ending it remains very difficult. Second, rapid urbanization means that a majority of households now depend on reliable availability of food in their local markets to be able to eat on a daily basis. Any threat to availability of food in local markets causes obvious anxiety. Panic buying, hoarding by traders and price spikes mean the breakdown of social trust and often lead to food riots and political instability. It is no wonder that most governments seek to ensure urban food supplies and a sense of food security for their populations. This article has attempted to explain why the provision of sustainable and reliable food security is a complex task that involves careful government interventions in the context of a competitive and efficient private sector. Many countries have succeeded in this complex task, but many have not. The challenge now is to help those countries actively seeking workable approaches to ending hunger. History has useful lessons to offer, but each country must also find its own path. For this, good data and skilled analysts are essential. Assistance with these key ingredients to ending hunger can have very high payoff. November 2016.


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