Globalization of the agri-food system
and the poor in developing countries
   Driving forces, consequences and policy
    ...
IFPRI’s mission is “To provide policy solutions
             that cut hunger and malnutrition”
   Basics
   • A public ins...
Overview of presentation on
              globalization of the agri-food system…

           1. Global context
           ...
What is the “globalization of agri-food
                             systems”?


            Global integration (across na...
Elements of the Changing Global Context


     •   Globalization in trade and investment
     •   Spread and deepening of ...
Changing Global Food and Agriculture
                              Systems


                      • Growing role of retai...
The impact of globalization on the poor:
                    Contentious issue

         Divergent assessment of globaliza...
Overview

           1. Global context
           2. Key drivers
           - Trade and FDI
           - Demand
          ...
2. Drivers of Globalization of the
                                   Agri-Food System

     1.      Trade and FDI
     2....
Drivers:
                (1) Trade and FDI and related policies


       Agriculture trade policy: where to
        with ...
Surprise? No strong increase agricultural trade shares
     Agriculture trade in percent of production

       Export/Prod...
But: Increased trade in processed and
                      high-value goods

40
          Imports/production (%)         ...
Surprise? Estimated welfare benefits of
          trade liberalization: studies 1999 - 2006




                          ...
WTO Doha negotiations: Scenarios with
                 MIRAGE/IFPRI CGE model
                                            ...
Growing FDI to developing countries in the food and
            agricultural sectors (% of world total), 1990 and 2003

  ...
Drivers (2) Demand and consumer behavior

  • Changes in lifestyle, rising incomes & availability of
    wider variety of ...
1-The corporate world food system, 2005




                                                                              ...
Performance of the top 10 in the global
                   Agri-food business, 2004–2005
         Percentage change of sto...
What future for the small farms?

                                                           Number of farms
     Farm Siz...
The dynamics of linkages:
                Between farms and food industries


               Large retailers              ...
But globalization of food markets is also
               shaping consumers’ habits …

          Failed “Nutrition transiti...
Drivers: (3) ICT and information flows

                                    Ongoing technological advances
              ...
Drivers: ICT Revolution

         500
                                Fixed line and mobile phone subscribers
         400...
Information and
 Communication
 Technologies for
Development and
Poverty Reduction
   The Potential of
 Telecommunications...
Drivers: ICT


           Development of new services, for e.g.
            exponential increase in cellular telephone
  ...
ICT and the poor

          • Telephones annual growth, 1990–2003
                - South Asia: 22 %
                - Sub...
Drivers:
                         (4) science in food and agriculture

     Total global R&D spending:
                 19...
Global bi-furcation in agr. R&D


     80 developing countries spend a total of 1.4 bln$
       on agric R&D:         6% (...
A changing environment for innovation
          Blocks to globalization of R&D
      Introduction of patent rights for
  ...
And: Global challenge of Climate change:
  adaptation in low income countries needs R&D




Joachim von Braun, IFPRI, Nove...
Overview

           1. Global context
           2. Key drivers
           - Trade and FDI
           - Demand
          ...
Accelerated agricultural growth under globalization?



                                          1962–1979    1980–2004

...
Sub-Sahara African agriculture growth needed for
                  economy wide growth and poverty reduction



          ...
Poverty headcount ratio at $1 a day

                                    Poverty headcount ratio at $1 a day (PPP) (% of
 ...
Pro-Poor? in some countries growth has been
                         accompanied by increased poverty…

     Out of 30 dev...
Hunger in the developing world

           Millions
     900

                           824                              ...
Who is affected by hunger?



                                                             Urban poor
                    ...
Territory size based on the proportion
               of underweight children that live there




                 Source:...
Sticky relation: hunger / income linkage
                   Undernourishment and GDP/Capita




                          ...
Bottom line



            The potentials of globalization
          have not been effectively translated
              in...
How to deal with the complexities /
                        interactions of the divers drivers?

