Food security and armenian gevernment understanding oct08


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Food security and armenian gevernment understanding oct08

  1. 1. GEVERNMENT UNDERSTANDING of FOOD SECURITY IN Armenia (Challenges and Recommendations)November 15, 2009Prepared by AMMuch of the debate in Armenia regarding food security has focused on national food self-sufficiency. However, food security and food self-sufficiency are not inter-changeable terms.Internationally recognised definitions of achieving food security are based on income levels andself-reliance, not national self-sufficiency. Thus the interventions that government is pursuing isaimed at to maintain national food self sufficiency, through export bans and administrativecontrols provides a disincentive for producers by increasing the disparity between domestic priceformulation and international prices. Given this situation many countries have adopted a movetowards market development and trade liberalization as an alternative option to maintain nationalfood security which is potentially less costly and more effective.In Armenia, the government’s principle tool to ensure household food security has been throughensuring bread at an affordably low price is available to urban consumers. The current policyobjectives do not distinguish between those who are chronically food insecure and those who aretransitory food insecure. The chronically food insecure include those sectors of the populationwhich lack adequate income, assets and/or resources at the household level to produce orotherwise gain access to the basic food needs of the household. Chronic food insecurity resultsfrom structural problems (through the inability to generate adequate incomes to access cerealsand other basic food items) and as such cannot on its own be overcome by non-targetedinterventions of subsidised bread.The transitory food insecure are those households which, under normal circumstances, are ableto produce or gain access to their basic food needs but are vulnerable to supply problems whenexternal shocks affect their food production systems or distribution chains for a limited period oftime. By their nature events resulting in transitory food insecurity are usually of limited duration,such as the current cereals production season, and, once conditions return to normal, the affectedpopulation is usually able to rapidly recover its food security. Thus transitory food insecuritymay require one-off interventions which sustain and rapidly build household assets.As indicated above, food security requires not just adequate supply of food at the aggregate levelbut also enough purchasing capacity with the individual / household to demand adequate levelsof food. This approach recognises the complementarily of domestic production and internationaltrade. Therefore, in order to ensure food security, there is need to ensure the development of arobust rural economy and sufficient rural incomes. Measures that contribute to distortions inrural markets and subsequently to a poorly functioning rural economy are likely to lead toincreased food insecurity and poverty at the household level.In this respect rural poverty in Armenia has seen gradual increases since 2003, as measured byboth the Ministry of Economy measures of poverty or through recent World Bank estimated
  2. 2. measures1. Over the past 4 years urban residents have seen their incomes rise and their povertyrates decline, whilst the incidence of poverty has actually increased among farmers and farmlabourers during the same time period.Rural poverty is primarily a function of rural income, which in Armenia is driven by: profitsfrom farming owned or rented land; earned (wage) income from agricultural and non-agriculturallabour; and transfers, both formal transfers from the state and private remittances from abroad.Thus although there has been significant movement on liberalisation both of land and many ofthe agricultural input markets, farm gate prices and ultimately farm incomes have witnesseddownward pressures over the past 4 years due to periodic administrative controls in outputmarkets, particularly for cereals, through export bans and the control of prices of bread.Furthermore, the indirect consequence on reducing the number of intermediaries and competitioninvolved in the cereals marketing chain, which has the potential to further depress prices andultimately rural incomes. In addition rents, which are frequently based on in kind payments ofcrop have also been negatively affected by weather induced shocks and developments in thedomestic market. The combined impact of these outcomes has been to reduce the incentive ofproducers to invest in productivity enhancing inputs such as seed and fertiliser, as well asmaintaining adequate crop rotations. This has resulted in land degradation and declining yieldsand productivity of cereals over the past 5 years.Due to the political sensitivity associated with the cereal sub-sector and its importance as agenerator of foreign exchange and in terms of national food security, the Government ofArmenia continues to retain some supervisory influence and involvement within it, aiming toensure that the market is adequately providing for the needs of producers and consumers. Thus itcontinues to pursue implicit policy objectives of ensuring that: (i) the country produces sufficientcereals to meet national food self-sufficiency; (ii) bread at an affordably low price is available tourban consumers; and (iii) the value added of cereal exports increases.The government continues to pursue a policy of national grain self-sufficiency as the basis ofensuring food security in cereals for its population through a combination of export bans andadministrative controls during times of drought and weather induced shocks.The affects of the government intervention to maintain national food self sufficiency, throughexport bans and administrative controls provides a disincentive for producers by increasing thedisparity between domestic price formulation and international prices has multi-dimensionaleffects and include:  Expanding the rural – urban differential with a very significant urban bias, resulting in out-migration of the rural workforce without an associated increase in productivity that is crucial for the reduction of rural poverty.  Depressing the rural economy through the suppression of producer prices and ultimately increasing rural household food insecurity.1 The World Bank and MEC rates for poverty differ although the basic source is the household budget survey. This isprimarily due to technical reasons, with the World Bank measure: excluding some expenditures from consumption;consumption is based on a per capita rather than a per adult equivalent basis; and applying a slightly lowerassumption for minimum calories.
