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Food Crisis – Opportunity or Tragedy?
Presentation at Heinrich Boll Foundation North Amerca and Carnegie Trade, Equity and Developmoent ProgramOctober 9, 2008
I. Rapidly Changing Food Markets Create New Opportunities
High food prices provide an opportunity for producers
Nominal Grain prices 1998-2008
0
100
200
300
400
500
600
700
Nom
inal
Pric
e $U
S/to
n
Rice (a) Thai 5%brokens FOB BKKFob BKK
Wheat (b) CanadianNo1 Western Red FobThunder Bay
Corn (c) US No. 2Yellow Fob Gulf Ports
Food demand is changing
0
50
100
150
200
250
1981 1984 1987 1990 1993 1996 1999 2002
Kcal consum
ptio
n/capit
a/day (
1981=
100)
Developing Country Consumption
Meat
Horticulture
Cereals
Developing country exports
0
50
100
150
200
250
300
350
1980 1990 2000 2004
Valu
e o
f export
s (1980=
100)
Cereals
HorticultureMeat
Supply chains are increasingly integrated…
• Supermarkets are rapidly dominating food sales worldwide
• Supermarket supply chains require high levels of coordination between producers, processors and marketing
•Supermarkets are also targeting the poor, selling cheap food and expanding to relatively small cities
•Foreign investors are often critical to knowledge transfer
010203040506070
China Indonesia Philippines Thailand
Share of supermarkets in total food sales
Annual growth rate in supermarket outlets
…but smallholder sourcing adds retail value
Increasing demand for environmental services from agriculture
Agriculture is also critical to climate change in developing countries
New technology is “democratizing” information access
Mobile technology lowers the hurdle for joining the networks
Many developing countries are closing the technology gap
Smaller businesses are able to gain benefits of scale in information access
II. Smallholder Sector and Empowering Value Chains
The Smallholder Sector – Why Care?
3/4 of the world’s poor live in rural areas Over 450 million farms are less than 2 has Almost 1/3 of world’s population depend on
smallholder farming Agricultural growth is at least twice as effective
in reducing poverty as non-agricultural growth For the majority of crops, smallholders are more
efficient producers Smallholder agriculture systems, particularly
the commercial aspects, are increasingly managed by women
Empowering Value Chains
Allow smallholders to seize new opportunities in agriculture by: Increase producer knowledge of market demand
and pricing Increase investments from farmers and the other
private sector Increase access of smallholders to knowledge,
finance, inputs and technology Reduce transactions costs of the producer-
processor/marketing interface Increase the share of value added captured by
primary producers
Empowering Value Chains: Examples
Ghana “grains partnership” between smallholders and private actors (input suppliers, produce buyers) to boost farm-level productivity and secure transactions (maize)
Sao Tome and Principe organic cocoa schemes contributed to more than doubling the income to smallholder farmers
Yulin watermelons (China): Direct marketing to wholesalers, supermarkets and retailers increased selling price from 1.2 to 3.0 yuan per kilogram and its farmed area from less than a ha to several thousand
NorminVeggies (Philippines): Supplies vegetables to fast food, supermarkets and processors. Monthly sales were 80 tons in 2006.
Konzum Supermarket (Croatia): Helped small farmer- preferred suppliers to use contracts as collateral with local banks to investment in greenhouses and irrigation
III. Why aren’t more empowering value chains emerging?
Investment climate limits quantity and quality of agricultural investment
Days to Start a Business
01020304050607080
EAP ECA LAC MENA OECD SA SSA
Days for Export Process
05
10152025303540
EAP ECA LAC MENA OECD SA SSA
•Poor business climate attracts “extractive” investors and limits development of modern marketing systems•Particular problem for countries with small internal markets•Also applies to certification!