     1. Scenarios
     2....
IFPRI global IMPACT Model Scenarios:
                        Risks and Opportunities 2015 & beyond

                    Pr...
Per capita daily availability of calories in
                                       developing countries

                ...
Three Scenarios to 2050:
                                  Undernourished Children, Sub-Saharan
                          ...
Overview

           1. Global context
           2. Key drivers
           - Trade and FDI
           - Demand
          ...
Policy implications for pro-poor outcomes:
        International development policies
          1. Promoting global peace,...
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Globalization of the agri-food system and the poor in developing countries Driving forces, consequences and policy implications

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November 15, 2006

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Globalization of the agri-food system and the poor in developing countries Driving forces, consequences and policy implications

  1. 1. Globalization of the agri-food system and the poor in developing countries Driving forces, consequences and policy implications Joachim von Braun International Food Policy Research Institute 2nd Willard W. Cochrane Lecture Department of Applied Economics University of Minnesota November 15, 2006
  2. 2. IFPRI’s mission is “To provide policy solutions that cut hunger and malnutrition” Basics • A public institution, part of CGIAR • Staff of 260 (ca. 80 PhDs; from ca. 30 countries) • Washington, Addis Ababa and New Delhi • Budget: US$ 40 million (2006), • Governed by an international board of trustees • Six Divisions: Production & Environment; Markets & Trade; Consumption & Nutrition; Strategy & Governance; Capacity Strengthening; and communications Joachim von Braun, IFPRI, November 2006
  3. 3. Overview of presentation on globalization of the agri-food system… 1. Global context 2. Key drivers - Trade and FDI - Demand - ICT - R&D 3. Growth and poverty 4. Policy implications Joachim von Braun, IFPRI, November 2006
  4. 4. What is the “globalization of agri-food systems”? Global integration (across national borders) of production and consumption of food and agriculture Joachim von Braun, IFPRI, November 2006 Source: von Braun and Diaz-Bonilla (2006, draft)
  5. 5. Elements of the Changing Global Context • Globalization in trade and investment • Spread and deepening of rule of law • Decentralization of state control • Rapid change of technology • Accelerated migration • Increased global health linkages …are not separate trends but linked Joachim von Braun, IFPRI, November 2006
  6. 6. Changing Global Food and Agriculture Systems • Growing role of retail industry (super markets) • Intensified rural-urban linkages • Changing governance in global natural resource use • New technologies Joachim von Braun, IFPRI, November 2006
  7. 7. The impact of globalization on the poor: Contentious issue Divergent assessment of globalization and its effects due to different  standards of assessment level (aggregate vs. case-specific)  temporal perspective (short-term vs. long term trends)  assessment of the functioning of markets and other institutions Joachim von Braun, IFPRI, November 2006
  8. 8. Overview 1. Global context 2. Key drivers - Trade and FDI - Demand - ICT - R&D 3. Growth and poverty 4. Policy implications Joachim von Braun, IFPRI, November 2006
  9. 9. 2. Drivers of Globalization of the Agri-Food System 1. Trade and FDI 2. Demand and consumer behavior 3. ICT and information flows 4. Science in food and agriculture and policies affecting the drivers (macro frameworks, geo-political conflicts, aid, governance, …) Joachim von Braun, IFPRI, November 2006
  10. 10. Drivers: (1) Trade and FDI and related policies Agriculture trade policy: where to with WTO Development Round? FDI in agriculture Joachim von Braun, IFPRI, November 2006
