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54
19 Consistency Between Theory and Practice in Policy Recommendations by International Organizations for Extreme Price and Extreme Volatility Situations Maximo Torero 19.1 Introduction Food prices have increased significantly in the past few years, with particularly sharp spikes seen during the 2007/08 season (see Fig. 19.1). There is some agreement on the causes of such price increases: (a) weather shocks that negatively affected agricultural production; (b) soaring energy and fertilizer costs; (c) rapidly growing income in developing countries, especially in China and India; (d) the devaluation of the dollar against most major currencies; (e) increasing demand for biofuels; and (f) changes in land use patterns. While there is no consensus on the relative importance of each of these culprits, it is widely agreed that most of these factors will further increase food prices in the medium and long run. Prices may become more volatile as well, as evidenced by the subsequent food crisis in 2010. Climate change will induce more weather variability, leading to erratic production patterns. Moreover, the volatile nature of the market is likely to induce possible speculation and exacerbating price spikes. Additionally, in an effort to shield themselves from price fluctuations, different countries may implement isolating policies, further exacerbating volatility. Looking at the volatility at global level is important because, although the food price spikes of 2008 and 2011 did not reach the heights of the 1970s in real terms as shown in Fig. 19.2, price volatility—the amplitude of price movements over a particular period of time—has been at its highest level in the past 15 years. High and volatile food prices are two different phenomena with distinct implica- tions for consumers and producers as detailed in Torero (2012). Finally, increased price volatility over time can also generate larger profits for investors, drawing new players into the market for agricultural commodities. Increased price volatility M. Torero () International Food Policy Research Institute, Washington, DC, USA e-mail: [email protected] © The Author(s) 2016 M. Kalkuhl et al. (eds.), Food Price Volatility and Its Implications for Food Security and Policy, DOI 10.1007/978-3-319-28201-5_19 457
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19Consistency Between Theory and Practicein Policy Recommendations by InternationalOrganizations for Extreme Price and ExtremeVolatility Situations
Maximo Torero
19.1 Introduction
Food prices have increased significantly in the past few years, with particularly sharpspikes seen during the 2007/08 season (see Fig. 19.1). There is some agreementon the causes of such price increases: (a) weather shocks that negatively affectedagricultural production; (b) soaring energy and fertilizer costs; (c) rapidly growingincome in developing countries, especially in China and India; (d) the devaluationof the dollar against most major currencies; (e) increasing demand for biofuels;and (f) changes in land use patterns. While there is no consensus on the relativeimportance of each of these culprits, it is widely agreed that most of these factorswill further increase food prices in the medium and long run. Prices may becomemore volatile as well, as evidenced by the subsequent food crisis in 2010. Climatechange will induce more weather variability, leading to erratic production patterns.Moreover, the volatile nature of the market is likely to induce possible speculationand exacerbating price spikes. Additionally, in an effort to shield themselves fromprice fluctuations, different countries may implement isolating policies, furtherexacerbating volatility.
Looking at the volatility at global level is important because, although the foodprice spikes of 2008 and 2011 did not reach the heights of the 1970s in real termsas shown in Fig. 19.2, price volatility—the amplitude of price movements over aparticular period of time—has been at its highest level in the past 15 years.
High and volatile food prices are two different phenomena with distinct implica-tions for consumers and producers as detailed in Torero (2012). Finally, increasedprice volatility over time can also generate larger profits for investors, drawingnew players into the market for agricultural commodities. Increased price volatility
M. Torero (�)International Food Policy Research Institute, Washington, DC, USAe-mail: [email protected]
© The Author(s) 2016M. Kalkuhl et al. (eds.), Food Price Volatility and Its Implications for Food Securityand Policy, DOI 10.1007/978-3-319-28201-5_19
457
458 M. Torero
70
90
110
130
150
170
190
210
1/1990
10/1990
7/1991
4/1992
1/1993
10/1993
7/1994
4/1995
1/1996
10/1996
7/1997
4/1998
1/1999
10/1999
7/2000
4/2001
1/2002
10/2002
7/2003
4/2004
1/2005
10/2005
7/2006
4/2007
1/2008
10/2008
7/2009
4/2010
1/2011
10/2011
Rea
l Foo
d Pr
ice I
ndex
(200
2/04
= 1
00)
Fig. 19.1 FAO food price index. Source: FAO
0
500
1000
1500
2000
2500
1960
M01
1961
M03
1962
M05
1963
M07
1964
M09
1965
M11
1967
M01
1968
M03
1969
M05
1970
M07
1971
M09
1972
M11
1974
M01
1975
M03
1976
M05
1977
M07
1978
M09
1979
M11
1981
M01
1982
M03
1983
M05
1984
M07
1985
M09
1986
M11
1988
M01
1989
M03
1990
M05
1991
M07
1992
M09
1993
M11
1995
M01
1996
M03
1997
M05
1998
M07
1999
M09
2000
M11
2002
M01
2003
M03
2004
M05
2005
M07
2006
M09
2007
M11
2009
M01
2010
M03
2011
M05
2012
M07
2013
M09
2014
M11
2015
USD
per
Met
ric
Tons
Soybeans (US$/mt)
Maize (US$/mt)
Fig. 19.2 Real price evolution. Index D 100 in 2015. Source: World Bank
may thus lead to increased—and potentially speculative—trading that in turn canexacerbate price swings further.
This situation imposes several challenges. In the short run, the global food supplyis relatively inelastic, leading to shortages and amplifying the impact of any shock.The poorest populations are the ones hit the hardest.1 As a large share of their
1There is a general concern that increasing food prices has especially adverse effects on the poor.However, until recently, there was no rigorous evidence of this. On the one hand, there would mostprobably be negative effects on poor urban consumers who spend a considerable portion of theirbudget on food. But on the other, there are gains to farmers who benefit from increased prices fortheir output. In general, this impact depends on whether the gains to net agricultural producersare larger than the losses to consumers. Directly dealing with this issue, Ivanic and Martin (2008)
19 Consistency Between Theory and Practice in Policy. . . 459
income is already being devoted to food, the poor will likely be forced to reduce their(already low) consumption. Infants and children may suffer lifelong consequences ifthey experience serious nutritional deficits during their early years. Thus, the short-term priority should be to provide temporary relief for vulnerable groups.
In the long run, the goal should be to achieve food security.2 The drivers thathave increased food demand in the last few years are likely to persist (and evenexpand). Thus, there will be escalating pressure to meet these demand requirements.Unfortunately, increases in agricultural productivity have been relatively meagerin recent years. In this line, “the average annual rate of growth of cereal yieldsin developing countries fell steadily from 3 % in the late 1970s to less than 1 %currently, a rate less than that of population growth and much less than the rise ofthe use of cereals for other things besides direct use of food” (Delgado et al. 2010,p 2).
There is a wide array of options to achieve these short- and long-term objectives,and there are no one-size-fits-all policies. Most policies come with significant trade-offs, and each government must carefully weigh the benefits and costs they wouldface. For example, governments might try to make food more readily available byreducing food prices through price interventions. While this policy might achieveits short-term goal, it can potentially entail fiscal deficits and discourage domesticfarmers’ production. Other policies not only have domestic consequences but canentail side effects for other countries. In their efforts to insulate themselves frominternational price fluctuations, some countries might impose trade restrictions; ifa country is a large food exporter, the government might impose export taxes,quantitative restrictions, or even export bans. Albeit increasing domestic supply andlowering national prices, these policies would reduce the exported excess supply,induce even higher international prices, and hurt other nations. In addition, the“right” policies depend on the particular institutional development of a country.Middle-income countries might already have safety networks for vulnerable popula-tions which can trigger prompt aid to those most in need in times of crisis. However,countries with lower incomes do not have such mechanisms readily available.Finally, the effectiveness of different policies will vary depending on the marketcharacteristics of the commodity in which the government is intervening (i.e., themarket structure for wheat is very different from that of rice, which is different fromthat of soybeans, etc.).
In this regard, this chapter describes some of the most important policies ofthe International Organizations like the World Bank, IFAD, AFD, and the IADBhave prescribed to different countries during the food crisis of 2007/08. The
and Ivanic et al. (2011) find that the food crisis has led to significant increases in poverty rates indeveloping countries.2Food security is a situation in which “all people at all times have physical and economic access tosufficient, safe and nutritious food to meet their dietary needs, and food preferences for an activeand healthy life” (World Food Summit 1996). Even when increases in food production are not asufficient condition for food security, they are indeed a necessary condition thereof (von Braunet al 1992).
460 M. Torero
understanding of such policies is important for at least three reasons. First, foodcrises are very sensitive episodes that affect the basic needs of entire populations,especially those of the world’s poorest countries. As such, they require timely andsensible measures. Second, increasing food prices and price volatility are likely toremain an important challenge in the medium and long run. Third, food policies areusually complex; they need to be assessed to consider their domestic impact, thetrade-offs that they entail with respect to other objectives, their consequences forother countries, and their feasibility in particular contexts.
This chapter is divided into five sections (excluding the introduction). The secondsection analyzes a series of policies recommended by international organizationsduring the 2007/08 crisis and the policies recommended at the G8 Meeting ofFinance Ministers in Osaka, June 13–14, 2008. The third section analyzes thepolicy recommendations which came out after the 2007/08 crisis and which werethe result of research work done by the same international organizations. First,some short-term policies are analyzed in which two mechanisms are emphasized:support for the poor and price stabilization (with an emphasis on trade restrictionsand food reserves). Second, medium- and long-term policies to increase agriculturalproductivity, through productivity gains and elimination of postharvest losses, arediscussed. The fourth section describes specific loans and policies prescribed forselected countries during the 2007/08 food crisis. It analyzes their consistencyand cohesiveness when contrasted with the general policies that some InternationalOrganizations formally recommended as well as with those policies that were rec-ommended after 2008. The final section summarizes and presents some concludingremarks.
19.2 Proposed Policies and the G8 Summit
In this section, a detailed description of the policies officially proposed and theG8’s document prepared for the Ministers of Finance Meeting in 2008 (Table 19.1presents a summary of all these policies) are presented. These policies can beclassified either as short-term policies or as medium- and long-term policies.Specifically, within the short-term policies, we identify two groups of policies:(a) short-term support for the poorest and (b) price stabilization policies.
19.2.1 Short-Term Policies (Social Protection and Trade Policies)
19.2.1.1 Short-Term Support for the PoorestGovernments’ short-term objective is to increase access to food, especially for themost vulnerable shares of their population. In this sense, policies should providetargeted short-term subsidies to those in the most distress. Countries that alreadyhave Targeted Cash Transfer (TCT) and Conditional Cash Transfer (CCT) programsin place can scale them up and increase the subsidies they provide (World Bank2008). TCTs provide additional income to poor households with children or disabledor elderly members. CCTs provide the same benefits but are contingent on some
19 Consistency Between Theory and Practice in Policy. . . 461
Table
19.1
Poli
cies
prop
osed
byIn
tern
atio
nalO
rgan
izat
ions
and
G8
Sum
mit
Prop
osed
poli
cies
unde
rth
eG
loba
lFoo
dC
risi
sR
espo
nse
Prog
ram
(GFR
P)G
8’s
“Add
ress
ing
the
food
cris
is”a
Trad
epo
licy
Tari
ffan
dV
AT
redu
ctio
ns
–“A
tfirs
tgla
nce,
redu
cing
tari
ffs
and
othe
rta
xes
onke
yst
aple
sis
both
effe
ctiv
ean
dde
sira
ble.
Inti
mes
ofsh
arpl
yin
crea
sing
pric
es,r
educ
tion
sin
tari
ffs
and
taxe
sca
npr
ovid
eso
me
reli
efto
cons
umer
s,al
beit
ata
fisca
lcos
t:::
Yet
long
erte
rm,s
uch
unil
ater
alch
ange
sin
one
tari
ffbu
tno
toth
ers
may
alte
rth
est
ruct
ure
ofre
lativ
ein
cent
ives
and
coul
den
dup
chan
neli
ngpr
ivat
ere
sour
ces
tose
cond
-bes
tus
esin
term
sof
grow
than
dw
elfa
re,w
hich
illu
stra
tes
the
need
toco
nsid
erse
para
tely
shor
tand
long
erte
rmre
spon
ses”
(pgp
h.13
)
–R
ecom
men
ded
for
allc
ount
ries
wit
hsi
gnifi
cant
taxe
san
dta
riff
son
food
grai
ns:
–C
ansi
gnifi
cant
lylo
wer
dom
esti
cpr
ices
inco
untr
ies
whe
resh
are
ofta
riff
sin
reta
ilpr
ices
ishi
ghbu
tsco
peli
mit
edin
low
tari
ffse
ttin
gs–
Eas
yto
impl
emen
t–
Dom
esti
cfo
odgr
ain
prod
ucer
sfa
cem
ore
com
peti
tion
–Fi
scal
loss
esde
pend
onco
mpo
siti
onof
dom
esti
cre
venu
esE
xpor
tban
san
dre
stri
ctio
ns
–“T
hele
astd
esir
able
trad
e-re
late
dpo
licy
inte
rven
tion
sto
man
age
food
pric
esar
eex
port
rest
rict
ions
orba
nson
key
stap
les:::
Thi
sty
peof
mea
sure
has
ali
mit
edim
pact
ondo
mes
tic
pric
ele
vels
and
asi
gnifi
cant
nega
tive
effe
cton
the
earn
ings
ofdo
mes
tic
prod
ucer
san
dex
port
ers.
Bes
ides
lead
ing
tosh
arp
pric
eflu
ctua
tion
san
dsu
pply
unce
rtai
nty
inco
untr
ies
that
depe
ndon
impo
rts,
thes
em
easu
res
ofte
nha
veth
egr
eate
stne
gativ
eim
pact
onth
eco
untr
yim
posi
ngth
ere
stri
ctio
nas
dom
estic
prod
uctio
nan
dfo
reig
nex
chan
geea
rnin
gsfa
llan
dtr
aditi
onal
com
mer
cial
rela
tion
ship
sar
ese
vere
d”(p
gph.
14)
–B
adpo
licy
optio
nin
allc
ount
ries
due
tone
gativ
eex
tern
alit
ies
onot
hers
and
disi
ncen
tives
for
futu
repr
oduc
tion
–C
anhe
lpst
abil
ize
dom
esti
cgr
ain
pric
esin
the
shor
trun
but
unde
rmin
eslo
ng-t
erm
supp
lyre
spon
se–
Cre
ates
disi
ncen
tives
for
dom
esti
cpr
oduc
ers
part
icul
arly
thos
ede
pend
ent
onex
port
mar
kets
–Se
riou
sbe
ggar
-thy
-nei
ghbo
ref
fect
sdu
eto
pric
evo
lati
lity
and
shor
tage
spa
rtic
ular
lyw
hen
they
are
appl
ied
bym
ajor
expo
rter
s
Prom
otio
nof
bila
tera
lor
regi
onal
trad
e
–“F
inan
cete
chni
cala
ssis
tanc
ean
din
vest
men
tsfo
rre
gion
altr
ade
and
tran
spor
tfa
cili
tati
on.I
tcou
ldal
sofin
ance
activ
itie
sth
atw
ould
acce
lera
teon
-goi
ngtr
ade
faci
lita
tion
acti
ons
that
wou
ldsp
ecifi
call
yim
prov
eth
efu
ncti
onin
gof
regi
onal
stap
lefo
odan
din
putm
arke
ts.
Ass
essm
ents
ofte
chni
cal,
poli
cy,l
ogis
tica
land
othe
rco
nstr
aint
sto
regi
onal
and
cros
s-bo
rder
trad
ein
stap
lefo
ods
and
agri
cult
ural
inpu
tsw
illb
esu
ppor
ted”
(pgp
h.10
0,B
6)
(con
tinu
ed)
462 M. Torero
Table
19.1
(con
tinu
ed)
Prop
osed
poli
cies
unde
rth
eG
loba
lFoo
dC
risi
sR
espo
nse
Prog
ram
(GFR
P)G
8’s
“Add
ress
ing
the
food
cris
is”a
Food
rese
rves
Use
ofst
rate
gic
grai
nre
serv
es(b
uffe
rst
ocks
)to
low
erpr
ices
–“M
any
coun
trie
sm
aint
ain
phys
ical
grai
nre
serv
esin
less
eror
grea
ter
volu
mes
.The
sere
serv
esar
em
aint
aine
din
orde
rto
serv
ice
emer
genc
yre
lief
oper
atio
ns,s
uppo
rtpu
blic
dist
ribu
tion
offo
odto
chro
nica
lly
food
inse
cure
popu
latio
ns,a
ndre
duce
vola
tili
tyin
cons
umer
and/
orpr
oduc
erpr
ices
.Int
erna
tion
alex
peri
ence
inth
em
anag
emen
tan
dus
eof
so-c
alle
dst
rate
gic
grai
nre
serv
esb
ism
ixed
,wit
hfr
eque
ntco
ncer
nsab
outo
pera
tion
alin
effic
ienc
ies,
finan
cial
cost
,and
disi
ncen
tives
for
priv
ate
trad
ers
tope
rfor
mno
rmal
arbi
trag
efu
ncti
ons.
Som
eof
the
prob
lem
sw
ith
grai
nre
serv
esca
nbe
over
com
eby
esta
blis
hing
clea
ran
dop
enru
les
for
mar
keti
nter
vent
ions
,inc
ludi
ngth
epr
ivat
ese
ctor
inth
ete
nder
ing
for
supp
lies
for
the
rese
rves
,com
bini
nggr
ain
and
finan
cial
rese
rves
tore
duce
cost
s,an
dut
iliz
ing
very
prof
essi
onal
man
agem
ent,
supp
orte
dby
good
info
rmat
ion
syst
ems
and
anal
ytic
alca
paci
ty”
(Ann
ex5,
pgph
.27)
–G
FRP
prov
ides
tech
nica
lass
ista
nce
for
grai
nst
ock
risk
man
agem
ent(
Ann
ex5,
pgph
.28)
–Se
cond
best
opti
onus
edin
low
-/m
iddl
e-in
com
eco
untr
ies
whi
chha
veth
eca
paci
tyto
man
age
food
stoc
ksan
dne
edto
resp
ond
quic
kly
tofo
odav
aila
bili
tyis
sues
(the
yin
sure
agai
nst
dela
ysan
dpr
ice
vola
tili
tyin
inte
rnat
iona
lmar
kets
)–
Can
beus
edto
prov
ide
targ
eted
cons
umer
subs
idie
s–
Exc
ess
stoc
ksca
nun
derm
ine
priv
ate
mar
kets
and
redu
ceca
paci
tyto
resp
ond
duri
ngsh
ocks
–Pr
ofes
sion
alm
anag
emen
tof
stoc
ksw
ith
good
man
agem
ent
info
rmat
ion
syst
ems
and
clea
rcr
iter
iafo
rm
arke
tint
erve
ntio
nre
quir
ed
Use
ofst
rate
gic
grai
nre
serv
esfo
rhu
man
itar
ian
purp
oses
–“A
bout
one-
fifth
ofde
velo
ping
coun
trie
ssa
mpl
edha
vebe
gun
addi
ngto
grai
nbu
ffer
stoc
ks,c
reat
ing,
re-c
reat
ing,
orad
ding
to‘s
trat
egic
rese
rves
’.T
hese
are
ofte
nus
edto
prov
ide
subs
idiz
edfo
odra
tion
sfo
rth
epo
or.R
ecen
tpri
cesp
ikes
inin
tern
atio
nalm
arke
ts,a
ndth
ecu
rren
tdi
fficu
lty
inob
tain
ing
supp
lies
,par
ticu
larl
yin
the
rice
mar
ket,
sugg
ests
that
mor
eco
untr
ies
wil
ltry
toin
crea
sedo
mes
tic
stoc
khol
ding
sde
spit
eth
ehi
ghco
sts
ofm
anag
emen
tan
dri
sks
ofle
akag
e.If
so,t
his
isli
kely
tope
rpet
uate
the
pric
esp
ike
aspa
rtic
ipan
tsgo
into
glob
alm
arke
tsw
ith
high
eror
ders
than
norm
alde
spit
eth
em
uch
high
erpr
ices
.An
alte
rnat
ive
appr
oach
usin
gfin
anci
alin
stru
men
tsra
ther
than
phys
ical
grai
nst
ores
isfo
rgo
vern
men
tsto
ente
rin
toco
ntin
genc
ypu
rcha
sing
cont
ract
sw
ith
dom
esti
can
d/or
inte
rnat
iona
lsup
plie
rs”
(pgp
h.15
)
19 Consistency Between Theory and Practice in Policy. . . 463
Soci
alpr
otec
tion
Cas
htr
ansf
ers
(mea
ns-b
ased
and
CC
Ts)
–“D
irec
ttra
nsfe
rsin
cash
orin
kind
,are
the
sim
ples
tand
mos
tst
raig
htfo
rwar
dw
ayto
geta
ddit
iona
lres
ourc
esto
the
mos
tvul
nera
ble
hous
ehol
dsto
miti
gate
the
effe
cts
ofa
food
cris
is.T
arge
ted
Cas
hT
rans
fers
(TC
Ts)
are
pref
erab
leto
in-k
ind
tran
sfer
s,as
they
avoi
din
curr
ing
the
cost
sof
food
tran
spor
tan
ddi
stri
buti
on.T
hey
ofte
nta
rget
hous
ehol
dsw
ith
chil
dren
,eld
erly
ordi
sabl
edin
divi
dual
s.T
hese
prog
ram
sha
vere
lativ
ely
low
adm
inis
trat
ive
cost
san
ddo
notd
isto
rtpr
ices
.Ben
efits
can
bedi
ffer
enti
ated
byle
velo
fne
ed,h
ouse
hold
size
orco
mpo
siti
on.S
imil
arly
,exi
stin
gC
ondi
tion
alC
ash
Tra
nsfe
rPr
ogra
ms
(CC
Ts)
(whi
chli
nkth
ebe
nefit
tore
quir
emen
tssu
chas
scho
olat
tend
ance
orhe
alth
serv
ice
take
-up)
are
anop
tion
for
chan
neli
ngsu
ppor
tra
pidl
y—bu
tthe
com
plex
ity
ofsu
chpr
ogra
ms
mea
nsit
wil
lnot
norm
ally
befe
asib
leto
esta
blis
hne
won
esas
vehi
cles
for
anem
erge
ncy
resp
onse
”(p
gph.
