Global Monitoring Report 2012 68171 Food Prices, Nutrition, and the Millennium Development Goals Global Monitoring Report 2012 Food Prices, Nutrition, and the Millennium Development Goals Global Monitoring Report 2012 Food Prices, Nutrition, and the Millennium Development Goals © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 15 14 13 12 This volume is a product of the staffs of The World Bank and The International Monetary Fund. The �nd- ings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Board of Executive Directors of The World Bank, the Board of Executive Directors of The International Monetary Fund, or the governments they represent. The World Bank and The International Monetary Fund do not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank or The International Monetary Fund concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Of�ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. ISBN: 978-0-8213-9451-9 eISBN: 978-0-8213-9523-3 DOI: 10.1596/978-0-8213-9451-9 The painting on the cover is by Sue Hoppe, an artist based in South Africa. Titled “Resolution,� the paint- ing explores the idea that people who seem irreversibly divided and with little in common can unite if they focus on what they have in common instead of what divides them. Hoppe’s work examines war, conflict, and the plight of children and women in Africa, but is also inspired by nature and architecture. To learn more about Sue Hoppe and her work, visit www.southafricanartists.com/home/SueHoppe. Cover design by Debra Naylor of Naylor Design Photo credits: page xvi: Masuru Goto/World Bank; clockwise for pages 10–11, beginning at top: Liang Qiang / World Bank, Curt Carnemark / World Bank, Curt Carnemark / World Bank, and Steve Harris / World Bank; page 15: Curt Carnemark / World Bank; page 16: Curt Carnemark / World Bank; page 19: Curt Carnemark / World Bank; page 21: John Isaac / World Bank; page 23: John Isaac / World Bank; page 25: Curt Carnemark / World Bank; page 27: Curt Carnemark / World Bank; page 28: Michael Foley; page 62: Arne Hoel/World Bank; page 94: Shehzad Noorani/World Bank; page 116: Alex Baluyut/World Bank; page 136: Michael Foley. Contents Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Progress toward the MDGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1 Poverty and Food Price Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2 Nutrition, the MDGs, and Food Price Developments . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3 Growth and Macroeconomic Adjustment in Developing Countries . . . . . . . . . . . . . . . 95 4 Using Trade Policy to Overcome Food Insecurity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 5 Aid and International Financial Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Appendix: Classi�cation of Economies by Region and Income, Fiscal 2012 . . . . . . . . . . . 169 GLOBAL MONITORING REPORT 2012 v vi CONTENTS GLOBAL MONITORING REPORT 2012 BOXES 1 The MDG target of halving extreme poverty—reached in 2010! . . . . . . . . . . . . . . . . .2 1.1 Crisis in the Horn of Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 1.2 How rising food prices affect the citizens of Dar es Salaam . . . . . . . . . . . . . . . . . . . .33 1.3 How many more are poor because of higher food prices? . . . . . . . . . . . . . . . . . . . . .35 1.4 Actions by women made the most difference but were invisible to policy makers . . .36 1.5 World price impacts across regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 1.6 Sustainable increase in food production is required to simultaneously �ght global hunger and reduce the pressure on biodiversity . . . . . . . . . . . . . . . . . . . . . . . .43 1.7 Ethiopia’s food security programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 1.8 Building foundations for social safety net systems . . . . . . . . . . . . . . . . . . . . . . . . . . .49 1.9 Managing supply and price risks for maize in Malawi . . . . . . . . . . . . . . . . . . . . . . . .55 1.10 Linking changes in productivity and climate to poverty: the use of Envisage and GIDD for long-term scenario building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 2.1 Impact of higher food prices and undernutrition on the MDGs . . . . . . . . . . . . . . . . .64 2.2 The impact of the 2007–08 food price spike on a rural community in northern Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 2.3 Malnutrition and chronic disease in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 2.4 Consequences of early childhood growth failure over lifetimes in Guatemala . . . . . .73 2.5 The global SUN movement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 2.6 Community-based growth promotion programs . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 2.7 Breaking the low-priority cycle: how nutrition can become a public sector priority for Sub-Saharan African governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 2.8 The implications of various spending and �nancing decisions on the MDGs of a low-income country using MAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 2.9 Nutrition security in Haiti after the earthquake of 2010: priorities and �rst steps . . .88 3.1 Dealing with shocks: Risk management and contingent �nancing instruments. . . . .107 3.2 Fiscal policy responses to food price shocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113 3.3 Food price volatility and monetary policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 4.1 Russia’s export ban on grains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124 4.2 Government imports of maize during the Southern Africa food crisis . . . . . . . . . . .125 4.3 The Middle East and North Africa region faces high trade costs in food . . . . . . . . .126 4.4 Quantifying the effects of non-tariff measures on trade in African food staples . . . .126 4.5 Open border policies for trade in food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 4.6 Defragmenting Africa: What will stimulate regional trade integration? . . . . . . . . . .130 5.1 Examples of independent initiatives to improve aid effectiveness . . . . . . . . . . . . . . .149 5.2 Better statistics for all: Monitoring the millennium development goals. . . . . . . . . . .151 5.3 The World Bank has made signi�cant progress on the aid effectiveness agenda, but there is room for improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154 5.4 CGIAR: Improved collaboration and harmonization to strengthen delivery. . . . . . .155 GLOBAL MONITORING REPORT 2012 CONTENTS vii 5A.1 Food price hikes and nutrition: The United Kingdom’s response . . . . . . . . . . . . . . .165 5A.2 EU initiatives on agriculture, food security, and nutrition. . . . . . . . . . . . . . . . . . . . .166 FIGURES 1 Global progress toward the MDGs varies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2 Food prices spiked again for the second time in three years . . . . . . . . . . . . . . . . . . . . .4 1.1 Food, grain, agricultural, and energy price developments . . . . . . . . . . . . . . . . . . . . .31 1.2 The impact of higher food prices on poverty differs across socioeconomic groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 1.3 Countries’ vulnerability to global food price shocks tracked by share of cereal imports in domestic consumption and food share in household expenditure . . . . . . .37 1.4 Demand responsiveness to food price declines as per capita income increases . . . . . .44 1.5 Ratio of cereal production to consumption in 2010 and 2025 . . . . . . . . . . . . . . . . . .57 2.1 Mean height for age, relative to WHO standards, by region . . . . . . . . . . . . . . . . . . .71 2.2 Percentage of stunted children and overweight women in selected Latin American countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 2.3 Bene�t-cost ratios of various interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 2.4 Impact of policy responses to food import price shock for food net importer . . . . . . .85 3.1 GDP per capita growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 3.2 Global current account imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 3.3 Low-income countries: Imports, exports, and current account balance, including FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 3.4 Of�cial reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 3.5 Commodity price indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 3.6 Fiscal de�cits in emerging and low-income economies . . . . . . . . . . . . . . . . . . . . . . .100 3.7 Monetary policy loosening in emerging market and low-income countries . . . . . . .100 3.8 Average year-on-year growth in money and the money gap in emerging market countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101 3.9 Macroeconomic policy mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101 3.10 Quality of macroeconomic policies in low-income countries, 2005 and 2009–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102 3.11 Commodity prices and macroeconomic movements, 2007–12 . . . . . . . . . . . . . . . . .103 3.12 Selected macroeconomic indicators for low-income countries, 2007–12 . . . . . . . . .109 3.13 Tail-risk scenarios for low-income countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110 3.14 Composition of the Consumer Price Index basket in low-income and OECD countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 4.1 Most cereal production is consumed domestically and not traded . . . . . . . . . . . . . .118 4.2 Food trade matters most for low-income countries . . . . . . . . . . . . . . . . . . . . . . . . .118 4.3 Trade in key cereals is dominated by just a few countries . . . . . . . . . . . . . . . . . . . . .119 4.4 Net-food-importing regions lose from higher food prices while net-exporting regions gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 viii CONTENTS GLOBAL MONITORING REPORT 2012 4.5 The most frequent users of trade-restrictive measures on food products are G-20 countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122 4.6 Some countries have also sought to lower domestic food prices by temporarily lowering trade restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123 4.7 Producer support to farmers in most developed countries has fallen but is rising in emerging economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123 5.1 DAC members’ net ODA bilateral disbursements. . . . . . . . . . . . . . . . . . . . . . . . . . .139 5.2 DAC ODA as a share of GNI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140 5.3 Net ODA disbursements to low- and middle-income countries and by region . . . . .141 5.4 Net ODA received per capita by groups of countries ranked by MDG targets met or on track to be met by 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142 5.5 Share of committed ODA to food, nutrition, and agriculture by donor . . . . . . . . . .143 5.6 Composition of committed ODA and commitments by donors in year 2010 . . . . . .143 5.7 ODA commitments by income group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145 5.8 ODA from Brazil, Russia, India, China, and South Africa . . . . . . . . . . . . . . . . . . . .146 5.9 Changes in sources of estimated global concessional developmental flows . . . . . . . .147 5.10 Country programmable aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .157 5.11 CPA flows to developing regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .158 5.12 CPA received by number of MDG targets achieved or on track . . . . . . . . . . . . . . . .159 5.13 CPA by low- and middle-income countries, 2003–13 . . . . . . . . . . . . . . . . . . . . . . . .159 5.14 Eurobarometer surveys. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159 MAPS 3.1 As global growth slows, growth outcomes across countries converge. . . . . . . . . . . .104 3.2 With higher commodity prices, few countries are able to maintain price stability. . .105 TABLES 1.1 Common coping responses to food, fuel, and �nancial crises in 13 countries . . . . . . .34 1.2 Pass-through of international rice prices to local prices in selected Asian countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 1.3 Price volatility across products in the countries of Sub-Saharan Africa . . . . . . . . . . . .39 1.4 Major drivers of world cereal prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 1.5 Higher consumption growth of corn has offset slowing growth in rice and wheat, while increases in area planted to food offset slowing yield growth . . . . .41 1.6 Policy measures adopted in 81 selected countries in response to 2006–08 price spike . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 1.7 Fiscal implications of policy responses to 2006–08 price spike, selected countries . . .46 1.8 Main measures to limit the growth and volatility of world cereal prices . . . . . . . . . . .50 1.9 Poverty forecast, 2015–25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 2.1 The annual per capita cost of various nutrition interventions is very low . . . . . . . . . .80 GLOBAL MONITORING REPORT 2012 CONTENTS ix 3.1 Global output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 3.2 Net �nancial flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 5.1 Decadal changes in bilateral of�cial development assistance . . . . . . . . . . . . . . . . . .139 5.2 Composition of committed ODA to nutrition, food, and agriculture . . . . . . . . . . . .144 5.3 Key characteristics of BRIC �nancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146 5.4 Aid fragmentation by income group and fragile and conflict-affected states . . . . . . .148 5.5 Progress toward Paris Declaration targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .152 5.6 Multilateral development bank progress on Paris Declaration survey indicators . . .156 5.7 CPA by region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .157 5A.1 Responses from the international donor community to recent food price spikes . . .161 Foreword E very year, the Global Monitoring and quality of nutrition—a critical factor for Report (GMR) gauges progress across children in the �rst two years of life, when the Millennium Development Goals even a temporary reduction in nutritional (MDGs), so we can better understand whether intake can affect long-term development. This we are delivering on basic global needs. These loss of nutrition can, in turn, set back a whole needs include affordable, nutritious food; generation. access to health services and education; and The GMR details some of the solutions for the ability to tap natural resources sustain- making countries and communities more resil- ably—whether clean water, land for urban ient in the face of food price spikes. Strategies expansion, or renewable energy sources. We include using agricultural policies to encour- assess how well the world is doing by looking age farmers to boost production; using social at income poverty, schooling levels, the health safety nets to improve resilience; strengthening of mothers and children, and inroads in treat- nutritional policies to manage the implications ing HIV/AIDS, malaria, and tuberculosis, as of early childhood development; and design- well as assessing how the international devel- ing trade policies to improve access to food opment community delivers aid. We also try markets, reduce food price volatility, and to measure levels of malnutrition and hunger make productivity gains. in the world. Food prices can affect all these The implications of high and more volatile indicators. food prices vary widely at the regional and For these reasons, the Global Monitoring country levels. Large net importers of food— Report 2012 takes the theme of “Food Prices, such as those in the Middle East, North Africa, Nutrition, and the Millennium Development and West Africa—face higher import bills, Goals.� This year’s edition highlights the need reduced �scal space, and greater transmission to help developing countries deal with the of world prices to local prices for imported harmful effects of higher and more volatile rice and wheat. Higher prices hurt consumers, food prices. who need to spend a greater share of their In 2007–08 and again in 2011, soaring income on food, as is the case in much of food prices held back millions of households Africa and Asia. Larger net exporting coun- from escaping poverty. Poor people in cities tries, such as those in Latin America, Eastern remain especially vulnerable to higher food Europe, and Central Asia, stand to bene�t. But prices, as do households headed by women. they may also face internal pressure to help Higher food prices also affect the quantity households that need to spend a large share of GLOBAL MONITORING REPORT 2012 xi xii FOREWORD GLOBAL MONITORING REPORT 2012 their budgets on food. The sequencing and pri- Macroeconomic performance will play a oritization of policy initiatives depends criti- critical role in meeting the MDGs. Progress cally on a country or region’s initial situation. that was made possible by the relatively strong Going forward, all of us—including tradi- economic growth of developing countries tional donors, new donors, philanthropists, prior to the global �nancial crisis has been and NGOs—must do better in �ghting hun- set back. The recent weakening of the global ger, particularly by making more resources economic environment has implications for available for basic nutrition. For a start, this overcoming poverty in emerging and develop- means including nutrition interventions in ing economies, and it is important that the projects and programs when and wherever advanced economies undertake the necessary possible. At the same time, we need to design macroeconomic policies to bring about strong more effective policies, strengthen account- and stable global growth. ability, and ensure that recipients can absorb A key concern lies with the low-income vital assistance. countries, where macroeconomic policy buf- The GMR’s assessment of progress on the fers—such as �scal, debt, and current account MDGs offers grounds for optimism. Global positions—have not yet been rebuilt to levels targets for overcoming extreme poverty and before the crisis. If they have to confront access to safe drinking water have been another sharp global slowdown or another reached well ahead of schedule. Goals related surge in food or fuel prices, these countries to primary school completion rate and gender would start from a weaker position. equality in primary and secondary education We have made important progress in push- also appear within reach. Other goals, how- ing forward toward meeting the MDGs—but ever, require a real push, particularly regard- the year 2015 is just around the corner. We ing child and maternal mortality, and access to have three years to ensure that billions more improved sanitation facilities. MDG gaps are people will have the opportunity to bene�t starker when the focus is on individual coun- from the global economy. The need for coop- tries and achievements per region, where dis- eration on focused steps to achieve these goals parities persist. has never been greater. Robert B. Zoellick Christine Lagarde President Managing Director The World Bank Group International Monetary Fund Acknowledgments T his report has been prepared jointly Bank. Supervision at the IMF was provided by by the staff of the World Bank and Hugh Bredenkamp and Brad McDonald. the International Monetary Fund. In A number of other staff and consultants preparing the report, staff have collaborated made valuable contributions, including the fol- closely with partner institutions—the African lowing from the World Bank: Abebe Adugna, Development Bank, the Asian Development Harold Alderman, Lystra N. Antoine, Jean Bank, the European Bank for Reconstruction Francois Arvis, John Baffes, Saswati Bora, and Development, the Inter-American Devel- Andrew Burns, Grant Cameron, Gero Car- opment Bank, the Organisation for Economic letto, Iride Ceccacci, Shaohua Chen, Loriza Co-operation and Development, the Food Dagdag, Christopher Delgado, Asli Demirgüç- and Agriculture Organization, the European Kunt, Leslie Elder, Neil Fantom, Ariel Fiszbein, Union, the UK Department for International Del�n Sia Go, Anna Herforth, Masako Hiraga, Development, and various NGOs, such as Hans Hoogeveen, Alma Kanani, Norman Oxfam International and Save the Children. Loayza, Alessandra Marini, Dominique van The cooperation and support of the staff of der Mensbrugghe, Menno Mulder-Sibanda, these institutions is gratefully acknowledged. Israel Osorio-Rodarte, Martin Ravallion, Jos Verbeek was the lead author and man- Anna Reva, Bruce Ross-Larson, Julie Ruel ager of the report. Lynge Nielsen led the team Bergeron, Cristina Savescu, William Shaw, from the IMF. The principal authors and con- Meera Shekar, Yurie Tanimichi Hoberg, tributors to the various parts of the report Robert Townsend, Jonathan Wadsworth, and include Mohini Datt, Annette I. De Kleine Ruslan Yemtsov. Feige, Ian Gillson, Rasmus Heltberg, Maros Contributors from other institutions Ivanic, Bénédicte de la Briere, Hans Lofgren, included: Duncan Green and Richard King Maryla Maliszewska, William J. Martin, Jose (Oxfam); Naomi Hossain (Institute of Devel- Alejandro Quijada, Eric V. Swanson, and Ser- opment Studies); Kate Dooley and Daphne giy Zorya (World Bank), and Sibabrata Das, Jayasinghe (Save the Children); Fredrik Erics- Stefania Fabrizio, Yasemin Bal Gunduz, Svit- son, Kimberly Smith, and Suzanne Steensen lana Maslova, and John Simon (IMF). Sachin (OECD); Indu Bhushan (Asian Development Shahria assisted with the overall preparation Bank); Amy M. Lewis (Inter-American Devel- and coordination of the report. The work was opment Bank); Jennifer Keegan-Buckley and carried out under the general guidance of Jus- Jean-Pierre Halkin (European Union); Chris tin Yifu Lin and Hans Timmer at the World Penrose-Buckley (DFID); Murat Jadraliyev GLOBAL MONITORING REPORT 2012 xiii xiv ACKNOWLEDGMENTS GLOBAL MONITORING REPORT 2012 (EBRD); Anita Taci (EBRD); and Patricia N. tion, and printing of the report, with Aziz Gok- Laverley (Africa Development Bank). demir anchoring the process. Others assisting Guidance received from the Executive with the report’s publication included Denise Directors of the World Bank and the IMF and Bergeron, Susan Graham, Stephen McGroarty, their staff during discussions of the draft report and Santiago Pombo-Bejarano. is gratefully acknowledged. The report also The report’s dissemination and outreach bene�ted from many useful comments and was coordinated by Indira Chand and Merrell suggestions received from the Bank and Fund Tuck-Primdahl, working with Vamsee Kanchi, management and staff in the course of its prep- Malarvizhi Veerappan, and Roula Yazigi. aration and review. The World Bank’s Of�ce of the Publisher managed the editorial services, design, produc- Abbreviations and Acronyms ADB Asian Development Bank HIV human immunode�ciency virus AfDB African Development Bank IDB Inter-American Development Bank AIDS acquired immune de�ciency syndrome IFC International Finance Corporation AMIS Agricultural Market Information IFI international �nancial institution System IFPRI International Food Policy Research BMI body mass index Institute BRICS Brazil, Russia, India, China, and LSMS Living Standards Measurement Study South Africa MAMS maquette for MDG simulations CGIAR Consultative Group on International MDB multilateral development bank Agricultural Research NTM non-tariff measure CPA country programmable aid OAP Open Aid Partnership DAC Development Assistance Committee ODA of�cial development assistance DFID Department for International OECD Organisation for Co-operation and Development (U.K.) Development EBRD European Bank for Reconstruction PFM public �nance management and Development PPP purchasing power parity EU European Union PSE producer support estimates FAO Food and Agriculture Organization (of the United Nations) PSI pre-shipment instructions FDI foreign direct investment REPO repurchase option G-8 Group of Eight RTA regional trade agreement G-20 Group of 20 SPS sanitary and phytosanitary GATT General Agreement on Tariffs and SUN Scaling Up Nutrition Trade TBT technical barriers to trade GFRP Global Food Crisis Response Program UNCTAD United Nations Conference on Trade GIDD Global Income Distribution Dynamics and Development GMR Global Monitoring Report WFP World Food Programme GNI gross national income WTO World Trade Organization GTAP Global Trade Analysis Project All amounts are presented in U.S. dollars, unless otherwise indicated. xv Overview What has been the impact of yet another had fallen below half its 1990 value in 2010. food price spike on the ability of developing Also in 2010, the world met MDG 7.c—to countries to make progress toward the Mil- halve the proportion of people with no safe lennium Development Goals (MDGs)? How drinking water—well ahead of the 2015 many poor people were prevented from lifting deadline. And global progress on various themselves out of poverty? How many peo- MDGs is on track or within 10 percent of the ple, and how many children, saw their per- on-track trajectory. MDG 3.a (gender parity sonal growth and development permanently in school enrollment) is on track, and MDG harmed because their families could not 2.a (primary school completion) is close to afford to buy food? How did countries react being on track. But the MDGs closely linked to the last two food price spikes of 2007–08 to food and nutrition are lagging, particularly and 2010–11, and how did their reaction child mortality (MDG 4) and maternal mor- affect their progress toward the MDGs? And tality (MDG 5). The same is true for country what can countries do to respond to higher progress: 105 countries of the 144 monitored and more volatile food prices? The 2012 are not expected to reach MDG 4, and 94 are Global Monitoring Report (GMR) addresses off track on MDG 5. these basic questions. It summarizes effects of food prices on several MDGs. It reviews policy responses—including domestic social Food prices spike once again safety nets, nutritional programs, agricul- In 2011 international food prices spiked for tural policies, regional trade policies, and the second time in three years, igniting con- support by the international community. And cerns about a repeat of the 2008 food price it outlines future prospects. crisis and its consequences for the poor. The The world has met two MDGs, while World Bank Food Price Index rose 184 per- global progress varies across the other cent from January 2000 to June 2008 (�g- MDGs (�gure 1). Preliminary survey-based ure 2). In February 2011 it again reached the estimates for MDG 1.a in 2010—based on 2008 peak, after a sharp decline in 2009, and a smaller sample than the global update in stayed close to that peak through September. box 1—indicate that the $1.25 a day poverty The international food price spike in 2007– rate (2005 purchasing power parity, or PPP) 08 is estimated to have kept or pushed 105 1 2 OVERVIEW GLOBAL MONITORING REPORT 2012 FIGURE 1 Global progress toward the MDGs varies Developing countries, weighted by population 100 100 96 96 100 94 90 87 87 87 80 78 80 80 Distance to 2015 goal, % 68 72 70 60 51 52 50 40 38 30 20 10 0 MDG 1.a MDG 2.a MDG 3.a MDG 4.a MDG 4.a MDG 5.a MDG 7.c MDG 7.c Extreme Primary Ratio of Mortality rate, Mortality rate, Maternal Improved Improved poverty completion girls to boys infants children mortality water source sanitation (% population rate (% in primary and (per 1,000 under 5 ratio (modeled (% population facilities below relevant secondary live births) (per 1,000) estimate, without (% population $1.25 a day, age group) education per 100,000 access) without access) 2005 PPP) (%) live births) Corresponding target Latest available value Source: World Bank staff calculations based on data from the World Development Indicators database. Note: A value of 100 percent means that the respective MDG has been reached. “Corresponding target� indicates progress currently needed to reach the goal by 2015. “Latest available value� denotes current progress as illustrated by the most recent available data: extreme poverty, 2010; primary completion rate, total, 2009; ratio of girls to boys in primary and secondary education, 2009; mortality rate, infants, 2010; mortality rate, children under 5, 2010; maternal mortality ratio, 2008; improved water source, 2010; improved sanitation facilities, 2008. PPP stands for purchasing power parity. BOX 1 The MDG target of halving extreme poverty—reached in 2010! The World Bank has been regularly monitoring the to less than half of its 1990 value by 2010. So the � rst progress of developing countries in reducing extreme MDG target of halving extreme poverty has been poverty. Drawing on data and expertise from all achieved well before the 2015 deadline. East Asia and regions, the Bank has updated the global and regional Paci�c, Middle East and North Africa, and Europe poverty numbers for 1981–2008 and prepared pre- and Central Asia have attained MDG 1.a, while pov- liminary estimates (for a smaller sample) for 2010. erty in South Asia and Sub-Saharan Africa remains in The latest estimates draw on more than 850 house- double digits. Current estimates for 2015 show that hold surveys for almost 130 developing countries, poverty will further decline to 16.3 percent for the with 90 percent of the developing world population. world as a whole. Mostly produced by national statistical of�ces, the Looking back to 1990, East Asia and Paci�c was results for 2005 and 2008 are based on interviews the region with the highest number of poor people with 1.23 million randomly sampled households. in the world, with 926 million living below $1.25 a An estimated 1.29 billion people in 2008 lived on day. By 2008 that level had fallen to 284.4 million. less than $1.25 a day, equivalent to 22.4 percent of In China alone, 510 million fewer people were living the developing world population (see the box table on in poverty by the $1.25 standard. In 2008, 13 per- the next page). Contrast that with 1.9 billion people cent (173 million people) of China’s population still in 1990, or 43.1 percent. lived below $1.25 a day. In South Asia, the $1.25 a Preliminary survey-based estimates for 2010— day poverty rate fell from 54 percent to 36 percent based on a smaller sample than the global update— between 1990 and 2008. The proportion of poor is indicate that the $1.25 a day poverty rate had fallen lower now in South Asia than at any time since 1981. GLOBAL MONITORING REPORT 2012 OVERVIEW 3 BOX 1 The MDG target of halving extreme poverty—reached in 2010! (continued) The number of poor had been generally rising in Africa was living below $1.25 a day in 2008. Forty- Latin America and the Caribbean until 2002. But the seven and a half percent lived below this poverty line poverty count (and the percentage of poor) has fallen in 2008, as compared with 56.5 percent in 1990, a sharply since then. The rising incidence and number 9 percentage point drop. of poor in Europe and Central Asia has also been Good news, but a great many people remain poor reversed since 2000. The Middle East and North and vulnerable in all regions. At the current rate of Africa had 8.6 million people—or 2.7 percent of the progress, around 1 billion people will still be living population—living on less than $1.25 a day in 2008, below $1.25 a day in 2015. Most of the 619 million down from 10.5 million in 2005 and 13 million in poor lifted above the $1.25 a day standard during 1990. Less than half the population of Sub-Saharan 1990–2008 are still poor by middle-income standards. Estimates of poverty on a poverty line of $1.25, by region Region 1990 2005 2008 2015 Share of population living on less than $1.25 a day (2005 PPP) East Asia and Paci�c 56.2 16.8 14.3 7.7 of which, China 60.2 16.3 13.1 — Europe and Central Asia 1.9 1.3 0.5 0.3 Latin America and the Caribbean 12.2 8.7 6.5 5.5 Middle East and North Africa 5.8 3.5 2.7 2.7 South Asia 53.8 39.4 36.0 23.9 Sub-Saharan Africa 56.5 52.3 47.5 41.2 Total 43.1 25.0 22.4 16.3 Total, excluding China 37.2 27.7 25.2 — Millions of people below $1.25 a day (2005 PPP) East Asia and Paci�c 926.4 332.1 284.4 159.3 of which, China 683.2 211.9 173.0 — Europe and Central Asia 8.9 6.3 2.2 1.4 Latin America and the Caribbean 53.4 47.6 36.8 33.6 Middle East and North Africa 13.0 10.5 8.6 9.7 South Asia 617.3 598.3 570.9 418.7 Sub-Saharan Africa 289.7 394.9 386.0 397.2 Total 1,908.6 1,389.6 1,289.0 1,019.9 Total, excluding China 1,226.8 1,177.7 1,116.0 — Source: World Bank staff calculations from PovcalNet database. For additional information and data, see http://iresearch.worldbank .org/PovcalNet/index.htm. — = not available. million people below the poverty line, and spikes depends on whether it is a net exporter in the spike of 2010–11, 48.6 million people. or net importer. Large net importers of Poverty typically rises initially with higher food, such as those in the Middle East and food prices, because the supply response to North Africa and in West Africa, face higher higher prices takes time to materialize and import bills, reduced �scal space, and greater many poor (farm) households are net food transmission of world prices to local prices buyers, so higher food prices lowers their real for imported rice and wheat. Higher prices incomes. hurt consumers with high shares of house- The regional and national implications hold spending on food, as in much of Africa of high and volatile food prices vary widely. and Asia. Larger net-exporter countries, How vulnerable a country is to food price as in Latin America and in Eastern Europe 4 OVERVIEW GLOBAL MONITORING REPORT 2012 FIGURE 2 Food prices spiked again for the second time in three years 300 Current Price Index (monthly, 2005 = 100) 250 200 150 100 50 0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Feb 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Agriculture Food Grains Energy Source: World Bank. Note: The World Bank Food Price Index includes wheat, maize, rice, barley, sugar, coconut oil, soybean oil, groundnut oil, palm oil, copra, soybeans, soybean meal, orange, banana, beef, and chicken. Unlike the well-known Food and Agriculture Organization food price index, it does not include other meat and dairy. and Central Asia, stand to bene�t. But they international prices—and thus require an may also face internal pressure to mitigate effort to improve resilience using social safety the adverse effects if households spend large nets. Both require time to implement, so the shares of their budgets on food. sequencing of actions needs to avoid hardship A multisectoral approach is needed, tai- for the poor and vulnerable. lored to each country’s conditions, taking into account the social and political environ- ment. This Global Monitoring Report advo- How the poor cope cates agricultural policy mainly to orches- High and volatile food prices hurt food secu- trate a supply response, social safety nets rity. Large, sudden, and particularly unex- to improve resilience, nutritional policy to pected food price increases make it dif�cult manage the implications of early childhood for households to adjust—eroding consumer development, and trade policy to improve purchasing power, reducing calorie intake access to food markets, reduce volatility, and and nutrition, and pushing more people into induce productivity gains. But one size does poverty and hunger. The poor bear a dispro- not �t all. The priority and sequence of vari- portionate burden in adjusting to high food ous policy initiatives depends on a country’s prices. This is especially true for poor house- or a region’s initial conditions. holds in urban settings and those headed by Combinations of policies in the four areas women, who typically spend more than half can provide positive synergies and spur their incomes on food and are more likely improvements on the MDGs. Targeting the to curtail consumption in the face of higher expansion and productivity of crops that add prices. nutritional value is one example. At the same The higher prices also have indirect effects. time, improvements in the value chain of food Poor people have experienced global shocks products through, say, investing in infra- in recent years, from the spikes in fuel and structure and streamlining regulation related food prices to the economic contraction start- to trade can lead to faster pass-throughs of ing in 2008 and the consequent reductions in GLOBAL MONITORING REPORT 2012 OVERVIEW 5 remittances. And droughts have made things on the whole, the impacts on schooling were even worse in many countries and locales. more muted than expected. The cost of edu- Qualitative survey-based research shows that cation, the distance to school, and the avail- the responses of poor people to past global ability of school feeding influenced whether shocks produced severe indirect impacts.1 children stayed in school. Less nutritious diets caused malnourish- ment and made people more susceptible to failing health. The sudden influx of workers What higher prices mean for into the informal economy lowered earnings. poverty The hardships even led to criminal activities, The food price spikes in 2008 and 2011 have eroding trust and cohesion in communities. prevented millions of people from escaping Reducing the quality of food and the num- poverty because the poor spend large shares ber of meals was one of the most common of their incomes on food—and because responses, often the first, in study sites in many poor farmers are net buyers of food. countries surveyed. In addition, reducing non- The price spikes hit urban poor and female- food consumption, working more hours, and headed households hardest. While food prices diversifying income sources (say, by entering dropped sharply in 2009 with the � nancial a new informal occupation) were common crisis, they quickly rebounded and by early nearly everywhere. Migration, sometimes 2011 prices were almost back at 2008 levels. reverse migration to the home area, was also But high food prices may be less harmful for fairly common in response to the food price the poor in the longer run because farmers spikes. Asset sales were common, and loans can increase their output and poor house- from family, friends, and moneylenders were holds may bene�t from higher farm wages. also important. An inability to service micro- The impact of world price spikes also � nance and moneylender debts was a major depends on how prices are transmitted source of distress in some East and South locally. In Ethiopia, for example, about 75 Asian countries, where many people had to percent of food consumption is locally pro- borrow at high interest rates to service these duced staples (such as sorghum and teff), debts or live in fear of creditors taking pos- dampening the impact of rising prices of session of their property. Collecting food and imported cereals. By contrast, people in Ban- fuel from common property was important gladesh, Cambodia, and Kenya—where rice, only in some low-income countries. wheat, maize, and beans account for 40–64 Sales of productive assets and forgone edu- percent of food expenditures—are more cation and health care will have long-lasting exposed to higher import prices. Changes in consequences and impede people’s ability to international prices have been trickling down recover. And coping with economic crises has to national prices to varying degrees, but the eroded the savings and asset base of many higher national prices have greatly influenced households, leaving them with few resources national policies. to manage future shocks. Continuing high In the longer run, farmers can be expected and volatile global food prices are thus a to respond to rising food prices in two ways: major concern. by raising their overall output and by switch- Many parents sought to protect children’s ing to producing commodities whose prices food consumption and schooling, with adult have risen relative to others. For short-run household members preserving the quan- price volatility, where producer outputs are tity and quality of food to ensure that chil- likely � xed, the change in farmers’ revenue dren had proper diets. Yes, there were many from production is determined only by the instances of erratic attendance and school change in output prices. But over time out- withdrawals because of the need for children puts can be expanded by using more labor to contribute to household income or because and inputs, even if no additional land is avail- education costs had become prohibitive. But, able. Where the relative prices of different 6 OVERVIEW GLOBAL MONITORING REPORT 2012 commodities change, switching between out- needed for their daily activities. Higher food puts is another way for farmers to increase prices have two main effects on net buyers of returns. In general, it is easier for farmers food: an income effect through reductions in to switch production to a more profitable the purchasing power of poor households, crop than to increase aggregate agricultural and a substitution effect through shifts to output. less nutritious food. The poor often have no Policies that promote higher yields can choice but to reduce their overall food con- limit the average rise in food prices over sumption in response to higher prices, even the long term as well as dampen food price from levels already too low. For households volatility. Such policies include supporting close to subsistence and already consuming research, extension, and water management; the cheapest sources of calories (less nutri- improving the ef�ciency of land markets and tious food), the substitution possibilities are strengthening property rights; increasing more limited, with the poorest suffering farmers’ access to ef�cient tools to manage most. And intrahousehold discrimination risk; and increasing market integration, glob- against women and children disproportion- ally as well as regionally, through investments ately reduces their access to food. in infrastructure and facilitating the opera- Even temporarily high food prices can tions of supply chains. Policies to limit food affect children’s long-term development. price volatility include developing weather- Early life conditions (from conception to tolerant varieties, improving the management two years of age) provide the foundations for of stocks, opening markets to trade, improv- adult human capital. Vicious circles of mal- ing market transparency, and using market- nutrition, poor health, and impaired cogni- based price-hedging mechanisms. And poli- tive development set children on lower, often cies to reduce the impact of high and volatile irreversible, development paths. Child mal- food prices on the poor include strengthen- nutrition accounts for more than a third of ing a country’s social safety nets to protect the under-�ve mortality—and malnutrition the poor and supporting smallholders in during pregnancy, for more than a fifth of strengthening the supply response to higher maternal mortality. Other hard-to-reverse food prices. impacts include faltering growth (stunting, Balancing the rise in domestic prices (to low height-for-age), and low school attain- bene�t producers) with consumer protection ment. A malnourished child has on average is a major challenge. Because of � scal con- a seven-month delay in starting school, a straints, many countries use trade measures 0.7 grade loss in schooling, and potentially to limit the transmission of higher world a 10–17 percent reduction in lifetime earn- market prices to domestic markets. Scaling ings—damaging future human capital and up safety nets to support vulnerable consum- causing national GDP losses estimated at 2–3 ers without also insulating markets has been percent. So, malnutrition is not just a result rare, hurting long-term food security. The of poverty—it is also a cause. Malnour- most sustainable policies focus on encourag- ished young children are also more at risk ing climate-resilient production, strengthen- for chronic disease such as diabetes, obesity, ing domestic and regional markets, main- hypertension, and cardiovascular disease in taining open trade, and boosting resources to adulthood. social protection. To build household and individual resil- ience and mitigate long-term effects, interven- tions can work through multiple pathways, Higher undernourishment beyond trying to keep prices low. In the short Higher prices of food staples increase under- run, the focus should be on maintaining nourishment, as poor consumers � nd them- household purchasing power through cash selves unable to purchase the minimum transfers, food and nutrient transfers, school amount of calories, nutrients, and proteins feeding, and workfare-with-nutrition. In the GLOBAL MONITORING REPORT 2012 OVERVIEW 7 longer term, the focus should broaden to over this period, but in many countries it rose strengthening the link between smallholder sharply. In Burundi inflation more than tri- agriculture and nutrition, addressing sea- pled from 4½ percent in 2009 to 15 percent sonal deprivation, and promoting girls’ edu- in 2011 as the monetary authorities sought to cation and women’s income. Some specific contain the second-round effects of imported interventions to target vulnerable children inflation. And in Bangladesh inflation dou- include hygiene, micronutrients, deworming, bled from 5½ percent to 11 percent. breastfeeding, feeding during illness, and pre- A weaker-than-expected global economic ventive and therapeutic feeding. environment would challenge emerging and developing countries as they progress toward the MDGs. Should downside risks such as a Weaker global growth and high sharp global slowdown or another surge in food prices may impede progress food prices materialize, many low-income toward the MDGs countries would have to confront the situ- The global recovery shows signs of stall- ation with weaker buffers than in 2009. In ing amid deteriorating � nancial conditions. the event of another sharp downturn, the Global growth slowed to 3.8 percent in scope for �scal stimulus would therefore be 2011 and is projected to decline further to more limited, but those with sufficient fis- 3.3 percent in 2012. The strongest slowdown cal room should aim to protect spending to is being felt in advanced economies, but the soften the economic and social impact of a worsening external environment and some global downturn. A new global food price weakening in internal demand is expected to spike would present low-income countries lead to lower growth in emerging and devel- with dif�cult trade-offs among price stabil- oping countries as well. This outlook is sub- ity, external, and social objectives. A prag- ject to downside risks, such as a much larger matic response should include measures to and more protracted bank deleveraging in the protect the poor and vulnerable while largely Euro Area or a hard landing by key emerging accommodating the first-round impact on economies. inflation. The �scal policy response should be Strengthening the recovery will require well targeted, ensure �scal affordability, and sustained policy adjustment at a measured avoid economic distortions. The appropriate pace that depends heavily on a country’s cir- monetary policy response would depend on cumstances. There are risks in some places of the inflation outlook, the pass-through from inadequate medium-term �scal adjustment, food prices to other prices, and the avail- and in some of overly aggressive short-term ability of external buffers, such as reserves. �scal adjustment. In the advanced economies, Fragile states would require special attention while fiscal policy consolidation proceeds, including from the international community. monetary policy should continue to support growth as long as unemployment remains high and inflation expectations are anchored. Using trade policy to overcome This policy stance should be accompanied by food insecurity steady progress toward repairing and reform- International cereal price spikes increased the ing � nancial systems and by steps to avoid food import bills of some low-income food- excessively rapid bank deleveraging. deficit countries, putting pressure on their As food and fuel prices rose in 2010 and balance of payments. The cereal import bill of the � rst half of 2011, consumer prices rose low-income food-de�cit countries was $31.8 in tandem in many countries. In emerging billion in 2010–11 (29 percent more than and developing countries the median infl a- in 2009–10), despite higher production in tion rate rose from 4 percent in 2009 to 6 2010 and the lower volume of cereal imports percent in 2011, but experiences were mixed. required. North Africa and the Paci�c Islands In about a third of countries inflation abated suffered the largest negative impact, paying 8 OVERVIEW GLOBAL MONITORING REPORT 2012 higher prices and importing more cereals to isolated from international shocks by ensur- meet domestic demand. Although the esti- ing self-suf�ciency in food production. mated cereal import bill of the food-de�cit Self-suf�ciency should be weighed against countries is still below the record set during the benefits of cheaper imports. A country the 2008 food crisis, the increase in cereal that is a natural exporter should not encum- costs, combined with price increases for ber its comparative advantage with export other food and fertilizer imported by these bans. A country that tends to import food countries, is cause for concern. should allow its domestic market to remain Higher food prices can upset the bal- linked to the world market. Encouraging ance between needed spending to mitigate more trade—not less—can thus promote food the immediate impact of the crisis and long- security, which requires a more open, rules- term development. Recurrent food crises based multilateral trade regime best achieved may require additional social spending; to be by concluding the Doha Round of negotia- cost-effective, such spending should empha- tions at the World Trade Organization. size targeted social safety nets rather than Efforts to extend trade integration to universal producer and consumer subsidies. developing countries should also focus on Most developing countries preserved their promoting more effective regional integra- core spending on health, education, and tion, including that for food products. Facili- infrastructure during 2008–09, increasing tating food trade is also important through their resilience to food and � nancial crises. increased Aid for Trade to promote friction- In the period since, however, many countries less borders and facilitate a supply response have not adequately rebuilt their �scal policy to rising prices, particularly in Sub-Saharan buffers and thus may �nd it more dif�cult to Africa. preserve core spending in the face of another major shock. To maintain this resilience in the composition of expenditures, much Aid flows, composition, and will depend on the cost and availability of effectiveness resources going forward. Of�cial development assistance (ODA) has Trade is an excellent buffer for domes- increased signi�cantly over the past decade, tic fluctuations in food supply. There is no nearly doubling as a share of donor gross global food shortage: the problem is regional nation income. But it has fallen short of a or local, one of moving food, often across number of internationally agreed targets. borders, from surplus to de�cit areas, cou- Programmed aid for 2011–13 indicates that pled with affordability. The world output of the growth of ODA disbursements is on track a given food commodity is far less variable to slow in real terms and indeed shrink on a than the output in individual countries. So per capita basis for recipient countries. greater trade integration holds considerable Surprisingly, the aid directed toward potential for stabilizing food prices, boosting agriculture, food, and nutrition—10 per- returns to farmers, and reducing the prices cent of total commitments in 2010 —has facing consumers. not increased in response to the recent food Trade liberalization protects national food price spikes or since the MDGs were agreed markets against domestic shocks by allow- in 2000. And assistance for nutrition repre- ing more food to be imported in times of sents a mere fraction of these commitments shortage and exported in times of plenty. But (about 3 percent of total aid flows to agricul- historically—and despite a host of regional ture, food, and nutrition), despite widespread trade agreements—most countries have taken evidence that improving nutrition and mak- the opposite approach. They restrict food ing gains in early childhood development are imports and discourage exports in often- keys to meeting several MDGs and to mak- failed attempts to keep domestic markets ing long-term progress in development. GLOBAL MONITORING REPORT 2012 OVERVIEW 9 Looking ahead, aid flows appear set to organizations (including philanthropists slow, likely reflecting the need for sharp �scal and corporations) and a growing number consolidation for many large donors. Based of middle-income countries. The sharp rise on reported donor plans during 2011–13, in stakeholders highlights the way develop- disbursements for country programmable aid ment demands an extensive set of tools and (accounting for roughly 60 percent of total partnerships. ODA) will actually fall slightly by a real 0.2 ODA is increasingly viewed as only one of percent a year on average. many international activities (such as trade Meeting the MDGs requires that aid flows and investment) that support long-term sus- are used as effectively as possible. In the Paris tainable development and poverty allevia- Declaration on Aid Effectiveness (2005) and tion. But it remains a major instrument for the Accra Agenda for Action (2008), agree- development cooperation. The international ments reached at the Third and Fourth High aid community needs to continue to improve Level Forums, the international community information-sharing and to facilitate the par- set out several principles and committed to ticipation of the expanding ODA agents in speci�c actions under each principle, with the setting the global development agenda—to goal of increasing the effectiveness of the aid better address the needs of the poor, includ- delivered—as well as the level of disburse- ing such critical issues as food and nutrition. ments. Some progress toward greater aid effectiveness has been made. But only 1 of the Paris Declaration’s 13 targets for 2010 has Note been met, with progress limited for the other 1. Focus groups and interviews were carried out 12. Even so, the goals and associated policy in 17 countries with respondents representing adjustments made at the forums seem to have groups exposed to economic shocks, such as contributed to the signi�cant rise in aid flows. workers in export-oriented sectors, informal Efforts to improve aid effectiveness are sector workers, and farmers. The research being pursued against the backdrop of fun- explored the extent to which people were able damental changes in aid architecture. The to remain resilient against the recent economic aid agenda is shifting, with calls for stronger shocks and the means they used to do so. Data leadership and ownership by recipients, more came from up to four rounds of qualitative harmonization and coordination among research at sites in Bangladesh, Cambodia, donors, and greater transparency. The donor Central African Republic, Ghana, Indonesia, community has dramatically expanded and Jamaica, Kazakhstan, Kenya, Mongolia, Phil- become much more diverse. Many new pri- ippines, Senegal, Serbia, Thailand, Ukraine, vate and public donors are coming onto Vietnam, the Republic of Yemen, and Zambia the stage, among them nongovernmental (see chapter 1). Goals and Targets from the Millennium Declaration 2 Achieve universal primary education TARGET 2.A Ensure that by 2015, children everywhere, boys and girls alike, 1 will be able to complete a full course of primary schooling 4 Eradicate extreme child Reduce ch poverty and hunger mortality TARGET 1.A Halve, between 1990 and 2015, TARGET 4.A Reduce by two-thirds, the proportion of people whose income is between 1990 and 2015, the under- less than $1.25 a day TARGET 1.B Achieve full and productive employment and decent work for all, including women and young people 3 �ve mortality rate TARGET 1.C Halve, between 1990 and Promote ggender 2015, the proportion of people who suffer from hunger equality and empower women TARGET 3.A Eliminate gender disparity in primary and secondary education, preferably by 2005, and at all levels of education no later than 2015 6 Combat HIV/AIDS, malaria, and other diseases 8 TARGET 6.A Have halted by 2015 Develop a global and begun to reverse the spread partnership for of HIV/AIDS TARGET 6.B Achieve by 2010 universal development access to treatment for HIV/AIDS for TARGET 8.A Develop further an open, rule- all those who need it based, predictable, nondiscriminatory trading 5 TARGET 6.C Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases and �nancial system (including a commitment to good governance, development, and pov- erty reduction, nationally and internationally) TARGET 8.B Address the special needs of the Improve maternal I least-developed countries (including tariff- and quota-free access for exports of the least- health developed countries; enhanced debt relief TARGET 5.A Reduce by three-quarters, for heavily indebted poor countries and between 1990 and 2015, the maternal mortality ratio TARGET 5.B Achieve by 2015 universal access to reproductive health 7 cancellation of official bilateral debt; and more generous official development assistance for countries committed to reducing poverty) TARGET 8.C Address the special needs of Ensure landlocked countries and small island developing states (through the Programme environmental of Action for the Sustainable Development sustainability of Small Island Developing States and the outcome of the 22nd special session of TARGET 7.A Integrate the principles of the General Assembly) sustainable development into country TARGET 8.D Deal comprehensively with policies and programs and reverse the the debt problems of developing countries loss of environmental resources through national and international measures TARGET 7.B Reduce biodiversity loss, to make debt sustainable in the long term achieving by 2010 a signi�cant reduction TARGET 8.E In cooperation with pharmaceuti- in the rate of loss cal companies, provide access to affordable, TARGET 7.C Halve by 2015 the proportion essential drugs in developing countries of people without sustainable access TARGET 8.F In cooperation with the private to safe drinking water and basic sanitation sector, make available the bene�ts of new TARGET 7.D Have achieved a signi�cant technologies, especially information and improvement by 2020 in the lives of at communications least 100 million slum dwellers Source: United Nations. 