Will the world’s hungry benefit from falling oil prices?

A slump in global oil prices has brought cheaper food to many of the world’s poorest, but from the slums of Manila to the fields of Malawi, the benefits are not universal.

Globally, 805 million people still face chronic hunger, according to the UN’s Food and Agriculture Organisation. While the poorest in cities may see a reduction in food bills, those in rural areas, not 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 have a knock-on effect on the price of food, which fell for a third straight year in 2014.

“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.”

The key fuel for transporting food between field and market, oil also impacts food prices because fertilizers, pesticides and other key farm inputs are derived from petroleum.

Energy and transportation costs represent roughly 8 percent of the price for domestically produced foods – say a packet of pasta – that consumers purchase, according to U.S. Department of Agriculture.

On the supply side, energy related costs including fertilizers, chemicals, lubricants and fuel account for about 50 percent of the production costs for crops like corn and wheat in developed countries.

Winners and losers

For the extreme poor, however, there’s a catch. Often subsistence farmers, many hungry people are not plugged in to global commodity markets.

They don’t use much fertilizer when growing crops and they might receive less money for their products, due to declining global food prices.

Urban consumers in developing countries, including India, the Philippines and Bangladesh, will be some of the biggest winners, Fan predicts, as two of their biggest expenses – food and transportation – will become cheaper.

When oil prices spiked in 2007-2008 in tandem with food prices, poor city-dwellers rioted from Haiti to Cameroon and Bangladesh.

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 (WFP).

If the money saved by lower energy expenditures is invested in agricultural research, roads, and new technologies, the poorest of the poor could benefit from current trends.

Globally, subsidies for fossil fuel consumption totaled $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 told the Thomson Reuters Foundation. “This money should be freed up for rural infrastructure, public services and irrigation projects”

Conflicting priorities

Falling prices could provide some 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.

In 2014, Syria, the Central African Republic, three Ebola hit countries in West Africa, Iraq, and South Sudan faced “large-scale emergencies”, according to the WFP.

The tide seems to have turned in the fight against Ebola in Liberia, Sierra Leone and Guinea, and if farmers can access credit and seeds, those states could see food production rebound in 2015, UN officials said, after some farmers fled their land.

The costs for hiring ships to bring food to emergency zones have dropped for groups like the WFP, due to 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 about $30,000 per month for the three vessels it has been chartering.

But when compared to the full costs of running massive international food aid programmes into countries like Iraq or South Sudan, these savings are comparatively small.

“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 the aid group Oxfam.

“I am not sure that 2015 will see a shift in terms of improving poverty and food security.”

This article is published in collaboration with the Thomson Reuters Foundation. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Chris Arsenault covers global food security and agricultural politics for the Thomson Reuters Foundation.

Image: People prepare to grind cassava roots in Bingerville, near Abidjan, June 24, 2008. REUTERS.