110)
–“C
ash
prog
ram
sar
epr
efer
red
toin
-kin
dpr
ogra
ms,
asth
eyha
velo
wer
adm
inis
trat
ive
cost
s.H
owev
er,w
hen
loca
lfoo
dm
arke
tsdo
not
func
tion
and
food
isno
tava
ilab
le,i
n-ki
ndpr
ogra
ms
are
pref
erre
d”(A
nnex
5,pg
ph.4
7)
–B
ests
uite
dto
coun
trie
sw
ith
suffi
cien
tins
titu
tion
alca
paci
tyto
appr
opri
atel
yta
rget
and
disb
urse
cash
tola
rge
num
bers
ofpe
ople
(mid
dle
inco
me
and
sele
cted
low
inco
me)
–Ty
pica
lly
cash
tran
sfer
sha
velo
wer
over
head
cost
sre
lativ
eto
food
prog
ram
s–
Can
beli
nked
tous
eof
heal
than
ded
ucat
ion
serv
ices
(con
diti
onal
cash
tran
sfer
s).W
here
acce
ssto
heal
than
ded
ucat
ion
serv
ices
isli
mit
ed,t
heco
ndit
ion
may
rule
outt
hene
edie
stfa
mil
ies.
Mor
eove
r,m
onit
orin
gth
eco
mpl
ianc
ew
ith
cond
itio
nsin
volv
esan
extr
aad
min
istr
ativ
esy
stem
.Whe
repr
ogra
ms
are
wel
lest
abli
shed
,the
irbe
nefit
can
bera
ised
orth
eir
cove
rage
expa
nded
,but
sett
ing
upne
wpr
ogra
ms
has
alo
ngle
adti
me.
Unc
ondi
tion
alne
eds
base
dca
shtr
ansf
ers
mor
ebr
oadl
yap
plic
able
duri
ngcr
ises
–T
rans
fer
amou
nts
need
tobe
adju
sted
toke
eppa
cew
ith
infla
tion
(con
tinu
ed)
464 M. Torero
Table
19.1
(con
tinu
ed)
Prop
osed
poli
cies
unde
rth
eG
loba
lFoo
dC
risi
sR
espo
nse
Prog
ram
(GFR
P)G
8’s
“Add
ress
ing
the
food
cris
is”a
Nea
rca
shtr
ansf
ers
(foo
dst
amps
,vo
uche
rs,
etc.
)
–“F
ood
stam
psar
ean
inte
rmed
iate
step
betw
een
cash
tran
sfer
san
dfo
oddi
stri
buti
on.G
FRP
may
supp
ortt
hesu
bsid
yva
lue
offo
odst
amps
and
the
asso
ciat
edlo
gist
ics
(e.g
.,pr
inti
ngph
ysic
alfo
odst
amps
orsu
pply
ing
smar
tcar
ds).
Itw
illf
und
the
anal
ysis
ofne
eds
and
targ
etin
gcr
iter
ia;p
rogr
amm
onit
orin
g;th
ede
velo
pmen
tof
nece
ssar
yin
fras
truc
ture
;an
dfin
anci
ngfo
rne
wpr
ogra
ms/
scal
ing
upex
isti
ngfo
odst
amp
and
food
rati
onpr
ogra
ms,
incl
udin
gm
eans
for
stam
pre
dem
ptio
nan
dfo
rsm
artc
ards
tore
duce
leak
age”
(pgp
h.11
1)
–M
osto
ften
used
whe
nco
untr
ies
are
tran
sitio
ning
from
in-k
ind
toca
shtr
ansf
ers
–L
ower
over
head
sth
anfo
odtr
ansf
ers,
slig
htly
high
erth
anfo
rca
shtr
ansf
ers
–R
equi
res
reta
ilch
ain
and
effe
ctiv
edi
stri
buti
onsy
stem
Publ
icw
ork
prog
ram
s–
“Lab
orin
tens
ive
publ
icw
orks
prog
ram
sar
ean
opti
onto
gene
rate
inco
mes
inta
rget
edco
mm
unit
ies
whi
leal
sode
liver
ing
serv
ices
,re
habi
lita
tion
orco
nstr
ucti
onof
infr
astr
uctu
re.T
hese
prog
ram
sar
epa
rtic
ular
lyus
eful
inth
eab
senc
eof
good
hous
ehol
dta
rget
ing
syst
ems
asth
eyse
lf-s
elec
tun
empl
oyed
bene
ficia
ries
byre
quir
ing
them
tow
ork.
Solo
ngas
wag
esar
ese
tbel
owm
arke
tlev
els
they
are
notl
ikel
yto
disp
lace
peop
lefr
omex
isti
ngjo
bs”
(pgp
h.11
4)
–R
ecom
men
ded
for
low
-inc
ome
coun
trie
sw
here
targ
etin
gca
shtr
ansf
ers
via
mea
nsor
prox
ym
eans
test
ing
isdi
fficu
lt–
Pote
ntia
lfor
effe
ctiv
ese
lf-t
arge
ting
,tho
ugh
ofte
nsc
ale
ofpr
ogra
mis
smal
leno
ugh
that
addi
tiona
ltar
getin
gcr
iteri
aar
ene
eded
–L
ocal
infr
astr
uctu
reca
nbe
crea
ted
butq
uali
tyco
ntro
lim
port
ant
–E
ffec
tive
impl
emen
tati
onof
the
wor
kpr
ogra
ms
isad
min
istr
ativ
ely
dem
andi
ng–
Subs
tant
ialn
onla
bor
cost
s(u
sual
ly40
–60
%of
tota
l)–
Adm
inis
trat
ive
cost
sof
hand
ling
food
high
erth
anco
mpa
rabl
eca
shfo
rw
ork
prog
ram
s
19 Consistency Between Theory and Practice in Policy. . . 465
Feed
ing
prog
ram
s(s
choo
l-ba
sed
and
mat
er-
nal/
chil
dfe
edin
g)
–“I
nco
untr
ies
whe
reno
larg
eca
shtr
ansf
ersy
stem
isin
plac
e,th
ey(s
choo
lfe
edin
g)m
ayof
fer
the
best
optio
nfo
rde
liver
ing
addi
tiona
lre
sour
ces
quic
kly
and
ona
larg
esc
ale,
toof
fset
the
impa
cton
hous
ehol
dbu
dget
sof
the
food
cris
is.L
ike
CC
Ts,
they
have
the
addi
tion
albe
nefit
that
they
acta
san
ince
ntiv
eto
send
chil
dren
tosc
hool
and
thus
,the
ylo
wer
the
prob
abil
ity
that
chil
dren
wil
lbe
take
nou
tof
scho
olin
resp
onse
toth
ene
gativ
ein
com
eef
fect
offo
odpr
ice
rise
s(e
.g.,
tose
ndth
emto
wor
k).A
sw
ella
sfo
odco
nsum
edat
scho
ol,
take
-hom
era
tion
sco
uld
bedi
stri
bute
dfo
rco
nsum
ptio
nby
youn
ger
sibl
ings
.Geo
grap
hica
lta
rget
ing
coul
dbe
used
tofo
cus
onth
epo
ores
tar
eas
ofth
eco
untr
y”(p
gph.
113)
–“G
FRP
wil
lpro
vide
shor
t-te
rmsu
ppor
tto
stre
ngth
enth
eco
vera
gean
dde
liver
yof
exis
ting
nutr
itio
nan
dpr
imar
yhe
alth
prog
ram
s.Pr
iori
tyar
eas
for
supp
ortw
illin
clud
e(a
)N
utri
tion
educ
atio
nan
dgr
owth
prom
otio
nto
impr
ove
nutr
itio
nalp
ract
ices
bych
angi
ngbe
havi
ors
wit
hre
spec
tto
brea
stfe
edin
gan
dco
mpl
emen
tary
infa
ntfe
edin
g,di
etar
yqu
ality
,hyg
iene
,and
child
care
.(b)
Prov
isio
nof
targ
eted
food
supp
lem
ents
and
mic
ronu
trie
nts,
incl
udin
g(i
)fo
odsu
pple
men
tsfo
rvu
lner
able
preg
nant
and
lact
atin
gw
omen
and
chil
dren
unde
r2
year
s,fo
rre
cupe
rati
onof
seve
rely
mal
nour
ishe
dch
ildr
en,a
ndfo
rH
IV/A
IDS
pati
ents
unde
rtr
eatm
entw
ith
anti
retr
ovir
aldr
ugs,
(ii)
mic
ronu
trie
nts
such
asir
onan
dfo
lic
acid
supp
lem
ents
,Vit
amin
A,a
ndin
terv
enti
ons
toad
dres
sio
dine
and
zinc
defic
ienc
ies
for
high
-ris
kpo
pula
tion
,(c)
Oth
erpr
imar
yhe
alth
inte
rven
tion
sw
hich
redu
ceth
eri
skof
mal
nutr
itio
n(s
uch
asim
mun
izat
ions
,ora
lre-
hydr
atio
nth
erap
ies
and
prot
ecti
onag
ains
tmal
aria
)co
uld
also
besu
ppor
ted”
(pgp
h.11
6)
–R
ecom
men
ded
for
coun
trie
sin
para
llel
wit
hab
ove
opti
ons
asth
epr
imar
yfo
cus
ofth
ese
prog
ram
sis
onpr
otec
ting
the
mos
tvu
lner
able
—e.
g.,c
hild
ren
and
mot
hers
–M
ater
nalf
eedi
ngca
nen
cour
age
acce
ssin
got
her
heal
th/n
utri
tion
educ
atio
nse
rvic
es–
Scho
olfe
edin
gca
nbe
com
bine
dw
ith
othe
rin
terv
enti
ons
such
asde
wor
min
g–
Food
need
sto
belo
wco
stye
tnut
riti
ous
and
feed
ing
tim
edto
min
imiz
ete
achi
ngdi
srup
tion
s—ta
ke-h
ome
rati
ons
are
anal
tern
ativ
eto
on-s
ite
feed
ing
–W
hile
scho
olfe
edin
gca
nef
fect
ivel
yta
rget
chil
dren
,itm
isse
sin
fant
sw
hose
feed
ing
need
sar
ehi
ghes
t–
Nut
riti
onal
supp
lem
enta
tion
prog
ram
sm
ayne
edto
besc
aled
up,e
spec
iall
yfo
rin
fant
s
(con
tinu
ed)
466 M. Torero
Table
19.1
(con
tinu
ed)
Prop
osed
poli
cies
unde
rth
eG
loba
lFoo
dC
risi
sR
espo
nse
Prog
ram
(GFR
P)G
8’s
“Add
ress
ing
the
food
cris
is”a
Stre
ngth
enin
gso
cial
prot
ecti
onpr
ogra
ms
–“G
RFP
wil
lfina
nce
capa
city
buil
ding
and
rela
ted
inve
stm
ents
need
edto
deve
lop
new
prog
ram
san
dto
impr
ove
prog
ram
effe
ctiv
enes
sof
exis
ting
prog
ram
s.T
his
may
incl
ude
activ
itie
sto
(a)
reco
mm
end
and
impl
emen
tapp
ropr
iate
deve
lopm
ents
ofth
eso
cial
prot
ecti
onsy
stem
topr
ovid
ea
basi
sfo
rm
ore
effe
ctiv
em
itig
atio
nto
futu
recr
ises
;(b)
impr
ove
the
capa
city
ofex
isti
ngtr
ansf
erpr
ogra
ms
inse
lect
ion
ofbe
nefic
iari
es(t
arge
ting
and
need
san
alys
is);
bene
ficia
ryre
gist
ers;
paym
ents
yste
ms
for
cash
tran
sfer
prog
ram
san
dde
liver
ysy
stem
sfo
rin
-kin
dpr
ogra
ms;
proc
urem
ent
syst
ems;
prog
ram
gove
rnan
ce;
over
sigh
tm
echa
nism
sai
med
tore
duce
the
amou
ntof
fund
slo
stto
erro
r,fr
aud
orco
rrup
tion
;Man
agem
entI
nfor
mat
ion
Syst
ems
(MIS
),m
onit
orin
gan
dev
alua
tion
;com
mun
icat
ion
cam
paig
ns;(
c)st
reng
then
link
ages
betw
een
the
tran
sfer
prog
ram
san
dth
ehe
alth
and
educ
atio
nse
ctor
s,fo
rex
ampl
e,w
ays
tove
rify
com
plia
nce
wit
hco
ndit
iona
lity
;(d)
tost
reng
then
com
mun
icat
ion
onhe
alth
and
nutr
itio
nan
d(e
)th
em
onit
orin
gan
dev
alua
tion
ofso
cial
prot
ecti
on,h
ealt
han
dnu
trit
ion
prog
ram
s”(p
gph.
118)
Food
subs
idie
s–
“Foo
dsu
bsid
ies
via
unta
rget
edop
enm
arke
tsal
es,s
ubsi
dies
onim
port
s,ra
tion
shop
sale
san
dot
her
mea
sure
sto
low
erth
em
arke
tpri
cefo
rco
nsum
ers
can
enta
ila
subs
tant
ialfi
scal
cost
.Sub
sidy
cost
sca
nbe
redu
ced
byta
king
into
cons
ider
atio
n(i
)ty
peof
food
com
mod
ity
tobe
subs
idiz
ed,(
ii)
mec
hani
sms
tore
duce
leak
ages
,and
(iii
)ex
itst
rate
gies
”(A
nnex
5,pg
ph.2
6)
–Se
cond
best
opti
onin
coun
trie
sw
here
targ
eted
safe
tyne
tpr
ogra
ms
cann
otbe
scal
edup
suffi
cien
tly
duri
ngcr
ises
–M
ayno
tdis
tort
dom
esti
cm
arke
tsm
uch
ifco
nsum
ersu
bsid
yis
finan
ced
byth
ebu
dget
and
notb
ylim
iting
prod
ucer
pric
es;i
sra
tion
ed;a
ndis
appl
ied
topr
oduc
tsco
nsum
edm
ainl
yby
the
poor
(e.g
.,co
arse
rice
)–
Inst
itut
iona
labi
lity
toop
erat
e“l
owpr
ice
mar
kets
/sho
ps”
with
adeq
uate
food
rati
ons
isre
quir
ed–
The
reis
som
eri
skof
the
rich
hiri
ngth
epo
orto
proc
ure
subs
idiz
edit
ems
19 Consistency Between Theory and Practice in Policy. . . 467
Pric
eco
ntro
lson
stra
tegi
cst
aple
sor
ontr
ader
mar
gins
–B
adpo
licy
opti
onin
allc
ount
ries
–L
ower
spr
ices
toal
lcon
sum
ers
rega
rdle
ssof
need
–D
isco
urag
esdo
mes
tic
prod
ucti
on,p
roce
ssin
g,an
dtr
ade
–C
reat
esbl
ack
mar
kets
and
rati
onin
gw
hich
ofte
nbe
nefit
mor
eaf
fluen
tpeo
ple
–D
ange
rof
aggr
avat
ing
rapi
dm
igra
tion
toci
ties
over
tim
eO
ther
pric
est
abil
izat
ion
poli
cies
–“T
oav
oid
maj
orfis
cald
efici
tsth
atco
uld
thre
aten
mac
ro-s
tabi
lity
orcu
tsin
publ
icex
pend
itur
esth
atco
uld
thre
aten
deve
lopm
ent,
gove
rnm
ents
may
requ
estf
undi
ngun
der
this
faci
lity
tofi
nanc
esh
ort-
term
pric
est
abil
izat
ion
prog
ram
s,in
clud
ing
mar
keti
nter
vent
ion
poli
cies
such
asop
en-m
arke
tsa
les
ofst
ocks
orim
port
s”(A
nnex
5,pg
ph.1
5)Su
pply
poli
cies
Hig
her
leve
lsof
publ
ican
dpr
ivat
ein
vest
men
tin
agri
cult
ural
supp
ort
serv
ices
–G
FRP
“pro
vide
ste
chni
cala
ndfin
anci
alas
sist
ance
tosu
ppor
tgo
vern
men
tsin
thei
rim
med
iate
and
med
ium
-ter
mre
spon
seto
the
cris
isre
sult
ing
from
shor
tfal
lsin
dom
esti
cfo
odav
aila
bili
tyin
com
bina
tion
wit
hri
sing
inte
rnat
iona
lfoo
dpr
ices
”(p
gph.
71)
–“L
onge
r-te
rmle
ndin
gto
supp
ort
inve
stm
ents
inin
fras
truc
ture
wil
lco
ntin
ueus
ing
regu
lar
Ban
km
echa
nism
s,an
dsu
ppor
tun
der
GFR
Pw
ould
notd
ispl
ace
long
er-t
erm
agri
cult
ure-
rela
ted
lend
ing
such
asin
vest
men
tsin
irri
gati
onin
fras
truc
ture
,rur
alro
ads
orag
ricu
ltur
ere
sear
ch”
(Exe
cutiv
eSu
mm
ary,
pgph
.7)
–G
FRP
does
supp
ort
the
foll
owin
gpo
lici
es:
•R
ehab
ilit
atio
nof
exis
ting
smal
l-sc
ale
irri
gati
on•
Stre
ngth
enin
gfa
rmer
acce
ssto
crit
ical
info
rmat
ion
(dis
sem
inat
ion
ofte
chno
logy
,adv
isor
yse
rvic
es,l
inki
ngfa
rmer
sto
mar
kets
,IC
Tap
plic
atio
ns,e
tc.)
.
