Monday, 28 February 2011

Food Fights

By Stephen Spratt

On Thursday last week, the US Department of Agriculture (USDA) held its annual Outlook Forum, the world’s biggest agricultural sector gathering, where it released its forecasts for corn, wheat and soyabean prices for 2011-12.

Recent years have seen the prices of these commodities reach record highs, triggering food riots in some developing countries. Basic economics tells us that high prices will lead to an increase in supply, which should bring prices back down again. And this is what has happened, but only in part.

The US exports more than half the world’s corn and has a large share of other key markets. So what happens in the US matters a lot. As we would expect in a situation of high prices, this year has indeed seen a big increase in crops planted, but the USDA forecasts that this will not be sufficient to bring prices down – supply is increasing, but so is demand.

Why is demand for food increasing?

The question of what is driving this demand, and so creating upward pressure on food prices, is the subject of much debate, some of it very heated.
  • The most basic explanation is that rising global population and increasing affluence in some parts of the developing world is the core driver.
  • Another explanation is that increasing amounts of crops are going to non-food uses, particularly biofuels - the US ethanol industry accounts for 36 per cent of the national grain crop, for example.
While most people accept these two factors are playing a role, the real debate is on what part, if any, is being played by financial institutions.
  • For some, financial ‘speculators’ seeking to profit from high prices are piling into the food markets, driving up prices but also exacerbating volatility as argued by the World Development Movement and UNCTAD.
  • For others, such as the OECD, there is no link between these activities and the prices that people actually pay, and new financial actors bring beneficial liquidity to these markets.
However, it is very difficult to determine cause and effect in something as complicated as the global food market, so both camps can point to evidence in support of their positions. But simply, from a development perspective, people’s ability to get the food they need is about as fundamental as it gets.

How do policies affect the market?

The growth of the biofuels sector is in large part a product of subsidies to the sector. If financial actors are playing a role, this is because regulation – or the lack of it – does not prevent them from doing so.
Before reaching for regulatory or policy levers there is a real need to increase understanding of what is actually happening, and what the developmental implications of pulling different levers would be. We need to remember that food prices affect the poorest most. The worst thing would be to do nothing.

Taking a long-term approach
If ever there was a market that needed a long-term, strategic approach with a focus on development outcomes, it is the global food market. To be able to do this, however, we need to dramatically improve our understanding of what factors are driving prices, and to organise markets to ensure that prices are reasonable and relatively stable.
We are a long way from this at the moment...

Friday, 25 February 2011

Beyond corporate social responsibility

By Neil McCulloch

Last month, Zahid Torres-Rahman from Business Action for Africa (and Business Fights Poverty) gave an excellent presentation at IDS. Within it, he argued that Corporate Social Responsibility (CSR) should be secondary to "businesses doing business."

I certainly agree that the role of business in development should reach much further than CSR.  It is not just about business doing good, but rather about doing good business. In other words, the idea that businesses can change their core business models in ways that are more “inclusive” i.e. that have a more positive impact on poor communities and poor people.  Examples abound – Unilever designing its distribution chain to maximise the involvement of smaller poorer distributor; SAB Miller sourcing locally from Sudanese smallholders, and many many more (see Business Action for Africa’ latest report for some examples). 

Thursday, 24 February 2011

An altruistic turnaround for Chile?

By Carlos Fortin

An opinion poll in Chile has shown that there is a large consensus for a bigger role of the State in the economy. This poll was carried out by the Latin American Public Opinion Project of Vanderbilt University, USA, and the Catholic University of Chile released in January 2011. 

However, various opinion polls have found that at a general level the individualistic approach has made inroads in the attitudes of the Chilean population. The results clearly demonstrate that the nation tends to value efficiency over equality and to affirm the possibility of upward social mobility.

