THE FOOD CRISIS & CHANGING VIEWS OF THE

ROLE OF THE STATE2008 World Bank-IMF Annual Meetings

Civil Society Policy ForumActionAid Int’l and Oxfam Int’l Meeting

October 10, 2008

Christopher Delgado Rural Strategy and Policy Adviser

Agriculture and Rural Development Department The World Bank

State of the Food Crisis

Food prices declining, but likely to Food prices declining, but likely to remain high relative to past 30 yrs.remain high relative to past 30 yrs.

Food price index (nominal $)

0

50

100

150

200

250

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: IMF index of food prices

Fertilizer prices continue to surge upwards

0

100

200

300

400

500

1960 1970 1980 1990 2000

Real fertilizer prices, 1960-2008*Index in constant 2000 $s relative to MUV

Increased volatility in food prices anticipated, as grain stocks likely

to remain at record lowsWorld Grain Stocks-to-Use

05

10

15202530

3540

1960 1970 1980 1990 2000

%

Countries with food price protests and riots, Jan. 2007- May 2008

Source: USAID Office of Food for Peace

Global Information and Early Warning System: 33 Countries in Crisis

Shortfall in aggregate food production/supplies

Widespread lack of access

Severe localized food insecurity

Source: http://www.fao.org/giews/english/hotspots/map_m.htm

August 22, 2008

Why have food prices risen?--demand

Sustained food demand from emerging markets (of the 73 million net additional persons in the global population each year, 97.5% are in developing countries)

Diet changes, from grain to more diversified diet, meats and dairy with higher derived demand for grains and oilseeds

Biofuel policies => demand shift, particularly in the United States (corn-based ethanol), and Europe (rapeseed for biodiesel), Argentina (soybeans for biodiesel)

Why have food prices risen?--supply

Increasing production costs, sharply increasing costs of energy, transport, and fertilizer, and competition for land and water for biofuel croips, esp. in OECD

Drought, flooding, pests and disease in key grain regions, these shocks are hard to deal with when stocks are low

Disappearance due to policy reforms of stabilizing sales from large intervention stocks in USA and EU that had been built up to support producer prices

Impacts on povertyImpacts on poverty

Increase in the number of global poor due to rising food prices estimated exceed 100 million

The number of undernourished people could increase by up to 44 million in 2008 alone to reach 967 million, up from 848 million in 2003

Already poor households suffer further detrimental effects beyond increase in poverty headcount (decreased access to educ./health)

Rising inequality from recent rise in food prices Gini index of inequality raised by 5% in Bangladesh Rich-poor gaps widening in Latin America

10

Global food prices: recent changes

International food prices are declining, but likely to remain high relative to 2005 levels

Weakening import demand and improved supply have lowered global prices somewhat

Domestic prices have not declined to the same extent as international prices in many countries Food price inflation remains very high (92% in Ethiopia,

22.5% in Liberia, 23.7% in Togo, 76.4% in Afghanistan) Fertilizer prices continue to surge upwards,

despite recent declines in energy and natural gas prices

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Negative impacts likely to continueNegative impacts likely to continue

Increased volatility in food prices anticipated, as grain stocks are still at record lows

Increased input prices linked to oil a major concern, likely to discourage smallholders who supply most of the food in developing countries

Countries are in the process of reverting to the food policies of the 1970s (food self-sufficiency at any cost, costly strategic grain reserves, reversal of diversification policies, etc) which would eventually be harmful to both poverty alleviation and food security

What Is the Bank Doing w.r.t. the Food Crisis?

Applying response lessons from the avian influenza crisis

Speed of response is critical Rapid national response planning and

coordination, and country-based needs assessments are essential

Alignment with national priorities, & national ownership, are central

Emphasize flexibility and simplicity in program design

Pragmatism for immediate responses, balanced with focus on sustainability over the medium term

Carefully coordinated communications strategy

Consensus on lessons

Avoid short-term policies targeting short-term food insecurity that have difficult longer-term implications

Short-run policies require planning exit strategies in advance

Different countries need different policies, depending on:institutions, capacitygovernance requirements size of country and history of trade, etc.

