Myth 10: The main issue to resolve in order to eradicate hunger is price volatility

Wrong.

Towards the end of 2010, when certain food prices increased, the media, international organisations (FAO, OECD, IFPRI, etc.) and the G8/G20, chaired by France, chose as priority theme the issue of price volatility. In making statements on the issue they tend to use the terms ”price increase and price volatility”, or “price volatility and speculation” interchangeably.

However, if volatility is related to the uncertainty of price changes and defined by the degree of variation of prices (estimated by the coefficient of variation of observed prices), various studies referred to in the OECD/FAO Agricultural Outlook Report for 2010-2019 show that volatility did not increase during the years immediately before 2010 and that it was even less than what had been observed during the 70s. Volatility results from the fact that in agricultural markets supply and demand have very special characteristics. On the one hand, supply is highly dependent on climatic conditions and does not react rapidly to market conditions. On the other hand, demand is, at least for staple products, relatively inelastic to price changes, as these products are essential for consumers. These characteristics of demand and supply and of agricultural markets are favourable to the occurrence of price surges in cases where there is a fall in production, particularly when there are insufficient stocks that could be released to compensate for the shortage of production or when interest rates are very low and encourage hoarding of stocks. This is precisely what happened in 2008 and again in 2010-2011. This may also occur frequently in land-locked countries that are isolated from the main external sources of supply because of excessive transport costs for imports.

Even if it may be of some use to analyse volatility purely from the perspective of how markets operate, it does not appear to be a high priority. Any change in market regulations or in policies that seek to reduce price volatility will not resolve the fundamental question, namely that of the need for a sustainable increase of agricultural production, the reduction of its dependence on climatic conditions and the encouragement of economic operators to maintain a minimum food security stock.

One can wonder if the importance given to the issue of volatility and its partial resolution by the implementation of new rules to regulate speculation is not being used as a diversion to hide the fact that the International Community has not been able to deliver on its pledges made during the High Level Conference held in Rome in June 2009 and the subsequent G8 Summit in L’Aquila in August to mobilise more than USD 20 billion for investment in agriculture. But that was before the peak of the financial and economic crisis…

Materne Maetz

(September 2012)

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1. ✴Back to Myths on hunger debunked
   

Thirteen myths about hunger:

1. 1. Lack of food availability
   

2. 2. Population growth
   

3. 3. Meteorological events or war
   

4. 4. Food aid
   

5. 5.There is nothing we can do...
   

6. 6. Africa
   

7. 7. Pictures of children
   

8. 8. Poverty
   

9. 9. Too costly at times of crisis
   

10. 10. Price volatility
    

11. 11. GMOs are the solution to hunger
    

12. 12. Organic agriculture cannot feed the world
    

13. 13. Investment by large private companies is the solution