2008. Report of the Secretary-General on the Indicators for Monitoring the Millennium Development Goals. E/CN.3/2008/29. New York. Note: The Millennium Development Goals and targets come from the Millennium Declaration, signed by 189 countries, including 147 heads of state and government, in September 2000 (http://www.un.org/millennium/declaration/ares552e.htm) and from further agreement by member states at the 2005 World Summit (Resolution adopted by the General Assembly– A/RES/60/1). The goals and targets are interrelated and should be seen as a whole. They represent a partnership between the developed countries and the developing countries “to create an environment—at the national and global levels alike—which is conducive to development and the elimination of poverty.� Progress toward the MDGs Global progress toward the 2015 Millennium Develop- remaining to 2015. Child and maternal mortality are the ment Goals (MDGs) varies across targets and regions. At targets lagging the most. the global level, current estimates indicate that targets In Europe and Central Asia the proportion of poor has related to extreme poverty (MDG 1.a) and access to safe been halved since 1990, and the target on access to drinking water (MDG 7.c) have been reached (figure 1). water has been reached. Progress toward achieving uni- Accordingly, the proportion of people whose income versal primary education and promoting gender equality is less than $1.25 a day has decreased by at least 50 per- is currently on track. Increased efforts must be undertaken cent since 1990, when global poverty was estimated at with regard to improving maternal health and access to 43.1 percent. Similarly, the proportion of people without basic sanitation. sustainable access to safe drinking water has been halved from the 24 percent estimated for 1990. Latin America and the Caribbean has already Progress is also significant for primary completion reached the targets on extreme poverty, primary (MDG 2.a) and gender equality in primary and secondary completion, gender equality, and access to safe education (MDG 3.a). Latest available data suggest that water. The region is performing better than the rest developing countries are within 10 percentage points of of the developing world in relation to child mortality, the on-track trajectory (�gure 1), meaning that at current having achieved more than 60 percent of the prog- trends these two development goals will likely be reached ress needed to reduce under-5 mortality by two-thirds. by the year 2015. However, Latin America and the Caribbean faces serious On the other hand, progress has been lagging for challenges regarding maternal mortality, as progress in health-related MDGs. Global targets related to infant and this MDG has been signi�cantly slow. maternal mortality (MDGs 4.a and 5.a), and to a lesser Middle East and North Africa has reached the extent, access to basic sanitation (MDG 7.c) are signifi- poverty target as well as the target on access to cantly off-track (�gure 1). Current progress in reducing by improved sanitation facilities. The region is making three-quarters the maternal mortality ratio roughly repre- fast progress toward achieving universal primary educa- sents half of the required improvement needed to reach tion and gender equality. Nevertheless, progress toward the 2015 goal. ensuring access to safe drinking water and eradicating Progress toward the 2015 goals is related to income maternal mortality is lagging. and institutions. Nonfragile upper-middle-income coun- South Asia has reached the target on access to safe tries have reached or are on track to achieve, on average, water and will probably eliminate gender disparity in six development targets, whereas countries in fragile primary and secondary education by 2015. Progress situation are considerably lagging behind, with only two has also been made with respect to primary completion goals achieved or on track. Nonfragile low- and lower- and, to a lesser extent, extreme poverty reduction. Faster middle-income countries (with three and four goals, progress is required in terms of reducing child and mater- respectively, achieved or on track) have also performed nal mortality and improving access to sanitation facilities if better than countries in fragile situations, although not as the region is to reach these goals by 2015. well as upper-middle-income countries. Sub-Saharan Africa is lagging with respect to other At the regional level, progress toward the MDGs is regions and most MDGs. However, the region has more diverse, although health-related targets will achieved more than 60 percent of the progress required likely be missed in most regions (�gure 2). In East Asia to reach, by 2015, goals such as gender parity, primary and Paci�c the targets on extreme poverty, gender completion, access to safe water, and extreme poverty. parity, and access to water and sanitation have been As for other regions, health-related MDGs, particularly reached. Progress is substantial with regard to primary maternal mortality, require urgent attention. completion, and the goal should be achieved in the years 12 FIGURE 1 Global progress toward the MDGs varies (developing countries, weighted by population) Percent 100 90 80 70 60 50 40 30 20 10 0 MDG 1.a MDG 2.a MDG 3.a MDG 4.a MDG 4.a MDG 5.a MDG 7.c MDG 7.c Extreme Primary Ratio of Mortality rate, Mortality rate, Maternal Improved Improved poverty completion girls to boys infants children mortality water source sanitation (population rate (total in primary and (per 1,000 under 5 ratio (modeled (population facilities below of relevant secondary live births) (per 1,000) estimate, without (population $1.25 day, age group) education per 100,000 access) without access) 2005 PPP) live births) Corresponding target Latest available value Source: World Bank staff calculations based on data from the World Development Indicators database. Note: A value of 100 percent means that the respective MDG has been reached. “Corresponding target� indicates progress presently needed to reach the goal by 2015. “Latest available value� denotes present progress as illustrated by most recent available data: extreme poverty, 2010; primary completion rate, 2009; ratio of girls to boys in primary and secondary education, 2009; mortality rate, infants, 2010; mortality rate, children under 5, 2010; maternal mortality ratio, 2008; improved water source, 2010; improved sanitation facilities, 2008). FIGURE 2 Regional progress toward the MDGs (developing countries, weighted by population) Distance to 2015 goal achieved (%) 100 80 60 40 20 0 East Asia & Pacific Europe & Central Latin America & Middle East & South Asia Sub-Saharan Africa Asia the Caribbean North Africa MDG 1.a Extreme poverty MDG 4.a Mortality rate, infants MDG 7.c Improved water source MDG 2.a Primary completion rate MDG 4.a Mortality rate, children under-5 MDG 7.c Improved sanitation facilities MDG 3.a Ratio of girls to boys in MDG 5.a Maternal mortality ratio primary and secondary education Source: World Bank staff calculations based on data from the World Development Indicators database. Note: A value of 100 percent means that the respective MDG has been reached. Values denote present progress as illustrated by most recent available data: extreme poverty, 2010; primary completion rate, 2009; ratio of girls to boys in primary and secondary, 2009; mortality rate, infants, 2010; mortality rate, children under 5, 2010; maternal mortality ratio, 2008; improved water source, 2010; improved sanitation facilities, 2008). 13 MDG 1 Eradicating extreme poverty and hunger Poverty and hunger remain, but fewer people live in environmental resources have been depleted or spoiled; extreme poverty. The proportion of people living on and where corruption, conflict, and misgovernance waste less than $1.25 a day fell from 43.1 percent in 1990 to 22.2 public resources and discourage private investment. percent in 2008. While the food, fuel, and �nancial crises The most rapid decline in poverty occurred in East over the past four years have worsened the situations of Asia and Paci�c, where extreme poverty in China fell from vulnerable populations and slowed the rate of poverty 60 percent in 1990 to 13 percent. In the developing world reduction in some countries, global poverty rates kept outside China, the poverty rate fell from 37 percent to falling. Between 2005 and 2008 both the poverty rate and 25 percent. Poverty remains widespread in Sub-Saharan the number of people living in extreme poverty fell in all Africa and South Asia, but progress in both regions has six developing regions, the �rst time that has happened. been substantial. In South Asia the poverty rate fell from Preliminary estimates for 2010 show that the extreme 54 to 36 percent. In Sub-Saharan Africa the poverty rate fell poverty rate fell further, reaching the global target of the by 4.8 percentage points to less than 50 percent between MDGs of halving world poverty five years early. Three 2005 and 2008, the largest drop in Sub-Saharan Africa regions—East Asia and Paci�c, Europe and Central Asia, since international poverty rates have been computed. and the Middle East and North Africa—met or exceeded In 2008 1.28 billion people lived on less than $1.25 a the target by 2008. day. Since 1990 the number of people living in extreme Further progress is possible and likely before the 2015 poverty has fallen in all regions except Sub-Saharan Africa, target date of the MDGs, if developing countries maintain where population growth exceeded the rate of poverty the robust growth rates achieved over much of the past reduction, increasing the number of extremely poor decade. But even then, hundreds of millions of people will people from 290 million in 1990 to 356 million in 2008. remain mired in poverty, especially in Sub-Saharan Africa The largest number of poor people remain in South Asia, and South Asia and wherever poor health and lack of edu- where 571 million people live on less than $1.25 a day, cation deprive people of productive employment; where down from a peak of 641 million in 2002. Undernourishment measures the availability of food to FIGURE 1a Poverty rates fell sharply in the new millennium meet people’s basic energy needs. The MDGs call for cut- ting the proportion of undernourished people in half, but Poverty rates at $1.25 a day (%) few countries will reach that target by 2015. Rising agricul- 70 tural production has kept ahead of population growth, but rising food prices and the diversion of food crops to 60 fuel production have reversed the declining rate of under- 50 nourishment since 2004–06. The FAO estimates that in 40 2008 there were 739 million people without adequate 30 daily food intake. Rates of malnutrition have dropped substantially since 20 1990, but over 100 million children under age 5 remain 10 malnourished. Only 40 countries, out of 90 with adequate 0 data to monitor trend, are on track to reach the MDG tar- 1990 1993 1996 1999 2002 2005 2008 get. Malnutrition in children often begins at birth, when South Asia Sub-Saharan Africa poorly nourished mothers give birth to underweight East Asia & Pacific Latin America & the Caribbean babies. Malnourished children develop more slowly, enter Middle East & North Africa Europe & Central Asia school later, and perform less well. Programs to encour- Source: World Bank staff estimates. age breastfeeding and improve the diets of mothers and children can help. 14 FIGURE 1b Fewer people living in extreme poverty FIGURE 1c Progress toward reducing undernourishment People living on $1.25 a day or less (millions) 2,400 Share of countries in region making progress (%) 100 2,000 75 1,600 50 1,200 25 800 0 400 –25 0 1990 1993 1996 1999 2002 2005 2008 –50 East Asia Europe Latin Middle East South Sub-Saharan & Pacific & Central America & & North Asia Africa South Asia Sub-Saharan Africa Asia the Caribbean Africa East Asia & Pacific Latin America & the Caribbean Achieved Off track No data Middle East & North Africa Europe & Central Asia On track Seriously off track Source: World Bank staff estimates. Source: World Bank staff estimates. FIGURE 1d Many children remain malnourished Percent 50 Low-income countries 40 Lower-income countries High-income economies 30 20 10 0 1990 2010 Source: World Health Organization; World Development Indicators database. Note: “Malnourishment� is the measure of underweight children. 15 MDG 2 Achieve universal primary education The commitment to provide primary education to every child is the oldest of the MDGs, having been set down at the �rst Education for All conference in Jomtien, Thai- land, more than 20 years ago. This goal has been reached only in Latin America and the Caribbean, although East Asia and Pacific and Europe and Central Asia are close. Progress among the poorest countries, slow in the 1990s, has accelerated since 2000, particularly in South Asia and Sub-Saharan Africa, but the goal of full enrollment remains elusive. And even as countries approach the target, the educational demands of modern economies expand. In the 21st century, primary education will be of value only as a stepping stone toward secondary and higher education. In 2009 87 percent of children in developing coun- Pacific are within striking distance but have made little tries completed primary school. In most regions school progress in the last �ve years. enrollments picked up after the MDGs were promulgated Sixty developing countries, one-half the number in 2000, when the completion rate stood at 80 percent. of countries for which there are adequate data, have Sub-Saharan Africa and South Asia, which started out far- achieved or are on track to achieve the MDG target of a full thest behind, have continued to make substantial prog- course of primary schooling for all children. Twelve more ress but will still fall short of the goal. The Middle East and will miss the 2015 deadline, but are making slow progress. North Africa has stalled at completion rates of around 90 That leaves at least 48 countries seriously off track, making percent, while Europe and Central Asia and East Asia and little or no progress, 30 of them in Sub-Saharan Africa. FIGURE 2a The last step toward education for all FIGURE 2b Progress toward primary education for all Primary school completion rate (%) 110 Share of countries in region making progress (%) 100 100 75 90 50 80 25 70 0 60 –25 50 –50 1991 1999 2005 2010 2015 East Asia Europe Latin Middle East South Sub-Saharan & Pacific & Central America & & North Asia Africa South Asia Sub-Saharan Africa Asia the Caribbean Africa East Asia & Pacific Latin America & the Caribbean Achieved Off track No data Middle East & North Africa Europe & Central Asia On track Seriously off track Target South Asia Target Sub-Saharan Africa Target East Asia & Pacific Target Latin America & the Caribbean Source: World Bank staff calculations. Target Middle East & North Africa Target Europe & Central Asia Source: UNESCO Institute of Statistics and World Development Indicators database. 16 MDG 3 Promote gender equality and empower women Women are making progress. The MDGs monitor progress enrollment rates outnumber boys’, particularly in secondary toward gender equity and the empowerment of women school. But the comparison of enrollment rates obscures along three dimensions: education, employment, and par- the underlying problem of underenrollment. Girls are still ticipation in public decision making. These are important, less likely to enroll in primary school or to stay in school until but there are other dimensions. Efforts are underway to the end of the primary stage. In some countries the situa- improve the monitoring of women’s access to �nancial tion changes at the secondary stage. Girls who complete services, entrepreneurship, migration and remittances, primary school may be more likely to stay in school, while and violence against women. Time use surveys, for exam- boys drop out. In Europe and Central Asia and Latin Ameri- ple, can do much to illuminate differences in the roles of can and the Caribbean the differences between boys’ and women and men within the household and the work- girls’ enrollments in higher education are substantial. This is place. Disaggregation of other statistical indicators by sex an unsatisfactory path to equity. Rapid growth and poverty can also reveal patterns of disadvantage or, occasionally, reduction truly requires education for all. advantage for women. Whatever the case, women make Substantial progress has been made toward increasing important contributions to economic and social develop- the proportion of girls enrolled in primary and secondary ment. Expanding opportunities for them in the public and education. By the end of the 2009/10 school year, 96 coun- private sectors is a core development strategy. And good tries had achieved equality of enrollment rates, and 7 statistics are essential for developing policies that effec- more were on track to do so by 2015. That leaves only 27 tively promote gender equity and increase the welfare countries off track or seriously off track, mostly low- and and productivity of women. lower-middle-income countries in the Middle East and Girls have made substantial gains in primary and sec- North Africa, South Asia, and Sub-Saharan Africa. Fourteen ondary school enrollments. In many countries, girls’ countries lacked adequate data to assess progress. FIGURE 3a Increasing participation by girls at all levels of education FIGURE 3b Progress toward gender equality in primary and secondary education Ratio of girls’ to boys’ enrollment rate, 2009 (%) 125 Share of countries in region making progress (%) 100 100 80 60 75 40 20 50 0 –20 25 East Asia Europe Latin Middle East South Sub-Saharan & Pacific & Central America & & North Asia Africa Asia the Caribbean Africa 0 Achieved Off track No data East Asia Europe Latin Middle East South Sub-Saharan On track Seriously off track & Pacific & Central America & & North Asiaª Africa Asia the Caribbean Africa Primary Secondary Tertiary Source: UNESCO Institute of Statistics and World Development Indicators (WDI) database. a. Data for primary and tertiary enrollment are from 2008. 17 MDG 4 Reduce child mortality Deaths in children under age 5 have been declining since points, the greatest in the region, while Seychelles’ fell by 3 1990. In 2006, for the �rst time, the number of children who points. In proportional terms, Niger experienced a 54 per- died before their fifth birthday fell below 10 million. In cent reduction—second greatest in the region—and Sey- developing countries the mortality rate has declined from chelles a 16 percent reduction. Both fall short of the MDG 98 per 1,000 in 1990 to 63 in 2010. Still, progress toward the target, but Niger, starting in last place, has progressed MDG target of a two-thirds reduction has been slow. In somewhat faster. Has this been the general rule? Figure 4c Sub-Saharan Africa, one child in 8 dies before their fifth shows the 1990 under-5 mortality rates for all low- and birthday. The odds are somewhat better in South Asia, middle-income countries in Sub-Saharan Africa in 1990 where one child in 15 dies before their �fth birthday. Even and the improvement to 2010. Only one country, Zimba- in regions with relatively low mortality rates, such as Latin bwe, moved backward. Two countries, Malawi and Mada- America and the Caribbean and Europe and Central Asia, gascar are on track to achieve the MDG target. Several oth- slow improvements leave most countries well short of the ers, including Niger, Eritrea, and Tanzania are close. The MDG target. downward sloping regression line (white dots) shows the Thirst-six developing countries have achieved or are expected reduction in mortality rates, given countries’ now on track to achieve the target of a two-thirds reduc- starting position. On average, countries starting in worse tion in under-�ve mortality rates. positions in Sub-Saharan Africa have done better, possibly because large scale vaccination programs, the introduc- tion of treated bed nets as a malaria preventative, and Distribution of progress campaigns to encourage exclusive breastfeeding have In 1990 the under-5 mortality rate in Niger stood at 311 per been able to reach a large number of people, even in poor 1,000, the worst in the world. In the same year, Seychelles, countries. But as Figure 4c also reveals, the experience has with an under-5 mortality rate of 16, was the best in Sub- been highly mixed: Conflict-affected countries, like Soma- Saharan Africa. How have they fared since? In the 20 years lia and the Democratic Republic of the Congo, have made since the MDG baseline, Niger’s mortality rate fell by 168 almost no progress, while similarly situated countries such as Zambia and Uganda have done much better. FIGURE 4a Still far to go Under-5 mortality rate (per 1,000 live births) 175 150 125 100 75 50 25 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 East Asia & Pacific South Asia Middle East & North Africa Latin America & the Caribbean Europe & Central Asia Sub-Saharan Africa Source: World Health Organization; World Development Indicators database. 18 FIGURE 4b Most deaths happen in the �rst year FIGURE 4c For some, better than expected improvements Child deaths, 2010 (thousands) Seychelles 4,000 Mauritius Botswana Reduction since 1990 Deaths age 1 to 5 Cape Verde Reduction since 2010 Infant deaths South Africa Predicted value in 2010 3,000 Namibia Target for 2010 Zimbabwe Lesotho 2,000 Gabon São Tomé and Príncipe Swaziland Kenya 1,000 Congo, Rep. Ghana Mauritania Sudan 0 Comoros East Asia Europe Latin Middle East South Sub-Saharan Cameroon & Pacific & Central America & & North Asia Africa Senegal Asia the Caribbean Africa Eritrea Togo Source: World Health Organization; World Development Indicators database. Côte d’Ivoire Tanzania Madagascar Rwanda Central African Republic FIGURE 4d Progress toward reducing child mortality Gambia, The Uganda Share of countries in region making progress (%) Benin 100 Somalia Congo, Dem. Rep. Zambia 75 Burundi Ethiopia 50 Equatorial Guinea Burkina Faso Chad 25 Guinea-Bissau Nigeria 0 Mozambique Malawi Liberia –25 Guinea East Asia Europe Latin Middle East South Sub-Saharan Angola & Pacific & Central America & & North Asia Africa Asia the Caribbean Africa Mali Sierra Leone Achieved Off track No data Niger On track Seriously off track –50 0 50 100 150 200 250 300 Source: World Bank staff calculations. Source: World Bank staff calculations. 19 MDG 5 Reduce maternal mortality An estimated 358,000 maternal deaths occurred world- About half of all maternal deaths occur in Sub-Saharan wide in 2008, a 34 percent decrease since 1990. Most Africa and a third in South Asia. but mothers face sub- maternal deaths occurred in developing countries. What stantial risks in other regions as well. Among fragile and makes maternal mortality such a compelling problem is conflict-affected states, the mortality ratio may be many that it strikes young women experiencing a natural life times higher. event. They die because they are poor. Malnourished. Progress in reducing maternal mortality ratios has been Weakened by disease. Exposed to multiple pregnancies. slow, far slower than imagined by the MDG target of a 75 And they die because they lack access to trained health percent reduction from 1990 levels. Accurate measurement care workers and modern medical facilities. Death in of maternal mortality is difficult, requiring accurate report- childbirth is a rare event in rich countries, where there are ing of vital events and specialized surveys. Recent efforts by typically fewer than 15 maternal deaths for every 100,000 statisticians have improved estimates, but for many coun- live births, an average that has remained essentially con- tries the need for improved monitoring of maternal health stant for the past 18 years. And because women in poor will continue long past 2015. countries have more children, their lifetime risk of mater- Women who give birth at an early age are likely to bear nal death may be more than 200 times greater than for more children and are at greater risk of death or serious women in Western Europe and North America. complications from pregnancies. In many developing coun- Reducing maternal mortality requires a comprehen- tries, the number of women ages 15–19 is still increasing. sive approach to women’s reproductive health, starting Preventing unintended pregnancies and delaying childbirth with family planning and access to contraception. Many among young women increase the chances of their attend- health problems among pregnant women are prevent- ing school and eventually obtaining paid employment. able or treatable through visits with trained health work- Having skilled health workers present for deliveries is key ers before childbirth. Good nutrition, vaccinations, and to reducing maternal mortality. In many places women have treatment of infections can improve outcomes for mother only untrained caregivers or family members to attend and child. Skilled attendants at time of delivery and access them during childbirth. Skilled health workers are trained to to hospital treatments are essential for dealing with life- give necessary care before, during, and after delivery; they threatening emergencies such as severe bleeding and can conduct deliveries on their own, summon additional hypertensive disorders. help in emergencies, and provide care for newborns. FIGURE 5a Maternal mortality ratios have been falling but large regional differences persist Maternal mortality ratio, modeled estimate (per 100,000 live births) 1,000 1990 800 1995 2000 2005 600 2008 400 200 0 East Asia Europe & Latin America Middle East & South Asia Sub-Saharan & Pacific Central Asia & the Caribbean North Africa Africa Source: World Health Organization; World Development Indicators database. 20 FIGURE 5b Progress in reducing maternal mortality FIGURE 5c Help for mothers Share of countries in region making progress (%) Births attended by skilled health staff, 2010 (% of total) 100 75 East Asia & 50 Pacific 25 0 Europe & –25 Central Asia –50 East Asia Europe Latin Middle East South Sub-Saharan & Pacific & Central America & & North Asia Africa Asia the Caribbean Africa Achieved Off track No data Latin America & On track Seriously off track the Caribbean Source: World Bank staff calculations. FIGURE 5d Fewer young women giving birth Middle East & North Africa Adolescent fertility rate (births per 1,000 women ages 15–19) 150 125 South Asia 100 75 50 Sub-Saharan Africa 25 0 0 25 50 75 100 2000 2002 2004 2006 2008 2010 Source: World Health Organization; World South Asia Sub-Saharan Africa Development Indicators database. East Asia & Pacific Latin America & the Caribbean Middle East & North Africa Europe & Central Asia Source: World Health Organization; World Development Indicators database. ase. 21 MDG 6 Combat HIV/AIDS, malaria, and other diseases Epidemic diseases exact a huge toll in human suffering Sub-Saharan Africa remains at the center of the HIV/ and lost opportunities for development. Poverty, armed AIDS epidemic, but the proportion of adults living with conflict, and natural disasters contribute to the spread of AIDS has begun to fall even as the survival rate of those disease and are made worse by it. In Africa the spread of with access to antiretroviral drugs has increased. In Africa HIV/AIDS has reversed decades of improvement in life 58 percent of the adults with HIV/AIDS are women. The expectancy and left millions of children orphaned. It is region with the next-highest prevalence rate is Latin draining the supply of teachers and eroding the quality America and the Caribbean, where 0.5 percent of adults of education. are infected. There are 300 million to 500 million cases of malaria In 2009 between 31 million and 33 million people each year, leading to more than 1 million deaths. Nearly were living with HIV/AIDS. Of these approximately 1.5 all the cases occur in Sub-Saharan Africa, and most million were under the age of 15. Another 16.9 million deaths from malaria are among children younger than 5. children, of which 14.8 million live in Sub-Saharan Africa, Tuberculosis kills some 2 million people a year, most lost one or both parents to AIDS. By the end of 2009, 5.25 of them 15–45 years old. The disease, once controlled by million people were receiving antiretroviral drugs, repre- antibiotics, is spreading again because of the emergence senting 36 percent of the population for which the of drug-resistant strains. People living with HIV/AIDS, World Health Organization recommends treatment. which reduces resistance to tuberculosis, are particularly The MDGs call for halting and then reversing the vulnerable as are refugees, displaced persons, and pris- spread of HIV/AIDS by 2015. This progress assessment is oners living in close quarters and unsanitary conditions. based on prevalence rates for adults ages 15–49. Coun- tries with declining prevalence rates since 2005 are assessed to have halted the epidemic; those with preva- FIGURE 6a Bringing HIV/AIDS under control lence rates less than their earliest measured rate have reversed the epidemic. Countries with prevalence rates Prevalence of HIV, total (% of population ages 15–49) of less than 0.2 percent were considered to be stable. Malaria is endemic in most tropical and subtropical 7 regions, but 90 percent of the malaria deaths occur in 6 Sub-Saharan Africa. Those most severely affected are 5 children under age 5. Even those who survive malaria do not escape unharmed. Repeated episodes of fever and 3 anemia take a toll on their mental and physical develop- 2 ment. Insecticide-treated bed nets have proved to be an effective preventative. Their use has grown rapidly. 1 Between 2008 and 2010, 290 million nets were distrib- 0 uted in Sub-Saharan Africa, but coverage remains 1990 1993 1996 1999 2002 2005 2008 uneven. In some countries with large numbers of Sub-Saharan Africa Other developing regions reported cases, use of bed nets for children remains at Latin America & the Caribbean High-income economies less than 20 percent. Source: World Health Organization/UNAIDS; World Development Indicators database. 22 FIGURE 6b Millions of people still afflicted FIGURE 6c Protecting children from malaria with HIV/AIDS Adults and children living with HIV, 2009 (millions) Use of insecticide-treated bed nets (% of under-5 population) 2008 Notified cases (per 100,000) Cameroon 0.6 Swaziland 100 China 0.7 Mauritania 17,300 Côte d’Ivoire 36,500 Malawi 0.9 First observation Guinea 40,600 Russian Federation 1.0 (2000 or earlier) Congo, Rep. 34,300 Most recent observation Zambia 1.0 Comoros 24,600 (2006 or later) Burkina Faso 45,300 Uganda 1.2 Chad 39,500 Zimbabwe 1.2 Somalia 8,700 Mozambique 1.4 Cameroon 27,800 Tanzania Central African Republic 35,800 1.4 Zimbabwe 7,500 Kenya 1.5 Angola 21,600 India 2.4 Benin 35,600 Nigeria 3.3 Mozambique 32,600 Sudan 12,800 South Africa 5.6 Sierra Leone 36,100 Liberia 30,000 Source: World Health Organization/UNAIDS; World Development Ghana 31,200 Indicators database. Nigeria 38,300 Senegal 7,100 Uganda 36,200 FIGURE 6d Progress toward reversing the HIV/AIDS epidemic Ethiopia 11,500 Namibia 4,600 Share of countries in region making progress (%) Guinea-Bissau 34,000 100 Congo, Dem. Rep. 37,400 Burundi 48,500 80 Madagascar 3,700 60 Kenya 30,300 40 Eritrea 800 Gambia, The 31,900 20 Zambia 13,500 0 Gabon 29,500 São Tomé and Príncipe 2,000 –20 Malawi 33,800 –40 Togo 30,400 Toanzania 24,100 –60 Niger 38,000 East Asia Europe Latin Middle East South Sub-Saharan Rwanda 11,400 & Pacific & Central America & & North Asia Africa Asia the Caribbean Africa Mali 25,400 Halted and reversed Stable low prevalence No data 0 10 20 30 40 50 60 70 Halted or reversed Not improving Source: World Health Organization; World Development Source: World Bank staff calculations. Indicators database. 23 MDG 7 Ensure environmental sustainability Sustainable development can be ensured only by pro- rapidly growing upper-middle-income countries are not tecting the environment and using its resources wisely. far behind. Measured by emissions per capita, however, Poor people, often dependent on natural resources for emissions by high-income economies are more than their livelihood, are the most affected by environmental three times as high as the average of low- and middle- degradation and natural disasters (fires, storms, earth- income countries. quakes)—the effects of which are worsened by environ- Loss of forests threatens the livelihood of poor people, mental mismanagement. Poor people also suffer from destroys habitats that harbor biodiversity, and eliminates shortcomings in the built environment; whether in urban an important carbon sink that helps to moderate the cli- or rural areas, they are more likely to live in substandard mate. Net losses since 1990 have been substantial, espe- housing, to lack basic services, and to be exposed to cially in Latin America and the Caribbean and Sub-Saharan unhealthy living conditions. Africa, and these losses are only partially compensated by Most countries have adopted principles of sustainable increases in Asia and high-income economies. development and have agreed to international accords The MDGs call for halving the proportion of the on protecting the environment. But the failure to reach population without access to improved sanitation and a comprehensive agreement on limiting greenhouse gas water sources by 2015. As of 2010, 2.7 billion people still emissions leaves billions of people and future genera- lacked access to improved sanitation, and more than 1 tions vulnerable to the impacts of climate change. Grow- billion people practiced open defecation, posing enor- ing populations put more pressure on marginal lands and mous health risks. At the present pace only 37 countries expose more people to hazardous conditions that will be are likely to reach the target—a pickup of 2 since the last exacerbated by global warming. measurement in 2008. East Asia and Paci�c and Middle Annual emissions of carbon dioxide reached 32 East and North Africa are the only developing regions on million metric tons in 2008 and are still rising. High- track to reach the target by 2015. income economies remain the largest emitters, but the In 1990 more than 1 billion people lacked access to drinking water from a convenient, protected source, but the situation is improving. The proportion of people in FIGURE 7a Carbon dioxide emissions continue to rise developing countries with access to an improved water source increased from 71 percent in 1990 to 86 percent in CO2 emissions (kt) 2008. The MDG target is to reduce by half the proportion of people without access to an improved water source. 30,000 Seventy-three countries have reached or are on track to reach the target. At this rate, only the developing regions of the Middle East and North Africa and Sub-Saharan 20,000 Africa will fall short. In 1990, 63 percent of the people living in low- and 10,000 middle-income countries lacked access to a flush toilet or other form of improved sanitation. By 2010 the access rate had improved by 19 percentage points to 44 percent. The 0 situation is worse in rural areas, where 57 percent of the 1990 1995 2000 2005 population lack access to improved sanitation. The large High-income economies Lower-middle-income countries urban-rural disparity, especially in Sub-Saharan Africa and Upper-middle-income countries Low-income countries South Asia, is the principal reason the sanitation target of Source: CDIAC; World Development Indicators database. the MDGs will not be achieved. 24 FIGURE 7b Forest losses and gains FIGURE 7c Progress toward improved sanitation Share of countries in region making progress (%) East Asia & Pacific 100 Europe & Central Asia 75 Latin America & the Caribbean 50 Middle East & North Africa 25 South Asia 0 Sub-Saharan Africa –25 –50 High Income East Asia Europe Latin Middle East South Sub-Saharan & Pacific & Central America & & North Asia Africa –50,000 –40,000–30,000 –20,000–10,000 0 10,000 20,000 30,000 40,000 50,000 Asia the Caribbean Africa Change in forest area (sq. km per annum), 2010 Achieved Off track No data On track Seriously off track Source: FAO; World Development Indicators database. Source: World Bank staff calculations. FIGURE 7d Many still lack access to sanitation FIGURE 7e Progress toward improved water sources Share of population with access to improved sanitation, 2008 (%) Share of countries in region making progress (%) 100 East Asia & Pacific Rural Urban 75 Europe & Central Asia 50 Latin America & 25 the Caribbean Middle East & 0 North Africa –25 South Asia –50 East Asia Europe Latin Middle East South Sub-Saharan Sub-Saharan Africa & Pacific & Central America & & North Asia Africa Asia the Caribbean Africa 0 20 40 60 80 100 Achieved Off track No data On track Seriously off track Source: World Health Organization; World Development Indicators database. Source: World Bank staff calculations. 25 MDG 8 Develop a global partnership for development The eighth and �nal goal distinguishes the MDGs from The �nancial crisis that began in 2008 and �scal aus- previous sets of resolutions and targeted programs. It terity in many high-income economies have threatened recognizes the multidimensional nature of development to undermine commitments to increase official develop- and the need for wealthy countries and developing ment assistance. So far, leading donors have maintained countries to work together to create an environment in their level of effort. Total disbursements by members of which rapid, sustainable development is possible. Fol- the OECD Development Assistance Committee reached lowing the 2002 Millennium Summit in Monterrey, Mex- $130 billion in 2010, a real increase of 4.3 percent over 2008. ico, world leaders agreed to provide �nancing for devel- OECD countries (which include some upper-middle- opment through a coherent process that recognized income countries such as Mexico and Chile) spend more the need for domestic as well as international resources. on support to domestic agricultural producers than they Subsequent high-level meetings expanded on these do on official development assistance. In 2010 the OECD commitments. Along with increased aid flows and debt producer support estimate stood at $227 billion, down by relief for the poorest, highly indebted countries, MDG 8 about 10 percent from the previous three years. recognizes the need to reduce barriers to trade and to The growth of �xed-line phone systems has peaked in share the bene�ts of new medical and communication high-income economies and will never achieve the same technologies. MDG 8 also reminds us that development level of use in developing countries, where mobile cellular challenges differ for large and small countries and for subscriptions continue to grow at a rapid pace. In high- those that are landlocked or isolated by large expanses income economies, with more than one subscription per of ocean. Building and sustaining a partnership is an person, the pace of growth appears to be slowing. ongoing process that does not stop on a speci�c date Growing economies, better debt management, and or when a target is reached. However it is measured, a debt relief for the poorest countries have allowed devel- strong commitment to partnership should be the con- oping countries to substantially reduce their debt bur- tinuing legacy of the MDGs. dens. Despite the �nancial crisis, which caused the global economy to contract by 2.3 percent in 2009, debt service ratios continued to fall in most developing regions. FIGURE 8a Most donors have maintained their aid levels Selected DAC donors: official development assistance as share of GNI (%) 1.25 1.00 0.75 0.50 0.25 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 All DAC donors United Kingdom Japan Germany United States Norway Source: Organisation for Economic Co-operation and Development 26 FIGURE 8b But domestic subsidies to agricultural FIGURE 8c Cellular phones are connecting are greater developing countries Selected DAC donors agricultural support as share of GDP (%) Fixed line and mobile cellular subscriptions (per 100 people) 10 100 8 80 6 60 4 40 2 20 0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 All DAC donors Switzerland Japan Low-income country telephone lines Canada United States Korea, Rep. Lower-middle-income country telephone lines Norway Upper-middle-income country telephone lines High-income economy telephone lines Source: Organisation for Economic Co-operation and Development. Low-income country mobile subscriptions Lower-middle-income country mobile subscriptions Upper-middle-income country mobile subscriptions FIGURE 8d Debt service burdens have been falling High-income economy mobile subscriptions Total debt service (% of exports of goods, services, and income) Source: World Development Indicators database. 50 40 30 20 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 South Asia Sub-Saharan Africa East Asia & Pacific Latin America & the Caribbean Middle East & North Africa Europe & Central Asia Source: International Telecommunication Union and World Development Indicators database. 27 1 Poverty and Food Price Developments Summary and main messages the extent that higher prices have reduced the use of fertilizers, have made yields less stable. The food price spikes have prevented mil- Adverse weather patterns also have become lions of people from escaping extreme pov- more frequent and more variable. Low erty. The record prices in 2008 kept or global stocks have contributed to price vola- pushed 105 million people below the pov- tility at time of production shortfalls. More- erty line in the short run. They hit urban over, trade interventions meant to stabilize poor and female-headed households hard- domestic prices often have had the adverse est. While food prices dropped sharply in effect and increased price volatility globally. 2009 with the � nancial crisis, they quickly The challenges differ across countries. rebounded and by early 2011 were almost Food price increases have different effects back to 2008 levels. Sudden, unexpected on a country’s current account depending increases in food prices impose particularly on whether the country is a net importer or severe hardship on many households because net exporter, while the impact on a coun- they need time to adjust to higher prices. The try’s �scal position depends on subsidy pro- large, initial impact on poverty of a rise in grams and other market interventions. In food prices tends to decline over time as pro- addition, the extent and speed of transmis- duction increases and the income of the poor sion of changes in international food prices in rural areas rises, but it is usually not large during the recent price spikes to domestic enough to offset the initial negative impact prices has varied considerably across coun- on poverty in the short run. tries. Transmission of prices has been lim- The factors that caused the price spikes ited in countries that impose trade barriers also have the potential to make prices more and have poor infrastructure. This isolates volatile and thus less predictable. Biofuel domestic from international markets and mandates, which have boosted demand for potentially raises price volatility in domestic grains, despite slowing demand for food markets. Trade restrictions, price controls, globally, have reduced the price elasticity of and rationing can limit the rise in domestic demand for grains. Sharp increases in fer- food prices in response to international price tilizer prices, linked to energy prices, have spikes, but at the cost of eroding producer made production costs more volatile and, to incentives and, in the case of export bans, 29 30 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 perhaps encouraging responses by export- An increase in yields is needed, especially ers that could increase international prices. in Sub-Saharan Africa. Yields there are well A more ef�cient and sustainable response to below levels achieved in other parts of the international food price spikes would permit world and well below what is achievable domestic prices to rise while increasing assis- in Sub-Saharan Africa. At the same time, tance to the poor. population growth remains high and Africa Characteristics of each country determine has become increasingly dependent on the most appropriate policy mix for address- food imports. Increased public and private ing the implications of higher and more vola- investment, better water management, and tile food prices, although the content of the improved farming practices to more fully chosen policies will not differ greatly among exploit existing technology, as well as further countries. The chosen policy mix at the coun- research, are essential to raise yields. It is also try level depends critically on how much of crucial to improve the trade infrastructure, a country’s food needs to be imported, how to enable more trade within Africa (World much of their income the poor spend on Bank 2009). Raising productivity could have food, the socioeconomic characteristics of the a substantial impact on prices and income of poor affected, and the political environment. farmers, lowering rural poverty and making It depends equally on a country’s integration food more affordable for the urban vulner- with regional and world markets, on its level able and poor. of productivity compared with what is achiev- Evidence in the GMR 2011 pointed to able, and on its government’s capacity to tar- the critical role of strong economic growth get the poor and vulnerable through mitigat- and a stable macroeconomic environment in ing interventions, which vitally depends on progressing toward the MDGs. Seen in this the adoption of such programs before a crisis. context, the strong economic performance In addition, the government’s ability to raise of emerging and developing countries in the public expenditures or provide tax incentives past several years and their resilience in the in response to a food price shock without face of the global � nancial crisis are major jeopardizing �scal sustainability depends on accomplishments. However, a weaker, more initial macroeconomic conditions. uncertain global economy in 2012, com- In the long term, the policy mix needs to bined with still-high food prices, may pose address the main bottlenecks to the function- new challenges and complicate emerging and ing of the domestic food markets and prof- developing countries’ quest to further reduce itability of farmers. This would include the poverty and hunger. Developing countries use of technological innovations to improve coped well with the recent global down- productivity. Over the long term, policies turn but face the current global economic that would limit the average rise in food environment with depleted policy buffers. prices, without undermining farmer pro�t- Among possible risks to the outlook is a fur- ability, include promoting increased yields ther sharp slowdown in global growth and a through research, extension, and improved new or extended spike in food prices. Should water management; improving the ef�ciency such risks materialize, possible responses of land markets and strengthening property must be directed toward protecting the most rights; using more ef�cient technologies for vulnerable and poor people within a stable producing biofuels; increasing farmers’ access and sustainable macroeconomic framework. to ef�cient tools to manage risk; and increas- ing the integration of domestic markets with world markets. Policies that would limit food Rising food prices have price volatility include the development of prevented millions of people weather-tolerant grain varieties, increases in from escaping poverty the size and improvements in the manage- Agricultural prices in 2011 exceeded their ment of stocks, the opening markets to trade, 2008 peaks by 17 percent. Food prices and improvements in market transparency. increased 92 percent in nominal terms and GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 31 FIGURE 1.1 Food, grain, agricultural, and energy price developments (in nominal and real terms) 300 a. Current price index (monthly, 2005 = 100) 250 200 150 100 50 0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Feb 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Agriculture Food Grains Energy Source: World Development Indicators database. 57 percent in real terms from December 2005 b. to January 2012 (�gure 1.1). The World Bank 250 Agriculture Price Index peaked in Febru- Constant price index (annual, 2005 = 100) ary 2011, exceeding levels reached in 2008. 200 The 2010–11 international price increases were more widespread across agricultural 150 commodities than in 2008, when they were mainly concentrated in grain crops.1 Since 100 June 2010 agricultural price increases have been broad-based, affecting sugar, edible oils, beverages, animal products, and raw 50 materials such as cotton. High and volatile food prices can hurt 0 food security. Large, sudden, and particu- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 larly unexpected food price increases make Agriculture Food Grains Energy it dif�cult for households to adjust—eroding consumer purchasing power, reducing calorie Source: World Development Indicators database. intake and nutrition, and pushing more peo- ple into poverty and hunger. Overall impacts depend on the proportions of households that are net buyers and households that sell sur- supply shocks such as droughts can seriously plus production (net sellers). Net buyers will derail food consumption and lead to all-out see their purchasing power decrease. Because famine (box 1.1). the poor spend much of their income on food Qualitative survey-based research shows (50–70 percent), they bear a disproportionate that responses of poor people in 13 coun- burden in adjusting to high food prices. This tries to global shocks lead to severe indirect is especially true for poor urban households impacts. 2 Poor people have experienced a and those headed by women, who typically series of global shocks in recent years, from spend more than half their incomes on food the spikes in fuel and food prices, to the and are more likely to curtail consumption in economic contraction that started in 2008, the face of higher prices. At the same time, while droughts have exacerbated problems 32 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 1.1 Crisis in the Horn of Africa Below average rainfall since 2010, compounded by among pastoralists, while in urban areas high food rising and more volatile food and fuel prices, protec- prices and unemployment have increased poor house- tionist policies, political instability and conflict, and holds’ dependence on food aid. Moderate malnutri- deteriorating conditions in refugee camps have exac- tion among children under �ve tripled in poor urban erbated the food crisis in the Horn of Africa. Nearly areas between May 2010 and May 2011, affecting 13 million people in Djibouti, Ethiopia, Kenya, and approximately 26,000 children.d Somalia face food insecurity; famine affl icts about 4 million people in Somalia. The international development community is responding to the crisis but more funds are needed Higher food prices and malnutrition remain severe As of December 16, 2011, funding coverage for problems in all of these countries humanitarian assistance in the four drought-affected In Somalia domestic supply appears to cover only countries in the Horn of Africa was estimated at 79 15–20 percent of demand, a local grain prices have percent of need.e Increased support is particularly more than doubled since June 2010 in some areas, needed for humanitarian assistance in Djibouti and and continued instability is driving refugee flows to refugee-related requirements in Ethiopia. neighboring countries. According to the Food Secu- The World Bank’s International Development rity and Nutrition Analysis Unit-Somalia, recent data Association, the donor-funded Global Facility for suggest that around 34 percent of children under age Disaster Reduction and Recovery, and the State and five are malnourished, of whom 40 percent suffer Peace Building Fund are making available $1.88 bil- from severe acute malnutrition. lion to address short-term crisis mitigation and long- Food price inflation in Ethiopia reached 47 percent term development objectives. A total of $288 mil- in July 2011, and some areas are facing exceptionally lion has been allocated for the rapid response phase, harsh conditions: wasting among children under age which will provide health services (health screenings �ve in the south and southeast regions ranges from and nutrition schemes) and safety net programs (cash 10 to 22 percent. However, the number of people for work and cash transfer programs) through early affected and total economic cost of the current 2012. The economic recovery phase will provide drought are low compared with previous food crises,b $384 million over a two-year period, to support agri- in part because the most affected areas account for a culture and livestock production by improving land small share of domestic agricultural production and management and irrigation. The �nal, drought resil- livestock population. The World Bank and the Inter- ience phase will allocate $1.2 billion to drought-resil- national Monetary Fund (2010) estimates that the ient agriculture, risk � nancing, resilience planning drought could reduce gross domestic product (GDP) and strengthening social safety nets.f by only about 0.5 percent, provided that rainfall con- a. Famine Early Warning System Network. 2011. “Special ditions improve. Brief: Market Functioning in Southern Somalia.� U.S. Agency The price of maize in Kenya doubled in the year for International Development, Washington, DC (July 28). ending October 2011. Livestock is the main source of b. World Bank. 2011. “Impact of the Drought and the Rise livelihood in the drought-affected areas and accounts in Food Prices: Ethiopia,� Country Assessment, Washington, for about 5 percent of total GDP. Estimated livestock DC (November). c. World Bank. 2011. “The Drought and Food Crisis in mortality as a result of the drought is about 10–15 the Horn of Africa: Impacts and Proposed Policy Responses percent above normal in the affected areas, equiva- for Kenya.� PREM Economic Premise 71, Washington, DC lent to 5 percent of Kenya’s livestock population.c The (November). Dadaab camp for Somali refugees has faced a dif�cult d. United Nations Of�ce for the Coordination of Humani- security situation. Overall, the direct negative impact tarian Affairs, 2012; UNICEF. 2011. “Feeding Centers Aim to of the drought is estimated at approximately 0.2 per- Alleviate Chronic Malnutrition in Drought-Affected Djibouti.� At a Glance: Djibouti, August 18. cent of GDP. e. United Nations Of�ce for the Coordination of Humani- A �fth of Djibouti’s population is in need of food tarian Affairs, 2012, p. 6. relief. Low rainfall in the northwest and southeast has f. World Bank. 2011. “Response Plan, Drought in the Horn kept food prices high and exacerbated food insecurity of Africa.