–N
eces
sary
inve
stm
enti
nal
lreg
ions
–Si
gnifi
cant
scop
efo
rin
crea
sing
yiel
dsin
allr
egio
nsth
roug
hgr
eate
rus
eof
exis
ting
tech
nolo
gyan
dw
ater
and
soil
man
agem
ent
–A
gric
ultu
ralr
esea
rch
assh
are
ofag
ricu
ltur
alou
tput
lags
behi
ndin
LD
Cs
rela
tive
toM
ICs—
esse
ntia
lfor
cont
inue
dpr
oduc
tivit
yin
crea
se–
Rev
ampe
dex
tens
ion
wit
hpr
oduc
tmar
keti
ngse
rvic
esre
quir
ed—
inve
stm
ents
inda
ta,c
apac
ity,
and
com
mun
ity-
base
dex
tens
ion
impo
rtan
t–
Publ
icin
vest
men
tsne
edto
ensu
resu
ffici
entp
rovi
sion
for
oper
atio
nsan
dm
aint
enan
ce(e
.g.,
larg
eir
riga
tion
proj
ects
)–
Agr
icul
tura
lstr
ateg
ies
need
todi
ffer
enti
ate
betw
een
need
sof
com
mer
cial
farm
ers
and
thos
eof
smal
lhol
ders
(con
tinu
ed)
468 M. Torero
Table
19.1
(con
tinu
ed)
Prop
osed
poli
cies
unde
rth
eG
loba
lFoo
dC
risi
sR
espo
nse
Prog
ram
(GFR
P)G
8’s
“Add
ress
ing
the
food
cris
is”a
Red
ucti
onof
post
harv
est
loss
es
–“S
uppo
rtco
uld
take
vari
ous
form
s,in
clud
ing:
(i)
trai
ning
and
dem
onst
rati
onof
low
cost
on-f
arm
stor
age
tech
nolo
gies
;(ii
)te
chni
cal
assi
stan
ce,t
rain
ing
and
inve
stm
ents
uppo
rtfo
rco
mm
unit
y-le
vel‘
food
bank
s’;
(iii
)tr
aini
ngan
dfa
cili
tati
onof
inve
stm
entb
ygr
ain
trad
ers
and
mil
lers
indr
ying
,sor
ting,
and
fum
igat
ion
equi
pmen
tand
upgr
ades
inex
isti
ngst
orag
efa
cili
ties
;(iv
)re
habi
lita
tion
ofru
ralr
oads
and
brid
ges
whe
rede
ficie
ncie
sin
such
tran
spor
tinf
rast
ruct
ure
are
show
nto
subs
tant
ially
cont
ribu
teto
stap
lefo
odpr
oduc
t/qua
lity
loss
es;a
nd(v
)tr
aini
ng,t
echn
ical
assi
stan
ce,a
ndsu
pple
men
tale
quip
men
tto
stre
ngth
enex
isti
ngfo
odgr
ain
qual
ity
cont
roli
nspe
ctor
ate
serv
ices
and
food
safe
tysu
rvei
llan
cesy
stem
s”(p
gph.
123)
–N
eces
sary
inve
stm
enti
nal
lreg
ions
–R
educ
tion
ofpo
stha
rves
tlo
sses
(est
imat
edup
to25
%of
outp
ut)
iske
yto
grea
ter
inte
nsifi
cati
onof
prod
ucti
on
Inve
stm
enti
nru
rala
ndtr
ade-
rela
ted
infr
astr
uctu
re
–G
FRP
does
notp
rovi
desu
ppor
tfo
rru
ralr
oads
.Roa
dsw
ould
befin
ance
dth
roug
hre
gula
rB
ank
mec
hani
sms
–Pr
iori
tyin
coun
trie
sw
ith
poor
trad
ean
dtr
ansp
ort
infr
astr
uctu
re,i
nru
rala
reas
–Im
prov
emen
tsin
rura
lacc
essi
bili
tyca
nle
adto
low
erpr
ices
ofal
lpro
duct
sas
wel
las
stim
ulat
esu
rplu
spr
oduc
tion
–In
vest
men
tsin
impr
ovin
gcu
stom
s,lo
gist
ics
man
agem
ent,
and
mar
keti
ngin
fras
truc
ture
wil
lstr
engt
hen
prod
ucer
ince
ntiv
esIn
put
subs
idie
s–
“Pro
vide
finan
cean
dte
chni
cala
ssis
tanc
e:(i
)to
refo
rmla
ws
and
regu
lati
ons
whi
chin
hibi
tthe
deve
lopm
ento
fag
ricu
ltur
alin
putm
arke
ts;
(ii)
tode
velo
por
scal
eup
vouc
her
and
supp
lier
cred
itsc
hem
es,b
ased
on‘s
mar
tsub
sidy
’an
dot
her
prin
cipl
es;(
iii)
for
inve
stm
ents
and
trai
ning
tost
reng
then
exis
ting
syst
ems
for
seed
and
fert
iliz
erqu
alit
yco
ntro
l;(i
v)fo
rin
vest
men
tsto
upgr
ade/
reha
bili
tate
seed
mul
tipl
icat
ion
and
dist
ribu
tion
faci
liti
es,a
nd(v
)fo
rfe
rtil
izer
impo
rts
thro
ugh
revo
lvin
gfu
ndor
othe
rfin
anci
ally
soun
dm
echa
nism
s”(p
gph.
72)
–A
ppro
pria
tefo
rlo
w-i
ncom
eco
untr
ies
whe
reac
cess
byfa
rmer
sto
cred
it,f
arm
ing
inpu
ts,a
ndri
skm
anag
emen
tin
stru
men
tsis
lim
ited
–Fi
scal
cost
sca
nbe
high
–Su
bsid
ies
need
tobe
tran
spar
ent
and
wel
ltar
gete
d–
Exi
tstr
ateg
yne
eds
tobe
buil
t-in
and
com
mun
icat
edpu
blic
ly–
Ris
kscr
owdi
ngou
tpri
vate
inpu
tsup
ply
19 Consistency Between Theory and Practice in Policy. . . 469
Stre
ngth
enin
gac
cess
tofin
ance
and
risk
man
agem
ent
tool
s
–“S
uppo
rt:(
i)cr
edit
line
san
dca
paci
ty-b
uild
ing
for
form
alfin
anci
alin
stit
utio
nsto
incr
ease
agri
cult
ural
lend
ing;
(ii)
the
deve
lopm
ento
fle
gal/
regu
lato
ryfr
amew
orks
and
prov
isio
nof
cred
itli
nes
and
tech
nica
las
sist
ance
toex
tend
the
use
ofsu
pply
chai
nfin
ance
;(iii
)th
esc
alin
gup
ofco
mm
unit
y-ba
sed
finan
cial
inst
itut
ions
;(iv
)fe
asib
ilit
yst
udie
san
dtr
aini
ngto
enab
lefa
rmer
orga
niza
tion
s,m
arke
tint
erm
edia
ries
,and
finan
cial
inst
itut
ions
tout
iliz
ese
lect
edph
ysic
alor
finan
cial
stra
tegi
esto
man
age
com
mod
ity
pric
eri
sks;
and
(v)
feas
ibil
ity
stud
ies,
trai
ning
,an
dad
viso
ryse
rvic
esto
faci
lita
tefu
rthe
rap
plic
atio
nsof
com
mer
cial
agri
cult
ural
(and
wea
ther
)in
sura
nce”
(pgp
h.12
5)
–A
ppro
pria
tefo
ral
lcou
ntri
espa
rtic
ular
lyth
ose
susc
epti
ble
tola
rge
fluct
uati
ons
inag
ricu
ltur
alou
tput
–Su
ppor
treq
uire
dfo
rin
nova
tive
finan
cing
mec
hani
sms
for
supp
lych
ain
man
agem
enta
ndm
anag
ing
com
mod
ity
pric
evo
lati
lity
–Fi
nanc
ialp
rodu
cts
whi
chtr
ansf
erw
eath
er-r
elat
edri
sks
toin
tern
atio
nali
nsur
ance
/der
ivat
ive
mar
kets
are
com
plex
and
requ
ired
capa
city
buil
ding
and
poss
ibly
gove
rnm
entc
ost-
shar
ing
Oth
erpo
lici
es
Pric
eri
skm
anag
emen
t–
“Pro
vide
supp
ortt
ogo
vern
men
tsan
dm
ajor
priv
ate
sect
oren
titi
esto
iden
tify
if/h
owm
arke
t-ba
sed
hedg
ing
prod
ucts
can
bein
corp
orat
edin
nati
onal
poli
cies
and
com
mer
cial
stra
tegi
es,a
nd,w
here
feas
ible
,to
impl
emen
tpri
cehe
dgin
gtr
ansa
ctio
ns”
(Ann
ex5,
pgph
.29)
–(F
orw
ard
cont
ract
sfo
rin
tern
atio
nalg
rain
proc
urem
ent
are)
App
ropr
iate
for
coun
trie
sw
ith
data
/cap
acit
yre
quir
edto
mak
ede
cisi
ons
onfo
rwar
dco
ntra
cts
–G
over
nmen
trol
eis
tofa
cili
tate
impl
emen
tati
onin
the
publ
icin
tere
stby
priv
ate
sect
oren
titi
esra
ther
than
func
tion
asdi
rect
mar
keta
ctor
s
(con
tinu
ed)
470 M. Torero
Table
19.1
(con
tinu
ed)
Prop
osed
poli
cies
unde
rth
eG
loba
lFoo
dC
risi
sR
espo
nse
Prog
ram
(GFR
P)G
8’s
“Add
ress
ing
the
food
cris
is”a
Ear
lyw
arni
ngan
dw
eath
erri
skm
anag
emen
tfo
rfo
odcr
oppr
oduc
tion
–“T
hefo
llow
ing
activ
itie
sar
ein
clud
ed:(
i)in
vest
men
tin
auto
mat
icw
eath
erst
atio
nin
fras
truc
ture
and
data
repo
rtin
gsy
stem
s;(i
i)ca
paci
tybu
ildi
ngin
agro
-met
eoro
logy
,cr
opsu
rvei
llan
ce,a
ndcr
opes
tim
atio
nsy
stem
s;(i
ii)
asse
ssm
ent
ofth
ete
chni
cal,
oper
atio
nal,
and
com
mer
cial
feas
ibil
ity
ofap
plyi
ngw
eath
er-i
ndex
edin
sura
nce
orde
riva
tive
prod
ucts
aspa
rtof
disa
ster
risk
man
agem
ents
trat
egie
s;(i
v)te
chni
cal
assi
stan
cein
insu
ranc
epr
oduc
tdes
ign,
(v)
inte
rmed
iati
onse
rvic
esfo
rw
eath
erri
skm
anag
emen
ttra
nsac
tion
sbe
twee
ncl
ient
gove
rnm
ents
and
the
inte
rnat
iona
lmar
ket;
(vi)
part
ialfi
nanc
ing
ofpr
emiu
ms
onw
eath
erin
sura
nce/
deri
vativ
etr
ansa
ctio
nsan
d(v
ii)
tech
nica
lsup
port
tohe
lpgo
vern
men
tsde
velo
ppl
ans
for
util
izin
gfu
nds
that
accr
uefr
omin
sura
nce
payo
uts,
for
exam
ple,
inde
sign
ing
safe
tyne
tpro
gram
sth
atsc
ale
upon
the
basi
sof
paym
ents
”(p
gph.
100,
B5)
a Take
nfr
omW
orld
Ban
k(2
008)
Add
ress
ing
the
food
cris
is:
the
need
for
rapi
dan
dco
ordi
nate
dac
tion
.Gro
upof
Eig
ht,M
eeti
ngof
Fina
nce
Min
iste
rs.O
saka
,Ju
ne13
–14,
2008
.Ann
ex4
bT
hrou
ghou
tth
eG
RFP
Fram
ewor
kdo
cum
ent,
the
defin
itio
nof
“Str
ateg
icR
eser
ves”
isun
clea
r.In
som
ese
ctio
ns,t
hey
seem
tore
fer
tohu
man
itari
anre
serv
es(w
hose
purp
ose
isfo
oddi
stri
butio
nam
ong
the
poor
est)
,whi
lein
othe
rsth
eyse
emto
refl
ect(
gene
rali
zed)
pric
est
abil
izat
ion
obje
ctiv
es
19 Consistency Between Theory and Practice in Policy. . . 471
conditionality (which usually encompasses an educational, nutritional, or healthrequirement). These approaches of cash transfer constitute first-best responses forseveral reasons: (a) they prioritize assistance for targeted groups, (b) they do notentail additional costs of food storage and transportation, (c) they do not distortfood markets, and (d) in the case of CCTs, they explicitly prevent human capitaldeterioration. However, there is an important shortcoming to these approaches:countries with weaker administrative capacity—which are usually those mostaffected by food crises—are less likely to have implemented any TCTs or CCTs.3
In this line, Delgado et al. (2010) argue that “it is essential that during noncrisisyears, countries invest in strengthening existing programs—and piloting new ones—to address chronic poverty, achieve food security and human development goals, andbe ready to respond to shocks.”
When TCTs and CCTs are not available, governments may implement othertypes of assistance programs. First, school feeding (SF) programs might be usefulto relieve child malnourishment. However, they are usually ineffective to combatinfant malnutrition (when adequate nutrition is most needed), unless food consumedat school can be complemented with take-home rations for younger siblings.Additionally, SF relies on geographic rather than household-specific targeting andentails food storage and distributions costs. Food for Work (FfW) programs are asecond option. These are easier to implement and are (in principle) self-targeted:they provide low wages so only poor people should be interested in participating.However, in very poor regions, the vast amount of unemployed and underemployedmay lead to considerable leakages and distortions in the labor market (Wodon andZaman 2008). Also, only a portion of the funds allocated to these programs directlycuts poverty. Beneficiaries leave other jobs to participate in them; thus, the benefitsof FfW are not the whole wages they provide, but only the differential income (withrespect to the previous job). These programs might create distortions in the labormarket. Finally, governments can also provide direct food aid. However, there isno guarantee that this aid can be effectively targeted toward the most vulnerablepopulations. Furthermore, food aid may become an entitlement and might result inlong-term fiscal problems.
19.2.1.2 Price Stabilization PoliciesSupport programs for the poorest might not be easily implemented during foodemergencies because they take time to be put into action. At the very least, theyrequire a distribution network and plenty of logistical coordination. This forcesgovernments to implement other policies to shield their population from food emer-gencies. Moreover, even when technically sound schemes such as CCTs are readilyavailable during a crisis, some countries might still try to pursue more widespread
3For example, these policies might be more suitable for medium-income countries, such as in LatinAmerica. World Bank—LAC (2008, Table 8) documents 17 countries with CCTs and 18 countrieswith Targeted Nutritional or Social Assistance Programs.
472 M. Torero
measures for political reasons.4 Constituencies (and, in general, populations) arevery sensitive to food prices, and governments may fear opposition, turmoil, oreven being ousted. For example, Burkina Faso suspended import taxes on fourcommodities after the country experienced riots over food prices in February 2008.Other countries that experienced riots during the 2007/08 crisis were Bangladesh,Cambodia, Cameroon, Côte d’Ivoire, Egypt, Indonesia, Mauritania, Senegal, andYemen (Demeke et al. 2008).
In this light, many countries try to stabilize prices through trade policies andmanagement of food reserves. The specific trade-offs imposed by these mechanismswill be discussed subsequently. In general, they are not first-best options: countriesuse scarce resources to reduce general prices, effectively subsidizing both the poorand the nonpoor5 and creating potentially pervasive market distortions. However,countries with no other means or with politically unstable regimes may have fewother options to cope with food emergencies.
19.2.2 Medium- and Long-Term Policies
Short-term responses mainly deal with demand problems as consumers—andespecially the poor—are hard-hit. However, short-term policies that help consumersmight be detrimental for producers and for market development in the long run. Forexample, export taxes on wheat in Argentina help decrease consumer prices, but alsodisincentive production. As suggested by a newspaper article, “with scant incentiveto produce, farmers have slashed the land sown with wheat to a 111-year low, andcereal exports from the rolling pampas of what should be a breadbasket countryhave virtually halved over the past 5 years. Wheat farmers in Argentina have turnedto other crops, such as soybean, while some international investors, who are criticalto the flow of money into capital-intensive agriculture, have left the country andturned to Uruguay, Paraguay, and Brazil”.6 While acknowledging the importance ofshort-term responses to food crises, these responses should be chosen to minimizeany long-term adverse effects on agricultural supply.
4As suggested by HDN and PREM (2008), “effective nutritional and social protection interventionscan protect the most vulnerable from the devastating consequences of nutritional deprivation, assetdepletion and reductions in education and health spending. Policy responses need to balancepolitical economy considerations that call for measures to help a broad swath of the affectedpopulation, with the urgency of protecting the very poor.”5Wodon and Zaman (2008) posit the following argument: “Consider the share of rice consumptionin the bottom 40% of the population. This share varies from 11% in Mali to 32% in Sierra Leone.This means that if one considers the bottom 40% as the poor, out of every dollar spent by agovernment for reducing indirect taxes on rice, and assuming that the indirect tax cuts result in aproportionate reduction in consumer prices, only about 20 cents will benefit the poor on average.”6“Argentina’s farmers unable to fill the wheat gap,” Financial Times, August 10th, 2007. Link:http://www.ft.com/intl/cms/s/0/910f25ac-a4a8-11df-8c9f-00144feabdc0.html#axzz1vXMMOjP5
19 Consistency Between Theory and Practice in Policy. . . 473
Long-term policies that expand food availability are becoming increasinglyimportant.7 Agricultural demand has experienced large expansions in recent years—even above that regularly imposed by population growth—due to rapidly growingincomes in developing countries (such as China and India) and rising demand offood for biofuel production in developed countries.8 As these patterns are likely topersist, there is a need to increase agricultural supply in order to keep up with theadditional demand.9
There are two main policies targeted toward increasing food production. The rateof growth of the yields of major crops has been declining steadily since the 1970s.Thus, on the one hand, there is the need to enhance the productivity and resilienceof major crops. Yet many challenges will make this a daunting task. Availability offertile land will be limited by increasing urbanization, salinization, erosion, anddegradation. Water will also become scarcer. Additionally, climate change willmost certainly have an adverse effect on agricultural production through erraticrainfall, pest proliferation, and crop failure. Thus, any policy to increase agriculturalproductivity should address these complex obstacles.
On the other hand, supply can also be expanded through the enhancement ofpostharvest practices. Between harvest and consumers’ access to food, agriculturalproduction goes through many stages: product processing, storage, handling, trans-portation, and distribution. In each of these phases, there are production losses. Forexample, grains molder with improper storage technologies and facilities, as well aspoor roads, preventing food from reaching markets. Albeit complementary, even inthe absence of productivity gains, better postharvest practices can have a significantimpact on food availability.
19.3 Policies Recommended After 2008
19.3.1 Short-Term Policies
19.3.1.1 Trade PoliciesWhen faced with increasing food prices, net food exporters can impose exporttaxes or bans. While lower prices hurt local producers, these policies do benefit
7Examples of other policies in the long run are: production and price insurance for farmers;provision of other public goods for rural areas (such as education and health services); policies forwater basin management; technology improvements for rainfed land (water capture infrastructure,practices for water retention in soil, etc.); strengthening of producer organizations; etc. Certainly,these are also important policies. However, for the sake of brevity, they are not mentioned here.8Mitchell (2008) estimates that about 70–75 % of food price increases were due to rising fooddemand for biofuel production.9As suggested by the World Bank’s South Asia Region report (2010), “the food crisis is by nomeans over : : : There is growing agreement that a two-track approach is required, combininginvestments in safety nets with measures to stimulate broad-based agricultural productivity growth,with major emphasis on major food staples.”
474 M. Torero
domestic consumers and boost the revenue of governments enacting them. Thus, itis not surprising that many food-producing countries enacted some form of exportrestriction during the 2007/08 food crisis. Demeke et al. (2008) surveyed differentgovernment policies in 81 developing countries and found that 25 of them eitherbanned exports completely or increased export taxes.