  3. 3.  Depressing domestic cereal production by reducing the incentives to invest to increase productivity and improve quality.  Stunting the growth of bakery sector and reducing the domestic marketing channels available to Armenian cereal producers.  By depressing production, the current set of instruments has negatively impacted on exportable volumes, foreign exchange revenues, and incomes of farmers.  Furthermore, these instruments have contributed to suppression in trade.Given these significant negative impacts of cereals policy, in spite of world market prices forcereals reaching all time highs, there is urgent need for a fundamental appraisal of theinstruments and objectives that the government is pursuing.There is now considerable empirical evidence 2 worldwide that demonstrates the significantcontribution that agricultural growth and productivity can make to reducing poverty. Thesituation in Armenia is characterised by continued declines in cereal productivity, a poorinvestment climate, and policy uncertainty within the sector. These are some of the causal factorsthat have contributed to modest increases in rural poverty in Armenia, in spite of broad economicgrowth and rising remittances.It is important to note that even in highly liberalised economies, the Government remains asignificant actor in a market economy, but its role is different, more as a facilitator or catalyst toaddress markets that are not working, as in the case of Armenia’s cereal market which hasmanifested itself through high transaction costs, product wastage and losses, wide marketingmargins, poor market integration, etc. Thus government needs to harness market forces toaddress these failures, rather than through direct and unpredictable interventions in the marketwhich perpetuates risks and ultimately impacting negatively on investment and growth within thesub-sector.Main Priorities must include:  Institutional capacity building  Information system development  Adverse Market Power  Risk Management  Price Stabilisation trough market liberalization  Development of Targeted Social Protection Interventions  Development of Transparency and Predictability That’s why the GoV needs to focused on:1. Acceleration of the privatization processes and reorganization of industrial enterprises aimedat raising the efficiency of their activity and attracting foreign and local investments; work outdevelopment programs for certain industrial and regional sectors aimed at attracting investments,2 Thirtle et al (2001) found that, at the national level, a 1 percent increase in agricultural yields decreases thepercentage of population living on less the US$1 per day by 0.48 percent. Furthermore, Recent World BankResearch (WDR 2008) shows that amongst 42 developing countries over 1981–2003, 1 percent GDP growthoriginating in agriculture increased the expenditures of the three poorest deciles at least 2.5 times as much as growthoriginating in the rest of the economy
  4. 4. identifying and implementing certain specific methods for increasing the investment activity ofenterprises.2. Implementation of quality management systems within enterprises according to ISO 9000standards.3. Creation of the legislative basis on promoting innovative centers and parks of technologicaltransfer aimed at supporting advanced technology production with minimum consumption ofenergy resources and non-polluted technologies.4. Modification of legislation aimed at improving mechanisms for stimulating local and foreigninvestments.5. Improvement of the legislative framework on the transparency of investment mechanisms,privatization and objective information on the activity of enterprises and equity market.6. Creation of a national system of integrated monitoring of pollutants, including GHG emissionsand industrial wastes.7. Improvement of packing industry aimed at natural resources conservation and capitalization ofglass, cardboard, paper, plastic, polyethylene, wood, and other waste products. Creation oftechnical committees to develop and approve technical instructions in the field. Development ofpacking standards.8. Development of the infrastructure to promote export of industrial products, renderinformational services and consultations, preferably in purer technologies. How can Armenia s agriculture sector respond to the current world/ regional demand for food security?  by improvement and diversification of crop variety or species;  by development agriculture calendar according to the seasonal changes caused by climate changes;  new crop varieties;  increasing the quality and quantity of cattle breeding production, applying biotechnologies in the zootechnics sector, using non-polluting growth stimulators, active biological and veterinary substances.  by improvement of irrigation system and water supply management;  inputs management (fertilizer, tillage methods, grain drying, other field operations);  by promotion of agro forestry, adaptive management with suitable species and silvicultural practices  policy development and capacity building 3 What are the key steps that the government needs to take to ensure it maximizes the performance of the agricultural sector? ■ identifying present vulnerabilities; ■ adjusting agricultural research priorities; ■ protecting genetic resources and intellectual property rights; ■ strengthening agricultural extension and communication systems;3 Adaptation to climate change, FAO 2007
  5. 5. ■ adjustment in commodity and trade policy;■ increased training and education; ■ reduction of food security risk;■ identification and promotion of (micro-) climatic benefits and environmental services oftrees and forests■ liberalization of cereal market and bread pricesWhat are the main challenges faced by but also the opportunities in the food makingindustry in Armenia?The Government adopted the Concept of Agriculture Sector Development. The programsdeveloped in this area are well grounded, but the objectives and the tasks are impossible to beachieved, since the real possibilities of the State Budget and capacity to credit of commercialbanks providing them with financial resources were not taken into account. Often, actionsprovided in programs cannot be carried out because of the insufficiency of organizationalactivity of institutions in this area, of state and local state authorities.Main objective of Government must be Community Empowerment and LivelihoodsEnhancement that will contribute sustainable economic growth and reduction ofvulnerability to climate change by promoting partnerships in rural development. It will alsoimprove the livelihoods and food security of rural populations trough:  Promoting ecological production and implementation of non-polluting technologies;  Improving and complete the legal framework according to the European standards (norms on emissions)  Using of recyclable energy sources (solar, wind, biogas, natural freeze) as a means to reduce traditional fuel consumption  Using of agricultural and processing industry waste.