Food Price Watch 98251 YEAR 6 • ISSUE 19 • JUNE 2015 International food prices declined 14% between August 2014 and May 2015, sliding into a five-year low and continuing the sharp price declines observed in previous months. Price declines have been generalized across key food commodities—although to different extents—and are the result of continuously improving production outlooks and strong levels of food stocks. Yet uncertainties have not completely dissipated, and the arrival of El Niño, the dollar appreciation, and recent increases of oil prices—after months of continued declines—might have effects on international food prices in the upcoming months. Domestic prices of grains have remained mostly stable during the last year, an outcome associated with favorable production and international food price declines. The largest increases in domestic food prices were observed in countries whose currencies depreciated and where weather-related disasters affected production and disrupted trade. This issue of the Food Price Watch reflects on the unforeseen breadth and depth of the current oil price crash, and the potential impacts it might have on international food prices, poverty, and inequality. Global Price Trends 2008). The international price of rice declined 14% between August 2014 and May 2015, reversing the Since the last Food Price Watch, released in September 2014, sizeable increases in its price observed in mid-2014 as a international food prices have decreased 14% (between result of the government of Thailand’s halt in the sales of August 2014 and May 2015; figure 1). Sustained drops in its public reserves. In May 2015, the international price of monthly food prices took place during that period, Thai 5% rice was only 2% lower than its price a year ago. In interrupted only by an isolated increase in November 2014. the case of maize, its international price declined 6% Prices were some 19% lower in May 2015 than a year ago, between August 2014 and May 2015, following earlier with a 6% decline observed in the last quarter (February to May 2015). In May 2015, international food prices were at a five-year low, with lower international prices not seen since Figure 1. World Bank Global Food Price Index as far back as June 2010 (figure 1). Behind these declines in 160 international food prices are decreases in all major categories 140 of food. Thus the prices of oils and meals declined 16%, 120 other foods by 14%, and grains by 10% between August 100 2014 and May 2015. 80 International prices for all key commodities declined 60 between August 2014 and May 2015, although to different 40 oils & meals food extents. This generalized decline contrasts with trends in 20 grains other food previous periods, where declines in the prices of key 0 2000M01 2000M09 2001M05 2002M01 2002M09 2003M05 2004M01 2004M09 2005M05 2006M01 2006M09 2007M05 2008M01 2008M09 2009M05 2010M01 2010M09 2011M05 2012M01 2012M09 2013M05 2014M01 2014M09 2015M05 foodstuffs coincided with increases in others (see Food Price Watch September 2014). In effect, among key grains, international wheat prices plunged 18% between August Source: World Bank, DECPG. Note: The Food Price Index weighs export prices of a variety of food commodities around the world 2014 and May 2015, and they remain 36% below May in nominal U.S. dollar prices, 2010 = 100. Note that the previous base, 2005 = 100, has now been 2014 levels (and half of the all-time peak observed in changed to 2010. Food Price Watch, produced by the Poverty Global Practice at the World Bank, is a series that aims at drawing attention to trends in domestic food prices in low- and middle-income countries and their policy implications. Contact: José Cuesta (jcuesta@worldbank.org) Table 1. Price Change of Key Food Commodities months. Furthermore, the appreciation of Feb 2015 – Aug 2014 – May 2014 – the U.S. dollar implies increases in the Indices May 2015 (%) May 2015 (%) May 2015 (%) domestic cost of oil and, ultimately, in food Food -6 -14 -19 prices among importing countries. And, more recently, concerns stemming from Oils and meals -6 -16 -26 the arrival of El Niño2 have contributed to Grains -7 -10 -21 reducing the extent of the drop in Other -5 -14 -6 international food prices. Fertilizer -7 -10 -4 Record 2014/15 production harvests Prices and 10-year high stocks have contributed Maize -4 -6 -23 to the slide in the price of wheat. This trend Rice (Thai, 5%) -9 -14 -2 has been sustained over several months, Wheat (U.S., HRW) -9 -18 -36 only interrupted in November by isolated Sugar (world) -9 -23 -27 weather concerns in some of the major Soybean oil 1 -9 -19 producing areas, such as the United States and the Black Sea, which were soon Crude oil, average 14 -38 -41 dissipated.3 Worries at export curbs by the Source: World Bank, DECPG. Russian Federation’s announced increasing price swings throughout the second half of 2014 and a export duties from February to June 2015 (but already more stable trend since January 2015. Yet, prices of maize lifted ahead of schedule)4 also provided price support in are 23% lower in May 2015 than they were a year ago. December. The prospective slowdown in Russian exports coincided with increasing exports from the European The most dramatic changes have been observed in the Union, which has become more competitive following the World Bank’s monthly average price of crude oil: this appreciation of U.S. dollar, putting those worries to rest. monthly price averaged just above US$100 per barrel (bbl) Good prospects for the 2015/16 crop—although somewhat in August 2014. In May 2015, its average monthly price lower than 2014/15—along with heavy supplies and strong exceeded US$62/bbl, after some price picking up—of competition for export business, have maintained about 32%—since January 2015. Overall, crude oil prices downward price pressures in recent months.5 Expected are 41% lower than a year ago in May 2014 (discussed in worldwide stocks-to-use ratios for 2014/15 reportedly more detail later in this note). Looking at other reached 27.9% (up from 26.6% in 2013/14) after two commodities, the international price of sugar plummeted consecutive bumper crops.6 some 23% between August 2014 and May 2015, while the Likewise, record maize harvests and strong export price of soybean oil dropped 9% in the same period. These competition from successive favorable crops in the price declines further extend the declining trends observed northern (especially in the United States and the European since early 2014. In the case of fertilizers, international Union)7 and southern hemispheres have led international prices fell 10% between August 2014 and May 2015, and maize prices to slide throughout the last year. Slow import are only 4% below their prices a year ago in May 2014. demand from China and a strong U.S. dollar have also Large global supplies in 2014 and good production contributed to downward pressures on prices.8 As a result prospects for 2015 are behind the sustained decline in of increased production and weak demand, world stocks food prices.1 Improving production estimates for wheat, increased from last year’s previous all-time record, reaching maize and rice; the rise in international reserves; and an estimated world stocks-to-use ratio of 20.8% in 2014/15 improved supplies in importing countries have all put (up from 18.6% in 2013/14).9 Prices only firmed up at the downward pressures on international prices, while end of 2014 due to sporadic weather-related—later expectations of bumper crops in 2015 are also helping dissipated—concerns regarding U.S. crops and because of keep prices low. Sharp declines in oil prices and the prospects of increasing demand from China’s allowed appreciation of the U.S. dollar have also contributed to imports of a genetically modified maize variety.10 Thanks lower international prices. However, oil prices have started to the introduction of southern hemisphere supplies into to recover recently and have picked up in the last three the markets and widespread expectations of good crops in POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 2 2015/16 (although expected to be lower than 2014/15 areas of northeastern Nigeria and the Central African season), downward pressures resumed on international Republic, as well as in Ebola virus disease (EVD)–affected maize prices. However, expectations for the demand of countries (now expected to improve).20 In southern Africa, maize for ethanol production in the United States remain maize prices remained mostly stable during the last quarter unclear.11 Yet, most recent projections of U.S. ethanol of 2014 due to abundant supplies in the region from production point to similar levels in 2014 and 2015, after 2013/14 bumper crops. Maize prices started to slightly a stable or declining forecast of gasoline demand in the increase in the first quarter of 2015 as the lean season United States, some pick up in international oil prices, and progressed. Weather-related disruptions in southern Malawi current ample maize supply expectations.12 (floods), South Africa, and Zimbabwe (dry conditions) have International rice prices have steadily declined since also led to specific price increases in maize.21 In eastern February 2015 due to abundant supplies and limited Africa, maize prices mostly declined throughout August buying interest in Asian markets and of African importers. 