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  • Guest Contributor

    Do High Food Prices Cause Social Unrest?

    January 5, 2012 By Marc F. Bellemare

    In March 2011, a senior Brookings Institution official wrote that “the crux of the food price challenge is about price volatility, rather than high prices per se” and that “[i]t is the rapid and unpredictable changes in food prices that wreak havoc on markets, politics, and social stability.”

    In a recent research paper, however, I use monthly data on food prices and news reports of social unrest worldwide to tease out the causal relationship between food prices and social unrest. The results indicate that it is rising food prices that cause social unrest and that increases in food price volatility are actually associated with decreases in the number of food riots. It thus would be a critical mistake to work toward price stabilization instead of curbing rising food prices.

    Consumers, Producers, and Social Unrest

    If you have taken a principles of economics class, you know that everything else equal, an increase in the price of a good means that you can afford less of that good. So if you value a given good, the consequence of an increase in the price of that good is that you are worse off.

    If you live in the United States, your household dedicates about 13 percent of its budget to food. But if instead you lived in a developing country, that figure would be well over 50 percent.

    It should thus come as no surprise that increases in the price of food are especially bad for the poor in developing countries.

    This is true for urban households, who are almost all net consumers of food, but also for many rural households who, for a variety of reasons – ranging from failures of the credit, input, or land markets to adverse meteorological conditions – fail to produce enough to feed themselves and are also net consumers of food.

    There are many more net consumers than there are net producers of food worldwide. For those net consumers of food, rising food prices can have disastrous consequences. Worse, the greater the share of its budget a household dedicates to food, the more disastrous the consequence of a rise in food prices for that household (Deaton, 1989).

    Last March, Annia Ciezadlo, a writer whose memoir Day of Honey explores the social importance of food in the Middle East, wrote in an article for Foreign Affairs:

    Change is sweeping through the Middle East today, but one thing remains the same: the region once known as the Fertile Crescent is now the world’s most dependent on imported grain. Of the top 20 wheat importers for 2010, almost half are Middle Eastern countries. The list reads like a playbook of toppled and teetering regimes: Egypt, Algeria, Iraq, Morocco, Yemen, Saudi Arabia, Libya, Tunisia.

    For decades, many of these regimes relied on food subsidies to ensure stability (…). But over the past several years, grain prices reached record levels, and these appeasement policies lost their luster. In Tunisia, pro-democracy demonstrations began in late December 2010 with protesters brandishing baguettes. In just a few months, a wave of uprisings rippled across the region, toppling Tunisian President Zine el-Abidine Ben Ali and Egypt’s longtime ruler, Hosni Mubarak.

    Indeed, after attaining a peak during the summer of 2008, food prices started rising rapidly again in the second half of 2010 to hit an all-time high in March of 2011.

    Likewise, as illustrated in Figure 1 above, the 2008 and 2011 spikes in food prices (denoted by the red line) coincided with spikes in the number of food riots reported in the news (denoted by the blue line).

    Voice of America News on the role of high food prices in the Arab Spring.

    Correlation Is Not Causation

    But as I constantly remind the students in my development seminar, correlation is not causation, and a key component of critical thinking is the ability to question correlations presented as causal claims. In other words, social unrest may lead to high food prices just as much as the opposite is true.

    In my paper, using a statistical technique called instrumental variables estimation, I attempt to identify one side of this relationship by first conditioning food prices on the number of natural disasters worldwide (i.e., droughts, episodes of extreme temperature, floods, insect infestations, storms, volcanic eruptions, and wildfires). Not only do natural disasters constitute shocks to the supply of and demand for food, they presumably affect social unrest only through food prices. In principle, this statistical apparatus allows teasing out the potential causal relationship flowing from food prices to social unrest from the correlation between the two.

    Intuitively, this is possible because conditioning food prices on natural disasters (which are themselves uncorrelated with social unrest) allows eliminating the variation in food prices that is purely due to variations in social unrest.

    The results are fairly robust: to be sure, rising food prices result in more instances of social unrest, and this remains true whether:

    • The price of food is considered broadly or the scope is narrowed to only the price of cereals, which constitute the bulk of an average developing-country diet;
    • The food crises of 2008 and 2010-2011 are controlled for; or
    • Alternative definitions of what constitutes a natural disaster are considered.

    Surprisingly, however, food price volatility – unexpected departures from the food price level, holding the food price level constant, which includes both rises and falls in the price of food – is actually associated with fewer instances of social unrest.

    This is likely because unlike food producers, food consumers tend to slightly benefit from food price volatility.

    Food producers make production decisions on the basis of expected prices, long before uncertainty over food prices is resolved (Sandmo, 1971); volatility therefore is something producers would like to avoid, and so they typically favor price stabilization policies.

    Food consumers, however, make consumption decisions knowing exactly what food prices are at that moment, and so an increase in the uncertainty surrounding food prices means they might get to enjoy relative price discounts between food commodities (Turnovsky et al., 1980). This underappreciated theoretical point has recently found empirical support.

