The Food Crisis and the Region: Evidence and challenges Enrique Aldaz-Carroll “ World Bank-CSO East Asia Pacific Regional Workshop” Jakarta, June 18, 2008 [email_address]

Structure of presentation Structure of presentation: Drivers of price increases Price forecasts Impact on the region Policies Context: International food prices increased 20% and energy prices 35% over the first half of 2008. Increases not seen since 1970s

Structure of presentation:

Drivers of price increases

Price forecasts

Impact on the region

Policies

Drivers of high grain prices Wheat and course grains demand Change from 2005 to 2007, mt USA biofuels EU biofuels Other biofuels Feed and food Note : Grain demand for biofuels jumped from 2.8% of total demand to 5.5%. Source : OECD-FAO Agricultural Outlook 2008-2017. Demand for biofuels Weakening dollar (REER  17% since 2000)  fuel and fertilizer prices  food demand in developing countries  in commodity funds (from $13bn in 2003 to $250bn in 2008 in the US) Hoarding (farmers, wholesalers and traders) Weather events (Australia, Pakistan, etc.) Trade restrictions (28 countries) In the case of rice, about half of the 250% price increase in 2008 is due to trade restrictions and tendering behavior

Demand for biofuels

Weakening dollar (REER  17% since 2000)

 fuel and fertilizer prices

 food demand in developing countries

 in commodity funds (from $13bn in 2003 to $250bn in 2008 in the US)

Hoarding (farmers, wholesalers and traders)

Weather events (Australia, Pakistan, etc.)

Trade restrictions (28 countries)

Looking ahead: decline after 2008 peak, but permanent rise relative to 2000 Source : World Bank.

Regional impact of high commodity prices and global slowdown 1. Inflation has sharply increased hurting the poor a. More than half of their consumption is spent on food b. Risks of social tensions 2. Good news for net producers of agricultural goods & minerals a. Increased exports of primary commodities b. Increased incomes in resource rich provinces 3. The global slowdown is still unfolding … a. Rising financing costs and volatile equity markets b. A weakened US/high income demand 4. … but in East Asia economic activity remains strong a. Domestic demand drives growth b. Exports to non-US markets keep a healthy pace 5 . What can policy makers do ? a. Monetary policy: low inflation or slowing growth? b. Fiscal policy: balancing lower revenues and increased demands c. Mitigate the impact on the poor

1. Inflation has sharply increased hurting the poor

a. More than half of their consumption is spent on food

b. Risks of social tensions

2. Good news for net producers of agricultural goods & minerals

a. Increased exports of primary commodities

b. Increased incomes in resource rich provinces

3. The global slowdown is still unfolding …

a. Rising financing costs and volatile equity markets

b. A weakened US/high income demand

4. … but in East Asia economic activity remains strong

a. Domestic demand drives growth

b. Exports to non-US markets keep a healthy pace

5 . What can policy makers do ?

a. Monetary policy: low inflation or slowing growth?

b. Fiscal policy: balancing lower revenues and increased demands

c. Mitigate the impact on the poor

Fuel subsidies reduce the availability of public resources Indonesia: Energy subsidies amount to 2½ times social assistance Higher oil prices cause fiscal strain for the Asian countries that subsidize fuel prices: Indonesia and Malaysia: fuel subsidy regimes; concerns over their sustainability, given the high fiscal cost. About 4% of GDP spent on energy subsidies in Indonesia. China: price caps on fuel to remain; monthly compensation to refiners (to avoid shortages during the Olympics).

Indonesia and Malaysia: fuel subsidy regimes; concerns over their sustainability, given the high fiscal cost. About 4% of GDP spent on energy subsidies in Indonesia.

China: price caps on fuel to remain; monthly compensation to refiners (to avoid shortages during the Olympics).

Take away messages Rethink biofuel policies—mandates, subsidies, trade restrictions Ease existing trade restrictions Develop global coordination of cereal stocks Policies to mitigate impact on poor Reorient development assistance to improve agricultural productivity (R & D, irrigation, infrastructure, credit, etc.) Need to integrate climate change impacts in development planning World Bank Group’s New Deal on Global Food Policy increases support for global agriculture and food from US$ 4 billion to US$ 6 billion to help farmers access markets and increase productivity, and includes risk management tools and crop insurance to protect poor countries and small-holders.

Rethink biofuel policies—mandates, subsidies, trade restrictions

Ease existing trade restrictions

Develop global coordination of cereal stocks

Policies to mitigate impact on poor

Reorient development assistance to improve agricultural productivity (R & D, irrigation, infrastructure, credit, etc.)

Need to integrate climate change impacts in development planning

World Bank Group’s New Deal on Global Food Policy increases support for global agriculture and food from US$ 4 billion to US$ 6 billion to help farmers access markets and increase productivity, and includes risk management tools and crop insurance to protect poor countries and small-holders.