2014 and May 2015 as a result of well-supplied markets. Plentiful supplies have exerted downward price pressures There are some reports of high and volatile maize prices in as major producers, such as Thailand, have tried to release specific areas of South Sudan, Sudan, and Somalia attributed huge domestic inventories and others, like India and China, to the lean season, conflict, insecurity, and road conditions– are trying to ease pressures on their central reserves. At the related disruptions.22 In Central America, red bean prices same time, major importers—such as Nigeria, Brazil, and continued to increase between August 2014 and May 2015 western Africa—have seen their ability to import affected because of reduced crops in 2013/14 and depletion of 2015 by weakening currencies.13 These downward pressures early harvests. Instead, stable prices of imported rice, maize, have led to a five-year low for international prices despite a and wheat contributed to the region’s mostly steady prices slight contraction in production—by 0.4% of the 2013/14 for these staples. In South America, wheat prices mostly all-time record crop—associated with the late arrival of the declined from abundant supplies following good 2014 monsoon season and dry conditions. Worldwide stocks are harvests,23 while maize price trends were mixed depending also expected to contract this 2014/15 season, although on country-specific harvests and currency depreciations. In they remain at a very favorable 34.7% (down from 36.2% East and South Asia, rice prices remained mostly weak and the previous season).14 Recent concerns on dry conditions typically declined as the result of downward pressures from in Thailand and the Philippines and, more importantly, ample availability and slow import demand, with specific low prices and less supportive (subsidy) policies in 2015, exceptions among some major exporters as deteriorating may imply further reductions in production and stocks. prospects, strong import demand from China, and procurement policies firmed up domestic prices.24 In Looking forward, several factors will determine the Central Asia, wheat prices generally increased and remained pace of expected international food price declines in the high due to limited production.25 near future: the extent to which the U.S. dollar remains strong; the effects of the recently declared El Niño (with an Focusing on the last quarter (February–May 2015), estimated probability of 80–90% that it will continue the largest wheat price increases (table 2) took place in the throughout 2015)15; the stability of oil prices (estimated capital city of Moldova (Chisnau, 18%) and in markets in by the World Bank to stabilize at US$53/bbl throughout Brazil (national average, 16%); these increases are partially 2015)16; the demand of maize for biofuels (thought to explained by depreciation of their local currencies.26 Lower remain stagnant at best)17; and developments in rice price increases occurred in monitored markets in Argentina support policies among major rice producers.18 (Buenos Aires, 9%) and Ethiopia (Shashememe, 7%). The most marked declines in wheat prices were reported in monitored markets in Sudan (Dangola, by 16%), following Domestic Price Trends increased seasonal supplies from newly harvested crops27; Domestic grain prices remained mostly stable or declined the Russian Federation (national average, 13%), with between August 2014 and May 2015. In western Africa, declines explained by improved weather conditions and cereal prices remained stable, benefiting from plentiful recent appreciation of the ruble;28 and in Armenia and market supplies due to previous and early good harvests and Ukraine (national averages 9 and 10%, respectively), from carryover stocks.19 However, market disruptions were bumper crops and favorable trade prices.29 Domestic observed throughout this period in the conflict-affected maize prices experienced the largest increases in monitored POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 3 Table 2. Largest Variations in Domestic Prices Quarterly Price Movements: February 2015 – May 2015 % % Wheat Change Maize Change Moldova, Chisinau, retail, Moldovan leu/kg 18 Uganda, Kampala, wholesale, US$/ton 81 Brazil, natl. avg., wholesale, Brazilian real/kg 16 Tanzania, Dar es Salaam, wholesale, US$/ton 68 Argentina, Buenos Aires, wholesale, US$/kg 8 Kenya, Nakuru, wholesale, US$/ton 53 Ethiopia, Shashemene, white, wholesale, Ethiopian birr/local 7 Mozambique, Angonia, white, retail, metical/kg 29 Armenia, natl. avg., flour, 1st grade, retail, Armenian dram/kg -9 Malawi, Mzuzu, retail, kwacha/kg 21 Ukraine, natl. avg., 3rd class, bid, EXW, process., hryvnia/ ton -10 Togo, Amegnran, white, retail, CFA franc/kg -11 Russian Federation, natl. avg., milling, 3rd class, offer, EXW, -13 Mexico, Culiacán, white, wholesale, peso/kg -19 wholesale Sudan, Dongola, wholesale (Sudanese pound/local) -16 Mozambique, Gorongosa, white, retail, metical/kg -41 % % Rice Change Sorghum Change Uganda, Kampala, wholesale, US$/ton 34 Sudan, Kadugli, feterita, wholesale, Sudanese pound/local 34 Somalia, Buale, imported, retail, Somali shilling/kg 29 El Salvador, San Salvador, Maicillo, wholesale, US$/local 16 Mozambique, Montepuez, retail, metical/kg 20 Burkina Faso, Ouagadougou, local, wholesale, CFA franc/local 14 Mali, Ségou, imported, wholesale, CFA franc/local 17 Togo, Anie, retail, CFA franc/kg 9 Ecuador, Quito, long grain, wholesale, US$/kg 9 Mali, Sikasso, local, wholesale, CFA franc/local 8 Brazil, natl. avg., paddy, wholesale, real/kg 7 Ethiopia, Addis Ababa, white, wholesale, US$/kg -9 Bangladesh, Dhaka, coarse, wholesale, taka/kg -18 Niger, Agadez, local, wholesale, CFA franc/local -17 Bolivia, Cochabamba, grano de oro, wholesale, boliviano/local -22 Somalia, Belet Weyne, red, retail, Somali shilling/kg -33 Annual Price Movements: May 2014 – May 2015 % % Wheat Change Maize Change Ukraine, natl. avg., 3rd class, bid, EXW, process., hryvnia/ton 41 Mozambique, Angonia, white, retail, metical/kg 48 Ethiopia, Jimma, white, wholesale, Ethiopian birr/local 30 El Salvador, San Salvador, white, wholesale, US$/local 45 Sudan, Kadugli, wholesale, Sudanese pound/local 28 South Africa, Randfontein, white, wholesale, rand/ton 38 Tajikistan, natl. avg., flour, 1st grade, retail, somoni/kg 25 Ukraine, natl. avg., bid, EXW, processing, wholesale 29 Russian Federation, natl. avg., flour, high grade, retail, ruble 21 Ethiopia, Bahirdar, wholesale, Ethiopian birr/local -24 Sri Lanka, Colombo, flour, retail, Sri Lanka rupee/kg -12 Bolivia, Cochabamba, hd yellow, cubano, wholesale, boliviano/local -25 Brazil, natl. avg., wholesale, real/kg -16 Mexico, Culiacán, white, wholesale, peso/kg -27 Bolivia, La Paz, flour, imported, Argentina, wholesale, boliviano/ Kenya, Eldoret, wholesale, US$/ton local -34 -29 Argentina, Buenos Aires, wholesale, US$/kg -48 Somalia, Belet Weyne, white, retail (Somali Shilling/kg) -35 % % Rice Change Sorghum Change Colombia, natl. avg., 2nd quality, retail, Colombian peso/kg 43 Somalia, Mogadishu, red, retail, Somali shilling/kg 55 Russian Federation, natl. avg., local, retail, ruble/kg 43 Sudan, Kadugli, fFeterita, wholesale, Sudanese pound/local 34 Mozambique, Montepuez, retail, metical/kg 25 El Salvador, San Salvador, Maicillo, wholesale, US$/local 29 Mali, Ségou, imported, wholesale, CFA franc/local 21 Togo, Lomé, retail, CFA franc/kg 27 Bangladesh, Dhaka, coarse, wholesale, taka/kg -24 Nigeria, Kano, wholesale, naira/local -13 Bolivia, Cochabamba, grano de oro, wholesale, Boliviano/local -24 Ethiopia, Addis Ababa, red, wholesale, US$/kg -21 Panama, Panama City, 1st quality, retail, balboa/kg -33 Niger, Zinder, local, wholesale, CFA franc/local -29 Togo, Lomé, imported, retail, CFA franc/kg -54 Source: Food and Agriculture Organization (FAO), and Global Information and Early Warning System (GIEWS). Note: Currencies as originally reported by FAO. POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 4 markets in Uganda (Kampala, 81%), Tanzania (Dar es Somalia (Beledweyne), Kenya (Eldoret), Mexico (Culiacan) Salaam, 68%), and Kenya (Nakura, 53%) due to below- and Bolivia (Cochabamba), reflecting favorable current average recent or upcoming harvests and strong import crop prospects and plentiful supplies from increased demand from Kenya,30 as well as in specific areas in production and, in the case of Bolivia, ample regional Mozambique (Angonia, 29%) and Malawi (Mzuzu, 21%) supplies accessible. Rice prices increased in Colombia and because of strong local demand, disrupted trade flows, and Russia (both national