Global food security faces challenges from macroeconomic crises and financial turmoil. Food prices remain high in some countries and population growth, land constraints, and climate change add stress. Macroeconomic policies like fiscal policy, monetary policy, exchange rates, and energy policy impact food security. Financial crises can reduce government spending on agriculture and private investment. To enhance food security, countries should invest in agriculture, keep trade open, promote social protection programs, invest in climate adaptation, improve institutions, and build capacity. With effective country-led actions, rapid reductions in hunger are possible.

1. Global Food Security: Macroeconomic and Financial Crisis Impacts Shenggen FanDirector General International Food Policy Research Institute DG for Economic and Financial Affairs, Brussels, May 4, 2010

3. Food security is affected by macroeconomic policies and financial turmoil

4. Uninsured shocks are costly for poor people

7. Prevalence of underweight in children

8. Under-five mortality rateSource: von Grebmer et al. 2009.

9. Domestic prices remain high in some countries Rice prices, $US/ton Source: FAO 2010.

10. Emerging stress factors Population growth and demographic changes Land and water constraints Climate change Projected water scarcity in 2025 Source: IWMI 2000.

11. Macro policies Foodsecurity Fiscal policy Monetary policy (Inflation) Exchange rate policy Energy policy

12. Inflation and exchange rate effects High inflation erodes poor consumers’ purchasing power Volatile prices distort long-term planning for agriculture Overvalued exchange rate discourages production of export crops Overvalued exchange rate discourages consumption of local foods

13. Fiscal responses to the food crisis Source: Headey, Malaiyandi, and Fan 2009. Note: Agricultural spending is reported in US$, and for countries with *, the total fiscal stimulus response to the financial crisis is reported.

14. Oil and food prices are tightly interlinked Source: Data from FAO 2009 and IMF 2010.

15. Financial crisis: Potential impacts Reduced financial revenue may lead to decline in government spending in agriculture Private investment in agriculture and credit for agriculture may drop sharply Rural migrants may return to agriculture and rural towns Remittances may decline sharply Both domestic and international demand for high value commodities may be affected severely Donor investment in agriculture and rural development becomes uncertain

16. FAO and WB estimates of impacts Source: Headey, Malaiyandi, and Fan 2009. Note: CR = Chen and Ravallion 2009.

17. The cost of uninsured shocks Uninsured shocks lead to income and asset loss and reductions in consumption Even the potential of an uninsured shock has welfare costs productivity and income are reduced as households take action to limit risk exposure substantial costs are incurred by poor households to manage risks Source: Vargas Hill 2010.

18. Shocks can severely impact food security Transitory shock with severe and permanent consequences Cascading series of shocks Source: Hoddinott 2009.

19. Tools to manage shocks Source: Vargas Hill 2010.

20. New agenda for food security needed Invest in agriculture and improve smallholder productivity Keep trade open Promote productive social protection Invest in climate change adaptation and mitigation Improve institutions and capacities

21. 1. Invest in agriculture and improve smallholder productivityAgriculturalspending as % of ag GDP Source: Fan 2009.

22. 4.0 Actual ag spending in 2004, billion USD 3.5 Annual agspending required, billion USD (2008-15) 3.0 2.5 2.0 1.5 1.0 0.5 There is a large gap between required and current spending Source: Fan and Johnson (2009). Increase agric. spending, improve access to inputs and services, secure land rights, invest in rural infrastructure

23. Ag + non-ag growth = highest poverty reduction Poverty simulations, Rwanda Source: Diao et al. 2008.

24. 2. Keep trade open Eliminate harmful trade restrictions and refrain from imposing new ones to increase efficiency to stabilize prices Complete the Doha Round if tariffs increase to their current WTO limits (bound level): 11.5% loss of developing country exports US$353 billion loss in world welfare Potential costs of failed Doha Round could be high Source: Bouet and Laborde 2009.

25. 3. Promote productive social protection Scale up safety nets to: Secure and smooth food consumption Enable saving and investment Build and diversify assets Types of interventions e.g.: Conditional cash/food transfers Maternal and child health/nutrition programs Public works Insurance for the poor Programs depend on needs, capacities, and resources Source: Adato and Hoddinott 2008.

26. Innovative insurance for poor farmers and consumers Agriculture: index-based weather insurance for crops and livestock Health: community-based health insurance Effective delivery channels Agricultural cooperatives to deliver weather insurance products Microfinance institutions to provide microinsurance Source: Vargas Hill and Torero 2009.

27. 4. Invest in climate change adaptation and mitigation Annual expenditure to counteract climate change effects on child nutrition by 2050 (million 2000 US$) Source: Nelson et al. (IFPRI) 2009.

28. 5. Improve institutions and capacities Build up existing institutions and improve evidence-based policy making Increase gradual implementation after careful experimentation as in Asian reform process (esp. China) Increase investment in information gathering, monitoring, and evaluation Strengthen human and administrative capacities through increased investment in education and training

29. Rapid hunger reduction is achievable with effective country-led and country-owned actions