Falling oil prices will lower food costs, but chronic hunger will continue to affect hundreds of millions of people
ROME, Italy (Thomson Reuters Foundation) — A slump in global oil prices has brought cheaper food to many of the world’s poorest.
However, the benefits are not universal.
Globally, 805 million people still face chronic hunger, according to the United Nations’ Food and Agriculture Organization.
The poorest in cities may see a reduction in food bills, but those in rural areas, who aren’t integrated into world food markets, may not.
The price of oil dropped by half last year, the second-biggest annual decline ever, hitting a five-and-a half-year low. Oil prices affect the price of food, which fell for a third straight year in 2014.
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“For many poor people who spend a lot of their budget on food, this is good news,” said Shenggen Fan, director general of the International Food Policy Research Institute.
“There is a high correlation between oil and food prices.”
Oil is the key fuel for transporting food between field and market, but it also affects food prices because fertilizers, pesticides and other key farm inputs are derived from petroleum.
Energy and transportation costs represent eight percent of the price of domestically produced food, according to U.S. Department of Agriculture.
On the supply side, energy related costs such as fertilizers, chemicals, lubricants and fuel account for 50 percent of the production costs for crops such as corn and wheat in developed countries.
However, there’s a catch for the extreme poor. Many hungry people, who are often subsistence farmers, are not plugged into global commodity markets.
They don’t use much fertilizer when growing crops and they might receive less money for their products because of declining global food prices.
Fan said urban consumers in developing countries will be some of the biggest winners because two of their biggest expenses — food and transportation — will become cheaper.
Poor city dwellers rioted from Haiti to Cameroon to Bangladesh when oil prices spiked in 2007-2008 in tandem with food prices,.
Now that markets have swung in the other direction, oil-importing states should take the opportunity to reduce fossil fuel subsidies and invest the money in rural infrastructure instead, said Arif Husain, chief economist for the World Food Programme.
The poorest of the poor could benefit from current trends if the money saved by lower energy expenditures is invested in agricultural research, roads and new technology.
Global subsidies for fossil fuel consumption totalled $548 billion in 2013, according to the International Energy Agency.
“The political costs for lowering these subsidies will be lower (now that oil prices have dropped),” Husain said.
“This money should be freed up for rural infrastructure, public services and irrigation projects”
Falling prices could provide relief for people in conflict-hit regions, including Syria, South Sudan, Somalia, the Central African Republic and Mali.
Many will continue to face hunger, although declining oil and food prices will make it a little easier for humanitarian groups to supply aid.
Syria, the Central African Republic, three Ebola hit countries in West Africa, Iraq and South Sudan faced “large-scale emergencies” last year, said the WFP.
The tide seems to have turned in the fight against Ebola in Liberia, Sierra Leone and Guinea, and the UN said those states could see food production rebound this year if farmers can access credit and seeds.
As well, the cost to hire ships to bring food to emergency zones has dropped for aid groups because of falling oil prices.
The price of bunker fuel used for container ships has fallen more than 20 percent since the third quarter of 2014, meaning the WFP has been saving $30,000 per month for the three vessels it has been chartering.
However, these savings are comparatively small when compared to the full cost of running massive international food aid programs into countries such as Iraq and South Sudan.
“Maybe lower oil prices will allow us to get more aid to people, but its (impact) is quite marginal,” said Thierry Kesteloot, an agriculture adviser to Oxfam.
“I am not sure that 2015 will see a shift in terms of improving poverty and food security.”