averages) by 43% in part due to lower limited supplies from floods and rains in producing areas imports and the depreciation of its currency, respectively. of these countries.31 The largest reported decrease in maize Domestic price increases of 25% were observed in prices also took place in monitored markets of Mozambique monitored markets in Mozambique (Montepuez) and (Gorongosa, 41%) due to abundant seasonal supplies made Mali (Segou). In contrast, annual price declines ranged available in these markets.32 More modest decreases in between 24% and 54% in monitored markets of Bangladesh, domestic maize prices—between 11 and 19%—were Bolivia, Panama, and Togo. observed in monitored markets of Togo (Amegnran) and Mexico (Culiacan), both reflecting ample supplies from Linking International Oil and Food Prices previous years and, in the case of Mexico, good prospects for upcoming harvests. 33 Between February and May The abrupt drop in crude oil prices since September 2014 2014, rice prices increased in monitored markets in has sparked worldwide attention. The average monthly Uganda (Kampala, 34%), Somalia (Buale, 29%), nominal price of crude oil fell some 60%, from US$108/ Mozambique (Montepuez, 20%), Mali (Segou, 17%), and bbl in June 2014 to US$47/bbl in January 2015, and then Ecuador (Quito, 9%) as a result of lower supplies associated back to US$62/bbl in May 2015.40 While a price decline with limited harvests caused by reduced plantings, was expected, its magnitude and pace were not. As late as insufficient precipitation, and seasonal trends.34 The October 2014, the World Bank, International Monetary largest decline in rice prices occurred in the monitored Fund (IMF), and Organisation for Economic Co-operation markets in Bolivia (Cochabamba, 22%) and Bangladesh and Development (OECD) all predicted oil prices slightly (Dhaka, 18%) because of increasing availability due to— below US$100/bbl throughout 2015.41 A strong growth in cheaper—imports and recent harvests.35 oil supply and a weak global demand from a sluggish recovery explain downward pressures on international oil Domestic prices between May 2014 and May 2015 prices.42 But contrary to other oil price crashes, this time show the customary large variations. The price of wheat in the Organization of the Petroleum Exporting Countries May 2015 was 41% higher than 12 months ago in Ukraine (OPEC) unexpectedly abandoned its price-targeting (national average), as a result of a sharp depreciation in its strategy and let oil prices plunge—making cheap oil more currency; 30% higher in monitored markets of Ethiopia competitive to other emerging energy alternatives. (Jimma) associated with dry spells, and 28% in Sudan Projections have been substantially revised since the last (Kadugli) due to strong demand and general inflation.36 Domestic wheat price increases also took place in Tajikistan quarter of 2014, and the most recent World Bank (national average, 28%) due to increasing regional import projections—April’s Commodity Markets Outlook—indicate prices and currency depreciation. In contrast, price a nominal price of US$53/bbl for 2015 (US$65 in 2020, declines of 48% in Argentina, 34% in Bolivia (in their and US$83 in 2025).43 respective capital cities), and 16% in Brazil (national Because agriculture is an energy-intensive sector,44 the average) were observed following improved supplies sharp decline in oil prices is expected to have impacts on stemming from increased production and regional food markets. However, the overall effect on food prices is exports.37 Large increases in annual maize prices occurred not clear. The relationship between oil and food prices is in monitored markets in Mozambique (Angonia, 48%) complex and multifaceted (see box 1), and empirical because of below-average production due to larger rains, evidence from previous oil price slumps is inconclusive. In while droughts and below-average rains were a key factor in effect, some studies have found evidence of a substantive price increases in El Salvador (San Salvador, 45%),38 South transmission of oil prices to food prices,45 while others Africa (Randfontein, 38%),39 and Ukraine (national report mixed and weak results.46 Comparing the average, 29%). Maize price declines between 35% and 25% international oil and food price trends during previous oil took place over the last year in monitored markets in price crashes (table 3) only confirms that it is not possible POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 