� September 10. GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 33 BOX 1.2 How rising food prices affect the citizens of Dar es Salaam In 2011 Tanzanians were hit by substantial increases Changes in household consumption patterns in commodity prices. The country’s inflation rate rose 15 throughout the year, reaching 18 percent by Decem- 10 ber. How did rising food prices affect the citizens of Dar es Salaam, and did they change their consump- 5 tion patterns? The World Bank worked with the 0 % change NGO Twaweza to use mobile phones to survey house- holds on their perceptions. –5 The number of low-income households that could –10 afford three meals a day has fallen by about 20 per- –15 cent since the end of 2010. The reported consumption of a number of food types also decreased for individ- –20 ual households (box �gure). –25 Meat Fish Chicken Rice Milk High inflation and rising commodity prices were also reflected in citizens’ general assessment of their Change for the better a Change for the worseb economic situation. In 2010 about half the respon- dents (51.3 percent) were negative about their eco- a. Percentage of households that reported this type of food as part of a typical family meal in the current study, but not in the baseline. nomic situation. In 2011 the proportion rose to nearly b. Percentage of households that reported this type of food as part of a typical three in four (72.5 percent). And the percentage of family meal in the baseline, but not in the current study. citizens who thought Tanzania’s economic situation was bad or very bad rose from 65.7 percent in 2010 to 85.7 percent in the current study. at the local level (Heltberg, Hossain, and were also important in many countries. Reva 2012, forthcoming). The shocks often Inability to service micro�nance and money- resulted in severe hardships, and responses led lender debts was a major source of distress in to second-order impacts. Less nutritious diets some East and South Asian countries, where caused malnourishment and made people many people had to borrow at very high inter- more susceptible to health shocks. The sudden est rates to service micro�nance debts or live influx of workers into the informal economy in fear of creditors taking possession of their lowered earnings. Such extreme hardship can property. Collecting food and fuel from com- even lead to criminal activities, eroding trust mon property natural resources was impor- and cohesion in communities (box 1.2). tant only in some low-income countries. Reducing the quality of food and the Some of these hardships (sales of produc- number of meals was one of the most com- tive assets, forgone education, and health mon responses, often the � rst to be used, in care) will have long-lasting consequences study sites in all countries surveyed (table and impede people’s ability to recover. And 1.1). In addition, reducing nonfood consump- coping with economic crises has eroded the tion, working more hours, and diversifying savings and asset base of many households, sources of income (say, by entering a new leaving them with few resources to cope with informal occupation) were common nearly other shocks. Continuing high and volatile everywhere. Migration, sometimes as reverse global food prices are thus a major source of migration to the home area, was also a fairly concern. common response to the food price spikes. Many parents sought to protect children’s Asset sales were common in many sites. food consumption and schooling, with adult Loans from family, friends, and moneylenders household members saving on the quantity 34 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 TABLE 1.1 Common coping responses to food, fuel, and financial crises in 13 countries Number of Number of Behavior-based responses countries Asset-based responses countries Reduce the quality and quantity of food 13 Sell assets 8 Reduce nonfood expenditures 13 Loan from formal lender 2 Stop primary or secondary education 6 Micro�nance loan 2 Stop higher education 2 Loan from family/friends 7 Work more 12 Loan from moneylender 4 Use common property natural resources 4 Take up illicit occupations: for fuel and food Sex work 2 Drug dealing 2 Assistance-based responses Crime/theft 10 Source of assistance: Income diversi�cation 9 Government 4 Migration 6 Nongovernmental organization 4 Religious organization 5 Mutual solidarity group 7 Relatives 13 Friends and neighbors 11 Source: Heltberg, Hossain, and Reva 2012, forthcoming. and quality of food to ensure that children short-term impact on poverty. Some net buy- had proper diets. Yet, there were many ers become net sellers, and higher farm wage instances of erratic attendance and school income can offset some or all of the negative withdrawals because of the need for children impact of higher food prices on the incomes to contribute to household income or because of net consumers (see box 1.3). For this posi- education costs had become prohibitive. But, tive effect to occur, prices need to remain on the whole, the impacts on schooling were relatively stable and at their elevated levels, so more muted than expected. The cost of edu- that farmers are comfortable shifting to more cation, the distance to schools, and the avail- pro�table crops and expanding production. ability of school feeding influenced whether Hence, increased food price volatility could children stayed in school. derail this positive development. Food price spikes have an immedi- The impact of higher food prices differs ate impact on progress toward eradicating across socioeconomic groups. Urban, non- extreme (income) poverty. The international farm, and female-headed households are food price spike of 2007–08 is estimated to affected the most in the short term (see �gure have kept or pushed 105 million into poverty, 1.2 and box 1.4). In the short term, the pov- and that of 2010–11 by 48.6 million people erty impact of a doubling of food prices is on in the short run (box 1.3). Poverty typically average 16.7 percent larger in female-headed increases initially with higher food prices, households than in male-headed households. because the supply response to rising prices Short-term changes in poverty are likely to be takes time to materialize and many poor 2.4 times higher for nonfarm households than (farm) households are net food buyers, so for farm households, and the poverty impact higher food prices lower their real incomes. in urban areas in the short term is likely to Once farm wages and farm production be 44.3 percent higher than in rural areas. adjust, the impact of higher food prices The short-term effect is reduced when wages on poverty is greatly ameliorated. Higher increase and farmers switch to those products farm wages and supply responses by both that increase their pro�tability the most; this smallholder and large commercial farmers can begin to lift farmers and rural households dampen the impact on poverty, but it is usu- out of poverty, but on average it becomes ally not suf�cient to fully offset the negative more dif�cult to escape poverty (�gure 1.2). GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 35 BOX 1.3 How many more are poor because of higher food prices? Most analyses conclude that in the short term higher occurred. The first crisis was estimated to keep or food prices raise the poverty headcount in most push 105 million people into poverty in low-income developing countries because not enough poor farm- countries (Ivanic and Martin 2008), and the second ing households bene�t from the higher sales prices crisis, 44 million people in low- and middle-income of their production (De Hoyos and Medvedev 2011, countries (Ivanic and Martin 2012a). Ivanic and Martin 2008; Ivanic and Martin 2012a) Using published information on the observed to offset the negative impact of higher food prices on domestic price changes between June 2010 and net consumers. This is so despite the well-known fact March 2011a together with the techniques outlined that three-quarters of the world’s poor live in rural in Ivanic and Martin 2012b, the implied poverty areas, and most of them depend on agriculture for changes of the most recent food crisis was calcu- their livelihoods. lated (box table). The new estimates are calculated A key to this apparent contradiction is that many for the immediate short-run impacts, taking into of the poorest farming households are net buyers of account demand responses by consumers, medium- staple foods. Over the long run, the negative impact of run impacts with wage adjustments, and long-run higher food prices on poverty is ameliorated through impacts including supply responses. The results sug- wage adjustments and household supply adjustments gest that changes in both wages and farmers’ output in response to rising food prices. Even in the long run, responses reduce the negative impact of higher food however, higher food prices appear to raise poverty in prices on extreme poverty. But none of these long-run most poor countries and for the world as a whole— reductions is large enough to offset the initially large but the impact varies among population groups. adverse impact on poverty. The two recent food price crises—in 2007–08 and in 2010—were researched extensively soon after they Estimated poverty impacts of the 2010–11 food price crisis Millions of people Impact 2011 shocka Short-run impact 48.6 Medium-run impact with wage adjustments only 45.5 Long-run impact including supply response 34.1 a. Refers to poverty change among low- and middle-income countries. a. The calculations in Ivanic and Martin (2012a) used price changes until December 2010. The updated sample used includes more countries, 29, versus 9 than in 2008, and includes a range of household survey updates. The aggregate impacts vary by region. part from potential higher tax revenues from Large net importers of food, such as those (agricultural) commodities (figure 1.3 and in the Middle East, North Africa, and West box 1.5). Africa, face higher import bills, reduced �s- The pass-through of international to cal space, and greater transmission of world domestic prices has varied greatly across prices to local prices for imported goods such regions, with the largest pass-through as rice and wheat. Higher prices particularly observed in the countries of Latin America, hurt consumers with high shares of house- which are largely open to international trade. hold expenditure on food (as in many Afri- In Sub-Saharan Africa the pass-through of can and Asian countries). Large net-export- rice and wheat prices to countries import- ing countries, as in Latin America, Eastern ing these cereals has been relatively fast. The Europe, and Central Asia, stand to bene�t, in transmission of international maize prices has 36 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 1.4 Actions by women made the most difference but were invisible to policy makers Much of the response to a rise in food prices is The food price crisis has meant that many poor reflected in additional care work by (mainly) women people have suffered a serious decline in the quality that is unpaid and not measured. Increases in food and diversity of food, as well as in caloric intake. prices oblige women to invest greater time and energy Food price increases directly reduced the quantity of to achieve the same level of nourishment and care food eaten by poor people and often forced them to of children, the sick, and the elderly. Examples of eat food that was either unpalatable or unsafe. Some increased effort include more distant travel to hunt families made remarkable efforts to maintain nutri- for bargains and more frequent shopping to pur- tional levels: for example, in rural Zambia women chase smaller quantities; more time devoted to chop replaced expensive small � sh with protein-rich but or gather �rewood because households can no longer cheap caterpillars. afford other sources of energy; more time required As in previous crises, gender inequality can be to collect wild foods, and to beg and borrow money; expected to have increased in part because women having to undertake jobs considered hard or demean- have generally been the first to cut their food and ing; and having to manage more stressful domestic other consumption in the face of falling real incomes. family relationships, including drug or alcohol abuse, Nevertheless, in several communities a note of gender as well as violence. equality emerged, with young parents (particularly One hopeful note is that across various com- those not in manual jobs) stressing that both par- munity sites, parents and schools are working hard ents waited until their children had eaten well before to keep children in school and provide essential themselves eating. food. Although teachers in Bangladesh and Zambia It is not surprising that the additional effort that reported that local school dropout rates increased (mainly) women have had to expend to cope with the when food prices spiked, there was a much stronger food crisis has gone unnoticed. This phenomenon emphasis than researchers expected on keeping chil- reflects a more general neglect of women’s unpaid dren in school. In Kenya school feeding programs care work and the importance of its contribution to were often very accommodating of the poorest fami- social protection and to the achievement of the Mil- lies, allowing them to bring younger siblings along lennium Development Goals. A key lesson from this at mealtimes. Nevertheless, higher food prices affect crisis should be that protecting progress toward the children’s ability to learn. In Bekasi near Jakarta, MDGs requires protecting caregiving. This should for example, mothers were concerned that reduc- mean more direct support to women in their roles ing pocket money for snacks was putting their chil- as unpaid caregivers, which entails recognizing and dren off going to school; some mothers in Kingston, monitoring how their work is affected by food price Jamaica, had to pack children off to school with only volatility and other economic shocks. a glass of water. Source: Oxfam, based on Hossain and Green 2011. been much weaker, however, because most relatively large, both immediately on the rise countries in Eastern and Southern Africa, in the international price and three months main producers of white maize, fill their afterward (table 1.2). The pass-through in import needs through cross-border trade, China and India, the countries with high not from overseas (Minot 2010). In Asia the import protection, was small. Overall, for transmission of changes of international rice countries more open to trade (Dawe 2008; prices to local prices differed signi�cantly by Robles 2011), and with a larger share of cere- country during the 2007–08 food price spike. als imports in total domestic consumption, In Bangladesh and Cambodia, the countries the faster and larger is the transmission of the open to trade, the pass-through was fast and international prices into local prices. GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 37 FIGURE 1.2 The impact of higher food prices on poverty differs across socioeconomic groups Farmer Rural household Household with male head Average Household with female head Nonfarmer Urban household –10 –5 0 5 10 15 20 25 Percentage change in headcount poverty for a 100% change increase in food prices Long term (including supply response) Medium term (including wage adjustments) Short term Source: Ivanic and Martin 2012b forthcoming. FIGURE 1.3 Countries’ vulnerability to global food price shocks tracked by share of cereal imports in domestic consumption and food share in household expenditure Middle East 100 and North Africa Brunei Jordan Malta Mauritius Congo, Rep. Israel Lebanon Saudi Arabia Botswana Cape Verde Netherlands Malaysia Yemen, Rep. Japan Korea, Rep. Gabon Mongolia Liberia Net importers Portugal Swaziland Tunisia Mauritania Georgia Armenia Senegal Angola Colombia Namibia Net cereal imports as a share of consumption (%) 50 Belgium Venezuela, Slovenia R.B. de Albania Peru Morocco Lesotho Côte d’Ivoire Africa Switzerland Mexico Bosnia and Herzegovina Tajikistan Gambia New Zealand Sri Lanka Cameroon Ghana Guinea-Bissau Norway Spain Chile Ecuador Azerbaijan Central Sierra LeoneMozambique Ireland Egypt, Arab Rep. Sudan KenyaAfrican Republic Congo, Dem. Rep. Iran Bolivia Philippines Guinea Rwanda Burundi Italy Estonia BeninTogo Zimbabwe Belarus Kyrgyzstan Nigeria Zambia South Africa Syria Bangladesh MaliUgandaTanzania Niger Luxembourg Poland Romania Brazil Indonesia CambodiaLao PDR Burkina FasoMalawi Ethiopia 0 United Kingdom Slovak Croatia Turkey Madagascar Nepal Chad Moldova China India Austria Denmark Republic Russia, Federation Finland Pakistan Vietnam Germany Lithuania Serbia Sweden Czech Republic Bulgaria Ukraine United States Asia Europe and Thailand –50 Hungary Central Asia Canada Kazakhstan Net exporters France Uruguay Paraguay –100 Latin America and the Caribbean –150 Australia Argentina Developed countries Developing countries –200 0 10 20 30 40 50 60 70 Food share of household expenditure (%) Source: World Bank 2011d. 38 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 1.5 World price impacts across regions The spike in food prices in mid-2011 strained � s- some countries are net food importers, and the share cal budgets, reduced incomes, and increased the of food in household expenditures remains about 40 vulnerability of the poor in many food-importing percent in South Asia. Despite a mix of trade mea- countries. sures and buffer stock policies designed to slow the transmission of international to local prices (Dawe Sub-Saharan Africa. The region is particularly vul- 2008), the 2008 food price spike signi�cantly reduced nerable to increases in international food prices, household incomes in South Asia. At the same time, because in most countries some 50–70 percent of higher food prices increased fiscal deficits because household spending is devoted to food, and the region of increased expenditures on food subsidy programs imports about 45 percent of its consumption of rice and safety nets (Ahmed and Jansen 2010). A dual and 85 percent of its consumption of wheat. High approach of raising agricultural productivity and levels of malnutrition result in 38 percent of children earned income, coupled with targeted safety nets, being stunted. The situation is most perilous in the is needed to deal with hunger in South Asia. East drought- and confl ict-stricken countries of the Horn Asia presents a different mix of challenges. Thailand of Africa. Nevertheless, increases in cereal produc- and Vietnam provide over 50 percent of global rice tion driven by higher yields since the middle of the exports and thus benefit significantly from rising last decade improved the continent’s ability to cope prices; Indonesia and the Philippines are signi�cant with the food price spike of 2011, compared with the rice importers; and China is largely self-suf�cient in experience in 2008. Governments should increase rice. East Asia needs to maintain production while expenditures to raise the productivity of smallholder shifting to more environmentally sustainable pro- agriculture, strengthen trade between food de�cit and cesses in the face of increasing land and water scarcity surplus areas to reduce the volatility of local prices, (Christiaensen 2007). and support the coping strategies of poor households in the face of continued food price volatility. Latin America and the Caribbean. Large resource endowments and the lower share of household expen- South Asia and East Asia and Paci�c. South and East ditures devoted to food, at least compared with Asia Asia are both self-sufficient in rice. Nevertheless, and Africa, make the region as a whole less vulner- TABLE 1.2 Pass-through of international rice prices to local prices 2011; Zurayk 2011). The long-term pass- in selected Asian countries through coef�cients average 20–40 percent As a share of Thailand price (rice, 5% broken) of the world food price increase, with the Cambodia Bangladesh Philippines India China full transmission process taking about one Q2/07–Q2/08 98 55 63 25 23 year (World Bank 2011c). The pass-through Q2/07–Q3/08 79 60 46 37 25 effects are notably higher for West Bank Source: World Bank staff estimates based on FAO’s Global Information and Early Warning and Gaza, Djibouti, the Arab Republic of System. Note: The international price of rice (Thailand, 5% broken) peaked in April 2008. Egypt, Iraq, and the United Arab Emirates. By contrast, in Algeria and Tunisia, the pass- through is small because of high food subsi- High and volatile international food prices dies and controlled food prices. continue to be a big concern in the Middle Limited participation in international trade East and North Africa, which is the largest has led to higher local food price volatility, wheat-importing region in the world. Some particularly in Sub-Saharan Africa. The price have even cited the food price developments volatility of internationally tradable prod- since 2007 as a contributing factor in the ucts is lower than that of nontradable com- Arab Spring (Breisinger, Ecker, and Al-Riffai modities and commodities that are tradable GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 39 BOX 1.5 World price impacts across regions (continued) able to volatile international food prices. However, continued political pressure to impose export bans or agricultural production has been affected by natural to �x prices. disasters; for example, the January 2011 cold wave in Mexico damaged 1.5 million hectares (or 4 mil- Middle East and North Africa. Countries in this lion metric tons) of white corn (for tortillas) and over region rely on food imports, particularly wheat, for 80 percent of green vegetable crops for export. And at least 50 percent of domestic consumption. Thus, vulnerability differs signi�cantly among countries. higher international prices can put considerable pres- El Salvador, Grenada, Haiti, Suriname, and St. Vin- sure on government and household budgets, depend- cent and the Grenadines are particularly vulnerable ing on the level of domestic consumption subsidies because of high �scal de�cits, large cereal imports, and the pass-through from international prices. and low-quality social protection programs, while In the Arab Republic of Egypt, Djibouti, and the Argentina, Brazil, and Uruguay are agricultural pow- United Arab Emirates, more than 40 percent of a erhouses that bene�t from higher international food rise in international food prices is reflected quickly in prices. As a relatively urbanized region, a large major- domestic food prices, while in Jordan and the Repub- ity of its population, including in net-exporting coun- lic of Yemen, countries with weak �scal positions and tries, are consumers who lose from the direct effects a large dependence on food imports, the pass-through of price spikes (World Bank 2012a). is 20–40 percent (World Bank 2011c). Higher domes- tic food production insulates Algeria and Tunisia Europe and Central Asia. The region is quite diverse. from international price shocks. Oil exporters are Large grain imports and high shares of food in house- well placed to cope with higher food prices, because hold budgets make Albania, the Kyrgyz Republic, their oil revenues have risen along with their food Moldova, and Tajikistan vulnerable to rising food import bill. Since energy is an important input to prices. By contrast, Kazakhstan, the Russian Fed- agricultural production, increased oil prices have con- eration, and Ukraine are food exporters that ben- tributed to higher food prices. e�t from increased commodity prices. Similar to net- exporting countries in Latin America, net-exporting Source: Updates by World Bank staff; World Bank 2011c. countries in this region with populations that spend Note: See the appendix for the current classification of signi�cant shares of household budgets on food face economies. only on regional markets. Wheat, rice, and TABLE 1.3 Price volatility across products in the countries of cooking oil, products that are imported on Sub-Saharan Africa the African continent, exhibit lower price Number of Number of Volatility Product observations price series (%) volatility than the prices of domestically pro- duced staples (table 1.3). The prices of maize, Tradable on international markets Wheat 224 3 9.4 beans, and cowpeas, which are mainly traded Rice 2,202 30 10.8 locally and regionally, are more volatile, on Cooking oil 592 8 10.1 average 20–30 percent above the price vola- Nontradable or tradable only on tility of internationally traded commodities. regional markets Therefore, many African countries would Beans 878 12 13.3 bene�t from reducing their protection levels Maize 3,450 47 14.4 and infrastructure costs to import from, or Millet 2,224 30 10.5 export to, international markets when needed Sorghum 1,914 26 12.4 Cowpeas 369 5 23.0 to lower their high domestic volatility. Higher food prices provide an opportu- Source: Minot 2011, based on price data from the U.S. Agency for International Development’s Famine Early Warning Systems Network. nity for the private sector to produce and Note: The local prices were analyzed from January 2005 to March 2011. Price volatility is invest more and to improve productivity at de�ned as a standard deviation of logarithms of �rst price differences. 40 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 the same time. Higher food prices hurt poor governments have a toolkit of various policy net buyers, but increase agricultural incomes, instruments to respond to food price spikes, and this in turn should provide incentives and which combination to use depends criti- to expand production of the most pro�table cally on the initial conditions the country crops. Smallholder farmers in developing �nds itself in, including its social and political countries produce more when output prices environment. A major challenge has been to improve (World Bank 2007). Higher staple strike a balance between bene�ting producers, crop prices in developing countries (25–35 and thus improving incentives for increased percent higher in 2009 compared with 2006), production, and protecting consumers within and favorable weather contributed to higher a macroeconomic framework that does not production (5.2 percent), higher stocks (3.8 jeopardize �scal and external sustainability. percent), and more trade (19.9 percent) in 2010 –11 (FAO 2011a). High food prices offer opportunities for many poor countries Drivers of food price changes to develop their agricultural sectors, which Changes in world food prices reflect changes can help link local farmers to regional and in food supply and demand and the corre- global supply chains, increase local consumer sponding responsiveness of the food system. access to competitively priced food products, World food price levels are driven over the and create new export sectors. long term by changes in demand from popu- Agricultural productivity varies sig- lation and income growth, agricultural pro- nificantly across regions, indicating that ductivity outcomes, and secular changes in improved use of existing technologies can the prices of inputs, complements, and sub- lead to signi�cant yield gains. For example, stitutes. Short-term shocks such as droughts, a comparison of current productivity with floods, changes in trade restrictions, volatile what is potentially achievable (demonstrated demand for associated inputs and outputs through on-farm research trials), assuming (such as oil and ethanol), and market expec- that inputs and management are optimized in tations sharpened by low stock levels tend to relation to soil and water conditions, shows drive food price volatility. The corresponding that the yield gap in maize production is impacts on food prices are conditioned by the greatest in Sub-Saharan Africa and lowest in responsiveness of the food system, that is, the East Asia. Yields in Sub-Saharan Africa are elasticities of supply and demand (table 1.4). only 24 percent of what could be produced, The analysis focuses on cereals particularly while the gap is only 11 percent in East Asia because they are the most important staples (FAO 2011a). Better use of existing crop and for food security. The more responsive the nutrient management practices alone could system, the lower the corresponding impact increase rice yields in East Asian countries on food price changes. by at least 25 percent (Christiaensen 2011). About 15 percent of the value of the total Longer-term trends in demand rice crop in South East Asia could be saved and supply through better post-harvest technology (espe- cially drying and milling). A shift from area- Recent growth of supply has outpaced growth based to volume-based charges for irrigation in demand for main food crops (table 1.5). water in the Tarim Basin in China resulted Increases in global demand for food are in a 17 percent decrease in water use, while driven by population and income growth and addressing poor land layout through ade- by an accelerated use of food crops for indus- quate leveling and higher bunds to retain trial purposes, such as biofuels. Global food wet season water has been shown to increase consumption growth over the past 50 years yields in Cambodia by 27 percent. averaged 2.5 percent a year, or 1.4 times the Local conditions will determine the average increase in population of 1.6 per- most effective mix of government policies cent. Supply growth increased from an aver- in the face of food price spikes. In general, age 2.3 percent between 1960 and 2003 to GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 41 TABLE 1.4 Major drivers of world cereal prices Average price levels Price volatility Dependent on: Dependent on: Long-term change in Long-term demand responsiveness/ Short-term change in demand Short-term demand responsiveness/ demand elasticity to prices elasticity to prices • Oil prices volatility • Population • Share of food in consumption • Exchange rate volatility • Stock release policies • Income • Biofuels mandates • Precautionary hoarding • Oil/maize price ratio • Biofuels • Oil/maize price ratio • Food reserves Long-term change in Long-term supply responsiveness/ Short-term change in supply Short-term supply responsiveness/ supply elasticity to prices elasticity to prices • Droughts and floods • Area planted • Output and input market • Share of production in more volatile • Trade openness • Yield changes integration production regions • Price risk management • Trade policy responses (export bans and sharp reductions in import tariffs) Source: World Bank 2012b, forthcoming. TABLE 1.5 Higher consumption growth of corn has offset slowing growth in rice and wheat, while increases in area planted to food offset slowing yield growth Growth rate (%)   Demand Supply Crop  1960–2011 1960–2003 2003–11 1960–2011 1960–2003 2003–11 Total (rice, corn, wheat) 2.5 2.5 2.5 2.4 2.3 2.8 Area 0.5 0.4 1.1 Yield 1.9 1.9 1.7 Rice 2.1 2.3 1.3 2.2 2.3 2.0 Area 0.6 0.5 0.9 Yield 1.7 1.7 1.1 Corn 3.0 2.8 3.7 2.9 2.7 3.8 Feed, residual 2.7 2.9 1.4 Food, seed, industrial, including biofuels 3.4 2.8 7.7 Area 0.9 0.8 1.8 Yield 1.9 1.9 2.0 Wheat 2.1 2.2 1.9 2.1 2.0 2.2 Area 0.2 0.1 0.8 Yield 1.9 1.9 1.4 Population growth 1.6 1.7 1.2 Per capita income growth 1.4 1.4 1.5 Source: U.S. Department of Agriculture; World Development Indicators database. an average of 2.8 percent for 2003–11. More increases in demand will depend on changes rapid growth in food demand than in popula- in these three areas—food, feed, and indus- tion reflects higher demand for grain as ani- trial uses (biofuels). Population growth is now mal feed (rising incomes increases the demand slowing, but demand for biofuels is rising. for meat) and the use of agricultural com- There are signi�cant differences in popu- modities in the production of biofuels. Future lation growth across the globe. Sub-Saharan 42 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 Africa has the highest population growth land and water constraints, rising inputs (2.5 percent growth during the last decade), costs, and lags in development of improved and Europe and Central Asia has the lowest varieties may make yields gains harder to (a mere 0.2 percent growth during the same achieve. World yield growth rates have period). Even though population growth declined somewhat from 1.9 percent for the might ease in Sub-Saharan Africa, current period 1960–2003 to 1.7 percent in 2003–11. levels of population growth point to the need Water constraints limit the future expansion for this region, with its fragmented trade, of irrigated agriculture. Approximately 1.2 weak infrastructure, low yields, and under- billion people live in river basins with abso- developed social safety nets, to address the lute water scarcity, with the Middle East and bottlenecks of food security in an integrated North Africa and Asia facing the greatest but prioritized manner. water shortages and some greater scope for Increases in world food supplies depend the expansion of irrigation in Africa.3 Given on land area planted for food crops and sub- continuing demographic pressures, particu- sequent yields. Average growth in grains sup- larly in Sub-Saharan Africa, it is important to ply over the past 50 years has been similar to increase land productivity, manage land sus- growth in grain consumption (2.4 versus 2.5 tainably, and improve the ef�ciency of water percent a year, see table 1.5). Over this period use. Rising populations mean that increasing 21 percent of the growth in grain production food security to achieve reductions in poverty was from area expansion, while 79 percent (MDG 1) may eventually conflict with ensur- was from yield improvements. However, dur- ing the sustainability of development (MDG ing 2003–11, area expansion contributed 39 7) (box 1.6) and the need for “green growth� percent of supply growth while yield growth (World Bank 2012d, forthcoming). accounted for 61 percent; this shift is largely a reflection of a deceleration of yields and Short-term shocks in demand shifts of land away from the production of and supply other crops to grains. Yield growth rates for rice and wheat have declined consistently Food price uncertainty is rising. The uncer- with slowed development of higher yielding tainty of food prices is driven by changes in varieties and with an increase in production both demand, including closer links to oil on more marginal land. prices, exchange rate changes, and lower Land has become an increasingly limited stock-to-use ratios, and supply, including resource, and the remaining arable land is weather, expansion of export crop produc- almost by definition either less productive tion to areas where yields are less stable, (inherently or requiring significant invest- switching of production to biofuels, and ment to raise yields) or, particularly in Africa, trade interventions affecting global supply. more dif�cult to exploit because it is located Higher oil price volatility is contribut- far from infrastructure. In the �ve years since ing to higher food price volatility. The links 2005–06, land area for 13 major world crops between crude oil and agricultural markets increased by 27 million hectares, a rate that have strengthened considerably since 2005, cannot be sustained inde� nitely at the esti- with the pass-through elasticity from crude mated supply of available land. Moreover, oil prices to agricultural prices increasing most of the expansion in land cultivation from 0.22 in the pre-2005 period to 0.28 since 2005–06 (24 million of the 27 million through 2009 (Baffes 2010). Crude oil prices increase) is located in only six countries or increased sharply from early 2002 to mid- regions: China, Sub-Saharan Africa, former 2008, more than doubling from early 2007. Soviet Union (Kazakhstan, the Russia Fed- Crude oil prices have historically been more eration, and Ukraine), Argentina, India, and volatile than agricultural commodity prices, Brazil. and the greater link between oil and agricul- Future yield improvements may be harder tural markets will likely contribute to short- to achieve than in the past. More binding term food price volatility. GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 43 BOX 1.6 Sustainable increase in food production is required to simultaneously fight global hunger and reduce the pressure on biodiversity The core of sustainable development is the challenge existing agricultural areas. Land conversion will be of ful� lling human needs and aspirations within the avoided as much as possible, settling for accelerated carrying capacity of our planet. This twin challenge biodiversity loss in current agricultural areas while is also reflected within the MDGs, with MDG 1— keeping a larger area of the world in its natural state. eradicating hunger—being part of a social floor, and The Netherlands environmental assessment MDG 7—ensuring environmental sustainability— agency (PBL) projects the required yield increase to addressing an environmental ceiling. address the twin challenge of eradicating global hun- Failing to sufficiently increase production will ger while halting global biodiversity loss, by adopting have a backlash on the affordability of food and a pure sharing or sparing strategy. The two strate- increase the risk of price volatility, thus reducing the gies show different spatial patterns of biodiversity stability of food supply. Agricultural area expansion loss in 2050. For the sparing strategy, strict protec- to facilitate increased food production, together with tion of natural areas is needed alongside a major other environmental pressures such as climate change effort to increase yields by approximately 1.3 percent and nitrogen deposition, results in further declining a year globally. For the sharing strategy, intensive global biodiversity (PBL 2012). Having a long-term management of ecosystem services and landscapes supply of food at reasonable and stable prices while at is required, alongside investment in knowledge and the same time halting global biodiversity loss requires practices on sustainable farming, to increase yields that anthropogenic pressures on the environment be in a sustainable way by approximately 1.1 percent a reduced. Measures include more ef�cient and better year globally. These yield increases are comparable ecologically integrated farming, mitigation of cli- to those achieved in the 1970s and late 1990s but mate change, improved land management, altered have to be maintained for a longer time period and consumption habits—speci�cally a transition to low- in areas that did not have signi�cant yield increases meat diets in western countries—and reduced losses in the past. in the production chain, while increasing agricultural Sustainable increase in food production to �ght productivity (PBL 2010, 2012). global hunger requires many simultaneous interven- Two stylized strategies for increasing agricultural tions, emphasizing the need for policy coherence. Cre- productivity within ecological limits could be fol- ation of enabling conditions, knowledge transfer, and lowed: sharing or sparing. The � rst strategy focuses planning in accordance with physical potential are on mixing natural elements in existing and new agri- key. Areas where land management can be improved cultural areas and making optimal use of ecosys- are tenure rights, regulatory institutions, and inte- tem services in agricultural production. Biodiversity grated planning. Furthermore, acknowledging the impacts of expanded agricultural areas will be miti- value and contributions of ecosystems and their ser- gated and reduced in existing agricultural areas, for vices, especially to the livelihoods of poor people, is example through edge effects and reduced fragmen- important. tation. The second strategy focuses on intensifying agricultural production in highly productive, already Source: PBL 2012. Declines in global stock-to-use ratios may 28 percent between 2009–10 and 2010–11, be contributing to higher volatility. Historical in contrast to a 4 percent increase in stocks in evidence suggests that the likelihood of grain developing countries. According to the Food price spikes is higher when global stock-to- and Agriculture Organization (FAO 2011a), use ratios, a measure of physical liquidity of the stocks of major grain exporters in 2011– grain markets,4 decline to low levels (Wright 12 are projected to decline further, reducing 2009; Stigler and Prakash 2011). Weather- the global stocks-to-use ratio by 2.2 per- related production disruptions reduced cereal cent compared with 2010–11. Added to this stocks in developed countries by an estimated is global uncertainty on the exact size and 44 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 quality of stocks, uncertainty on the triggers export in the Southern Cone of Latin Amer- for their release or buildup, and measure- ica. More recently, world markets have also ment revisions that can have signi�cant mar- become more dependent on supplies from ket impacts. These concerns are particularly the Black Sea region (Kazakhstan, Russia, relevant for those countries that are highly and Ukraine). 5 The share of the Black Sea dependent on food grain imports, as in the region and Latin America in global wheat Middle East and North Africa region. exports doubled from 14 percent in 1990–95 Adverse weather has played a signi�cant to 28 percent in 2006–10. For maize, the role in the recent price spikes. Weather was share more than tripled, from 9 percent to an important factor in reducing production 29 percent, over the same period. Yields in and stocks in 2010. The number of reported these newer export regions are less stable and droughts, floods, and extreme tempera- overall supply and exports more variable, in tures seems to be increasing; in 2010 alone, part because of the willingness to use trade a record number of 19 nations set tempera- restrictions to ensure domestic supply, than in ture records. Recent extreme weather events the traditional breadbasket areas of the devel- include the Russian heat wave, dry weather oped world. Thus global supply of these crops in Brazil, and flooding in Australia, Pakistan, is likely to become more variable over time, and West Africa. Floods are especially dam- contributing to potentially higher volatility in aging, as they often require large reconstruc- world food export volumes and prices. tions of irrigation systems and other infra- Insulating policies reduce the role that structure, and their frequency has increased trade between nations can play in bringing along with the number of droughts. Overall, stability to the world’s food markets.6 Open weather variability, possibly resulting from trade policies are essential to provide posi- climate change, is having a signi�cant impact tive incentives to national producers of food on international food prices. and to attract investment from all sources. A larger share of world exports is being Although exporters and importers have pos- produced in more variable growing condi- sibly been more restrained than in 2008, tions. The major expansion of world grain insulating trade interventions was neverthe- exports in the last twenty years is in large less still widespread and even rose in 2011 part due to rapid increases in production for (versus 2010), continuing to contribute to price instability. The inelastic nature of world food demand FIGURE 1.4 Demand responsiveness to food price declines as per and supply lead to large price increases from capita income increases shocks to the system (that it, the system has limited flexibility to respond, at least in the 0.2 short term). Over time, world food demand 0.1 will become more price inelastic as incomes Own-price elasticity of demand rise, and, if not offset by a more elastic sup- 0.0 ply response, price increases per demand and –0.1 supply shock will be higher in the future than –0.2 in the past. World price elasticities of food demand –0.3 are low and tend to decline with increases in –0.4 per capita income (�gure 1.4). The increased –0.5 demand for biofuels can influence this –0.6 long-term trend in two ways. First, biofuels 2.4 2.9 3.4 3.9 4.4 4.9 mandates act to � x demand for corn-based GDP per capita PPP, constant 2005 international $ (log scale) ethanol (at any price), thereby further reduc- ing overall demand responsiveness to price Source: U.S. Department of Agriculture and World Bank. changes. Second, if long-term oil prices GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 45 rise dramatically, making corn-based etha- Recent policy responses nol profitable beyond the mandates, then the overall demand responsiveness to price Some responses taken by developing-coun- changes could increase (oil prices relative try governments have not been conducive to corn have been higher). The net effect on to longer-term growth. An FAO review of price responsiveness depends on which of policy responses by 81 developing countries these two effects dominates. to the 2006–08 price spike showed that a Long-term supply responsiveness to large majority of countries used distortion- price changes is influenced by output and ary measures that could undermine agricul- input market integration and price volatility tural productivity over the long term (table impacts on production decisions. The world 1.6). Nearly 70 percent of countries used food-supply response is estimated to be low trade policy instruments, such as reductions (with estimated price elasticities of 0.1 per- in import tariffs and export taxes or bans, cent). Price elasticities tend to be higher in to reduce domestic prices. Many combined developed than in developing countries, in trade policy instruments with domestic part because of more developed and inte- measures, such as reductions in food taxes, grated input and output markets. In addi- release of stocks at subsidized prices, and tion, higher price volatility in food markets price administration, to lower food prices for increases risk and likely lowers the produc- all consumers at the expense of producers. tion response to higher prices (as it does Half of the country sample used safety nets for other crops in developing countries; see to mitigate the impact of rising food prices on Subervie 2008). While the longer-term supply the most poor and vulnerable, while allow- response may rise as countries develop (with ing domestic prices to rise to induce a food greater output and input market integration), supply response. Where local prices were this may be offset by lower supply response reduced, governments often provided support induced by higher price volatility (and more to producers in compensation for the lower constrained land). output price, but production support rarely TABLE 1.6 Policy measures adopted in 81 selected countries in response to 2006–08 price spike Regions (number of countries surveyed) Latin America Policy measures Africa (33) Asia (26) (22) Overall (81) Trade policy Reductions of tariffs and customs fees on imports 18 13 12 43 Restricted or banned export 8 13 4 25 Domestic market measures Suspension/reduction of value added or other taxes 14 5 4 23 Released stocks at subsidized prices 13 15 7 35 Administered prices 10 6 5 21 Production support Production support 12 11 12 35 Production safety nets 6 4 5 15 Fertilizers and seeds programs 4 2 3 9 Market interventions 4 9 2 15 Consumer safety nets Cash transfers 6 8 8 23 Food assistance 5 9 5 19 Increase of disposal income 4 8 4 16 Source: Demeke, Pangrazio, and Maetz 2009. 46 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 TABLE 1.7 Fiscal implications of policy responses to 2006–08 price spike, selected countries Russian South Fiscal costs Year Argentina Brazil Chile China India Indonesia Federation Africa Ukraine Vietnam Total �scal costs 2007 49 743 0 436 5,273 644 –32 786 79 48 (US$, millions) 2008 –122 2,394 56 7,813 24,000 2,095 2,309 1,849 246 242 Share of �scal 2007 0.1 0.2 0.0 0.1 3.8 0.8 0.0 0.9 0.2 0.3 revenue (%) 2008 –0.1 0.6 0.1 1.7 19.1 2.1 0.6 2.4 0.6 1.0 Fiscal cost per person 2007 3 5 0 1 12 6 0 27 4 2 (international $, PPP) 2008 –5 16 5 11 55 16 22 67 10 7 Source: Jones and Kwiecinski 2010. Note: PPP = purchasing power parity. has been large enough to fully make up the on a county’s initial macroeconomic con- loss from lower output prices. dition and thus its ability to expand public The �scal costs of policy responses have expenditure programs or provide tax incen- varied, depending on the mix of instruments tives without jeopardizing �scal sustainabil- used. Brazil and Chile, for example, focused ity. Hence, the content of the policy interven- on safety nets to protect vulnerable consum- tions chosen will be roughly the same from ers. The additional �scal cost involved was country to country, but the sequencing and 0.1 percent of total fiscal revenue in Chile priority given to each intervention and its and 0.6 percent in Brazil in 2008 (table 1.7). magnitude will differ. In South Africa, which followed similar poli- A policy mix should contain a combina- cies, the �scal bill of 2.4 percent of revenues tion of short-term measures to alleviate the was larger because of smaller total �scal rev- immediate hardship on the poor and vulner- enues and the larger number of bene�ciaries. able and long-term measures that address India, which provided short-term stimulus to the main bottlenecks to the functioning of food and fuel price spikes, incurred the larg- the domestic food markets and pro�tability est �scal response cost. In most other emerg- of farmers. In the short term, much depends ing economies, the �scal cost of response was on the ability to alleviate immediate poverty about 0.5 percent of total budget revenues. implications of higher food prices through social safety nets and efforts to increase agri- cultural production quickly. Over the long Sustainable policy responses term, policies should focus on limiting the The most appropriate policy mix to address average rise in food prices and food price the implications of higher and more volatile volatility. food prices is determined by the characteris- tics of each individual country. The chosen Measures to reduce the negative policy mix at the country level depends criti- impacts on food security in the cally on how much of a country’s food needs short term to be imported, how much of their income the poor spend on food, and the socioeco- Governments will need to consider the dif- nomic characteristics of the poor affected. It ferent implications for the various socioeco- depends equally on a country’s integration nomic groups when designing an effective with regional and world markets, its level of policy response. While various policy actions productivity compared with what is achiev- can be instigated to prevent future food price able, and its government’s capacity to target spikes, measures to mitigate the immediate the poor and vulnerable through mitigating adverse impacts can and should be taken to interventions. In addition, much is contingent protect the poor and vulnerable. However, GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 47 various socioeconomic groups are affected cash transfers, offering short-term employ- differently, and any policy actions taken ment, and discouraging negative mechanisms should be informed to the extent possible by for coping with the setbacks caused by a food information about the groups most affected. price crisis. Where markets are functioning Even though lower taxes can lower food well, cash may be more effective than food in costs to consumers, they are often not well providing assistance but may leave poor peo- targeted, and consequently large amounts of ple exposed to price risks. When food mar- scare public resources flow to higher-income kets are functioning poorly, or where prices consumers. In addition, the choice of actions are increasing rapidly, food transfers may be in the short term should not undermine a more effective means of assisting the poor longer-term farm incentives to invest and and vulnerable (WFP 2008). Cash or food- produce more; both export bans and ad for-work programs that develop infrastruc- hoc provision of inputs can have deleterious ture should consider implications for future effects on farm incentives. maintenance, and opportunities to develop The urban poor are usually net consum- skills in the types of work selected (such as ers of food and have little opportunity to road paving). Countries that had prepared increase subsistence food production. Hence, permanent social safety programs and insti- assisting the urban poor depends almost tutions during good times were better posi- entirely on social safety net programs. How- tioned to scale up as needed than those that ever, national programs are often oriented to had not (box 1.7). Thus middle-income coun- rural areas, where the share of the poor in tries, where social safety net programs are the population is commonly higher (Baker relatively common, were often better placed 2008). At the same time, the urban poor to support the poor during a food price shock often live in informal settlements and are than low-income countries (although such more transient than the rural population, programs are increasingly being adopted by and therefore expected economies of scale more low-income countries). with urban social safety net programs are not Using an effective social safety net pro- always realized. gram to address a food price crisis depends Female-headed households are more vul- on the programs that already exist and the nerable. Women are in general more vulner- capacity on the ground. Establishing a single able to economic shocks, and various gender- social safety net program may be a priority based vulnerabilities, including extensive time in a low-capacity setting, while in a middle- burdens, limited legal benefits and protec- income country the priority may be ensur- tion, and limited access to �nancial resources ing that different programs coordinate well (World Bank 2011e), make female-headed with each other and target the identi�ed and households even more vulnerable. Policies to intended beneficiaries, particularly female- help female-headed households and women headed households and the urban poor (box in general weather a food price crisis must 1.8 and World Bank 2011b). The various be tailored to the speci�c socioeconomic and food, fuel, and � nancial crises over the past cultural context in which gender relations decade have underlined remaining weak- unfold. For example, food-for-work pro- nesses in the effectiveness of social safety grams could scale up lighter tasks suitable for nets, which differ by countries’ income level. women, and conditional cash transfers could Middle-income countries had trouble with provide higher bene�ts to girls, who are more increasing coverage or benefits as needed, likely to be kept out of schools. while low-income countries often lacked pov- Social safety nets have a vital role to play erty data and systems to inform the choice in coping with food price shocks. Social of a particular social safety net program and safety nets can be used to protect the poor of ways to target and deliver bene�ts. Pro- by providing conditional or unconditional grams that deal with chronic poverty are not 48 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 1.7 Ethiopia’s food security programs Home to 79.1 million people, Ethiopia has achieved Soon after, the donors adopted both � nancial man- steady, two-digit economic growth in the past few agement and procurement frameworks, on top of the years, lifting many out of poverty. However, with a single monitoring system, to ensure that the programs growing population, inadequate infrastructure, low are kept on track. To date, with the help of the donor agricultural productivity and recurring droughts, organizations, the PSNP covers 8.3 million people floods, and land degradation, 15 million people across 318 districts. remain poor and vulnerable to food insecurity. In the past two decades, emergency food aid dominated Achievement and lessons. Since the beginning, the responses to food insecurity in Ethiopia. Yet such PSNP has proved to be instrumental in supporting aid was often unreliable, arrived late at a daunting bene�ciary consumption, protecting household assets, cost, and focused on immediate relief assistance at and building community resources. From 2005 to the cost of improving overall livelihoods. In response 2009, PSNP interventions enabled 75 percent of tar- to the growing consensus on the need for reform, geted households to consume more or better quality the government decided to launch the Food Security food; 62 percent to avoid selling assets; 23 percent Program in 2003, composed in part of a Productive to acquire new assets; 46 percent to use more health Safety Net Program (PSNP) and a Household Asset care; and 39 percent to send more children to school. Building Program (HABP). Overall, the PSNP experience proves that a safety net program in a low-income setting can be implemented The Productive Safety Net Program (PSNP) by multiple organizations and have multiple funding The PSNP aims to improve food security by provid- streams. The PSNP also demonstrated that predict- ing short-term transfers that help prevent asset deple- able cash transfers are key determinants of a cash tion at the household level and by creating assets at transfer program’s impact; that the sustainability of the community level to ensure against unpredictable public works programs depends on local manage- shocks. The program consists of two components: ment; and, above all, that there is political will and direct transfer support and labor-based public works. capacity to move away from one-time humanitarian The direct support program provides predictable and response programs, to more sustainable development- timely cash and food transfers to chronically food- oriented interventions. insecure households and extends the option of par- ticipating in community work (in child-care centers The Household Asset Building Program (HABP) and nutrition education). The public works program The HABP aims to help households graduate from is focused on creating sustainable community assets, the PNSP and to assist recent graduates. Within the mainly aimed at rehabilitating environmentally HABP, a household is considered to have graduated degraded areas and developing watersheds, with the when it becomes food suf�cient; that is, when, in the core objective of increasing productivity and provid- absence of receiving transfers, the household is able ing sustainable livelihoods. to meet its food needs for 12 months and withstand The PSNP was launched by integrating existing modest shocks. Overall, the HABP program seeks government agencies and entrusting them with pro- to diversify income sources and increase productive gram implementation. Importance was placed on assets of food-insecure households that are, or have capacity-building initiatives within the agencies, in been, PSNP bene�ciaries. It focuses on facilitating addition to creating horizontal links to avoid form- the bene�ciary households’ access to on- and off-farm ing parallel structures. At the same time, 10 donor inputs, technology, and � nancial services in order to organizations agreed on a harmonized government- graduate from the program. engagement model, by forming a joint coordination committee to oversee the programs’ implementation. Source: World Bank country teams. GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 49 BOX 1.8 Building foundations for social safety net systems While many of the initial experiences with safety nets successful coordination and pooling of resources are involved ad hoc responses to crisis, it has become not very common, especially in low-income settings. clear that building effective safety nets within a Successful coordination depends on countries broader social protection system is essential. Critical themselves taking the lead in creating joint processes building blocks for an effective system include: for developing strategies and programs, as well as encouraging donors to harmonize their policies. • Identi�cation: Mechanisms to identify eligible ben- Sound public �nancial management systems, periodic eficiaries and promote empowerment should be reviews with performance indicators, independent established. procurement audits, targeting and process evalua- • Targeting and eligibility: Simplified approaches tions, appeal mechanisms, community monitoring, drawing on available information, bearing in mind and perception surveys are all tools that can be used costs, should be used. to strengthen mutual con�dence between government • Enrollment: Either a census-style survey or an on- and donors. demand system may be used effectively. Each can Credible and transparent systems help ensure be appropriate at different stages of program devel- program effectiveness and sustainability. The rapid opment, or they can be used simultaneously. expansion of safety nets has spurred the need to • Timely payments: New technologies can help, but ensure ef�cient and effective use of public funds. It simple, traditional systems can also work. is important to de� ne clear roles for each institution • Monitoring and evaluation: Basic monitoring sys- (including public, private, and donors) in coordina- tems should be established, as a foundation for tion and execution of social protection reform, taking immediate impact evaluation and to establish the into consideration capacity levels and political weight. database required for future evaluation. Critical ingredients for promoting transparency and accountability are: Financial sustainability is a key issue, because pro- grams usually have external �nancing for only a short • Strong controls: Accountability measures are period of time without a guaranteed government bud- required from top down and bottom up. get for the longer term. The high level of fragmenta- • Clear roles: All actors should understand how they tion of sources of �nancing and programs make plan- �t into the system and their responsibilities. Local ning and budgeting more complicated, and hinders community, private organizations, and social funds domestic ownership of social protection