Globalization of the agri-food system and the poor in developing countriesDriving forces, consequences and policy implications

Globalization of the agri-food system

and the poor in developing countriesDriving forces, consequences and policy

implications

Joachim von Braun

International Food Policy Research Institute

2nd Willard W. Cochrane Lecture

Department of Applied Economics

University of Minnesota

November 15, 2006

Joachim von Braun, IFPRI, November 2006

IFPRI’s mission is “To provide policy solutions

that cut hunger and malnutrition”

Basics

• A public institution, part of CGIAR

• Staff of 260 (ca. 80 PhDs; from ca. 30 countries)

• Washington, Addis Ababa and New Delhi

• Budget: US$ 40 million (2006),

• Governed by an international board of trustees

• Six Divisions: Production & Environment;

Markets & Trade; Consumption & Nutrition;

Strategy & Governance; Capacity

Strengthening; and communications


Overview of presentation on

globalization of the agri-food system…

1. Global context

2. Key drivers

- Trade and FDI

- Demand

- ICT

- R&D

3. Growth and poverty

4. Policy implications


What is the “globalization of agri-food

systems”?

Global integration (across national

borders) of production and

consumption of food and agriculture

Source: von Braun and Diaz-Bonilla (2006, draft)


Elements of the Changing Global Context

• Globalization in trade and investment

• Spread and deepening of rule of law

• Decentralization of state control

• Rapid change of technology

• Accelerated migration

• Increased global health linkages

…are not separate trends but linked


Changing Global Food and Agriculture

Systems

• Growing role of retail industry

(super markets)

• Intensified rural-urban linkages

• Changing governance in global

natural resource use

• New technologies


The impact of globalization on the poor:

Contentious issue

Divergent assessment of globalization

and its effects due to different

standards of assessment level

(aggregate vs. case-specific)

temporal perspective (short-term vs.

long term trends)

assessment of the functioning of

markets and other institutions


Overview

1. Global context

2. Key drivers

- Trade and FDI

- Demand

- ICT

- R&D




2. Drivers of Globalization of the

Agri-Food System

1. Trade and FDI

2. Demand and consumer behavior

3. ICT and information flows

4. Science in food and agriculture

and policies affecting the drivers (macro

frameworks, geo-political conflicts, aid,

governance, …)


Drivers:

(1) Trade and FDI and related policies

Agriculture trade policy: where to

with WTO Development Round?

FDI in agriculture


Surprise? No strong increase agricultural trade shares

Agriculture trade in percent of production

Data source: World Bank, WDI 2005

Export/Production 1960s 1970s 1980s 1990s 2000-02

Latin America and the Caribbean 23.6 24.7 24.5 26.7 31.4

Sub-Saharan Africa a 28.5 23 17.2 15.3 13.2

Asia Developing 5.4 5.7 6.4 6.4 6.4

All Three Regions 12.1 11.8 11.3 11 11.6

Import/Production 1960s 1970s 1980s 1990s 2000–02

Latin America and the Caribbean 6.7 8.6 11.2 14 15.7

Sub-Saharan Africa a 8.1 9.4 12.6 12.3 13.5

Asia Developing 7.1 7.7 9.2 8.9 8.8

All Three Regions 7.1 8 10 10.1 10.5

a Does not include South Africa.


But: Increased trade in processed and

high-value goods

Imports/production (%)

0

5

10

15

20

25

30

35

40

1960s 1970s 1980s 1990s 2000–01

Meat

Milk (no Butter)

Cereals

Vegetable Oils

exports/production (%)

