Food and Financial Crises:Implications for Agriculture and the Poor

Food and Financial Crises:

Implications for Agriculture

and the Poor

Joachim von Braun

International Food Policy Research Institute

CGIAR Annual General Meeting, Maputo, December 1, 2008

Joachim von Braun, IFPRI, December 2008

Overview

1. Food and financial crises implications

2. What may happen? Recession scenarios

3. Addressing the turmoil comprehensively


Food- and financial crises linkages

Food crisis Financial crisis

Source: von Braun; Dec 2008

Strong and long-lasting negative impacts


Food price crisis, 2007-08

0

25

50

75

100

125

0

200

400

600

800

US

$/b

arre

lU

S$

/to

n

Corn

Wheat

Rice

Oil (right scale)

Price bubble

Source: Data from FAO 2008 and IMF 2008.

Food prices falling because of the financial crisis, not because the food crisis is over


Maize and sweet potato prices

Zambezia, Mozambique 2006-2008

0

2

4

6

8

10

12

Apr 06

May 06

Jun 06

Jul 06

Aug 06

Sep 06

Oct 06

Nov 06

Dec 06

Jan 07

Feb 07

Mar 07

Apr 07

May 07

Jun 07

Jul 07

Aug 07

Sep 07

Oct 07

Nov 07

Dec 07

Jan 08

Feb 08

Mar 08

Apr 08

May 08

Jun 08

Jul 08

Aug 08

mzpkg

wspkg

Source: R. Labardo (CIP), A. de Brauw (IFPRI) HarvestPlus, 2008


Number of food protests

by type and income group

Source: Protests – news reports;

Income group classification – World Bank 2007.

8 8

4

9

11

7

2

0

5

10

15

20

Low income Low-middle income

Upper-middle income

High income

Violent

Non-violent


Tortilla, veg. oil, carrots, orange,

beef, spinach, black beans

0

25

50

75

100

125

150

175

200

Vit A Vit C Folate Fe Zn

Rec

om

men

de

d n

utr

ien

t d

en

sit

y %

Tortilla and veg. oil

0

25

50

75

100

125

150

175

200

Vit A Vit C Folate Fe Zn

$0.72person/day

The poor cannot afford healthy diets

Corn-tortilla-based diets in Guatemala

Source: Erick Boy, IFPRI, 2008.

$0.40person/day


Severe impacts on livelihoods of the poor

Purchasing power: 50-70% of income spent on food and

wages do not adjust accordingly

Assets and human capital: distressed sale of productive

assets, withdrawal of girls from school, etc.

Number of undernourished: 75 mil. more from 2003/05

to 2007 (FAO 2008)

Crisis not over for the poor;

Nutrition is undermined for the long run


Major pledges and investments

to address the food crisis (2008)

Donor organization/country Pledge (bil.$) Month

World Bank 1.2 May

EU (EC & national) 5 + May-July

USA 5 June

Increase in public budgets on agric. and social protection

bil. $US % change

China 23 +27%

India 6 +24%

Source: IFPRI, compiled from news sources and government budgets.


Output response forthcoming, but not from

low-income countries

Growth of cereal output in 2007-08:

11%: developed

0.9%: developing

1.6%: developing, excl. Brazil, China, India

Not enough to bring stocks back up

to sufficient levels

Source: FAO 2008.


Derived demand for land and water is

increasing

In the past 12 months land prices in:

• Brazil 16%; Poland 31%; USA 15%

Large growth in water demand for agriculture

expected in coming decades

Overseas investment in land (with water)

• China in Kenya, Nigeria, Philippines, Russia

• UAE in Sudan

• South Korea in Madagascar

• Many others

Source: IFPRI, News sources.


-5

0

5

10

15

20

Jan-05 Jan-06 Jan-07 Jan-08

Overall

Food

-2

-1

0

1

2

3


Overall

Food

-2

0

2

4


OverallFood

Food dominated inflation 2005-08: this

contributed to the recession

IndiaEthiopia

Mexico

Source: von Braun, Data from government statistics.


The financial market collapse 2007-08

0

100

200

300

400

Dow Jones World Financials Index, US$

Source: Google Finance 2008.


Financial crisis and recession complicate

food situation: the risks

• Less capital for agriculture now and in the

future

• Higher debt burden for small farmers who

already invested in agriculture expansion

• Policy attention diverted away from agriculture

leading to lower public investment

• Reduced employment and wages of unskilled

workers


Overview





Recession scenarios 2005-2020

Scenarios

baseline: econ. growth as in past years

1: Recession: econ. growth falls by 2-3%,

agric. investment maintained

2: Recession: econ. growth falls by 2-3%,

agric. investment reduced


Prices under recession and alternative

agricultural investment scenarios

100

150

200

2005 2010 2015 2020

MaizeNon-recession

Same-investment

Low-investment

100

150

200

2005 2010 2015 2020

Wheat

200

250

300

2005 2010 2015 2020

Rice

Source: Rosegrant, von Braun; IFPRI IMPACT, Dec. 2008.


Number of malnourished children rises by

16 million with recession and low investment

Source: Rosegrant, von Braun; IFPRI IMPACT, Dec. 2008.

0

30

60

90

120

150

180

210

Mil

lio

ns

World (excluding SSA)SSA

2005 2020


Overview





Three priorities for action needed

1. Promote pro-poor agriculture growth

2. Reduce market volatility

3. Expand social protection and child nutrition

action


1. Double agric. R&D to impact poverty

CGIAR investment must rise from US$0.5 to US$1.0

billion as part of this exoansion

Source: von Braun, Shenggen Fan, et al. 2008.

R&D allocation

(mil. 2005 $)

in # of

poor (mil.)

2008-2020

+ Agr. output

growth (% pts.)

2008-20202008 2013

SSA 608 2,913 -143.8 2.8

S Asia 908 3,111 -124.6 2.4

Devel.ing

World 4,975 9,951 -282.1 1.1


2. Reduce food market volatility

1. An internationally held emergency

reserve

2. A virtual global reserve against price

“bubbles”

- An institutional arrangement at international

level

- Implemented by G8+5 and other large grain

exporting countries

Source: von Braun and Torero 2008.


3. Social protection and nutrition action

Protective:

- Cash transfers (conditional)

- Employment programs

Preventive:

- School feeding

- Early childhood nutrition programs


1872-2008 prices and population

Are we living in unusual times?

Sources: J. von Braun, based on data from NBER Macrohistory database,

BLS CPI database, Godo 2001, OECD 2005, and FAO 2008;

Population data from U.S. Census Bureau Int’l database and UN1999.

0

200

400

600

800

1000

1872

1876

1880

1884

1888

1892

1896

1900

1904

1908

1912

1916

1920

1924

1928

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2000 U

S$/t

on

, 3yr

avera

ges

0

2

4

6

8

Billio

ns

Wheat price

Population (right)

Documents

Food and Financial Crises:Implications for Agriculture and the Poor