Analogously, net food importers can decrease their tariffs (or even subsidizeimports) to buffer the impact of rising international food prices. At least in theshort run, these policies are able to temporarily reduce internal prices; however, theyalso have domestic side effects (see Table 19.1). Some argue that tariff reductionsmight not have been effective in shielding importing countries from the 2007/08food crisis. FAO et al. (2011) argue that “the scale of price increases was such thatfor many countries reducing import tariffs had relatively modest impact becausethe initial tariffs were low or the scale of the price increases was so large. Inany event, this instrument was quickly exhausted as tariffs were reduced to zero”(p. 14). Additionally, tariff reductions diminish governments’ revenue, leaving themwith fewer resources with which to palliate the impact of food price increases.The situation might be especially serious when there are few alternative sourcesof revenue (e.g., weak tax collection, large informal sector, etc.). Eventually, thiscould lead to serious fiscal deficits.
These strategies should not entail any consequences for international markets ifonly small countries implement them. These countries’ food exports or imports arenot substantial relative to international trade, and they are mostly price takers on theworld markets. However, trade policies of large food exporters or importers do effec-tively affect international supply or demand of a commodity. When large exportersimpose export restrictions during a food emergency, they tighten the already shortsupply abroad and further increase international prices. In a similar fashion, aslarge food importers reduce their tariffs, they increase internal consumption, fuelingglobal demand and generating further escalations of food prices in external markets.If exporting and importing countries both follow these strategies, their efforts toinsulate themselves might cancel out each other’s efforts.
Martin and Anderson (2011) describe this phenomenon on the international mar-ket for a certain commodity. Initially, there is excess supply from world’s exportersand excess demand from importers. The authors then consider an exogenous shockthat reduces production in some exporting countries. In the absence of any tradepolicy, this shock changes the balance between supply and demand. If a largeexporting country tries to avoid an increase in domestic prices and imposes a taxon exports, this further reduces the excess supply and leads to higher internationalprices. If a large importing country retaliates and reduces its tariffs to exactlyoffset the trade policy imposed by the large exporter, this would increase globalexcess demand. The final outcome in this scenario is that the traded quantity andprice in both countries would be the same as before either policy was enacted.However, other countries around the world would be worse off, as the final priceon the international market would soar. This can eventually give other countriesthe incentive to impose similar policies, leading to a trade war of import tariffsand export taxes. As Martin and Anderson (2011) suggest, “insulation generates a
19 Consistency Between Theory and Practice in Policy. . . 475
classic collective-action problem akin to when a crowd stands up in a stadium: noone gets a better view by standing, but any that remain seated gets a worse view.”
So to what extent should countries implement such policies and impose beggar-thy-neighbor consequences upon others? There is no consensus in this respect. Onone hand, Timmer (2010) analyzes the implications of trade restrictions on ricemarkets during the 2007/08 food crisis and finds that stabilizing domestic pricesusing domestic border intervention could be an effective strategy to handle foodcrises. Timmer argues that unstable demand and supply needs to be accommodatedsomehow, and that passing this responsibility to the international market may be themost fair and successful way to do so.
On the other hand, Anderson and Nelgen (2012) advise against any traderestrictions, using a model of supply and demand for the market of a particularcommodity. Their results are presented in Tables 19.2 and 19.3. Table 19.2, notsurprisingly, shows that trade restrictions did boost international food price increasesbetween 2006 and 2008.10 Yet the results also suggest that everyone should take partof the blame for this: the policies of both exporting and importing countries, andboth developing and high-income countries, fueled the price increases. Table 19.3compares the changes in international prices that would have taken place withouttrade interventions with effective domestic prices. All in all, their estimates showthat these policies had a very heterogeneous impact for different countries andcommodities. On average for all countries, domestic wheat prices increased morethan adjusted international prices. These policies were somewhat more effective forother crops, but overall their effect was not large: 2 % for maize and 12 % for rice.
Anderson and Nelgen (2012) advise governments to refrain from imposinginsulating trade policies because they amplify price increases and, moreover, are notalways effective. Theoretically, small countries cannot affect international marketsindividually by changing their trade policies. However, Anderson and Nelgen (2012)claim that if many small countries do so simultaneously, it can have an aggregate
Table 19.2 Contributions of high-income and developing countries, and of importing andexporting countries, to the proportion of the international price change that is due to policy-inducedtrade barrier changes, 2006–08a
Totalproportionalcontribution
High-incomecountries’contribution
Developingcountries’contribution
Importingcountries’contribution
Exportingcountries’contribution
Rice 0.40 0.02 0.38 0.18 0.22Wheat 0.19 0.09 0.10 0.07 0.12Maize 0.10 0.05 0.05 0.03 0.07
aTaken from Anderson and Nelgen (2012), Table 7
10Their findings are qualitatively consistent with those of Bouët and Laborde (2010). Theircalculations are based on a multicountry general equilibrium model for wheat. They show howprice increases are amplified by both tariffs and export taxes.
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Table 19.3 Comparison of the domestic price with the rise in international grain prices net ofthe contribution of changed trade restrictions; rice, wheat, and maize, 2006–2008 (% unweightedaverages)a
International price rise Domestic price riseIncl. contributionof changed traderestrictions
Net of contributionof changed traderestrictions
Allcountries
Developingcountries
High-incomecountries
Rice 113 68 56 48 74Wheat 70 56 77 65 81Maize 83 75 73 62 82
aTaken from Anderson and Nelgen (2012), Table 8
sizeable impact. In this line, they argue that trade restrictions and reduction of importtariffs should be discouraged across the board.
To analyze this last point, Table 19.4 shows the shares of imports and exportsfor soybean, rice, wheat, and maize by region (following the World Bank classi-fication)11 in 2004, before the food crisis. We posit that Anderson and Nelgen’sresults (in Tables 19.2 and 19.3) seem to hide very large disparities within their“exporting,” “importing,” “developing,” and “high-income” labels. For example,estimates in Table 19.2 show the impact of trade restrictions on the increase of theinternational price of rice to be around 40 %; 38 % is from developing (with theremaining 2 % from high-income countries) and 18 % is from importing countries(and the remaining 22 % from exporting countries). From the export side, Thailand,India, and Vietnam—which account for 65 % of all rice exports—imposed traderestrictions. From the import side, important importers such as the Philippines andother Asian countries were concerned about a potential shortage and reduced theirtariffs. Policies enacted by these large players exemplify how trade restrictions canlead to significant price spikes. However, from the evidence presented in Tables 19.2and 19.3, it is unclear if trade restrictions by smaller countries would entail seriousconsequences for international markets. For example, Sub-Saharan Africa accountsfor 0.1 % of rice exports worldwide. Excluding Nigeria, South Africa, Côte d’Ivoire,and Ghana, the share of all other Sub-Saharan African countries was only 10.7 %of worldwide rice imports. It is reasonable to believe that, even if all nations inthis region changed their trade policies, there would not be a sizable impact on theinternational rice market.
While economists tend to be more critical of the use of import barriers as creatinginstability in world markets, they frequently applaud import barrier reductionsundertaken in the same context. There may be some basis for this support if thereduction is believed to be permanent once undertaken. If, however, it is undertakenpurely on a temporary basis as a way to reduce the instability of domestic prices, theeffects on the instability of world prices are clearly quite symmetric. From a policy
11See http://data.worldbank.org/about/country-classifications/country-and-lending-groups
19 Consistency Between Theory and Practice in Policy. . . 477
Table 19.4 Share of exports and imports by region and selected countries for soybeans, maize,wheat, and rice (2004)
1.A: Soybean exports, 2004Exports (US$, thousands) Share (%)
High income 7,563,204 48.5United States of America 6,692,040 42.9All others 871,164 5.6
East Asia & Pacific 161,858 1.0Europe & Central Asia 17,518 0.1Latin America & Caribbean 7,827,815 50.2
Brazil 5,394,910 34.6Argentina 1,740,110 11.2All others 692,795 4.4
Middle East & North Africa 315 0.0South Asia 897 0.0Sub-Saharan Africa 7144 0.0Others 5101 0.0Total 15,583,852 100.01.B: Soybean imports, 2004
Imports (US$, thousands) Share (%)High income 8,035,760 41.0
Japan 1,774,620 9.1Netherlands 1,504,200 7.7Germany 1,129,570 5.8All others 3,627,370 18.5
East Asia & Pacific 8,935,462 45.6China 7,680,418 39.2All others 1,255,044 6.4
Europe & Central Asia 252,591 1.3Latin America & Caribbean 1,693,014 8.6
Mexico 1,107,990 5.7All others 585,024 3.0
Middle East & North Africa 605,239 3.1South Asia 36,913 0.2Sub-Saharan Africa 10,572 0.1Others 14,763 0.1Total 19,584,314 100.0
(continued)
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Table 19.4 (continued)
2.A: Rice (milled) exports, 2004Exports (US$, thousands) Share (%)
High income 1,324,307 18.0East Asia & Pacific 3,534,287 47.9
Thailand 2,368,150 32.1Vietnam 950,315 12.9All others 215,822 2.9
Europe & Central Asia 18,692 0.3Latin America & Caribbean 174,862 2.4Middle East & North Africa 227,739 3.1South Asia 2,076,696 28.2
India 1,448,460 19.6Pakistan 627,240 8.5All others 996 0.0
Sub-Saharan Africa 9500 0.1Others 5479 0.1Total 7,371,562 100.02.B: Rice (milled) imports, 2004
Imports (US$, thousands) Share (%)High income 2,341,903 35.1
Saudi Arabia 534,327 8.0United Arab Emirates 327,843 4.9United States of America 257,666 3.9All others 1,222,067 18.3
East Asia & Pacific 1,045,859 15.7Philippines 274,585 4.1China 268,003 4.0All others 503,271 7.5
Europe & Central Asia 187,705 2.8Latin America & Caribbean 408,097 6.1Middle East & North Africa 713,678 10.7
Iran 294,853 4.4Iraq 173,481 2.6All others 245,344 3.7
South Asia 320,804 4.8Sub-Saharan Africa 1,488,627 22.3
Nigeria 297,000 4.4South Africa 202,605 3.0Côte d’Ivoire 166,656 2.5Ghana 108,412 1.6All others 713,954 10.7
Others 170,998 2.6Total 6,677,671 100.0
(continued)
19 Consistency Between Theory and Practice in Policy. . . 479
Table 19.4 (continued)
3.A: Wheat exports, 2004Exports (US$, thousands) Share (%)
High income 15,522,857 80.4United States 5,180,990 26.8Australia 3,089,040 16.0Canada 2,688,820 13.9France 2,553,110 13.2All others 2,010,897 10.4
East Asia & Pacific 116,505 0.6Europe & Central Asia 1,463,350 7.6
Russian Federation 535,975 2.8Kazakhstan 389,550 2.0Ukraine 288,900 1.5All others 248,925 1.3
Latin America & Caribbean 1,663,311 8.6Argentina 1,365,480 7.1All others 297,831 1.5
Middle East & North Africa 161,885 0.8South Asia 328,790 1.7Sub-Saharan Africa 49,506 0.3Others 30 0.0Total 19,306,234 100.03.B: Wheat imports, 2004
Imports (US$, thousands) Share (%)High income 7,160,391 33.0East Asia & Pacific 3,905,051 18.0
China 1,873,488 8.6Indonesia 841,000 3.9Rest 1,190,563 5.5
Europe & Central Asia 1,437,367 6.6Latin America & Caribbean 2,864,681 13.2
Brazil 838,770 3.9Mexico 617,765 2.8Rest 1,408,146 6.5
Middle East & North Africa 3,644,814 16.8South Asia 553,803 2.6Sub-Saharan Africa 2,081,078 9.6
Nigeria 475,983 2.2Sudan 209,055 1.0Rest 1,396,040 6.4
Others 32,260 0.1Total 21,679,445 100.0
(continued)
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Table 19.4 (continued)
4.A: Maize exports, 2004Exports (US$, thousands) Share (%)
High income 8,568,195 73.3United States 6,137,510 52.5France 1,456,650 12.5All others 974,035 8.3
East Asia & Pacific 522,558 4.5Europe & Central Asia 311,766 2.7Latin America & Caribbean 1,926,278 16.5
Argentina 1,193,810 10.2Brazil 597,336 5.1All others 135,132 1.2
Middle East & North Africa 13,878 0.1South Asia 155,724 1.3Sub-Saharan Africa 191,276 1.6Others 774 0.0Total 11,690,449 100.04.B: Maize imports, 2004
Imports (US$, thousands) Share (%)High income 8,296,019 58.7
Japan 2,931,850 20.7Korea 1,431,560 10.1All others 3,932,609 27.8
East Asia & Pacific 1,433,257 10.1China 818,609 5.8Malaysia 330,943 2.3All others 283,705 2.0
Europe & Central Asia 500,491 3.5Latin America & Caribbean 2,138,720 15.1
Mexico 745,120 5.3Colombia 332,085 2.3All others 1,061,515 7.5
Middle East & North Africa 1,666,104 11.8Egypt 364,819 2.6Iran 335,092 2.4Algeria 298,350 2.1All others 667,843 4.7
South Asia 76,319 0.5Sub-Saharan Africa 516,643 3.7Others 26,016 0.2Total 14,136,926 100.0
Source: FAOSTAT (http://faostat.fao.org/)
19 Consistency Between Theory and Practice in Policy. . . 481
viewpoint, this remains an important distinction because the multilateral tradingsystem has quite different rules in the two cases (see Bouët and Laborde 2010).
In addition, any of these policies may have important beggar-thy-neighborconsequences and may fuel price increases of important commodities. Insulatingtrade policies imposed by importers and exporters (as well as high-income anddeveloping countries) were indeed responsible for a considerable share of pricespikes seen during the 2007/08 food crisis. However, most of the turmoil was likelycaused by large exporters and importers. In this sense, policy recommendationsshould distinguish between larger and smaller countries.
Finally, there is a key asymmetry between net exporters and net importers ofan agricultural commodity during a food crisis. Net exporters can benefit fromincreases in world prices, but net importers are hurt and have no capacity to retaliateefficiently. If large exporting and importing countries cooperate, then it is possiblefor smaller countries to implement policies to reduce import tariffs and, in theshort term, reduce national prices. Clearly, however, any non-cooperation by largeimporting countries implementing similar policies will neutralize this effect.
19.3.1.2 Food ReservesFood reserves can be maintained in order to service emergency relief operations,support public distribution of food to chronically food insecure shares of a coun-try’s population, and reduce volatility in consumer and/or producer prices, thusstabilizing prices. The basic idea is simple: accumulate food stocks when prices arelow (to prevent very low prices that would harm producers) and release them whensupply becomes tighter (to reduce very high prices that harm consumers). However,international experience in the management and use of reserves is not clear andis open to significant variation in policies under the Global Food Crises ResponseProgram (GFRP) operations because the so-called strategic grain reserves were notclearly defined.
Timmer (2010) advises governments to hold rice buffer stocks to reduce volatilityin the domestic market. Rather than requiring governments to cope with theconsequences of food crises, reserves would ensure price stability and prevent acutecrises from taking place. However, Timmer’s recommendations should be takenwith caution, as his analysis is very specific to the rice market, which is much morespeculative than other markets.
Gouel and Jean (2012) argue that buffer stocks do not provide relief when thereare sharp increases in international food prices. Using a theoretical model for a smallopen economy, the authors find that buffer stocks might help producers by keepingprices from reaching low levels. However, such stocks do not protect consumersfrom price spikes without further trade restrictions; this is because small economiesare price takers, so domestic prices will follow the international markets (adjustedby transport costs). When prices are high on the international market and there areno export restrictions in place, at least part of the reserves accumulated in bufferstocks will be exported, given that there is no need for local distribution, andwill maximize the returns to the commodities being held, which need to rotate tominimize operation costs. While these policies may increase governments’ revenues
482 M. Torero
(exporting their stocks when international prices are high), they do not protectconsumers from high commodity prices.
Domestic buffer stocks posit other problems. First, as they aim to control generalprices, they are less effectively targeted toward the neediest shares of a country’spopulation (Wright 2009). Second, storage can be expensive, and the poorestcountries (which are most vulnerable to food crises) are the ones least likely tobe able to afford expensive storage costs (Torero 2011). Third, poor managementrenders buffer stocks ineffective in many cases. When controlled by parastatalsand other government agencies without strong accountability systems, they arepotentially subject to political use and mismanagement. Finally, buffer stockscreate market distortions; as perishable reserves have to be rotated, their cyclicalinterventions in the market can send wrong signals to producers and consumers.
For most of these authors, national emergency reserves seem to be a better optionthan domestic buffer stocks for price stabilization. While buffer stocks for priceintervention require considerable stockpiling and subsidize both the poor and thenonpoor, emergency food reserves can more effectively provide aid to the mostvulnerable shares of a country’s population and entail smaller costs because theyrequire smaller reserves (see Wright 2009). Also, reserves are less likely to createmarket distortions and disrupt private sector activities (FAO et al. 2011). Thesemechanisms might prove especially useful for isolated or landlocked countrieswhere, in case of distress, sluggish transportation of food assistance can pose seriousthreats to vulnerable shares of the population.
The extreme volatility observed during the 2007/08 food crisis suggests thatsome mechanism of food reserves for price stabilization is necessary to ease theeffect of shocks during periods of commodity price spikes and high volatility.(For further discussion of such mechanisms, see Chap. 6 of this book.) Thereseems to be some consensus around this idea, but policymakers disagree aboutwhich specific mechanisms to use to implement such food reserves. As in the caseof trade interventions, the most appropriate choices are likely to depend on thecharacteristics of the specific market under intervention, each country’s capacityto cope with crises, and the possibility of establishing international coordinationmechanisms. While it likely does not make sense to establish national buffer stocksin most grain markets, Timmer’s (2010) support for them may be more valid in a fewcases. For example, rice markets might be more speculative than others; thus, pricestabilization through buffer stocks makes somewhat more sense in this case. On theother hand, buffer stocks usually entail high costs and market distortions and areprone to corruption. Thus, most countries—especially those with weak institutionsand scarce resources—should probably refrain from using stocks and should insteadestablish emergency reserves for humanitarian reasons.
19.3.2 Medium- and Long-Term Policies
In this section, we summarize the major medium- and long-term policies proposed.
19 Consistency Between Theory and Practice in Policy. . . 483
19.3.2.1 Policies to Increase Agricultural Productivity and ResilienceThere is a wide array of policies aimed at increasing agricultural productivity andresilience; some of the most widely discussed include:
Input SubsidiesThe World Bank (2008) argues that “while development of efficient agriculturalinput market is a long-term process, this subcomponent (improving smallholderaccess to seed and fertilizer) would provide rapid support to clients facing immedi-ate and near-term constraints related to seed and fertilizer availability, distribution,affordability and utilization” (p. 90). The plan envisages the implementation of amarket-smart approach, characterized by: (a) targeting poor farmers; (b) not dis-placing existing commercial sales; (c) utilizing vouchers, matching grants, or otherinstruments to strengthen private distribution systems; and (d) being introduced forlimited periods of time only.
While they provide a sensible rationale, it is unclear how these principleswould be implemented in practice. Poorer countries—which likely have the leastdeveloped input markets—may find it difficult to target only those farmers in need.Additionally, subsidy programs that would strengthen, rather than displace, theprivate sector are likely to require complex mechanisms; institutional weaknessesin poor countries may render these programs unfeasible.
Moreover, these programs usually entail significant fiscal costs. Zaman et al.(2008) estimate that Malawi’s input subsidy program costs approximately 3 % ofGDP. Importantly, in recent years, rising fuel prices have considerably increasedfertilizer costs. If this trend continues in the future, the budget implications of thesepolicies would become even larger.