0

5

10

15

20

25

30

35

40

45

1960s 1970s 1980s 1990s 2000–01

Data source: based on data from FAOSTAT 2005


Surprise? Estimated welfare benefits of

trade liberalization: studies 1999 - 2006

Source: Bouët 2006a


WTO Doha negotiations: Scenarios with

MIRAGE/IFPRI CGE model

Developed

countries

Middle income

countries

Low-income

countries

Initial share in real world income 80 18.7 1.2

Basic scenario

Real income gain (billions of US$) 32 21.7 1

Share of real income gain (%) 58.5 39.6 1.9

Free LDC access to OECD

Real income gain (billions of US$) 38.9 23 7


Fewer sensitive/special products

Real income gain (billions of US$) 38.3 22.6 1.1


Source: Bouët 2006


Growing FDI to developing countries in the food and

agricultural sectors (% of world total), 1990 and 2003

1990

0

10

20

30

40

50

60

70

80

90

100

Agriculture, hunting,

forestry, and fishing

Food, beverages, and

tobacco

2003

0

20

40

60

80

100

Agriculture, hunting, forestry, and

fishing

Food, beverages, and tobacco

Industrial countries

Developing countries

Source: based on data from UNCTAD 2004


Drivers (2) Demand and consumer behavior

• Changes in lifestyle, rising incomes & availability of

wider variety of food at cheaper prices

• Increased concern with food safety & environmental

impacts of food production processes

(1) Reorganization of food chain- Closer to

the consumer

(2) Stricter standards for food quality and

safety

(3) Monitoring and enforcement of

production methods


Food

retailers

top 10:$777bln

• Wal-Mart

• Carrefour

• Royal Ahold

• Metro AG

• Tesco

C o

n s

u m

e r s

$4

.00

0 b

illion

1-The corporate world food system, 2005

Food

processors

and traders

top 10: $363 bln

• Nestle

• Cargill

• Unilever

• ADM

• Kraft Foods

Agricultural

input

industry

top 10: $37 bln

• Syngenta

• Bayer

• BASF

• Monsanto

• DuPont

Farms

Agricultural

value added:

$1,315 bln

450 million

>100 ha: 0.5%

< 2 ha: 85%

Source: von Braun 2005


Performance of the top 10 in the global

Agri-food business, 2004–2005

Source: based on stock market data, Wall Street Journal 2005 and WDI 2005

Percentage change of stock prices and in Agricultural GDP

70

22

3 -4

-10

0

10

20

30

40

50

60

70

80

Agricultural inputs Food processors

and traders

Agricultural GDP

('00-'03)

Food retailers

Percent


What future for the small farms?

Farm Size (ha) % of all farmsNumber of farms

(millions)

< 2 85 387

2 - 10 12 54

10 - 100 2.7 12

> 100 0.5 2

Total 100 455

The numbers still increase in Africa and diminish very slowly in Asia

Source: von Braun 2003,


The dynamics of linkages: Between farms and food industries

Large retailers

and Processors

Shrinking

bottom

Consolidation of retail &

processing – FDI influence

(China: 40% retail growth

after FDI entry in 1992)

Fragmentation in

farming

Expanding

bottom:

Increasing share

of small holders

Forward pyramid:

Retailers/ processors

Emerging mutual

need for linkages

Farmers pyramid

Source: Gulati 2005


But globalization of food markets is also

shaping consumers’ habits …

Failed “Nutrition transition” and

consumption habits:

• Poor quality diets among low income

groups rising rates of obesity & diet-

related chronic diseases

• high costs of healthy diets

• Information and demand habits


Ongoing technological advances

Privatization of national telecom.

monopolies in many developing

countries in 1980s and 1990s

Drivers: (3) ICT and information flows


Drivers: ICT Revolution

Fixed line and mobile phone subscribers

(Per 1,000 people)

0

100

200

300

400

500

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

Data source: World Bank, WDI 2006

Internet users

(Per 1,000 people)

0

50

100

150

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

World

Low income

Middle income

Information and

Communication

Technologies for

Development and

Poverty ReductionThe Potential of

Telecommunications

Edited by

Maximo Torero

Joachim von Braun

Johns Hopkins UP 2006


Drivers: ICT

Development of new services, for e.g. exponential increase in cellular telephone penetration

Faster & more efficient communication

Enhanced network building & greater inclusion of individuals within networks

Results of macro-analysis: minimum

threshold of telecom density (around

24 percent) required for positive

growth effects


ICT and the poor

• Telephones annual growth, 1990–2003 - South Asia: 22 %

- Sub Saharan Africa: 17%

but access remains too low: 6% in 2003

• Net value for the rural poor of a phone call - Peru: US$ 1.62

- Bangladesh: US$ 1.19

>Opportunities for linking small farmers to markets (price and transactions cost cutting)

>Building the info-chain along the food chain

Source: Torero and von Braun 2005


Drivers:

(4) science in food and agriculture

Total global R&D spending:

1995: 562 bln$ 2000: 731 bln$

Dev. Countries 18% 22%

-----------------------------------------------------------

Total public agricultural R&D spending:

1995: 20 bln$ 2000: 23 bln$

Dev. Countries 47% 56%

---------------------------------------

$= in purchasing power parity

Source: Pardey et.al. IFPRI 2006


Global bi-furcation in agr. R&D

80 developing countries spend a total of 1.4 bln$

on agric R&D: 6% (of global)

China & India 22%

High income countries 44%

Toward agr. R&D orphans


A changing environment for innovation

Blocks to globalization of R&D

Introduction of patent rights for

agricultural inventions under TRIPS

agreement

Bio-safety regimes and reduced

exchange (e.g. genetic resources)

Technology spillover pathways to

developing countries for productivity

enhancement reducedSource: Pardey et.al. IFPRI 2006


And: Global challenge of Climate change:

adaptation in low income countries needs R&D


Overview

1. Global context

2. Key drivers

- Trade and FDI

- Demand

- ICT

- R&D




Accelerated agricultural growth under globalization?

