Implications of the financial crisis for agricultural growth in developing countries

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Ousmane Badiane, Africa Director (IFPRI)
30th April 2009, International Food Policy Research Institute, Washington D.C.

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Implications of the financial crisis for agricultural growth in developing countries

  1. 1. IMPLICATIONS OF THE FINANCIAL CRISIS FOR AGRICULTURAL GROWTH IN DEVELOPING COUNTRIES Ousmane Badiane Director for Africa IFPRI
  2. 2. IMPLICATIONS OF THE FINANCIAL CRISIS FOR AGRICULTURAL GROWTH IN DEVELOPING COUNTRIES 1. IMPACT CHANNELS 2. LESSONS FROM PAST CRISES 3. 3 IMPLICATIONS FOR LONG TERM GROWTH / POVERTY REDUCTION 4. LESSONS FOR POLICY AND ASSISTANCE RESPONSES
  3. 3. IMPLICATIONS OF THE FINANCIAL CRISIS FOR AGRICULTURAL GROWTH IMPACT CHANNELS 1 RECESSION – EXPORT DEMAND - TERMS OF TRADE – AG. INCOMES 2 LIQUIDITY TRAP – FDI – REMITTANCES -TRADE CREDIT – AG. FINANCE 3 FOREX AND FISCAL DEFICITS – AG EXPENDITURE / INVESTMENT 4 DOMESTIC AND ASSISTANCE POLICY RESPONSES ???
  4. 4. SECTOR GROWTH DURING PAST ECONOMIC CRISES NON AGRICULTURAL AGRICULTURAL SECTOR SECTOR Indonesia: 1998 -16.1 -1.3 Malaysia: 1998 M l i -5.0 50 -2.8 28 Thailand: 1998 -12.1 -1.5 Korea: 1998 -5.8 -6.4 Mexico: 1982-86 -0.7 0.4 Honduras: 1982 -2 5 2.5 4.5 45 Mexico: 1994 -7.8 1.8 Honduras: 1994 -2.8 0.9 Nigeria: 1981-84 -3.8 -3.5 Zambia: 1998 -1.9 1.2 Source: D. Heady based on data from UN (2009): National Accounts Main Aggregates Database
  5. 5. VULNERABILITY OF AGRICULTURE TO GLOBAL MARKET CHANGES RATIO VALUE AGRIC TRADE TO AGRIC GDP RATIO VALUE AGRIC TRADE TO AGRIC GDP 2000 - 2006 2000 - 2006 0.7 7.0 S. LANKA ASIA CARIBBEAN 0.6 6.0 TRINIDAD & T 0.5 5.0 0.4 4.0 0.3 3.0 0.2 2.0 0.1 1.0 HAITI INDIA - - Individual Countries Individual Countries RATIO VALUE AGRIC TRADE TO AGRIC GDP RATIO VALUE AGRIC TRADE TO AGRIC GDP 2000 - 2006 2000 - 2006 1.4 CHILE 1.2 S. AMERICA DRC AFRICA 1.2 1 1.0 0.8 0.8 0.6 0.6 0.4 0.4 COLUMBIA 0.2 0.2 CAR 0 - Individual Countries Individual Countries NOTES: Agricultural trade is the value of agricultural exports plus value of agricultural imports SOURCES: Agricultural trade: Food and Agriculture Organization, FOASTAT 2008 Agricultural value added: World Development Indicators, 2008
  6. 6. LONG TERM CHALLENGE NO. 1 BRIDGING THE GROWTH GAP TO MEET THE POVERTY MDG TARGET 100 90 1990 Poverty Rate 80 70 (%) 60 2015 Target Poverty Rate 50 40 30 20 10 0 go Benin Zambia so na er ue da ya wi da Malaw Nige Tog Keny Ghan Burkina Fas Mozambiqu Ugand Rwand 2015 Poverty Rate under CAADP 6% Growth Rate Source: Poverty Rates from World Bank, Pov Cal Net, 2008; CAADP Poverty and Agricultural Spending Rates from various IFPRI country CAADP Growth Options Studies
  7. 7. LONG TERM CHALLENGE NO. 2 BRIDGING THE EXPENDITURE GAP TO MEET THE POVERTY MDG TARGET 100 90 1990 Poverty Rate 80 70 (%) 60 2015 Target Poverty Rate 50 40 30 20 10 0 go Benin Zambia so na er ue da ya wi da Malaw Nige Tog Keny Ghan Burkina Fas Mozambiqu Ugand Rwand 2015 Poverty Rate under CAADP 6% Growth Rate Required Ag. Spending Growth Rate to CAADP 6% Growth Source: Poverty Rates from World Bank, Pov Cal Net, 2008; CAADP Poverty and Agricultural Spending Rates from various IFPRI country CAADP Growth Options Studies
  8. 8. EMERGING RESPONSES AND THE LONG TERM CHALLENGES FURTHER PUBLIC EXPENDITURE BIAS ? 1000 900 800 700 Index (1980 =100) 600 500 400 I 300 200 100 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Agriculture Education Health Social Serrvices Infrastructure Source: Data from IMF, Government Financial Statistics, various years
  9. 9. EMERGING RESPONSES AND THE LONG TERM CHALLENGES THE RISK OF POLICY REVERSAL ? Reduced taxes on food &   Incentives for  Agricultural input  Export prohibition Price  setting,  import tariffs on grains &  expanding production  import tariffs on grains & expanding production subsidies controls inputs (credit) Country Benin Burkina Faso Ethiopia Ghana Kenya Malawi Mali Niger Nigeria Rwanda Senegal Uganda Zambia √
  10. 10. RESPONDING TO THE CRISIS GROWTH REMAINS THE GOAL 1 COMPENSATE FOREX AND FISCAL LOSSES 2 ENSURE AGRICULTURE FRIENDLY RESPONSES AVOID SECTOR POLICY REVERSAL DO NOT WORSEN PE BIAS AGAINST AGRICULTURE 3 PROVIDE GROWTH ORIENTED SAFETY NETS MAXIMIZE SHORT TERM GROWTH IMPACT OF SOCIAL INVESMENTS TARGET: RAISE PRODUCTIVITY IN AGRICULTURE AND RURAL AREAS
  11. 11. CONCLUSIONS 1. MOST SERIOUS IMPACT IS AT MACRO LEVEL 2. SERIOUS RAMIFICATIONS FOR AGRICULTURE 3. REGIONAL DIFFERENCES 4. RESPONSE HAS TO FOCUS ON GROWTH IN COUNTRIES BEHIND MDG1 5. NEED FOR GROWTH ORIENTED SOCIAL PROTECTION

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