Finally, more evidence is required to assess the effectiveness of these policies.Dorward et al. (2010) evaluate the 2005/06–2008/09 fertilizer subsidy programin Malawi; their estimates of the benefit–cost ratios of the program range from0.76 to 1.36, with a (rather small) mid-estimate of 1.06. Arguably, with recentincreases in fertilizer prices, a current benefit–cost ratio of the program may beeven smaller. Additional potentially adverse impacts of the displacement of privatesector operations still require more thorough evaluation and understanding.
Investment in Research and DevelopmentThe introduction of high-yield varieties was instrumental for increases in agricul-tural supply during the 1960s and 1970s. The foreseeable worsening of climaticconditions imposes new challenges, however. Currently, new strands of wheat,maize, rice, and other crops are being developed to have enhanced resistance todroughts, diseases and insects, salinity and other soil problems, extreme tempera-tures, and floods. In addition, other developments promise enriched varieties withhigher nutritional content.
Such policies are highly profitable. Byerlee et al. (2008) find that “manyinternational and national investments in R&D have paid off handsomely, with anaverage internal rate of return of 43 % in 700 R&D projects evaluated in developing
484 M. Torero
countries in all regions” (p. 11). However, research and development (R&D) is atypical public good and, as such, faces considerable underinvestment, particularlyin developing countries. Thus, governments must expand their expenditures in R&Dand must complement this budget increase with other policies. For example, thesustainability of these programs requires private–public participation in the seedindustry to generate demand and supply coordination. It also requires strengtheningregulatory policies in seed markets, including variety release, seed certification, andphytosanitary measures. R&D should also envisage extension services and othermechanisms to facilitate diffusion and technology adoption by farmers.
IrrigationInvestment in irrigation should be a critical component of any strategy to increaseagricultural supply. Irrigation more than doubles the yields of rain-fed areas becausemore crops can be harvested in any given year; it also at least partially promotesresilience, protecting farmers against droughts. Delgado et al. (2010) estimate thatexpansion of irrigation infrastructure to all land in developing countries “wouldcontribute about half of the total value of needed food supply by 2050.”12
Irrigation projects appear to exhibit high rates of return. Jones (1995) analyzes208 World Bank-funded irrigation projects and finds an average rate of return of15 %. Despite the importance and impact of such projects, the Global Food CrisesResponse Program (GFRP) has determined that “under this emergency responseprogram, it is not anticipated that investment support would be provided for newirrigation schemes, as this would be supported under the Bank’s regular lendingprogram.”13
19.3.2.2 Policies to Reduce Postharvest LossesDeveloping countries face significant postharvest losses due to mishandling. Forcereals, these are estimated to be 10–15 % of harvest; when combined withdeterioration in storage (in farms and facilities) and milling, this number can reach25 %. Poor (or nonexistent) roads compound these losses, as agricultural productscannot reach consumer markets, and information failures impede supply fromreaching demand (or at least prevent it from reaching the most efficient markets).Some of the policies discussed to reduce postharvest wastage include:
12This would require, however, 40 % more withdrawals of water for agriculture. Thus, thesepolicies should be complemented by increased productivity in existing irrigated areas.13GFRP would limit their financing to: (i) support quick turnaround physical investments inrehabilitation of existing irrigation (small-scale) schemes; (ii) finance investments in rehabilitationor development of field drainage and collector drains to reduce problems of water logging and soilsalinity; (iii) finance training for water-user groups and others on operation and maintenance ofinvestments; (iv) finance assessments of groundwater or surface water hydrology and sustainablewater use; and (v) finance feasibility studies for medium-term irrigation investments.
19 Consistency Between Theory and Practice in Policy. . . 485
Improved Handling of Harvests and Storage PracticesSignificant portions of agricultural production are lost due to postharvest mishan-dling. One example comes from improper drying of crops. If crops are stored in highhumidity, they can be affected by mycotoxins and become unfit for consumption.In addition to the risk of growing mold, production stored in improper containerscan also attract plagues, insects, and rodents, which can spoil the food. This isonly one example of postharvest mishandling in a process where any number ofsmall practices can potentially spoil food. Training in proper drying techniques andbuilding adequate infrastructure in this area can considerably reduce wastage andimprove food availability.
The implementation of extension services for postharvest losses should include:(1) training and demonstration of low cost-on-farm storage; (2) technical assistanceand investment support for community-level food banks; and (3) training andinvestment support for grain traders and millers in drying and sorting, as well asfumigation equipment and upgrades in existing storage facilities. These should becomplemented with strengthening inspections and quality control surveillance toprevent the spread of pests or diseases.
Information SystemsImperfect information is especially pervasive in agricultural markets at both thedomestic and the international levels. In both cases, a lack of adequate and timelyinformation creates a mismatch between supply and demand. In many cases,the consequence is the allocation of production to suboptimal markets, wherethe demand is lower. In other cases, severe information constraints can result inagricultural production not reaching any market at all and thus being wasted.
At the domestic level, many countries have implemented agricultural informationsystems that can be accessed through internet portals, SMS on mobile phones,kiosks, radio shows, etc. The challenge ahead is to find cost-effective mechanismsto produce timely information that can be easily and widely accessed by producersand traders.
At the international level, there is scarce reliable data on stocks and availabilityof grains and oilseeds. Additionally, there is little monitoring of the state ofcrops and short-term forecasts based on trustworthy technology (remote sensing,meteorological information, etc.). FAO et al. (2011) proposed the creation of theAgricultural Market Information System (AMIS), which involves major agriculturalexporters and importers, as well as international organizations with expertise in foodpolicy. It comprises two organisms: the Global Food Market Information Group(to collect and analyze food market information) and the Rapid Response Forum(to promote international coordination). While the specific details of its dutiesand membership (and the political negotiations surrounding them) still need to beaddressed, AMIS is a first step in answering the need for global information andcoordination mechanisms.
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Rural RoadsTransport infrastructure plays an important role in the reduction of both the level andvariability of food prices. Without roads to transport their agricultural production,some farmers cannot reach consumer markets; others have market access, but ata very high cost. Delgado et al. (2010) argue that, in most cases, transport costsrepresent 50–60 % of total marketing costs. Byerlee et al. (2008) estimate thatless than 50 % of the rural African population lives close to an all-season road.Transport infrastructure can also help reduce price variability. Roads are usefulmeans to spread out regional shocks; if a certain region is hit by a shock (weather orother), it can import food from another region. For example, during the food crisis,regions with better infrastructure in Indonesia were not hit as hard as those poorlyconnected.
19.4 Analysis of Consistency
The question that this section tries to answer is how consistent or inconsistent theoperational policy recommendations have been with respect to: (a) Proposals ofInternational Organizations and the G8’s document prepared for the Ministers ofFinance Meeting in 2008 and (b) the different policy recommendations proposedby key researchers and analyzed in detail in the previous two sections. With thisobjective in mind, we analyze as an experiment the portfolio of loans of GFRPoperations detailed in Table 19.5, covering operations in 13 developing countries.Table 19.6 provides a detailed summary of all these World Bank operations whichhave as their core objective the mitigation of the impact of the food crisis.
Table 19.5 Documentsanalyzed for GFRPoperations
Country Project ID PAD ICR
Mozambique 107313 � �Djibouti 112017 � �Honduras 112023 � N/AHaiti 112133 � N/ABangladesh 112761 � �Sierra Leone 113219 � �Madagascar 113224 � �Rwanda 113232 � N/ABurundi 113438 � �Philippines 113492 � �Guinea 113625 � �Mali 114269 � N/ACambodia 117203 � �
Note: PAD is Project Appraisal Documentof the World Bank and ICR is the Imple-mentation, Completion and Results Reportof the World Bank
19 Consistency Between Theory and Practice in Policy. . . 487
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cons
truc
tion
ofst
orag
esi
los,
agri
cultu
rals
ervi
cede
liver
y(r
esea
rch,
finan
ce,e
tc.)
,lin
king
smal
lhol
ders
tom
arke
ts,a
ndst
imul
atin
gde
man
dfo
rlo
calf
ood
–Pr
omot
eth
eco
nstr
uctio
nan
dre
habi
litat
ion
ofag
ricu
ltura
linf
rast
ruct
ure
and
incr
ease
acce
ssto
agri
cultu
ralt
echn
olog
ies
and
exte
nsio
nin
form
atio
n–
Impr
ove
qual
ityfo
rro
adin
fras
truc
ture
–Im
prov
ebu
dget
proc
ess
and
use
ofpu
blic
expe
nditu
res,
impr
ove
reve
nue
colle
ctio
n,pu
blic
finan
cial
man
agem
ent
proc
urem
ents
yste
m,
(int
erna
land
exte
rnal
)au
ditb
odie
s,hu
man
reso
urce
man
agem
enti
nth
epu
blic
sect
or,e
tc.
–In
gene
ral,
“the
gove
rnm
enti
nten
dsto
allo
wth
epa
ssth
roug
hof
inte
rnat
iona
lpri
ces
offo
odan
dfu
elto
the
dom
estic
econ
omy,
nota
bly
envi
sagi
ngno
trad
edi
stor
tions
orge
nera
lized
subs
idie
s,w
hile
prot
ectin
gth
eec
onom
icse
ctor
sm
ostv
ulne
rabl
eto
the
incr
ease
inen
ergy
pric
es”
(PA
D,p
gph.
80)
(con
tinue
d)
488 M. Torero
Table
19.6
(con
tinu
ed)
Tra
depo
licy
Food
rese
rves
Soci
alpr
otec
tion
Supp
lypo
licie
sO
ther
sR
emar
ks
Ban
glad
esh
–G
over
nmen
trem
oved
cust
omdu
ties
for
rice
and
whe
at.
–In
crea
seth
eta
rget
edsi
zeof
publ
icfo
odst
ock
from
1m
illio
nto
1.5
mill
ion
tons
–A
tlea
st,p
arto
fth
eob
ject
ive
isto
use
them
for
pric
est
abili
zatio
npu
rpos
esb
–In
crea
sebu
dget
ofse
ven
exis
ting
soci
alpr
otec
tion
prog
ram
s:O
pen
Mar
ket
Sale
s(O
MS)
,Tes
tRel
ief
Food
,Gra
tuito
usR
elie
ffo
rFo
od,F
ood
Ass
ista
nce
inC
TG
-Hill
Tra
cts
Are
a,Fo
odfo
rW
orks
,V
ulne
rabl
eG
roup
Dev
elop
men
t,an
dV
ulne
rabl
eG
roup
Feed
ing
–H
owev
er,t
here
seem
tobe
cons
ider
able
leak
ages
(PA
D,A
nnex
4,pg
ph.
7–8)
–C
reat
ion
ofth
e10
0-D
ays
Em
ploy
men
tGua
rant
eePr
ogra
m
–B
ring
the
fert
ilize
rdi
stri
butio
nne
twor
kcl
oser
tofa
rmer
s(f
rom
the
upaz
illa
toth
eun
ion
leve
l)–
Incr
ease
gove
rnm
ent’
sri
cepr
ocur
emen
tpri
ceto
stim
ulat
epr
oduc
tion
–In
crea
seta
xco
llect
ion
–Pr
ices
ofpe
trol
eum
prod
ucts
,ure
afe
rtili
zer,
and
com
pres
sed
natu
ral
gas
(CN
G)
wer
ehe
avily
subs
idiz
edby
SOE
s.G
over
nmen
tred
uced
SOE
’sde
ficit
thro
ugh
pric
esin
crea
ses
–G
over
nmen
tasp
ires
tobe
com
ese
lf-s
uffic
ient
inri
cepr
oduc
tion:
“sin
ceth
eav
aila
bilit
yof
rice
trad
ein
inte
rnat
iona
ltra
deca
nno
long
erbe
take
nfo
rgr
ante
dan
dw
ithIn
dian
rice
expo
rtre
stri
ctio
nsco
ntin
uing
,the
talk
inD
haka
has
mov
edfr
omim
port
sto
com
plet
ese
lf-r
elia
nce”
(sou
rce:
PAD
)–
No
impr
ovem
ents
inta
rget
ing
mec
hani
sms
ofso
cial
prog
ram
s(w
hich
have
cons
ider
able
leak
ages
)
Phili
ppin
es–
Gov
ernm
entr
uns
the
Nat
iona
lFoo
dA
utho
rity
(NFA
),w
hich
isth
eso
leen
tity
allo
wed
toim
port
rice
,reg
ulat
eri
cetr
adin
g,an
dde
term
ine
farm
gate
supp
orta
ndre
tail
pric
est
abili
zatio
n
–N
FAto
rele
ase
rice
buff
erst
ocks
inpe
riod
sof
pric
ein
crea
ses
–G
over
nmen
tinc
reas
edbu
dget
for
exis
ting
soci
alpr
otec
tion
prog
ram
s(s
eePA
D,A
nnex
5)
–T
heop
erat
ion
does
not
incl
ude
polic
ies
toen
hanc
eag
ricu
ltura
lpro
duct
ion.
How
ever
,oth
ergo
vern
men
tini
tiativ
esdo
–T
hego
vern
men
tis
stri
ving
for
rice
self
-suf
ficie
ncy
whi
ch,a
ccor
ding
tote
chni
cal
anal
ysis
,mig
htha
veac
tual
lyun
derm
ined
food
secu
rity
19 Consistency Between Theory and Practice in Policy. . . 489
–In
itial
ly,N
FAag
gres
sive
lyso
ught
toin
crea
seth
eir
stoc
ksw
ithla
rge
impo
rtte
nder
s,w
hich
exac
erba
ted
pric
evo
latil
ity–
Subs
eque
ntly
,NFA
deci
ded
tosu
spen
dri
cete
nder
san
des
tabl
ishe
dbi
late
rald
eals
with
Japa
nan
dV
ietn
am–
Inth
em
ediu
m-t
erm
,the
Phili
ppin
esis
due
tolif
tqu
antit
ativ
etr
ade
rest
rict
ions
onri
ceby
WT
Oag
reem
ents
–T
hego
vern
men
tal
loca
ted
tem
pora
ryri
ceim
port
quot
as,r
athe
rth
anso
lely
rely
ing
onN
FAim
port
s.H
owev
er,a
sdo
mes
ticpr
ices
wer
elo
wer
than
inte
rnat
iona
lpr
ices
,the
ince
ntiv
efa
iled
–In
the
med
ium
-ter
m,t
hego
vern
men
tis
supp
osed
totr
ansf
erri
cetr
ade
toth
epr
ivat
ese
ctor
(as
envi
sion
edin
the
Med
ium
-Ter
mPh
ilipp
ine
Dev
elop
men
tPla
n)–
The
Phili
ppin
esis
tryi
ngto
push
are
gion
alri
cere
serv
em
echa
nism
thro
ugh
ASE
AN
–H
owev
er,t
hem
ost
sign
ifica
ntso
cial
prot
ectio
npr
ogra
mre
mai
nsN
FAw
itha
budg
etof
$1.2
billi
onfo
r20
08.N
FAis
poor
lyta
rget
edan
dun
der-
cove
rsth
epo
orc
–T
hego
vern
men
tla
unch
eda
CC
T(P
anta
wid
Pam
ilya)
,con
ditio
nalo
nch
ildre
n’s
scho
olat
tend
ance
and
heal
thch
ecku
ps–
Cov
erag
eof
the
CC
Tis
base
don
the
Nat
iona
lH
ouse
hold
Targ
etin
gSy
stem
for
Pove
rty
Red
uctio
n(N
HT
S-PR
).N
HT
S-PR
isa
prox
ym
eans
test
for
bene
ficia
ryse
lect
ion
and
the
gove
rnm
enti
sad
aptin
got
her
prog
ram
s’co
vera
geac
cord
ingl
y–
The
Food
for
Scho
olpr
ogra
mis
impl
emen
ting
geog
raph
icta
rget
ing,
prio
ritiz
ing
the
20po
ores
tpr
ovin
ces
and
the
100
poor
estm
unic
ipal
ities
–G
over
nmen
tlau
nche
dFI
EL
DS
(Fer
tiliz
er;
Infr
astr
uctu
rean
dir
riga
tion;
Ext
ensi
onan
ded
ucat
ion;
Loa
ns;D
ryin
gan
dot
her
post
harv
est
faci
litie
s;an
dSe
eds)
prog
ram
.Rat
her
than
crea
ting
new
prog
ram
s,FI
EL
DS
isan
acce
lera
tion
and
scal
ing
upof
the
exis
ting
prod
uctio
npr
ogra
ms
–G
over
nmen
thas
also
subs
idiz
edse
eds
and
fert
ilize
rto
farm
ers.
How
ever
,the
reap
pear
sto
beco
nsid
erab
lele
akag
ean
dm
ism
anag
emen
t(P
AD
,pgp
h.55
–56)
–N
HT
S-PR
wou
ld“p
rovi
deth
ego
vern
men
twith
the
vehi
cle
tore
-dir
ectm
ore
inef
ficie
ntsu
bsid
ies
that
are
notw
ell-
targ
eted
toth
epo
or(s
uch
asth
eN
FAri
cesu
bsid
y)to
mor
eta
rget
edpr
ogra
ms
and
poss
ibly
cash
-bas
edpr
ogra
ms
inth
efu
ture
”(s
ourc
e:PA
D)
(con
tinue
d)
490 M. Torero
Table
19.6
(con
tinu
ed)
Tra
depo
licy
Food
rese
rves
Soci
alpr
otec
tion
Supp
lypo
licie
sO
ther
sR
emar
ks
Djib
outi
–T
here
are
limite
dso
cial
prot
ectio
nm
echa
nism
sin
Djib
outi.
WFP
prov
ides
emer
genc
yfo
odas
sist
ance
inru
rala
reas
,but
cove
rage
issm
all.
Gov
ernm
enti
spl
anni
ngto
expa
ndth
ispr
ogra
min
coop
erat
ion
with
UN
ICE
Fan
dlo
cal
NG
Os
–B
esid
esth
is,a
sth
efo
odcr
isis
unra
vele
d,th
ere
wer
eno
maj
orex
istin
gso
cial
assi
stan
cepr
ogra
ms
tosc
ale-
up.T
hego
vern
men
t’s
imm
edia
tepo
licy
was
toim
plem
ent
anun
targ
eted
polic
yan
del
imin
ate
the
cons
umpt
ion
tax
rate
onfiv
eba
sic
food
item
s(r
ice,
suga
r,co
okin
goi
l,w
heat
flour
,and
pow
der
milk
)–
How
ever
,thi
spo
licy
was
mos
tlyin
effe
ctiv
e:th
ere
was
alo
wpa
ss-t
hrou
ghfr
omre
duce
dta
xra
tes
toco
nsum
erpr
ices
.d
–T
hego
vern
men
tim
plem
ente
da
fishe
ries
’su
ppor
tpro
gram
toin
crea
sefo
odsu
pply
and
incr
ease
imm
edia
tefis
hou
tput
.The
prog
ram
prov
ides
trai
ning
inm
oder
nte
chni
ques
,boa
ts,
and
mic
rocr
edit
toyo
ung
fishe
rmen
–G
over
nmen
tim
plem
ente
da
prog
ram
for
exte
rnal
agri
cultu
ralp
rodu
ctio
nin
Eth
iopi
aan
dSu
dan
–R
ehab
ilita
tete
nco
mm
unity
wel
lsin
rura
lar
eas.
