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THE DARK SIDE OF FOOD SECURITY

THE DARK SIDE OF FOOD SECURITY. AMT Conference. 30 September 2013. Presented by Pieter Esterhuysen. Poverty and hunger. 50% of world population live with less than $2.5/day Asia most poor people – then Africa ($1.25/day) 7 out of 10 most food vulnerable countries are in Africa

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THE DARK SIDE OF FOOD SECURITY

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  1. THE DARK SIDE OF FOOD SECURITY AMT Conference 30 September 2013 Presented by Pieter Esterhuysen

  2. Poverty and hunger 50% of world population live with less than $2.5/day Asia most poor people – then Africa ($1.25/day) 7 out of 10 most food vulnerable countries are in Africa GDP of 41 most indebted countries ˂ income of 7 most wealthy people Global food stocks under pressure – consume same and more than production Food reserves 110 days consumption 10 years ago now about 80 days Land sold to other countries and speculators = enough to produce food for a billion people – there are about a billion malnourished people globally Nearly 60% of global land deals in the last decade = grow crops suitable for bio fuel Record commodity prices last 2 years Commodity market volatility increased from +- 10% in 90’s to 30% + now WFP

  3. Hunger Demography 2011 World population = 7 billion 2050 Up 30% to 9.3 billion 78 million more to feed every year 214 000 additional mouths to feed per day 39 of the 58 countries contributing are in Africa 24% will live in Africa vs. 15% currently 2100 10 out of 20 most populous countries in Africa Nigeria 4th most populous country

  4. Poverty and hunger 1996 World Food Summit = target – to halve undernourished by 2015. 2010 the number was 925 vs. 824 mil in 1996 We are not making progress – situation is deteriorating

  5. UN warns of looming worldwide food crisis in 2013 • Global grain reserves hit critically low levelsExtreme weather means climate 'is no longer reliable'Rising food prices threaten disaster and unrest ‘Earth to run out of food by 2050?’ Time magazine’s December 2010 headline “Our time is running out” – Oxfam Food scarcity: the time bomb setting nation against nation – OXFAM ‘Hunger is dehumanizing. It gets to a level where you do not know how you will survive and you will do anything for a simple kernel of corn’ ‘It is a traumatizing situation as a young child to be without food. Your stomach is so empty that even when you are thirsty and you take water it makes you dizzy. You get so nauseated your body wants to vomit, but you haven’t eaten.’ Peter Kimeu – small scale farmer in Nachakos, Kenya.

  6. Food security Poverty/Hunger statistics/realities = Food security strategy/policy ______________________ Food security exists when all people, at all times have physical and economic access to sufficient , safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life (FAO)

  7. Food security strategies and policies • Actions and projects • Regulations • Aid • External/international relations • Protectionism • Etc This presentation focuses on the negative impact or dark side of selected actions/ projects driven by food security policies and strategies of governments and donors

  8. Discussion Photograph: Jerome Delay/AP • International aid • Government intervention • Reputation • Expatriate contribution

  9. Aid and food security

  10. International Aid Total aid to Africa per annum = $50 billion Last 50 years = $2 to $3 trillion Number of Africans who live on $1/day has doubled in last +-20 years Total annual food aid = 4 to 5 million mt Food aid less than 1% of food production – insignificant impact on food markets - but can have an impact on recipient markets IITA

  11. International Aid The determinates of Food Aid Provisions to Africa and the Developing World Nun (Harvard) en Qian (Yale) - 2011 • Normally food aid increase when recipient production decrease • US food aid correlates with US surpluses – not recipient conditions • Aid flows to former colonial tied countries are less responsive to • recipient production – especially Africa – effectivity low • Bi-lateral aid + poorly targeted and less effective vs. multilateral aid • which has a counter-cyclical and stabilising impact on local food prices

  12. International Aid: Inefficiency • MALARIA infects 300 million to 500 million people pa • At least a million people die pa. • A child dies every 30 seconds of malaria • More than 80 percent occur in the poor countries of Africa. • William Easterly - ‘The white man’s burden’ • Mosquito nets handouts = markets/fishing/bridal veils and killing local industry • Malawi Aid project = local production of nets – selling in cities @ $5 and in rural markets @ 50c (Population Services International) • Malawi under 5 net utilisation increased from 8 % to 55% • Zambia follow up after handouts = 70% never used the nets • Easterly said: "is the tragedy in which the West spent $2.3 trillion on foreign aid over the last five decades and still had not managed to get $4 bed nets to poor families. The West is not stingy. It is ineffective.” Reuters

