Global Food Security: Macroeconomic and Financial Crisis Impacts Shenggen Fan Director General International Food Policy Research Institute DG for Economic and Financial Affairs, Brussels, May 4, 2010
Oct 19, 2014
Global Food Security: Macroeconomic and Financial Crisis Impacts
Shenggen FanDirector General
International Food Policy Research Institute
DG for Economic and Financial Affairs, Brussels, May 4, 2010
Shenggen Fan, IFPRI, May 2010
Key messages
• Global food security is under stress
• Food security is affected by macroeconomic policies and financial turmoil
• Uninsured shocks are costly for poor people
• New agenda for enhancing global food security is needed
Shenggen Fan, IFPRI, May 2010
The number of hungry needs to fall by 73 mil. per year to meet MDG1
Shenggen Fan, IFPRI, May 2010
29 countries have “alarming“/“extremely alarming” levels of hunger (2009 GHI)
GHI components:• Proportion of undernourished• Prevalence of underweight in children• Under-five mortality rate
Source: von Grebmer et al. 2009.
Domestic prices remain high in some countries
Rice prices, $US/ton
Source: FAO 2010.
Jan-0
6
Apr-06
Jul-0
6
Oct
-06
Jan-0
7
Apr-07
Jul-0
7
Oct
-07
Jan-0
8
Apr-08
Jul-0
8
Oct
-08
Jan-0
9
Apr-09
Jul-0
9
Oct
-09
Jan-1
00
200
400
600
800
1000
1200
1400 DRC, KisanganiBurundi, Bu-jumburaRwanda, KigaliGlobal
Shenggen Fan, IFPRI, May 2010
Emerging stress factors
Population growth and demographic changes
Land and water constraints
Climate change
Source: IWMI 2000.
Projected water scarcity in 2025
Shenggen Fan, IFPRI, May 2010
Macro policies Food security
Fiscal policy
Monetary policy (Inflation)
Exchange rate policy
Energy policy
Shenggen Fan, IFPRI, May 2010
Inflation and exchange rate effects
High inflation erodes poor consumers’ purchasing power
Volatile prices distort long-term planning for agriculture
Overvalued exchange rate discourages production of export crops
Overvalued exchange rate discourages consumption of local foods
Shenggen Fan, IFPRI, May 2010
Fiscal responses to the food crisis
Source: Headey, Malaiyandi, and Fan 2009.Note: Agricultural spending is reported in US$, and for countries with *,
the total fiscal stimulus response to the financial crisis is reported.
Oil and food prices are tightly interlinked
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-100
200
400
600
800
0
20
40
60
80
100
120
140MaizeWheatRiceOil (right scale)
US
$/m
etri
c to
n
US
$/b
arre
l
Source: Data from FAO 2009 and IMF 2010.
Shenggen Fan, IFPRI, May 2010
Reduced financial revenue may lead to decline in government spending in agriculture
Private investment in agriculture and credit for agriculture may drop sharply
Rural migrants may return to agriculture and rural towns
Remittances may decline sharply
Both domestic and international demand for high value commodities may be affected severely
Donor investment in agriculture and rural development becomes uncertain
Financial crisis: Potential impacts
Shenggen Fan, IFPRI, May 2010
FAO and WB estimates of impacts
Food crisis Financial crisisFAO WB WB WB CR FAOMalnutrition Poverty Urban
povertyRural Poverty
Poverty Malnutrition
Millions Millions % Change % Change Millions Millions
SSA 24 5.7 2.8 -0.2 - -
LAC 6 0.7 0.3 -0.2 - -
MENA 4 4.6 0.6 0.3 - -
Asia 41 120.5 7.3 3.5 - -
Developing world
75 131.5 - - 53 125
Source: Headey, Malaiyandi, and Fan 2009.Note: CR = Chen and Ravallion 2009.
Shenggen Fan, IFPRI, May 2010
The cost of uninsured shocks
Uninsured shocks lead to income and asset loss and reductions in consumption
Even the potential of an uninsured shock has welfare costs• productivity and income are reduced as
households take action to limit risk exposure • substantial costs are incurred by poor
households to manage risks
Source: Vargas Hill 2010.
Shenggen Fan, IFPRI, May 2010
Shocks can severely impact food security
Transitory shock with severeand permanent consequences Cascading series of shocks
Source: Hoddinott 2009.
Shenggen Fan, IFPRI, May 2010
Tools to manage shocks
Insurance
Credit andsavings
Socialprotection
Source: Vargas Hill 2010.
New agenda for food security needed
1. Invest in agriculture and improve smallholder productivity
2. Keep trade open
3. Promote productive social protection
4. Invest in climate change adaptation and mitigation
5. Improve institutions and capacities
Shenggen Fan, IFPRI, May 2010
1. Invest in agriculture and improve smallholder productivity
Agricultural spending as % of ag GDP
Source: Fan 2009.
Shenggen Fan, IFPRI, May 2010
There is a large gap between required and current spending
Increase agric. spending, improve access to inputs and services, secure land rights, invest in rural infrastructure
Source: Fan and Johnson (2009).
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0Actual ag spending in 2004, billion USD
Annual ag spending required, billion USD (2008-15)
Shenggen Fan, IFPRI, May 2010
Ag + non-ag growth = highest poverty reduction
Source: Diao et al. 2008.
Poverty simulations, Rwanda
Shenggen Fan, IFPRI, May 2010
2. Keep trade open
Eliminate harmful trade restrictions and refrain from imposing new ones• to increase efficiency• to stabilize prices
Complete the Doha Round • if tariffs increase to their current WTO limits (bound
level): 11.5% loss of developing country exports US$353 billion loss in world welfare
Potential costs of failed Doha Round could be highSource: Bouet and Laborde 2009.
Shenggen Fan, IFPRI, May 2010
3. Promote productive social protection
Scale up safety nets to: Secure and smooth food consumption Enable saving and investment Build and diversify assets
Types of interventions e.g.: Conditional cash/food transfers Maternal and child health/nutrition programs Public works Insurance for the poor
Source: Adato and Hoddinott 2008.
Programs depend on needs, capacities, and resources
Shenggen Fan, IFPRI, May 2010
Innovative insurance for poor farmers and consumers
Agriculture: index-based weather insurance for crops and livestock
Health: community-based health insurance
Effective delivery channels• Agricultural cooperatives to deliver weather
insurance products• Microfinance institutions to provide
microinsuranceSource: Vargas Hill and Torero 2009.
Shenggen Fan, IFPRI, May 2010
4. Invest in climate change adaptation and mitigation
Sub-Saharan Africa
South Asia
Developing countries
Agric. research 314 172 1,316
Irrigation expansion 537 344 907
Irrigation efficiency 187 999 2,158
Rural roads 2,015 17 2,737
Total 3,053 1,531 7,118
Annual expenditure to counteract climate change effects on child nutrition by 2050 (million 2000 US$)
Source: Nelson et al. (IFPRI) 2009.
Shenggen Fan, IFPRI, May 2010
5. Improve institutions and capacities
Build up existing institutions and improve evidence-based policy making
• Increase gradual implementation after careful experimentation as in Asian reform process (esp. China)
• Increase investment in information gathering, monitoring, and evaluation
Strengthen human and administrative capacities through increased investment in education and training
Rapid hunger reduction is achievable with effective
country-led and country-owned actions