The
sew
ells
will
prov
ide
supp
ortt
ono
mad
icpa
stor
alis
tsw
hoha
vebe
ense
vere
lyaf
fect
edby
rece
ntdr
ough
ts
–“T
heim
pact
sof
the
mea
sure
ssu
ppor
ted
byth
ispr
ogra
mw
ere
expe
cted
toha
vea
regr
essi
vedi
stri
butio
n.In
part
icul
ar,t
hem
ain
inte
rven
tion
supp
orte
dby
this
oper
atio
n(t
axex
oner
atio
nof
food
item
s)w
asun
targ
eted
and
ther
efor
ebe
nefit
ted
rich
erho
useh
olds
asm
uch
(or
rela
tivel
ym
ore)
than
poor
erho
useh
olds
.H
owev
er,g
iven
the
larg
esi
zeof
the
poor
popu
latio
n(7
4%
),th
ein
terv
entio
nw
asco
nsid
ered
toha
vean
imm
edia
tere
lief
onpo
orho
useh
olds
”(I
CR
,pgp
h.59
)
19 Consistency Between Theory and Practice in Policy. . . 491
Poss
ible
expl
anat
ions
for
this
outc
ome
are:
(a)
the
high
conc
entr
atio
nof
the
food
mar
keti
nD
jibou
tiw
ithfe
wim
port
ers
and
dist
ribu
tors
and
(b)
heig
hten
edse
curi
tyri
sks
pose
dby
pira
tes
inin
tern
atio
nalw
ater
s–
Gov
ernm
enth
asdr
afte
dan
actio
npl
anto
sugg
est
way
sto
impr
ove
targ
etin
gan
ddi
rect
supp
ortf
orth
epo
or.A
spa
rtof
this
,D
jibou
tico
mpl
eted
apo
pula
tion
cens
use
Hon
dura
s–
Gov
ernm
entt
ofu
ndth
epu
rcha
sean
dst
orag
eof
stra
tegi
cgr
ain
rese
rves
(US$
9.5
mill
ion)
–In
crea
sePR
AF,
anal
read
yex
istin
gC
CT
prog
ram
,fro
m14
8,00
0to
200,
000
bene
ficia
ries
thro
ugh
anIA
DB
$20
mill
ion
oper
atio
n–
Gov
ernm
ent
impl
emen
ted
PASA
H(P
rogr
amSu
ppor
ting
Food
Secu
rity
inH
ondu
ras)
,ta
rget
edto
fem
ale-
head
edho
useh
olds
inpo
orar
eas.
PASA
Hpr
ovid
essu
ppor
tfo
rpr
oduc
tive
activ
ities
with
fund
sfr
omth
eE
urop
ean
Com
mun
ity
–E
nact
men
tof
the
Em
erge
ncy
Law
toPr
even
tth
eSh
orta
geof
Bas
icG
rain
sf
–L
oans
for
med
ium
and
smal
lhol
ders
(3.5
–35
ha)
atfa
vora
ble
term
sth
roug
hB
AN
AD
ESA
(Nat
iona
lB
ank
for
Dev
elop
men
t)–
Subs
iste
nce
prod
ucer
s(<
3.5
ha)
tobe
nefit
from
ate
chno
logi
calp
acka
geof
impr
oved
seed
s,fe
rtili
zer,
and
tech
nica
lass
ista
nce
–In
crea
sebu
dget
allo
catio
nfo
rSE
NA
SA—
Nat
iona
lSe
rvic
eof
Agr
icul
tura
land
Ani
mal
Hea
lth(U
S$1.
5)
–M
osto
fth
ese
initi
ativ
esar
epa
rtof
am
ore
gene
ral
resp
onse
toth
efo
odcr
isis
byth
eH
ondu
ran
gove
rnm
ent
–H
owev
er,t
hepr
opos
edop
erat
ion
seem
sto
bem
ore
orie
nted
tore
leas
efu
nds
for
the
gove
rnm
entt
oai
dth
efin
anci
alse
ctor
–T
hego
vern
men
tis
conc
erne
dab
outt
heef
fect
ofin
crea
sing
food
pric
eson
hous
ehol
ds’
real
inco
me.
Thi
sis
expe
cted
toha
vean
adve
rse
effe
cton
bank
s’ou
tsta
ndin
gpo
rtfo
lioof
cons
umer
loan
s
(con
tinue
d)
492 M. Torero
Table
19.6
(con
tinu
ed)
Tra
depo
licy
Food
rese
rves
Soci
alpr
otec
tion
Supp
lypo
licie
sO
ther
sR
emar
ks
–B
AN
AD
ESA
also
tofin
ance
the
expa
nsio
nof
smal
lsca
leir
riga
tion
proj
ects
–T
hego
vern
men
tis
impl
emen
ting
the
“Pri
ceR
isk
Man
agem
ento
fA
gric
ultu
ralC
omm
oditi
esin
Hon
dura
s”pr
ojec
t,w
ithfu
ndin
gfr
omth
eW
orld
Ban
kan
dID
B–
The
gove
rnm
enti
sal
soim
plem
entin
gth
eSe
cond
Roa
dR
ehab
ilita
tion
and
Impr
ovem
entP
roje
ct,w
hich
seek
sto
reha
bilit
ate
seco
ndar
yro
ads
–T
hePA
Dar
gues
that
“The
supp
lem
enta
lfina
ncin
gw
illbe
anim
port
ants
ourc
eof
budg
etfin
anci
ngfo
rth
ego
vern
men
t,pr
ovid
ing
fisca
lsp
ace
toco
ntin
uere
spon
ding
toth
efo
odcr
isis
,whi
lehe
lpin
gto
mai
ntai
nth
em
acro
econ
omic
stab
ility
that
led
the
IMF
boar
dto
appr
ove
ast
and-
byag
reem
ento
nA
pril
7,20
08.T
imel
ypr
ogra
msu
ppor
twill
also
assi
stgo
vern
men
teff
orts
tost
reng
then
the
finan
cial
sect
orin
ape
riod
char
acte
rize
dby
exog
enou
ssh
ocks
that
coul
dpo
tent
ially
wea
ken
som
eba
nks”
(PA
D,
p.11
)
Hai
ti–
Ris
ing
food
pric
esle
dto
riot
san
dth
ere
sign
atio
nof
the
Prim
eM
inis
ter
inA
pril
2008
.The
gove
rnm
ent
anno
unce
da
tem
pora
rysu
bsid
yto
redu
ceth
epr
ice
ofri
ceas
anem
erge
ncy
mea
sure
.Bet
wee
nM
ayan
dD
ecem
ber
2008
,the
estim
ated
budg
etfo
rth
issu
bsid
yw
asU
S$30
mill
ion
–T
heth
ird
prio
rity
area
ofth
e“P
rogr
amof
Act
ion
agai
nstt
heH
igh
Cos
tof
Liv
ing”
isto
scal
eup
agri
cultu
rali
nput
san
din
vest
men
tsto
boos
tag
ricu
ltura
lpro
duct
ion
–Si
nce
2004
,the
Wor
ldB
ank
has
supp
orte
dtw
oE
cono
mic
Ref
orm
Gov
erna
nce
Ope
ratio
ns:
ER
GO
I(U
S$61
mill
ion)
and
ER
GO
II(U
S$23
mill
ion)
19 Consistency Between Theory and Practice in Policy. . . 493
–T
hego
vern
men
t,in
coor
dina
tion
with
dono
rs,
draf
ted
the
“Pro
gram
ofA
ctio
nag
ains
tthe
Hig
hC
osto
fL
ivin
g.”
Two
prio
rity
(of
the
thre
e)ar
eas
ofth
ispl
anar
e:(i
)em
ploy
men
tgen
erat
ion
thro
ugh
labo
r-in
tens
ive
wor
ksan
d(i
i)ex
pans
ion
offo
odas
sist
ance
prog
ram
s—in
clud
ing
feed
ing
prog
ram
sfo
rsc
hool
child
ren,
mot
hers
,an
din
fant
s—fo
r6
mon
ths
–T
heW
orld
Ban
k’s
obje
ctiv
eap
pear
sto
beth
esu
stai
nabi
lity
ofth
ese
oper
atio
ns.“
The
urge
ntne
edfo
rpu
blic
expe
nditu
res
tore
spon
dto
the
food
cris
isin
the
wak
eof
the
riot
sha
sre
sulte
din
high
erfin
anci
ngre
quir
emen
tsth
anor
igin
ally
antic
ipat
ed.T
his
supp
lem
enta
lfina
ncin
ggr
ant
will
enab
leth
ego
vern
men
tto
cont
inue
tom
ake
prog
ress
onth
ere
form
prog
ram
supp
orte
dby
EG
RO
IIw
hich
coul
dot
herw
ise
beje
opar
dize
dby
the
unan
ticip
ated
gap
infin
anci
ngfo
rth
e20
08bu
dget
”(P
AD
,pgp
h.35
)
Cam
bodi
a–
Cam
bodi
aim
plem
ente
da
ban
onri
ceex
port
sin
Mar
ch20
08,f
uelin
gri
cepr
ice
incr
ease
sin
inte
rnat
iona
lmar
kets
–E
xpan
sion
ofth
eId
entifi
catio
nof
Poor
Hou
seho
lds
Targ
etin
gPr
ogra
m.g
Thi
sta
rget
ing
mec
hani
smis
mos
tlyus
edby
Hea
lthE
quity
Fund
s(H
EF)
and,
toa
mor
elim
ited
exte
nt,
AD
B-s
uppo
rted
Em
erge
ncy
Food
Ass
ista
nce
Proj
ect.
How
ever
,itw
illbe
appl
ied
toa
broa
der
rang
eof
safe
tyne
tint
erve
ntio
ns
–Im
prov
eac
cess
toan
dtr
ansp
aren
cyof
seed
and
fert
ilize
rm
arke
ts:T
hese
polic
ies
incl
ude
the
susp
ensi
onof
VA
Tfo
rfe
rtili
zers
;dis
trib
utio
nof
seed
and
fert
ilize
rvo
uche
rsfo
rfa
rmer
sw
ithle
ssth
an1
haof
land
;and
api
lotf
or“s
mar
tsub
sidi
es”
–Im
prov
eth
ego
vern
ance
and
effe
ctiv
enes
sof
gove
rnm
ente
mer
genc
yre
spon
sean
dcr
isis
polic
yac
tions
thro
ugh
quar
terl
yre
port
s,in
clud
ing
anin
depe
nden
tmon
itori
ngco
mpo
nent
(con
tinue
d)
494 M. Torero
Table
19.6
(con
tinu
ed)
Tra
depo
licy
Food
rese
rves
Soci
alpr
otec
tion
Supp
lypo
licie
sO
ther
sR
emar
ks
–In
May
2008
,whe
nha
rves
tpro
spec
tsim
prov
ed,t
heba
nw
aslif
ted
–T
hego
vern
men
thas
ane
wfo
cus
prom
otin
gri
cepr
oduc
tion,
impr
ovin
gpr
ice
ince
ntiv
esth
roug
hex
pans
ion
ofof
ficia
lric
eex
port
s:th
e“P
olic
yD
ocum
ento
nth
ePr
omot
ion
ofPa
ddy
Ric
ePr
oduc
tion
and
Exp
orto
fM
illed
Ric
e”se
tsa
targ
etof
1m
illio
nto
nsof
mill
edri
ceex
port
edby
2015
–D
esig
nof
afo
odan
dca
shfo
rw
ork
prog
ram
–G
over
nmen
tto
prov
ide
WFP
with
2000
MT
per
year
over
3ye
ars
toin
crea
sefo
oddi
stri
butio
nth
roug
hsc
hool
feed
ing
and
food
for
wor
kpr
ogra
ms
–A
dditi
onal
ly,t
hego
vern
men
tis
conc
erne
dby
high
mar
ketc
once
ntra
tion
and
qual
itypr
oble
ms
inth
efe
rtili
zer
mar
ket.
Thu
s,th
ego
vern
men
tis
stre
ngth
enin
gits
regu
latio
nof
this
mar
ket.
How
ever
,mos
tof
fert
ilize
rqu
ality
prob
lem
sca
nbe
trac
edba
ckto
prod
uctio
nin
Vie
tnam
rath
erth
anad
ulte
ratio
nin
Cam
bodi
a–
Stre
ngth
enth
ero
leof
com
mun
ity-b
ased
farm
eror
gani
zatio
nsto
acce
ssin
puts
and
cred
it,te
chni
cal
supp
orta
ndm
arke
tand
polic
yin
puts
–B
oost
cred
itsfo
rin
vest
men
tsin
high
erqu
ality
mill
ing
faci
litie
s,“w
hich
serv
eas
ake
yin
terf
ace
betw
een
smal
lhol
ders
and
mar
kets
inte
rms
ofqu
ality
stan
dard
san
inpu
tsup
ply”
(PA
D,p
gph.
67)
19 Consistency Between Theory and Practice in Policy. . . 495
Mal
i–
The
gove
rnm
ent
intr
oduc
eda
6-m
onth
tari
ffan
dV
AT
exem
ptio
nfo
rri
ce.I
nre
turn
ofth
ism
easu
re,t
rade
rsco
mm
itted
toho
ldth
eir
pric
es(a
tUS$
7.2/
kg).
How
ever
,pri
ces
rose
cons
ider
ably
afte
rwar
ds
–D
urin
gth
ecr
isis
,the
gove
rnm
entr
elea
sed
grai
nst
ocks
held
byth
eFo
odSe
curi
tyC
omm
issi
on–
Gov
ernm
enti
sre
visi
ngits
guid
elin
esto
“est
ablis
ha
mor
eef
ficie
ntan
dtr
ansp
aren
tman
agem
ent
syst
emas
wel
las
deve
lopi
ngco
unte
rcyc
lical
mar
ketin
gm
easu
res
tost
abili
zece
real
pric
es,e
.g.,
selli
ngce
real
sdu
ring
the
hung
erse
ason
inJu
ly–S
epte
mbe
rw
hen
pric
esar
eat
thei
rhi
ghes
tle
vel”
(PA
D,p
gph.
12)
–“A
rece
ntU
SAID
revi
ewco
nclu
ded
that
Mal
ian
auth
oriti
esha
vebe
enqu
iteef
fect
ive
inst
ock
man
agem
enta
ndin
thei
rat
tem
pts
tous
eth
egr
ain
stoc
ksto
stab
ilize
loca
lfo
odpr
ices
”(P
AD
,pgp
h.14
)
–“T
hego
vern
men
t’s
soci
alsa
fety
nets
,mai
nly
cons
istin
gof
scho
olfe
edin
gan
dnu
triti
onpr
ogra
ms,
are
smal
lin
scal
ean
dpo
orly
targ
eted
,w
ithlim
ited
impa
cton
the
grou
nd”
(PA
D,p
gph.
10).
How
ever
,the
oper
atio
ndo
esno
tinc
lude
any
polic
ies
tost
reng
then
safe
tyne
ts
–G
over
nmen
tis
impl
emen
ting
the
Ric
eIn
itiat
ive.
Thi
sin
clud
es:“
(i)
mea
sure
sto
impr
ove
crop
inpu
tdis
trib
utio
nby
incr
easi
ngth
eav
aila
bilit
yof
seed
for
loca
lly-p
rodu
ced
rice
vari
etie
s;(i
i)ne
w/e
xpan
ded
subs
idie
son
crop
inpu
ts;(
iii)
mea
sure
sto
impr
ove
mar
ketin
gch
anne
ls,
with
the
obje
ctiv
eof
faci
litat
ing
the
com
mer
cial
rela
tions
hip
betw
een
prod
ucer
orga
niza
tions
;and
(iv)
subs
idie
sfo
req
uipm
ent,
acce
ssto
wat
er/ir
riga
tion,
and
exte
nsio
nse
rvic
es”
(sou
rce:
PAD
)
–T
hego
vern
men
tfro
zeno
ness
entia
lspe
ndin
gfo
r6
mon
ths
toac
com
mod
ate
tobu
dget
pres
sure
sfr
omth
efo
odcr
isis
–T
his
has
affe
cted
deliv
ery
ofpu
blic
serv
ices
–Po
vert
yR
educ
tion
Supp
ort
Cre
dit(
PRSC
)is
anim
port
antp
iece
ofth
eW
orld
Ban
k’s
stra
tegy
inM
ali.
Its
seco
ndph
ase
(PR
SCII
)w
asap
prov
edby
the
Boa
rdin
May
2008
(US$
42m
illio
n)–
Thi
sG
FRP
oper
atio
npr
ovid
essu
pple
men
tal
finan
cing
for
PRSC
II–
“The
urge
ntpo
licy
mea
sure
spu
tin
plac
eto
com
bath
igh
food
pric
esha
vepu
text
raor
dina
rypr
essu
res
onth
ena
tiona
lbud
get.
The
prop
osed
supp
lem
enta
lfin
anci
ngw
ould:::
help
the
Gov
ernm
ento
fM
alifi
llin
anun
antic
ipat
edfin
anci
ngga
pca
used
byth
efo
odcr
isis
and
thus
mai
ntai
nth
eco
urse
ofim
port
ants
ocio
econ
omic
polic
yre
form
sag
reed
unde
rth
ePR
SC-I
Ian
dG
PRSP
”(P
AD
,pgp
h.32
)
(con
tinue
d)
496 M. Torero
Table
19.6
(con
tinu
ed)
Tra
depo
licy
Food
rese
rves
Soci
alpr
otec
tion
Supp
lypo
licie
sO
ther
sR
emar
ks
Gui
nea
–R
educ
edcu
stom
dutie
sfo
rlo
wqu
ality
rice
from
12.7
5to
0%
(ori
gina
lta
rget
was
2.5
%)
betw
een
June
1an
dO
ctob
er31
,20
08–
Gui
nea
impo
sed
aba
non
agri
cultu
rale
xpor
tsap
plic
able
for
2007
.hIn
2008
,the
gove
rnm
ent
issu
eda
min
iste
rial
orde
rcl
arif
ying
that
the
agri
cultu
rale
xpor
tban
was
nolo
nger
inpl
ace,
with
the
exce
ptio
nof
rice
–T
hego
vern
men
ten
visa
ged
tore
plac
eth
eri
ceex
port
ban
with
expo
rtta
xes
and
com
mitt
edto
ast
udy
for
itsim
plem
enta
tion.
How
ever
,th
ene
wde
fact
ogo
vern
men
thas
rein
stat
edth
eri
ceba
n
–T
hego
vern
men
tpla
nsto
build
“an
emer
genc
yfo
odre
serv
eof
25,0
00m
etri
cto
ns”
(sou
rce:
PAD
).D
ocum
enta
tion
does
not
spec
ify
whe
ther
thes
ere
serv
esw
ould
acta
shu
man
itari
anor
buff
erst
ocks
–T
hego
vern
men
tne
gotia
ted
with
rice
impo
rter
s,un
ions
,and
civi
lsoc
iety
toco
ntro
lw
hole
sale
and
reta
ilpr
ofit
mar
gins
(GN
F10
00an
d20
00pe
r50
kgba
g,re
spec
tivel
y)–
Dis
trib
utio
nof
take
-hom
era
tions
for
child
ren
offa
mili
esof
five
orm
ore
mem
bers
–E
mer
genc
ysc
hool
feed
ing
and
nutr
ition
supp
ort
–Im
plem
enta
tion
ofan
“Em
erge
ncy
Urb
anL
abor
-Int
ensi
vePu
blic
Wor
ksPr
ogra
m,”
whi
chin
clud
esro
adm
aint
enan
cean
dur
ban
wor
kspr
ogra
ms
aim
edto
prov
ide
empl
oym
enta
ndin
com
eto
affe
cted
hous
ehol
ds
–“E
mer
genc
yA
gric
ultu
ral
Prod
uctiv
itySu
ppor
tPr
ogra
m,”
whi
chin
clud
es:
(i)
prod
uctio
nof
2000
cert
ified
seed
,(ii)
proc
urem
ento
f2,
000
tons
offe
rtili
zer,
and
(iii)
dist
ribu
tion
ofin
put
pack
ages
to70
,000
smal
lhol
der
farm
ers
–“S
ince
the
coup
inD
ecem
ber
2008
,the
Ban
k’s
enga
gem
enta
ndac
tiviti
esin
Gui
nea
have
been
onho
ld.