  11. 11. Surprise? No strong increase agricultural trade shares Agriculture trade in percent of production Export/Production 1960s 1970s 1980s 1990s 2000-02 Latin America and the Caribbean 23.6 24.7 24.5 26.7 31.4 Sub-Saharan Africa a 28.5 23 17.2 15.3 13.2 Asia Developing 5.4 5.7 6.4 6.4 6.4 All Three Regions 12.1 11.8 11.3 11 11.6 Import/Production 1960s 1970s 1980s 1990s 2000–02 Latin America and the Caribbean 6.7 8.6 11.2 14 15.7 Sub-Saharan Africa a 8.1 9.4 12.6 12.3 13.5 Asia Developing 7.1 7.7 9.2 8.9 8.8 All Three Regions 7.1 8 10 10.1 10.5 a Does not include South Africa. Data source: World Bank, WDI 2005 Joachim von Braun, IFPRI, November 2006
  12. 12. But: Increased trade in processed and high-value goods 40 Imports/production (%) exports/production (%) 35 Meat 45 30 Milk (no Butter) 40 Cereals 35 25 Vegetable Oils 30 20 25 15 20 10 15 10 5 5 0 0 1960s 1970s 1980s 1990s 2000–01 1960s 1970s 1980s 1990s 2000–01 Data source: based on data from FAOSTAT 2005 Joachim von Braun, IFPRI, November 2006
  13. 13. Surprise? Estimated welfare benefits of trade liberalization: studies 1999 - 2006 Source: Bouët 2006a Joachim von Braun, IFPRI, November 2006
  14. 14. WTO Doha negotiations: Scenarios with MIRAGE/IFPRI CGE model Developed Middle income Low-income countries countries countries Initial share in real world income 80 18.7 1.2 Basic scenario Real income gain (billions of US$) 32 21.7 1 Share of real income gain (%) 58.5 39.6 1.9 Free LDC access to OECD Real income gain (billions of US$) 38.9 23 7 Share of real income gain (%) 56.4 33.4 10.2 Fewer sensitive/special products Real income gain (billions of US$) 38.3 22.6 1.1 Share of real income gain (%) 61.8 36.4 1.8 Source: Bouët 2006 Joachim von Braun, IFPRI, November 2006
  15. 15. Growing FDI to developing countries in the food and agricultural sectors (% of world total), 1990 and 2003 1990 100 90 80 70 60 50 40 30 20 10 0 Agriculture, hunting, Food, beverages, and forestry, and fishing tobacco 2003 Industrial countries 100 80 60 Developing countries 40 20 0 Agriculture, hunting, forestry, and Food, beverages, and tobacco fishing Source: based on data from UNCTAD 2004 Joachim von Braun, IFPRI, November 2006
  16. 16. Drivers (2) Demand and consumer behavior • Changes in lifestyle, rising incomes & availability of wider variety of food at cheaper prices • Increased concern with food safety & environmental impacts of food production processes (1) Reorganization of food chain- Closer to the consumer (2) Stricter standards for food quality and safety (3) Monitoring and enforcement of production methods Joachim von Braun, IFPRI, November 2006
  17. 17. 1-The corporate world food system, 2005 Consumers Agricultural Food input processors Food industry Farms and traders retailers top 10: $37 bln Agricultural top 10: $363 bln top 10:$777bln value added: • Syngenta $1,315 bln • Nestle • Wal-Mart • Bayer • Cargill • Carrefour $4.000 billion • BASF 450 million • Unilever • Royal Ahold • Monsanto >100 ha: 0.5% • Metro AG • ADM • DuPont • Kraft Foods • Tesco < 2 ha: 85% Source: von Braun 2005 Joachim von Braun, IFPRI, November 2006
  18. 18. Performance of the top 10 in the global Agri-food business, 2004–2005 Percentage change of stock prices and in Agricultural GDP Percent 80 70 70 60 50 40 30 22 20 10 3 -4 0 Agricultural inputs Food processors Agricultural GDP Food retailers -10 and traders ('00-'03) Source: based on stock market data, Wall Street Journal 2005 and WDI 2005 Joachim von Braun, IFPRI, November 2006
  19. 19. What future for the small farms? Number of farms Farm Size (ha) % of all farms (millions) <2 85 387 2 - 10 12 54 10 - 100 2.7 12 > 100 0.5 2 Total 100 455 The numbers still increase in Africa and diminish very slowly in Asia Source: von Braun 2003, Joachim von Braun, IFPRI, November 2006
