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Food and financial crises
CSD, 9 February 2009
Henk-Jan Brinkman,Senior Adviser for Economic Policy
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Food prices have increased
0
200
400
600
800
1000
1200
$ p
er
me
tric
to
n
RICE
MAIZE
WHEAT
3
Rapid deterioration of nutritional status
Live
lihoo
d
Diversify incomes
Spend less on non-essentials Selling some assets
Drop out of school Migration
Child labor Borrow
Selling of produc-tive assets
Selling of all assets
Spend less on essential items
Hea
lth
thre
aten
ing
activ
ities
Food
/Nut
rtio
n Cheaper
food
Less nutritious food
Reduce size / number of meals
Consume wild foods, seeds
Begging for food
Entire day without eating
Eat ab normal items (e.g. plants and insects)
Chi
ld
mal
nutr
ition
4
Prices nutritional status
55
60
65
70
75
1992 1993 1994 1995 1996 1997 1998 1999 2000
0.2
0.3
0.4
0.5
Underweight (%), left Weekly rice expenditure (per capita, $), right
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Food prices remain high
Average of forecasts of EIU, FAPRI, IFPRI, OECD/FAO, USDA and World Bank (2000=100)
80
105
130
155
180
205
230
255
280
305
330
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Maize Wheat Rice Soybean Sorghum Soybean oil
Forecasts
Thank you
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Climate change: increasing frequency and intensity of weather disasters
0
500
1000
1500
2000
2500
1900-1950 1951-1970 1971-1990 1991-2007
NU
MB
ER
OF
NA
TU
RA
L D
ISA
ST
ER
S
OCEANIA EUROPE AFRICA AMERICA ASIA
8
Food prices have increased
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008
MEAT DAIRY CEREALS OILS SUGAR
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Demand > Supply: Agreement on list, but not on relative weight
o Demand• Emerging markets, changing demand patterns • Biofuels• Institutional investors• Depreciating dollar
o Supply • Low stocks• Weather-related shocks• Low productivity growth• Export restrictions• Oil price
Inputs: Fertilizer and transport costs Outputs: Link between food and energy prices
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Oil prices fell from a cliff
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Some forecasts for 2009
o Global GDP growth: 1% (-0.5%?)• Developed GDP growth: -0.5%• Developing GDP growth: 4.5%
o Trade volume: -2.1 %• -20% to -30% for some countries?
o FDI: -20% in 2008, -30% in 2009
o Net private debt + equity: -49% from ‘07• $1.03 trillion in 2007; $530 billion in 2009
o Remittances: -1% (-5.7%?)• Indonesia: -50% compared to 2007
o ODA: -$20b compared to 2007?• another -$9b in 2010?
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Two stylistic groups
o Strong trade but weak financial links with US+ EU; dependent on ODA
o SS Africa o Central America o West Asia o Caribbeano some Latin American
countries
o Strong trade and financial links with US + EU
o E + S Asiao C + E Europeo some Latin American
countries
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Channels of effects
Group 1
o Lower commodity export volumes and prices
o Lower tourism revenues
o Lower remittances
o Less ODA
Group 2
o Lower volumes of manufactured exports
o Financial distress in developed countries spilled over
14
ODA down, WFP $ halved?
Official Development Assistance, 2000-2010
0.260.25
0.23
0.220.22
0.330.31
0.28
0.30
0.33
0.35
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
OD
A (
in b
illi
on
s o
f U
S $
)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
OD
A a
s p
erce
nta
ge
of
GD
P
ODA Scenario 3 Scenario 2 Scenario 4
Scenario 5 Scenario 1 ODA/GDP ratio
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WFP’s Strategic Plan 2008-11
o From food aid to food assistance
o Broader, flexible and nuanced toolkit
o Tools not new, but expanded scale:• Cash and vouchers• Purchase for Progress• Policy dialogue and advocacy• No one-size fits all school feeding • New nutrition and food products
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Grain Prices, 1900-2007(Real, $/ton, 1990 MUV-deflated)
0
100
200
300
400
500
600
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Wheat Maize
Grain Prices, 1900-2007(Real, $/ton, 1990 MUV-deflated)
0
100
200
300
400
500
600
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Wheat Maize
Historical context
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Transmission from int’l to domestic prices is larger if:
o Food imports as % of domestic supplies are larger
o Transportation costs are lower
o Trade barriers are lower
o Exchange rate is depreciating
o Food taxes & subsidies are reduced
o Markets are more competitive
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Decline int’l prices ≠ national prices
o Delayed transmission because of transportation time
o Sticky prices and the ratchet effect (more easily adjust upwards than downwards)
o Effects of reductions of fuel subsidies on food prices
o Second-round price effects (P W P)
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Demand Factors
Biofuels
$ exchange rate
Supply FactorsLow Stocks
Fuel prices
Low prod'ty growth
Weather shocks
A. Trade with OECD as % of total (+) E. External finance or CA deficit as % of GDP (+)B. Tourism revenues as % of total forex earnings (+) F. Gvt budge deficit (+)C. Primary commodities exports as % of total exports (+)G. ODA as % of Gvt budget or per capita (+)D. Reserves as % of imports (-) H. Remittances as % of GDP or per capita (+)
Developed Countries
Household LevelMacro
Exc
hange R
ate
Developing Countries
Urban households
Rural households
List of Indicators Risk of increase in food insecurity (expected effect on food insecurity)
1. Financialdistress
2. Economic growth
Fewer tourists
Import demand
Employment
ODA
Finance
Economic growth
Exportprices
Export volumes
Tourism
Remittances
Gvt budget
Foodprices
Income & Wages
Social transfers
Food consumption
D, E
A , C
B
H
F, G
FDI
Employment
Foodprices
Income & wages
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WFP’s position within global response options
Short-term impact (< 1 year)
Medium-term impact (1-2 years)
Long-term impact (> 2 years)
national/international WFP national/international WFP national/international WFP Food √√
Cash √√
Provide/scale up emergency transfers* and safety nets Vouchers/stamps √√
Stimulate food supply/production
√ Build/strengthen safety net systems
√
Reduce import tariffs
x Improve market access by smallholders
√ Build/strengthen public and market institutions
x
Targeted consumer subsidies
x Build rural infrastructures
√ Invest in agricultural research and technology
x
Food reserves/stocks
√
Export restrictions
x
Limit increase/ reduce/stabilize food prices
Price controls x Improve access to agricultural inputs x
Mainstream disaster risk management measures to prevent and mitigate acute hunger (e.g. weather insurance scheme)
√ Reform trade policies x
WFP cross-cutting activities - Food security and vulnerability analysis and mapping, needs/market assessments, emergency
preparedness √√ - Logistical support √√ - Food security surveillance √√ and nutrition surveillance √ - Technical support and advice on measures to address hunger √√ - Advocacy for repositioning food and nutrition security in national poverty alleviation agendas √√
Legend: √√ core role for WFP; √ limited role for WFP; x no role for WFP * “Transfers” include conditional (e.g. FFW) and unconditional transfers.