5 households. IMF’s April 2015 World Box 1. Oil and Food Price Links Oil price declines reduce food production costs through their Economic Outlook (WEO) estimates an impact on inputs such as chemical fertilizers, fuel, and transportation increase between 0.5% and 1% of global costs. At the same time, lower oil prices change the relative gross domestic product (GDP) to result profitability of biofuels that use coarse grains and vegetable oil for from the boost in global demand production, and therefore reduce the pressure that biofuels have expected from sustained low oil prices on the demand of food commodities and agricultural land. In throughout 2015.48 But cheap oil addition, declining oil prices contribute to improved global demand, prices are expected to favor growth including that of food (see box figure). prospects for net oil importers—such as The net effect on food prices is, however, hard to predict China, India, and the United States— because declining costs and demand factors work in the opposite from increased consumption, declining direction of increasing demand. Besides, changes in biofuel production costs, and downward mandates, trade restrictions, public procurement, agroinvestments, and currency moves in key exporters and importers are just a few pressures on inflation. In contrast, of the multiple international and domestic contributors that may cheap oil prices deteriorate economic influence the relationship between oil and food prices. conditions for net oil exporters, such as Nigeria, Russia and Venezuela, due to Figure. Energy, Food, and Biofuel Price Links lower revenues and inflationary and exchange rate pressures. Figure 2 maps Energy winning and losing countries from Prices cheap oil based on projected GDP growth rates for 46 countries. These projections—by Oxford Economics, a UK modeling firm—analyzing GDP growth under different oil price scenarios Agricultural Fertilizer Biofuels suggest that a US$50/bbl world in Prices Prices 2015 would lead to growth rates of 6.9% in China, 6.5% in India and 3.6% in the United States, and a contraction of 1.9% of GDP in Russia.49 Oil prices at US$40/bbl—not shown in figure 2— would lead to higher growth rates of Policies 7.1% in China, 6.7% in India and 3.8% in the United States, and a larger contraction of 2.5% of GDP in Russia. Source: World Bank, Commodity Markets Outlook, January (2015); J. Baffes, “A Framework for Analyzing the Interplay among Food, Fuels, and Biofuels,” Global Food Security 2: 110–16 (2013). Within countries, lower oil prices may reduce production costs, but also reduce the selling prices of food to generalize on the duration of oil price crashes, lead times producers, thus having a potentially ambiguous effect on toward precrisis levels, nor the correlation of international their incomes (especially among rural farm households). oil and food price changes. This is true for the oil price Consumers (typically urban households), on the other crashes mainly driven by OPEC’s decisions to abandon hand, are likely to benefit from lower oil prices. Overall, targets—the current one and the 1985/86 crash—compared the short-run impact on aggregate poverty rates depends, to those primarily associated with global events—such as to a large extent, on whether the net losses to producers the Gulf War and the financial crises starting in 1990 and outweighs the net gains to consumers.50 In the 2008 food 2008.47 price crisis, where increasing oil prices—by 108% between It is widely accepted that large oil price changes have 2005 and 2007—contributed to food prices hikes (by 40% effects on poverty and inequality, creating winning and in the same period), the number of new poor people losing countries and, within countries, winning and losing increased by a staggering estimate of 105 million.51 POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 6 Table 3. Taxonomy of Recent Oil Price Crashes Correlation between oil Number of International and food months food price monthly before changes (%), average reaching monthly price precrash International oil price changes (%), monthly average average changes prices Post 3 Post 6 Post 12 During crisis months months months During crisis During crisis Crash period 1: November 1985– -13.5 -1.4 3.7 3.9 0.5 -0.8 54 March 1986 Crash period 2: November 1990– -14.8 1.3 1.2 -0.1 0.7 -0.7 159 February 1991 Crash period 3: July 2008– -12.6 11.6 9.7 5.3 -4.7 0.8 Not yet February 2009 Crash period 4: October 2014– -16.1 7.2 n/a n/a -0.6 0.8 n/a January 2015 All-time average: January 1960– 0.2 n/a n/a n/a 0.3 0.1 April 2015 Source: Staff estimates from World Bank DECPG and World Bank, Commodity Markets Outlook, April (2015). Notes: Monthly averages estimated over World Bank crude oil nominal average monthly prices from Brent, Dubai, and West Texas simple average. Figure 2. Simulated GDP Growth, 2015–16, under US$50/bbl Source: Based on Oxford Economics simulations reported by CNBC, December 11, 2014, http://www.cnbc.com/id/102260857. POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 7 Oil price drops may also have important consequences 6. FAO, Food Outlook, May (2015). 