1962–1979 1980–2004

Africa, sub-Sahara 2.1 2.8

Asia 3.1 3.9

Latin Am. & Carib. 3.1 2.8

All developing

countries

2.9 3.5

Industrial countries 2.2 0.6

Data sources: FAO, 2005


Sub-Sahara African agriculture growth needed for

economy wide growth and poverty reduction

Data source: World Bank 2006

Five year average of annual growth rates (in %)

GDP 1980-84 85-89 90-94 95-99 2000-04

Agriculture 0.1 4.5 1.1 4.5 3.5

Total GDP 1.7 2.6 0.6 3.5 3.8

Correlation between Ag and total GDP growth

remains strong in Africa


Poverty headcount ratio at $1 a day

Poverty headcount ratio at $1 a day (PPP) (% of

population)

0

10

20

30

40

50

60

70

1981 1984 1987 1990 1993 1996 1999 2001

East Asia & Pacif ic Europe & Central AsiaLatin America & Caribbean South AsiaSub-Saharan Africa Middle East & North Africa

Source: World Bank 2005


Pro-Poor? in some countries growth has been

accompanied by increased poverty…

Out of 30 developing countries (recent world wide data),

in 12 increased poverty with growth (e.g. Peru,

Uganda, Pakistan

In 18 reduced poverty with growth

Why?

Capital / Labor ratios down, returns to capital up

Returns to unskilled labor down

Governance and “capture” (exclusion)


Hunger in the developing world

815797

824

673651

630

500

600

700

800

900

1990 1995 2002

Millions

Developing world without China

Developing world

Data source: FAO 2005


Who is affected by hunger?

Source: UN Millennium Project, Hunger Task Force, 2005

Land less, rural

20%

Urban poor

20%

Small Farmers

50%

Fishers, herders


Territory size based on the proportion

of underweight children that live there

Source: SASI Group (University of Sheffield) and Newman (University of Michigan) 2006


Sticky relation: hunger / income linkage

Undernourishment and GDP/Capita

Source: based on data from World Bank (2005) and FAO (2005)

But not in Africa


Bottom line

The potentials of globalization

have not been effectively translated

into poverty reduction and

reduction of bottom end poverty (hunger)

in particular


How to deal with the complexities /

interactions of the divers drivers?

1. Scenarios

2. Inclusion of risks (with probabilities)

and

3. Uncertainties (with subjective expert

panel assessments)

Endogenous and exogenous issues

Families of models


IFPRI global IMPACT Model Scenarios:

Risks and Opportunities 2015 & beyond

Progressive Policy Actions Scenario:

New Focus on Agricultural Growth and

Rural Development, Human Resources

Policy Failure Scenario:

Trade and Political Conflict, rise in

protectionism worldwide

Technology and Resource Management

Failure Scenario:

Adverse technology/natural resource

interactions


Per capita daily availability of calories in

developing countries

2,500

2,700

2,900

3,100

3,300

3,500

3,700

1997 2015 2030 2050

kcal/cap

ita/d

ay

Progressive Policy Actions

Policy Failure

Technology and Resource

Management Failure

Source: IFPRI IMPACT projections (September 2004)


Three Scenarios to 2050: Undernourished Children, Sub-Saharan

Africa

0

5

10

15

20

25

30

35

40

45

50

1997 2015 2030 2050

Mill

ion

ch

ildre

n

Progressive Policy

Actions

Policy Failure

Technology and

Resource

Management Failure

Source: IFPRI IMPACT projections (September 2004)


Overview

1. Global context

2. Key drivers

- Trade and FDI

- Demand

- ICT

- R&D

3. Agric. growth and poverty



Policy implications for pro-poor outcomes:

International development policies

1. Promoting global peace, and security

2. Global trade policy (market access)

3. Facilitation of capital and aid flows

4. Support of decentralized governance

5. Broad based development in rural areas, where the poor are (infrastructure, and technologies)

6. Safety nets for vulnerable populations

Documents

Globalization of the agri-food system and the poor in developing countriesDriving forces, consequences and policy implications