Man
agem
enth
asin
voke
dth
epr
ovis
ions
ofO
P/B
P7.3
0,de
alin
gw
ithde
fact
ogo
vern
men
ts.C
onta
cts
with
the
Gui
nean
regi
me
have
been
limite
dto
tech
nica
lco
rres
pond
ence
onth
efid
ucia
ryis
sues
.Cur
rent
ly,
Gui
nea
isun
der
susp
ensi
onof
disb
urse
men
tsfo
rno
n-pa
ymen
t(ov
er60
days
)”(I
CR
,p.1
7)
19 Consistency Between Theory and Practice in Policy. . . 497
Bur
undi
–Te
mpo
rary
exem
ptio
nof
tran
sact
ion
taxe
san
dim
port
dutie
sfo
r13
stap
lepr
oduc
ts(b
eans
,mai
ze,
pota
toes
,etc
.)–
The
sete
mpo
rary
mea
sure
sw
ere
appl
ied
until
July
2009
,whe
nan
18%
VA
Tw
asin
trod
uced
and
Bur
undi
bega
nto
appl
yth
eco
mm
onex
tern
alta
riff
ofth
eE
astA
fric
anC
omm
unity
–Sc
alin
g-up
WFP
’sSc
hool
Feed
ing
and
Nut
ritio
nPr
ogra
mfo
rPr
imar
ySc
hool
s(S
FNP)
.O
rigi
nally
,the
gove
rnm
ent
budg
eted
US$
3m
illio
nto
serv
e12
0,00
0ch
ildre
n.H
owev
er,i
tonl
yal
loca
ted
US$
2.4
mill
ion
and
bene
fited
88,1
64ch
ildre
n–
The
oper
atio
nal
sosu
ppor
ted
incr
ease
dbu
dget
allo
catio
nto
aid
refu
gees
retu
rnin
gto
the
coun
try
afte
ra
ceas
efire
was
enac
ted
–T
houg
hno
tpar
tof
this
oper
atio
n,th
ego
vern
men
tis
impl
emen
ting
othe
rpo
licie
sth
roug
hdi
ffer
ent
fund
ing
sour
ces
(AfD
B,
Bel
gium
,Net
herl
ands
,N
orw
ay,e
tc.)
:exe
mpt
dies
elfr
omtr
ansa
ctio
nta
xes
and
impo
rtdu
ties,
subs
idie
sfo
rdi
esel
inpr
o-po
orse
ctor
s,di
stri
butio
nof
agri
cultu
ral
inpu
ts,r
ehab
ilita
tion
ofir
riga
tion
syst
ems,
etc.
Mad
agas
car
–E
xpan
sion
offo
odfo
rw
ork
and
scho
olfe
edin
gPr
ogra
ms.
An
estim
ated
US$
10m
illio
nar
eto
beal
loca
ted
–T
hego
vern
men
tis
impl
emen
ting
ari
cein
tens
ifica
tion
cam
paig
nto
boos
tpro
duct
ion
inth
esh
ort
run.
The
cam
paig
nai
ms
toin
crea
sepr
oduc
tivity
inex
istin
gri
cela
nds
and
tost
artr
ice
prod
uctio
nin
area
sth
atw
ould
notn
orm
ally
grow
rice
(US$
20m
illio
n)
–E
limin
atio
nof
aV
AT
for
rice
(fro
man
orig
inal
leve
lof
20%
).It
isex
pect
edth
atth
ism
easu
rew
ould
tran
slat
ein
tore
duce
dco
nsum
erpr
ices
due
toth
ehi
ghde
gree
ofco
mpe
titio
nin
the
rice
mar
ket
–T
heW
orld
Ban
kis
impl
emen
ting
alo
nger
-ter
mst
rate
gyin
Mad
agas
car
thro
ugh
aPo
vert
yR
educ
tion
Supp
ortC
redi
t(PR
SC)
(con
tinue
d)
498 M. Torero
Table
19.6
(con
tinu
ed)
Tra
depo
licy
Food
rese
rves
Soci
alpr
otec
tion
Supp
lypo
licie
sO
ther
sR
emar
ks
–Sp
ecifi
cally
,thi
spr
ogra
mw
ould
“str
engt
hen
the
supp
lyof
farm
ing
syst
emde
velo
pmen
ttec
hnol
ogy
pack
ages
gear
edat
prom
otin
gin
tens
ifica
tion
ofri
cecu
ltiva
tion.
The
prog
ram
will
beim
plem
ente
dby
serv
ice
prov
ider
sw
how
illbe
cont
ract
edth
roug
hpr
oduc
eras
soci
atio
nsan
dth
roug
hth
esu
bsid
izat
ion
ofth
ese
lect
edte
chno
logy
pack
age
via
the
inte
rmed
iatio
nof
mic
rofin
ance
inst
itutio
ns”
(PA
D,A
nnex
1,pg
ph.6
)
–E
limin
atio
nof
rice
VA
Tw
ould
enta
ila
fisca
llos
sof
US$
20m
illio
n–
The
Wor
ldB
ank
ispr
epar
ing
two
addi
tiona
lfin
anci
ngpr
opos
als
for
two
exis
ting
cred
its(“
Com
mun
ityD
evel
opm
entF
und”
and
“Rur
alD
evel
opm
ent
Proj
ects
”)to
stre
ngth
ensa
fety
nets
and
boos
tag
ricu
ltura
lpro
duct
ivity
inth
em
ediu
mte
rm
–T
heB
ank
appr
oved
the
PRSC
-5(t
hese
cond
com
pone
ntof
the
seco
ndPR
SCse
ries
)in
May
2008
.T
hePR
SC-5
aim
sat
“com
plem
entin
gth
esi
gnifi
cant
port
folio
ofon
goin
gIn
tern
atio
nal
Dev
elop
men
tAss
ocia
tion
inve
stm
entp
roje
cts
targ
etin
gin
fras
truc
ture
,env
iron
men
tal
prot
ectio
n,m
inin
g,ru
ral
deve
lopm
ent,
inte
grat
edgr
owth
pole
s,ir
riga
tion
and
wat
ersh
edm
anag
emen
t,an
dre
gion
alte
leco
mm
unic
atio
ns”
(PA
D,
pgph
.13)
–In
this
line,
the
curr
ent
oper
atio
nw
ould
“ena
ble
the
gove
rnm
entt
oco
ntin
ueto
mak
epr
ogre
sson
the
refo
rmpr
ogra
msu
ppor
ted
byth
ePR
SCpr
ogra
m,w
hich
wou
ldot
herw
ise
beje
opar
dize
dby
the
unan
ticip
ated
gap
infin
anci
ngfo
rth
e20
08an
d20
09bu
dget
s,in
clud
ing
the
mai
nten
ance
ofa
stab
lem
acro
econ
omic
fram
ewor
k”(P
AD
,pgp
h.23
)
19 Consistency Between Theory and Practice in Policy. . . 499
Sier
raL
eone
–Te
mpo
rary
redu
ctio
nsin
impo
rtdu
ties
for
the
follo
win
gpr
oduc
ts:
•R
ice
(fro
m15
to10
%)
•Fl
our
(fro
m20
to10
%)
•W
heat
(fro
m5
to2.
5%
)•
Suga
r(f
rom
20to
10%
)–
Add
ition
ally
,the
fixed
refe
renc
epr
ice
tova
lue
rice
impo
rts
was
esta
blis
hed
atU
S$37
5pe
rm
etri
cto
n(w
ellb
elow
prev
ailin
gw
orld
pric
e)–
The
impo
rtdu
tyon
petr
oleu
mw
asre
duce
dfr
om5
%of
CIF
adva
lore
mto
US$
20pe
rm
etri
cto
n.E
xcis
eta
xes
onpe
trol
eum
wer
eal
sore
duce
d–
As
the
inte
rnat
iona
lpri
ceof
petr
oleu
mre
duce
dsi
gnifi
cant
ly,i
tsta
riff
san
dex
cise
taxe
sw
ere
rest
ored
topr
ecri
sis
leve
ls–
Whi
leth
ere
have
been
som
ere
duct
ions
inth
epr
ice
ofri
ce,s
ugar
,whe
at,
and
flour
,the
seha
veno
tre
turn
edto
thei
rpr
ecri
sis
leve
ls,a
ndth
eta
riff
redu
ctio
nsw
ere
mai
ntai
ned
–T
hego
vern
men
tpr
otec
ted
the
prov
isio
nof
sele
cted
basi
cse
rvic
esfr
omth
eri
sing
cost
sof
food
and
fuel
–Sp
ecifi
cally
,the
gove
rnm
ents
eeks
topr
otec
tfoo
dai
dpr
ovid
edto
the
follo
win
gvu
lner
able
grou
ps:
•H
ospi
talp
atie
nts
indi
stri
ctho
spita
lsan
dco
mm
unity
heal
thce
nter
s•
Lac
tatin
gm
othe
rsan
dch
ildre
nun
der
five
inho
spita
ls•
Pupi
lsin
gove
rnm
ent
boar
ding
scho
ols
and
hand
icap
ped
child
ren
•C
hild
ren
inre
man
dho
mes
and
appr
oved
scho
ols
who
rece
ive
food
–G
over
nmen
tpro
vide
d71
,000
bush
els
ofse
edto
rice
farm
ers
–G
over
nmen
tuse
dfu
nds
from
ast
rate
gic
petr
oleu
mre
serv
eto
subs
idiz
epe
trol
eum
pric
esfo
r5
wee
ksbe
twee
nJu
nean
dJu
ly20
08–
The
Wor
ldB
ank
appr
oved
ase
para
teG
FRP
gran
tof
US$
4m
illio
nin
Aug
ust2
008
tosu
ppor
taca
sh-f
or-w
ork
prog
ram
.A
nad
ditio
nalU
S$4
mill
ion
GFR
Pgr
antw
asap
prov
edin
Nov
embe
r20
09to
scal
e-up
this
prog
ram
–O
ther
Wor
ldB
ank
oper
atio
nsai
mto
incr
ease
agri
cultu
ralp
rodu
ctio
nin
the
med
ium
and
long
run:
the
Rur
alan
dPr
ivat
eSe
ctor
Dev
elop
men
tPr
ojec
t(U
S$30
mill
ion)
and
the
Infr
astr
uctu
reD
evel
opm
entP
roje
ct(U
S$55
mill
ion)
–T
heW
orld
Ban
ksu
ppor
tsSi
erra
Leo
ne’s
Pove
rty
Red
uctio
nSt
rate
gy(P
RS)
.T
he20
05–0
7PR
Ses
tabl
ishe
dth
ree
actio
npi
llars
:(i)
good
gove
rnan
ce,
secu
rity
and
peac
ebu
ildin
g;(i
i)pr
o-po
orsu
stai
nabl
egr
owth
for
food
secu
rity
;and
(iii)
hum
ande
velo
pmen
t–
Att
hetim
eof
the
oper
atio
n,th
ego
vern
men
tw
aspr
epar
ing
the
2009
–11
PRS
–“T
hepr
opos
edgr
anto
fU
S$3
mill
ion
equi
vale
ntw
ould
supp
ortt
heG
over
nmen
t’s
PRS
bypr
ovid
ing
the
auth
oriti
esw
ithne
eded
fisca
lspa
ceto
part
ially
com
pens
ate
for
the
lost
reve
nues
resu
lting
from
the
rece
ntly
redu
ced
tari
ffs
onfo
odan
dfu
elim
port
s.T
his
supp
ortw
ould
help
miti
gate
the
impa
ctof
such
pric
ein
crea
ses
and
cont
ribu
teto
cont
inue
dba
sic
serv
ice
deliv
ery
for
vuln
erab
legr
oups
”(P
AD
,pg
ph.5
.1)
(con
tinue
d)
500 M. Torero
Table
19.6
(con
tinu
ed)
Tra
depo
licy
Food
rese
rves
Soci
alpr
otec
tion
Supp
lypo
licie
sO
ther
sR
emar
ks
Rw
anda
–G
over
nmen
tim
plem
ente
dth
eC
rop
Inte
nsifi
catio
nPr
ogra
m(C
IP),
prov
idin
gim
prov
edse
eds
and
fert
ilize
r–
The
rew
asa
pilo
tpro
ject
for
fert
ilize
rdi
stri
butio
ndu
ring
the
2008
seas
on:i
nor
der
tone
gotia
telo
wer
pric
es,t
hego
vern
men
ten
gage
din
bulk
purc
hase
s.Su
bseq
uent
ly,t
hego
vern
men
tdir
ectly
dist
ribu
ted
fert
ilize
rat
subs
idiz
edpr
ices
thro
ugh
farm
erlo
ans
–A
lbei
tpro
duct
ion
incr
ease
sin
CIP
,onl
y4
%of
fert
ilize
rlo
ans
from
the
pilo
twer
ere
cove
red
–A
dditi
onal
ly,i
ncre
ases
inin
tern
atio
nalp
rice
sar
elik
ely
tocr
eate
larg
efis
cald
efici
tsfo
rth
epr
ogra
m–
The
gove
rnm
entw
illim
plem
entr
efor
ms
rega
rdin
gth
eC
IP.W
hile
itw
illst
illbu
yfe
rtili
zer
inbu
lkqu
antit
ies,
itw
illca
rry
out
auct
ions
topr
ivat
ese
ctor
oper
ator
sw
hobi
dfo
rit.
The
gove
rnm
entw
illsu
bsid
ize
succ
essf
ulbi
dsbe
low
the
cost
.
–W
orld
Ban
kis
impl
emen
ting
othe
rpr
ojec
tsto
incr
ease
agri
cultu
ralp
rodu
ctio
nin
the
med
ium
and
long
run.
The
sein
clud
e:ir
riga
tion
infr
astr
uctu
re,a
ndac
cess
toru
ralm
icro
finan
ce
–Fu
nds
prov
ided
byth
isop
erat
ion
can
only
beus
edto
filli
nth
eim
med
iate
need
sfo
rth
efo
odcr
opin
tens
ifica
tion
prog
ram
.H
owev
er,f
ertil
izer
for
expo
rtcr
ops
(suc
has
tea
and
coff
ee)
can
bepu
rcha
sed
with
gove
rnm
entr
esou
rces
orfu
nds
from
alte
rnat
ive
dono
rs(e
.g.,
AfD
B)
–T
here
are
inhe
rent
risk
sto
this
proj
ect:
sust
aina
bilit
yj ,m
is-t
arge
ting,
crop
leak
age,
collu
sion
,ren
tsee
king
,poo
rco
stre
cove
ry,e
tc.H
owev
er,
noIC
Rre
port
isav
aila
ble
19 Consistency Between Theory and Practice in Policy. . . 501
The
rew
illbe
addi
tiona
lsu
bsid
ies
base
don
avo
uche
rsy
stem
.Cre
ditf
orfa
rmer
sto
purc
hase
fert
ilize
rsw
illbe
prov
ided
byth
epr
ivat
ese
ctor
i
a See
PAD
,Box
3bW
hile
part
ially
incr
ease
dfo
rhu
man
itari
anpu
rpos
es(“
toen
sure
that
ther
eis
enou
ghfo
odin
the
coun
try
tofe
edth
epo
pula
tion
ina
cris
isw
hen
impo
rtch
anne
lsm
aybe
tem
pora
rily
bloc
ked”
),th
ere
are
also
pric
e-st
rate
gic
purp
oses
(“to
ensu
reth
atth
efo
odst
ock
isla
rge
enou
ghto
influ
ence
,if
nece
ssar
y,th
eop
enm
arke
tpri
ce:::”
).Se
e:PA
D,p
gph.
64c “E
vide
nce
show
sth
atth
isis
not
wel
lta
rget
edto
the
poor
.Bas
edon
the
FIE
S20
06,N
FAri
ceac
coun
ted
for
only
13%
ofth
eto
tal
spen
ding
onri
ceby
the
poor
estq
uint
ile.M
oreo
ver,
40%
ofN
FAri
ceis
notc
onsu
med
byth
epo
or.O
nly
31%
ofth
eto
talc
onsu
mpt
ion
ofN
FAri
cego
esto
the
poor
estq
uint
ile”
(PA
D,p
gph.
39).
Due
toth
ese
leak
ages
,the
gove
rnm
ent
impl
emen
ted
fam
ilyac
cess
card
sto
poor
hous
ehol
dsin
Met
roM
anila
.Som
e27
0th
ousa
ndca
rds
have
been
issu
ed,b
utad
mitt
edly
“the
met
hod
used
toid
entif
yth
epo
orha
sbe
enle
ssth
anop
timal
.”dT
heIC
Rsu
gges
tsth
at:
(a)
“the
diff
eren
cebe
twee
ndo
mes
tican
din
tern
atio
nal
pric
es[o
fta
x-ex
empt
edit
ems]
was
high
erin
all
but
one
case
,th
atof
suga
r,af
ter
the
rem
oval
ofta
xes
inD
jibou
ti”(I
CR
,pgp
h.38
)an
d(b
)“e
xcep
tfor
suga
r,th
ere
sults
reve
alth
atth
em
ark-
upon
dom
estic
food
mar
kets
was
high
erth
anth
eon
ein
inte
rnat
iona
lmar
kets
”(
ICR
,pgp
h.39
)e T
his
isco
nsid
ered
am
ajor
mile
ston
esi
nce
allp
revi
ous
popu
latio
nst
atis
tics
wer
eba
sed
ona
1991
dem
ogra
phic
surv
ey(I
CR
,pgp
h.52
)f T
his
incl
udes
:(i
)su
ppor
tfo
rpr
oduc
tive
infr
astr
uctu
re,(
ii)te
chno
logi
cal
inpu
ts,(
iii)
finan
cial
inst
rum
ents
tom
itiga
tebo
thcr
edit
and
agri
cultu
ral
risk
,(iv
)en
hanc
edgr
ain
stor
age
faci
litie
s,an
d(v
)fo
odse
curi
tygT
his
isa
part
icip
ator
ysy
stem
:“t
heid
entifi
catio
npr
oces
sis
carr
ied
out
byvi
llage
repr
esen
tativ
es,
with
the
supp
ort
and
supe
rvis
ion
ofth
eco
mm
une
coun
cil,
asw
ell
asdi
stri
ct-l
evel
repr
esen
tativ
es.V
illag
ere
pres
enta
tives
are
resp
onsi
ble
forc
ondu
ctin
gho
useh
old
inte
rvie
ws,
asse
ssin
gho
useh
old
“pov
erty
scor
es”
acco
rdin
gto
the
info
rmat
ion
gath
ered
thro
ugh
the
inte
rvie
ws,
and
prep
arin
gdr
aft
lists
ofpo
orho
useh
olds
.Dra
ftlis
tsar
eth
endi
spla
yed
inpu
blic
loca
tions
,so
that
villa
gers
are
able
tovi
ewth
eman
dpo
ssib
lyco
mpl
ain
duri
ngor
follo
win
gth
evi
llage
cons
ulta
tion
mee
ting,
held
befo
reth
efin
allis
tof
poor
hous
ehol
dsis
subm
itted
toth
eco
mm
une
coun
cil”
(PA
D,p
gph.
48)
h“T
hecl
arifi
edpo
licy
stan
ceon
the
expo
rtof
agri
cultu
ralp
rodu
cehe
lped
inpa
rtic
ular
the
smal
lagr
icul
tura
lpro
duce
rsw
hich
had
deve
lope
da
succ
essf
ulre
gion
altr
ade
ina
num
bero
fagr
icul
tura
lm
arke
ts.I
twas
estim
ated
byth
eG
uine
anas
soci
atio
nof
pota
togr
ower
sth
atth
ese
alon
eha
dlo
stth
eeq
uiva
lent
ofU
S$8,
000
ada
y,w
hen
expo
rts
wer
eba
nned
”(I
CR
,p.1
3)i “T
here
iscu
rren
tlyan
info
rmat
ion
and
sens
itiza
tion
cam
paig
nun
derw
ayw
ithth
eun
ion
ofpo
pula
rba
nks
and
mic
ro-fi
nanc
ein
stitu
tions
.T
heai
mof
the
cam
paig
nis
toin
form
farm
ers
ofth
efe
rtili
zer
prog
ram
and
the
pote
ntia
lnee
dfo
rac
cess
tofin
ance
,and
the
pote
ntia
lre
turn
s.Te
chni
calm
odifi
catio
nsof
the
Agr
icul
tura
lG
uara
ntee
Fund
(AG
F)ha
vebe
enpr
opos
edto
redu
ceth
etr
ansa
ctio
nco
sts
for
mic
rofin
ance
inst
itutio
nsto
acce
ssth
eA
GF,
ther
eby
prov
idin
gm
arke
t-ba
sed
ince
ntiv
esfo
rpa
rtic
ipat
ion.
