World food prices and the CAP

Jorge Nùñez Ferrer of the Centre for European Policy Studies in Brussels has an interesting comment on the possible implications of current high food prices for future CAP reform in the debate on the post-2013 EU budget, in which he rather despairingly projects that “the French Presidency will seek to strike a deal in the name of world food security to maintain (if not increase) the present budgetary allocation for the CAP for the next Financial Perspectives, similar to the agreement struck between Chirac and Schroeder in 2002.” Certainly, the way the CAP should be reshaped in an era of higher world food prices is a new element in the debate on CAP reform which it is obviously hugely important to address. But Nùñez Ferrer is right to raise a question mark over some of the proposed ‘solutions’ which have gained currency in recent months.

For one thing, whether higher food commodity prices should be taken as a sign of food insecurity or not is itself a moot point, and one which is being debated between Homi Kharas (Brookings Institute) and Joachim von Braun (International Food Policy Research Institute) on the website under the proposition “There is an upside for humanity in the rise of food prices” (you can cast your vote before the debate closes Friday 8 August; when I posted this blog 56% were in favour and 44% against the proposition).

One  of the issues in this debate is whether higher food prices are likely to alleviate or push  people into poverty. The issue is very topical because of the views of the World Bank and others that the recent spike in food prices has reversed much of the progress in reducing poverty which is one of the key Millennium Development Goals.

This is partly an issue of the speed at which prices change (a point which von Braun makes eloquently in the Economist debate) and partly an issue whether the poor are net food sellers or net food buyers. The view has got around that more poor households in developing countries are net food buyers than are net food sellers, and thus that higher food prices increase the likelihood of poverty.

This view is challenged in a recent Policy Outlook by Sandra Polaski of the Carnegie Endowment for International Peace. While careful to point out that generalisations in this area are unlikely to be valid, she quotes a number of important studies which conclude that higher food prices have been responsible for lifting more people out of poverty than pulling them into it. In India, for example, which is home to the largest number of poor people in the world, a decline in the world price of rice would result in real income losses for 78% of all households and the distributional impact would be regressive (i.e. the consequences of higher world rice prices would be the opposite of these results).

This issue clearly warrants further investigation before we rush  off and conclude that a production-oriented CAP is needed in the future to address problems of world food insecurity.

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