THE FOOD CRISIS & CHANGING VIEWS OF THE ROLE OF THE STATE

1. THE FOOD CRISIS & CHANGING VIEWS OF THE ROLE OF THE STATE 2008 World Bank-IMF Annual Meetings Civil Society Policy Forum ActionAid 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

2. State of the Food Crisis

3. Food prices declining, but likely to remain high relative to past 30 yrs. Food price index (nominal $) Source: IMF index of food prices

4. Fertilizer prices continue to surge upwards Real fertilizer prices, 1960-2008*Index in constant 2000 $s relative to MUV

5. Increased volatility in food prices anticipated, as grain stocks likely to remain at record lows %

6. Countries with food price protests and riots, Jan. 2007- May 2008 Source: USAID Office of Food for Peace

7. Global Information and Early Warning System: 33 Countries in Crisis August 22, 2008 Source: http://www.fao.org/giews/english/hotspots/map_m.htm

8. 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)

9. 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

10. Impacts 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

11. 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 11

12. Negative 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

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

14. 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

15. 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, capacity • governance requirements • size of country and history of trade, etc. • Promote longer-term agricultural growth

16. Food prices: short-run options Better policy choices • 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

17. Food 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

18. 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

19. 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 • TheComprehensive 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

20. 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 balancebetween 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

21. 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 protectionactions 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

22. 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 22

23. 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 23

24. 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 24

25. Examples 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

26. Early results (cont.) • Liberia: $10 million grant supporting three projects: AF for agricultural and infrastructuredevelopment project($3 million) and community empowerment project ($3 million), and new investment lending project onfood 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

27. 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 27

28. 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 28

29. 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) 35 29 30 25 20 16 percent 15 10 10 5 0 Agriculture-based Transforming Urbanized Ag GDP/GDP 30

31. Crowding out of long term public goods by short term private ones A major South Asia power…. Subsidies Subsidies Public Investment 31

32. Donor support to agriculture 1990-2004 Donors have dropped the ball… 100 14 % rural poverty 90 12 80 10 70 60 8 50 % ODA to agriculture % poverty in rural areas % ODA to Ag 6 40 30 4 20 2 10 - 0 1990 1992 1994 1996 1998 2000 2002 2004 32

33. So have developing country States AGRICULTURE 4% OFFICIAL DEVELOPMENT ASSISTANCE (12% in 1990) WORLD POOR AGRICULTURE 4% RURAL 75% PUBLIC SPENDING (Sub- Saharan Africa)

34. Priorities from WDR 2008 • Accelerate smallholder productivity increases for agricultural growth and food securityin Africa • Follow a comprehensive approach to reduce sectoral disparitiesand poverty in transforming countries of Asia • Enhance sustainability and environmental servicesfrom agriculture • Pursue multiple pathways out of poverty: smallholder farming, labor market, rural non-farm employment, migration • Improve the quality of governance in agriculture at local, national, and global levels

35. Role of the State in WDR 2008 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) 35

36. Social Social Total Total Social Social Nutrition Nutrition Risk Risk Social Social Agricult Agricult Safety Safety & Food & Food Mitigat Mitigat Protect Protect - - Grand Grand Region Region ure ure Nets Nets Security Security ion ion ion ion IFC IFC Total Total AFR AFR 620 620 39 39 44 44 0 0 83 83 72 72 775 775 EAP EAP 226 226 56 56 0 0 0 0 56 56 79 79 361 361 ECA ECA 98 98 65 65 3 3 8 8 76 76 219 219 393 393 LCR LCR 48 48 27 27 11 11 16 16 54 54 136 136 238 238 MNA MNA 0 0 23 23 0 0 3 3 26 26 38 38 64 64 SAR SAR 168 168 17 17 0 0 12 12 29 29 60 60 257 257 World World 55 55 55 55 Total Total 1160 1160 227 227 58 58 39 39 324 324 659 659 2143 2143 WB Group new lending for food and agriculture since April 2008 US$ million, over 5 months Agriculture: Lending under the Agriculture and Rural Sector Board 36