Itis
fully
expe
cted
that
leav
ing
the
cred
itsi
deto
finan
cial
inst
itutio
ns—
whi
char
em
ore
equi
pped
than
gove
rnm
entt
om
ake
and
reco
ver
loan
s—w
illre
sult
inm
uch
high
erlo
anre
cove
ryra
tes
com
pare
dto
leve
lsla
stye
ar”
(PA
D,p
gph.
17)
j The
PAD
clai
ms
that
“as
fert
ilize
rpr
ices
norm
aliz
e,an
das
farm
ers
beco
me
mor
efa
mili
arw
ithth
ebe
nefit
sas
soci
ated
with
fert
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502 M. Torero
Table 19.7 Summary of operations
Official position of World Bank during2007/08
Policies recommended by the WorldBank after 2008
Consistent Not consistent Consistent Not consistent
Mozambique X XBangladesh X XPhilippines X X XDjibouti X X XHonduras X XHaiti X X XCambodia X X (export ban) X XMali X X X XGuinea X X (export ban) X XBurundi X X XMadagascar X X XSierra Leone X X X XRwanda X X
Following an assessment of each of the specific operations for the 13 developingcountries, benefits are analyzed and summarized in Table 19.7:
(a) Mozambique: Overall, consistent with the policy recommendations in 2007/08and after 2008. The government allowed a pass-through of international priceswhile protecting vulnerable groups (expanding PSA program). In addition,through the GFRP operation, the World Bank supported the implementationof reforms to increase agricultural productivity through the provision ofinfrastructure and public goods (technology adoption, construction of silos,agricultural infrastructure, etc.).
(b) Bangladesh: Overall, consistent with the policy recommendations on tradein 2007/08 but not consistent with later World Bank research after 2008.Specifically, the GFRP operation was used in accordance with the GFRPframework to support the reduction of import duties for rice and wheat, andthere was an increase of public food stocks (at least partially to act as pricebuffers) from 1 to 1.5 million tons. On the other hand, it is important to mentionthat the increased public targeting for aid programs was positive in terms ofperformance of the program in identifying the proper beneficiaries. However,most of it was untargeted and had severe leakages (e.g., large share of budgetallocated to open market sales).
(c) Philippines: The GFRP operation resulted in a combination of policies whichwere consistent with the official World Bank policy recommendations in2007/08 and were both consistent and inconsistent with the post-2008 rec-ommendations. On the consistent side, as a result of the GFRP operation, thegovernment launched the Household Targeting System for Poverty Reduction(NHTS-PR) and introduced a CCT (Pantawid Pamilya). In addition, the NHTS-
19 Consistency Between Theory and Practice in Policy. . . 503
PR will become a targeting instrument for other social programs, and the Foodfor School Program is prioritizing the poorest provinces and municipalities toenhance targeting of the most vulnerable share of the population. Finally, thegovernment pushed for a regional rice reserve mechanism through ASEAN,which is an emergency regional rice reserve to assure food security in the regionand which has a very clear trigger mechanism and governance. In addition, thecountry was engaged in large rice import tenders, exacerbating increases ininternational food prices, but the GFRP made the government commit, as partof the loan, to change its tendering policy in a way that would reduce prices.The government also agreed to withdraw a big tender that was going to increaseprice pressure in the international market. Finally, bilateral rice deals wereestablished, reducing pressure on external markets. These policies, althoughconsistent in the short term with the GFRP framework, are inconsistent withlater World Bank recommendations. In the medium term, the government isdue to lift quantitative trade restrictions by WTO agreements, and there is amedium-term plan to transfer rice trade to the private sector. However, currentlythe National Food Authority (NFA) has the monopoly over rice imports. NFAstill concentrates a significant proportion of its food aid budget, which is poorlytargeted. NFA’s reserves act as a buffer stock for price stabilization.
(d) Djibouti: The GFRP operation resulted in a combination of policies whichwere consistent in general with the official World Bank policy but which,at the same time, were inconsistent with the policy recommendations after2008. On the consistent side, when the crisis started, there were few socialprotection mechanisms; the government was able to expand the WFP-operatedfood assistance program in rural areas (one of the few existing) with GFRPsupport. It also completed a population census as a first step to implementdirect and targeted protection mechanisms for the poor and provided supportfor fisheries to boost food production. On the inconsistent side with the post-2008 recommendations but consistent with the GFRP framework and officialpolicy of the World Bank, the government eliminated the consumption tax rateson five basic staples; this policy was not effective in reducing consumer foodprices. Low pass-through rates were probably due to high concentration in thefood market (few importers and distributors) and security risks posed by piratesin international waters.
(e) Honduras: Overall, consistent with the policy recommendations. The proposedoperation seems to be more oriented to releasing funds for the government toaid the financial sector, given the government is concerned about the effect ofincreasing food prices on households’ real income; therefore, the governmentuses the resources as a buffer to mitigate the expected adverse effect on banks’outstanding portfolio of consumer loans. However, the financial sector was notthe real target of the operation; it was just the fastest way to transfer cash to thegovernment for more general crisis response policies.
(f) Haiti: The GFRP operation resulted in a combination of policies which wereboth consistent and inconsistent with the policy recommendations. On theconsistent side, as a result of the GFRP, a “Program of Action against the
504 M. Torero
High Cost of Living” (with a focus on employment generation through labor-intensive works and expansion of food assistance programs) was developed.In addition, the government also implemented what they refer to in the GFRPframework as a second best policy, i.e., subsidies to reduce the price of ricebetween May and December 2008 (US$30 million). However, there are specificcircumstances that need to be met for the Bank to accept this type of policy(see GFRP Framework document p.26, para. B2). Moreover, post-2008 thesepolicies were not supported.
(g) Cambodia: The GFRP operation resulted in a combination of policies whichwere consistent with the GFRP framework and official position of the WorldBank. Despite the initial ban on rice exports in March 2008, they lifted thisban in May 2008 and are currently seeking to promote rice production. Themain policy is to create price incentives by promoting exports (goal of onemillion tons of milled rice exported by 2015). In addition, they expanded the“Identification of Poor Households Targeting Program” to be applied to safetynets, implemented food for cash and food for work programs, and boostedcredit for milling facilities which act as an interface between smallholdersand markets. In addition, consistent with the GFRP framework and officialWorld Bank position in 2008, the GFRP operation subsidized fertilizers bythe suspension of the VAT and by implementing a pilot for “smart subsidies”using vouchers to be distributed to smallholders. However, this type of policywas not recommended post-2008, given (as it has been shown in the case ofMalawi) that it bears the risk of significant fiscal deficit. Finally, the governmentregulated the fertilizer market in principle to avoid adulteration; however, mostof the adulteration appears to happen in Vietnam (from where fertilizer isimported) rather than in Cambodia.
(h) Mali: The GFRP operation resulted in policies which were both consistent andinconsistent with the official policy recommendations of the World Bank andwith what was recommended after 2008. On the consistent side, the governmentincreased seed availability for locally produced rice varieties and improvedmarketing channels to facilitate relationships between producer organizations.Finally, a program of subsidies for equipment, access to water/irrigation, andextension services was implemented. On the inconsistent side, the governmentintroduced 6 month VAT and tariff exemptions for rice, implemented a price-stabilizing buffer stock through the Food Security Commission, introducedsubsidies on crop inputs which were not “smart subsidies,” and finally, despiteacknowledgement of weak safety nets, made no efforts to strengthen them.
(i) Guinea: The GFRP operation resulted in a combination of policies whichwere both consistent and inconsistent with the official World Bank policyrecommendations and with the post-2008 recommendations. On the consistentside, in both policies recommended in 2008 and after 2008, the governmentimplemented a safety net system to distribute take-home rations for childrenof families of 5C members, an emergency school feeding and nutritionsupport, and an emergency urban labor-intensive public works program. Onthe inconsistent side, the country imposed a ban on agricultural exports in
19 Consistency Between Theory and Practice in Policy. . . 505
2007; although it was lifted in 2008 for most products, it was not lifted forrice. Although the GFRP operation did not support this, the government couldhave included a conditionality to be able to obtain the loan. In addition, andconsistent with the GRFP framework but not the post-2008 recommendations,with support from the GFRP, the country was able to eliminate custom dutiesfor low quality rice between June 1 and October 31, 2008, and initiated plansto build an emergency food reserve of 25,000 metric tons, although it isnot clear if this is for humanitarian or price-stabilizing purposes. Finally, thegovernment implemented the “Emergency Agricultural Productivity Support,”which includes the distribution of subsidized seed and fertilizer packages to70,000 smallholder farmers, although these were not the type of smart subsidiesproposed by the GRFP framework.
(j) Burundi: The GFRP operation resulted in a combination of policies whichwere both consistent and inconsistent with the official World Bank policyrecommendations. On the consistent side, the government scaled up WFP’sschool feeding and nutrition program. However, funds allocation and thenumber of beneficiaries fell short of initial goals. In addition, the governmentsupported the return of refugees to the country. Finally, and consistent withthe GRFP framework but inconsistent with post-2008 recommendations, thegovernment implemented exemption of transaction taxes and import dutiesuntil July 2009.
(k) Madagascar: The GFRP operation resulted in a combination of policieswhich were consistent with the official World Bank policy recommendations.The government expanded the food for work and school feeding programsand introduced a rice intensification campaign through producer associations.This program aims to provide subsidies for selected agricultural technologiesthrough microfinance institutions. Finally, the government eliminated the VATfor rice, which, although consistent with the GFRP framework, was notconsistent with post-2008 recommendations.
(l) Sierra Leone: The GFRP operation resulted in a combination of policieswhich were both consistent and inconsistent with the official World Bankpolicy recommendations. On the consistent side, the government protectedselected basic services from increasing costs of food and fuel (those for hospitalpatients, lactating mothers, government’s boarding schools, etc.). In addition,the tariffs for four products were reduced; this reduction is to be maintaineduntil prices return to precrisis levels. On the inconsistent side, the governmentprovided fully subsidized rice seed to farmers (71,000 bushes), which were nottargeted as the “smart subsidies” strategy recommended in the GFRP.
(m) Rwanda: The GFRP operation resulted in policies which were inconsistentwith both the official World Bank policy recommendations and the post-2008recommendations. Specifically, the government implemented the Crop Intensi-fication Program for food crops which included significant market interventionby the government: (a) purchasing fertilizers in bulk in international markets;(b) auctioning fertilizer to private traders; (c) promoting private microcredit forsmallholders; and (d) providing additional targeted subsidies through vouchers.
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This program has significant risks: mis-targeting, crop leakage (i.e., cannot beused for export crops), collusion among traders, and an extremely low loanrecovery rate (during a pilot in 2008, recovery was only 4 %).
19.5 Final Remarks
The world faces a new food economy that likely involves both higher and morevolatile food prices, and evidence of both conditions was clear in 2007/08 and 2011.After the food price crisis of 2007/08, food prices started rising again in June 2010,with international prices of maize and wheat roughly doubling by May 2011. Thissituation imposes several challenges. In the short run, the global food supply isrelatively inelastic, leading to shortages and amplifying the impact of any shock.The poor are hit the hardest. In the long run, the goal should be to achieve foodsecurity. The drivers that have increased food demand in the last few years are likelyto persist (and even expand). Thus, there is a significant role for the World Bank toplay in increasing the countries’ capacity to cope with this new world scenario andin promoting appropriate policies that will help to minimize the adverse effects ofthe increase in prices and price volatility, as well as to avoid exacerbating the crisis.
In this regard, this chapter describes some of the most important official policiesthat the World Bank prescribed to different countries during the food crisis of2007/08. In addition, it compares those policies to what was proposed by WorldBank research after 2008. The chapter focuses on the proposed short-term, medium,and long-term policies. In terms of short-term policies, two mechanisms areemphasized: support for the poor and price stabilization (with an emphasis on traderestrictions and food reserves). In terms of medium- and long-term policies, wefocus on the recommendations linked to increasing agricultural productivity throughproductivity gains and elimination of postharvest losses.
In support of the poor, Targeted Cash Transfers (TCT) and Conditional CashTransfer (CCT) programs already in place clearly constitute first-best responses forseveral reasons: (a) they prioritize assistance for targeted groups, (b) they do notentail additional costs of food storage and transportation, (c) they do not distortfood markets, and (d) in the case of CCTs, they explicitly prevent human capitaldeterioration. When TCTs and CCTs are not available, governments may alsoimplement other types of assistance programs, although this could bring someinefficiency. Therefore, in poor countries where TCTs and CCTs are not yet inplace (such as most Sub-Saharan Africa), it is essential that during noncrisis years,countries invest in strengthening existing programs—and piloting new ones—toaddress chronic poverty, achieve food security and human development goals, andbe ready to respond to shocks. Across the different GFRPs, we see these policiesimplemented by the World Bank, specifically in the Philippines, Djibouti, Haiti,Cambodia, Guinea, Burundi, and Madagascar.
In terms of short-term price stabilization policies through trade policies andmanagement of food reserves, we identify important inconsistencies in what wasrecommended in the official position by the World Bank, through the GFRP
19 Consistency Between Theory and Practice in Policy. . . 507
framework document and in the G8’s document prepared for the Ministers ofFinance Meeting in 2008, and in post-2008 recommendations. Clearly, the officialrecommendations in 2008 were more flexible, especially in regards to trade policiesand physical reserves, and in some cases allowed short-term interventions that couldend in pervasive market distortions. As a result, most of the operations under theGFRPs were consistent with the official policy recommendations with the exceptionof Cambodia, Guinea, Sierra Leone, and Rwanda (see summary in Table 19.7).
On the other hand, if we look at the post-2008 recommendations, all of themwill avoid any potentially pervasive market distortions. Even more, regardingtrade policies, most of the work of the World Bank will advise against any traderestrictions (on both the import and the export side). In that sense, if we assessex post the GFRP operations, we find that in many of the countries, the policiesimplemented as a result of the GFRP created additional trade restrictions otherthan export bans, which was the only bad policy identified in the GFRP frameworkdocument. This was the case for Bangladesh, Philippines, Mali, Guinea, Burundi,and Sierra Leone.
Nevertheless, and as explained in Sect. 19.3, it is important to mention that whatthe GFRP framework recommended in 2008 relative to what was recommendedpost-2008 is in a certain way justifiable as a short-term measure given that all inall, trade policies may be an effective instrument for short-term price stabilizationpurposes in some nations: those facing considerable political unrest, lackingadequate food distribution networks, with no safety nets available, etc. However,they may have important beggar-thy-neighbor consequences and may fuel priceincreases of important commodities. The 2007/08 food crisis—especially in thecase of rice—is quite illustrative in this respect. Insulating trade policies imposedby importers and exporters (as well as high-income and developing countries)were indeed responsible for a considerable share of price spikes. However, evenwhen the aggregate effect of the actions of these broad groups is quite large, mostof the turmoil was likely caused by large exporters and importers. In this sense,if the argument is that such policies create further imbalances for others, policyrecommendations should distinguish between larger and smaller countries; from allthe countries where we see these inconsistencies, the Philippines is the only onefalling into the category of a significant importer of rice where the World Bankshould be clearly against import tenders and quantitative restrictions, given theyclearly helped to exacerbate international prices in the rice market.
With respect to food reserves, the discussion seems to highlight the need for foodreserves to ease the effect of shocks during periods of commodity price spikes andvolatility. There seems to be some consensus around this idea. The disagreementstems from the specific mechanisms to implement food reserves. As in the caseof trade interventions, the most appropriate choices are likely to depend on thecharacteristics of the specific market under intervention, the country’s capacityto cope with crises, and the possibility of establishing international coordinationmechanisms. While it likely does not make sense to establish national buffer stocksin most grain markets, it may be more valid in a few cases, such as in the ricemarket. Again, however, regional reserves with strong governance and clear triggers
508 M. Torero
are preferred. However, it is important to mention that the GFRP framework is notextremely clear on this in difference to what was recommended post-2008. It is inthat sense that when analyzing the operational plans of the GFRPs, proposals canbe identified that promote country-level reserves as buffer stocks, as in the case of:(a) Bangladesh where the stocks were increased from 1 to 1.5 million MT of rice,(b) the NFAs in Philippines, and (c) the NFAs in Guinea. It could also be argued thatthese reserves were consistent with the official position of the World Bank throughthe GFRP framework, although clearly these types of policies are problematic incountries where the necessary conditions for these reserves to work don’t exist.Additionally, buffer stocks usually entail high costs and market distortions and areprone to corruption. Thus, most countries—especially those with weak institutionsand scarce resources—should probably refrain from using buffer stocks.
Finally, with respect to the medium- and long-term policies, we see significantinvestment in the GFRPs (e.g., the provision of infrastructure and public goodsin Mozambique, increasing seed availability in Mali, and the rice intensificationprogram in Madagascar). In addition, and as recommended in the GFRP frameworkdocument, we also see the important presence of input subsidies similar to thosethat have failed in Malawi with a fiscal cost of around 3 % of the GDP. These plansenvisage the implementation of a market-smart approach to input subsidies. Such astrategy is characterized by: (a) targeting poor farmers; (b) not displacing existingcommercial sales; (c) utilizing vouchers, matching grants, or other instrumentsto strengthen private distribution systems; and (d) being introduced for a limitedperiod of time only. Albeit outlining a sensible rationale, it is unclear how theseprinciples would be implemented in practice in poor countries like in the GFRPs inHaiti, Cambodia, Mali, Sierra Leone, and Rwanda. Poorer countries—which likelyhave the least developed input markets—may find it difficult to target only thosefarmers in need. Additionally, subsidy programs that would strengthen, rather thandisplace, the private sector are likely to require complex mechanisms. Institutionalweaknesses of poor countries may render them unfeasible, aside from the fiscalcosts.
It is important to note that in many countries, input markets are not welldeveloped, as they are hampered by various policy, institutional, and infrastructureconstraints that can only be overcome over time, while improvement in accessto inputs would provide substantial benefits in the short run, given the crisiscircumstances. It is in that sense that the “smart subsidies” proposed under theGFRP framework could be conceptually justifiable even though as a short-termmeasure they can also create fiscal problems as previously mentioned based on theMalawi experience. Moreover, it is of central importance that any “smart subsidy”policy includes the five key characteristics mentioned in the previous paragraph.Furthermore, a long-time horizon is required to apply the “first-best” policies,namely, the alleviation of constraints (such as infrastructure and missing creditmarkets) which inhibit the development of efficient input markets.
Therefore, although this “second best measure” in the face of existing constraintsas stated in the GFRP framework document could be justifiable in the short term thekey is to assure all other needed elements are in place for its success; specifically,
19 Consistency Between Theory and Practice in Policy. . . 509
it has to be guaranteed that investments to alleviate the key constraints of the inputmarket are also started at the same time. All of these arguments are conceptuallyvalid, although their applicability in any given country cannot be taken for granted;in most cases, applicability was not actually and explicitly verified in the assistanceprograms funded under GFRP, and the key four characteristics of the proposed“smart subsidies” strategies were not validated in advance.
In summary, when assessing the consistency of the specific loans and policiesprescribed officially by the World Bank for selected countries during the 2007/08food crisis, we identify that (given the significant flexibility of the World Bankofficial recommendations) most of the loans comply with what was proposedin the GFRP framework. However, when analyzing the consistency of thoserecommendations to the research results published by the World Bank post-2008,we found significant inconsistencies, especially in short-term policies. As a result,it is extremely important for the World Bank to carefully assess the risks and costsof the implementation of the official, more flexible, recommendations of the GFRPagainst what is currently being advocated at the Bank and to carefully assess how toavoid these inconsistencies in the future.
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