programs. can all be used to enhance strong governance. Donors have attempted to address these challenges • Well-communicated rules: Clear operational guide- through new aid modalities that move away from lines should be disseminated to all actors. fragmented project aid toward general budget support and sectorwide approaches. However, examples of Source: World Bank 2011a. necessarily well suited to address the tran- be adapted to a major crisis without costly sient impact of shocks on the poor (Alder- implementation bottlenecks. man and Haque 2006). Existing social safety Actions to increase the agricultural sup- nets provide a basis to scale up implementa- ply response in the upcoming season can tion and coverage in the event of excess need. help reduce interseasonal impacts of price Relatively small-scale programs may provide spikes on food security. Targeted input sup- the administrative infrastructure, including port can enhance the ability of smallholders the rules of operation and eligibility, that can to respond. Provision of inputs works best 50 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 when it mobilizes the private sector (through by almost one-sixth in Malawi and Ghana vouchers, for example) and is complemented (World Bank 2011e). by reductions in logistical overheads, espe- cially in ports and on roads. Anticipating Measures to address the drivers of and enlisting policy support for dealing with higher and more volatile world food potential bottlenecks that restrict delivery of prices in the long term inputs to national borders are essential. In addition, demand estimates for fertilizer and Demand- and supply-side responses can seeds need to be periodically reviewed in an help to reduce future food price escala- environment of rapidly changing inputs prices tion. Responses are needed today at global, to prevent waste from overestimates and con- regional, and local levels to have the antici- strained impacts from underestimates. Meet- pated impact in the long term. While the ing these requirements is key to generating global supply of cereals has outgrown aggre- value for money from public expenditures on gate demand during the past eight years (see inputs. table 1.5), and while a few of the large and Agriculture can contribute to gender technology-intensive exporters, such as the equality by improving access to economic United States, retain signi�cant capacity to opportunities for women, which also would expand production in the near- to mid-term, increase agriculture productivity. Women ensuring sustainable supplies of food at the now represent 40 percent of the global labor local level requires improvements in agricul- force and 43 percent of the world’s agricul- tural productivity and facilitation of trade in tural labor force. Productivity will be raised and among developing and developed coun- if their skills and talents are used more fully tries (table 1.8). Measures include promoting and through projects that are gender sensi- increased yields through research, extension, tive in both design and implementation. The and improved water management; improving FAO estimates that equalizing access to pro- the ef�ciency of land markets and strength- ductive resources between female and male ening property rights; addressing biofuel farmers could increase agricultural output in mandates and improving cost-efficiency of developing countries by as much as 2.5 to 4 biofuels technologies; increasing farmers’ percent. For example, if women farmers were access to ef�cient tools to manage risk; and to have the same access as men to fertilizers increasing the integration of domestic with and other inputs, maize yields would increase world markets. Policies that would limit TABLE 1.8 Main measures to limit the growth and volatility of world cereal prices Measures to reduce price volatility Measures to reduce average price escalation Short-term changes in supply Short-term change in supply Long-term change in supply Long-term supply responsiveness responsiveness to prices to prices • Development of more • Trade openness • Raised crop yields • Better use of price risk weather-tolerant varieties • Improved water management management tools • Improved (rural) investment • Strengthened market climate including through: integration, including – Improving access to �nance infrastructure and private-sector – Facilitating land markets development Short-term changes in demand Short-term demand responsiveness Long-term change in demand Long-term demand responsiveness to prices to prices • Increased transparency of • Efficient food reserve • Shifts to market-based biofuels • Shifts to market-based biofuels agricultural markets management policies and promotion of more policies and promotion of more efficient technologies efficient technologies Source: World Bank 2012b, forthcoming. GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 51 food price volatility include the development alleviating the consequences of high and vola- of weather-tolerant price varieties, increas- tile prices, if they are well targeted to the most ing the size and improving the management vulnerable people. In contrast, using stocks of stocks, opening markets to trade, and as an instrument of domestic price stabiliza- improving market transparency. tion has proven dif�cult because of their high costs—both �nancial costs (implicit interest, Several actions can directly address volatility hidden quality losses, physical storage losses, Public investment to develop more weather- and transaction costs of stock rotation) and tolerant varieties can be increased. Weather- ef�ciency costs through disincentives to (gen- tolerant crop varieties can reduce food pro- erally more ef�cient) private-sector storage duction and price shocks. Many studies have and trade (Dorosh 2009). found that use of drought-resistant maize Open trade across all markets can diver- varieties can increase yield by as much as sify short-term production shocks, thus dissi- 40 percent under drought conditions in Sub- pating the associated price effects. Price insu- Saharan Africa. Similarly, breeding millet lation reduces the ability of world markets to and sorghum for drought resistance has pro- dissipate shocks, and trade barriers imposed duced yield improvements of as much as 50 in 2007–08 acted to amplify the food price percent. Substantial room also remains for spike rather than reduce it. Trade is even research on transgenic methods to improve more important when food stocks are low, the drought resistance of crops in semi-arid because more countries need to enter markets regions. Transgenic drought-resistant maize as net buyers. Improved social protection varieties are found to yield up to 20 percent policies in net-food-exporting countries (par- more than nontransgenic drought-resistant ticularly for large exporters like Argentina, varieties (Kostandini, Mills, and Mykerezi Kazakhstan, Russia, and Ukraine) would 2011). Transgenics is indeed an underutilized reduce pressures for export restrictions when technology for poverty reduction. Because food prices rise. Continued analysis of the of the potential risks involved, however, it likely gainers and losers from trade policy should be implemented only in situations changes would help guide government poli- where international biosafety standards are cies and trade negotiations. in place. Greater market transparency would Public food grain stocks can be used effec- reduce market uncertainty and the associated tively to reduce domestic and world food large price corrections following revisions to price volatility. Sufficient stock levels can market information (production, stocks, and reduce the likelihood of price spikes, and trade). Clearer and more accurate monitor- good management, particularly of purchases ing can help to reduce food price spikes. The and releases, can reduce rather than amplify capacity of international and national provid- volatility. But stocks always cost money, ers of food market information, public as well which can be as high as 15–20 percent annu- as private, to monitor market developments ally of the stocks. Costs are high, while ben- and disseminate timely and accurate informa- e�ts in terms of price stability and economic tion on food prices and food security should growth are realized only when stocks are well be strengthened.7 A good step in this direc- managed (World Bank, 2012c, forthcoming). tion is the establishment of the Agricultural Further technical and consistent guidance to Market Information System (AMIS).8 AMIS national governments on costs and bene�ts, is a major partnership effort of multilateral levels, and use of food stocks is needed. international organizations to leverage their Small emergency public food grain scarce resources and to use the comparative reserves, at the national and regional levels, advantage and expertise of different organi- related to the consumption needs of the most zations to improve global short-term agricul- vulnerable, have an important role to play in tural forecasts and policy analyses of global 52 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 production, trade, stocks, and price devel- has been lagging. An important part of this opments; and to promote early information agenda includes adaptation of high-yielding exchange and discussion on crisis prevention varieties with resistance to biotic (pest and and responses among policy makers through disease) and abiotic (climate change) stresses; a Rapid Response Forum. More efforts are improved soil fertility through crop rotations needed to ensure that better market informa- and judicious use of organic and inorganic tion is shared and used for agricultural policy fertilizer; and better integrated management decisions. Initial commodities to be tracked of pests, diseases, and weeds in conjunction are wheat, rice, maize, and soybeans. with more ef�cient water management (FAO 2011c). Complementary investments will be Measures to reduce average world food price needed to better align extension services with escalation farmers’ needs, supplemented with better use A broad range of actions is needed across of information and communication technolo- both developed and developing countries to gies, increased use of matching grants for reduce pressures on food prices. Developed- technology adoption, and strengthened seeds country policy reforms would likely reduce and fertilizer markets. average world food price increases (with Investments in improved and sustained higher world food prices from tariff and water management can enhance the returns subsidy reforms (World Bank 2007) being to investments in other soil and crop manage- offset by lower prices from biofuel policy ment practices. Greater attention is needed to reforms). Middle- and low-income coun- ensure sustainable water management prac- tries can play a signi�cant role in the supply tices through water use associations; incor- response, enhanced by improved policies and poration of broader river basin management investment in productivity growth. Middle- aspects; and improved use of shared water- income countries including Argentina, Brazil, courses, including support for cooperation Uruguay, Kazakhstan, Russia, and Ukraine between different riparian states on the use have significant potential for productivity of scarce resources. Expanded irrigated areas gains and have accounted for a larger share and improved water use ef�ciency of existing of recent global food exports. With macro- schemes are both needed, as is better water economic stability, lower conflict, and lower control and erosion prevention at both �eld agricultural taxation, agricultural growth and river basin levels. In Africa, a lower share itself and its potential growth in Africa is of cultivated land is irrigated, leaving its food also improving. But more is needed, particu- system more vulnerable to climate risks. With larly through more and better public and pri- climate risks expected to increase, it is impor- vate investments. tant to take advantage of higher food prices Closing the gap between average farm and thus improved pro�tability of irrigated and experimental food crop yields can agriculture, to attain better water manage- greatly contribute to a solution to regional ment in food production through investment and global food security. More and better in irrigation, and thus the higher productivity public and private investments are needed to and reduced variability that irrigated produc- increase adoption of improved technology, tion systems enable. to generate new and improved technologies, Public actions to induce a private-sector- to improve agricultural water management led supply response may need improvement and the ef�ciency of irrigated areas, and to in the investment climate. To orchestrate a increase economies of scale in farm produc- supply response, each country will need to tion and processing though private-public ensure that the private sector can take advan- partnerships. This agenda is particularly tage of the higher prices. Issues that often relevant for countries and regions, such as affect a (rural) investment climate include Sub-Saharan Africa where yield gaps are access to �nance, (land) property rights, vari- large and adaptation of new technologies ous licensing and registration requirements, GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 53 sector specific regulations, and taxes and rural poverty. In such cases, increased access tax administration. Addressing these poten- through targeted programs of �nancial assis- tial bottlenecks will reduce the cost of doing tance to enter land markets can potentially business and increase competition. increase productivity and promote equality. Access to finance can greatly improve Land programs also help agricultural regions farmers’ ability to take advantage of higher to rebuild after conflicts and natural disasters, prices and improvements in the country’s such as in Sri Lanka and Aceh, Indonesia. economic policy environment and economic Signi�cant gains can therefore be generated infrastructure. However, because most rural from land policy and legal reforms; increased households lack access to reliable and afford- security of existing customary or informal able finance for agriculture, the improved land tenure; modernized land administration; economic environment does not automati- land redistribution through socially manage- cally translate into higher private investment. able processes; and prevention and reduction Many small farmers live in remote areas of land confl icts through dispute resolution where retail banking is limited and pro- mechanisms among other means. duction risks are high. The recent � nancial Reducing biofuels mandates and promot- crisis has made the provision of credit even ing more efficient technologies can reduce tighter and the need to explore innovative escalation in food demand for industrial pur- approaches to rural and agricultural �nance poses. The six largest producers account for even more urgent. about 95 percent of world biofuels produc- Facilitating land markets can expand the tion. In 2010–11 an estimated 37 percent of areas sown to food crops and improve yields. all maize used in the United States, the largest Land sales, more ef�cient rental markets, and user of maize for biofuels, went into making strengthened property rights can improve the ethanol (Trostle et al. 2011).9 Policies to pro- productive ef�ciency of existing land areas mote biofuels have included crop production and make better use of remaining areas avail- subsidies, infrastructure for biofuels storage, able for crop production. Secure property blending and production mandates, import rights are also a prerequisite for land consoli- duties, and tax incentives. These policies have dation where it is needed. Attention is needed provided overall support for ethanol worth to ensure responsible agro-investment from $0.28 a liter in the United States and $0.60 a foreign investors and to secure the land rights liter in Switzerland, and for biodiesel, $0.20 of poor farmers. Increased foreign invest- a liter in Canada and $1.00 a liter in Switzer- ments may spur agricultural productivity land (Steenblik 2007).10 While biofuels offer a growth, �scal revenue, employment, and local source of renewable energy and possible large incomes, but may also result in local people new markets for agricultural producers, cur- losing land on which their livelihoods depend rent biofuels programs have a mixed record (Deininger et al. 2011). Capacity strengthen- of financial viability without subsidies.11 ing is needed to ensure that the terms and Because ethanol demand and corresponding conditions of land deals enable local (farm- prices have been raised by government regu- ing) communities to seize opportunities and lation, deregulation is part of the solution mitigate risk. to reducing food price escalation. Removing Strengthening property rights, particu- both nonmarket actions to raise demand for larly for poor farmers can improve the use of biofuels and subsidies for its production can existing cropped areas. Making land rights reduce competition for grains among fuel, more transferable increases investment incen- food, and feed. Open international markets tives and allows access to land through sales, should be encouraged so that production of rental markets, or public transfers. In some biofuels occurs where it is economically, envi- countries, particularly in Latin America and ronmentally, and socially sustainable to do southern Africa, inequality in land owner- so (G-20 2011). At the same time, countries ship often leads to underuse and deep-rooted should focus on generating new technologies 54 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 that need fewer agricultural commodities to communication technologies, and improve produce biofuels. technologies for post-harvest storage to Ensuring a food supply response to higher reduce product losses. In addition, invest- prices, and greater participation of small- ing in agribusiness logistics and distribution holder farmers in this supply, requires better infrastructure through private-public part- use of price risk management tools to reduce nerships can facilitate trade, lower costs, and uncertainty. Earlier analysis showed that reduce post-harvest waste. Strengthening the developing-country crop supply response bargaining power of smallholder farmers— declined signi�cantly when price instability especially women—through their producer doubled, but that use of risk management organizations can help further reduce trans- tools (such as precautionary savings and action costs, improve economies of scale, and access to �nancial services) reduced the nega- hence better link them to markets. tive impact of price volatility on production These measures will help both small and decisions. Improved farmer access to price large farms. However, the sector dominated risk management tools can help ensure sup- by smallholders will require more public ply response to higher prices (help prevent a goods from the government than the sector decline in the price elasticity of supply) (box dominated by larger farms. This is because 1.9). Improving access of smallholder farmer the provision of agricultural services to small and microenterprises to �nancial services for farmers presents significant coordination agriculture and food retail through direct challenges and thus high transaction costs service provision, market facilitation, and an for the private sector. While large farms need improved enabling environment will likely a basic enabling environment to facilitate have a broader impact than would improving access to the most important production and access to more formal price-hedging instru- marketing support services (capital, inputs, ments (such as commodity exchanges or technical and market knowledge, marketing warehouse receipts). Traders have typically contacts) on their own, various public inter- used formal hedging instruments more than ventions are still required to ensure that these farmers, although basis risks (price correla- services are provided to smallholders, includ- tion between domestic markets and the clos- ing through public-private partnerships. This est futures market) are often too high to jus- task is more challenging but has high pay-offs. tify their use. These risks can be lowered, but doing so often requires complementary long- term investment in transport infrastructure. Poverty implications of higher Better market integration ensures that agricultural productivity in world price signals reach more producers developing world and thus induce a supply response, thereby Agricultural prices and price volatility are increasing the responsiveness of the food likely to remain high. Official forecasts system to price increases. By linking farm- suggest that fundamental factors will keep ers more closely to consumers, marketing global prices higher than pre-2007 levels systems can transmit signals to farmers on over the medium term (G-20 2011; World new marketing opportunities and guide their Bank 2011b). Accelerated use of food crops production to meet consumers’ preferences. for industrial purposes (biofuels) continues to Strengthening the links between local sup- offset the effect of slowing population growth pliers and food retailers can help to provide on food demand. And production gains may locally produced goods at more competi- be harder to achieve in the future, with more tive prices. Consequently, public and private limited space for area expansion, declining investments are needed to expand the reach yield growth, and increased weather variabil- and quality of rural roads, improve the col- ity. High price volatility will likely continue lection and dissemination of market infor- because world stocks remain low and the low mation, including through information and responsiveness of the food system ampli�es GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 55 BOX 1.9 Managing supply and price risks for maize in Malawi High international and regional prices have created Malawi for up to seven months—for example, until an export opportunity for Malawi. But these higher January 2008. The government would then have had prices can also translate into higher risks if the coun- the right to repurchase the maize at an agreed price try experiences grain shortages. One strategy to cope of MK 25 a kilogram and to use this maize to resolve with these risks is to strengthen domestic market any localized supply shortages. Such as step would demand and stockholding with a repurchase option have helped limit any rise in retail grain prices dur- (REPO) deal. REPOs involve agreements between ing the lean season. It also would have contributed to government and banks or grain traders for the bank reducing the price volatility seen that season (MK 14 or trader to purchase maize during the harvest season a kilogram in July, but MK 35 in January and Febru- (June/July), hold stocks in the country, and later sell ary). Alternatively, the government could have simply these stocks to the government at a pre-agreed price allowed the grain to be exported. on a stipulated date in the future (such as January/ The REPO deal and similar supply/price manage- February) if the grain is needed. If the grain is not ment contracts �t into a toolbox of complementary needed, the bank or trader would expect to export it risk management strategies designed to reduce price to neighboring countries. variability and strengthen domestic markets. Other The REPO contract offers Malawi several advan- tools include the following. tages that contribute to price and supply stabilization. • Weather insurance can provide funding for imports • The contract has a stipulated grain purchase price in the event of severe production shortfalls associ- that can be used as a reference point for any pur- ated with drought. Index-based weather insurance chases by Malawi’s agricultural marketing agency. can be used to insure individual farmers, guaran- The additional demand for grain created by this teeing them an income in the event of a drought. deal would help support a floor price at harvest • A warehouse receipts initiative can improve the time. availability and quality of warehouse facilities • Malawi could more readily take advantage of for grain trade, reduce grain storage losses, and regional grain demand by encouraging exports— improve the availability of �nance for the market. with the knowledge that the country would main- • A strengthened market information system can tain adequate stocks for its own requirements. improve price transparency and alert traders to This, again, would contribute to the strengthening opportunities for moving grain from surplus to of producer prices. de�cit regions. • The REPO would create a second layer of grain stocks in the country held in complement to the Ongoing Bank work has yielded valuable lessons holdings of the Malawi’s National Food Reserve about constraints to hedging food prices. Lessons Agency. Depending on how the deal was managed, include the following. this could encourage a broader range of traders to hold grain stocks in rural areas. The stipulations of • Many governments are not focused on ex ante the contract would ensure these stocks were main- management of food price shocks and are not tained in good condition. assessing the risk as a contingent liability with �s- • Finally, the grain would be readily available in the cal implications. country if the next cropping season started poorly. If • Governments may not have funds to cover hedging stocks appear adequate in the country, and the next costs, which can range from 7 to 12 percent of the season starts well, this grain can then be exported. price level protected. • Governments are often reluctant to make hedging As an example, in May 2007 a repurchase option decisions, because they are vulnerable to ex post (REPO) deal would have provided financing for a criticism (and associated political risk). purchase of up to 150,000 metric tons of maize in • There is a lack of technical capacity to manage July at a price of MK 18–19 a kilogram. The govern- hedging programs in many countries. ment would have had to pay a premium of MK 3.4 a kilogram for a bank or trader to hold these stocks in Source: Dana, Rohrbach, and Syroka 2007. 56 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 1.10 Linking changes in productivity and climate to poverty: the use of Envisage and GIDD for long-term scenario building The long-term scenarios described in this chapter are tors, including land and natural resources (in the based on the World Bank’s Envisage model with a fossil fuel sectors), and a split between unskilled and dynamic core that is essentially a neoclassical growth skilled workers. model. Aggregate growth is driven by assumptions Finally, the Envisage model has been developed regarding the growth of the labor force, savings and into an integrated assessment model with a fully investment decisions (and therefore capital accumula- closed loop between economics and climate change. tion), and productivity. Economic activity generates greenhouse gas emis- The Envisage model has a considerably devel- sions. The Envisage model accounts for the so-called oped structure (see van der Mensbrugghe 2010 for a Kyoto gases—carbon (C or CO2), methane (CH4), detailed description of the model). First, it is multisec- nitrous oxide (N 2 O), and the fluoridated gases toral, which allows for complex productivity dynam- (F-gases). Greenhouse gas emissions are added to ics including differentiating productivity growth the existing stock of atmospheric gases, which also between agriculture, manufacturing, and services interact with terrestrial and oceanic stocks, leading to and picking up the changing structure of demand changes in atmospheric concentration. The changes (and therefore output) as growth in incomes leads to a in atmospheric concentration convert into changes relative shift into manufactures and services. Second, in radiative forcing that in turn drive changes in it is linked multiregionally, allowing for the influence atmospheric temperature. The Envisage model closes of openness—through trade and �nance—on domes- the loop between the climate and the economy by tic variables such as output and wages. The model is converting the climate signal as summarized by the also global, with global clearing markets for goods global mean temperature into an economic impact. and services and balanced �nancial flows. Third, the The Envisage model has a 2004 base year and Envisage model has a diverse set of productive fac- relies on the Global Trade Analysis Project (GTAP) price spikes. If the declining responsiveness investment and facilitates access to � nance of demand with per capita income growth for agriculture. To illustrate the potential is not offset by higher supply responsiveness, impact of these improved policies, we develop than the amplitude of a price spike during a two scenarios: a baseline scenario consistent shock will likely be higher. Policy responses with of�cial forecasts; and an alternative sce- matter; they can either amplify or dampen nario that involves a doubling of agricultural price spikes and either prevent or increase the productivity growth in developing countries likelihood of price spikes. relative to the base line, to about 2 percent Increases in yields and improved climate annually (as estimated by Martin and Mitra resilience, particularly in low-income coun- 1999). Both scenarios take into account the tries, would reduce the average increase in consequences of growth and productivity food prices, the likelihood of price spikes, enhancements on climate change and vice and the poverty impact of shocks that do versa. The rise in productivity in the alter- happen. Improved agricultural productivity native scenario reduces international cereal is critically dependent on government sup- prices by an average of 4 percentage points port for infrastructure, research that leads below base-case levels. As compared to the to improved climate resilience, and exten- base line, global agricultural output would sion, as well as on the establishment of an increase by another 7 percentage points and incentive framework that encourages private global cereal production by also an additional GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 57 BOX 1.10 Linking changes in productivity and climate to poverty: the use of Envisage and GIDD for long-term scenario building (continued) database to calibrate initial parameters. Productivity microsimulation model, takes into account the macro- is derived by a combination of factors. First, agricul- economic nature of growth and of economic policies tural productivity is aligned with the International and adds a microeconomic—that is, a household and Food Policy Research Institute’s model assump- individual—dimension. The GIDD includes distribu- tions of agricultural productivity, that are based tional data for 121 countries and covers 90 percent of on country- and crop-speci�c crop modeling using the world population. It is used to assess growth and the IMPACT model. At the world level, the average distribution effects of global policies such as multilat- growth in productivity over the next 15 years is pro- eral trade liberalization, changes in agricultural pro- jected to be around 1 percent a year, about half the ductivity, and policies dealing with climate change, long-run recent historical average (see Martin and among others. The GIDD also allows an analysis of Mitra 1999). The regional variation is somewhat nar- the impact on global income distribution of different rower than in the past, with the highest productivity global growth scenarios and distinguishes changes growth in the Middle East and North Africa followed resulting from shifts in average income between coun- by Sub-Saharan Africa. Productivity growth in manu- tries from changes attributable to widening dispari- facturing and services is labor-augmenting only (both ties within countries. unskilled and skilled). The two are linked with pro- The macro-micro modeling framework described ductivity in manufacturing, which is assumed to be here, that is, the combination of Envisage and GIDD, higher than in services. The Envisage model assumes takes into account the consequences of the policy that energy ef�ciency improves autonomously by 1 simulations with Envisage on the global income dis- percent a year in all regions and that international tribution with GIDD, so as to estimate their impact trade costs decline by 1 percent a year. on global poverty. The Global Income Distribution Dynamics (GIDD), a global computable general equilibrium Source: van der Mensbrugghe 2010. 2 percentage points, relative to their respec- FIGURE 1.5 Ratio of cereal production to consumption in 2010 tive 2025 outcomes in the base line (box 1.10 and 2025 provides a description of the model used). Faster productivity growth in develop- Latin America and the ing countries helps many net food import- Caribbean ers.12 For example, in the alternative sce- Sub-Saharan Africa nario, Sub-Saharan Africa would become Middle East and North Africa self-suf�cient in cereals production by 2025, Europe and Central Asia as would Latin America and the Caribbean and Europe and Central Asia (figure 1.5). South Asia The Middle East and North Africa region East Asia and Pacific would decrease its dependence on imports of High-income countries cereals. Only East Asia and the Paci�c and high-income countries would experience a 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 drop in self-suf�ciency in cereals production. Ratio of cereal production to consumption Higher productivity in agriculture in con- 2025: Alternative scenario 2025: Baseline scenario junction with climate change reduces over- 2010: Starting value all poverty further but not in all regions (table 1.9). Given the larger percentage of Source: World Bank Envisage model. 58 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 TABLE 1.9 Poverty forecast, 2015–25 Notes Percent of population living on less than $1.25 a day, 2005 PPP 1. The World Bank Agriculture Price Index 2025 2025 Doubling of includes the food price index, plus cocoa, Baseline, productivity coffee, tea, cotton, jute, rubber, tobacco, and including in developing Region 2015 climate change countries wood. 2. Focus groups and interviews were carried out East Asia and Paci�c 7.7 3.0 3.1 in 17 countries with respondents representing Eastern Europe and Central Asia 0.3 0.2 0.1 groups exposed to economic shocks, such as Latin America and the Caribbean 5.5 5.3 5.4 workers in export-oriented sectors, informal Middle East and North Africa 2.7 2.3 2.1 South Asia 23.9 14.8 11.8 sector workers, and farmers. The research Sub-Saharan Africa 41.2 34.8 33.2 explored to what extent and by what means Total 16.3 12.1 10.8 people were able to remain resilient against Source: Up to 2015: World Bank staff calculations from PovcalNet database; for 2025: Envisage and the recent economic shocks. The data is GIDD. based on 13 countries for which the qualita- tive data permitted the authors to determine the importance of these coping responses. population active in agriculture in Africa and The countries were Bangladesh, Cambo- South Asia, the poverty headcount is reduced dia, Central African Republic, Ghana, in these regions by 1.6 and 3.0 percentage Kazakhstan, Kenya, Mongolia, Philippines, points, respectively, taking possible adverse Serbia, Thailand, Ukraine, Vietnam, and effects of increased agricultural productiv- Zambia. See Heltberg, Hossain, and Reva ity on climate change into account. Poverty forthcoming. increases marginally in East Asia and Paci�c 3. Water use projections to 2050 suggest that the and in Latin America and the Caribbean water supply to some 47 percent of the world’s because fewer people are dependent on agri- population, mostly in developing countries, culture, so increases in productivity do little will be under severe stress, largely because of to reduce poverty, and the adverse implica- developments outside of agriculture (OECD- tions of climate change affect these regions FAO 2011). more than elsewhere. Latin America and 4. Both the FAO and the U.S. Department of the Caribbean is expected to be affected by Agriculture publish stock-to-use estimates. a reduction in tourism revenues, while East They reflect the difference between estimated Asia and the Pacific could face additional production and carry-over stocks on the one water stress (van der Mensbrugghe 2010). hand, and estimated consumption and trade These scenarios are intended to illustrate on the other. The stock-to-use measure thus the central role of increasing productivity in includes (conceptually) all commercial, pub- limiting food price increases. The projected lic, and household stocks, whether or not the productivity growth may not be achieved for stocks in question are actually available for numerous reasons, such as more-stringent- international sale. than-expected limits on the availability of 5. Although Kazakhstan is located in Central productive land, the uncertainty concerning Asia, for grain exports it is often said to the impact of climate change, and the poten- belong to the Black Sea region because it uses tial lack of public investment and incentive the seaport facilities in Russia and Ukraine framework that encourages private invest- for overseas exports. ments. Nevertheless, the scenarios do serve to 6. While export bans imposed by larger export- underline the importance of government poli- ing countries with a readily available surplus cies that support increased productivity, both have a greater impact on global prices than in establishing an appropriate framework to export bans imposed by small producers, all encourage private investment and in provid- export bans can affect markets by leading to ing direct support to the agricultural sector. a perception of larger-than-actual shortages GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 59 and could result in beggar-thy-neighbor Security.� IFPRI Policy Brief 18, International actions. Food Policy Research Institute, Washington, 7. Synergies should be explored with the moni- DC. toring of the social and poverty impacts of Christiaensen, L. 2007. “Special Focus: Agricul- crisis in real time that serves social assistance ture for Development, East Asia and Pacific provision and other support. Update.� World Bank, Washington, DC 8. T he A M I S a nd t he asso ciated R apid (November). Response Forum were launched by the French ———. 2011. “Rising to the Rice Challenge: A Presidency of the G-20 in Rome on September Perspective from East Asia.� World Bank, Pov- 15–16, 2011. The Secretariat is housed at the erty Reduction and Economic Management, FAO in Rome. The participants of AMIS are East Asia and Paci�c, Washington, DC. the G-20 countries, Spain, and seven devel- Dana, J., D. Rohrbach, and J. Syroka. 2007. oping countries, which together account for “Risk Management Tools for Malawi Food more than 90 percent of world food produc- Security.� Internal policy note, World Bank, tion and consumption. Washington, DC. 9. Biofuel production through crops, like sugar Dawe, D. 2008. “How Recent Increases in Inter- cane, that do not directly compete with food national Cereal Prices Been Transmitted to consumption, is likely to have hardly any (or Domestic Economies? The Experience in Seven no) impact on food prices. Large Asian Countries.� UN FAO-ESA Work- 10. The United States abolished tax credits and ing Paper 08-03, Rome. import duties for ethanol in December 2011. de Hoyos, R., and Medvedev, D. 2011. “Poverty 11. The promotion of the use of biofuels by Effects of Higher Food Prices: A Global Per- some governments has been driven in part spective.� Review of Development Economics by the intention to reduce dependence on fuel 15, no. 3: 387–402. imports and generate environmental bene�ts Deininger, K., D. Byerlee, J. Lindsay, A. Nor- by replacing oil-based fuel with biofuels. ton, H. Selod, and M. Stickler. 2011. “Rising 12. The impact on agricultural productivity Global Interest in Farmland: Can It Yield Sus- of climate change has been widely stud- tainable and Equitable Bene�ts?� World Bank, ied and debated, and the results presented Agriculture and Rural Development, Washing- are surrounded by a significant amount of ton, DC. uncertainty. Demeke, M., G. Pangrazio, and M. Maetz. 2009. “Country Responses to the Food Security Crisis: Nature and Preliminary Implications of References the Policies Pursued.� FAO Initiative on Soar- Ahmed, S., and H. G. P. Jansen, eds. 2010. Man- ing Food Prices, Rome. aging Food Price Inflation in South Asia. Dorosh, P. 2009. “Price Stabilization, Interna- Dhaka: University Press Limited. tional Trade and National Cereal Stocks: Alderman, H., and T. Haque. 2006. “Counter- World Price Shocks and Policy Response in cyclical Safety Nets for the Poor and Vulner- South Asia.� Food Security 1: 137–49. able,� Food Policy 31, no. 4: 372–83. FAO (Food and Agriculture Organization). Baffes, J. 2010. “More on the Energy/Nonenergy 2011a. “Food Prospects and Crop Situation.� Price Link.� Applied Economics Letters 17: Rome (October). 1555–58. ———. 2011b. “Guide for Policy and Program- Baker, J. 2008. Impacts of Financial, Food, and matic Actions at Country Level to Address Fuel Crises on the Urban Poor. Washington, High Food Prices.� FAO’s Initiative on Soaring DC: World Bank. Food Prices, Rome. Breisinger, C., O. Ecker, and P. Al-Riffai. 2011. ———. 2011c. “Save and Grow: A Policymakers’ “Economics of the Arab Awakening: From Guide to the Sustainable Intensi�cation of the Revolution to Transformation and Food Smallholder Crop Production.� Rome. 60 POVERTY AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 G-20 (Group of 20). 2011. “Price Volatility in Food PBL (Netherlands Environmental Assessment and Agricultural Markets: Policy Responses.� Agency). 2010. “Rethinking Global Biodiver- Policy Report for G-20 coordinated by the sity Strategies: Exploring Structural Changes FAO and the Organisation for Economic Co- in Production and Consumption to Reduce operation and Development, May 3. Biodiversity Loss.� Bilthoven, the Netherlands. Heltberg, R., N. Hossain, and A. Reva, eds. 2012, ———. 2012, forthcoming. “Making Ends Meet: forthcoming. Living through Crises: How the Pathways to Reconcile Global Food, Energy, Food, Fuel, and Financial Shocks Affect the Climate and Biodiversity Goals. Bilthoven.� Poor. Washington, DC: World Bank. the Netherlands. Hossain, N., and D. Green. 2011. “Living on a Robles, M. 2011. “Price Transmission from Inter- Spike: How Is the 2011 Food Crisis Affecting national Agricultural Commodity Markets to Poor People?� Oxford: Oxfam. Domestic Food Prices: Case Studies in Asia Ivanic, M., and W. Martin. 2008. “Implications and Latin America.� International Food Policy of Higher Global Food Prices for Poverty in Research Institute, Washington, DC. Low-Income Countries.� Agricultural Eco- Steenblik, R. 2007. “Biofuels: At What Cost? nomics 39: 405–16. Government Support for Ethanol and Biodiesel ———. 2012a, forthcoming. “Estimating the in Selected OECD Countries.� The Global Short-Run Poverty Impacts of the 2010 Surge Subsidies Initiative of the International Insti- in Food Prices.� World Development. tute for Sustainable Development, Geneva. ———. 2012b, forthcoming. “Short- and Long- Stigler, M., and A. Prakash. 2011. “The Role Run Impacts of Food Price Changes on Pov- of Low Stocks in Generating Volatility and erty.� Policy Research Working Paper, World Panic.� In Safeguarding Food Security in Vola- Bank, Washington, DC. tile Global Markets, ed. A. Prakash, pp. 319– Jones, D., and A. Kwiecinski. 2010. “Policy 33. Rome: FAO. Responses in Emerging Economies to Interna- Subervie, J. 2008. “The Variable Response of tional Agricultural Commodity Price Surges.� Agricultural Supply to World Price Instability Food, Agriculture and Fisheries Working Paper in Developing Countries.� Journal of Agricul- 34, Organisation for Economic Co-operation tural Economics 59, no. 1: 72–92, 102. and Development, Paris. Trostle, R., D. Marti, S. Rosen, and P. Westcott. Kostandini G., B. Mills, and E. Mykerezi. 2011. 2011. “Why Have Food Commodity Prices “Ex Ante Evaluation of Drought-Tolerant Vari- eties in Eastern and Central Africa.� Journal Risen Again?� USDA Economic Research Ser- of Agricultural Economics 62, no. 1: 172–206. vice WRS-1103, Washington, DC. Martin, W., and D. Mitra. 1999. “Productivity van der Mensbrugghe, D. 2010. “The Environ- Growth and Convergence in Agriculture and mental Impact and Sustainability Applied Gen- Manufacturing.� Policy Research Working eral Equilibrium (ENVISAGE) Model, Version Paper 2171, World Bank, Washington, DC. 7.1.� Technical Reference Document, World Minot, N. 2010. “Transmission of World Food Bank, Washington, DC (December). Price Changes to African Markets and its WFP (World Food Programme). 2008. “Vouchers Effects on Household Welfare.� Paper pre- and Cash Transfers as Food Assistance Instru- pared for the COMESA Policy Seminar “Food ments: Opportunities and Challenges.� Rome. Price Variability: Causes, Consequences and World Bank. 2007. World Development Report Policy Options,� Maputo, January 25–26. 2008: Agriculture for Development. Washing- ———. 2011. “Food Price Volatility and the tom, DC: World Bank. Management of Public Grain Stocks in Eastern ———. 2009. “Implementing Agriculture for and Southern Africa.� Report prepared for the Development.� WBG Agriculture Action Plan World Bank, Washington, DC (November). 2010–2012. Washington, DC. OECD-FAO. 2011. Agricultural Outlook 2011– ———. 2011a. Building Resilient Safety Nets: Pro- 2020. Paris and Rome. ceedings of the Social Protection South-South GLOBAL MONITORING REPORT 2012 POVERTY AND FOOD PRICE DEVELOPMENTS 61 Learning Forum. Washington, DC: World Economic Sector Work, Agriculture and Rural Bank. Development Department, Washington, DC. ———. 2011b. Global Economic Prospects: ———. 2012c, forthcoming. “Using Public Stocks Maintaining Progress and Turmoil. vol. 3. for Food Security.� Economic Sector Work, Washington, DC: World Bank. Agriculture and Rural Development Depart- ———. 2011c. “MNA Facing Challenges and ment, Washington, DC. Opportunities: Regional Economic Update.� ———. 2012d, forthcoming. “Greening Growth: World Bank, Washington, DC. A Path toward Sustainable Development.� ———. 2011d. “Responding to Global Food Price Washington, DC. Volatility and Its Impact on Food Security.� World Bank and International Monetary Fund. Development Committee Paper, World Bank, 2010. “How Resilient Have Developing Coun- Washington, DC (April). tries Been during the Global Crisis?� Develop- ———. 2011e. World Development Report 2012: ment Committee Paper DC 2010–0015, Wash- Gender Equality and Development. Washing- ington, DC. ton, DC: World Bank. Wright, B. 2009. “International Grain Reserves ———. 2012a, forthcoming. “High Food Prices: and Other Instruments to Address Volatility Latin America and the Caribbean Responses in Grain Markets.� Policy Research Working to a New Normal.� World Bank, Washington, Paper 5028, World Bank, Washington, DC. DC. Zurayk, R. 2011. Food, Farming, and Freedom: ———. 2012b, forthcoming. “Responding to Sowing the Arab Spring. Charlottesville, VA: Higher and More Volatile World Food Prices.� Just World Books. 2 Nutrition, the MDGs, and Food Price Developments Summary and main messages The dynamics of intrahousehold distribution combined with biological vulnerability mean Even temporarily high food prices affect the that pregnant women and children in these long-term development of children. Condi- households face higher risks of malnutrition. tions of early life (from conception to two Impacts such as mortality and school drop- years) provide the foundations for adult out are often sharper for girls than boys. human capital. Vicious interactions between To build household and individual resil- malnutrition,1 poor health, and impaired ience and mitigate long-term effects, inter- cognitive development set children on lower ventions can work through multiple path- development paths and lead to irreversible ways, beyond trying to keep prices low. changes. In the short term, interventions should Seemingly small shocks can exert great focus on maintaining household purchas- damage if they are not dealt with early. The ing power and caloric and micronutrient most dramatic effect of the food price crisis is intakes through cash transfers, food and an increase in infant mortality, especially in nutrient transfers, and workfare-with- low-income countries. Other hard-to-reverse nutrition. To maximize impacts on children impacts include growth faltering (stunting and women, interventions should ensure or low height for age) and lower learning that those transfers are put in the hands of abilities. Malnourished young children are women, if possible. In the longer term, inter- also at more risk for chronic diseases such ventions should focus on strengthening the as diabetes, obesity, hypertension, and car- link between smallholder agriculture and diovascular disease in adulthood. Moreover, nutrition, addressing seasonal deprivation, declines in human capital in a crisis tend to and promoting women’s income and girls’ be more pronounced than the corresponding education. increases during economic booms. Speci�c interventions need to target vul- The most vulnerable bear the brunt of the nerable children through behavioral changes adverse impacts of high food prices, through related to breastfeeding, feeding during ill- malnutrition. Poor households tend to spend ness, hygiene, access to micronutrients, a larger share of their income on food and deworming (which increases absorption are especially vulnerable to price increases. of micronutrients), and preventive and 63 64 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 therapeutic feeding. Consequently, activities women (and if they are pregnant, increase for countries to mitigate the potentially nega- their chances of maternal mortality and tive impacts of food prices include improving affect fetal growth and future outcomes), and data quality about nutrition status (height adult men (and affect their productive capac- for age, weight for age, and micronutrient ity). In addition, undernutrition decreases de� ciencies), practices (breastfeeding), and the ef�cacy of treatments for HIV/AIDS and interventions; targeting the period from con- other major diseases. Box 2.1 summarizes ception to two years of life (pregnant women the combined impact of the food price crisis and young children); expanding Scaling Up and malnutrition on the MDGs. Conserva- Nutrition interventions; tailoring interven- tive estimates from Grantham-McGregor tions to country capacity—in the govern- and others (2007) suggest that over 200 mil- ment, civil society, and private sector—and lion children under �ve years of age living in to country nutrition security issues; and developing countries fail to reach their cog- incorporating nutrition-sensitive approaches nitive development potential because of risks in multisectoral programs (social protection, linked to poverty, poor health and undernu- health, agriculture, and income-generation trition and lack of stimulation at home. Save interventions). the Children (2011) estimates that the recent food price hike put 400,000 children’s lives at risk. How high food prices affect the MDGs Higher food prices may make it more dif- How food prices affect nutrition �cult to achieve most Millennium Develop- Food security and nutrition security are dif- ment Goals (MDGs). Food price increases ferent but interlinked concepts. Food secu- affect food consumption, quality of one’s rity, an important input for improved nutri- diet, access to social services, and sometimes tion outcomes, is concerned with physical the quality of care for infants and young chil- and economic access to food of sufficient dren. All these factors may increase under- quality and quantity in a socially and cul- nutrition among children (and decrease their turally acceptable manner. 2 Nutrition secu- learning capacity and survival rates), adult rity is an outcome of good health, a healthy BOX 2.1 Impact of higher food prices and undernutrition on the MDGs • As food prices increase, the purchasing power of • Pregnant women face heightened maternal mortal- the poor decreases, the composition of their diet ity, through increased anemia, during a food price worsens, and their food consumption may decrease. crisis (MDG 5). These changes directly affect all targets of MDG 1 • The adverse effects of a food crisis on the availabil- on poverty, full and productive employment, and ity of health services and on health status bear on hunger. countries’ and individuals’ abilities to combat the • Malnutrition affects early childhood development HIV/AIDS epidemic (MDG 6). and makes children more likely to drop out of • Undernutrition weakens the immune system and school (MDG 2). compounds the effect of diarrhea and waterborne • An increase in food prices affects women and girls’ diseases (MDG 7). consumption disproportionately (MDG 3). • Higher food prices have weakened intergovernmen- • Undernutrition is linked directly to more than one- tal coordination in food markets (MDG 8). third of children’s deaths each year (MDG 4). GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 65 environment, and good caring practices as consumers shift from foods such as meats, well as household food security (World Bank fish, vegetables, and fruits to staple foods, 2006). For example, a mother may have reli- such as cereals and tubers, and their protein able access to the components of a healthy and micronutrient intake may suffer. Young diet, but because of poor health or improper children—in utero and during their early care, lack of knowledge, gender, or personal years—who have high nutrient needs for preferences, she may be unable, or choose iron, vitamin A, and zinc, among others, may not, to use the food in a nutritionally sound be particularly at risk and will bear long- manner, thereby becoming nutritionally term impacts of this “hidden hunger.� In the insecure. Nutrition security is achieved for a second adjustment, households decrease their household when secure access to food is cou- caloric consumption—urban households in pled with a sanitary environment, adequate Pakistan (Friedman, Hong, and Hou 2011) health services, and knowledgeable care to and poor households in Haiti (World Bank ensure a healthy life for all household mem- 2010b), for example—and the number of bers. A household (or country) may be food children with low weight for age increases. In secure, yet have (many) individuals who are Vietnam Gibson and Kim (2011) show that nutritionally insecure. a 10 percent increase in the relative price of Food security is therefore a necessary but rice reduces calories by less than 2 percent, not suf�cient condition for nutrition security. but they estimate that this elasticity would be And although households make key decisions more than 4 percent if they ignore substitu- that influence the nutritional status of their tion into lower-quality rice, as households individual members, government funding in Vietnam protect calorie consumption by and policy decisions determine the environ- downgrading the quality of their food intake. ment in which households operate (IFAD, In urban areas, street foods are central to WFP, and FAO 2011). food consumption patterns among the urban Nutrition security is multidimensional. poor. In Accra and in Latin America, street Solutions to improve nutrition in a given food may account for nearly 40 percent of country environment will require integration the total food budget of the urban poor (Ruel among the sectors most relevant to individu- 2000). The risk from higher food prices is als’ nutritional status, such as trade and infra- an increase in consumption of street foods, structure, agriculture, and the labor market, which are rich in oil and starch. This results as well as the social sectors such as health, in diets of high energy density (caloric con- education, and social protection (Ecker, tent) and little nutritional value, contribut- Breisinger, and Pauw 2011). A shock such as ing to already rising obesity rates among the food price crisis affects both household the urban poor, as in Mexico (CONEVAL and government behavior. 