Nevertheless, as demonstrated below, when presented with concrete questions about the role of the State in the economy the responses show a different picture.
  1. The State, rather than the private sector, should own the most important industries and enterprises in the country  - 67.3 per cent
  2. The State, rather than the individual, should be mainly responsible for ensuring the welfare of people - 88.7 per cent
  3. The State, rather than private enterprise, should be mainly responsible for job creation - 89.2 per cent
  4. The State must implement strong policies to reduce income inequality among rich and poor - 92.7 per cent
  5. The State, rather than private enterprise, should be mainly responsible for the pension system - 93.0 per cent.
A powerful role for the State with respect to the economy is a prospect far removed from the economic model inaugurated by the Pinochet dictatorship in 1973 and which has hardly altered in its fundamentals by the democratic governments that began in 1990. This model proclaims the superiority of individual initiative and private enterprise over state intervention, and the essential inefficiency of government regulation and enterprise.

The reason for such opposing results may just be that old ideas die hard; but it might also be that the experience with eliminating the State from economic management has not been successful. In another, earlier opinion poll (Encuesta LatinobarĂ³metro 2010) found that only a minority of Chileans are happier with privatised services (27 per cent) or feel the privatisation of public enterprises have been beneficial for the country (34 per cent).

I think this phenomenon is comparable, though not identical, to the recent findings of the 2010 UK Public Opinion Monitor report which explains ‘the UK public think promoting human rights in poor countries is more important in deciding how and where UK aid is spent than benefits to the UK in terms of security, global influence and/or the economy.’

Monday, 21 February 2011

Business and development - mulling over the muddle

By Neil McCulloch

At long last we have recognised that poverty reduction needs growth, and that growth in most places will come from the private sector.

This is the new frontier of development. We have stopped treating business only as the bad guys, and started to realise that what business does can have positive, indeed sometimes transformative effects on incomes, employment and poverty reduction.

And yet, despite this enthusiasm, it is hard not to feel that it is all rather a muddle.  The reason is that the business and development field consists of myriad groups of people using similar language, but actually doing rather different things.

  • Investment climate: It may be abstract, but it is an important agenda, a country’s labour laws, licensing practices, or customs procedures can be a major constraint on getting growth going and enticing business. Most famously the International Finance Corporation (IFC) developed the Doing Business ranking which, whether you love it or hate it has driven efforts to improve investment climates around the world (see the great critique by Commander and Tinns).
  • Corporate social responsibility (CSR): Traditionally, CSR  is businesses being “good”, in the sense of following good labour practices, good environmental procedures, good engagement with local communities where they work and so forth.  A huge literature was generated, often by the business community, on how to implement CSR and the extent to which such measures were embedded into business practices or were just window dressing (see the work of INSEAD’s Social Innovation Centre).
  • Social entrepreneurs: These are firms who are explicitly trying to deliver a good or service that they think will be socially useful – but doing so in a way that makes money, or at least enough to sustain the operation of the activity. Again there’s a variety of examples – from solar powered lights, to more controversial examples such as privately provided social services (see the Skoll Foundation’s work on social entrepreneurship).
So what are we to make of this exciting, burgeoning but confusing field?

It is not that one approach is right and another wrong. Each of these approaches to engaging with business has the potential for good – but they all also raise many questions about their effectiveness and appropriateness in different contexts. And these are exactly the questions that IDS’s Globalisation Team is addressing.

Welcome back

By Neil McCulloch

Welcome back to the Globalisation and Development blog. I’m Neil McCulloch, leader of the Globalisation Team at the Institute of Development Studies (IDS) in the UK.

This blog is the ideal forum to discuss and share latest ideas and arguments about globalisation research. Here we will be commenting on the latest news, highlighting up-coming events, reporting back from field trips, and of course telling you what we think are the most exciting pieces of research emerging on globalisation.

As I said, this is a forum for discussion and debate, so please join in – we want to stimulate a conversation about one of the crucial challenges of our time.

IDS is one of Europe’s largest research institutes on development and has been researching the effects of globalisation on development for decades.