  20. 20. The dynamics of linkages: Between farms and food industries Large retailers Fragmentation in and Processors Consolidation of retail & farming processing – FDI influence (China: 40% retail growth after FDI entry in 1992) Emerging mutual need for linkages Shrinking bottom Expanding bottom: Increasing share of small holders Forward pyramid: Farmers pyramid Retailers/ processors Joachim von Braun, IFPRI, November 2006 Source: Gulati 2005
  21. 21. But globalization of food markets is also shaping consumers’ habits … Failed “Nutrition transition” and consumption habits: • Poor quality diets among low income groups rising rates of obesity & diet- related chronic diseases • high costs of healthy diets • Information and demand habits Joachim von Braun, IFPRI, November 2006
  22. 22. Drivers: (3) ICT and information flows  Ongoing technological advances  Privatization of national telecom. monopolies in many developing countries in 1980s and 1990s Joachim von Braun, IFPRI, November 2006
  23. 23. Drivers: ICT Revolution 500 Fixed line and mobile phone subscribers 400 (Per 1,000 people) 300 200 100 0 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 150 Internet users World (Per 1,000 people) 100 Low income Middle income 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Data source: World Bank, WDI 2006 Joachim von Braun, IFPRI, November 2006
  24. 24. Information and Communication Technologies for Development and Poverty Reduction The Potential of Telecommunications Edited by Maximo Torero Joachim von Braun Johns Hopkins UP 2006
  25. 25. Drivers: ICT Development of new services, for e.g. exponential increase in cellular telephone penetration Faster & more efficient communication Enhanced network building & greater inclusion of individuals within networks Results of macro-analysis: minimum threshold of telecom density (around 24 percent) required for positive growth effects Joachim von Braun, IFPRI, November 2006
  26. 26. ICT and the poor • Telephones annual growth, 1990–2003 - South Asia: 22 % - Sub Saharan Africa: 17% but access remains too low: 6% in 2003 • Net value for the rural poor of a phone call - Peru: US$ 1.62 - Bangladesh: US$ 1.19 >Opportunities for linking small farmers to markets (price and transactions cost cutting) >Building the info-chain along the food chain Source: Torero and von Braun 2005 Joachim von Braun, IFPRI, November 2006
  27. 27. Drivers: (4) science in food and agriculture Total global R&D spending: 1995: 562 bln$ 2000: 731 bln$ Dev. Countries 18% 22% ----------------------------------------------------------- Total public agricultural R&D spending: 1995: 20 bln$ 2000: 23 bln$ Dev. Countries 47% 56% --------------------------------------- $= in purchasing power parity Source: Pardey et.al. IFPRI 2006 Joachim von Braun, IFPRI, November 2006
  28. 28. Global bi-furcation in agr. R&D 80 developing countries spend a total of 1.4 bln$ on agric R&D: 6% (of global) China & India 22% High income countries 44% Toward agr. R&D orphans Joachim von Braun, IFPRI, November 2006
  29. 29. A changing environment for innovation Blocks to globalization of R&D Introduction of patent rights for agricultural inventions under TRIPS agreement Bio-safety regimes and reduced exchange (e.g. genetic resources) Technology spillover pathways to developing countries for productivity enhancement reduced Source: Pardey et.al. IFPRI 2006 Joachim von Braun, IFPRI, November 2006
  30. 30. And: Global challenge of Climate change: adaptation in low income countries needs R&D Joachim von Braun, IFPRI, November 2006
  31. 31. Overview 1. Global context 2. Key drivers - Trade and FDI - Demand - ICT - R&D 3. Growth and poverty 4. Policy implications Joachim von Braun, IFPRI, November 2006
  32. 32. Accelerated agricultural growth under globalization? 1962–1979 1980–2004 Africa, sub-Sahara 2.1 2.8 Asia 3.1 3.9 Latin Am. & Carib. 3.1 2.8 All developing 2.9 3.5 countries Industrial countries 2.2 0.6 Joachim von Braun, IFPRI, November 2006
  33. 33. Sub-Sahara African agriculture growth needed for economy wide growth and poverty reduction Five year average of annual growth rates (in %) GDP 1980-84 85-89 90-94 95-99 2000-04 Agriculture 0.1 4.5 1.1 4.5 3.5 Total GDP 1.7 2.6 0.6 3.5 3.8 Data source: World Bank 2006 Correlation between Ag and total GDP growth remains strong in Africa Joachim von Braun, IFPRI, November 2006