2009) the United States (Centers for Disease Control and Prevention 2011), and in many middle-income countries undergoing the Effects at the household and nutrition transition from high levels of under- individual levels nutrition to overnutrition. Dietary quality and food quantity Women and children may have to increase their may be affected workforce participation As prices rise, households will first try to Increased women’s labor force participa- replace pricier foods with cheaper sources tion may yield positive results on household of calories, moving from some food catego- income and purchasing power, but it is likely ries or shifting to lower-quality foods. When to change childcare arrangements. The effect prices increase further and substitution is not of mother’s increased workforce participation enough, households decrease their caloric on child welfare depends on children’s ages, consumption. In the � rst adjustment, poor other household resources, and the education 66 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 and knowledge of the person responsible for system and makes the child more susceptible childcare and feeding. In noncrisis settings, to subsequent infections. Feeding practices, in urban poor communities of Guatemala such as decreasing liquid intake of children City and Accra, mothers seemed to be able affected by diarrhea, may also have severe to manage their childcare responsibilities and consequences. their income-generating role ef�ciently (Levin The poor bear the brunt of decreases in et al. 1999, Ruel et al. 1999, 2002). But in funding of primary care and community- crisis settings, if women engage in distress based nutrition interventions (Alderman work (work in response to an adverse shock 2011b). Latin America’s economic crisis of to the main earner’s income) such as they the early 1980s cut public health spending, do in rural India (Bhalotra 2010), time con- which had a disproportionate effect on the straints decrease time spent seeking health poorest groups (Musgrove 1987). Ferreira care, and infant girl mortality may increase. and Schady (2009) contrast the experience (Rural households where mothers are uned- of Indonesia and Peru to show the impor- ucated or had a � rst birth as a teenager are tance of maintaining critical services to avoid driving these results.) Interventions that increases in child undernutrition during cri- address women’s childcare and pregnancy ses. In Peru the crisis caused a collapse in needs (such as crèches around temporary public health expenditures of over 60 per- construction sites in India) can help to pro- cent and declines in health service utiliza- tect children’s well-being. tion (including more home births and fewer The effect of high food prices on chil- prenatal checkups). Infant mortality shot up dren’s labor force participation is ambigu- from 50 per 1,000 live births in 1988 to 75 ous. Children may join in productive agri- in 1990. In contrast, in Indonesia increased cultural activities if the household feels it donor aid made up for some of the shortfall cannot afford schooling any more. Children in government spending. Infant mortality who drop out of school find it difficult to still spiked from 30 per 1,000 live births in return to school when the crisis is over, and 1996 to 48 in 1998, but nutrition indicators their schooling attainment suffers. Children’s such as wasting, stunting, and anemia did income may also become a key contribution not worsen. to maintaining the household’s caloric intake. If, though, the price crisis is also a jobs crisis, Intrahousehold reallocation and care practices as in Europe and Central Asia in 2008 or in may mitigate or aggravate the effects of food Peru in 1988–92 (Schady 2002), children may price increases on specific household members not increase their workforce participation. Women often become “shock absorbers of household food insecurity,� as they reduce If households seek less health care or the their own consumption to allow for more supply of health services decreases, individual food for other household members (Quisumb- members’ health may deteriorate and affect ing, Meinzen-Dick, and Bassett 2008). Rural their nutritional status poor women in the United States and Canada When households feel they cannot afford (McIntyre et al. 2003) tend to both lower and health care expenses, the health status of change their dietary intake in favor of their adults and children may suffer. Poor health children (particularly in terms of energy, affects nutrition through changes in metabo- vitamin A, folate, zinc, calcium, and iron) lism, malabsorption of nutrients and appetite when they experience food insecurity. In loss, and changes in feeding practices. Highly some communities in Bangladesh, Indonesia, prevalent diseases such as acute respiratory Jamaica, Kenya, and Zambia (Holmes, Jones, infections and diarrhea reduce the absorption and Marsden 2009), when choices have to be of nutrients such as vitamin A from the small made, children come � rst; in other commu- intestine, establishing a vicious cycle because nities, men are favored. In none of the com- vitamin A de�ciency depresses the immune munities, however, were women, including GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 67 pregnant women, offered the most nutri- • Mothers of newborns discard colostrum, tious foods. In Indonesia mothers buffered the � rst milk, and thus lose the boost to children’s caloric intake during the 1997–98 the infant’s immune system that colostrum crisis, resulting in increased maternal wasting provides. and anemia (Block et al. 2004). • Mothers rarely breastfeed infants under Women’s lack of education and low status six months exclusively, even though breast in the household contribute to child malnu- milk offers the best source of nutrients and trition, as do poor care practices. Poor child protects against many infections. feeding practices are responsible for high lev- • Caregivers start introducing complemen- els of undernutrition and affect girls more tary solid foods too late. They feed chil- than boys in most countries in South Asia. In dren under age two too little food or foods many countries, mothers do not exclusively that are not energy dense. breastfeed their children during the � rst six • Although food is available, intrahousehold months of life (see below), and the foods used food allocation practices may mean that to complement breast milk are often low in women and young children’s energy needs energy and essential micronutrients. The are not met and that their diets are poor in knowledge of a grandmother or an older sib- micronutrients or protein. ling who cares for the child may even be more • Caregivers do not know how to feed chil- limited than the mother’s. Women’s educa- dren during and following diarrhea or tion and status within the household contrib- fever. uted to more than 50 percent of the reduction • Caregivers’ poor hygiene contaminates in child undernutrition between 1970 and food with bacteria or parasites. 1995 (Quisumbing et al. 2000). Good care practices can mitigate the effects of poverty Box 2.2 illustrates some of these effects— and low maternal schooling in child nutrition on quantity and quality of food consump- (Armar Klemesu et al. 2000). tion, individual workforce participation, intrahousehold allocation, access to services, Increasing income is not enough and other coping mechanisms—in northern Among households, undernutrition rates Bangladesh during the 2007–08 food price can be high even among the food secure. crisis. For example, if the lowest two quintiles by wealth in Pakistan had the same character- Effects at the national level istics as the third quintile, poverty would be eliminated, but 38 percent of children Increased state spending on food purchases would still be malnourished. In Ethiopia 40 and subsidies can divert resources from health percent of children in the wealthiest quintile and education (among other sectors), yet these are stunted. This pattern is consistent across are key sectors for nutritional status, because many countries (Haddad et al. 2003) and undernutrition is often linked to preventable points to the need for interventions beyond diseases (such as diarrhea) and lack of nutri- general poverty reduction to address speci�c tion knowledge (for example, information nutritional issues. As noted by the World about optimal feeding practices for infants Bank (2006), several reasons explain this and young children). As food prices rose, pattern: many governments expanded (or set up) food subsidy programs to alleviate economic hard- • Pregnant women eat too few calories and ships. In the Middle East and North Africa, too little protein, and have untreated infec- for example, spending on these programs tions, such as sexually transmitted diseases reached 5–7 percent of gross domestic prod- that lead to low birth weight. uct (GDP). But such programs entail trade- • Mothers have too little time to take care of offs and may threaten other investments.3 In their young children or themselves. addition, price subsidies generally target foods 68 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 2.2 The impact of the 2007–08 food price spike on a rural community in northern Bangladesh Bangladesh has high levels of child undernutrition (36 was twice as high as in the richest households. A percent stunting, 16 percent wasting, and 46 percent 7 percentage point improvement in stunting rates underweight). Prices of key staples increased by as (probably linked to improvements in women’s status much as 50 percent from 2007 to 2008. On top of and better road infrastructure) was lost during the this, the country suffered floods in mid-2007 and a crisis—a loss that will have permanent consequences cyclone in November 2007, which reduced the aman for the children’s mental and physical development. (or second) rice harvest. Export restrictions by India, Families in the community responded to the price one of the country’s main rice providers, also raised hike by sending children to work, taking children out rice prices. of school, selling productive assets, and reducing their An assessment of livelihood and nutrition security food intake. Poor families took loans to replace lost in Kurigram village (194 households) in 2005 and a income, and repayment became a priority over liveli- follow-up assessment in November 2008 (250 house- hoods and diet investments. Three families moved to holds) shows some of the effects of the price hike. The Dhaka, the capital. richest households bene�ted from the price hike (as Even though the richest households benefited, rice producers). One-third to one-half of households agricultural labor wages did not rise enough to com- had lower disposable income after the crisis, mainly pensate poorer households for the price rise (partly because of the rice price hike and, to some minor a result of the aman crop failure). Only one house- extent, crop failure in one of the rice harvests. (Dis- hold bene�ted from the government’s 100-day rural posable income was taken as cash income left, after employment program. No household received subsi- households had met their food energy requirements dized rice, although children in school received food- per adult equivalent, using a cost-of-diet approach.) for-education transfers. Some households bene�ted The poorest quartile was no longer able to afford a from the cereal program, some fertilizer stipends, and diet that provided them with their energy and micro- some stipends for the elderly, widows, and freedom nutrient needs. Children ate fewer meals, had less �ghters. diverse diets, and received few nutrient-rich foods. Stunting among children in the poorest households Source: Save the Children 2009. that are low in micronutrients, distort relative the correlation between income growth and prices, and may create negative incentives for nutrition gains is much weaker (Ecker, Breis- people to diversify their diets once the crisis inger, and Pauw 2011; Headey 2011). Under- is over. For example, in Morocco, the subsidy nutrition countrywide (de�ned as low weight on soft wheat flour is supporting most of the for age) may decline at very roughly half the milling sector (World Bank 2005). Expendi- rate that per capita gross national product tures on physical infrastructure and especially increases (Alderman 2011a)—28 percent in roads are not generally considered as impor- India, 67 percent in China, and 76 percent tant for nutritional status, even though they in Bangladesh in the 1990s. Yet, Deaton are key both to establish a food supply chain (2010) reports that in India per capita calorie that moves food from consumers to producers consumption fell in 1997–2007, despite high through markets and to enable households’ rates of per capita income and consumption access to health, education, and, to a lesser growth. While some of the calorie reduction extent, social assistance services. may be linked to less physical activity (as The connection between economic growth people spend less time in agriculture) or to and poverty reduction is well established, but lower morbidity, the puzzle remains. GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 69 The interaction of crises and biology that period can cause irreversible setbacks in growth and sociocognitive development Short-term shocks, long-term effects (Victora et al. 2008). The accumulation of The most pernicious effect of the crisis is an toxic stress in the �rst years of life—through increase in infant mortality, especially girl decreased care and transitions in and out of infants in low-income countries. A recent poverty—has long-term consequences for an study by Baird, Friedman, and Schady (2011) adult’s wages and productivity. shows a large, negative association between declines in per capita GDP and mortality of Deteriorations of human capital during infants between birth and one year of age. economic downturns and improvements during The study, which analyzes data from 59 booms are asymmetric Demographic and Health Surveys and 1.7 The Global Monitoring Report 2010 million births, also reveals that the mortality reported that human development indica- of children born to rural and less educated tors during downturns tend to worsen more mothers is more sensitive to economic shocks, than they improve during economic booms. which suggests again that the poor bear the For example, life expectancy decreases by 6.5 brunt of crises. In addition, the mortality of years during decelerations but may increase infant girls is signi�cantly more sensitive to by only 2.0 years during growth accelera- income shocks than that of boys. In a com- tions. Similarly, the increase in infant mor- panion study, Friedman and Schady (2009) tality during deceleration is three times the estimate that the 2008 crisis probably led to decrease during accelerations (24 versus 8 an excess 35,000–50,000 infant deaths in per 1,000 live births), and the decrease in Sub-Saharan Africa in 2009 and that nearly primary schooling completion rates during all these excess deaths were among girls. deceleration is six times the increase during Interventions that tackle child mortal- acceleration (25 percent versus 4 percent). ity bene�t country’s growth overall. Apart Undernutrition contributes to more than a from the moral arguments for tackling child third of infant deaths and decreases learning mortality, analysis by Baldacci et al. (2004) abilities and school attainment (see below). and Save the Children (2008) showed that Economic downturn affects girls more a 5 percent improvement in child survival than boys. Life expectancy decreases by seven rates raises economic growth by 0.85 to 1.0 years for girls and six years for boys during percentage point a year over the following bad times (it increases by two years for both decade. during good times). Primary education com- Less dramatic but also severe are the pletion rates fall by 29 percent for girls and potentially negative effects of economic crises 22 percent for boys during bad times and rise on nutritional and environmental pathways by 5 percent for girls and 3 percent for boys that influence early childhood development during good times. Female-to-male enroll- and subsequent life opportunities. These arise ment ratios fall severely during downturns, from interactions between undernutrition, with higher drops in tertiary and secondary health, and learning, which set children on education than in primary education. lower development paths and lead to changes in states that are difficult to reverse—it is Large scale and extreme shocks cause increases easier, for example, to maintain a child in in low birth weight, wasting, and stunting school than to reenroll once she or he has During Argentina’s crisis in 1999–2002, dropped out. The timing of the crisis in the the elasticity of low birth weight to GDP life cycle also matters, with the period from was –0.25 cases per 1,000 births (Cruces, conception to two years of life being one of Gluzmann and Lopez Calva 2010). Stunt- high risk because of physical and cognitive ing increases as a result of extreme shocks, development. Nutritional deprivation during such as the drought in Zimbabwe in 1994–95 70 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 (Hoddinott and Kinsey 2001), crop damage well as socioemotional competence, affect in Ethiopia in 1995–96 (Yamano, Alderman, school preparedness and subsequent school and Christiansen 2003), and the very large performance. This is also a period of intense economic contractions experienced in Peru in physical development: children are expected 1988–92. to grow 50 centimeters in utero, 24 centime- ters in their �rst year of life, and 12 in their Impacts from more moderate crises are second year, after which time the pace of heterogeneous growth slows until the rapid growth spurt of Such impacts include increased underweight adolescence. Figure 2.1 shows how the short- and anemia and decreased access to health fall between children in different regions services. In Cameroon the share of under- remained unchanged after 24 months, when weight children under age three increased compared with a healthy reference group. from 16 percent in 1991 to 23 percent in Risk factors that affect children in low- 1998 as a result of combined economic crises income countries include intrauterine growth and subsequent government adjustment pro- restriction (11 percent of births), stunting grams (Pongou, Salomon, and Ezzati 2006). (around one-third of children under five Declines in economic status and health care years), iron deficiency (one-fourth to one- accessibility were both correlated with an third of children under four years), iodine increase in undernutrition in urban areas. In de�ciency (one-third of the population world- rural areas, reductions in health access were wide), maternal depression (one-sixth of post- correlated with an increase in undernutri- partum mothers), and inadequate cognitive tion, especially among children born to little- stimulation (Friedman and Sturdy 2011). Iron educated mothers or poor households. It is de�ciency is associated with fetal and child unclear, however, whether the lower access growth failure, lower cognitive development stemmed from weakened ability to pay or in children, lower physical activity and pro- from reduced provision of health services. In ductivity in adults, and increased maternal Central Java in 1997–98, drought and �nan- mortality. Vitamin A de�ciency causes blind- cial crisis were associated with a decrease in ness and is a risk factor for increased sever- mean iron hemoglobin concentration of 6.1 ity of infections, which leads to increased percent and increasing anemia, with larger mortality. Zinc de�ciency is associated with effects on children born or conceived dur- stunting and higher incidences of diarrhea ing the crisis (Waters, Saadah, and Pradhan and pneumonia. Iodine deficiency affects 2003). The latter suggests that maternal cognitive development and reduces intel- undernutrition was an additional risk path- ligence (IQ). Lower quantity and quality of way, which is consistent with decreases in nutritional intake, lower household income, consumption of green leafy vegetables, eggs, lower state resources, and lower quality care and cooking oil among households. would cause increases in the prevalence of low birth weight, childhood wasting, and The importance of when: window of risk and then stunting, which in turn have signi�cant opportunity from conception to 24 months4 negative impacts on children’s development. Early life conditions have a disproportionate influence on forming adult human capital, The double burden of malnutrition and chronic understood in terms of height, skills (cogni- disease5: Malnourished children may become tive and noncognitive) and capabilities (such overweight adults as health and social functioning) (Victora Many aspects of fetal growth influence long- et al. 2008; Friedman and Sturdy 2011). A term health, and children who experienced particularly critical period for brain devel- malnutrition in utero and in their early years opment is from the first few weeks in the are more at risk of chronic diseases such as womb to the second year of life. Early cog- type 2 diabetes, abdominal obesity, hyper- nitive and sensory-motor development, as tension, and cardiovascular disease. For GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 71 example, children in utero during the fam- FIGURE 2.1 Mean height for age (Z-scores) by age, relative to WHO ine in the Netherlands of 1944– 45 show standards, by region increased risk of chronic disease and mental illness in middle age and greater loss of atten- 0.5 24 months tion and cognitive ability than the general 0.3 population as they age further (Alderman 0.0 –0.3 2011a). Similarly in India, children who were –0.5 Z-score (WHO) thinner in infancy and experienced rapid –0.8 growth show a higher prevalence of diabe- –1.0 tes (box 2.3), giving that country the highest –1.3 numbers in the world, both of malnourished –1.5 children and of people with diabetes. Many –1.8 countries in Latin America face increases in –2.0 overweight and obesity among adults who –2.3 –2.5 were previously undernourished, as well as 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 high numbers of chronically undernourished Age (months) children (�gure 2.2). During the nutritional Europe and Central Asia Latin America Africa transition from under- to overnutrition, chil- Middle East and North Africa Asia dren who were undernourished face higher risks of overweight and obesity as adults, Source: Victora et al. 2010. Note: Europe and Central Asia countries included are Armenia, Kazakhstan, Kyrgyzstan, while at the same time, lack of nutritional Moldova, Mongolia, Montenegro, and Turkey. Latin America countries included are Bolivia, Brazil, knowledge and poverty with micronutrient Colombia, Dominican Republic, Guatemala, Haiti, Honduras, Nicaragua, and Peru. Middle East and North Africa countries included are Arab Republic of Egypt, Jordan, Morocco, and Republic of poor diets still undermine the development of Yemen. Thirty Sub-Saharan African countries are included. Asia countries included are Bangladesh, children. Cambodia, India, and Nepal. BOX 2.3 Malnutrition and chronic disease in India Some 42 percent of the 160 million children in India index (BMI) under 15—had an accelerated increase under the age of �ve are underweight. Prime Minister of BMI until adulthood. Although none was classi�ed Manmohan Singh described the situation as a mat- as obese by age 12, those with the greatest increase ter of “national shame� and undernutrition as “unac- in BMI by this age had impaired glucose tolerance ceptably high� when he announced those numbers in or diabetes by the age of 32 (Bhargava et al. 2005, January 2012. There are signs of progress—one in cited in Alderman 2011a). Similar results have been every �ve children has reached an acceptable healthy reported using a panel in Pune (Yajnik 2009, cited in weight over the past seven years in 100 focus districts, Alderman 2011a). which were particularly badly off. But the current The transition from a resource-poor environment �gures point to the inadequacies and inef�ciencies of to one that is less constrained may aggravate these government initiatives (such as the Integrated Child risks. India has not only the largest number of under- Development Scheme), the scale of the needs of India’s nourished children in the world, it also has the most child population (the largest in the world), and the people with diabetes (Ramachandran and Snehalatha lack of awareness about nutrition. And those num- 2010). These two statistics may very well have a com- bers may be only the starting point of a much larger mon origin. While the Indian population does not long-term problem. have a high rate of obesity relative to the rest of the A longitudinal study of a cohort of births in South world, there is a tendency to accumulate adipose tis- Delhi followed to age 32 found that those children sue around the waist. This pattern is associated with who were thinner in infancy—with a body mass elevated risk of chronic disease. 72 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 FIGURE 2.2 Percentage of stunted children and becomes particularly efficient at conserv- overweight women in selected Latin American ing resources. However, if that individual is countries subsequently confronted with a resource-rich environment, this maladapted response con- Guatemala tributes to overnutrition and increased risk of chronic disease. It may also threaten the Bolivia welfare of the next generation because hyper- Honduras glycemia or diabetes in mothers increases the Haiti risk of diabetes for their offspring (Delisle 2008). Peru Crises may be transitory events, but their Nicaragua impacts on young children are not—they con- tinue in the medium term unless stemmed by Colombia interventions. Poor children who were under Mexico age three during Ecuador’s 1998–2000 crisis Dominican showed increased stunting and lower vocabu- Republic lary test scores (a measure of cognitive devel- Brazil opment) in 2005 when they were �ve to seven Chile years old (Hidrobo 2011). This � nding sug- 0 10 20 30 40 50 60 70 80 gests that they may have experienced reduced Percent parental time on care, and their households Overweight women may not have managed to protect them from Stunting among children age five and younger the general health environment deterioration caused by El Niño and cuts in public services. Source: World Health Organization global databases on child growth Rural farming households and households and malnutrition and on body mass index. with access to health centers were better able Note: Overweight: body mass index greater than 25; stunting: height for age less than two standard deviations using National Center for Health to protect the height of their children but not Statistics reference. their vocabulary score. Where interventions were in place, nutri- tional status improved. In Senegal, the national In times of high food prices, the double nutrition program adopted community-based burden increases and obesity and undernutri- approaches, targeted the “� rst 1,000 days,� tion may coexist within the same household implemented systematic nutrition screening, and the same person. As mentioned, poor and delivered interventions using a network families switch away from nutritious food of well-supervised nongovernmental organi- and buy “empty calories,� as is happening zations (NGOs) (Alderman et al. 2008). Over in Honduras and Guatemala (Robles and the years, the program added bednet distri- Torero 2010). Combined with the changes in bution, community management of acute metabolism described in the previous para- undernutrition and food forti�cation, and, graph, these empty calories will increase most recently, a cash transfer initiative. Pre- the rates both of stunting and anemia and natal care increased from one-third to two- of overweight and obesity in many middle- thirds, exclusive breastfeeding for the �rst six income countries. In the Arab Republic of months doubled to 58 percent, and correct Egypt, Peru, and Mexico, about half the use of bednets more than doubled to 59 per- women with anemia are overweight or obese. cent. The rate of stunting in 2005 represented One possible explanation for the impact of just 59 percent of that in 1990. Similarly, the fetal growth on disease later in life is linked underweight rate in 2005 was 65 percent of to adapting to stress in the womb. The sig- that in 1990. nal derived from limited nutrients in utero Childhood exposure to adversity (both may lead to an adaptation in which the child extreme events such as drought, civil war, GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 73 BOX 2.4 Consequences of early childhood growth failure over lifetimes in Guatemala Growth failure in early life in rural Guatemala, lary and on nonverbal cognitive ability some 35 years as measured by low height for age (stunting) at 36 later. They also married people with lower schooling months, affects a wide range of adult outcomes: edu- attainment. Women had 1.86 more pregnancies and cation, choice of marriage partners, fertility, health, were more likely to experience stillbirths and miscar- wages and income, and poverty and consumption. riages. No link was found with greater risks of car- The data are based on interviews between 2002 and diovascular or other chronic disease. 2004 of participants in a nutrition supplementation Individuals who were not stunted earned higher trial between 1969 and 1977. wages and were more likely to hold higher-paying Participants who had received nutritional supple- skilled jobs or white-collar jobs. They were 34 per- mentation (a high-protein energy drink with multiple centage points less likely to live in a poor household. micronutrients) and free preventive and curative med- A one standard deviation increase in height for age ical care (including the services of community health lifted men’s hourly wage by 20 percent, increased workers and trained midwives, as well as immuni- women’s likelihood of operating their own business zation and deworming) were less likely to become by 10 percentage points, and raised the per capita stunted. consumption of households where the participants Otherwise, participants who were stunted at 36 lived by nearly 20 percent. months of age left school earlier and had signifi- cantly worse results on tests of reading and vocabu- Source: Hoddinott et al. 2011. and famine, and more moderate events such Stunted children have poorer performance in as low rainfall) has long-lasting adult life school (reduction in test scores equivalent to consequences. Exposure to the Chinese Long two years of schooling lost). With the obser- Walk famine of 1959–62 is associated with vation that every year of schooling is equiv- higher illiteracy, lack of work, and disability alent to an average increase of 9 percent in later in life. Findings are similar for the Greek adult annual income, Grantham-McGregor famine of late 1941 and early 1942, with et al. (2007) estimate a loss in adult income those who were in their �rst year of life when of between 22 and 30 percent for stunted the famine struck the most affected. Expo- children. A long-run longitudinal study in sure to the famine as a child lowered literacy, Guatemala (Hoddinott et al. 2011) provides upper secondary and technical schooling, additional evidence on long-term impacts of and occupational prestige. Even moderate undernutrition, including on body size and adversity, such as low rainfall during the year adult �tness, and wages and types of employ- of birth, has been associated with reduced ment (box 2.4). While the long-term effects child growth and increase child morbidity in of growth failure are severe, interventions India, and decreased adult height and school- such as nutritional supplementation and ing in Indonesia (Maccini and Yang 2009). basic medical care in the early years have The clearest pathway through which these strong potential to improve outcomes over impacts occur is nutrition, especially during the course of bene�ciaries’ lives. the critical period of early childhood, from six months of age and beyond when a child transitions to complementary foods in addi- Building resilience: interventions tion to breast milk. to mitigate the effects of the Height for age at two years is the best food crisis predictor of human capital, and undernutri- Food crises are regular occurrences in devel- tion is associated with lower human capital. oping countries, but interventions to decrease 74 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 malnutrition can mitigate their impacts. The received information about nutrition and the many pathways along which food crises importance of food choices. The pilot led to affect household and individual welfare also signi�cant gains for a variety of cognitive and offer multiple entry points for interventions. noncognitive skills (social and personal mea- We discuss these entry points and the associ- sures and vocabulary). The program shifted ated costs under three headings: consumption household expenditure toward more diversi- and social protection, biology and health, �ed diets, more nutrient-rich foods for young and production and income generation. children, and materials offering greater stim- Intervention packages will of course vary by ulation, such as books and paper. In addi- country development and capacity, as well as tion, children benefited from an expanded by the types of problems faced, but there is menu of nutrition interventions in health a broad consensus on the bene�cial impact services, including micronutrient supplemen- of proven interventions (World Bank 2012 tation, growth monitoring and promotion, forthcoming). and deworming. Similarly in Malawi, Miller, Tsoka, and Reichert (2011) report that the unconditional M’chinji social cash transfer Consumption and social safety nets enabled bene�ciary households to avoid food When food prices increase, and before food- shortages and increase dietary diversity, and output systems can adapt, some safety net that children were more likely to gain height interventions seek to maintain consumption and report better health (Miller et al. 2010). in the short run, especially among more vul- In Indonesia, Skou�as, Tiwari, and Zaman nerable groups. These interventions may also (2011) show that cash transfers helped pro- have longer-term impacts and can contribute tect dietary diversity. to bridging the twin-track approach to food security, promoted by the Food and Agri- Food and nutrient transfers culture Organization of the United Nations Another option to maintain consumption is (FAO): short-term transfers and relief to pro- to transfer food directly to vulnerable house- tect consumption and long-term investments holds. If inflation is high and erodes the value to increase food output. of cash, some potential bene�ciaries may pre- fer food to cash. Such food aid can help main- Cash transfers tain adequate intakes of protein and energy One response to rising food prices is to sup- but is generally not micronutrient rich. That port consumption of the poor through tar- is changing, however, with the inclusion of geted cash transfers. Conditional cash trans- more diverse foods in the rations provided by fers have shown some results on nutritional the World Food Program as well as supple- outcomes (Fiszbein and Schady (2009) pro- mentary multinutrient foods (Gentilini and vide a review). Fernald, Gertler, and Neufeld Omamo 2011). Three options include local (2008) report positive impacts of Progresa/ procurement of food aid, which may help Oportunidades on children’s height in Mex- small producers and maintain food markets; ico, 6 Attanasio et al. (2005) show similar increased nutrient-density of the food with effects of Familias in Acción in Colombia, ready-to-use supplementary or therapeutic and Ferrreira et al. (2011) for cash trans- foods;7 and sprinkles, powders that provide fers in Brazil. Macours, Schady, and Vakis multiple nutrients and are mixed with staple (2008) provide evidence on the nutritional food within the home. and early childhood development impacts of a conditional cash transfer pilot designed School feeding to address crises such as droughts, cyclones, The 2008–09 crisis and the ongoing one have and extreme poverty in Nicaragua. Payments seen enhanced demand for school feeding were conditional on school attendance for programs in low-income countries, despite school-aged children and on preventive care questions on their cost-effectiveness (Alder- visits for preschool children. Parents also man and Bundy 2011). School feeding should GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 75 be considered as a conditional in-kind trans- Self-targeting in workfare is relatively effec- fer to assist low-income households (reduc- tive, because it attracts workers from very ing current poverty) with a complementary poor households where children face a high benefit of promoting the accumulation of risk of undernutrition. The approach in Dji- human capital by jointly influencing health bouti (and Niger) is to add a nutrition pro- and education. It takes two main forms: motion component to the traditional cash- meals at school and take-home rations. In for-work program to leverage the effect of most middle-income countries, school feed- the additional income on the family’s nutri- ing costs per child represent 10–20 percent of tional status.8 In Djibouti (Silva 2010), the per child costs of basic education, but in some workfare component offers community work low-income African countries, these feeding (for all able-bodied adults) in projects cho- costs are as high as the cost of basic education sen and built by the community and services for average students (Bundy et al. 2009). work (for women only) including collecting, Programs may yield nutritional bene�ts for recycling, and transforming plastic bags into younger siblings of bene�ciary children. In pavement blocks. The nutrition component Burkina Faso, for example, the weight for age targets vulnerable nonworking members of of children aged 12–60 months, whose sister participating households. It includes monthly received take-home rations, increased by 0.38 community meetings on nutrition-relevant standard deviation. In Uganda younger sib- topics, biweekly home visits by a community lings of bene�ciaries of school meals showed worker, and distribution of food supplements improvements in height for age of 0.36 stan- during the lean season. dard deviation, but children in families that took home rations saw no improvement. Biology and health School feeding programs can be a vehi- cle for improved micronutrient status if There are known evidence-based, effec- the foods are fortified, but local procure- tive solutions to undernutrition. Inadequate ment issues make fortified foods difficult dietary intake causes weight loss (acute to obtain. Implementation issues may also undernutrition), growth faltering (chronic affect the overall effectiveness of the pro- undernutrition), decreased immunity, and gram, especially in remote areas where trans- increased morbidity and severity of diseases. port and storage costs may be prohibitive The Scaling Up Nutrition (SUN) framework for communities. However, school feeding (World Bank 2010a; box 2.5) identifies a is easy to scale up during a crisis. More evi- package of 13 key interventions in three main dence is needed on the costs of delivery and areas, selected for their ef�cacy and readiness sustainability. for scaling up: Workfare-with-nutrition • Behavior change interventions include. Food or cash-for-work programs may pro- Breastfeeding promotion and support; vide immediate consumption relief in a crisis. complement a r y fe ed i ng promot ion The transfer selection (food or cash) depends through counseling and nutrition educa- on local capacity, market conditions, and cul- tion (but excluding provision of food), and tural acceptability. Some evidence is available hand-washing with soap and promotion from Ethiopia on improved food security and of hygiene behavior. The majority of these child weight for height from a food-for-work services are delivered through community- program, but targeting needs to improve. In based health and nutrition programs. Indonesia, however, transfer of rice, cook- • Micronutrient and deworming interven- ing oil, and legumes had no effect on child tions include vitamin A supplementation; growth or on maternal anemia rates (Wodon therapeutic zinc supplements for manage- and Zaman 2008). ment of diarrhea; multiple micronutri- A promising new design complements ent powders; deworming; iron-folic acid workfare with nutrition interventions. supplements for pregnant women; iron 76 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 2.5 The global SUN movement One platform for increased support to nutrition is organizations together to support national plans to the global Scale Up Nutrition (SUN) movement. In scale up nutrition. It helps ensure that � nancial and 2010 more than 100 organizations including gov- technical resources are accessible, coordinated, pre- ernments, civil society, the private sector, research dictable, and ready to go to scale. Twenty-six coun- institutions, and the United Nations system commit- tries have joined the movement as of early 2010, ted to work together to � ght hunger and undernu- and the World Bank has agreed to be the donor trition, developing a Framework to Scale Up Nutri- convenor or co-convenor in 7 of the 26 countries, tion (launched at the World Bank/International liaising between the national nutrition focal point Monetary Fund Spring Meetings in April 2010) and and the community donor partners in each of the a road map that lays out the operational approach SUN countries for which it has taken on the coordi- for increased action. SUN is a movement that brings nating role. fortification of staple foods; salt iodiza- instance, mid-arm circumference or for visu- tion; and iodine supplements for pregnant ally tracking growth in height are important women if iodized salt is not available. to raise parental awareness of the dangers These services are delivered through child- of excessive thinness, overweight, and short health days, community nutrition pro- stature. grams, the primary health care system and Health interventions can also help improve market systems (forti�cation). nutrition outcomes through speci�c services • Therapeutic feeding interventions include to young children and pregnant and lactat- prevention and treatment of moder- ing women, including preventing and treating ate undernutrition among children 6–23 all causes of anemia, promoting good feeding months of age, and treatment of severe and nutritional care practices, preventing and acute undernutrition with ready-to-use treating illnesses (especially diarrhea, acute therapeutic foods. These services are deliv- respiratory infections, measles, malaria, ered through community nutrition pro- and HIV/AIDS), and improving reproduc- grams and the primary health care system. tive health and family planning (World Bank 2012 forthcoming).9 Provision of these ser- Community growth monitoring and vices requires that basic health funding be promotion programs offer a common plat- protected during crises, which can be a chal- form for delivery of multiple services and lenge for countries. have been successful in various countries (box 2.6). The community basis allows pro- Production and agriculture grams to tackle a wide variety of causes of undernutrition, often with a focus on women There is considerable momentum, including and children under age two. The programs that catalyzed by the global SUN framework, have contributed to changing norms about to better link the food security (mainly agri- nutritional status and children’s growth. culture) and nutrition security agendas so Peru has built a local information campaign that countries can bene�t from potential syn- (RECURSO) to show parents that short ergies. Some SUN interventions have a strong stature is a sign of undernutrition and to gender component because women face bar- increase their “demand for good nutrition� riers to access inputs and productive assets (Walker 2008). New tools for measuring, for in many countries, and increasing women’s GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 77 BOX 2.6 Community-based growth promotion programs Honduras, Jamaica, Madagascar, Nigeria, Senegal, breastfeeding and appropriate and timely complemen- Tanzania, and some states in India use a strategy of tary feeding, encourage health and care practices, and community-based growth promotion, which incorpo- make referrals to health centers. Some programs have rates some of the key Scaling Up Nutrition interven- provided micronutrient supplements for pregnant tions and strengthens knowledge and capacity at the mothers and children, as well as immunization and community level. related services. Such strategies have proven effective in improv- Program experiences highlight the importance of ing mothers’ child-nutrition knowledge, attitudes, three elements: female community workers as ser- and practices; in boosting family demand for health vice delivery agents; regular child growth monitoring care; and in reducing undernutrition. Successful, (weight), paired with counseling and communication large-scale child growth promotion programs in these with the mother by a well-trained agent who bene�ts countries have achieved sharp declines in child mal- from regular supervision in weighing, recording, and nutrition in the � rst �ve years, with a more gradual counseling; and well-designed, culturally appropri- rate of decline in moderate and mild undernutrition ate, and consistent nutrition education to promote after that. The community basis allows practitioners speci�c nutrition practices. The challenges relate to to address multiple causes of malnutrition, with a agent training, support, and motivation; barriers focus on women and on children under age two. faced by bene�ciary mothers in implementing recom- Leading interventions include nutrition education mended behavioral changes; and high costs of food- or counseling. These interventions often accompany supplementation programs for mothers and children. child growth monitoring, offer advice on maternal care services during pregnancy, promote exclusive Source: World Bank 2012 forthcoming. access to human capital is critical to reducing that can be transmitted to humans, and poverty and undernutrition. Changes in agri- work-related accidents. culture affect health and nutrition through • When returns to agriculture rise, house- several levers (Hoddinott 2011; World Bank holds may increase the labor they devote and IFPRI 2008): to agriculture through hiring, decreasing leisure, or increasing child labor. • Increased agricultural production may • Changes in production may result in increase household income, which can be changes in the intrahousehold resource used to purchase goods that affect health allocation. Higher earned incomes for and nutrition or can be saved in the form women, for example, may affect how money is spent, food is allocated, and the of assets, such as improved shelter and types of assets held, which may improve access to sanitation, that improve health. health and nutrition. • Changes in agricultural production may result in improvements in household diets, Evidence on these levers is scarce because especially through diet diversification very few agricultural projects or stud- and potentially through biofortification ies include nutrition in their outcomes, and of crops (such as vitamin A–rich rice and because agricultural interventions may look sweet potatoes). less cost-effective than targeted interven- • Changes in crops or in production pro- tions for nutrition alone. The knowledge gap cesses may make agricultural work more or is large, but some studies point to positive less physically demanding and may change impacts of higher income, changes in diet exposure to pesticides, animal diseases composition, and provision of biofortified 78 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 foods on nutritional status (Masset et al. vitamin A) has a direct effect on the vitamin 2011). A status of young children and women in Mozambique (Low et al. 2007) and contrib- Strengthening the link between agriculture utes to energy consumption, women’s nutri- and nutrition tional knowledge and empowerment, and Some agricultural strategies have strong household income. Work by Harvest Plus potential to strengthen the links between seeks to strengthen biofortification in iron agriculture and nutrition. The most prom- (effects on anemia), zinc (effects on growth), ising ones aim to increase the focus on vul- and vitamin A (night blindness, immune nerable groups (like smallholder farmers— response, and mortality) to address micro- particularly women); diversify production nutrient de�ciencies. Some of the crops that (including homestead food production) to are close to rollout include iron- and zinc-rich increase the availability of legumes, vegeta- pearl millet in India, iron-rich rice in Bangla- bles, and animal-source foods; reduce the desh and India, iron-rich wheat in India and impact of waterborne diseases and diseases Pakistan, iron-rich beans in Rwanda, vitamin transmitted from animals; and combine A–rich cassava in Nigeria and the Demo- nutrition education with agricultural activi- cratic Republic of Congo, and vitamin A–rich ties (Pinstrup-Andersen 2010; World Bank maize in Zambia. The 2008 Copenhagen 2007; World Bank and IFPRI 2008; World Consensus concluded that biofortification Bank 2012 forthcoming). Dietary diversi�ca- was the �fth most cost-effective intervention tion is one of the key results for improving to address hunger and undernutrition outside diets through own production. direct nutritional intervention. Women as producers are critical to house- hold food and nutrition security in many Addressing weather variability and seasonal smallholder economies, especially in Africa. food shortages Agriculture interventions need to address the Addressing seasonal food shortages through potential negative consequences on household changes in agricultural practices, food pres- nutrition from increased labor by women. ervation, and safety nets can have long-term Technology to counteract these effects is effects. As noted, the period between con- often available, but it is rarely accessible to ception and two years of age is critical to women. In Sub-Saharan Africa, women have human development. Because that period less access to fertilizer, labor, and other inputs covers several agricultural seasons, where than men do. But when women secured the seasonal food shortages are typical, children same level of inputs as men, they increased are likely to suffer from some deprivation their yields for maize, beans, and cowpeas by at some point. With climate change, these 22 percent (Quisumbing 1996). seasonal shortages are likely to increase in Increasing production of nutrient-dense both frequency and severity. Low-input food foods will improve access to diverse diets. preservation technologies (such as solar dry- Those households producing horticultural ing) may increase access to diverse diets for crops and raising small animals (poultry, a longer period during the year. Adoption guinea pigs, aquaculture, and the like) will of early or late-season crops, or crops that show the greatest improvement in nutritional consume less water, may also help improve status. This type of production positively diets. Improved water management systems affects the quality of the diet and micronutri- to increase efficient use may improve pro- ent intake. In addition, better preservation of ductivity and also decrease the incidence of nutrient content or post-harvest forti�cation waterborne diseases and reduce women’s can also improve food nutrient content. burden of collecting water (Pinstrup-Ander- A promising range of interventions sen, Herforth, and Jones 2012 forthcoming). involves biofortification. The promotion These interventions may be complemented of the orange-fleshed sweet potato (rich in by the provision of social safety nets in the GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 79 short run. Studies of such interventions in Women’s income and girls’ education northwest Bangladesh (Khandker, Khaleque, Women’s education (43 percent) contributed and Samad 2011) show that they are helpful more than food availability (26 percent) to in mitigating seasonal deprivation during the decreases in child undernutrition between pre-harvest hunger season, especially those 1970 and 1995 (Smith and Haddad 2000). administered by NGOs. Some of the higher undernutrition rates in South Asia may be related to the lower sta- Decreasing post-harvest losses tus of women there. Increased women’s Decreasing post-harvest losses of nutrient- income, through access to better jobs as a dense foods provides gains to agricultural bene�t of the provision of child care in urban income and nutrition. Post-harvest loss is poor communities in Guatemala (Ruel et al. especially a challenge for perishable fruits 2002), through access to alternative income- and vegetables (Pinstrup-Andersen, Her- generation strategies and credit in Ban- forth, and Jones 2012 forthcoming), which gladesh, India, and Senegal (World Bank have high micronutrient content. Access to 2011a), and through targeting cash transfers markets through investment in roads and and workfare to women, yield better nutri- post-harvest facilities (storage and basic pro- tional outcomes for their children through cessing) are key for reducing these losses. increased consumption, more diverse diets, Farmers’ marketing organizations, offering and better quality of care. access to price information for example, are Increasing women’s human capital is one also important. of the most effective ways to reduce poverty and to decrease children’s undernutrition. Targeted subsidies Research in Bangladesh, Ethiopia, Indone- Governments often use agricultural input sia, and South Africa shows that assets that subsidies to promote food output, but these women bring to marriage play a signi�cant subsidies generate much controversy because role in how the household makes its deci- of their �scal costs, generally poor targeting, sions. Higher women’s assets are associated possible undermining of local markets, and with a higher share of household spending lackluster results for rural poverty reduction. going to education—especially girls’—and a Simulations based on the Malawi Agricul- lower rate of illnesses in girls (Quisumbing tural Input Support Program, which provides and Maluccio 2000; Quisumbing and de la fertilizer and maize seeds, show that results Brière 2000). Because mothers’ education is depend crucially on how the subsidies are a critical input in the care and nutrition of �nanced, on the return on public investments infants, investments in girls’ education will that compete for scarce government funds, bene�t their adult incomes and capabilities— and on the size of the productivity gains that and the welfare of their children. smallholders reap from increased applica- tion of seeds and fertilizer (Buf�e and Atolia 2009). The results are much less favorable How much would it cost? when input subsidies crowd out infrastruc- ture investment, which in the long term may The cost of inaction enable rural households to diversify their Undernutrition causes productivity losses to livelihood strategy from staple food pro- individuals and GDP losses to countries. In duction and help them reach food security. India productivity losses to individuals are Simulations based on comparisons between estimated at more than 10 percent of life- subsidy programs and social cash transfers time earnings, and GDP loss to undernutri- in Ghana and Malawi (Taylor and Filipski tion runs as high as 3–4 percent (World Bank 2012 forthcoming) show that the cash trans- 2009). In Tajikistan undernutrition costs an fers obtained better outcomes for children’s estimated $41 million annually. Workforce undernutrition. lost to deaths from undernutrition costs the 80 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 country $12.3 million a year, while pro- TABLE 2.1 The annual per capita cost of various ductivity lost to stunting, iodine de�ciency, nutrition interventions is very low childhood anemia, and low birth weight Interventions Annual per capita cost costs $28.6 million. Breastfeeding promotion $0.30–4.00 Vitamin A supplements $0.20 Nutrition interventions Therapeutic zinc supplements $0.47 (10 days) Deworming (school age) $0.32–0.49 Horton et al. (2010) put the costs of scaling Iron supplement $10–50 up the minimum package of the 13 interven- Folate forti�cation $0.01 tions in the SUN package at $11.8 billion a Iron forti�cation of staples $0.10–0.12 year, of which $1.5 billion is expected to be Salt iodization $0.05 available from wealthier household resources Source: Horton, Alderman, and Rivera 2008. to cover costs for complementary and forti- �ed foods. The total � nancing gap is there- fore $10.3 billion. Such increases in the 2.3). Rates of return for behavioral interven- resources devoted to nutrition interventions tions, such as promotion of breastfeeding, would achieve full coverage of the target range from 5:1 to 67:1, vitamin A supplemen- population in the 36 countries responsible for tation from 4:1 to 43:1; salt iodization, 30:1, 90 percent of the world’s stunting. Adding 32 and deworming from 3:1 to 60:1. The newer smaller high-burden countries would increase evidence on long-term bene�ts of improved costs by 6 percent. The funds would be raised nutrition in utero and in the �rst two years of in two steps.10 life may mean that the returns are larger still. New approaches such as multi-micronutrient • Step 1. $5.5 billion a year would be raised, powders (sprinkles), therapeutic foods, and including $1.5 billion for micronutrients cash transfers through electronic media also and deworming, $2.9 billion for behavioral make it easier to implement some of these change, and $1.0 billion to build capacities interventions. to start scaling up more complex and tar- geted food-based programs. FIGURE 2.3 Benefit-cost ratios of various • Step 2. $6.3 billion a year would be raised interventions to scale up complementary and thera- peutic feeding in resource-poor environ- ments—$3.6 billion on complementary Iodine supplements food to treat and prevent moderate under- nutrition and $2.6 billion on treatment of Salt iodization severe acute undernutrition. Iron fortification of staples The set of interventions and steps will not Folate fortification of course be identical in each country and Iron will reflect the national nutrition issues (sea- supplement sonal variations, rural/urban distribution, Deworming protein-energy shortages, and micronutrient (school age) deficiencies), the trade position (importer/ Micronutrient powders exporter), and their administrative capac- Vitamin A ity—those countries with stronger capacity supplements are likely to move faster to the second step. Breastfeeding No one has conducted a global cost- promotion benefit analysis of nutrition interventions 0 30 60 90 120 (World Bank 2010a), but individual interven- Benefit/cost ratio tions have consistently shown benefit-cost ratios greater than 2:1 (table 2.1 and �gure Source: Horton, Alderman, and Rivera 2008. GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 81 The global costs of scaling up nutrition champions); formation of (broad-based) coali- interventions are lower than the aid commit- tions and alliances (which often include one or ments for rural development and agriculture more development partners) that rally behind and agro-industries ($14 billion in 2010, see a common narrative and are able to influence chapter 5) and social safety nets, but they are decision makers and decision-making pro- a big leap from commitments of of�cial devel- cesses; and political “windows of opportu- opment assistance in basic nutrition interven- nity� that can be seized by the champions and tions of $0.3 billion a year during the period coalitions to push for change (box 2.7). 