Transcript FOOD PRICE WATCH

Domestic food prices,
undernourishment and policy
implications
Hassan Zaman
Lead Economist
The World Bank
March 2010
Structure




Trends in global and domestic food prices
Measuring the impact on undernourishment
Learning from the responses to the 2008
food crisis
Concluding thoughts
Global food prices on the rise

World Bank food benchmark index increased
23% Jan-Dec 09
Global food prices on the rise (cont.)
Sugar prices rose 80% during this period (figure 2) and rice prices
(Thai 5%) increased 9% in December 2009 alone. On the other
hand global wheat and maize prices relatively stable
Domestic food prices

Tracking domestic prices is important in order to provide
early warnings about food crises. Regular monitoring is
just as important (eg in Malawi in 2001, maize prices
rose by 50% in one month following months of stability signaled extent of food shortages)

Domestic staple price increases in many countries
greater than the rise in global grain prices (using FAO
food price data in 58 countries).

Localized factors – conflict, supply disruptions, weather –
lead to divergence from global price trends especially in
less integrated economies
Kenya maize prices compared with global prices
Domestic staple price increases (source ‘Food Price Watch’
February 2010, World Bank)
Price Increase, January 2009- October 2009
Country
Nigeria
Food
Item
Caloric
contribution
Price
Increase
Sorghum
13%
50%
Average price increase, 2008-2009
Food
Item
Caloric
contribution
Price
Increase
Mozambique
Cassava
33%
61%
Cassava
55%
60%
Country
Uganda
Maize
10%
35%
Dem. Rep.
Congo
Bhutan
Rice
..
26%
Sudan
Sorghum
26%
38%
Sudan
Sorghum
26%
24%
Kenya
Maize
36%
21%
Tanzania
Maize
34%
23%
Chad
Sorghum
18%
18%
Kenya
Maize
36%
16%
Burkina Faso
Sorghum
27%
15%
China
Rice
27%
15%
Tanzania
Maize
27%
14%
Methodology for estimating nutritional impacts of food price increases
(details in Tiwari and Zaman (2010) ‘The impact of economic shocks on global undernourishment’ Policy Research
Working Paper 5215, The World Bank)
1. Estimate
a calorie-income (Engel) relationship using a
cross country panel data for which data on per capita
income (WDI) and per capita calorie consumption (FAO)
was available (83 countries over 8 years, 742
observations)
2. Use income distribution data to generate a cumulative
distribution function (CDF) for per capita country for every
country.
3. Determine the minimum daily calorie intake threshold
below which an individual is deemed undernourished.
Methodology for estimating nutritional impacts of food price
increases (cont.)
4. Using the Engel relationship, determine what the income
requirement for the threshold calorie level is.
5. Using the CDF we work out what fraction of the
population cannot afford this level of calories, and use
population weights to derive regional estimates for
undernourishment.
6. When prices increase, Engle curve shifts “down” or to
the “right” (price change multiplied by price elasticity of
calories).
Food price scenarios in 2008 and impact on
undernourishment
2008 - Full Passthrough
% Increase
from 2007
Sub-Saharan
Africa
2008 - Partial
Passthrough
5%
25%
35%
50%
35%
50%
1%
4%
5%
7%
4%
6%
-4%
6%
11%
19%
8%
14%
0%
10%
16%
24%
12%
18%
Middle East and
North Africa
-1%
13%
20%
31%
15%
24%
Total
-2%
6%
10%
16%
Asia and Pacific
Latin America
and Caribbean
Baseline
(incidence in
millions)
Sub-Saharan
Africa
2008 - Full Pass through
7%
12%
2008 - Partial
Passthrough
FAO 2007
5%
25%
35%
50%
35%
50%
236
239.3
245.5
248.6
253.4
246.4
250.2
Asia and Pacific
583
561.5
619.7
649.6
695.5
628.6
664.8
Latin America
and Caribbean
51
50.8
56.2
59.0
63.2
57.0
60.4
Middle East and
North Africa
37
36.6
41.8
44.4
48.5
42.5
45.8
923
902.2
974.9
1012.2
1069.4
986.5
1031.1
Total
Bottom line estimate…and methodological caveats

Our preferred estimate relates to 35% price increase
scenario (average food price change 2007-08) and
partial pass-through of prices which implies 64 million
more undernourished

Caveats include (i) use of undernourishment as an
indicator (ii) use of a single calorie price elasticity (iii) not
knowing what a reasonable price pass through rate is.
Country specific impacts of changes in 2009 food prices on
undernourishment (source: ‘Food Price Watch’ Poverty Reduction Group, The World Bank)
% Increase
Domestic
Price of
Staples in
2009
Change in
Undernourish
ment Incidence
% Change
(over
2008
estimate)
Projected
per
capita
growth
(2009)
Mozambique
61%
763,291
8%
2.2%
Kenya
21%
453,897
5%
0.3%
Burkina Faso
15%
149,592
3%
1.3%
Tanzania
14%
444,599
4%
0.0%
The financial crisis has affected household food
security...evidence from a crisis-monitoring survey in
Turkey (source: Human Development Division, ECA, World Bank)
80%
14
% of households that use the following coping mechanisms
75%
60%
40%
29%
32%
20%
14%
14%
5%
0%
Poorest 20%
Middle 20%
Richest 20%
Asset Quintile
Decreased the amount of food consumption
Reduced education expenditures
Reduced the use of health services
Distribution of safety nets and food price policies during 2008 food crisis
(source: Wodon and Zaman (2009) ‘Higher food prices in Sub-Saharan Africa: Poverty Impact and Policy
Responses’, World Bank Research Observer)
Existing Safety Net Interventions
(% of all 118 countries)
Food Price Policies
(% of all 118 countries)
60%
50%
Percentage of countries
Percentage of countries
50%
40%
30%
40%
30%
20%
20%
10%
10%
0%
0%
Cash transfer
Food for
work
Food ration/
stamp
School
feeding
-10%
Source: Data based on responses
from 118 country teams
Source:
Data based
on responses
from 118 country teams
Food price policies

Subsidies – important to distinguish between
universal subsidies which depress incentives and
take up large share of budget vs. smaller subsidies
targeted at vulnerable groups

Stock management – professional
management/oversight essential to minimize
leakages, losses and market disruptions

Tax cuts – fiscal and distributional implications

Overall, significant scope for assistance in these
areas during a ‘non-crisis’ period
16
Spending on Safety Nets is Modest (source Grosh et al 2009)
Mean 1.7% of GDP; median 1.4% of GDP (n=72)
For 1/2 of countries is about 1-2 % of GDP
17
Linking safety nets with the growth agenda

Growth angle necessary to mobilize political support for
more domestic and external funding for safety nets

Growth pathways which need to be quantified include
(i)
(ii)
(iii)
(iv)
Consumption multiplier impact e.g. foodstamps multiplier
largest in US stimulus package (Zandi 2009)
Infrastructure creation (public works)
Human capital impact (CCTs)
Conflict reduction potential (eg programs for ex-soldiers)
Concluding thoughts

Global and domestic price trends of food staples can
differ significantly; monitoring domestic staple prices
essential.

Nutritional impacts will have irreversible consequences
and hence direct interventions for children under 2,
pregnant/lactating women needed as income growth
won’t be sufficient (eg India).

2008 food crisis policy instruments will be re-used so
donors could assist in improving their implementation

Linking safety nets with growth strategy important to
mobilize political support for expenditure reallocations
and external resources
19