Food and financial crises CSD, 9 February 2009 Henk-Jan Brinkman, Senior Adviser for Economic Policy

1. Food and financial crisesCSD, 9 February 2009Henk-Jan Brinkman,Senior Adviser for Economic Policy

2. Food prices have increased

3. Rapid deterioration of nutritional status

4. Prices  nutritional status

5. Food prices remain high

6. Thank you

7. Climate change: increasing frequency and intensity of weather disasters

8. Food prices have increased

9. Demand > Supply: Agreement on list, but not on relative weight • Demand • Emerging markets, changing demand patterns • Biofuels • Institutional investors • Depreciating dollar • 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

10. Oil prices fell from a cliff

11. Some forecasts for 2009 • Global GDP growth: 1% (-0.5%?) • Developed GDP growth: -0.5% • Developing GDP growth: 4.5% • Trade volume: -2.1 % • -20% to -30% for some countries? • FDI: -20% in 2008, -30% in 2009 • Net private debt + equity: -49% from ‘07 • $1.03 trillion in 2007; $530 billion in 2009 • Remittances: -1% (-5.7%?) • Indonesia: -50% compared to 2007 • ODA: -$20b compared to 2007? • another -$9b in 2010?

12. Strong trade but weak financial links with US+ EU; dependent on ODA SS Africa Central America West Asia Caribbean some Latin American countries Strong trade and financial links with US + EU E + S Asia C + E Europe some Latin American countries Two stylistic groups

13. Group 1 Lower commodity export volumes and prices Lower tourism revenues Lower remittances Less ODA Group 2 Lower volumes of manufactured exports Financial distress in developed countries spilled over Channels of effects

14. ODA down, WFP $ halved?

15. WFP’s Strategic Plan 2008-11 • From food aid to food assistance • Broader, flexible and nuanced toolkit • 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

16. Historical context

17. Transmission from int’l to domestic prices is larger if: • Food imports as % of domestic supplies are larger • Transportation costs are lower • Trade barriers are lower • Exchange rate is depreciating • Food taxes & subsidies are reduced • Markets are more competitive

18. Decline int’l prices ≠ national prices • Delayed transmission because of transportation time • Sticky prices and the ratchet effect (more easily adjust upwards than downwards) • Effects of reductions of fuel subsidies on food prices • Second-round price effects (P  W  P)

21. Intervention 1. Reducing low-birth weight 1a Treatment for asymptomatic infections 1b Treatment for presumptive STD 1c Drugs for women with poor obstetric history 2. Improving child nutrition 2a Breastfeeding promotion 2b Integrated child care programmes 2c Pre-school programmes (focus on nutrition) 3. Reducing micronutrient deficiencies 3a 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 0.6-4.9 1.3-10.7 4.1-35.2 5.6-67.1 9.4-16.2 1.4-2.9 15-520 4-43 176-200 6-14 Benefit-cost ratios

22. Risk analysis Global, at HQ Ex ante Secondary data Isolate price effect No coping Impact assessment In country Ex post Primary data (surveys) All factors Incorporate coping Monitor! A1: Assess and analyze

23. Risk = hazard x vulnerability • Hazard = Price increase • Vulnerability: • Imports as % of consumption • Government response capacity • Foreign exchange reserves • Existing socio-economic conditions

24. Assessments at country level Vulnerability at household level: • High % of income spend on food • Buy more food than sell (net-buyer) • Few coping mechanisms

26. People most at risk • Rural landless • Pastoralists, agro-pastoralists • Small-scale farmers • Urban poor • Children under 2 and under 5 • Pregnant and lactating mothers • Sickly

27. A2: Advocate for action and resources • Large impact • Need for urgent action • 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

28. A3: Advise • Price policy • Trade policy • Social protection

29. Policies: A snapshot • Food price policies • Reduce taxes • General subsidies: high inclusion errors + cost • Targeted subsidized food sales • Food reserves • Reduce intra-annual price changes and shortfalls • Not for long-term high prices • Import policy • Cut tariffs, quotas and other trade barriers • Facilitate imports (speedy clearances, licences) • Export policies • Export bans and taxes might do more harm than good • Need for humanitarian access

30. A4: Assist • Assessments and analysis (joint) • Logistics, imports • Scaling up existing safety nets • Design upscaling social protection systems

31. A5: Adjust programmes • Adjust targeting • Increase caseloads • Food for work • School feeding • Adjust food baskets • Cheaper food • More nutritious food • Adjust programmes • Cash/vouchers

32. A6: Add programmes/activities • Monitoring and surveillance • Food frequency and diversity • Prices • Urban areas • Nutrition programmes • Contingency plans

33. Roll out

34. a coherent global response Balance of payments/financial support agricultural inputs (seeds, fertilizer) policy reform emergency food & safety nets (child nutrition, school feeding) cash & vouchers increased agriculture production community works programmes urgent agriculture inputs 12 months + (Long term) 6 – 12 months (Medium term) 0 – 6 months (Immediate)