  13. International Aid: Inefficiency A US Government Accountability Office study indicated that only +-35% of aid money spent is spent on food Analysis (Nov 2012) of $5 million US aid to Cambodia in 2010 indicated that $3.5 million (70%) was spent on freight and logistics Another US food aid project to Cambodia in the same year implied local Cambodian procurement – logistics and freight cost amounted to only 19% of the total cost. Bloomberg

  14. International Aid: Motive • International aid is not always what it seems to be • China case: • Grants/Zero interest loans/concessional loans • By 2009 47% of all Chinese aid went to Africa • 2010 – 2012 - $10 billion loans for Africa • China Eximbank and China Development bank – 1994 – develop China • Support China equity in Africa • Aid excluded African countries with ties to Taiwan – aid follows diplomatic ties • Ghana Bui dam – financed guaranteed by cocoa beans (40 000 mt paX20) • DRC reconstruction – Chinese credit line $3 billion - equity control copper • and cobalt mine – payment via resources receipts • Definition of aid?? Economic cooperation?? • Aid .... Sometimes for donating country’s own food security – China Thinkstock/Imagebank

  15. Food Aid: Political instrument • Food aid = valuable instrument to optimise political power • Ethiopian case: • Ethiopia = low income/food deficit/limited infrastructure and purchase power • Largest aid recipient in Africa (second globally) – $2.39 billion pa average • Relative good state and planning institutional capacity • Constant substantial food aid • Government distribution is focusing on supporters – withhold aid from • Communities not supporting - support 99.6% 2010 election • Common practice – farmers not getting access to seed/ferts/assistance for • not supporting government • ‘Ask your own party for help’ • ‘You are suffering so much problems, why don’t you write a letter of • regret and join the ruling party?’

  16. Effect of aid on production • Food aid normally has a short term focus – sometimes resulting in long • term damage • Haiti case: • US rice aid to Haiti over past few decades as example • March 2010 – Pres Clinton apologised for US dumping cheap rice in Haiti – • to the detriment of local producers • Haiti produced 47% of the country’s rice in 1988 – 2008 = 15% • US rice are still part of bilateral aid to Haiti Reuters

  17. Negative impact of Aid on recipient country • James Bovard (Wall Street Journal and Chicago Tribune) • ‘The continuing failure of foreign aid’ • Allow governments to postpone essential ag reforms • Fails to provide sufficient support to ag investments • Maintain a pricing system which give farmers an inadequate incentive to • increase production • ----------------------------------------------------------- • Small scale farmers – 50% of Russia’s food production on 25% of land • Ukraine – 55% of output on 16% of land • External food aid deliveries can disturb this structure easily IITA

  18. Tied aid – Political/economic leverage through Aid US aid Provide own produce – indirect support of own agricultural sector – provides more than 50% of WFP aid Support own companies – Monsanto – drive for GM commodity aid At least 75% of all food donations must be supplied/processed/transported by US companies 65% of all food aid by the US is consumed by logistics (up to 35% more expensive than local purchases) and takes 2 to 3 months longer Without aid shipments the US cargo fleet will loose 15% capacity and 16 000 to 30 000 jobs

  19. Effect of Food aid on social and military conflict Correlation between food shortages and conflict. 2007/08 food crisis – record Prices - Riots/protests in 48 countries 2011 food price index of FAO – new records – wave of protests across North Africa and the middle East – Toppled both the Egyptian and Tunisian presidents Research showed a correlation between aid and conflict Food aid = crowding out effect/local production decrease/mis-use = conflict Malawi government + University of Texas + AidData – created an interactive mapping tool overlaying data on aid projects/climate change and conflict US food aid 1 000 mt increase risk of civil conflict by 0.38% - the same shipment will reduce probability of existing civil war ending in single year with 0.55% points (Nunn & Qain)

  20. Food Prices and Rioting, 2007-2008 Number of Food Price Riots Price Indices (100 = Year 2000 Price) FAO Cereals Price Index FAO Food Price Index UNCTAD Rice Price Index Food Riots WFP and FAO