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Benefit-cost ratiosIntervention1. Reducing low-birth weight
1a Treatment for asymptomatic infections1b Treatment for presumptive STD1c Drugs for women with poor obstetric history
2. Improving child nutrition2a Breastfeeding promotion2b Integrated child care programmes2c Pre-school programmes (focus on nutrition)
3. Reducing micronutrient deficiencies3a Iodine (women child-bearing age) 3b Vitamin A (children under 6) 3c Iron (per capita) 3d Iron (pregnant women)
Source: Jere Behrman, Harold Alderman and John Hoddinott, “Malnutrition and Hunger”, in: Bjørn Lomborg (ed.), Global Crises, Global Solutions, Cambridge, 2004.
Benefit/cost
o 0.6-4.9o 1.3-10.7o 4.1-35.2
o 5.6-67.1o 9.4-16.2o 1.4-2.9
o 15-520o 4-43o 176-200o 6-14
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A1: Assess and analyze
Risk analysis
o Global, at HQo Ex anteo Secondary datao Isolate price effecto No coping
Impact assessment
o In countryo Ex posto Primary data (surveys)o All factorso Incorporate coping
o Monitor!
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Risk = hazard x vulnerability
o Hazard = Price increase
o Vulnerability:• Imports as % of consumption• Government response capacity• Foreign exchange reserves• Existing socio-economic conditions
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Assessments at country level
Vulnerability at household level:
o High % of income spend on food
o Buy more food than sell (net-buyer)
o Few coping mechanisms
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People most at risk
o Rural landlesso Pastoralists, agro-pastoralistso Small-scale farmerso Urban poor
o Children under 2 and under 5o Pregnant and lactating motherso Sickly
27
A2: Advocate for action and resources
o Large impact
o Need for urgent action
o Resources required to cover additional costs of:• Existing programmes: $755m (March 08)• Add programmes to address impact: ??• Budget 2008: $5.7b, 90m people• Shortfall 2008: $1.7b
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A3: Advise
o Price policy
o Trade policy
o Social protection
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Policies: A snapshot
o Food price policies • Reduce taxes• General subsidies: high inclusion errors + cost
o Targeted subsidized food sales
o Food reserves• Reduce intra-annual price changes and shortfalls• Not for long-term high prices
o Import policy• Cut tariffs, quotas and other trade barriers• Facilitate imports (speedy clearances, licences)
o Export policies• Export bans and taxes might do more harm than good• Need for humanitarian access
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A4: Assist
o Assessments and analysis (joint)
o Logistics, imports
o Scaling up existing safety nets
o Design upscaling social protection systems
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A5: Adjust programmes
o Adjust targeting
o Increase caseloads• Food for work• School feeding
o Adjust food baskets • Cheaper food• More nutritious food
o Adjust programmes• Cash/vouchers
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A6: Add programmes/activities
o Monitoring and surveillance• Food frequency and diversity• Prices
o Urban areas
o Nutrition programmes
o Contingency plans
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Roll out
Number of people
General food distribution
School feeding
Cash or Food for
Work
Nutrition for mothers and
children
Vouchers or cash
Djibouti 140,500 √ √ √Ghana 135,000 √ √ √Guinea 600,000 √ √ √Haiti 2,500,000 √ √ √ √Liberia 220,000 √ √ √Mauritania 550,000 √ √Mozambique 160,000 √ √ √Nepal 1,250,000 √ √ √Palestine 120,000 √ √Pakistan 2,811,000 √ √ √Senegal 540,000 √ √ √ √ √Tajikistan 1,000,000 √ √ √ √Uganda 160,000 √ √ √Yemen 859,000 √ √Total 11 million $390 million: $286 miilion shortfall
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a coherent global response
emergency food
& safety nets(child nutrition, school feeding)
agricultural inputs(seeds, fertilizer)
cash & vouchers
policy reform
increased agriculture production
12 months +(Long term)
6 – 12 months(Medium term)
0 – 6 months(Immediate)
Balance of payments/financial support
community works programmes
urgent a
gricultu
re in
puts