    Note, however, how I avoid causal language in the case of food price volatility. That’s because my data do not allow establishing whether there is a causal relationship between food price volatility and social unrest, and the most that can be said is that the two are correlated.

    Policy Implications

    What does this mean for policy? First, for domestic policy makers who want to prevent social unrest, it is crucial to ensure that food is affordable.

    In many cases, this means not doing away with food subsidies for urban consumers (Bates, 1981). This is especially true in places where people already have other reasons to be upset, such as countries with high rates of unemployment. Here, both Tunisia and Egypt at the end of 2010 come to mind.

    Second, if international policy makers want to prevent social unrest, it is better to work toward preventing sharp increases in food prices rather than preventing increases in food price volatility, as Chris Barrett and I argued in Foreign Affairs last summer.

    Download “Rising Food Prices, Food Price Volatility, and Political Unrest.”

    Marc F. Bellemare is an assistant professor at Duke University’s Sanford School of Public Policy.

    Sources: Bates (1981), Bellemare et al. (2011), Deaton (1989), Food and Agriculture Organization, Foreign Affairs, Hoisington Management, Poor Economics, Sandmo (1971), The Brookings Institution, Turnovsky et al. (1980).

    Chart Credit: Marc F. Bellemare; video credit: Voice of America News.

    Topics: agriculture, Algeria, consumption, democracy and governance, economics, Egypt, food security, Guest Contributor, Iraq, Libya, Middle East, security, Tunisia, video, Yemen
    • http://twitter.com/nathanyaffe Nathan Yaffe

      Great post! Thanks for bringing this level of analytical rigor to a conversation often dominated by statements that lack empirical grounding…

      I'm curious about one thing: It seems that a more plausible volatility thesis might be: unexpected, rapid upward price shocks have a larger impact on social unrest than the same increase in price over a longer period of time (e.g. a more gradual/less 'volatile' change). It at least strikes me as plausible that even though consumers can exploit volatility better than producers can, consumers may still be worse off if the price of rice double in, say, less than a month than if it doubles over the course of 6 months or a year.I'm wondering, Marc, if you think that's a relevant thing to look at (restricting it to upward volatility so it's more a rate of change measure…), and if so, if you know of anyone who has done that type of analysis…

    • Mattia Landoni

      Hi Marc, long time no see. I don't know much about this, but let me say: it's true that a bigger part of emerging country consumption is food, but the same is true for income. Agriculture is 1% of US GDP versus 19% of India. High food prices (may) mean higher incomes for peasants. Then the "volatility" thing makes sense – sudden spikes in food prices will give salaries of non-agricultural workers no time to adjust, causing a large part of the population a lot of pain. A slow, steady increase in food prices per se should be only good for food producers. What do you think?

    • Marc F. Bellemare

      Hi Mattia,

      Thanks for reading and commenting. As you point out, the distinction between net consumers and net sellers is crucial. What I estimate, however, is the net impact. In most countries — including developing countries — the vast majority of people are net consumers of food. This is especially true in cities, where people live closer to one another, and so where social unrest is most likely to happen. Also note that my estimates hold the price level constant when looking at volatility, so the estimated coefficient for volatility only takes into account the variance of the price series. I agree, however, that there are most likely different effects between small and large changes.

    • Marc F. Bellemare

      Hi Nathan,

      Thanks for reading and commenting. You are entirely right about this. Generally speaking, I believe we react to food prices much like we react to anything else, and as Kahneman and Tversky have noted in their 1979 Econometrica piece, the reference point matters a lot. So a rapid change will upset you more than a slow change over time. In fact, Peter Timmer has a recent paper on this (and other applications of behavioral economics to food policy) in Science or PNAS — I can't remember off the top of my head.

      Also, when I control for three-month volatility, I find a statistically significant association between social unrest and food price volatility, but not when I control for six-month volatility, which is exactly in line with what you're saying (that or people have short memories!)

      I could conduct a robustness check in which I control for upward shifts only, but I don't know that I could also control for the food price level and food price volatility as well. I'd need to rerun the .do file. And I don't know that anyone has done so before.

    • http://twitter.com/davidsteven David Steven

      Interesting and very impressive article – and important to set out the role higher prices play in driving social unrest. Like Nathan, though, I am not sure that volatility should be totally written out of the picture. 
      You state that volatility has not increased significantly in recent years, but Gilbert and Morgan (who you cite) disagree for the period after 2008 ("volatility has jumped over the recent past etc"). Whether or not increased volatility will be sustained is an important question – it wasn't after the price shocks of the early 1970s, of course.It's clearly not helpful, though, if markets over-correct on either the way up or the way down, with savage and sudden price increases hitting consumers hard, and subsequent rapid falls making it less likely that farmers will increase productivity and/or bring more land into production.Of course, this is implied by your first policy conclusion – that increasing supply is the key to any effective response. That brings volatility right back into the picture, and implies that properly functioning markets/trade system should be added to your list of preferred policies.

      One other area worth touching on is the indirect impact of high prices as import-dependent countries experience a rapid fiscal deterioration, limiting space for a policy response. This seems highly likely to help create the conditions where social unrest is more likely, especially as many of these countries will also be subsidising energy.