7. U.S. Department of Agriculture, World Agricultural Supply and Demand Esti- for inequality, both within importing and exporting mates (WASDE), May (2015). countries, because cheaper oil makes it easier—among the 8. FAO, Food Outlook, May (2015). former—and more necessary—among the latter—to reduce 9. Ibid. This ratio refers to all coarse grains, not just maize. generalized regressive energy subsidies and increase 10. Ibid. 11. FAO, AMIS, March (2015), April (2015). In fact, the 2014 (final) and 2015 targeted social transfers. But fiscal consolidation and (proposed) U.S. mandatory standards requirements are still unknown, but better-targeted social spending have yet to materialize in their release date has been announced as November 30 and June 1, respectively. today’s cheaper oil world. Some countries have reportedly 12. USDA, WASDE, February (2015), March (2015), and May (2015). 13. FAO, Food Outlook, May (2015). taken advantage of low oil prices to implement reforms in 14. Ibid. education, labor, trade, and infrastructure sectors, such as 15. Global Information and Early Warning System (GIEWS), “Update: El Niño India, Indonesia, and South Africa.52 However strong Southern Oscillation ENSO,” June 4 (2015). commitments to both reducing regressive energy subsidies 16. World Bank, Commodity Markets Outlook, April (2015). 17. FAO, Food Outlook, May (2015); USDA, WASDE, May (2015). and improving targeted transfers—to improve the welfare 18. FAO, AMIS 29 (2015). Thailand has already announced sales of its public re- of the most vulnerable—remain difficult to implement, serves after its two-month suspension. particularly in the presence of governance- and conflict- 19. Famine Early Warning System Network (FEWS NET), Price Watch, several is- sues. related challenges, as demonstrated in the cases of Tunisia 20. FEWS NET, Price Watch, April 30 (2015). and the Republic of Yemen, respectively.53 21. FEWS NET, Price Watch, March 30 (2015), April 31 (2015). 22. Ibid. Despite the serious effects of oil price slumps, 23. These trends respond to the recovery in output prospects for Argentina, the predicting their duration and depth has not become any largest regional exporter, after two consecutive unfavorable crops (FAO, Global easier over time. Modest reductions in U.S. production, Food Price Monitor, August 8 [2014]). global demand increases, and geopolitical tensions (in the 24. FEWS NET, Price Watch, March 30 (2015), April 31 (2015). 25. Ibid. Arab Peninsula and around Iran’s nuclear deal 26. FAO, FPMA, several issues. negotiations) have recently placed upward pressures on 27. GIEWS, “Country Brief: Sudan,” January 22 (2015). oil prices.54 However, there is little certainty about 28. FAO, FPMA, May 8 (2015). 29. GIEWS, “Country Brief: Armenia,” March 30 (2015). whether—and if so, for how long—the recent trend of 30. FAO, FPMA, April 10 (2015). increasing oil prices, which began in January 2015, will 31. GIEWS, “Country Brief: Mozambique,” January 28, 2015. continue. Also uncertain are: whether there will be a 32. FEWS NET, Price Watch, March 30 (2015). sudden overturn of OPEC’s decision on price targets; the 33. FAO, FPMA, several issues; GIEWS, “Country Brief: Togo,” March 3 (2015). 34. FAO, FPMA, several issues; FEWS NET, “West Africa, Mali,” June (2015). extent to which future oil price uncertainty—that is, 35. FEWS NET, Price Watch, April 30 (2015); FAO, FPMA, April 10 (2015). volatility—will increase; or how fast oil production can 36. FEWS NET, “East Africa, Ethiopia,” June (2015); GIEWS, “Country Brief: Su- adjust to declining prices, given large sunk costs, long lags dan,” January 22 (2015). 