Marketing Systems are Inefficient
• Large number of intermediaries increases costs, risks and losses
Property Rights Need to Work for the Poor
Indonesia
Rep of Korea
Vietnam
India
Phillipines
Thailand
Columbia
Venezuela
-0.02
-0.01
0
0.01
0.02
0.03
0.04
0.05
0.3 0.4 0.5 0.6 0.7 0.8 0.9 1Share of holdings < 3 ha
Av
g a
nn
ua
l ag
ric
. gro
wth
19
90
-20
02
• smallholder advantages depend, in large part, on tenure security as incentive for farmer to invest
Limited Access to finance
• Credit constrained use less inputs and earn lower incomes• Credit constraint is often associated with risk rationing as well
Under-investment in agriculture and rural infrastructure
0
10
20
30
40
50
60
1980 1990 2000 2002
Africa Asia Latin America
• Agriculture and rural infrastructure’s share of public expenditures have declined significantly
Need to improve efficiency of investment in rural development
China India Thailand Vietnam Uganda
Ranking of Returns to Agricultural Production Agriculture R&D 1 1 1 1 1 Irrigation 5 4 5 4 Education 2 3 3 3 3 Roads 3 2 4 2 2 Telecommunications 4 Electricity 6 8 2 Health 7 4 Soil and Water Conservation 6 Anti-Poverty Programs 5
Ranking of Returns in Poverty Reduction Agriculture R&D 2 2 2 3 1 Irrigation 6 7 5 4 Education 1 3 4 1 3 Roads 3 1 3 2 2 Telecommunications 5 Electricity 4 8 1 Health 6 4 Soil and Water Conservation 5 Anti-Poverty Programs 7 4
Concentration in Agribusiness Sector
Concentration widens the spread between world and domestic prices – from 1974 to 1994 this more than doubled for wheat, rice and sugar
Developing countries’ claim on value added declined from around 60% in 1970-72 to 28% in 1998-2000
Market share of four largest input suppliers
010203040506070
Agrochemicals Seeds Biotech
1997 2004
IV. The way forward
Actions to Build Empowering Value Chains
Strong facilitation & strengthened legal framework to secure, build trust & reduce costs of transactions
General business climate – business licensing, trade facilitation
Strengthen land access and tenure security Develop rural financial and risk services Efficient input markets Rural infrastructure Quality, and Sanitary and Phytosanitary Standards Market information Producer organizations in order to help farmers engage
on less skewed terms
Bridging the Gap: New Role of the State
Global flow of capital, technology and market access
Private sector dominatesInput and output markets
Improve coordinationfor service delivery and
avoid duplicatingregulations and red tape
From financing investments to…
From supplying inputsand buying outputs to…
From centralized investment
planning and service delivery to…
From agencies working in silos to…
Transparent, predictable investmentclimate
Regulate input and output qualityIncluding SPS
Political and fiscal decentralization and supportive engagement with farmer
organizations and other CSOs
Mechanisms for inter-institutional coordination
Empower rural communities so investments and services
respond to needs and farmers can engage private
sector
Drivers Dynamic Roles
Bridging the Gap: New Role of the Private Sector
Global sourcing brings political risks
Demand for socially responsible production
Phytosanitary and quality are the new trade barriers
From vertical integration to…
From focus on cutting supply costs to…
From uniform product characteristics to…
From dependence on intermediaries to…
Diversified sources of product
Marketing smallholders
Encouraging traditional varieties and product diversity
Providing farmers with quality inputs and production technology
Increasing importance of “new cultural markets”
Drivers Dynamic Roles
Farmer associations are critical
Morogoro is Tanzania’s main sugar-producing region where the mills owned some large farms but could not adequately supply all their needs.
The mills provided farmers with seed cane on credit and the services of tractors for land preparation. Workers from the mill would harvest the cane and take it for processing. These services were deducted from the amount paid to the farmers.
The Millers Association, as a monopsony, had considerable power. Not surprisingly, for many years, the relationship between the growers and the sugar millers had been characterized by mistrust. The millers frequently violated their contracts and often delayed payment to the farmers for as long as six months.
The Tanzanian Sugar Cane Growers Association (TASGA) emerged to represent smallholders averaging 1.4 ha each - initially had public sector help to organize farmers
The ability of TASGA to negotiate effectively eliminated strikes and social unrest. However its importance was not just its role representing farmers. It also conducts various functions: (1) sourcing funds to provide loans to farmers; (2) offering training on improved cropping practices; and (3) promoting better environmental practices.
TASGA has grown to include many thousands of farmers and now accounts for about 17,000 ha. of cropland.
When the government discussed providing the sugar millers some 30,000 ha of land to grow sugarcane, it was recognized instead that it ought to go to the Association
Important Caveat: Many smallholders will not be able to integrate or will do so slowly
Areas constrained agronomically (low rainfall)
Areas constrained by market access (time to market)
Need investments in rural roads, irrigation and other food security measures
Need investments in education and health and active labor market policies
Safety net programs such as public works
Common interests and challenges
Poverty Reduction – helping all of the poor to escape poverty
Food quality – how to ensure that appropriate incentives exist for higher quality and more sustainable production?
Environmental sustainability – how to ensure that environmental costs of unsustainable production are “internalized” in incentives?
Public support – how to do it “right” in terms of reaching right people and being responsible in terms of government expenditures?
Trading system which supports sustainable and equitable opportunity in agriculture as well as ensuring a safe, reliable and affordable food supply?
Parting Message…
How we respond to this crisis in terms of fixing what is broken in agriculture and social protection will determine whether future generations will record this as the triumph of an opportunity grabbed or the tragedy of an opportunity squandered
Some publications of interest:
Rising Food and Fuel Prices – Addressing the Risks to Future Generations
The Impact of Food Inflation on Urban Poverty and its Monetary Cost
Double Jeopardy: Responding to High Food and Fuel Prices
World Development Report ’08: Agriculture Implications of Higher Global Food Prices for
Poverty in Low Income Countries
www. Worldbank.org(food crisis)
On behalf of the World Bank
Thank you
www.worldbank.org