1995–2007. Not all agricultural, health, and Sometimes one of the factors may give rise social protection interventions are geared to to the emergence of another factor; for exam- reducing malnutrition, but some interven- ple, champions may be able to create politi- tions in these sectors could bring important cal windows of opportunity, or the forma- nutritional gains, at marginally increased tion of a coalition may give rise to champions cost. At the country level, spending on safety who come forward. In countries, where one nets accounted for 1.9 percent of GDP on or more of the three factors was absent, the average before the recent global economic push for change generally failed. Conversely, crisis (Grosh et al. 2008; Marzo and Mori when the three factors became a force for 2012). During the crisis, a total of $600 bil- change, it was common to see the develop- lion was spent on support for safety nets ment of a shared policy narrative for nutri- (Zhang, Thelen, and Rao 2010). As noted, tion, leading to the identi�cation of and focus some of these interventions can provide plat- on selected strategic priorities and the use forms to support better nutrition outcomes of strategic communication using data and (World Bank 2012 forthcoming). results to push for institutional development, more resources, or both. Comprehensive, consolidated scaling up of multisectoral nutrition programs implies the need for institutional and policy reforms Policy responses and their Challenges to ramping up investment in expected impacts on the nutrition include their multisectoral basis, nutrition related MDGs which requires strengthening coordination The impact of higher food prices on the between ministries in social sectors, agri- MDGs varies across countries and socio- culture, rural development, and trade; lack economic groups (see also chapter 1). Is the of up-to-date national data on malnutrition, country a net exporter or a net importer particularly anthropometric data (especially of the food items for which world prices for height),11 micronutrient adequacy data change? What is the importance (in trade, (blood tests), and behavioral practices such production and consumption) of the food as breastfeeding and hand washing; lack of items for which world prices change? Simi- voice of potential direct bene�ciaries (young larly, the impact of policy responses to world children and vulnerable pregnant women); price changes is likely to vary depending and lack of political commitment. on country and policy specifics, including A series of case studies of nutrition policies the source of any additional � nancing that and programs in countries at differing levels is needed to cover increases in government of policy development and program cover- spending. To explore the impact of expendi- age and results have shed light on the process ture and �nancing decisions during crises on of breaking out of the “low priority cycle.�12 the MDGs, we extended the MAMS model, Several factors associated with change were a computable general equilibrium model identi�ed, the three most common ones being developed at the World Bank for the analysis the coming together of key people who engen- of country strategies, to cover undernutrition. der con�dence about the issue and develop the In this exercise, we assume that food prices risk-taking attitude to push for change (the double between now and 2015 (and remain 82 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 2.7 Breaking the low-priority cycle: how nutrition can become a public sector priority for Sub-Saharan African governments In many countries in Africa, the �ght against under- out of the low-priority cycle, and where the change nutrition has remained a low government priority for factors mentioned in the text were prominent. Senegal decades, and only recently have some countries begun now has a Multisectoral Forum for the Fight against taking steps to eliminate it. Malnutrition under the Prime Minister’s Office; a Political economy factors are important in under- national nutritional policy and a National Executive standing why, in many countries, nutrition is not Of�ce that ensures the day-to-day management, coor- recognized as an important priority for human and dination, and monitoring of the policy; periodically economic development. Nutrition in many countries updated, costed strategic plans for nutrition; multiple is trapped in a “low-priority cycle�—a vicious circle programs with multiple stakeholders from all sectors; that starts with low demand for nutrition services, a budget line currently equivalent to $0.20 per capita followed by a weak response by governments that per year (compared to $0.03 per capita per year in commit little or no resources and end up with ineffec- 2002–06) and projected to grow to $0.65 per capita tive implementation and poor results, which in turn per year by 2016; donor contributions that average feed into low demand for nutrition, thus perpetuat- between $0.65–0.70 per capita per year; national ing its low priority.a The accumulation of new scien- program coverage; and, importantly, a reduction in ti�c evidence on the magnitude of undernutrition and chronic undernutrition that is 16 times above the its impact on human and economic development is average reduction in Africa as a whole. gradually influencing international donor con�gura- tions toward a uni�ed call for scaling up nutritionb a. See http://go.worldbank.org/NGZM0XHLM1 for pub- and the necessary repositioning of nutrition as central lished country studies on Benin, Ghana, Madagascar, and Senegal. to development.c b. Scaling Up Nutrition (SUN) is an international move- In Sub-Saharan Africa, Senegal is an example of a ment launched in September 2010; see www.scalingup country that has made signi�cant strides in the �ght nutrition.org and box 2.5. against undernutrition, where nutrition has broken c. World Bank 2006. constant thereafter) and analyze the implica- power is undermined by currency apprecia- tions for two archetype low-income coun- tion) with potential negative impacts on food tries. The two archetypes represent a median and nutrition security. Nevertheless, the need low-income country along several dimen- for broader interventions is more evident for sions; their differences are primarily related the net food importer. to different trade structures, representing Both the type of intervention and the medians for net food exporters and net food �nancing have important implications for the importers in low-income countries (box 2.8). success of nutrition interventions in improv- At the micro level, there may be strong ing MDG indicators. To illustrate some of the reasons for policy interventions in both issues involved, we constructed six scenarios, country types. While the aggregate impact each of which involves a policy response by of rising food prices is positive for the net the net food importer to the rise in the price exporter, speci�c household groups may be of food. We then compared their impact on hurt, especially in the short run. For exam- MDG indicators with the scenario of a rise ple, households that are net food purchasers in food prices with no policy adjustment. may experience a decline in real incomes, Four of the scenarios (sub+tax, sub+aid, particularly if their incomes are not very sub+bor, and sub+spnd) involve the intro- responsive to the rise in growth (for exam- duction of untargeted food subsidies suffi- ple, households that rely on remittances from cient to keep domestic processed food prices abroad, for which the domestic purchasing constant through 2025 (as in the baseline). GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 83 BOX 2.8 The implications of various spending and financing decisions on the MDGs of a low-income country using MAMS a. Higher export prices for net exporter: Relative changes in MDG b. Higher import prices for net importer: Relative changes in MDG indicators compared to baseline of no price increase in 2015 and 2025 indicators compared to baseline of no price increase in 2015 and 2025 MDG 5 MDG 5 (Maternal (Maternal health) health) MDG 4 MDG 4 (Child (Child mortality) mortality) MDG 1.c MDG 1.c (Undernourishment) (Undernourishment) MDG 1.a MDG 1.a (Extreme (Extreme poverty) poverty) –35 –30 –25 –20 –15 –10 –5 0 0 2 4 6 8 10 12 14 16 percent percent 2025 2015 2025 2015 The left panel of the box �gure shows the impact on Not surprisingly, as shown in the right panel, the selected MDG indicators for a low-income country evolution of the same indicators for a less fortunate that is in the fortunate position of being a net exporter archetype country—a net importer facing increased of food items during a period of rising food prices. We prices for its food imports—is the direct opposite. compare two scenarios, one where world food prices The wide variance in the relative sizes of the gains and are constant through 2025, and a scenario in which the losses for the two archetypes reflects the impact of world prices gradually are doubled during the period economic flexibility: both archetypes adjust produc- 2012–15 , after which they stay at this high level until tion and consumption, for the net exporter with the 2025, the last simulation year. The box �gures show aim of raising exports and for the net importer with the changes in selected MDG indicators in 2015 and the aim of reducing imports. 2025 compared with the baseline. The rise in food prices drives increased private demand and govern- ment services in response to higher growth, resulting Source: For more on MAMS, visit www.worldbank.org/ in substantial improvements in the MDG indicators mams. For more on the analysis summarized here, see compared with the baseline. Lofgren (2012 forthcoming). The source of required additional � nancing by per-capita income. Ttn+tax assumes that (around 5 percent of GDP) is domestic taxes this transfer scheme can be handled by the for sub+tax, foreign grant aid for sub+aid, government administration that already is domestic borrowing for sub+bor, and domes- in place, while trn+tax2 initially imposes tic spending cuts for sub+spnd (exempting additional hiring and other costs amounting only transfers to households and spending on to 15–25 percent of the total program cost, agriculture). The last two scenarios (trn+tax declining over time. and trn+tax2) impose the same, higher tax The impacts of these policy responses rates as sub+tax but, instead of subsidizing reveal intriguing patterns. The transfer food, the fiscal space is used for targeted scheme without additional administrative transfers to the bottom halves of the popu- costs (trn+tax) achieves the largest reduc- lation in rural and urban areas as measured tion in extreme poverty (MDG 1.a) of the 84 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 six scenarios, followed by transfers with Finally, the impact on MDG 4 (under- such costs added (trn+tax2) and aid-�nanced �ve mortality) and MDG 5 (maternal mor- food subsidies (sub+aid); in this and other tality) depends on the impact on growth in respects, the aid-financed food subsidies real consumption and investment, including leave the economy relatively untouched private consumption and government health by the import price increase (figure 2.4a). consumption (which translates into govern- Untargeted food subsidies that are � nanced ment health services; �gures 2.4c and 2.4d). domestically are relatively less effective in Aid-�nanced subsidies (sub+aid) achieve the reducing poverty. Financing via spending largest reduction in under-�ve and maternal cuts (sub+spnd) leads to outcomes that are mortality rates, because there is no need to similar to those of tax � nancing (sub+tax); make domestic adjustments and the purchas- in the real world, the details would depend ing power of the private sector is boosted by on the extent to which the spending cuts currency appreciation. At the other extreme, affect wasteful spending and whether the subsidies that are � nanced through govern- tax increases distort allocative ef�ciency or ment spending cuts (sub+spnd) and, to a penalize investments. Untargeted food sub- lesser extent, through domestic borrow- sidies financed through domestic borrow- ing (sub+bor) actually raise under-�ve and ing (sub+bor) do relatively well initially but maternal mortality rates compared with end up as the only intervention that raises the baseline scenario of no policy response. the poverty rate compared with the baseline These results reflect the negative impact of scenario of no policy action. The primary cuts in government spending on both gov- reason is that increased domestic borrow- ernment health services and the importance ing reduces domestic private investment and of protecting private consumption. The sce- growth in capital stocks and GDP. Initially, narios with tax increases (sub+tax, trn+tax this negative impact is relatively minor but and trn+tax2) have less effect because gov- over time it becomes important, not unlike ernment services are protected, the decline in undernutrition impacts on a child. private consumption is smaller, or both. The subsidy schemes are mostly more suc- In sum, this analysis suggests that, if cessful in keeping the rate of undernourish- administrative costs can be contained, coun- ment in check (�gure 2.4b), because processed tries should embark on the dif�cult task of food prices do not increase. Aid financing introducing targeted measures, including (sub+aid) is preferable, followed by spend- transfers. If not, untargeted food subsidies ing (sub+spnd) and tax (sub+tax) � nancing, may be effective in reducing undernourish- respectively. By 2025 the changes in under- ment, especially if they are aid financed, nourishment are minor for the remaining because aid has the advantage of making it scenarios. However, for the two transfer possible to avoid dif�cult domestic resource schemes, this limited reduction in undernour- reallocations. However, this does not address ishment comes in the context of an increase stunting and micronutrient de�ciencies. In in real incomes and decisions to reduce food addition, if the subsidies are financed by consumption and raise consumption of other measures that relatively indiscriminately items in response to relative price changes. For reduce the resources available for domestic the case of borrowing-�nanced subsidies, the � nal demands with high payoffs (including main reason that undernourishment does not private consumption, private investment, and improve is lower real household incomes.13 government demand for human development One important dimension to keep in mind services), then difficult trade-offs emerge is that subsidies in general cover staple foods and the country may be better off maintain- that are high in calories and low in micro- ing the status quo. Another important les- nutrients. Even if underweight improves, son of this analysis is that, to understand stunting and micronutrient de�ciencies may the medium- to long-run impact of higher increase, which has happened in Honduras. international food prices, it is necessary GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 85 FIGURE 2.4 Impact of policy responses to food import price shock for food net importer a. Relative changes in MDG 1.a: Extreme poverty b. Relative changes in MDG 1.c: Undernourishment trn+tax2 trn+tax2 trn+tax trn+tax sub+aid sub+aid sub+spend sub+spend sub+bor sub+bor sub+tax sub+tax –33 –30 –27 –24 –21 –18 –15 –12 –9 –6 –3 0 3 –7 –6 –5 –4 –3 –2 –1 0 1 2025 2015 2025 2015 c. Relative changes in MDG 4: Child mortality d. Relative changes in MDG 5: Maternal health trn+tax2 trn+tax2 trn+tax trn+tax sub+aid sub+aid sub+spend sub+spend sub+bor sub+bor sub+tax sub+tax –2 –1 0 1 2 3 4 5 6 7 –6 –4 –2 0 2 4 6 8 2025 2015 2025 2015 Source: Lofgren 2012 forthcoming. to consider domestic adjustments and the indicators and on the effects of both the role of international trade in food for each price rise and some of the interventions to economy; it would be misleading to assume mitigate them. Appropriate responses can that food prices change for consumers while be put in place only if countries have a good everything else remains the same. understanding of who is affected and how. However, few national surveys collect full Policy Recommendations food consumption data at the household and individual levels with the needed periodicity. Improve the information about Measurement of length or height and weight nutrition status, practices, and is dif�cult, and lack of reliable birth data in interventions some countries makes collecting anthropo- metric data and computing indexes a chal- A basic problem in designing interventions lenge. Measurements of micronutrient status to mitigate the effects of food price hikes is often require blood collection, a logistical the lack of quality data on basic nutrition challenge in many cases, although innovative 86 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 techniques based on biomarkers may make undernutrition in utero and in the � rst two this information more readily available. Dis- years of life underline this point. Most inter- aggregated data on costs and impacts, espe- ventions during the early window of oppor- cially in multisectoral interventions, also tunity have very high rates of return, and the remain scarce. The MDG indicator (indi- trade-offs between equity and ef�ciency are cator 1.b) is child underweight. However, minimal at this stage. recent � ndings con� rm that stunting is the A holistic approach to optimal young most appropriate measure for undernutrition. child growth and development should include A multipurpose, nationally representative nutrition, health, young child stimulation household survey with information on food including play, and positive discipline. High- consumption, nutritional status (including quality care is important in nutritional status some micronutrient information), and mar- and sociocognitive development. Some of the ket exposure would increase countries’ abil- behavioral changes will require adaptation to ity to monitor nutritional status and to design local cultural contexts and a shift of focus of appropriate targeted interventions. the health system from curative to preventive interventions. Investing in nutrition offers high returns Tailor the intervention package to The global costs of scaling up nutrition may country implementation capacity seem high initially, but the costs of inaction and issues are also high, the unit costs (set out in table While acute undernutrition triggers funding 2.1) are low, and estimated returns are very and relief interventions, countries also need high—and probably lower-bound estimates. to tackle chronic undernutrition. Very few Yet funding remains low. One issue is capac- countries experience acute protein-energy ity—these interventions typically require undernutrition except in famines (the Horn of collaboration among ministries and in the Africa), seasonally (the hungry season in Ban- �eld. Basic nutrition capacity is also scarce. gladesh and in Sahel countries), and in spe- However, renewed interest is appearing from ci�c areas of the country (hunger and thirst multilateral donors such as the World Bank; bilateral donors such as Canada, Denmark, zone in Djibouti, northern Kenya, and north- France, Japan, Norway, and the United King- east Brazil). Community-based interventions dom; and NGOs such as Save the Children. (see box 2.6) can address acute severe under- Increased action may also come through the nutrition, and when food shortages are acute SUN framework to scale up nutrition (see and markets do not function well, food trans- box 2.5). fers are an important response in the short term but they do not address the prevention of longer-term chronic undernutrition. Target the period from conception to “Hidden hunger�— or micronutrient two years of life de�ciencies—require a different set of inter- Many interventions have indirect effects on ventions. The main micronutrient de�cien- nutrition, but speci�c interventions for young cies that affect high shares of populations children and their caregivers and for pregnant include iron, vitamin A, zinc, and iodine. and lactating women are crucial, given the The package of measures, recommended in importance of that window as a foundation SUN, include supplementation to vulner- of human capital (see �gure 2.1). The earlier able groups in high prevalence areas (vita- evidence about the intensity of physical and min A and iron for pregnant women and sociocognitive development and the negative children, zinc tablets for children with diar- short-, medium-, and long-term impacts of rhea), and forti�cation including iodized salt GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 87 and forti�ed flour and sugar. Forti�cation long-term consequences of undernutrition of staple foods requires collaboration with and the need to shield children and pregnant the private sector. In the future, bioforti�ed women from its effects. Box 2.9 describes crops may contribute to population-level Haiti’s strategy to restore nutrition security efforts to prevent micronutrient de�ciencies. after the 2010 earthquake and the � rst pro- Deworming is also important in settings grammatic steps the country contemplates where women and children have high worm for each priority. burdens and develop anemia. The ministry of health is commonly the agency responsible Incorporate nutrition-sensitive for the delivery of deworming, infant and approaches in multisectoral young child feeding programs, and micronu- interventions trient supplementation efforts. Community- based programs are frequently the platform In developing a twin-track approach to for behavior change interventions and nutri- nutrition and food security, countries need tion surveillance. to weigh the benefits and costs of short- Importers and exporters of food would term relief and longer-term investments to use slightly different packages to address raise productivity, especially for smallholder increases in food prices. However, all coun- farms, and to work across sectors, especially tries should build a safety net that can be to link nutrition to health, agriculture, and expanded in a crisis. While general food sub- social protection. A variety of approaches can sidies are important political tools to main- make interventions in health, agriculture, and tain food prices at acceptable levels, their social protection—including food aid—more �scal costs and paltry nutritional gains make nutrition sensitive (World Bank 2012 forth- them less appealing than targeted subsidies coming; see also http://www.securenutrition or cash transfers to the poor and vulnerable. platform.org/Pages/Home.aspx). Global mea- Computable general equilibrium analysis sures on food trade shape the environment in suggests that, if administrative costs can be which decisions are made and have impor- contained, countries should embark on the tant consequences for national policy options difficult task of introducing targeted mea- (chapter 4). National markets also matter sures, including transfers. If not, untargeted and need improved functioning (better price aid-financed food subsidies may be effec- information and fewer distortions) and more tive in reducing undernourishment. How- involvement of the private sector. ever, if untargeted subsidies are � nanced by Locally, successful implementation will measures that reduce the resources for other require an alliance of governments with the human development services, then the coun- private sector, NGOs, and communities, try may be better off refraining from engag- especially because an increase in food prices ing in untargeted subsidies. will have disparate impacts depending on Targeting poor households with young markets and production potential. In many children is one way to improve nutrition cases, behavior and social norms may have outcomes among the groups at highest risks to change, with targeted awareness-raising for irreversible negative impacts of under- campaigns. Large-scale community nutrition nutrition. A point of entry on nutrition is a programs have been successful in several low- comprehensive growth monitoring and pro- income countries (see box 2.6). And some- motion program for children, whether at times NGOs can help expand awareness and the community level or through the health coverage. The private sector has a key role in sector. This program would include infor- fortification and sometimes in supplemen- mation campaigns (such as the one used by tation as well as in improving the availabil- RECURSO in Peru) to help mobilize the ity, accessibility, and affordability of highly population and raise awareness about the nutritious foods. 88 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 BOX 2.9 Nutrition security in Haiti after the earthquake of 2010: Priorities and first steps Nutrition security encompasses access to a nutritious diet, a safe environment, adequate health care, and proper child care practices. Priorities First steps Reduce chronic undernutrition through improved exclusive Promote behavior change through community education- and breastfeeding and complementary feeding practices household-level outreach Reduce anemia among pregnant and lactating women and Provide routine micronutrient supplements (iron, iodine, and children by providing iron supplements iron and deworming vitamin A) to pregnant and lactating women and children treatments under two years Reduce vitamin A de�ciency through supplementation Reduce iodine de�ciency through supplementation and salt Reestablish salt iodization iodization Reduce chronic food insecurity through improved agriculture, Invest in agriculture and agribusiness to increase access to investment in agribusinesses, and multisectoral collaboration nutrient-rich foods and promote the production of forti�ed complementary food for children 6–24 months Improve the coverage of basic health and nutrition services by Invest in basic health services to expand access and quality and ensuring proper attention to pregnant and lactating women include a basic nutrition package for the most vulnerable and children under two years Support government capacity and leadership to set, promote and implement nutrition security programs and policies Source: World Bank 2010b. Notes needs and food preferences for an active and healthy life.� 1. The term malnutrition refers to undernutri- 3. Morocco’s Targeting and Social Protection tion (the outcome of insuf�cient food intake Strategy (World Bank 2011b) delineates some and repeated infectious diseases, including of the trade-offs and calls for targeting and being underweight for one’s age, too short for a different set of interventions to tackle the one’s age (stunted), dangerously thin for one’s risks facing the most vulnerable population height (wasted), and de�cient in vitamins and groups. minerals resulting in micronutrient malnutri- 4. This section draws heavily on World Bank tion) and overnutrition (overweight and obe- (2006). sity). Prevalence of undernourishment refers to the proportion of a population whose 5. This section draws on Alderman (2011a). dietary energy consumption is less than a pre- 6. Gertler (2004) also show results on child determined threshold. This threshold is coun- health through increased access to preventive try speci�c and is measured by the number of health services. kilocalories required to conduct sedentary or 7. Supplementary food contains all the recom- light activities. mended daily allowance of micronutrients 2. According to the Food and Agriculture along with energy; typically it is a fortified Organization, food security is a situation cereal and legume blended flour and is used to where “all people, at all times, have physi- address moderate acute malnutrition. Thera- cal, social and economic access to suf�cient, peutic food contains all nutrients for children safe and nutritious food to meet their dietary to reverse growth failure and achieve catch-up GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 89 (it addresses severe acute and chronic mal- South Asia. Venice International University, nutrition). The lipid-rich food is ready-to-eat San Servolo, July 20–21. from its container, requires no water for prep- Alderman, H., ed. 2011b. No Small Matter. The aration, is good for 24 months after manufac- Impact of Poverty, Shocks, and Human Capi- ture and 24 hours after opening. tal Investments in Early Childhood Develop- 8. Evaluations are under way in both countries. ment. Washington, DC: World Bank. 9. Birth spacing, adolescent pregnancies when Alderman, H., and D. Bundy. 2011. “School Feed- the mother is still growing herself, and sexu- ing Programs and Development: Are We Fram- ally transmitted infections all affect fetal ing the Question Correctly?� World Bank growth and infant nutritional status. The Research Observer. longer the interval between birth and the next Alderman, H., B. Ndiaye, S. Linnemayr, A. Ka, conception, the more time the mother has to C. Rokx, K. Dieng, and M. Mulder-Sibanda. recover nutritionally from her previous birth. 2008. “Effectiveness of a Community-Based 10. In both steps, $0.1 billion is included for rig- Intervention to Improve Nutrition in Young orous monitoring and evaluation. Children in Senegal: A Difference in Difference 11. These data are improving with the imple- Analysis.� Public Health Nutrition: 12, no. 5: mentation of the Living Standards Measure- 667–73; doi:10.1017/S1368980008002619. ment Study (LSMS) household surveys, as Armar-Klemesu, M., M. Ruel, D. Maxwell, well Demographic and Health Surveys and C. Levin, and S. Morris. 2000. “Poor Mater- Multiple Indicator Cluster Surveys in some nal Schooling Is the Main Constraint to Good Childcare Practices in Accra.� Journal of countries, but sustained funding for regu- Nutrition 130, no. 6: 1597–607. lar national-level household surveys is still a Attanasio, O., E. Battistin, E. Fitzsimons, and challenge. In addition, apart from the LSMS, M. Vera-Hernandez. 2005. “How Effective while the surveys include anthropometric Are Conditional Cash Transfers? Evidence data, they contain very little information from Colombia.� IFS Briefing Notes BN54, on consumption. All these surveys also lack Institute for Fiscal Studies, London. details on household status with respect to Baird, S., J. Friedman, and N. Schady. 2011. food markets (net buyer or seller of the prod- “Aggregate Income Shocks and Infant Mortal- ucts affected by price hikes). ity in the Developing World.� Review of Eco- 12. This is based on a comparative study of nutri- nomics and Statistics 93, no. 3: 847–56. tion policies and programs in Benin, Burkina Baldacci, E., B. Clements, Q. Cui, and S. Gupta. Faso, Ethiopia, The Gambia, Ghana, Mada- 2004. “Social Spending, Human Capital and gascar, Senegal, and Tanzania (led by Marcela Growth in Developing Countries: Implications Natalicchio and Menno Mulder-Sibanda). for Achieving the MDGs.� Working paper 13. In reality, the impact on undernourishment 04/217, International Monetary Fund, Wash- would be more positive than indicated for the ington, DC. two transfer schemes because the inequality Bhalotra, S. 2010. “Fatal Fluctuations? Cyclical- of calorie consumption declines; however, in ity in Infant Mortality in India.� Journal of the absence of any data on the distribution of Development Economics 93, no. 1: 7–19. calories per capita other than national Gini Block, S.A., L . Kiess, P. Webb, S. Kosen, coef�cients, the analysis could not account for R. Moench-Pfanner, M. Bloem, and C. P. this and assumed instead that this national Timmer. 2004. “Macro Shocks and Micro Gini coef�cient did not change. Outcomes: Child Nutrition during Indonesia’s Crisis.� Economics and Human Biology 2, no. 4: 21–44. References Buf�e, E. F., and M. Atolia. 2009. “Agricultural Alderman, H. 2011a. “The Response of Child Input Subsidies in Malawi. Good, Bad or Hard Nutrition to Changes in Incomes: Linking to Tell?� FAO Commodity and Trade Policy Biology with Economics.� Paper prepared Research Working Paper 28, Food and Agri- for the CESifo workshop on Malnutrition in culture Organization, Rome. 90 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 Bundy, D., C. Burbano, M. Grosh, A. Gelli, Fiszbein, A., and N. Schady. 2009. Conditional M. Jukes, and L. Drake. 2009. Rethinking Cash Transfers: Reducing Present and Future School Feeding. Social Safety Nets, Child Poverty. Washington, DC: World Bank. Development and the Education Sector. Friedman, J., S. Y. Hong, and X. Hou. 2011. Washington, DC: World Bank. “The Impact of the Food Price Crisis on Con- Centers for Disease Control and Prevention. 2011. sumption and Caloric Availability in Pakistan: Children’s Food Environment State Indica- Evidence from Repeated Cross-Sectional and tor Report. U.S. Department of Health and Panel Data.� HNP Discussion Paper, World Human Services, Washington, DC. Bank, Washington, DC. CONEVAL. 2009. Informe de evolución histórica Friedman, J. and N. Schady. 2009. “How Many de la situación nutritional de la población y More Infants Are Likely to Die in Africa as a los programas de alimentación, nutrición, y Result of the Global Financial Crisis?� Policy abasto en México. Research Working Paper 5023, World Bank, Cruces, G., P. Gluzmann, and L. F. Lopez Calva. Washington, DC. 2010. “Permanent Effects of Economic Crisis Friedman, J., and J. Sturdy. 2011. “The Influence on Household Welfare: Evidence and Projec- of Economic Crisis on Early Childhood Devel- tions from Argentina’s Downturn.� Paper opment: A Review of Pathways and Measured prepared for UNDP-RB-LAC project “The Impact.� In No Small Matter: The Impact of Effects of the Economic Crisis on the Well- Poverty, Shocks and Human Capital Invest- Being of Households in Latin America and the ments in Early Childhood Development, ed. Caribbean.� H. Alderman. Washington, DC, World Bank. Deaton, A. 2010. “Understanding the Mecha- Gentilini, U., and S. W. Omamo. 2011. “Social nisms of Economic Development.� Working Protection 2.0: Exploring Issues, Evidence and Paper 15891. National Bureau of Economic Debate in a Globalizing World.� Food Policy Research, Cambridge, MA. 36 (2011): 329–40. Delisle, H. F. 2008. “Poverty: The Double Burden Gertler, P. 2004. “Do Conditional Cash Trans- of Malnutrition in Mothers and the Intergen- fers Improve Child Health? Evidence from erational Impact.� Annals of the New York PROGRESA’s Controlled Randomized Experi- Academy of Science 1136: 172–84. ment.� American Economic Review 94, no. 2: Ecker, O., C. Beisinger, and K. Pauw. 2011. 331–36. “Growth Is Good, but Is Not Enough to Gibson, J., and B. Kim. 2011. “Quality, Quantity, Improve Nutrition.� Paper prepared for the and Nutritional Impacts of Rice Price Changes IFPRI 2020 Conference on Leveraging Agri- in Vietnam.� Paper presented at the World culture for Improving Nutrition and Health, Bank Poverty and Applied Micro Seminar, Delhi, February. September 7. Fernald, L. C. H., P. J. Gertler, and L. M. Grantham-McGregor S., Y. B. Cheung, S. Cueto, Neufeld. 2008. “Role of Cash in Conditional P. Glewwe, L. Richter and B. Strupp. 2007. Cash Transfer Programmes for Child Health, “Development Potential in the First Five Years Growth, and Development: An Analysis of for Children in Developing Countries.� Lancet Mexico’s Oportunidades.� Lancet 374, no. 369, no. 9555: 60–70. 9706: 1997–2005. Grosh, M., C. del Ninno, E . Tesliuc, and Ferreira, F. H. G., A. Fruttero, P. Leite, and A. Ouerghi. 2008. For Protection and Pro- L. Lucchetti. 2011. “Rising Food Prices and motion: The Design and Implementation of Household Welfare. Evidence from Brazil in Effective Safety Nets. Washington, DC: World 2008.� Policy Research Working Paper 5652, Bank. World Bank, Washington, DC. Haddad, L., H. Alderman, S. Appleton, L. Song, Ferreira, F. H .G., and N. Schady. 2009. “Aggre- and Y. Yohannes. 2003. “Reducing Child gate Economic Shocks, Child Schooling and Malnutrition: How Far Does Income Growth Child Health.� World Bank Research Observer Takes Us?� World Bank Economic Review 17, 24, no. 2: 147–81. no. 1: 107–31. GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 91 Headey, D. 2011. “Turning Economic Growth Alleviate Seasonal Deprivation? Evidence into Nutrition-Sensitive Growth.� Paper pre- from Northwest Bangladesh.� Policy Research pared for the IFPRI 2020 Conference on Working Paper 5865, World Bank, Washing- Leveraging Agriculture for Improving Nutri- ton, DC. tion and Health, Delhi, February. Levin, C., M. Ruel, S. Morris, D. Maxwell, Hidrobo, M. 2011. “The Effects of Ecuador’s M. Armar-Klemesu, and C. Ahiadeke. 1999. 1998–2000 Economic Crisis on Child Health “Working Women in an Urban Setting: Trad- and Cognitive Development.� Department of ers, Vendors, and Food Security in Accra.� Agricultural and Resource Economics, Uni- World Development 27, no. 11: 1977–91. versity of California at Berkeley. http://ecnr. Lofgren, Hans. 2012 forthcoming. “World Food berkeley.edu /vfs/ PPs/ H idrobo-Mel /web/ Prices and Human Development: Policy Simu- Hidrobo_JMP_1.16.11.pdf. lations for Archetype Low-Income Countries.� Hoddinott, J. 2011. “Agriculture, Health and Background paper for Global Monitoring Nutrition: Towards Conceptualizing the Link- Report 2012, World Bank, Washington, DC. ages.� Paper prepared for the IFPRI 2020 Con- Low, J. W., M. Arimond, N. Osman, B. Cun- ference on Leveraging Agriculture for Improv- guara, F. Zano, and D. Tschirley. 2007. “A ing Nutrition and Health, Delhi (February). Food-Based Approach Introducing Orange- Hoddinott, J. and B. Kinsey. 2001. “Child Fleshed Sweet Potatoes Increased Vitamin A Growth in the Time of Drought.� Oxford Bul- Intake and Serum Retinol Concentrations in letin of Economics and Statistics 63, no. 4: Young Children in Rural Mozambique.� Jour- 409–36 (Also in Alderman 2011b). nal of Nutrition 137, no. 5: 1320–27. Hoddinott, J., J. Maluccio, J. R. Behrman, Maccini, S., and D. Yang. 2009. “Under the R. Martorell, P. Melgar, A. R. Quisumbing, Weather: Health, Schooling, and Economic M. Ramirez-Zea, A. D. Stein, and K.M. Yount. Consequences of Early-Life Rainfall.� Ameri- 2011. “The Consequences of Early Childhood can Economic Review 99, no. 3: 1006–26. Growth Failure over the Life Course.� Discus- Macours, K., N. Schady, and R. Vakis. 2008. sion Paper 01073, International Food Policy “Cash Transfers, Behavorial Changes, and Research Institute, Washington, DC. Cognitive Development in Early Childhood: Holmes, R., N. Jones, and H. Marsden. 2009. Evidence from a Randomized Experiment.� “Gender Vulnerabilities, Food Price Shocks Policy Research Working Paper 4759, World and Social Protection Responses.� Background Bank, Washington, DC. Note, Overseas Development Institute, Lon- Marzo, F., and H. Mori. 2012. “Crisis Response don (October). in Social Protection.� Draft background paper Horton, S., H. Alderman, and J. Rivera. 2008. for the Social Protection and Labor Strategy, “Hunger and Malnutrition.� Copenhagen World Bank, Washington, DC. Consensus 2008 Challenge Paper. Copenhagen Masset, E., L. Haddad, A. Cornelius, and J. Isaza Consensus Center. Castro. 2011. “A Systematic Review of Agri- Horton, S., M. Shekar, C. McDonald, A. Mahal, cultural Interventions That Aim to Improve and J.K. Brooks. 2010. “Scaling Up Nutrition the Nutritional Status of Children.� University What Will It Cost?� World Bank, Washing- of London, Social Science Research Unit. ton, DC. McIntrye, L., N. Glanville, K. Raine, J. Dayle, IFAD (International Fund for Agricultural Devel- B. Anderson, and N. Battaglia. 2003. “Do opment), WFP (World Food Programme), and Low-Income Mothers Compromise Their FAO (Food and Agriculture Organization). Nutrition to Feed Their Children.� Cana- 2011. “The State of Food Insecurity in the dian Medical Association Journal 168, no. 6: World: How Does International Food Price 686–91. Volatility Affect Domestic Economies and Miller, C. M., M. Tsoka, and K. Reichert. 2011. Food Security?� Rome. “The Impact of the Social Cash Transfer Khandker, S. R., M. A. Khaleque, and H. Scheme on Food Security in Malawi.� Food A. Samad. 2011. “Can Social Safety Nets Policy 36, no. 2: 230–38. 92 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS GLOBAL MONITORING REPORT 2012 Miller, C. M., M. Tsoka, K. Reichert, and Ramachandran, A. and C. Snehalatha. 2010. A. Hussaini. 2010. “Interrupting the Intergen- “R i si ng B u rden of Ob e sit y i n A sia.� erational Cycle of Poverty with the Malawi Journal of Obesity. Article ID 868573; Social Cash Transfer.� Vulnerable Children doi:10.1155/2010/868573. and Youth Studies 5, no. 2: 108–21. Robles, M., and M. Torero. 2010. “Understand- Musgrove, P. 1987. “The Economic Crisis and Its ing the Impact of High Food Prices in Latin Impact on Health and Health Care in Latin America.� Economia 10, no. 2: 117–64. America and the Caribbean.� International Ruel, M. T. 2000. “Urbanization in Latin Amer- Journal of Health Care Services 17, no. 3: ica: Constraints and Opportunities for Child 411–41. Feeding and Care.� Food and Nutrition Bul- Pinstrup-Andersen, P., ed. 2010. The African letin 21 (1): 12–24. Food System and Its Interaction with Human Ruel, M. T., B. de la Brière, K. Hallman, Health and Nutrition. Ithaca, NY: Cornell A. Quisumbing, and N. Coj. 2002. “Does Sub- University Press. sidized Childcare Help Poor Working Women Pinstrup-Andersen, P., A. Herforth and A. Jones. in Urban Areas? Evaluation of a Government- 2012 forthcoming. “Prioritizing Nutrition Sponsored Program in Guatemala City.� in Agriculture and Rural Development Proj- World Bank, Washington, DC. ects: Guiding Principles for Operational Ruel, M. T., C. E. Levin, M. Armar-Klemesu, D. G. Maxwell and S. S. Morris. 1999. “Good Investments.� Care Practices Mitigate the Negative Effects of Pongou, R., J. A. Salomon, and M. Ezzati. 2006. Poverty and Low Maternal Schooling on Chil- “Health Impacts of Macroeconomic Crises and dren’s Nutritional Status: Evidence from Accra.� Policies: Determinants of Variation in Child- World Development 27 (11): 1993–2009. hood Malnutrition Trends in Cameroon.� Save the Children. 2008. Saving Children’s Lives. International Journal of Epidemiology 35, Why Equity Matters. London. no. 3: 648–56. ———. 2009. “How the Global Food Crisis is Quisumbing, A. 1996. “Male-Female Differences Hurting Children. The Impact of the Food in Agricultural Productivity.� World Develop- Price Hike on a Rural Community in Northern ment 24: 1579–95. Bangladesh.� London. Quisumbing, A., L. R. Brown, H. S. Feldstein, ———. 2011. “Costing Lives. The Devastating L. Haddad, and C. Peña. 2000. “Women: The Impact of Rising and Volatile Food Prices.� Key to Food Security.� International Food Brie�ng. Policy Research Institute, Washington, DC. Schady, N. 2002. “The (Positive) Effect of Macro- Quisumbing, A., and B. de la Brière. 2000. economic Crises on the Schooling and Employ- “Women’s Assets and Intrahousehold Alloca- ment Decisions of Children in a Middle- tion in Bangladesh: Testing Measures of Bar- Income Country.� Policy Research Working gaining Power.� FCND Discussion Paper 86, Paper 2762, World Bank, Washington, DC. International Food Policy Research Institute, Silva, J. 2010. “Djibouti Crisis Response Employ- Washington, DC. ment and Human Capital Social Safety Net.� Quisumbing, A., and J. Maluccio. 2000. “Intra- Proposal to the Japan Social Development household Allocation and Gender Relations: Fund. Middle East and North Africa Human New Empirical Evidence from Four Develop- Development Department, World Bank, Wash- ing Countries.� FCND Discussion Paper 84, ington, DC. International Food Policy Research Institute, Skoufias, E., S. Tiwari, and H. Zaman. 2011. Washington, DC. “Can We Rely on Cash Transfers to Protect Quisumbing, A., R. Meinzen-Dick, and L. Bas- Dietary Diversity during Food Crises? Esti- sett. 2008. “Helping Women Respond to the mates from Indonesia.� Policy Research Work- Global Food Price Crisis.� Policy Brief 7, Inter- ing Paper 5548, World Bank, Washington, DC. national Food Policy Research Institute, Wash- Smith, L. and L. Haddad. 2000. “Explaining ington, DC. Child Malnutrition in Developing Countries: GLOBAL MONITORING REPORT 2012 NUTRITION, THE MDGS, AND FOOD PRICE DEVELOPMENTS 93 A Cross-Country Analysis.� Research Report ———. 2009. “République de Djibouti. Options 111, International Food Policy Research Insti- d’Assistance Sociale pour la Lutte Contre la tute, Washington, DC. Malnutrition.� Note de politique. Région Taylor, J. E., and M. Filipski. 2012 forthcom- Moyen-Orient et Afrique du Nord, Groupe ing. “A Simulation Impact Evaluation of Rural des Secteurs Sociaux (MNSHD), World Bank, Income Transfers in Malawi and Ghana.� Washington, DC. Journal of Development Effectiveness. ———. 2010a. “What Can We Learn from Victora, C. G., L. Adair, C. Fall, P. C. Hallal, Nutrition Impact Evaluations? Lessons from R. Martorell, L. Richter, and H. S. Sachdev. a Review of Interventions to Reduce Child 2008. “Maternal and Child Undernutrition: Malnutrition in Developing Countries.� World Consequences for Adult Health and Human Bank, Independent Evaluation Group, Wash- Capital.� Lancet 371 (9609): 340–57. DOI: ington, DC. 10.106/S0140-6736(07)61692-4. ———. 2010b. “Promoting Nutrition Security Victora, C. G., M. De Onis, P. C. Hallal, in Haiti. An Assessment of Pre- and Post- M. Blossner, and R. Shrimpton. 2010. “World- Earthquake Conditions and Recommendations wide Timing of Growth Faltering: Revisting for the Way Forward.� World Bank, Washing- Implications for Interventions.� Pediatrics ton, DC. 125: e473–e480. ———. 2011a. World Development Report 2012: Walker, I. 2008. “RECURSO-Perú. La rendición Gender Equality and Development. Washing- de cuentas a nivél local para mejorar los resul- ton, DC: World bank. tados en servicios básicos.� Presentation to ———. 2011b. “Royaume du Maroc. Note International Seminar about Decentralization d’Orientation Stratégique sur le Ciblage et la and Social Inclusion in the Process of Regional Protection Sociale. � Région Moyen-Orient et Integration. Lima, February 7. Afrique du Nord, Groupe des Secteurs Sociaux Waters. H., F. Saadah, and M. Pradhan. 2003. (MNSHD), World Bank, Washington, DC. “The Impact of the 1997–98 East Asian Eco- ———. 2012 forthcoming. “Addressing Nutrition nomic Crisis on Health and Health Care in through Multi-Sectoral Approaches: Guidance Indonesia.� Health Policy and Planning 18 (2): Notes for World Bank Task Team Leaders.� 172–81. World Bank, Washington, DC. Wodon, Q., and H. Zaman. 2008. “Rising Food World Bank and IFPRI (International Food Policy Prices in Sub-Saharan Africa: Poverty Impact and Research Institute). 2008. From Agricul- and Policy Responses.� Policy Research Work- ture to Nutrition: Pathways, Synergies and ing Paper 4738, World Bank, Washington, DC. Outcomes. Washington, DC. World Bank. 2005. “Maroc. Réforme du Système Yamano, T., H. Alderman, and L. Christiansen. de Compensation à la Farine Nationale de Blé 2003. “Child Growth, Shocks and Food Aid Tendre.� Report 34454-MA, Washington, in Rural Ethiopia.� Policy Research Working DC. Paper 3128, World Bank, Washington, DC. ———. 2006. Repositioning Nutrition as Central Zhang, Y., N. Thelen, and A. Rao. 2010. “Social to Development. A Strategy for Large-Scale Protection in Fiscal Stimulus Packages: Some Action. Washington, DC: World Bank. Evidence.� A UNDP/ODS Working Paper ———. 2007. World Development Report 2008. (March). Agriculture for Development. Washington DC, World Bank. 3 Growth and Macroeconomic Adjustment in Developing Countries Summary and Main Messages consolidation proceeds, monetary policy should continue to support growth as long The global recovery shows signs of stall- as unemployment remains high and infla- ing amid deteriorating �nancial conditions. tion expectations are anchored. This should Global growth slowed to 3.9 percent in 2011 be accompanied by steady progress toward and is projected to decline further to 3.5 per- repairing and reforming financial systems cent in 2012. The strongest slowdown is and by steps to avoid excessively rapid bank being felt in advanced economies, but the deleveraging. worsening external environment and some The weaker global economic environ- weakening in internal demand is expected to ment has implications for the emerging lead to lower growth in emerging and devel- and developing countries as they progress oping countries as well. This outlook is sub- toward the Millennium Development Goals ject to downside risks, such as a much larger (MDGs). Among the low-income coun- and more protracted bank deleveraging in tries, despite a solid recovery, a concern the Euro Area or a hard landing among key is that macroeconomic policy buffers have emerging market countries. Against these not been rebuilt to levels before the cri- broad developments, food, fuel, and other sis. Should downside risks such as a sharp commodity prices have eased somewhat global slowdown or another surge in food from their peaks in mid-2011; where high or fuel prices materialize, these countries commodity prices had become a concern for will have to confront the situation with broader price stability, this price decline has weaker buffers than in 2009. In addition to provided policy makers with greater flexibil- eroded macroeconomic policy buffers, still- ity to ease monetary policy. high food prices complicate policy making Strengthening the recovery will require and make progress toward achieving the sustained policy adjustment at a measured MDGs more dif�cult. Accelerated progress pace that depends heavily on a country’s toward achieving the MDGs in low-income individual circumstances. There are risks countries will require adequate and effec- in some places of inadequate medium-term tive international development cooperation fiscal adjustment, and in some of overag- and the continued strengthening of policy gressive short-term fiscal adjustment. In frameworks in individual countries. Fragile the advanced economies, while � scal policy states require special attention. 95 96 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 A weaker global economic global performance, per capita incomes rose environment may impede in most countries (�gure 3.1). progress toward the MDGs The World Economic Outlook of the International Monetary Fund (IMF) fore- Growth slowed in 2011 sees a further moderation of global growth in 2012, to 3.5 percent. The Euro Area Global economic growth slowed consider- is expected to be in a recession because ably in 2011 to 3.9 percent, from 5.3 percent of high sovereign borrowing costs, fiscal in 2010, as the economic recovery continued along two tracks (table 3.1 and map 3.1). In FIGURE 3.1 GDP per capita growth the advanced economies, growth slipped to 1.6 percent, half the rate in 2010 and well below the rate foreseen in the 2011 Global 4 Monitoring Report (GMR), owing to lower 3 than expected growth in the United States % change, median country 2 and Japan.1 Modest growth rates were 1 accompanied by relatively high unemploy- 0 ment and low inflation. –1 In the emerging and developing econo- –2 mies, growth slowed to 6.2 percent, about the level foreseen in the 2011 GMR. Growth –3 in the developing world was led by Asian –4 developing countries, while growth in the –5 2008 2009 2010 2011 2012 Middle East and North Africa was damp- (projected) ened by ongoing political turmoil. Growth Low-income countries in Sub-Saharan Africa continued at around Emerging markets 5 percent, notwithstanding slower export Advanced market economies growth to the Euro Area and drought in the Horn of Africa. Despite an overall weaker Source: World Economic Outlook. TABLE 3.1 Global output Annual percentage change Projections Region 2008 2009 2010 2011 2012 2013–15 World 2.8 -0.6 5.3 3.9 3.5 4.3 Advanced economies 0.0 -3.6 3.2 1.6 1.4 2.4 Emerging and Developing Countries 6.0 2.8 7.5 6.2 5.7 6.2 Central and Eastern Europe 3.2 -3.6 4.5 5.3 1.9 3.4 Commonwealth of Independent States 5.4 -6.4 4.8 4.9 4.2 4.2 Developing Asia 7.8 7.1 9.7 7.8 7.3 7.9 Middle East and North Africa 4.7 2.7 4.9 3.5 4.2 3.9 Sub-Saharan Africa 5.6 2.8 5.3 5.1 5.4 5.5 Western Hemisphere 4.2 -1.6 6.2 4.5 3.7 4.1 Low-Income Countriesa 5.9 5.2 6.4 5.5 5.7 6.0 Emerging Market Countriesb 6.2 2.7 7.7 6.4 5.8 6.3 Fragile Statesc 6.3 3.9 4.3 2.9 5.8 6.3 Source: World Economic Outlook. a. Low-income countries are those eligible for �nancial assistance under IMF’s Poverty Reduction and Growth Trust, including Zimbabwe. b. Emerging market countries are emerging and developing countries that are not low-income countries. c. A subset of emerging and developing countries included in the World Bank’s list of fragile and conflict-affected states. GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 97 consolidation, and the impact of bank dele- as political transitions draw out. Countries in veraging on the real economy. Growth in central and eastern Europe may be severely other advanced economies would slow, in affected by trade and �nancial spillovers from part, because of trade and �nancial spillover the Euro Area, and recovery there would lag. effects from the Euro Area, but is expected In contrast, Sub-Saharan African countries to remain positive. In the United States and a should see continued strong growth, except few other countries, modest growth momen- in southern Africa, which is more exposed to tum would be maintained and underlying weak demand conditions in Europe. Overall, domestic demand would broadly offset the emerging and developing countries are pro- impact of these spillovers. Overall, advanced jected to grow by 5.7 percent. economies are projected to grow by just over Global current account imbalances remain 1 percent. below those experienced in the run-up to the In the emerging and developing econo- global �nancial and economic crisis, and nar- mies, a weaker and more uncertain external rowed somewhat in 2011 (figure 3.2). Net environment, compounded by softer inter- � nancial flows to emerging and developing nal demand, is expected to further dampen countries, while fairly robust, are also below activity in 2012. Nonetheless, strong growth pre-crisis levels (table 3.2). Average net �nan- is expected to continue in developing Asia, cial flows were broadly unchanged in 2011 in particular China and India. Growth is from 2010 and 2009, and the expectation is expected to accelerate in the Middle East and for similar levels in 2012. Relative to gross North Africa, led by oil exporters such as domestic product (GDP), low-income coun- Libya, where recovery from the political tur- tries continue to receive higher net finan- moil of 2011 is expected; nonetheless, many cial flows than do emerging market coun- countries in the region face muted prospects tries—mainly reflecting signi�cantly higher FIGURE 3.2 Global current account imbalances 3.5 2.5 1.5 % of world GDP 0.5 –0.5 –1.5 –2.5 –3.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (projected) Low-income countries with surplus Other advanced economies with deficit Emerging market countries with surplus Emerging market countries with deficit Other advanced economies with surplus Low-income countries with deficit United States Source: World Economic Outlook. Note: The global statistical discrepancy is not shown. 98 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 TABLE 3.2 Net financial flows Percent of GDP, equally weighted Economy 2008 2009 2010 2011 2012 projection Emerging Market Countries 9.1 7.2 7.4 7.2 6.7 Private capital flows, net 5.4 1.4 2.3 2.9 2.6 Of which: private direct investment 5.1 3.8 3.2 3.3 3.0 private portfolio flows –1.2 –0.8 0.6 0.3 0.4 Private current transfers 3.5 3.5 3.4 3.3 3.4 Official capital flows and transfers (net) 0.1 2.3 1.7 0.9 0.8 Memorandum item: Change in reserve assets (–, accumulation) –1.7 –2.8 –2.1 –1.5 –1.0 Low-Income Countries 15.4 13.5 13.2 14.7 13.8 Private capital flows, net 4.9 3.2 4.3 4.0 3.2 Of which: private direct investment 6.6 5.3 5.9 6.6 6.3 private portfolio flows –1.2 –1.2 –1.3 –0.9 –0.9 Private current transfers 5.1 4.7 4.4 4.5 4.5 Official capital flows and transfers (net) 5.4 5.7 4.5 6.2 6.2 Memorandum item: Change in reserve assets (–, accumulation) –2.1 –2.0 –1.7 –2.0 –1.2 Fragile Statesa 15.2 11.4 10.3 19.0 18.8 Private capital flows, net 5.4 2.6 3.9 4.7 5.1 Of which: private direct investment 4.7 3.5 4.8 6.7 6.3 private portfolio flows –1.0 –1.0 –1.4 –1.6 –1.6 Private current transfers 6.0 6.2 5.9 6.0 5.8 Official capital flows and transfers (net) 3.7 2.6 0.5 8.3 7.9 Memorandum item: Change in reserve assets (–, accumulation) –1.6 –2.0 –2.0 –1.7 –1.9 Source: World Economic Outlook. a. A subset of emerging and developing countries included in the World Bank’s list of fragile and conflict-affected states. FIGURE 3.3 Low-income countries: Imports, exports, and current of�cial loans and grants inflows. Fragile states account balance, including FDI received substantially higher foreign direct investment (FDI), of�cial capital flows, and 65 0 of�cial transfers in 2011, and the expectation is that these high levels will be maintained in –1 55 2012. While private current transfers remain % of GDP, median country below the pre-crisis levels, international –2 45 remittances (in nominal dollars terms) fully % of GDP –3 recovered from the decrease in 2009. 35 Emerging and developing countries were –4 part of the continued brisk expansion in global trade in 2011. Their exports have 25 –5 recovered fully from the drop in 2009 and grew by 22 percent in 2011. Current account 15 –6 2008 2009 2010 2011 2012 de�cits (net of inward FDI), in low-income (projected) countries widened somewhat in 2011 (�gure Imports (left axis) 3.3). Since 2009 (when reserves were boosted Exports (left axis) by SDR allocations), of�cial reserves have not Current account balance, including FDI (right axis) kept pace with growing trade; however, most emerging and developing countries main- Source: World Economic Outlook. tain reserves in excess of three months of GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 99 FIGURE 3.4 Official reserves supportive monetary policy. There was much less room for maneuver regarding �scal pol- 10 icy in 2011, however, given large debt levels 9 and concerns in � nancial markets over gov- ernments’ debt sustainability. In emerging Reserves, in months of imports 8 7 and developing countries, increasing prices for food and other commodities through 6 mid-2011 prompted higher headline infla- 5 tion rates (�gure 3.5). Some easing in non- 4 fuel commodity prices since mid-2011 has 3 reduced these pressures, but in many coun- 2 tries commodity price volatility continues to 1 complicate macroeconomic policy making. 0 After the unprecedented countercyclical 2008 2009 2010 2011 fiscal response to the 2009 crisis, emerg- Emerging market countries Median, emerging market countries ing and developing countries had begun to Low-income countries reduce �scal de�cits in 2010 and 2011 (albeit Median, low-income countries rather timidly) (figure 3.6). Although real GDP growth among developing countries in Source: World Economic Outlook. Note: Bars represent the range between the 25th and 75 percentiles. 