  21. Food Aid: Corruption Jeffrey Winters – Northwestern University in the US – World Bank loans +- $100 billion lost to corruption – loan funds for development Some years ago the African Union estimated that corruption of roughly $150 billion pa – cost for the continent DRC’s president Mobuto Sese Seko - stole billions of aid dollars (Transparency International) Former Malawi president Bakili Muluze was charged with embezzling aid money worth $ 12 million Former Zambian president Frederic Chiluba are still in court case regarding millions of dollars personal enrichment New York Times – 11/3/10 - 50% of Somalia’s aid money – militants/officials/business men and UN personnel – project fed 2.5 mil people/$.5 billion - Somali authorities collaborated with pirates – hijacked ships. Auctioned of EU visas – pirates as officials to EU

  22. Food Aid • Real motives • Efficiency of spending • Impact on production in receiving country • Political leverage (donor and recipient) • Corruption • Political and social conflict

  23. Government intervention and food security

  24. Government intervention Food security policy/strategy Floor Prices Ceiling Prices Import Control Export Control Food Reserves Input Support Era of increased government involvement Grain storage capacity seen as collective/strategic UN Global Compact Project Team

  25. Government intervention Markets are sensitive – need confidence to develop – market can solve problems if developed – careful how you intervene Malawi case: 2012 crop – government buys at $180 and instruct private sector to do the same Local/smaller companies bought at lower prices/foreign companies did not Theoretical price – not enough finance for Gov agencies Close borders for exports – end up with artificial low prices – local farmer under pressure - will plant less next season Withdraw export permits after private sector contracted No market carry for stocks – private sector got out of positions Currency MK164 = $1 to MK300 = $1 in 1 year $ are not available for repatriation Focus on other crops

  26. Impact of Government intervention on markets • Zambian Government involvement • Input supply program/Food reserve program/ subsidised maize supplies • 2012/13 planting season – • 182 000 mt fertiliser and 9 000 mt maize seed = $150 mil • Bought 1mil mt of maize @ $265/mt = total $415 mil (19% over priced) • FRA selling at $225/mt (-$40/mt = total of $40 million – losses) • Volatility down 35% • Government also apply export bans - food security (700 000 mt + surplus) • Previous season – election year - more aggressive – volume and price • Market: No space for private sector/no market development • No price discovery system development/no hedging mechanism, • No natural integrated market development/consumer pay price/ • Commercial production focuses on other crops

  27. Government Intervention: Price transmission Sensitivity of one market for another market = price transmission Maize prices in eastern and southern Africa (FAO)

  28. Government Intervention: Price transmission Malawian markets are integrated but with a lag Bangula is an exception (border) 4 month lag – government intervention/logistical limitations FAO

  29. Government Intervention: Price transmission Integrated with international markets Time lag = 6 months – RSA - government / infrastructure Ndola = exception – border town Price adjustment in maize markets in Zambia Price adjustment in maize markets in Malawi FAO

  30. Government intervention • Government intervention in markets – motivated by Food Security • is probably the darkest side of food security • Destroy or contaminate markets • Short to medium term focus with long term destruction • Many times politically driven • Resource distribution distorted • Economic value and long term prosperity destroyed

  31. Role of expatriates in Africa In light of a dwindling professional sector, African institutions are increasingly dependent on foreign expertise. To fill the human resource gap created by brain drain, Africa employs up to 150,000 expatriate professionals at a cost of US$4 billion a year. 35% of total ODA to Africa is spent on expatriate professionals.

  32. Food Security and your reputation

  33. 23 August 2012 We'll make a killing out of food crisis, Glencore trading boss Chris Mahoney boasts Drought is good for business, says world's largest commodities trading company Aid Agencies, the UK and the UN attacked the company; Vatican called for a G20 emergency global food summit; Germany’s Commerzbank, Deutche Bank en Austria’s Volksbanken removed agricultural products from some of their investment funds - sensitive to accusations that speculation is pushing up prices

  34. So what? • Understand government’s food security policy and philosophy • Develop warning signals to trigger protective actions • Develop alternative hedges ($ based commodities vs. exchange rate risk) • Business agility is important – change business model quickly • Understand aid programmes and tap into programmes to unlock value • Be visible especially through social involvement • Honour the regulatory environment • Unfortunately local influence/network is important • Food aid focuses on poor and hungry people – not ‘capitalists’ – • no mercy! • Remember - Food security and national interest justifies anything!

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