Promote longer-term agricultural growth

Food prices: short-run options

Reduce Food Grain Taxes/Tariffs School Feeding Programs Conditional Cash Transfers to the Poor Targeted Food Subsidies Cash for Work Food for Work and Food Aid Build-up Government Buffer Stocks for

Distribution Food Rationing Price Controls Export Restrictions/Taxes Export Bans Worse policy choices

Better policy choices

Food prices: international actionFood prices: international action

Finance Ministers at the April 2008 World Bank-IMF Spring Meetings endorsed a “new deal” for a global food policy to embrace a short, medium and long-term response:

Support for humanitarian assitance (WFP) Support for systems of safety nets Increased agricultural productivity Better understanding of the impact of

biofuels Action on trade to reduce trade barriers

Internal consensus on immediate vehicles for Bank responses

• Priority to support fundraising by WFP• Rapid financing to countries• Policy analysis linking country to global• Risk mitigation using financial tools as

well as physical hedging• Social protection• Maintain productive capacity and transit

to longer term food production viability

Coordination with United Nations on food crisis response

WB response to the food crisis has been in close collaboration and partnership with the UN as agreed in Berne, April 28-29, 2008

UN Task Force on the Global Food Crisis has functioned throughout with active WB senior management and staff participation, including staff outposting to NY

The Comprehensive Framework for Action (CFA) was collaboratively prepared by UN Agencies, World Bank, IMF, WTO, OECD in consultation with countries and civil society organizations

27 countries identified for intensive and coordinated response to realize CFA outcomes: 17 countries in AFR, 5 in SAR, 2 in MENA, 2 in LAC and 1 in ECA. The Bank is working in 22 of these countries through GFRP

19

The Bank’s Global Food Crisis Response Program (GFRP)

Approved May 29 Umbrella for providing rapid Bank support for a

comprehensive response to the crisis Provides balance between short run food stabilization and

measures to ensure countries able to cope better in medium term, including longer term action and lending to enhance agricultural productivity

Fast-tracking of up to $1.2 billion of Bank resources: existing country envelopes, re-programmed funds, regional IDA funds where appropriate, a new $200 million trust fund from IBRD surplus (Food Price Crisis Response Trust Fund)

Greatly expedites procedures for rapid response

Menu of GFRP Components Component 1: Food price policy and market stabilization

Examples: Support for grain stock management, improved use of market-based instruments to manage food prices, tax and trade policies

Component 2: Social protection actions to ensure food access and minimize the nutritional impact of the crisis on the poor and vulnerable Examples: Cash transfer program (CCTs, food stamps), school

feeding, targeted food supplements and micronutrients

Component 3: Enhancing domestic food production & marketing response Examples: Seed and fertilizer supply and market development,

Rehabilitation of small-scale irrigation, Strengthening access to finance and risk management tools

Component 4: Implementation support, communications and monitoring and evaluation

Overview of World Bank lending in response to the food crisis

Global Food Crisis Response Program (GFRP): $851 million approved and pipeline Food Price Crisis Response (FPCR) Trust Fund:

$200 million committed IDA/IBRD (including reallocations): $651 million Multi-donor Trust Fund established, first

contribution of A$50 milion rec’d yesterday from Australia

Additional $400 million non-GFRP food crisis response approved and pipeline

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Activities financed through approved GFRP operations by region (%)

Budget support: activities include reduction in food prices through trade and tax policy measures; social protection programs and emergency interventions and support to agricultural production

Investment lending: social protection includes school feeding, cash for work, nutrition, health, and cash transfers; agriculture includes seeds, fertilizers, rehabiliation of irrigation infrastructure, livestock and post-harvest infrastructure

  SS AfricaM.E. &

N. AfricaEurope & C. Asia

Lat. Am. &

Carib. S. Asia

( % of Total Approved GFRP Projects)

Budget support (DPOs) 18 3   10  

Investment lending

Social protection 10 5 8   8

Agriculture 16   5   12

Project management, M&E 2   1   2

TOTAL (100%) 46 8 14 10 22

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Other non-GFRP food crisis-related lending

$90 million in additional IDA funding in AFR approved for food crisis response in 7 countries since April 2008

Programs include: Fertilizer supply in Ghana Improved seed distribution and nutritional safety nets in Burkina

Faso Provisions for therapeutic feeding in Eritrea Improving maize productivity in Malawi

An additional $295 million in the IDA pipeline for food-crisis-related lending in Africa not under GFRP, coming for Board approval in the next six months

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Examples of early resultsExamples of early results

Rwanda: Supplementary financing to a development policy grant of $10 million. Results to date: grant has helped fill an unanticipated financing

gap; enabled fertilizer imports and also helped maintain the Govt’s overall reform program, including a more private sector oriented fertilizer distribution system

Sierra Leone: A new development policy grant of $3 million and $4 million additional financing (AF) for emergency safety net response through the National Social Action project. Results to date: grant partially compensated the lost revenues

from reduced food and fuel tariffs. Fiscal space created will help provide basic services to almost 21,600 mothers and children. Grant support has been provided for a cash-for-work program expected to generate at least 849,000 person-days of employment

25

Early results (cont.)