37. FAO, FPMA, May 8 (2015). between investment and production, and expected 38. Ibid. efficiency gains.55 Yet, a world with cheaper oil provides 39. GIEWS, “Country Brief: South Africa,” February 27 (2015). an opportunity to advance knowledge on the (mutual) 40. World Bank, “Commodity Price Data” (Pink Sheet), June 3 (2015). interactions between energy and food prices and improve 41. “Oil prices are expected to average US$102/bbl in 2014, US$2 lower than 2013” (World Bank, Commodity Markets Outlook, October [2014]). “The aver- evidence-based decision making for future oil and food age price of oil will be US$102.76 a barrel in 2014 and US$99.36 a barrel in price crises. As we have learned from past experiences, it 2015 and will remain unchanged in real terms over the medium term” (IMF, is typically too late to generate a solution when the crisis World Economic Outlook (WEO) October [2014]). OECD maintained the as- sumption that the price of Brent crude oil would slightly increase and stay at has already hit. US$110 in 2014 and US$115 in 2015. 42. World Bank, Commodity Markets Outlook, April (2015). Notes 43. Ibid, 31. World Bank reported international oil price is a simple average of prices of United Kingdom, Brent, Dubai Fateh, and West Texas Intermediate 1. In this section, 2014 refers to 2014/15 season, and 2015 to 2015/16 season. crude oil. Using the same simple average, the IMF’s April WEO projects the 2. Food and Agriculture Organization (FAO), Agriculture Market Information Sys- 2015 price of oil at US$58/bbl. tem (AMIS) 25, March (2015). 44. World Bank, Commodity Markets Outlook, April (2015). 3. FAO, AMIS 24 (2014). 45. J. Baffes, “Oil Spills on Other Commodities,” Policy Research Working Paper 4. FAO, AMIS 25. In addition to taxes, there were also concerns related to trans- 4333, World Bank, Washington, DC (2007); J. Baffes and A. Dennis, “Long- port and certification delays in the Russian Federation and tensions in Ukraine Term Drivers of Food Prices,” Policy Research Working Paper 6455, World (FAO, Food Price Monitoring and Analysis (FPMA) Bulletin, June 10 (2015). Bank, Washington, DC (2013); D. Mitchell, “A Note on Rising Food Prices,” 5. FAO, AMIS 26 (2015). Policy Research Working Paper 4682, World Bank, Washington, DC (2008); B. POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 8 Dillon and C. Barret, “Global Oil Prices and Local Food Prices: Evidence from DC (2004); M. Ataman Aksoy and Aylin Izik-Dikmelik, “Are Low Food East Africa,” Mimeo, Cornell University (2015). Prices Pro-Poor? Net Food Buyers and Sellers in Low-Income Countries,” 46. Christopher Gilbert, “How to Understand High Food Prices,” Journal of Agri- Policy Research Working Paper 4642, World Bank, Washington, DC (2007); cultural Economics 61(2): 398–425 (2010); Sayed Saghaian, “The Impact of the M. Ivanic and W. Martin, “Implications of Higher Global Food Prices for Pov- Oil Sector on Commodity Prices: Correlation or Causation?” Journal of Agricul- erty in Low-Income Countries,” Policy Research Working Paper 4594, World tural and Applied Economics 42(3): 477–85 (2010); Christiane Baumeister and Bank, Washington, DC (2008). In the long run, changes in food prices de- Kilian Lutz, “Do Oil Price Increases Cause Higher Food Prices?” Working Paper rived from oil prices will affect wages and profits, as indicated by Ivanic and 2013-52, Bank of Canada (2013); J. Reboredo, “Do Oil and Food Prices Co- Martin (2014). Move?” Energy Policy 49: 456–67 (2012). 51. M. Ivanic and W. Martin, “Implications of Higher Global Food Prices for Pov- 47. World Bank, Commodity Markets Outlook, April (2015). erty in Low-Income Countries.” 48. IMF, WEO, April (2015). 52. IMF, WEO, 2015. 49. Among the factors considered in these projections, the Oxford Economics mod- 53. IMF, “Regional Economic Outlook Update,” Middle East and Central Asia el includes how much oil a country produces and consumes, how big of a role Department, http://www.imf.org/external/pubs/ft/reo/2015/mcd/eng/pdf/ oil plays in overall energy demand, and the impact on currency exchange rates, mreo0515.pdf, May (2015). fuels taxes and other factors, as reported by CNBC (“Winners & Losers: Oil’s 54. Energy Information Administration, “Energy Short-Term Outlook,” May 12 Effects around the Globe,” December 11, 2014, http://www.cnbc.com/ (2015). id/102260857). 55. IMF, WEO, “Special Feature: Commodity Market Developments and Fore- 50. M. Ravallion and M. Lokshin, “Gainers and Losers from Trade Reform in casts, with a Focus on Investment in an Era of Low Oil Prices,” April (2015). Morocco,” Policy Research Working Paper 3368, World Bank, Washington, POVERTY GLOBAL PRACTICE THE WORLD BANK GROUP WWW.WORLDBANK.ORG/POVERTY 9