    • Marc F. Bellemare

      Hi David,

      Thanks for reading and commenting. We can debate whether food price volatility has increased in recent years (and I might be convinced; eyeballing the green series in the figure seems, indeed, to indicate that it might have increased), but volatility is controlled for in the analysis and, ceteris paribus, it does not have the posited impact. Even if I take the price level out of the picture and only look at the effect of volatility, there is no association between social unrest and food price volatility in my analysis. I agree with you that whether there has been a kind of hysteresis in food price volatility (i.e., an increase in what we might call a "natural" rate of food price volatility) is an interesting question. It is also a difficult one to answer given that it is rather difficult to credibly assess causality in time-series data.

      I also completely agree about properly functioning markets. Forgive the omission — I think it's because I omitted it because it is quite obvious to me that we cannot attain efficiency without it.

      Lastly, on budget austerity, I also think it will make many countries more likely to experience bouts of social unrest. I'm looking forward to see what happens in Nigeria when (and if) Goodluck Jonathan follows through with his stated intent to remove fuel subsidies. My work only identifies food prices as one cause of social unrest. I'm looking forward to see what others find as precipitating factors.

    • Marc F. Bellemare

      Hi David,

      Regarding Nigeria, here we go:

      http://www.news24.com/Africa/News/Nigeria-braces-for-fuel-strike-shortages-20120108 

      http://www.voanews.com/english/news/Nigerian-President-Announces-Government-Austerity-136885498.html 

      (HT: DAWNS Digest, http://dawnsdigest.com)

    • http://twitter.com/davidsteven David Steven

      Nigeria is a fascinating example of a country that, despite its energy endowment, has been unable to wean itself off subsidies – with each President promising to break the cycle. Pakistan has had a similar problem (but from a position of import dependency), with an attempt to end subsidies nearly bringing down the government at the beginning of last year.

    • Marc F. Bellemare

      Right. If you haven't read Annia Ciezadlo's article in Foreign Affairs, you should check it out — she addresses the subsidy systems in place in North Africa before the Arab Spring.

    • Richard Cincotta

      I still don’t understand why some analysts assume that INTERNATIONAL prices of food (grain & oils) were the motivator for the Arab Spring — and in particular, Tunisia. International prices are not local prices; they are prices paid in the international market, before government intervention/distribution. Anyone who has lived in North Africa knows that the prices of staples are tightly regulated and heavily subsidized by those governments (bakeries are licensed, buying wheat at subsidized prices, selling at controlled prices). It has been part of Arab North Africa’s survival strategy for decades to subsidize grain and oil prices (because they have previously been the victims of food-price demonstrations). To North African governments, price spikes (like the 2008 spike) have justified control — since the 1970s, their populations have exceeded their capacities to grow their own grain.

      THE EVIDENCE: In fact, the FAO GIEWS (early warning) report from the winter months of 2010 to 2011 states the following:

      TUNISIA (FAO GIEWS reporter): “High international food prices did not translate into high inflation rate at national level : [despite the high proportion of imports and the possibility for future market volatility] So far, however, the hike in international food prices has not translated into high domestic prices. The consumer price index of food declined slightly from 131 to 129.9 between November and December 2010. The year-on-year inflation rate in the food sector was estimated at 4.8 percent in December 2010. Nonetheless, the country’s food import bill is expected to increase significantly.” [I’m happy to forward this brief, if anyone is interested: rcincotta@sitmson.org]

      [also see The Stimson Center’s “Seismic Shift: Understanding Change in the Middle East”, a post-Arab Spring analysis of why MENA analysts missed these changes]

      ASK A TUNISIAN: I’ve never heard a Tunisian or other North African report that food prices were important contributors; to the contrary they deny it. It’s typically Westerners or people from other regions. In fact, during the demonstrations, Ben Ali issued a proclamation that he would lower bread prices — and demonstrating Tunisians just laughed at him. Prices had not risen recently; they were a non-issue; an intrusive, corrupt authoritarian government that had overstayed its useful years was the issue.

      I feel Western academics cannot accept that democratic ideals are highly valued among educated Arab societies — and Tunisia is the most highly educated (with the lowest fertility) of all Arab-majority states. Westerners need another excuse for democratization. Food prices are handy, and the international price spike is a comfortable crutch, even though those who deal with food security know that most governments mediate the prices that consumers pay in local markets.

      Despite that wonderfully timed peak in prices, there is really no hard evidence that food security is the motivating factor: A spike in prices was not reported at the country level by the FAO; it was clearly not Tunisia’s trigger for demonstrations (a struggle over licensing a food cart with a policewoman led to the act of self-immolation); and it was never a significantly vocalized issue or demand — even when Ben Ali brought it up, no one is interested.

      An IMF statistical study (I don’t have the citation right now) has shown that low income countries are, indeed, the victims of violence associated with food price rises. But North African countries are not low incomes countries. Besides being a upper middle-income country (according to the World Bank’s GNI-based classification), Tunisia had the highest per capita income growth (~7%) in the region previous to the demonstrations.

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