  34. 34. Poverty headcount ratio at $1 a day Poverty headcount ratio at $1 a day (PPP) (% of population) 70 60 50 40 30 20 10 0 1981 1984 1987 1990 1993 1996 1999 2001 East Asia & Pacific Europe & Central Asia Latin America & Caribbean South Asia Sub-Saharan Africa Middle East & North Africa Joachim von Braun, IFPRI, November 2006 Source: World Bank 2005
  35. 35. Pro-Poor? in some countries growth has been accompanied by increased poverty… Out of 30 developing countries (recent world wide data),  in 12 increased poverty with growth (e.g. Peru, Uganda, Pakistan  In 18 reduced poverty with growth Why?  Capital / Labor ratios down, returns to capital up  Returns to unskilled labor down  Governance and “capture” (exclusion) Joachim von Braun, IFPRI, November 2006
  36. 36. Hunger in the developing world Millions 900 824 815 797 800 Developing world 700 673 651 630 600 Developing world without China 500 1990 1995 2002 Data source: FAO 2005 Joachim von Braun, IFPRI, November 2006
  37. 37. Who is affected by hunger? Urban poor 20% Fishers, herders Land less, rural Small Farmers 20% 50% Source: UN Millennium Project, Hunger Task Force, 2005 Joachim von Braun, IFPRI, November 2006
  38. 38. Territory size based on the proportion of underweight children that live there Source: SASI Group (University of Sheffield) and Newman (University of Michigan) 2006 Joachim von Braun, IFPRI, November 2006
  39. 39. Sticky relation: hunger / income linkage Undernourishment and GDP/Capita Source: based on data from World Bank (2005) and FAO (2005) Joachim von Braun, IFPRI, November 2006 But not in Africa
  40. 40. Bottom line The potentials of globalization have not been effectively translated into poverty reduction and reduction of bottom end poverty (hunger) in particular Joachim von Braun, IFPRI, November 2006
  41. 41. How to deal with the complexities / interactions of the divers drivers? 1. Scenarios 2. Inclusion of risks (with probabilities) and 3. Uncertainties (with subjective expert panel assessments) Endogenous and exogenous issues Families of models Joachim von Braun, IFPRI, November 2006
  42. 42. IFPRI global IMPACT Model Scenarios: Risks and Opportunities 2015 & beyond Progressive Policy Actions Scenario: New Focus on Agricultural Growth and Rural Development, Human Resources Policy Failure Scenario: Trade and Political Conflict, rise in protectionism worldwide Technology and Resource Management Failure Scenario: Adverse technology/natural resource interactions Joachim von Braun, IFPRI, November 2006
  43. 43. Per capita daily availability of calories in developing countries Progressive Policy Actions 3,700 Policy Failure 3,500 Technology and Resource 3,300 Management Failure kcal/capita/day 3,100 2,900 2,700 2,500 1997 2015 2030 2050 Source: IFPRI IMPACT projections (September 2004) Joachim von Braun, IFPRI, November 2006
  44. 44. Three Scenarios to 2050: Undernourished Children, Sub-Saharan Africa 50 45 40 35 Million children 30 Progressive Policy 25 Actions 20 Policy Failure 15 Technology and 10 Resource Management Failure 5 0 1997 2015 2030 2050 Source: IFPRI IMPACT projections (September 2004) Joachim von Braun, IFPRI, November 2006
  45. 45. Overview 1. Global context 2. Key drivers - Trade and FDI - Demand - ICT - R&D 3. Agric. growth and poverty 4. Policy implications Joachim von Braun, IFPRI, November 2006
  46. 46. Policy implications for pro-poor outcomes: International development policies 1. Promoting global peace, and security 2. Global trade policy (market access) 3. Facilitation of capital and aid flows 4. Support of decentralized governance 5. Broad based development in rural areas, where the poor are (infrastructure, and technologies) 6. Safety nets for vulnerable populations Joachim von Braun, IFPRI, November 2006

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