Early Warning in Food: A Conceptual Introduction

The ever-growing world population, the decrease in agricultural land, and concerns over global warming have made “food safety” a strategic priority for countries. Quality of food supply, compliance with health standards, sustainability of food supply, and the stable course of domestic food prices constitute the main pillars of the “food safety” issue. Countries that do not have colonial ties with the Africa, Asia-Pacific and Latin America regions, which have high agricultural production, have made it an important national security priority to be self-sufficient in agricultural production and not to be dependent on external sources.

Despite all these priorities and policy measures taken, the "food crisis" in 2007 and 2008 proved that most countries are still very fragile against a possible food shock. The rapid increases in the prices of basic agricultural products such as rice, wheat, soybean, and corn have led to serious problems, especially in import-dependent countries. The severe supply and price movements in rice—the main nutritional source for poor communities in many countries—and the socio-economic turbulence resulting from these movements have already taken their place in textbook chapters. Due to the famine, serious social unrest took place in countries including Haiti, Malaysia, Indonesia, Senegal, Thailand, Egypt, and Burkina Faso, and governments were changed due to the unrest in those countries. In countries, such as India and China that were successful in managing the crisis, social peace was restored and governments confirmed their authority.[1]

The two most important lessons learned from the crisis were that it is crucial for countries to achieve the sustainability of agricultural supply to ensure self-sufficiency and establish an orderly operation of the agricultural produce market. To attain these goals, countries should monitor the domestic production, consumption and price formation structures of agricultural products with a serious concentration and expertise. This becomes a particularly important concern in countries other than the United States, China, India, and Russia, which are the major players in the global markets for main agricultural products and have access to other effective tools to regulate the markets. Thanks to the developing technology infrastructure, many countries have set up agricultural production monitoring centers supported by satellite images and GSM systems, and thus, they were able to detect any supply-price imbalances on the market and their reasons. The sum of this technological infrastructure and the expertise employed in making policies using the signals from this infrastructure can be called the "Food Market Early Warning System".

An early warning system to be established for agricultural production must have three main components: the first component is supply monitoring. The supply monitoring system will be able to identify any risk (temperature, sunlight, precipitation, frost, hail, disease, humidity, etc.) from seed to harvest stage of the agricultural products in all regions on a real-time basis and determine any supply deficiencies for each produce. In this process, it will be the experts who will determine the products that are likely to be deficient along with the severity of production deficiency by interpreting the signals received at different times. The second component is price monitoring. A well-functioning price monitoring system shall closely monitor the movements in the prices of agricultural products; shall detect supply-side problems according to the signals from the supply-monitoring system before these problems influence prices; and categorize the non-supply reasons for price anomalies as external prices, speculation or other structural factors, and inform the policy-makers in a timely manner. Various econometric / statistical methods[2] should be used to detect any anomalies likely to occur in prices. The third and the final component is supply chain monitoring. The supply chain monitoring system shall monitor prices of products from the field to the supermarket and detect all the additions to the product price at each stage, while monitoring the effects of structural problems in the supply chain on prices. By using these three components in a coordinated way, it will be possible to establish an Early Warning System that will:

• determine whether there is a supply shortage in agricultural production on a product basis in a timely manner;
• take transitory foreign trade measures before the supply shortages influence prices, in case of market imbalances stemming from temporary supply shortages,
• ensure that appropriate incentives and measures are developed to correct the permanent supply deficiencies;
• identify speculative price movements as well as their causes;
• identify the sources of imbalances stemming from structural problems in the supply chain and ensure that appropriate regulatory measures are taken.

One of the priority issues that the Food and Agricultural Products Markets Monitoring and Evaluation Committee (Food Committee) will be focusing on in the upcoming period will be establishing an Early Warning System to monitor agricultural product markets. Within the scope of the ongoing studies, there is a strong will to establish an Early Warning System with a sound technical infrastructure and institutional sustainability by harmonizing the Ministry of Food, Agriculture and Livestock’s technological means that were established to monitor agricultural production with  the Ministry of Customs and Trade’s expertise in supply-chain monitoring and domestic markets,  the Ministry of Economy’s set of foreign trade measures, the Ministry of Finance’s tax instruments, the Ministry of Development’s agricultural development perspective, and the Central Bank’s expertise in price monitoring.  The studies carried out in this scope are coordinated by the Food Committee. A well-functioning Early Warning System for agricultural production will ensure healthy price formation in food products and, therefore, support price stability.

Footnotes:

[1] Please see New York Times (2008) ve Gouel (2014).

[2] Please see Araujo et al. (2012) and Baquedano (2015

Bibliography:

Araujo, C., C. Araujo-Bonjean, and S. Brunelin (2012). “Alert at Maradi: Preventing Food Crisis by Using Price Signals", World Development, 40, 1882 – 1894.

Baquedano, F. G. (2015). “Developing an Indicator of Price Anomalies as an Early Warning Tool: A Compound Growth Approach”, Food and Agriculture Organization of the United Nations, Working Paper.

Gouel, C. (2014). “Food Price Volatility and Domestic Stabilization Policies in Developing Countries”, in The Economics of Food Price Volatility, (eds.) J.-P. Chavas, D. Hummels, and B. Wright. Chapter 7, pp. 261 – 306, University of Chicago Press: Chicago, IL.

New York Times (2008). “Across Globe, Empty Bellies Bring Rising Anger”, April 18, 2008.