2011 was similar to that in 2008, �scal de�- cits on average (unweighted) remained 2 per- imports—one of several measures of reserve centage points of GDP higher than before the adequacy (�gure 3.4). crisis. Among emerging and developing coun- tries that loosened monetary policy in 2011, Macroeconomic policies looser monetary conditions mostly took the In advanced economies, ample economic form of a nominal depreciation of the cur- slack and well-anchored inflation expec- rency, rather than a lowering of nominal tations continued to provide room for short-term interest rates (�gure 3.7). Against FIGURE 3.5 Commodity price indexes 700 600 Index (2002Q1 = 100) 500 400 300 200 100 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (projected) Copper Fuel All commodities Cereals Nonfuel Food Source: World Economic Outlook. Note: Indexes are in U.S. dollars. Data for 2012 Q2, Q3, and Q4 are projections. 100 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 FIGURE 3.6 Fiscal deficits in emerging and low-income economies tightening (figure 3.9). In contrast, among the 55 percent of low-income countries that Emerging market countries Low-income countries tightened monetary policy, half loosened �s- 0 cal policy. The variety of policy responses contrasts with 2009, when 90 percent of –1 emerging market economies and 80 percent % of GDP, median country of low-income countries loosened �scal pol- –2 icy in response to a major global economic shock. Most policy adjustments seem to be –3 driven by country-speci�c considerations— including available policy space. –4 Quality of macroeconomic policies in –5 low-income countries 2008 2009 2010 2011 Monetary policy, access to foreign exchange, Source: World Economic Outlook. and the consistency of macroeconomic poli- Note: General government balances as defined in IMF Government Finance Statistics Manual 2001. cies were judged by IMF country desks to be relatively strong areas of policy implementa- tion in low-income countries in 2011 (�gure this background, monetary aggregates con- 3.10). Governance in the public sector, �scal tinued to expand broadly in line with the transparency, and the composition of public increase in nominal GDP in emerging market spending were assessed as areas of relative countries (�gure 3.8). weakness. Lower ratings for �scal policy in The direction of macroeconomic policy 2011 suggest a sense that a return to pre- adjustments varied considerably in 2011. crisis fiscal positions has progressed too Among the 62 percent of emerging market slowly, given the continued strong economic countries that tightened � scal policy, more growth rates. Country desks also perceive than half complemented that with monetary that the quality of monetary policy slipped FIGURE 3.7 Monetary policy loosening in emerging market and low-income countries a. Emerging market countries b. Low-income countries 80 81% in 2009 80 70 70 60 60 % of countries % of countries 50 50 40 40 30 30 20 20 10 10 0 0 Monetary Discount Exchange Monetary Discount Exchange Conditions Index rate rate Conditions Index rate rate 2008 2009 2010 2011 Source: World Economic Outlook. Note: Monetary policy loosening is based on Monetary Conditions Index (MCI) calculations. The MCI is a linear combination of nominal short-term interest rates and the nominal effective exchange rate (with a one-third weight for the latter). GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 101 FIGURE 3.8 Average year-on-year growth in money and the money gap in emerging market countries 25 20 15 Percent 10 5 0 –5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006 2007 2008 2009 2010 2011 Money supply (M2) Money gap Source: International Financial Statistics. Note: The money gap is the difference between year-on-year growth rates of M2 and nominal GDP. The sample includes emerging market economies that have data on both for the whole sample period shown. FIGURE 3.9 Macroeconomic policy mix a. Emerging market countries b. Low-income countries 50 50 74% in 2009 40 40 % of countries % of countries 30 30 20 20 10 10 0 0 Monetary Monetary Monetary Fiscal Monetary Monetary Monetary Fiscal and fiscal and fiscal loosening loosening and fiscal and fiscal loosening loosening loosening tightening and fiscal and monetary loosening tightening and fiscal and monetary tightening tightening tightening tightening 2008 2009 2010 2011 2008 2009 2010 2011 Source: International Financial Statistics. Note: Fiscal conditions are defined based on annual change in government balance as a percent of GDP in 2008, 2009, 2010, and 2011. Monetary conditions are based on the change in the Monetary Conditions Index; changes are calculated Q4 over Q4, subject to availability (see also figure 3.7’s note). in some countries in 2011; although assess- Food price developments and ments remained fairly positive overall, more their macroeconomic impact on than 10 percent of country desks considered developing countries the monetary policy stance unsatisfactory— similar to that of �scal policy, but noticeably As discussed in chapter 1, food prices have higher than in recent years. been volatile over the past several years. 102 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 FIGURE 3.10 Quality of macroeconomic policies in low-income countries, 2005 and 2009–11 a. Fiscal policy b. Composition of public spending 90 90 % of countries in each category % of countries in each category 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good c. Fiscal transparency d. Monetary policy 90 90 % of countries in each category % of countries in each category 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good e. Consistency of macroeconomic policy f. Governance in monetary and financial institutions 90 90 % of countries in each category % of countries in each category 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good g. Governance in the public sector h. Access to foreign exchange 90 90 % of countries in each category % of countries in each category 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good 2005 2009 2010 2011 Source: IMF staff estimates. GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 103 Global food prices rose by more than food prices will lead to a widening of the 50 percent during 2007 and the first half external trade deficit. Initially, the larger of 2008, before plummeting by 30 percent de�cit may be �nanced by increased donors’ in late 2008. By early 2011, however, food assistance (for example, in the form of food prices exceeded the peak level of mid-2008. aid) or a drawdown of the central bank’s for- Although prices have since moderated, aver- eign currency reserves. A flexible exchange age levels in 2011 exceeded those in 2008. rate may also work to cushion the balance of While some weakening of prices is projected payments impact of a higher food import bill for 2012 and beyond, the prospects are for (although at higher social costs for vulnerable relatively high food prices to remain. groups), which over time may be lowered by An increase in food prices represents a increases in domestic food production. shift of real income away from net-food- While the social implications may be dif- importing countries toward net-food-export- ferent, and typically less urgent, changes in ing countries. The shift in income takes place other commodity prices affect macroeco- through changes in the terms of trade, which nomic aggregates similarly to changes in affect the purchasing power of domestic �rms food prices. As food, fuel, and other com- and households. Countries that are broadly modity prices often move in tandem, it self-suf�cient in food will not experience any can be dif�cult to isolate the effect of food terms-of-trade losses, but may nonetheless be prices alone. The 2007–08 food price surge affected as higher prices trigger a shift of real coincided with even larger increases in fuel income from net-food-consuming households prices (�gure 3.11). For some oil-exporting to net-food-producing households. developing countries, higher prices for food The balance of payments is also directly imports were more than offset by higher affected by higher prices for food and other prices for oil, while many poorer countries commodities, because changes in terms of had to confront the challenge of concur- trade may trigger payments imbalances. For rently � nancing more expensive imports of a typical net-food-importing country, higher both food and fuel. FIGURE 3.11 Commodity prices and macroeconomic developments, 2007–12 a. Changes in commodity prices b. Changes in GDP per capita, terms of trade, and inflation in emerging market and developing countries 40 15 10 20 5 Percent Percent 0 0 –5 –20 –10 –40 –15 2007–08 2009 2010–11 2012 2007–08 2009 2010–11 2012 (projected) (projected) Food Fuel Metal Agricultural raw materials Real GDP per capita Median, terms of trade Median, real GDP per capita Inflation Terms of trade Median, inflation Source: World Economic Outlook Source: World Economic Outlook Note: Indexes are in U.S. dollars. Note: Bars represent range between 25th and 75th percentiles. 104 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 MAP 3.1 As global growth slows, growth outcomes across countries converge IBRD 39208 APRIL 2012 Greenland (Den.) Faroe Iceland Islands Norway (Den.) Finland Russian Federation Sweden The Netherlands Russian Estonia Canada Isle of Man (UK) Denmark Fed. Latvia United Lithuania Ireland Kingdom Germany Poland Belarus Channel Islands (UK) Belgium Ukraine Luxembourg Moldova Kazakhstan Liechtenstein Romania Mongolia Switzerland France Andorra Italy Bulgaria Georgia Azer- Uzbekistan Kyrgyz Rep. Armenia baijan D.P.R. United States Portugal Spain Monaco Turkey Turkmenistan Tajikistan of Korea Gibraltar (UK) Greece Cyprus Syrian Arab Rep. of Japan Tunisia Malta Islamic Rep. Lebanon Rep. of Iran Afghanistan China Korea Bermuda (UK) Israel Iraq Morocco Kuwait West Bank and Gaza Jordan Pakistan Bhutan Bahrain Algeria Libya Qatar Nepal The Bahamas Former Arab Rep. Spanish of Egypt Saudi United Arab Bangladesh Cayman Is. (UK) Turks and Caicos Islands (UK) Sahara Cuba Arabia Emirates Myanmar Lao Mexico Haiti Mauritania Oman Cape Verde India P.D.R. N. Mariana Islands (US) Belize Jamaica Mali Niger Sudan Rep. of Guatemala Honduras Senegal Chad Eritrea Yemen Thailand Vietnam Guam (US) Nicaragua The Gambia Burkina Faso Cambodia Marshall El Salvador Djibouti Philippines Federated States of Micronesia Islands Panama R.B. de Guinea-Bissau Guinea Benin Nigeria Costa Rica Venezuela Guyana Côte Ghana Central Ethiopia Sri Sierra Leone South Brunei Suriname d’Ivoire African Rep. Sudan Lanka Colombia French Guiana (Fr.) Liberia Cameroon Somalia Malaysia Palau Togo Maldives Equatorial Guinea Uganda Ecuador São Tomé and Príncipe Gabon Congo Rwanda Kenya Singapore Nauru Dem. Rep. of Burundi Seychelles Indonesia Papua Solomon Congo Tanzania Comoros Islands New Guinea Peru Brazil Timor-Leste Angola Malawi Zambia Mayotte Vanuatu Bolivia (Fr.) Namibia Zimbabwe Madagascar Mauritius New Botswana Mozambique Réunion Caledonia Paraguay (Fr.) Australia (Fr.) Swaziland South Lesotho Africa Chile Uruguay Argentina New Zealand British Virgin Isl. (UK) Anguilla (UK) Poland GDP growth 2010 Germany Dominican Puerto Ukraine St.-Martin (Fr.) Republic Rico (US) St. Maarten (Neth.) Czech Republic U.S. Virgin Isl. (US) St.-Barthélemy (Fr.) Slovak Republic Real GDP per capita growth (%) Saba (Neth.) Antigua and Barbuda Austria Hungary >6 St. Eustatius (Neth.) Guadeloupe (Fr.) Slovenia St. Kitts Montserrat Dominica Romania Aruba and Nevis (UK) Martinique (Fr.) Croatia Bosnia & 3 – 5.9 San Serbia (Neth.) St. Lucia 0 – 2.9 Bulgaria Curaçao St. Vincent & Herz. Barbados Marino Kosovo (Neth.) the Grenadines Montenegro <0 Grenada FYR Bonaire Macedonia Vatican Italy (Neth.) Trinidad and City Albania no data Tobago Greece Greenland (Den.) Faroe Iceland Islands Norway (Den.) Finland Russian Federation Sweden The Netherlands Russian Estonia Canada Isle of Man (UK) Denmark Fed. Latvia United Lithuania Ireland Kingdom Germany Poland Belarus Channel Islands (UK) Belgium Ukraine Luxembourg Moldova Kazakhstan Liechtenstein Romania Mongolia Switzerland France Andorra Italy Bulgaria Georgia Azer- Uzbekistan Kyrgyz Rep. Armenia baijan D.P.R. United States Portugal Spain Monaco Turkey Turkmenistan Tajikistan of Korea Gibraltar (UK) Greece Cyprus Syrian Arab Rep. of Japan Tunisia Malta Islamic Rep. Lebanon Rep. of Iran Afghanistan China Korea Bermuda (UK) Israel Iraq Morocco Kuwait West Bank and Gaza Jordan Pakistan Bhutan Bahrain Algeria Libya Qatar Nepal The Bahamas Former Arab Rep. Spanish of Egypt Saudi United Arab Bangladesh Cayman Is. (UK) Turks and Caicos Islands (UK) Sahara Cuba Arabia Emirates Myanmar Lao Mexico Haiti Mauritania Oman Cape Verde India P.D.R. N. Mariana Islands (US) Belize Jamaica Mali Niger Sudan Rep. of Guatemala Honduras Senegal Chad Eritrea Yemen Thailand Vietnam Guam (US) Nicaragua The Gambia Burkina Faso Cambodia Marshall El Salvador Djibouti Philippines Federated States of Micronesia Islands Panama R.B. de Guinea-Bissau Guinea Benin Nigeria Costa Rica Venezuela Guyana Côte Ghana Central Ethiopia Sri Sierra Leone South Brunei Suriname d’Ivoire African Rep. Sudan Lanka Colombia French Guiana (Fr.) Liberia Cameroon Somalia Malaysia Palau Togo Maldives Equatorial Guinea Uganda Ecuador São Tomé and Príncipe Gabon Congo Rwanda Kenya Singapore Nauru Dem. Rep. of Burundi Seychelles Indonesia Papua Solomon Congo Tanzania Comoros Islands New Guinea Peru Brazil Timor-Leste Angola Malawi Zambia Mayotte Vanuatu Bolivia (Fr.) Namibia Zimbabwe Madagascar Mauritius New Botswana Mozambique Réunion (Fr.) Caledonia Paraguay Australia (Fr.) Swaziland South Lesotho Africa Chile Uruguay Argentina New Zealand British Virgin Isl. (UK) Anguilla (UK) Poland GDP growth 2011 Germany Ukraine Dominican Puerto St.-Martin (Fr.) Republic Rico (US) St. Maarten (Neth.) Czech Republic U.S. Virgin Isl. (US) St.-Barthélemy (Fr.) Slovak Republic Real GDP per capita growth (%) Saba (Neth.) Antigua and Barbuda Austria Hungary >6 St. Eustatius (Neth.) Guadeloupe (Fr.) Slovenia Romania Aruba St. Kitts Montserrat Dominica and Nevis (UK) Martinique (Fr.) Croatia Bosnia & 3 – 5.9 San Serbia (Neth.) 0 – 2.9 Bulgaria St. Lucia Herz. Curaçao St. Vincent & Marino Kosovo (Neth.) the Grenadines Barbados Grenada Montenegro FYR <0 This map was produced by the Map Design Unit of The World Bank. Bonaire Vatican Italy Macedonia (Neth.) Trinidad and City Albania no data The boundaries, colors, denominations and any other information Greece shown on this map do not imply, on the part of The World Bank Tobago Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 105 MAP 3.2 With higher commodity prices, few countries are able to maintain price stability IBRD 39209 APRIL 2012 Greenland (Den.) Faroe Iceland Islands Norway (Den.) Finland Russian Federation Sweden The Netherlands Russian Estonia Canada Isle of Man (UK) Denmark Fed. Latvia United Lithuania Ireland Kingdom Germany Poland Belarus Channel Islands (UK) Belgium Ukraine Luxembourg Moldova Kazakhstan Liechtenstein Romania Mongolia Switzerland France Andorra Italy Bulgaria Georgia Azer- Uzbekistan Kyrgyz Rep. Armenia baijan D.P.R. United States Portugal Spain Monaco Turkey Turkmenistan Tajikistan of Korea Gibraltar (UK) Greece Cyprus Syrian Arab Rep. of Japan Tunisia Malta Islamic Rep. Lebanon Rep. of Iran Afghanistan China Korea Bermuda (UK) Israel Iraq Morocco Kuwait West Bank and Gaza Jordan Pakistan Bhutan Bahrain Algeria Libya Qatar Nepal The Bahamas Former Arab Rep. Spanish of Egypt Saudi United Arab Bangladesh Cayman Is. (UK) Turks and Caicos Islands (UK) Sahara Cuba Arabia Emirates Myanmar Lao Mexico Haiti Mauritania Oman Cape Verde India P.D.R. N. Mariana Islands (US) Belize Jamaica Mali Niger Sudan Rep. of Guatemala Honduras Senegal Chad Eritrea Yemen Thailand Vietnam Guam (US) Nicaragua The Gambia Burkina Faso Cambodia Marshall El Salvador Djibouti Philippines Federated States of Micronesia Islands Panama R.B. de Guinea-Bissau Guinea Benin Nigeria Costa Rica Venezuela Guyana Côte Ghana Central Ethiopia Sri Sierra Leone South Brunei Suriname d’Ivoire African Rep. Sudan Lanka Colombia French Guiana (Fr.) Liberia Cameroon Somalia Malaysia Palau Togo Maldives Equatorial Guinea Uganda Ecuador São Tomé and Príncipe Gabon Congo Rwanda Kenya Singapore Nauru Dem. Rep. of Burundi Seychelles Indonesia Papua Solomon Congo Tanzania Comoros Islands New Guinea Peru Brazil Timor-Leste Angola Malawi Zambia Mayotte Vanuatu Bolivia (Fr.) Namibia Zimbabwe Madagascar Mauritius New Botswana Mozambique Réunion Caledonia Paraguay (Fr.) Australia (Fr.) Swaziland South Lesotho Africa Chile Uruguay Argentina New Zealand British Virgin Isl. (UK) Anguilla (UK) Poland Inflation, 2010 Germany Dominican Puerto Ukraine St.-Martin (Fr.) Republic Rico (US) St. Maarten (Neth.) Czech Republic U.S. Virgin Isl. (US) St.-Barthélemy (Fr.) Slovak Republic Change in CPI (%) Saba (Neth.) Antigua and Barbuda Austria Hungary <2 St. Eustatius (Neth.) Guadeloupe (Fr.) Slovenia St. Kitts Montserrat Dominica Romania Aruba and Nevis (UK) Martinique (Fr.) Croatia Bosnia & 2 – 4.9 San Serbia (Neth.) St. Lucia 5 – 9.9 Bulgaria Curaçao St. Vincent & Herz. Barbados Marino Kosovo (Neth.) the Grenadines Montenegro > 10 Grenada FYR Bonaire Macedonia Vatican Italy (Neth.) Trinidad and City Albania no data Tobago Greece Greenland (Den.) Faroe Iceland Islands Norway (Den.) Finland Russian Federation Sweden The Netherlands Russian Estonia Canada Isle of Man (UK) Denmark Fed. Latvia United Lithuania Ireland Kingdom Germany Poland Belarus Channel Islands (UK) Belgium Ukraine Luxembourg Moldova Kazakhstan Liechtenstein Romania Mongolia Switzerland France Andorra Italy Bulgaria Georgia Azer- Uzbekistan Kyrgyz Rep. Armenia baijan D.P.R. United States Portugal Spain Monaco Turkey Turkmenistan Tajikistan of Korea Gibraltar (UK) Greece Cyprus Syrian Arab Rep. of Japan Tunisia Malta Islamic Rep. Lebanon Rep. of Iran Afghanistan China Korea Bermuda (UK) Israel Iraq Morocco Kuwait West Bank and Gaza Jordan Pakistan Bhutan Bahrain Algeria Libya Qatar Nepal The Bahamas Former Arab Rep. Spanish of Egypt Saudi United Arab Bangladesh Cayman Is. (UK) Turks and Caicos Islands (UK) Sahara Cuba Arabia Emirates Myanmar Lao Mexico Haiti Mauritania Oman Cape Verde India P.D.R. N. Mariana Islands (US) Belize Jamaica Mali Niger Sudan Rep. of Guatemala Honduras Senegal Chad Eritrea Yemen Thailand Vietnam Guam (US) Nicaragua The Gambia Burkina Faso Cambodia Marshall El Salvador Djibouti Philippines Federated States of Micronesia Islands Panama R.B. de Guinea-Bissau Guinea Benin Nigeria Costa Rica Venezuela Guyana Côte Ghana Central Ethiopia Sri Sierra Leone South Brunei Suriname d’Ivoire African Rep. Sudan Lanka Colombia French Guiana (Fr.) Liberia Cameroon Somalia Malaysia Palau Togo Maldives Equatorial Guinea Uganda Ecuador São Tomé and Príncipe Gabon Congo Rwanda Kenya Singapore Nauru Dem. Rep. of Burundi Seychelles Indonesia Papua Solomon Congo Tanzania Comoros Islands New Guinea Peru Brazil Timor-Leste Angola Malawi Zambia Mayotte Vanuatu Bolivia (Fr.) Namibia Zimbabwe Madagascar Mauritius New Botswana Mozambique Réunion (Fr.) Caledonia Paraguay Australia (Fr.) Swaziland South Lesotho Africa Chile Uruguay Argentina New Zealand British Virgin Isl. (UK) Anguilla (UK) Poland Inflation, 2011 Germany Ukraine Dominican Puerto St.-Martin (Fr.) Republic Rico (US) St. Maarten (Neth.) Czech Republic U.S. Virgin Isl. (US) St.-Barthélemy (Fr.) Slovak Republic Change in CPI (%) Saba (Neth.) Antigua and Barbuda Austria Hungary <2 St. Eustatius (Neth.) Guadeloupe (Fr.) Slovenia Romania Aruba St. Kitts Montserrat Dominica and Nevis (UK) Martinique (Fr.) Croatia Bosnia & 2 – 4.9 San Serbia (Neth.) 5 – 9.9 Bulgaria St. Lucia Herz. Curaçao St. Vincent & Marino Kosovo (Neth.) the Grenadines Barbados Grenada Montenegro FYR > 10 This map was produced by the Map Design Unit of The World Bank. Bonaire Vatican Italy Macedonia (Neth.) Trinidad and City Albania no data The boundaries, colors, denominations and any other information Greece shown on this map do not imply, on the part of The World Bank Tobago Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 106 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 In contrast to the 2007–08 food price countries, the weight of food in the con- shock, the 2010–11 food price shock was sumption basket is close to 50 percent and part of a broader-based commodity price households have limited opportunities to surge. For many net-food-importing devel- smooth consumption (given their low sav- oping countries, the terms-of-trade effects ings and limited access to credit). Insofar as (though not the social implications) of higher higher food prices lead poor households to food prices were thus mitigated to the extent substitute toward less nutritious food items, that these countries export other types of increased undernourishment may lower commodities. For example, whereas Sub- health outcomes and cognitive development Saharan African oil exporters benefited of children, as discussed in chapter 2. Thus, from higher oil prices during both food price higher food prices may bring not only imme- shocks, Latin American metal exporters diate economic hardship, but also sustained only bene�ted during the latter episode. In effects on growth and development. Recent both episodes, robust underlying growth in experience underscores how high food prices developing countries cushioned the negative can also prompt social and political instabil- impact on real income in affected countries. ity that may disrupt economies and weaken Volatility in food and other commodity economic management, adversely affecting prices also has indirect or “second-round� poverty reduction and growth. effects. Risk and uncertainty complicate the As food and fuel prices rose in 2010 and planning and execution of new investments, the � rst half of 2011, consumer prices rose dampening investment. These effects can be in tandem in many countries (map 3.2). especially important along the food produc- In emerging and developing countries, the tion chain, where food price volatility makes median inflation rate rose from 4 percent in investment programs less “bankable� and 2009 to 6 percent in 2011, but experiences credit more dif�cult to obtain. Long-lasting were mixed. In about one-third of all coun- price changes may even render part of the tries, inflation abated over this period, while country’s capital stock prematurely obso- the share of countries containing inflation in lete (a risk in particular when fuel prices the low, single digits fell from 60 percent in rise together with food prices). Such second- 2009 to 40 percent in 2011. Nonetheless, the order effects affect developing countries’ share having double-digit inflation remained growth prospects both immediately and over steady at about 20 percent; in at least some the longer run. cases, excessively accommodating macroeco- To help deal with future negative shocks, nomic policies, rather than cost-push pres- developing countries can seek to strengthen sures, may have been responsible. their risk management frameworks and can Still, high food and fuel prices notice- consider securing financial resources on a ably affected inflation levels in several low- contingent basis (box 3.1). Contingent �nanc- income countries. In Burundi inflation more ing instruments include commodity-price- than tripled from 4½ percent in 2009 to 15 hedging instruments, contingent debt instru- percent in 2011 as the monetary authorities ments (indexed bonds, deferred repayment sought to contain the second-round effects of loans) or natural disaster insurance (for of the imported inflation. Inflation doubled instance, in the case of a drought). Developing- in Bangladesh from 5½ percent to 11 per- country demand for these products has been cent over the same period. Other examples rather limited so far, but examples include of sharp increases in consumer prices during oil-importing developing countries that hedge this period that were associated with interna- their oil import bill. A few countries have also tional food and fuel prices include the Kyrgyz hedged volatile export proceeds, such as by Republic (from 7 to 17 percent), Maldives selling crops in forward markets. (from 4 to 12 percent), and Mozambique Within a country, higher food prices (from 3 to 11 percent). decrease the real incomes of urban and many The food price shocks of 2007–08 and rural workers. In poor, vulnerable developing 2010–11 constituted adverse shocks in many GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 107 BOX 3.1 Dealing with shocks: Risk management and contingent financing instruments Adverse external shocks, even when temporary, can needs imply a high opportunity cost to holding exces- have prolonged negative effects on income and pov- sively large reserves. erty in developing countries. Natural disasters or External � nance can complement self-insurance. sharp swings in commodity prices or export volumes, Particularly for low-income countries, which often for example, can disrupt growth and affect the � s- require grants or low-interest loans, an effective cal and balance of payments positions, which in turn architecture for the � nancing of shocks should pro- may threaten core public spending on health, educa- vide predictability while still delivering scarce con- tion, and infrastructure. cessional resources in amounts tailored to countries’ To mitigate the impact of these shocks, countries needs stemming from a shock. Financing arranged require an appropriate risk management framework after a shock can be better tailored and can limit and access to a range of risk management tools. Since moral hazard, but its volume and timing is not the types of shocks and the degree of risk are spe- assured in advance; complementing it with the possi- ci�c to each economy, a risk management framework bility of ex ante support could give greater con�dence begins by assessing the country’s principal �scal risks to policymakers in low-income countries that at least and debt sustainability vulnerabilities, including by part of their needs would be met promptly in the face analyzing �scal flows, the government balance sheet, of shocks. and contingent liabilities. The World Bank assists This ex ante support can be provided by contin- developing countries in creating effective risk man- gent � nancing instruments such as insurance, mar- agement frameworks; the International Monetary ket hedging, contingent credit lines, and contingent Fund also provides support in key areas such as �scal debt instruments. The historically low use of contin- risks and asset and liability management. gent � nancing instruments by low-income countries Risk management tools are of three broad types: partly reflects factors such as affordability, political self-insurance; ex post financing arranged after a economy concerns, and technical capacity. The inter- shock hits; and ex ante � nancing arranged before a national community can help in addressing some of shock hits. Countries self-insure against shocks by these constraints to the use of contingent � nancing building up official reserves and other macroeco- instruments. nomic policy buffers. But there are limitations. For example, public investment and other development Source: IMF 2011c. emerging and developing countries. These Perhaps the most immediate is the possibility shocks, however, were partly offset by rela- of a larger, more protracted bank deleverag- tively buoyant economic conditions. As ing in the Euro Area. Tightening credit would global growth faltered in 2009, the devel- deepen the recession and further strain �scal oping world was negatively affected, but at positions, with additional spillovers. Delever- the same time lower food prices provided a aging could also affect emerging and devel- respite. A similar scenario of moderating oping countries more directly: Euro Area growth in the context of lower food prices banks account for large shares of global trade could occur in 2012. finance, an area where the impact of dele- veraging was already evident by late 2011. Another key risk is that medium-term �scal Managing macroeconomic risks consolidation plans and rising medium-term in developing countries public debt levels could leave Japan and the United States vulnerable in the event of tur- Risks to the baseline outlook moil in global bond and currency markets. There are important downside risks to In key emerging market countries, where the global baseline outlook explored here. growth has benefited from buoyant credit 108 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 markets and asset price increases, a hard Current account deficits (net of FDI) have landing that triggers a loss of con�dence and widened, especially for net oil importers. an unwinding of credit and real estate mar- And reserve coverage has declined since the kets could slow growth signi�cantly. 2009 IMF special drawing rights allocation, Food and other commodity price projec- in particular for many low-income countries tions are also subject to risks. For example, with pegged exchange rates. Consequently, increased geopolitical tensions may push up most low-income countries are now less pre- fuel prices with knock-on effects on other pared to cope with further external shocks commodity prices (through higher transpor- than they were in 2008 (�gure 3.12). In the tation and other production costs). Higher event that downside risks materialize, for fuel prices may also lead to a further expan- most low-income countries the scope for �s- sion of biofuel production at the expense cal stimulus would be more limited than in of food production, thus placing further 2009, given weaker � scal buffers and con- pressures on food prices. If global growth strained aid envelopes. is higher than expected, demand pressures To provide a more structured assess- could also lead to higher commodity prices, ment of these vulnerabilities, an analytical at least in the short run. Although food prices framework was used to simulate two (mutu- are expected to continue to ease in the period ally exclusive) tail-risk scenarios for all low- ahead, a broad range of alternative scenarios income countries (�gure 3.13): could well lead to a retesting of the peak food prices of 2008 and mid-2011. • A sharp downturn in global growth sce- nario, in which shocks to � nancial condi- tions in advanced economies reduce global The low-income countries may be growth by 1.3 percentage points in the particularly vulnerable to these risks � rst year and by 1.6 percentage points in Most low-income countries recovered swiftly the second year, relative to the World Eco- from the global crisis and growth has been nomic Outlook baseline. strong since early 2010, helped by past mac- • A spike in global commodity prices sce- roeconomic and structural reforms that had nario, involving surges in prices for food enhanced the resilience of their economies. (25 percent in the �rst year and 31 percent Nonetheless, with their macroeconomic buf- in the second year), fuel (21 percent and fers still well below pre-crisis levels, most 48 percent), and metals (21 percent and 36 low-income countries are now less prepared percent), relative to the World Economic to cope with further external shocks. As Outlook baseline. analyzed by IMF staff in the fall of 2011, adverse shocks to global growth and com- The adverse global growth shock is esti- modity prices could thus have severe eco- mated to cut about 1 percentage point off nomic and social consequences.2 At the peak low-income country growth in each of two of the global crisis in 2009, many low-income years, because these countries are negatively countries used strong pre-crisis macroeco- affected through channels such as global nomic buffers to pursue countercyclical �s- export demand, commodity prices, remit- cal responses: despite falling revenues, they tances, and FDI. The severity of the impact maintained and often even increased spend- would vary, with more than a quarter of ing. While growth recovered swiftly from the low-income countries experiencing a growth global crisis, most low-income countries have slowdown exceeding 2 percentage points. A since made little progress in rebuilding those downturn in global growth would severely buffers. Fiscal adjustment began in 2010 as erode external and �scal buffers, causing �s- revenues rebounded, but has since halted—in cal de�cits to increase (by about 1 percent- part because of measures taken in response age point of GDP for the median low-income to the commodity price shock of early 2011. country) and, for most low-income countries, GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 109 FIGURE 3.12 Selected macroeconomic indicators for low-income countries, 2007–12 a. Growth b. Inflation 7 14 6 12 10 Median (%) Median (%) 5 8 4 6 3 4 2 2 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 (projected) (projected) All low-income countries Commodities exporters All low-income countries Floating exchange rate Non-commodities exporters Fixed exchange rate c. Fiscal balance d. Public debt 3 80 2 1 70 Median (% of GDP) Median (% of GDP) 0 –1 60 –2 –3 50 –4 –5 40 –6 –7 30 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 (projected) (projected) All low-income countries Net oil exporters All low-income countries Small economies Net oil importers Low-income countries, excluding small economies e. Current account balance + FDI f. Reserve coverage Median (months of next years imports) 5 5.0 4 3 4.5 Median (% of GDP) 2 1 4.0 0 –1 –2 3.5 –3 –4 3.0 –5 –6 2.5 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 (projected) (projected) All low-income countries Net oil exporters All low-income countries Floating exchange rate Net oil importers Fixed exchange rate Source: World Economic Outlook. current account de�cits to widen and of�cial countries, depending on the terms of trade, reserve coverage to fall. sectoral employment, and consumption pat- The price spike scenario recognizes that terns. However, its repercussions on inflation, commodity price shocks tend to create win- poverty, and social pressures would be felt ners and losers both within and across more symmetrically, because of high shares 110 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 FIGURE 3.13 Tail-risk scenarios for low-income countries a. Illustrative fiscal space measure before and after shock 3.0 2.0 Median (% of GDP) 1.0 0.0 –1.0 –2.0 –3.0 All low-income Commodity Non-commodity Low risk of Medium risk of High risk of Small countries exporters exporters debt distress debt distress debt distress economies b. Reserve coverage 6 Median (months of imports) 5 4 3 2 1 0 Low-income Commodity Reserves Reserves Non-commodity Small Floating Fixed countries exporters < 3 months > 3 months exporters economies exchange exchange rate rate Baseline Higher commodity prices Global growth downturn Source: IMF 2011b. Note: The illustrative fiscal space measure (top panel) is calculated as the difference between the baseline primary balance and the constant primary balance that is needed to achieve a target public debt-to-GDP ratio of 40 percent in 2030. The bottom panel shows a simulation of the reserve coverage ratio after an increase in global food, metals (except gold and uranium), and fuel prices (by 31, 36, and 48 percent respectively) and a slowdown in global growth (by 1.6 percentage points) relative to the World Economic Outlook baseline. of food in the consumption baskets of low- negative median impact from food and fuel income countries. While the growth impact prices would be more than offset by the of this scenario would likely be modest, infla- gain from higher prices of other commodi- tion could more than double, assuming that ties. About one-fifth of low-income coun- the pass-through from global to domestic tries would stand to gain from higher prices. prices follows historical patterns and that any Among those hurt by the shock, about half monetary policy response is mild. would have adequate international reserves The external impact of a commodity to absorb the shock and the others would price spike would differ signi�cantly across face additional �nancing needs. low-income countries depending on their In many low-income countries, increased trade structure. A large majority would be global commodity prices would put pressure adversely affected, however, with the median on �scal positions, assuming that countries trade balance deteriorating by almost 3 per- maintain existing policies (such as fuel subsi- cent of GDP. For commodity exporters, a dies) and that they reintroduce transfers and GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 111 subsidies similar to those used in 2007–08. A under the baseline. For this group, rebuild- sharp increase in commodity prices that was ing external buffers should be a high priority. sustained for long periods would also worsen These countries are most in need of help from debt dynamics in a number of low-income the international community. countries with existing debt vulnerabilities. To reduce their exposure or create space to prepare for future shocks, low-income countries can also take steps ex ante. Besides Policy responses in the event of adverse building policy buffers during good times, external developments they can, for example, make their budgets A key policy challenge for many low-income more structurally robust (IMF 2011d); put in countries is to build resilience while support- place more flexible and robust social safety ing economic development. This requires net systems; pursue reforms to encourage balancing pressing spending needs, includ- domestic savings and deepen their � nancial ing public investment and social protection, sectors; and explore policies to encourage against the rebuilding of macroeconomic greater diversi�cation in an economy’s pro- buffers to prepare for future shocks. duction and exports. A speci�c example in Many low-income countries could still this regard would be to lower domestic fuel bene�t from a further strengthening of their subsidies. This step would directly strengthen �scal buffers. Scenario analysis indicates that the �scal buffer, while also giving the private a large number of low-income countries can sector incentives to pursue a more rational only partially absorb large tail-risk shocks. use of energy. Another example would be to This group could consider a mix of gradual lower import tariffs—at a pace that acknowl- �scal adjustment combined with realignment edges the potential revenue implications—to of priorities, for example by shifting spending better align domestic and international prices in favor of investment and social programs, of traded commodities. and building a stronger revenue base. Those countries that already have no fiscal space Macroeconomic policies in the event of a sharp under the baseline would have limited room global downturn for maneuver in the event of a tail-risk shock. The appropriate macroeconomic policy For this group, rebuilding �scal buffers and response to a sharp global downturn would strong concessional support from develop- depend in part on available policy buffers. ment partners will be particularly important. During the global downturn in 2009, low- Some low-income countries already have ade- income countries with more comfortable quate �scal buffers, and may even be able to buffers were able to mount a strong coun- expand their �scal de�cits in the baseline, for tercyclical fiscal response that cushioned instance to step up critical spending, without the impact on spending and growth. In the compromising their ability to absorb large event of another sharp downturn, the scope shocks. for �scal stimulus would be more limited for While many low-income countries have most low-income countries, given weaker built up sufficient reserves to absorb the �scal buffers and constrained aid envelopes, impact of either shock fully without the need but those with suf�cient �scal room should for adjustment (and import compression), aim to protect spending. For countries lack- others would benefit from building addi- ing fiscal room, key challenges will be to tional reserve buffers. These buffers could limit the decline in domestic revenue to the be achieved through a mix of monetary and extent possible through strengthening tax fiscal tightening, combined with greater and customs administration, and to prioritize exchange rate flexibility where appropriate. spending. If �scal space allows, low-income A quarter of these countries already have countries should seek to soften the economic import coverage of less than three months and social impact of a global downturn by 112 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 preserving—and where feasible increasing— been used—some effectively, and others less real �scal spending in priority areas. so (box 3.2). In the event of another global downturn The appropriate monetary policy response and related softening in commodity prices, to a food price shock depends on the inflation more active monetary easing may be appro- outlook, the share of food prices in household priate in low-income countries with moder- consumption baskets, the pass-through from ate inflation. Greater exchange rate flexibility food prices to other prices, and the country’s could also help to weather another down- external balance, debt, and reserves situa- turn, and would be particularly important tion. When inflation is at low to moderate for those countries with low reserve cushions. levels, the standard monetary policy advice is to accommodate the direct impact of the Macroeconomic policies in the event of global food price shock, while guarding against any commodity price spikes second-round effects. (For food importers, Global commodity price spikes present low- adjustment will often require some degree of income countries with difficult tradeoffs exchange rate depreciation, amplifying the between price stability, external goals, and infl ationary impact.) This allows the mon- social objectives. A pragmatic response could etary authorities to avoid an undue policy include targeted measures to protect the poor tightening that would exacerbate the impact and a monetary policy response that may of the price shock on output, while prevent- largely accommodate the � rst-round impact ing a persistent effect on inflation and infla- on inflation, although those countries with tion expectations (box 3.3). However, food- limited reserves may need to tighten policies importing (and other commodity-importing) in support of external and price stability. The low-income countries with high inflation or scope to use tax and expenditure measures weak external buffers such as high current to mitigate the social impact of higher com- account de�cits, low reserves, or vulnerable modity prices depends considerably on the debt positions) may require policy tighten- country-speci�c �scal space. ing.3 Striking the proper balance can be par- The illustrative tail-risk scenario indi- ticularly complex for low-income countries, cates that many low-income countries appear where products that exhibit considerable to have adequate � scal space to absorb the price volatility, such as food and fuel, may effect of a large, but temporary, global constitute half of the consumption basket (�g- commodity price shock. By contrast, those ure 3.14). On the other hand, because wage lacking �scal space even under the baseline indexation and other contract mechanisms would need to adjust over the medium term that foster inflation inertia are less prevalent to preserve fiscal sustainability after such in many low-income countries, a temporary a shock. A “first-best� policy response to surge in commodity prices will have milder global price shocks would consist of fully second round effects on inflation. passing on price increases while relying on an effective, well-targeted social safety net—in A note on fragile states combination, these measures would ensure �scal affordability and avoid economic dis- Fragile states are characterized by weak pub- tortions, while protecting the most vulner- lic institutions, lack of timely and reliable able. However, institutional capacity and statistics on the basis of which policies can political constraints often make the �rst-best be formulated, skills shortages, slow rates of infeasible, particularly in the shorter term. GDP growth, and greater macroeconomic These constraints may imply a need to resort instability. Peace- and state-building takes to pragmatic policy responses—a challenge priority over formulating and implement- then being to make the measures as cost- ing consistent medium-term macroeconomic effective and targeted as possible. A number policy frameworks. Conflict and other major of “second-best� policy approaches have shocks not only bring great hardship but also GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 113 BOX 3.2 Fiscal policy responses to food price shocks In designing policies to respond to food price and Export taxes and restrictions have also been used related shocks, national authorities consider the effec- in an attempt to dampen domestic price increases, tiveness of various tax and expenditure policies and but these have considerable drawbacks, including the �scal space available to implement these policies exacerbating the volatility of global prices (chapter without endangering macroeconomic objectives. The 4). Reductions in import tariffs—if only temporary— scope for mitigating the impact of higher food prices carry similar drawbacks. Measures to address supply depends considerably on earlier policies and how constraints such as agricultural input subsidies—may those have affected the country’s �scal and debt posi- have a role if implemented within a broader strategy tions. The appropriate �scal response also depends on focused on increasing agricultural productivity. How- the nature of shock and its expected duration. ever, the experience with input subsidies is mixed Even for countries with ample fiscal space that (chapter 2). face a spike in food prices, measures aimed at limiting During both the 2007–08 and 2010–11 food price the price increase for all consumers, such as a general shocks, countries implemented a broad variety of price subsidy, are typically not optimal. First, by pro- measures to counteract the effects of higher interna- viding relief to the general population, large shares of tional prices. Examples of targeted measures include the cost of these schemes are incurred in subsidizing the provision of food vouchers to the lowest quintile consumers that may not require assistance. Second, households in the two largest urban areas in Burkina because broad-based subsidies are more expensive, if Faso, an expansion of school feeding programs in the shock persists their cost becomes a greater con- Sierra Leone, and a conditional cash transfer program cern very quickly. Third, political economy consider- targeting orphans and vulnerable children in Kenya. ations can make it dif�cult to eliminate price subsidies Broader across the board measures included a suspen- once they are in place. Finally, subsidies create a sub- sion of customs duties on rice, wheat, and powdered stantial wedge between world market and domestic milk in Senegal and a suspension of taxes on food prices; incentives for smuggling could lead to the bud- products and the introduction of fuel subsidies in get subsidizing consumption in neighboring countries. Burkina Faso. In Guinea, a reduction in retail prices Developing countries’ experiences dealing with on fuel turned out to be very costly and spurred ille- recent years’ high and volatile oil prices are illustra- gal reexports to neighboring countries. Vietnam tem- tive in this regard (Granado et al). After oil prices porarily banned rice exports for a few months until it began to rise at the end of 2003, most developing was clear that the new harvest was suf�ciently large. countries limited the full pass-through of interna- In the meantime, world market prices had started to tional prices to domestic consumers (the median pass- fall rapidly and Vietnamese exporters experienced through was lowest in the Middle East and highest in larger drops in their earnings than did their Thai Africa). When oil prices did not subsequently reverse, counterparts. the cost of maintaining the subsidies mounted and by During the recent commodity price shock, most mid-2008 reached about 1 percent of GDP in affected low-income countries adopted countervailing � scal countries, with most of the associated benefits on measures to mitigate the impact of higher food and household welfare accruing to the better off segments fuel prices. In several cases, the �scal costs exceeded of the populations. Pass-through of international to the measures introduced during the 2007–08 episode. domestic food prices varies across regions and coun- An often-used measure was fuel subsidies. These sub- tries; as discussed in chapter 1, in countries open to sidies helped lower transportation costs, and thus trade the pass-through is faster and relatively larger. indirectly food prices. The median (annual) fiscal While a well-targeted social safety net aimed at cost is estimated to exceed 1 percent of GDP for those the most vulnerable households is preferable to gen- countries adopting the measures. Most fuel or food eral price subsidies, such safety nets are dif�cult to subsidies were universal, and few were explicitly tar- design and implement. Until they can be put in place, geted to the poor. While these �scal measures helped in some cases policy makers may subsidize particular address urgent economic and social concerns, they products predominantly consumed by the poor (such also prevented low income countries from making as coarse grains) while recognizing that some non- further progress toward restoring their �scal de�cits poor households may also bene�t from the scheme. to levels prevailing before the 2009 crisis. 114 GROWTH AND MACROECONOMIC ADJUSTMENT GLOBAL MONITORING REPORT 2012 BOX 3.3 Food price volatility and monetary policy Recent research done for the International Monetary establishing such a regime. A common objection to Fund’s World Economic Outlook suggests that cen- the use of underlying inflation targets is that they do tral banks faced with high and volatile food prices set not necessarily reflect the day-to-day prices faced by and communicate monetary policy based on develop- consumers. However, even headline infl ation is not ments in underlying inflation (IMF 2011e). an accurate measure of the prices faced by any given This �nding hinges on the observation that, when consumer. For example, consumption patterns of food prices are volatile and the share of food in the households with many children will be very different consumption basket is high, it can be very dif�cult from those made up of young adults, and neither con- to control headline inflation. Food price shocks often sumption pattern will match the basket used for the stem from weather disruptions and other shocks that headline inflation measure. Furthermore, underlying are generally temporary and outside the control of the inflation measures are generally constructed so that central bank. Consequently, when a food price shock over the medium run, if not the short run, they show hits, a central bank targeting headline inflation will the same average level of inflation as headline infla- be faced with either a loss of credibility if it accom- tion. The research argues that the central bank, thus, modates the shock, or collateral economic volatility has some choice over the target used, a �nding that is if it attempts to dampen the inflationary effects of the supported by the successful experiences of inflation- shock. Conversely, if a central bank has established targeting central banks that established their regimes and communicated a clear focus on underlying infla- around underlying inflation measures through the use tion that is embedded in people’s expectations, it can of sustained and ultimately successful communica- successfully accommodate the �rst-round effects with- tions strategies. out undermining credibility or risking higher future Volatile food prices present a signi�cant challenge inflation. A striking consequence is that a central to central banks trying to control inflation. This chal- bank can achieve lower headline inflation and output lenge is magni�ed in countries with high shares of volatility than if it had focused on headline inflation. food in their consumption baskets seeking to establish The key channel for this result is the preservation of a credible policy regime. The research suggests that the central bank’s credibility and the anchoring of these central banks would do better to target what inflation expectations when food price shocks hit. they can hit (that is underlying infl ation) than val- While an emphasis on underlying inflation can iantly trying to control headline inflation in the face deliver superior outcomes, there are challenges in of food price shocks that are outside their control. FIGURE 3.14 Composition of the Consumer Price Index basket in low-income and OECD countries a. Median low-income country: b. Median OECD country: Composition of the CPI basket Composition of the CPI basket Fuel Fuel Food 5% 6% 13% Food 45% Other 49% Other 82% Source: World Economic Outlook. GLOBAL MONITORING REPORT 2012 GROWTH AND MACROECONOMIC ADJUSTMENT 115 set back years of investment in public institu- References tions and public infrastructure, perpetuating a cycle of underdevelopment. Arezki, Rabah, and Markus Bruckner. 2011. In the face of a slowdown in global “Food Prices and Political Instability.� IMF growth, the structural problem of unem- Working Paper 11/62, International Monetary ployment, particularly among the young, Fund, Washington, DC. would become starker. In the face of food Granado, Del, Javier Arze, David Coady, and price shocks, fragile states lack many of the Robert Gillingham. 2010. “The Unequal Bene- policy options available to other developing �ts of Fuel Subsidies: A Review of Evidence for economies. Because available policy space is Developing Countries.� IMF Working Paper strictly limited, these countries often turn to 10/202, International Monetary Fund, Wash- the international community for assistance. ington, DC. To engage most effectively, international G-20 (Group of 20). 2011a. “2011 Report of the organizations and development partners are Development Working Group.� October. increasingly recognizing the limited capac- G-20. 2011b. “Report of the G-20 Study Group ity and large �nancing needs of fragile states, on Commodities.� July. and developing longer-term strategies to ben- IMF (International Monetary Fund). 2001. Gov- e�t them. ernment Finance Statistics Manual 2001. Washington, DC. ———. 2011a. “Macroeconomic and Operational Notes Challenges in Countries in Fragile Situations.� 1. The classi�cation of countries is the one used in Washington, DC (June 15). the IMF’s World Economic Outlook. Emerg- ———. 2011b. “Managing Global Growth Risks ing and developing countries are those coun- and Commodity Price Shocks—Vulnerabilities tries that are not designated as advanced coun- and Policy Challenges for Low-Income Coun- tries. Countries that are eligible for � nancial tries.� Washington, DC (September 22). assistance under the IMF’s Poverty Reduction ———. 2011c. “Managing Volatility in Low- and Growth Trust constitute a subset of emerg- Income Countries—The Role and Potential for ing and developing countries; these countries Contingent Financial Instruments.� Washing- are denoted low-income countries although ton, DC (October 31). eligibility is based on other considerations in ———. 2011d. “Revenue Mobilization in Devel- addition to income levels. Emerging and devel- oping Countries.� Washington, DC (March). oping countries that are not eligible for � nan- ———. 2011e. “Target What You Can Hit: Com- cial assistance under the Poverty Reduction modity Price Swings and Monetary Policy.� In and Growth Trust are designated as emerging World Economic Outlook, ch. 3. Washington, market countries. DC (September). 2. This section draws from IMF 2011b. Walsh, James P. 2011. “Reconsidering the Role 3. Food and other commodity exporters should of Food Prices in Inflation.� IMF Working generally rely on exchange rate appreciation to Paper 11/71, Washington, DC. mitigate inflation pressures from a food price spike. 