Global food prices declines, food subsidies- a concern: World Bank



The World Bank’s Food Price Index decreased by 2% since their historical peak in August 2012.



Prices of internationally traded food declined for the third consecutive quarter since their historical peak in August of 2012.  The World Bank’s Food Price Index decreased by 2% between those months, with sustained month-to-month declines from February to May. Prices of all the three main food categories declined between February and June 2013. Prices of grains in June were 2% lower than in February; 3% lower in the case of fats and oils; and 1% lower for others, which include sugar and meat, as well.



However, the food prices of key commodities followed different behaviors in this period. The price of internationally traded wheat dropped by 2%, after sustaining five consecutive monthly declines from December 2012 until its strong increase in May 2013. In June, wheat prices fell again. Current prices of wheat reflect expectations that world production will rebound this year.



Increased production, declining imports and increasing stocks are exerting downward pressure on export prices, but international prices remain tight for maize.



Rice prices continued to decrease moderately from a combination of offsetting factors. Downward price pressures from good harvests in Thailand and Vietnam counteracted upward pressures from increasing demand and thinner supplies in India, Pakistan, the United States, and South America.



Due to several reasons ranging from procurement policies to seasonal trends, low supplies, and currency depreciation, the largest wheat price increases took place across monitored markets in India (25%), Ethiopia (19%) and Sudan (14%), and in the capital cities of Bolivia and Nepal (13 and 9%, respectively) between February 2013 and June 2013. Rice prices increases were observed in monitored markets in Somalia, Rwanda, India, and Pakistan. The largest declines in the price of rice took place in markets in Thailand (6%, due to good harvests), the Democratic Republic of Congo (10%), Uganda (14%), and Tanzania (23%).







Recent decisions by the governments of India, Indonesia and Benin to extend consumer food subsidies indicate that such policies remain in vogue.



The long-held consensus regarding consumer food subsidies is that when not targeted properly and poorly implemented, they are ineffective in helping the poor. They can also distort market prices and agricultural production, while leaving nations with a high fiscal bill. According to IMF estimates, only 35% of the amount spent to subsidize food prices reaches the bottom 40% of the population (20% in the case of fuel subsidies), compared with 50–75% accruing to the bottom 40% for well-designed cash transfers.



Country-specific estimates also confirm that it is only a fraction of total benefits that reaches the poor out of the total subsidies.



Warm regards,



Dr. S P Sharma

Chief Economist

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PHD Research Bureau

PHD Chamber of Commerce and Industry

August Kranti Marg, New Delhi – 110016