Liberia: $10 million grant supporting three projects: AF for agricultural and infrastructure development project ($3 million) and community empowerment project ($3 million), and new investment lending project on food support for vulnerable women and children ($4 million) Results to date: $2.45 million has been used to support pre-school and

primary school feeding programs, and to provide rations for pregnant and lactating women

Kyrgyz Republic: IDA funding of $10 million through additional financing of two projects: agricultural investment and services project ($4 million) and health and social protection project ($6 million) Results to date: IDA funding is providing seeds, fertilizers and training

for farmers. Vitamin A supplements are also being provided to 130,000 postpartum women and 500,000 children under age 5 26

Early results (cont.)

Haiti: Supplementary financing of $10 million to a development policy grant The grant has contributed to maintaining

macroeconomic and social stability, ensured the availability of resources for Govt. to continue to provide critical social and infrastructure services for the poor

Djibouti: Development policy grant of $5 million Results to date: Grant funding has supported the

suspension of tariffs/taxes on basic food staples, consumers have benefited from lower food prices

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Food priorities going forward Implementation of better ways of working with UN

agencies in the field, especially on procurement Shift in focus from immediate short-term needs to

more medium-term responses Increasing smallholder agricultural productivity Ensuring adequate safety net systems are in place to

cope with greater volatility in the future More attention to better nutrition

Continuing to increase regular program (incl. IFC) new annual lending to agriculture and safety nets

Collaboration in discussions/AAA with other agencies and private sector of possible new international modalities for managing grain market risks for poor countries and humanitarian agencies

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A Changing View of the Role of the State in the Longer Term

Agricultural Investments of the World Bank

(best expressed in WDR2008– Agriculture for Development)

30

Agricultural-based countries spend too little on agriculture (and R&D)

Ag GDP/GDP

0

2

4

6

8

10

12

14

Agriculture based Transforming Urbanized

perc

ent

Public Spending on Ag (% of Ag GDP)

Spending on Ag R&D (% of Ag GDP)

29

16

10

0

5

10

15

20

25

30

35

Agriculture-based Transforming Urbanized

perc

ent

31

0

1

2

3

4

5

6

7

1975-79 1980-84 1985-89 1990-94 1995-99 2000-02

Per

cent

of A

g. G

DP

Subsidies

Public Investment

Crowding out of long term public goods by short term

private ones

SubsidiesA major South Asia power….

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Donor support to agriculture 1990-2004

% rural poverty

% ODA to Ag

Donors have dropped the ball…

-

10

20

30

40

50

60

70

80

90

100

1990 1992 1994 1996 1998 2000 2002 2004

% p

overt

y in

ru

ral are

as

0

2

4

6

8

10

12

14

% O

DA

to a

gri

cult

ure

OFFICIAL DEVELOPMENT

ASSISTANCE

(12% in 1990)

PUBLIC SPENDING

(Sub-Saharan

Africa)

AGRICULTURE 4%

RURAL

75%

AGRICULTURE 4%

So have developing country States

WORLD POOR

Priorities from WDR 2008

1. Accelerate smallholder productivity increases for agricultural growth and food security in Africa

2. Follow a comprehensive approach to reduce sectoral disparities and poverty in transforming countries of Asia

3. Enhance sustainability and environmental services from agriculture

4. Pursue multiple pathways out of poverty: smallholder farming, labor market, rural non-farm employment, migration

5. Improve the quality of governance in agriculture at local, national, and global levels

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Role of the State in WDR Role of the State in WDR 20082008

Delivering key public goods

Productivity and information enhancement

Infrastructure and institutions, rule of law

Making growth pro-poor

Connecting smallholders to new markets

Improving assets of the poor, especially women

Improving governance

New state roles, coordination, decentralization

Global governance issues (trade, standards, animal health, biodiversity, climate change, donor support)

WB Group new lending for food and agriculture since April 2008

US$ million, over 5 months

Agriculture: Lending under the Agriculture and Rural Sector Board36

214365932439582271160Total

5555World

257602912017168SAR

64382630230MNA

2381365416112748LCR

39321976836598ECA

36179560056226EAP

775728304439620AFR

Grand TotalIFC

Total Social

Protect-ion

Social Risk

Mitigation

Nutrition & Food

Security

Social Safety

NetsAgricult

ureRegion

214365932439582271160Total

5555World

257602912017168SAR

64382630230MNA

2381365416112748LCR

39321976836598ECA

36179560056226EAP

775728304439620AFR

Grand TotalIFC

Total Social

Protect -ion

Social Risk

Mitigation

Nutrition & Food

Security

Social Safety

NetsAgricult

ureRegion