1. Economy-wide effects of recent external shocks such as global economic crisis, rising global food prices and climate change David Laborde

2. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Long term challenges: climate change LEARNING from the present A time of economic turbulences: what is the role of agriculture? Effects of short term price shocks Initial exposure Unilateral policies and insulations More regional integration? DEALING with the FUTURE: impact of climate change 3. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE ECONOMIC CRISIS: A CURRENT ACCOUNT SHOCK FOR ASIA 4. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE 5. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE 6. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE EXPOSURE TO AGRICULTURAL PRICES: A SHIFTING SITUATION Page 6 7. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Evolution of Asia and Oceania net food trade -30,000,000 -25,000,000 -20,000,000 -15,000,000 -10,000,000 -5,000,000 0 5,000,000 10,000,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 USD, 1000 Proteins, Tons Lipids, Tons Kcal, 10 Mios 8. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Asia and Oceania: net position, 1000 USD -80,000,000 -60,000,000 -40,000,000 -20,000,000 0 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Japan Hong kong Taiwan Singapore Bangladesh Pakistan Macau Azerbaijan Afghanistan Brunei darussalam Cambodia Turkmenistan Mongolia Philippines Lao people s democratic Uzbekistan Kyrgyzstan Nepal 9. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Net position, Proteins tons -40,000,000 -35,000,000 -30,000,000 -25,000,000 -20,000,000 -15,000,000 -10,000,000 -5,000,000 0 5,000,000 10,000,000 15,000,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Japan China Taiwan Indonesia Philippines Thailand Bangladesh Malaysia Hong kong Viet nam Sri lanka Singapore Pakistan Papua new guinea Azerbaijan Afghanistan Brunei darussalam Uzbekistan 10. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE WHICH TRADE POLICY TO COPE WITH FOOD PRICE SHOCK? Page 10 11. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE The Risk of unilateral policies Demand shock on the world market for one commodity. E.g. wheat How different countries can react? Exporters Export tax to neutralize effects on domestic prices Importers Reduction in tariffs and, import subsidies? Interaction between exporters and importers policies Long term vs Short term effects Page 11 12. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Results on average prices Wheat Average production price Average trade price 1 Exogenous demand increase 9.10% 10.8% 2 1 + Implementation/increase of export taxes to mitigate the shock on domestic prices 1.52% 16.76% 3 1+ Elimination/reduction of import duties to mitigate the shock on domestic prices 9.05% 12.62% 4 1+ Elimination/reduction of import duties and import subsidies to mitigate the shock on domestic prices 20.12% 27.31% 5 2 & 4: Combined non cooperative policies allowing import subsidies 16.00% 41.10% 6 2 & 3: Combined non cooperative policies without import subsidies 7.05% 20.58% Page 12 13. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Results on real income (welfare, %) Page 13 -1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1 Exogenous demand increase 2 1 + Implementation/increase of export taxes to mitigate the shock on domestic prices 3 1+ Elimination/reduction of import duties to mitigate the shock on domestic prices 4 1+ Elimination/reduction of import duties and import subsidies to mitigate the shock on domestic prices 5 2 & 4: Combined non cooperative policies allowing import subsidies 6 2 & 3: Combined non cooperative policies without import subsidies 14. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE China ASEA N AFTA Afghanistan Japan Thailand Pakistan Trans- Pacific SEP APT A Australi a AANZFT A EFTA SCT Taiwan, Penghu, Kinmen and Matsu Honduras El Salvador GCC Jordan Switzerland Mexico MERCOSU R Nicaragua Peru Panama Trade Agreements in force in Asia after 2004 Bilateral Bloc to country USA Vietnam Indonesia SAFT A Cambodia Malaysia Lao PDR Kore a Singapore Brunei New Zealan d Banglades h Myanmar Chile India Sri-Lanka Maldives Bhutan Nepal Philippines MORE INTEGRATION? 15. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE ASEA N + 3 Japan Korea Cambodia Malaysia Philippines Vietnam Pakistan SAFT A New Zealan d Australi a EU SCT Taiwan, Penghu, Kinmen and Matsu GCC Jordan Switzerland Costa Rica Trade Agreements in process in Asia Bilateral Bloc to country ASEA N Canada CEPEA ASEAN + 6 Norway Iceland SACU Nigeri aEgypt Turke yIran D- 8 EFTA Mexico USA Fiji Micronesia Palau Samoa Tonga Vanuatu Cook Islands Kiribati Marshall Islands Nauru Niue Papua NG Solomon Islands Tuvalu PACE R Indonesia BIMST EC China Sri-Lanka Maldives Bhutan India Nepal Lao PDR Thailan d Brunei Singapore Myanmar Banglades h Chile TPP Peru 16. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE CLIMATE CHANGE: A FOCUS ON SOUTH ASIA Page 16 17. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Why focusing on South Asia? (I) Growing demand Dollars Calories Page 17 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Oils and Fats Other Agric. Products Pulses wheat Sugar Fruits & Vegetables Oth. Processed Foods Dairy & Meat products Oilseeds Rice cattle Maize Other Coarse grains Fishing - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Asia & Oceania (none SAFTA) South America North America SAFTA Europe Africa Exports Imports Imports Exports - 1,000 2,000 3,000 4,000 5,000 6,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 - 1,000 2,000 3,000 4,000 5,000 6,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Asia & Oceania (none SAFTA) North America SAFTA Europe South America Africa Proteins Imports Exports 18. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Why focusing on South Asia? (II) Agricultural trade policies are still distorted Average protection (ref gr weighted) Page 18 100 80 60 40 20 0 20 40 60 80 100 World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America SAFTABangladeshBhutanIndia Tariffs Applied on Imports Tariff faced on exports 100 80 60 40 20 0 20 40 60 80 100 World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America MaldivesNepalPakistanSrilanka Tariffs Applied on Imports Tariff faced on exports 100 80 60 40 20 0 20 40 60 80 100 World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America SAFTABangladeshBhutanIndia Tariffs Applied on Imports Tariff faced on exports 100 80 60 40 20 0 20 40 60 80 100 World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America World SAFTA partners Asia & Oceania Africa Europe North America South America MaldivesNepalPakistanSrilanka Tariffs Applied on Imports Tariff faced on exports Average protection (protein contents) 19. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Why focusing on South Asia? (III) Regional trade and potential Importer/Expo rter Bangladesh Bhutan Sri Lanka Maldives Nepal Pakistan India Total Bangladesh 7,569 0 127,935 4,518,449 4,653,954 Bhutan 3,097 0 79,462 82,559 Sri Lanka 1,482 216 0 125,539 1,922,600 2,049,837 Maldives 0 19,512 0 8,087 123,563 151,162 Nepal 17 35 2,169 973,839 976,060 Pakistan 1,985 0 47,765 34 2,792 1,857,128 1,909,705 India 97,960 156,229 931,828 9 627,699 541,181 2,354,905 Total 104,541 156,229 1,006,708 259 630,491 804,913 9,475,041 12,178,182 Page 19 Bilateral trade of calories 20. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Methodology Page 20 Climate Change GCM results [4 models x 3 baselines=12 scenarios] IMPACT Hydrology model Changes in temperature and rainfall simulated at the disaggregated (grid) level Exogenous Yield Response due to Climage Change IMPACT DSSAT modelling (5 representative crops) Changes in Yield due to Climate Change evolution (temperature and rainfall for rainfed agriculture, temperature for irrigated agriculture) Economic results MIRAGE simulations: economic and demographic baselines with alternative trade policy options Endogenous economic response of yields Results in terms of different economic indicators 21. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Baselines and Scenarios Alternative trade policies = different baselines Alternative climate change scenarios = Page 21 Label Description BASE Status quo SAFTA Implementationof the post 2007 SAFTA commitments SAFTAFull SAFTA + eliminationof all remainingtariffs on sensitive products UNISEN SAFTAFull + unilateral liberalizationwith all partners for non sensitive products in SAFTA UNIAGR SAFTAFull+ unilateralliberalizationin agriculture UNIALL Full unilateral liberalizationof all SAFTA countries FTA Full FTA in Asia and Oceania MULTI Full multilateralliberalization Effects on relative prices among countries, among sectors 150 dynamic simulations 22. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Climate Change effects yields (World) Page 22 -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% GroundNutAreaweighted MaizeAreaweighted RiceAreaweighted SoybeanAreaweighted WheatAreaweighted SelectedcropsAreaweighted -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% GroundNutProductionweighted Maize Productionweighted RiceProductionweighted SoybeanProductionweighted WheatProductionweighted SelectedcropsProductionweighted 23. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Subregional heterogeneity Page 23 -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% cnr_a1 cnr_a2 cnr_b1 csi_a1 csi_a2 csi_b1 ech_a1 ech_a2 ech_b1 mir_a1 Simple Average Maize Bangladesh India Pakistan Sri Lanka 24. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Rainfed vs Irrigation: Illustration Pakistan Page 24 -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% -60% -50% -40% -30% -20% -10% 0%R a i n f e d Irrigated GroundNut Maize Rice Wheat 25. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Changes in real income (world level) Page 25 26. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Scenarios matter for Global Trade pattern Agricultural world trade may increase or decrease due to climate change -6% -4% -2% 0% 2% 4% 6% cnr_a1 cnr_a2 cnr_b1 csi_a1 csi_a2 csi_b1 ech_a1ech_a2ech_b1 mir_a1 mir_a2 mir_b1 Imports, volume, 2050 compared to the baseline Developed Countries - Agro-food Developed Countries - Staple Developing Countries - Agro-food Developing Countries - Staple 27. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Heterogenous consequences on Real Income Climate Change will lead to winners and losers among countries -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% cnr_a1 cnr_a2 cnr_b1 csi_a1 csi_a2 csi_b1 ech_a1 ech_a2 ech_b1 mir_a1 mir_a2 mir_b1 Real Income, volume, 2050 compared to the baseline Central Asia China Developed Countries Developing Countries (ex. SAFTA) SAFTA Pakistan Russia & Ukraine 28. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Trade policies less important than productivity shock at a country level and contrasted effects appear but may play a more important role for poor (unskilled) workers -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Trade policy scenario India - Average India - Maximum India - Minimum Pakistan - Average Pakistan - Maximum Pakistan - Minimum Real wages for unskilled workers, percent Real Income, percent 29. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE But economic and demographic situations will matter Page 29 30. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Preferred trade policies real income criteria Bangladesh India Sri Lanka Pakistan Rest of South Asia BASE Pessimistic, Average Average Pessimistic SAFTA Pessimistic Pessimistic, Optimistic Average, Optimistic SAFTAFULL Pessimistic All cases UNIAGR Optimistic UNIALL UNISEN FTA Average MULTI Optimistic Page 30 31. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Research Question and Key results Which trade policies to deal with Climate Change? Which Climate change effects are we talking about: Change in average yield: the topic of this research But only for effects driven by rainfall and temperature Change in yield volatility: not in this research different answers Answers: Large uncertainties: one simulation is not enough. How to communicate with policy makers? Are they risk adverse? The role of flexibilities The world will survive and as usual: winners and losers Trade policies will not solve the average trend problem. Marginal effects compared to the Climate change. Optimal policies difficult to define: redistribution vs efficiency Role of economic growth Yield in the baseline (and public R&D) Page 31 32. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Preferences of policy makers? On key variables (real income): Risk Neutral Risk Adverse (mean variance utility) Minimizing regret (Minimax) Rawlsian (MaxiMin) Adjustment costs Selection criteria: the illustion of precision Sensitivity analysis: Climate change (done here) But other parameters (elasticities, growth path, demographics) matters too! Page 32 33. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Concluding remarks The Trade policy landscape has limited macroeconomic effects of Climate Change consequences on average yield Larger role on distribution (poor people): needs to investigate the issue deeper, in particular with better demand modeling: integration of the MIRAGE-Climate Change and the MIRAGE-Household disaggregation modele Large Uncertainties Promote economic growth (endogenous investments) and role of FDI? Flexibilities for farmers to change crops Flexibilities to relocate production: infrastructure Caution with any large sunk costs (R&D in one crop) Page 33