Amid the international financial crisis, the United Nations Food and Agricultural Organisation (FAO) has warned that falling food prices and reduced access to credit are likely to hit the agricultural production, threatening global food security.
“The combination of falling agricultural prices and reduced access to credit may have a knock-on impact on agricultural production, with very serious implications for global food security,” the FAO said in its recently released Food Outlook.
The more critical and likely impact of the global meltdown will be on credit, whose non-availability is widely recognised as one of the major constraints to agricultural development in the developing countries, and the rationing of which is likely to be more serious than any interest rate effects, it said.
Taking lessons from the 1996 Asian financial crisis, the FAO suggested that countries and investors should meet their commitments on the development of agriculture in the developing countries as agriculture would act as a ‘buffer’ and help cushion greater losses incurred in other sectors of the economy.
However, the impact of the global credit crunch on the financial position of developing countries will depend not only on their growth rates but also their borrowing situation and reliance on international credit, the FAO noted.
It further said that the impact of the financial crisis will be felt in developing countries at the macro-level, with potentially negative effects on agriculture and food security. According to the report, the channels through which agricultural markets will be affected are on both the demand and supply sides.
Apart from the direct impact of slower rates of GDP growth, the prevailing uncertainty and consequent negative market expectations could further dampen demand. The result of falling demand is likely to be further downward pressure on agricultural prices and may result in some cutback in production, it said.
Meanwhile, the net effect on production would depend upon the relative speed of adjustment of output and input prices, it added.
Nevertheless, the UN body noted that the final impact of the crisis on commodity prices is, at this stage, difficult to assess as the various forces at play impinge on prices in opposite directions.