4 Using Trade Policy to Overcome Food Insecurity Summary and main messages allow its domestic market to remain linked to the world market. Food security therefore Trade is an excellent buffer for domestic fluc- requires encouraging more trade through a tuations in food supply. There is no global more open, rules-based multilateral trade food shortage: the problem is regional or regime, best achieved by concluding the local—one of moving food, often across bor- Doha Round of WTO negotiations, and ders, from surplus production areas to de�- supported by further work toward develop- cit ones—coupled with affordability. World ing disciplines on export restrictions. output of a given food commodity is far less Efforts to extend trade integration to variable than output in individual countries. developing countries should also focus on Thus increased trade integration holds con- siderable potential to stabilize food prices, promoting more effective regional integra- boost returns to farmers, and reduce the tion among them, including for food prod- prices faced by consumers. ucts. Facilitating food trade is also important Trade liberalization protects national food through increased Aid for Trade to promote markets against domestic shocks by allow- frictionless borders and to induce a supply ing more food to be imported in times of response from developing countries, particu- shortage and exported in periods of plenty. larly in Sub-Saharan Africa. However, historically—and despite a host of regional trade agreements—most countries Trade in food have chosen to take the opposite approach by restricting imports of food and discourag- Global production of cereals has almost ing exports in often-failed attempts to keep trebled in the past 50 years, outpacing the domestic markets isolated from interna- twofold rise in world population. Yet over a tional shocks by ensuring self-suf�ciency in billion people in the world remain hungry. food production. Cereals form the staple diet of poor people Self-suf�ciency should be weighed against and are also their main imported food item. the bene�ts of cheaper imports. A country In 2010, cereals made up 40 percent of the that is a natural exporter should not hinder food imports of least developed countries. its comparative advantage with export bans. Increasing consumption of vegetables and A country that tends to import food should meat is indicative of growing incomes, and 117 118 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 FIGURE 4.1 Most cereal production is consumed domestically and not traded a. Wheat b. Rice EU27 China China India India Indonesia United States Russian Federation Bangladesh Canada Vietnam Pakistan Thailand Australia Myanmar Turkey Egypt, Arab Rep. Philippines Others Others 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 Global share (%) Global share (%) Production Consumption Production Consumption Source: Kshirsagar and Baffes 2011 (U.S. Department of Agriculture, 2006–10 averages). these items typically account for half of the 10 percent of world production traded glob- food imports by developed countries. ally: over the past decade, only one-�fth of all Wheat, maize, and rice account for the wheat produced globally was traded, while majority of trade in cereals; maize and other rice trade accounted for 6 percent of global coarse grains are not only consumed by rice production (Kshirsagar and Baffes 2011). humans but are also used as animal feed in In value terms, approximately two-thirds the production of meat and for the manufac- of world food exports go to developed coun- ture of biofuels. Most cereal production is for tries, and just under one-third to middle- domestic consumption (�gure 4.1), with just income ones, with the poorest countries being FIGURE 4.2 Food trade matters most for low-income countries a. Share of food exports in goods exports b. Share of food imports in goods imports 35 20 18 30 16 25 14 12 Percent Percent 20 10 15 8 10 6 4 5 2 0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 World Middle-income countries World Middle-income countries Low-income countries High-income countries Low-income countries High-income countries Source: World Bank DDP and COMTRADE data. Note: Food = SITC rev. 4 codes 0+1+22+4: food, livestock, alcohol/tobacco, oilseeds, edible oil. GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 119 insigni�cant in world food trade: the share of Markets in key cereals are often domi- the least developed countries in world food nated by just a few players among developing trade is just 1 percent. However, food trade countries (�gure 4.3); India and China are forms a higher share of the total trade bas- the largest producers and consumers of these ket of developing countries compared with crops. Exports of wheat are mainly from developed countries (�gure 4.2) (FAOSTAT developed countries, exports of rice from 2010 Yearbook). Sub-Saharan African coun- developing ones. More than 62 percent of all tries, especially some in the Horn of Africa, wheat is exported by the United States, the also have high shares of food imports in total European Union (EU), Canada, and Austra- imports, compared with other parts of the lia, and these countries have highly protected world. Although not all developing countries agricultural sectors. South and East Asian depend on food imports, how food is moved economies are the leading rice exporters, within and across borders has clear implica- but only 6–7 percent of global production tions for poor farmers and consumers, who is traded. Market concentration in cereals spend a large share of their household income has declined over time, with an increasingly on food. diversi�ed export base, although the United FIGURE 4.3 Trade in key cereals is dominated by just a few countries a. Wheat b. Rice Others Others 10% United 10% Ukraine States Cambodia 3% Thailand 5% 23% 31% Uruguay 3% Kazakhstan China 3% 6% Argentina United States 7% 11% Russian EU27 Federation 15% Pakistan 10% 10% Vietnam Australia Canada India 18% 10% 14% 11% c. Coarse grains d. Vegetable oils Others Others 9% 12% India 2% Indonesia EU27 2% Australia 4% 28% Canada 3% Canada 4% Ukraine 3% United EU27 4% States United States 3% 48% Ukraine Brazil 7% 6% Brazil 8% Argentina 18% Malaysia Argentina 25% 14% Source: Kshirsagar and Baffes 2011. Note: U.S. Department of Agriculture, 2006–10 averages; coarse grains are those used as feed (maize, millet, sorghum, and barley). 120 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 States continues to dominate trade in maize balances, growth, and welfare depend criti- (Kshirsagar and Baffes 2011). Import mar- cally on the terms-of-trade effects of higher kets are, and have historically been, less con- food prices. The increase in world food centrated than export ones. prices implies terms-of-trade gains for net- Trade policy actions by exporting and exporting countries of food products and importing countries can have knock-on losses for food-deficit, net-importing ones effects in food markets, and food commod- (�gure 4.4). For example, net-food-importing ity prices are often highly correlated. For countries in the Horn of Africa such as example, an export restriction by India on Ethiopia, Kenya, and Somalia currently face rice exports, even one that does not directly drought, famine, and humanitarian emer- influence the world price, can still lead to gency situations affecting more than 13 mil- market behavior that indirectly affects the lion people, with domestic food prices soaring world price, as happened in 2008 when other (between 30 and 240 percent for red sorghum rice exporters also started to impose restric- and maize in Somalia), while Tanzania and tions. Wheat, rice, and maize share a positive Uganda have gained because they remain net relationship: price changes due to temporary exporters (mostly for maize). production or export disruptions can affect Increases in global prices have not always the price of substitute products (Ivanic, Mar- translated into equivalent increases in food tin, and Zaman 2011). prices prevailing in domestic markets for various reasons, including a weakened dol- lar (commodity prices are often expressed in Higher world food prices and dollars); local transport costs (often arising their trade impacts from inadequate competition in road trans- Food prices remain at historically high levels, port markets); market distortions and price contributing to differing terms-of-trade controls set by governments; the persistence effects across developing countries as well as of trade barriers; and good harvests in some distributional impacts within them. The developing countries (notably for maize, sor- impact of global food inflation on external ghum, millet, and cassava in some African countries that have allowed for substitution FIGURE 4.4 Net-food-importing regions lose from higher food away from imported wheat and rice) despite prices while net-exporting regions gain bad yields in several of the largest grain- exporting economies. These factors explain stark differences in domestic price fluctua- Sub-Saharan tions across countries even when world food Africa prices decline or remain unchanged. SouthAsia Differences in aggregate food trade bal- Middle East and ances can also be deceptive and conceal large North Africa variations at the product level (Canuto 2011). Latin America and For example, in the Andean region, Venezu- the Caribbean ela is the only net importer of food whereas Europe and Bolivia, Colombia, Ecuador, and Peru are all Central Asia net food exporters. However, Bolivia is the East Asia only net exporter of cereals and vegetable and Pacific oils, whose price increases have dramatically – 0.65 – 0.45 – 0.25 – 0.05 0.15 0.35 spiked; coffee and bananas drive the other Percent three countries’ net exporting positions. 2010–11 2008–09 2006–07 2009–10 2007–08 2005–06 Protectionist responses Source: World Bank, Datastream. Note: Terms-of-trade changes in food commodities, by developing region, year over year changes Protectionism should be avoided as global as share of GDP. trade slows and food prices remain high. GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 121 Trade in food is currently subject to fewer Traditionally, it has been the trade policies policy interventions than has historically of developed countries that were responsible been the case, but since 2011 trade protection for pushing down the world prices of agricul- is once again increasing. Given renewed eco- tural products, including those exported by nomic uncertainty in 2012, however, coupled developing countries. However, over the past with higher food prices and the tendency for two decades there has been a shift in agricul- countries to insulate their domestic markets tural protection to developing countries, with from world price shocks, governments must reductions in export taxes but increases in continue to keep their markets open to avoid protection on import-competing goods. Tar- pushing domestic food prices higher. iffs on food trade are highest for goods from For a number of staple food commodities, middle- and high-income countries, averag- many governments intervene in their food ing 22 percent (Boumellassa, Laborde, and markets in attempts to reduce the volatility Mitaritonna 2009). In developed countries, of domestic prices relative to world prices. In agricultural protection remains high but developing countries, the various interven- has declined from its peak level during the tions reflect the sensitivity of governments to 1980s. While lowering global protection can volatile prices for important staples, either be expected to raise demand and therefore to protect consumers against high prices or increase world food prices by a relatively small to maintain higher domestic prices for pro- degree, global trade liberalization is actually ducers. Such measures can be shown to be likely to lower prices faced by consumers in second-best complements to storage poli- developing countries, with the rise in world cies for individual small and open develop- prices offset by reductions in domestic ones. ing countries concerned about the adverse Cooperative options to lowering domestic impacts of high prices for staple foods on food prices therefore include permanently risk-averse consumers and farmers, when reducing import tariffs and other taxes on key insurance against price volatility is unavail- staples and agricultural inputs. Instead, how- able and more direct measures to target poor ever, countries often tactically lower import households (in periods of high prices) and barriers on food temporarily during periods fragile producers (in periods of low prices) of domestic food scarcity only to reimpose are not feasible (Gouel and Jean 2011). But them later when yields have improved, again such trade restrictions are not a cooperative exacerbating world price volatility (Martin way to address price volatility and can actu- and Anderson, 2011). “Water� in the tariff ally exacerbate it. (the difference between bound and applied Trade restrictions have both direct and rates) can leave signi�cant room for countries indirect impacts on world food prices. Trade- to raise their applied tariffs on food imports, distorting policies displace and reduce the also compounding global price volatility. efficiency of agricultural production glob- Lowering bound tariffs has been a core part ally and make it less resilient to exogenous of the Doha agenda. shocks: policies that distort production and Other trade measures such as export trade in food commodities also potentially restrictions and non-tariff measures (NTMs), impede the achievement of long-run food including domestic policies such as price security, by promoting production in areas support, also influence the extent to which where it would otherwise not occur and by price changes in domestic markets accurately obscuring the transmission of price signals to reflect world prices. The World Trade Organi- ef�cient producers elsewhere. Furthermore, a zation (WTO) reports that trade restrictions collective action problem may emerge: many over the past year have spiked, particularly countries simultaneously insulating their since July-August 2011 when the debt crises domestic markets against global price shocks in the Euro Area and the United States began through restrictive trade measures may well to intensify (WTO 2011b). Protection mea- create higher volatility for global food prices sures by the Group of 20 (G-20) countries— (Martin and Anderson 2011). the main users of trade restrictions—now 122 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 affect a little over 2 percent of world trade. most frequently to meat, livestock, and grains Approximately 1,000 trade-restrictive mea- (concern over pandemics drove the restric- sures were introduced between September tions applied to livestock). The most frequent 2008 and October 2011, with increasing users of protection measures for food over use of NTMs, especially quantitative import the period were China, India, Indonesia, restrictions (Datt, Hoekman, and Malouche and the Russian Federation, which together 2011). One-third of all NTMs were on accounted for almost one-third of all trade exports, with increased use of export restric- restrictions introduced on food items since tions for agricultural products, in part as a the beginning of the financial crisis. Non- result of higher world food prices. G -20 countries, most notably Belarus, Since September 20 08, new trade- Bolivia, and Ukraine, have also imposed restrictive measures on food products (that trade restrictions on food products. is, all products within SITC Rev. 4—food Notably, since the 2008 financial crisis, and live animals, beverages and tobacco, oil- countries have also pursued trade liberaliza- seeds and edible oils), has accounted for one- tion as well as protection in efforts to lower quarter of all new trade restrictions, and the domestic prices for households and indus- share is rising. Export restrictions have been tries (�gure 4.6). Although some countries used in attempts to stabilize domestic food have increased their import tariffs on food prices (figure 4.5). But these same policies products—for example, Russia increased its have exacerbated global food price volatil- tariffs to 50–80 percent on imports of pigs, ity, raising the price of rice by 45 percent and pork, and poultry—tariff reductions on that of wheat by almost 30 percent between food imports were far more frequent over 2006 and 2008 (Martin and Anderson 2011). this period. In some cases the reductions in New trade restrictions adopted between Sep- import tariffs were signi�cant. For example, tember 2008 and October 2011 were applied Turkey lowered its tariffs on livestock from FIGURE 4.5 The most frequent users of trade-restrictive measures on food products are G-20 countries a. Food products facing trade restrictions, Sept. 2008–Oct. 2011 b. Types of trade restrictions on food, Sept. 2008–Oct. 2011 Meat and livestock Import tariffs Trade remedies Dairy Import restrictions Export ban Other Price support mechanism Cerealsa Import quotas Import ban Fruit and vegetables Export incentives Alcohol/tobacco Export restrictions Import licensing Sugar Export tariffs Fish and seafood Export quota Export licensing Vegetable oil Import subsidy 0 5 10 15 20 25 0 5 10 15 20 25 30 Number of restrictive measures Number of restrictive measures Non-G-20 countries G-20 countries Non-G-20 countries G-20 countries Source: Authors’ calculations using data from WTO Trade Monitoring Reports, 2009, 2010, 2011. Note: Total restrictions = 177; restrictions depicted exclude pandemic-related measures; trade remedies = antidumping, countervailing duties, safeguards. a. In G-20 countries, “cereals� are mainly wheat; in non-G-20 countries, “cereals� are mainly wheat and rice. GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 123 FIGURE 4.6 Some countries have also sought FIGURE 4.7 Producer support to farmers in most developed to lower domestic food prices by temporarily countries has fallen but is rising in emerging economies lowering trade restrictions 160 Export incentives Import bans removed 5% removed 140 Producer support estimates (%) 5% Export quotas/ 120 restrictions eased 6% 100 Import quotas/ 80 restrictions Tariff eased 11% reductions 60 61% 40 Export bans removed 12% 20 0 European United Korea, Russian Brazil Turkey Japan China Union States Rep. of Federation Source: Authors’ calculations using WTO data from 2009, 2010, 2011. Note: Trade liberalizing measures on food products, September 2008– 2009 2010 October 2011; total number of observations = 148. Source: OECD 2011. 135–225 percent to 0–20 percent. Most food tariff reductions were on grains and sugar, OECD average %PSE. For OECD countries, followed by meat, edible oil, and dairy prod- rice, sugar, milk, and livestock receive the ucts. Additionally, some countries have tried highest level of support through price protec- to stimulate exports with various incentives: tion policies and payments based on output, Brazil, through duty drawback schemes on although large declines in price support in meat exports; and the European Union and recent years have been associated with high the United States with refunds and other world prices for these products. Milk, sugar, incentives to their dairy industries. and rice also feature prominently among the Direct subsidies to farmers in developed commodities receiving specific support in countries remain a major source of support, emerging economies. As mentioned in chap- disadvantaging producers in other countries ter 1, biofuel policies in developed countries, and distorting world trade. Producer support which consist of subsidies, tax credits, and estimates (PSEs) produced by the Organisa- legislative mandates, have further distorted tion for Economic Cooperation and Develop- agricultural trade. ment (OECD) provide a measure of the extent Developing countries also use policies that to which developed country governments are adversely affect food trade and are highly assisting their farmers over time through restrictive; such measures include food mar- various payments and price support policies. keting boards, oligopolistic market structures PSE expresses the monetary value of policy in key parts of the food value chain such as transfers from consumers and taxpayers to milling, price controls, and trade bans. Coun- producers and can also be expressed as a per- tries that are net exporters of food may face centage (%PSE) of gross farm receipts. Sup- political pressures to restrict food exports in port to producers in developed countries was periods of high domestic prices. Not only do estimated to be $227 billion in 2010, account- these policies tend to have a limited impact on ing for 18 percent of gross farm receipts—the domestic price levels, however, but they also lowest %PSE on record (OECD 2011). can have a signi�cant negative effect on earn- PSEs have increased in China, Japan, and ings from export production (box 4.1). Coun- Turkey (�gure 4.7). In China support has been tries that insulate their domestic markets also increasing rapidly and is actually nearing the export instability onto international markets, 124 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 BOX 4.1 Russia’s export ban on grains In August 2010, in response to escalating grain prices, grain prices by reducing exports in 2010–11 to the 3 the Russian Federation imposed a temporary export million tons already shipped at that time, resulting in ban on wheat, barley, rye, maize, and wheat and rye a drop of nearly 12 million tons of exports initially flour until the end of December 2010. In October projected for the year. 2010, the export ban on grain was extended until the The export restrictions had unintended and unde- end of June 2011; the ban on flour was allowed to sirable consequences such as undermining Russia’s expire. long-term policy of becoming an even more impor- The export bans were originally a response to a tant player in the global grain market, encouraging drought that caused a shortfall in the grain harvest hoarding in expectation of the bans’ removal, distort- and associated rapid grain price increases in both ing prices, and affecting the investment and produc- domestic and international markets. According to tion decisions of its farmers. of�cial estimates, farmers harvested almost 37 per- cent less grain than they did in 2009. The export ban was intended to insulate Russia from highly volatile Source: World Bank 2011d. especially if they are major producers or con- Trade costs between Maghreb countries in sumers of food. For example, the introduc- North Africa—Algeria, Libya, Mauritania, tion of export restrictions on food exports by Morocco, and Tunisia—are two to three Argentina, Kazakhstan, Russia, and Ukraine times higher than those faced between coun- for wheat and China and India for rice, in tries just north of the Mediterranean rim attempts to decouple domestic markets from (such as France, Italy, and Spain). This dif- global markets to keep domestic food prices ferential is partly attributable to more NTMs low, have in the past compounded the food and constraints to intraregional trade versus price problem. interregional trade, such as more border con- Smaller developing countries (such as trols and limited cross-border cooperation to Malawi, Tanzania, and Zambia) also rou- facilitate trade across land borders (box 4.3). tinely impose strict controls on food trade, These regional barriers to trade drive up the especially if their agricultural sectors remain costs of trading agricultural products, with highly regulated by various interventions at significant implications not only for food local and national levels. For example, some security, but for political stability and eco- countries often ban imports during good nomic development more generally. harvest years to ensure domestic production The persistence of NTMs on trade in is consumed first and limit exports during food reduces trade in these products. New periods of low yields to contain domestic research at the World Bank suggests that the price increases. While these policies are often ad valorem equivalent of NTMs on African implemented ostensibly to promote food cross-border trade in food is very high (Gour- security in the form of self-suf�ciency, they don and Cadot 2011). For example, sani- rarely work and can exacerbate food insecu- tary and phytosanitary (SPS) regulations on rity rather than reduce it (box 4.2). imports of rice raise prices by as much as 42 Some restrictive barriers to trade are percent in Kenya and 30 percent in Uganda not always as visible as outright bans but (box 4.4). come in more nebulous, less apparent Bans and other restrictions on food trade forms that nevertheless increase trade costs. as well as government interventions that GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 125 BOX 4.2 Government imports of maize during the Southern Africa food crisis In 2001– 02, the Zambian government publicly trading parastatal (ADMARC) announced a fixed announced that it would import 200,000 tons of price for maize sold at its distribution centers and maize from selected South African suppliers to cover declared its intention to import maize from South the national food deficit and sell it below market Africa to maintain this price. The selling price was set price to a small number of large formal-sector mill- considerably lower than the landed cost of imported ers. The subsidy was intended to limit consumer price maize, leaving private traders with no incentive to increases, paid directly to the South African suppliers commercially import. As with Zambia, the govern- and also to the importers. Because of liquidity prob- ment imports also arrived late and were insuf�cient lems, the subsidy payment was made late, causing the to meet demand, so prices soared to a peak of $450 maize imports to be delayed. When the government a ton in early 2002. To make matters worse, the late- instead imported only 130,000 tons very late in the to-arrive ADMARC imports arrived during the good season, maize and maize flour shortages occurred and 2002 harvest and were then released to the market, local market prices exceeded import parity. Zambian resulting in 16 months of continuously falling maize traders and millers who had not been selected to ben- prices, to the detriment of farmers. At other times, e�t from the scheme, including informal traders from the sourcing of grain from South Africa and subse- Mozambique, refrained from commercially importing quent release onto the domestic market through gov- maize for fear of not being able to sell it once the sub- ernment contracts with South African suppliers has sidized maize reached the market. Because grain was also depressed informal maize trade with Mozam- channeled only to the largest millers, consumers had bique. Because Mozambique is the source of informal to pay a higher price for already-re�ned flour instead trade in maize to southern Malawi, these government of being able to source grain and mill it themselves or imports also add greater risks and price instability for though the informal network of small hammer mills. Mozambique’s smallholder farmers. In the same year, Malawi also faced a modest maize production de�cit—8 percent below the coun- Sources: Nijhoff et al. 2002; Jayne, Chapoto, and Govereh try’s 10-year average. In September 2001, its grain- (2007); Rubey 2005; Nijhoff et al. 2003. foment distortions might allow a country to However, national self-sufficiency in shield consumers from the initial implications food remains a highly sensitive issue in both of a price hike. However, they do not provide developed and developing countries in which the incentive for a domestic supply response, political struggles are sometimes played out and these implications should be considered in food marketing and trade policies. Price when implementing policies that restrict shocks on net-food-importing countries international trade. Encouraging more trade can also widen current account de�cits, put in food, not less, is essential for achieving additional pressure on exchange rates, cause food security. Increased reliance on trade for a shortage of foreign reserves, and increase production and consumption of food, as well social safety net expenditures. For example, as for inputs, increases farm gate prices with- during the Arab Spring, the government of out necessarily inflating consumer prices—a Jordan overturned the food subsidy cuts it win-win for farmers and consumers alike. made in 2008 and introduced tax exemp- Indeed, those developing countries that have tions on 13 foodstuffs. In the Arab Repub- adopted more-open trade policies for food lic of Egypt, the bread subsidy is estimated have seen benefits through higher produc- to reach around 85 percent of the popula- tion, exports, and trade in these products, tion (World Bank 2011a). The risk with such together with lower domestic price volatility measures, however, is that they can become (box 4.5). entrenched, incurring high fiscal costs. 126 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 BOX 4.3 The Middle East and North Africa region faces high trade costs in food The Mediterranean basin, including its northern are still suspended or heavily controlled at several European and southern North African rims, has borders in part because of security concerns but also been an active trading area for more than three mil- because of mutual lack of trust regarding standards lennia. Yet trade and logistics patterns between the or origin, especially in the context of the Pan Arab two rims vary considerably, with the cost of trading Free Trade Agreement, which will remove tariffs on among Middle East and North African countries all goods of Arab origin.) A 2009 World Bank mis- being inordinately high. Trade costs between coun- sion counted as many as 10 separate control stops tries on the developing, southern rim are higher than at the Syria-Jordan border, equally distributed on those experienced between the wealthier, European either side. Container dwell time in Morocco and counterparts (such as France, Italy, and Spain), by Tunisia is about one week, longer than the OECD as much as three times for agricultural goods. More- benchmark of 3 days and that in emerging Asia— over, trade costs within, for example, the Maghreb 4 days in Malaysia, 2.5 days in Shanghai. Small region or between the Levant countries in the East- reductions in trade costs can result in considerable ern Mediterranean exceed those the region incurs trade expansion: reducing trade costs by just 5 per- externally with Europe. Three explanatory factors cent could increase trade between the Maghreb and stand out, in order of restrictiveness: NTMs that Western Europe by 22 percent, and intra-Maghreb constrain trade processes; the low quality and frag- trade by 20 percent. Lower trade costs would also mentation, by country, of logistics services such as facilitate production sharing within a larger market trucking; and less developed intraregional infrastruc- resulting in more competitive exports to Europe. ture, such as ports that easily connect the Maghreb to the Mashreq, and few active transport corridors Sources: Shepherd 2011; Arvis 2012; Hoekman and between countries. (Trucking and railway movement Zarrouk 2009. BOX 4.4 Quantifying the effects of non-tariff measures on trade in African food staples Quantifying the price-raising effect of non-tariff variables marking the application of NTMs of vari- measures (NTMs) was, until recently, constrained by ous types, using a panel of 1,260 country-product the availability of comparable data across countries. pairs. The regressions control for systematic differ- Thanks to a collaborative effort between the World ences in cost-of-living across countries, as well as in Bank and other agencies, including United Nations market-structure diversity across products, with a full Conference on Trade and Development (UNCTAD) array of country and product �xed effects. Interaction and the African Development Bank, a new wave of terms between NTMs and either region or country data collection was undertaken in 2009–10. So far, dummies provide tentative estimates of their price- 30 countries have been covered, with NTMs coded raising effect in Africa or in speci�c countries. for each of the Harmonized System’s 5,000 product As is usual with this type of exercise, results should lines. Combining this data with price data collected be interpreted with caution, because many confound- as part of the World Bank’s International Compari- ing influences can affect estimates. Although many son project (for a smaller set of products) has made it controls are used in the regressions to limit these con- possible to estimate directly, using econometric meth- founding influences, they put heavy demands on the ods, the price-raising effect of NTMs on African food data and result in many coef�cients being estimated staples. with large confidence intervals. Be that as it may, The approach consisted of running regressions of results, shown graphically in the �gure below, are tell- country-level product prices on “dummy� (binary) ing. On average Africa’s SPS measures, which often GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 127 BOX 4.4 Quantifying the effects of non-tariff measures on trade in African food staples (continued) Price-raising effect of NTMs, Africa average (all affected suffer from lack of harmonization, poor design, and products) haphazard enforcement, raise the price of food staples 25 by 13–15 percent. Quantitative restrictions, where 20 they are applied, add another 20 percent. Such price 15 increases have the potential to affect signi�cantly the Percentage points 10 real income of poor households. 5 Product-specific estimates suggest substantial 0 effects of SPS regulations in Kenya on rice prices (+42 –5 percent), meat (+34–37 percent), � sh (+33 percent), –10 and edible oils and fats (+29 percent). Rice prices –15 seem to be similarly affected in Uganda (+30 percent), –20 as are meat and �sh prices (+41 percent). SPS TBT PSI and Price Quantitative formalities controls restrictions Region fixed effects Country fixed effects Source: Gourdon and Cadot 2011. Note: SPS = sanitary and phytosanitary; TBT = technical barriers to trade; PSI = pre-shipment instructions. BOX 4.5 Open border policies for trade in food Unlike many other countries in the region, Uganda of which periodically face food shortages. The vol- and Mozambique have consistently retained liberal umes purchased reached 109,000 tons in 2010. The border policies for food staples. Uganda’s open trade maize policy of the Ugandan government has been policy for food staples enables traders to offer prod- to allow and encourage cross-border trade, and the ucts and services competitively, reliably, and on a sus- WFP procurement program has encouraged a sup- tainable basis. Uganda is able to serve as a food bas- ply response of more maize and beans from farmers ket for East Africa. There is no export restriction on who are able to meet WFP’s quality and quantity agricultural products, nor has the government insti- requirements. tuted any recent ban on trade in food. Consequently, Mozambique, since the end of its civil war in 1992, the flow of maize from Uganda to Kenya is one of the has also freely allowed both imports and exports of larger and more consistent cross-border flows in the maize. Because northern Mozambique is typically a region (approximately 120,000 tons a year). There is maize surplus area, and because Malawi offers better also cross-border trade with Rwanda (50,000 tons), prices than southern Mozambique (because of lon- and southern Sudan is also becoming a growth mar- ger distances and higher transport costs to Maputo), ket for Ugandan products. Nevertheless, the most dis- traders in northern Mozambique routinely sell their tinct feature of the Ugandan market is the signi�cant grain to Malawi and eastern Zambia. The open bor- presence of the World Food Programme (WFP) and der policy enables the resulting de�cits in Mozam- its procurement program. Ugandan maize accounts bique’s southern cities to be met by large millers who for the largest proportion of maize the WFP procures import grain from South Africa and mill it for domes- in Africa (21 percent in 2010), excluding South Africa tic sale. Trade (coupled with the 30 percent subsidy on (which accounted for 24 percent in 2010). The WFP flour for wheat and bread production) has therefore buys Ugandan maize as well as beans for distribution helped to stabilize prices in Maputo compared with to internally displaced people in the country but also other capital cities in the region. sends shipments to Burundi, the Democratic Republic of Congo, Kenya, Rwanda, Sudan, and Tanzania, all Sources: Haggblade et al. 2008; World Bank 2009a. 128 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 Moreover, consumer subsidies that are met of removing extant subsidies—especially in by price controls and trade restrictions can a period where high prices have reduced the be counterproductive and create disincentives prevalence of their use. The ban would be for domestic food producers. more signi� cant if world prices fell in the future because the decline would not trigger an increase in export subsidies. Policy recommendations for Developing disciplines on the ability of opening food trade in the governments to use import and export bar- pursuit of food security riers to insulate domestic markets, and hence make world markets less thin, would also be Concluding the Doha Round would a major source of welfare gain for develop- bring more predictable market access ing countries (Martin and Anderson 2011). for food products WTO disciplines for food export restrictions A conclusion to the Doha Round of WTO are currently considered to be insuf�cient and negotiations would contribute to food weak (FAO and OECD 2011). Export taxes price stability by reducing distortions and are covered under the WTO and must com- strengthening disciplines on food trade ply with the most-favoured-nation clause. restrictions, thereby limiting the scope for Article XVIII of the General Agreement on countries to impose policies that destabilize Tariffs and Trade (GATT) also provides for world food markets. It would also provide the negotiation of tariffs on both imports a boost to the world economy, generat- and exports. And while export taxes do not ing a potential stimulus of $160 billion in have an institutional anchor equivalent to real income (Laborde, Martin, and van der import tariff bindings, which are addressed Mensbrugghe 2011). The primary deliver- specifically in the GATT (Article II), there able would be enforceable policy commit- is no legal impediment to negotiating their ments by member governments to provide reduction or elimination (Mavroidis 2007). greater security of market access by not However, there are very few export tariffs raising support for domestic agricultural that have already been negotiated by WTO sectors above a given level (high commod- members. This means that most export tar- ity prices could dissipate resistance by farm- iffs are not yet bound. ers in developed countries to an agreement Quantitative restrictions, including for on this); to place greater restrictions on the exports (bans), are generally prohibited by level of permitted tariffs for food imports; Article XI of the GATT but an exception and to refrain from using certain policies allows members to restrict food exports at all (such as export subsidies). The topics as long as the measures are “temporarily on the table are therefore important, and in applied to prevent or relieve critical shortages principle there is enough substance for all of foodstuffs. . . .� (GATT Article XI, 2 (a)). countries to gain from an agreement. How- Export restrictions relating to food must also ever, too much emphasis has been placed conform with the Agreement on Agriculture on the gains from market access alone. (Article 12) that requires WTO members to The Doha Round is about much more than maintain transparency in using such mea- market access. Concluding the negotiations sures by considering the effects on importing arguably requires greater recognition of the members’ food security, give notice in writ- value that new trade policy disciplines could ing, and consult with other WTO members bring as part of an agreement (Hoekman as far in advance of implementation as is pos- 2011). For example, while a complete ban sible. The provisions of this article exempt on export subsidies for crops such as cot- developing countries, unless they are net ton would be a major step forward, it should food exporters of the speci�c food staple con- not be quanti�ed by estimating the impact cerned. However, since June 2010, only four GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 129 noti�cations by three WTO members have production ensures domestic food security, been submitted (Saez 2011). even in drought years, enabling the region to One policy option, therefore, would be export maize to the Democratic Republic of to ban export restrictions altogether in the Congo, Malawi, and elsewhere in Zambia; WTO if this could be agreed and enforced. eastern Uganda, where bananas and cas- Commitments by the larger exporters of sava ensure food security, thereby enhanc- food not to impose export restrictions would ing maize exports to chronically food-de�cit especially help maintain world price stability Kenya; northern Mozambique where cassava in periods of food stress. Reinforced multi- and Irish potato cultivation provide local lateral trade rules for noti�cation and trans- food, enabling regular maize exports both parency of export restrictions would also north into Kenya and south into Malawi; be useful. Developing a code of conduct to most of Tanzania where a combination of exempt food aid from export restrictions is rice, cassava, bananas, and maize enable reg- an important priority for the international ular cereal exports both north into Kenya and community. Food and Agriculture Organiza- south into Malawi; and South Africa where tion (FAO) member countries have already large-scale commercialization and mecha- agreed to remove these on food consign- nization combined with modern inputs and ments purchased for humanitarian purposes, irrigation enable high yields for the export � rst at the Group of Eight (G-8) Summit in of cereals northward to Zimbabwe, southern L’Aquila, Italy, in July 2009 and then at the Mozambique and Malawi (Haggblade 2008). World Summit on Food Security in Rome in Indeed the scope for increased cross-border November 2009. If met, these commitments trade in Africa is enormous, but various would allow food to be shipped to where it is obstacles remain (box 4.6). Elsewhere, Thai- most needed in times of severe shortage. land, the world’s largest producer of cassava, has recently witnessed dramatic increases in its exports of this crop on the back of sales to Greater opening of regional markets to China for biofuel production. trade would promote food security and To better exploit these opportunities, more price stabilization effective regional trade policy and regulations The potential for faster agricultural growth must be developed to link smallholder farm- in many developing countries could be ers to urban demand centers across borders. unlocked by deeper regional trade integra- Groups of developing countries have been tion to complement multilateral liberalization actively pursuing regional trade agreements efforts. In the absence of a Doha package, (RTAs), including the formation of free trade increased regional trade can also be a pow- areas and customs unions, which for the most erful instrument for stabilizing food supply part have largely succeeded in reducing tariffs and food prices. The distribution of food on most goods traded among them. As with crop cultivation between neighboring coun- global trade, however, the gradual removal of tries, coupled with possibilities, where they tariffs has meant NTMs have become more exist, for staggered harvesting within the visible. For example, export bans, country- same commodity, offers substantial oppor- speci�c standards, complex rules of origin, tunities for regional trade. Because produc- and cumbersome customs requirements tion variability is not often highly correlated across countries often serve to reduce regional among countries in most regions, integration trade and destabilize regional food prices. through regional trade can reduce the effects Additionally, governments have retained of small country size on production volatility. the use of safeguards under their various Examples of regional trade in food, both RTAs to exclude food from open regional recorded and unrecorded, are numerous and trade on the grounds of health and pub- include northern Zambia, where cassava lic safety. As a result, governments retain a 130 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 BOX 4.6 Defragmenting Africa: What will stimulate regional trade integration? Africa’s potential for regional trade remains unex- While there have been many initiatives to integrate ploited because of the high transaction costs that regional markets in Africa, effective implementation face those who trade across borders in Africa. A of commitments has been sorely lacking. Hence, there wide range of policy-related barriers drives up costs is a need to help countries understand the political and limit trade. To escape the current straitjacket of economy behind resistance to integrative reforms. trade fragmentation, Africa needs to pursue changes How is it that leaders publicly and, by and large, genu- in three key areas: inely pledge support for integration, but actual bar- riers to trade persist? For example, most of the non- • Facilitating cross-border trade, especially by small tariff barriers identi�ed in the East African Commu- poor traders, many of whom are women, by sim- nity for immediate removal in 2008 are still in place. plifying border procedures, limiting the number Opening up food staples to regional trade will create of agencies at the border and increasing the pro- winners and losers. Therefore, political consensus on fessionalism of of�cials, supporting traders’ asso- agricultural reform is required to create new insti- ciations, improving the flow of information on tutional arrangements that moderate the impact of market opportunities, and assisting in the spread future shocks and instability in agricultural markets. of new technologies, such as cross-border mobile Two related factors can help governments build con- banking, that improve access to � nance. stituencies for reform and provide a predictable and • Removing a range of nontariff barriers to trade, stable policy environment: such as restrictive rules of origin, import and export bans, and onerous and costly import and 1. An inclusive dialogue on food trade reform export licensing procedures. informed by timely and accurate data on global, • Reforming regulations and immigration procedures regional, and national markets. Food trade policy that limit the substantial potential for cross-border is rarely subject to open discussion, and the inter- trade and investment in services. ests and views of relevant stakeholders in food staples trade policies are seldom represented. And The main message is that to deliver integrated when there is open discussion about trade reform, regional markets that will attract investment in decision makers rely most on the input of those agroprocessing, manufacturing, and new services with political influence. activities, policy makers need to move beyond signing 2. A reform strategy that provides a clear transitional agreements that reduce tariffs to drive a more holistic path to integrated regional markets rather than a process to deeper regional integration. An approach single but politically unfeasible jump to competi- is needed that reforms policies that create nontariff tive markets. A reform strategy will have to take barriers; puts in place appropriate regulations that place in incremental steps that encourage invest- allow cross-border movement of services suppliers; ment by reducing uncertainties about policies for delivers competitive regionally integrated services the private sector and deliver real and visible ben- markets; and builds the institutions that are necessary e�ts. At the same time, it will allow policy mak- to allow small producers and traders to access open ers to move at a pace consistent with their political regional markets. The appropriate metric for success- risk calculations and their capacity to address the ful integration is not the extent of tariff preferences concerns of those who will lose from the reform but rather reductions in the level of transaction costs process. that limit the capacity of Africans to move, invest in, and trade goods and services across their borders. Source: World Bank 2012. great deal of discretion over food-related policy for agricultural products has essen- trade policy, particularly in cases of food tially become a patchwork of rules imple- security and when there is a perceived risk to mented unevenly across different countries human health. Consequently, regional trade and enforced inconsistently, generating an GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 131 opaque policy environment that severely lim- as Nepal. However a stronger focus on the its trade in food. “software� (regulatory) dimensions of trans- port, logistics, and trade facilitation projects is also needed (Arvis, Raballand, and Mar- Improved transport logistics and trade teau 2010). facilitation would improve links to Improving trade facilitation and logistics markets and promote cost-effective reforms, as well as streamlining regulatory access to food and food inputs frameworks in the context of simpli�ed bor- Trade policy restrictions are not the only der management procedures, can have signi�- impediment to the free movement of food cant bene�ts for consumers, while generating across borders. Efficient transport and a favorable supply response. When moving logistics are critically important to agricul- formal consignments of food across borders, tural marketing and are a key component of traders in developing countries often face a prices. Yet in developing countries, particu- host of repetitive fees, permissions, redun- larly landlocked least developed countries, dant documentation procedures, and uneven transport and logistics costs are generally far certi�cate of origin requirements. As a result, higher than OECD benchmarks of around 9 customs clearance in many developing coun- percent. For example, on average transport tries involves long delays, even for perishable and logistics costs account for 18 percent of goods such as food that should be cleared the value of firms’ sales in Latin America, quickly. Individually most of these require- reaching 32 percent for Mercosur (Southern ments may constitute a small delay or expense Cone Common Market) and Chile (World to traders but collectively they represent a sig- Bank 2005). In the case of African countries, ni�cant barrier to trade. Even where single improvements in logistics services (as mea- entry documents have been introduced, the sured by the Logistics Performance Index) information and accompanying documents would provide greater bene�ts than changes (such as import declaration forms, origin cer- in other components of trade costs (Hoek- ti�cates, invoices, import permits and stan- man and Nicita 2008). dards compliance) required from traders can Transport and logistics costs are also be burdensome, and small cross-border trad- an important determinant of food costs ers may be unable to provide all of the infor- for importing countries as well as of food mation for the entry document. For example, price variations within them. For example, in Tanzania all certi�cates and permits can maize prices in Guatemala have increased be obtained only in person in Dar es Salaam. signi�cantly more than in the rest of Latin In Kenya permits to legally import grain are America because of higher transport costs. available only in Nairobi (Nyameino, Kagira, Similarly, sharp increases in the prices of and Njukia 2003). And traders wanting to wheat-related products in Azerbaijan, the export food staples from northern Mozam- Kyrgyz Republic, and Tajikistan over the bique to southern Malawi are required to get past year partly reflect increased transport an export permit from Quelimane on the cen- costs from Kazakhstan (World Bank 2011b). tral coast of Mozambique (Tschirley, Abdula, While individual countries cannot do much and Weber 2005). Consequently, food trade to reduce ocean freight costs, which may be can be effectively prohibited; subjected to a signi�cant part of the � nal price for bulk, tariffs (even if undertaken within the context relatively low-value commodities such as of an RTA); or, as already discussed, pushed grains and edible oils, they can pursue pro- into informal channels. active policy initiatives to lower costs associ- Simple, structured, stable, and predict- ated with regional and domestic distribution. able trade regimes are needed that are based Investments in transport infrastructure have around harmonized and easy-to-satisfy a proven track record of reducing consumer border procedures that reflect the capaci- prices, especially in remote locations such ties of farmers and traders; the provision of 132 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 information on rules and regulations that are enhance the contribution of agriculture to easily available and well known; and clear economic growth through attracting invest- notification procedures for new rules and ments in agricultural research and more regulations that allow traders, other gov- productive agricultural techniques, thereby ernments, and agencies to contest proposed harnessing the gains for small-scale farmers changes and give producers time to adjust. as well. Countries such as Brazil, Malaysia, Increasing the productivity of food pro- and Thailand have made significant prog- duction also requires an assessment of the ress in agricultural commercialization in problems that affect the whole value chain, recent years and have undertaken invest- particularly those relating to infrastructure ments in research and extension services and links to markets. The prices that farm- while other countries such as India and ers receive and consumers pay for food are Mali have improved their market informa- influenced by the quality and availability of a tion systems (World Bank 2009b). However, range of services including extension services, exploiting these opportunities requires an transport and logistics services, storage and open and predictable trade policy environ- distribution, and water. Increasing competi- ment for food and food inputs. For example, tion in these services can play a positive role those policies that seek to control domestic in boosting agricultural productivity and food markets through price controls, direct improving cost ef�cient access to food. government involvement in marketing activi- ties, and trade restrictions are all likely to lower the food supply response over the Positive policy measures to promote medium term. In contrast, the development food security should be developed of market-based mechanisms to manage food though increased Aid for Trade price risks (such as futures and options mar- Policy makers are often reluctant to open up kets, facilitation of private storage or ware- to food trade because they are keenly aware house receipts systems, market information that food price shocks can lead to food inse- systems, and weather-indexed insurance) are curity and consequently to social unrest. This all likely to mobilize signi�cant new invest- is certainly the case if at the country level no ments from the private sector. Aid for Trade social safety nets or other instruments are could be used to support the policy reform available to mitigate the adverse effects on the and supply-side upgrade processes that are poor and vulnerable. At the same time, it is needed for developing countries to better tap not always immediately clear whether a food the opportunities created by more open mul- price shock is permanent or transitory. Policy tilateral and regional markets for food. makers often treat shocks as transitory and In 2009 Aid for Trade commitments use trade policies to protect their consum- reached approximated $40 billion—a 60 ers. Those policies do not necessarily provide percent increase from the 2002–05 period. incentives to producers to increase productiv- The share of Aid for Trade going to least ity and production. As various improvements developed countries has also increased from in the food value chain will require time to 26.5 percent during the period 2002– 05 materialize, for example, in trade-related to 30.4 percent in 2009. Furthermore, sup- infrastructure, it is important to work simul- port for multicountry programs (both global taneously on enhancing social safety nets. and regional) reached $7 billion in 2009, While rising world food prices are cur- more than three times the amount during rently perceived as a “crisis� and are clearly 2002–05. The World Bank is the largest pro- a burden to poor net consumers of food, vider of Aid for Trade. Based on the OECD/ over the long term, they could bring signi�- WTO de� nition of Aid for Trade, the Bank cant opportunities to stimulate food produc- provided an average of $15 billion a year in tion in developing countries, thus improving Aid for Trade between 2001 and 2011 and food security for the poor. They could also accounts of 20 percent of all Aid for Trade GLOBAL MONITORING REPORT 2012 USING TRADE POLICY TO OVERCOME FOOD INSECURITY 133 expenditures globally. Lending for transport Geopolitical Risk, Macroeconomics and Alter- infrastructure is a critical component of the native Investment Conference, New York, World Bank’s efforts to help developing coun- October 11–12. tries achieve their trade integration and pol- Datt, M., B. Hoekman, and M. Malouche. 2011. icy reform objectives. Almost two-thirds of “Taking Stock of Trade Protectionism since World Bank support for transport infrastruc- 2008.� Economic Premise Note 72, World ture is for roads and highways, with South Bank, Washington DC. Asia being the largest recipient of funds for FAO (Food and Agriculture Organization). 2009. transport projects. Excluding infrastructure, “The State of Food Insecurity in the World.� the World Bank provided a total of $2.6 bil- Rome. lion in trade-related lending in 2010–11, an ———. 2010. FAO Statistical Yearbook 2010. almost �vefold increase over 2002–03; the FAO and OECD (Organisation for Economic share of trade-related lending in total Bank Co-operation and Development). 2011. “Price lending also showed a rising trend, from an Volatility in Food and Agricultural Markets: average of 2 percent during 2001–03 to an Policy Responses.� Report prepared for the average of 6 percent during 2008–11. Africa G-20. Rome and Paris. is the largest recipient of World Bank Aid for Gouel, C., and S. Jean. 2011. “Optimal Food Trade and now accounts for more than one- Price Stabilization in a Small Open Developing third of disbursements. Country.� CEPII (Institute for Research on the With uncertainty in the global economy International Economy), Paris. and �scal pressures in key donor countries, a Gourdon, J., and O. Cadot. 2011. “The Price- key challenge will be to sustain current levels Raising Effects of Non-Tariff Measures in of � nancing. Monitoring by the OECD and Africa.� World Bank, Washington, DC. WTO as part of the self-assessment exercise Haggblade, S. 2008. “Enhancing African Food for the Third Global Review of Aid for Trade Security through Improved Regional Market- indicates that the outlook for Aid for Trade ing Systems for Food Staples.� Michigan State appears stable, although the previously high University. growth rates have declined. Aid for Trade Haggblade, S., J. Govereh, H. Nielson, D. Tschir- grew by 2 percent between 2008 and 2009, ley, and P. Dorosh. 2008. “Regional Trade in compared with annual increases of 10 per- Food Staples: Prospects for Stimulating Agri- cent between 2006 and 2008 (WTO 2011a). cultural Growth and Moderating Short-Term Existing Aid for Trade pledges should there- Food Security Crises in Eastern and South- fore be honored and new pledges encouraged. ern Africa.� Paper prepared for World Bank, Washington, DC. Hoekman, B. 2011. “The WTO and the Doha References Round: Walking on Two Legs.� Economic Arvis, J. F. 2012. “Trade and Transport Facilita- Premise 68, Poverty Reduction and Economic tion in the MNA Region.� World Bank, Wash- Management Network, World Bank, Washing- ington, DC. ton, DC. Arvis, J. F., G. Raballand, and J.F. Marteau. Hoekman, B., and A. Nicita. 2008. “Trade Policy, 2010. The Cost of Being Landlocked. Wash- Trade Costs and Developing Country Trade.� ington, DC. Policy Research Working Paper 4797, World Boumellassa, H., D. Laborde, and C. Mitaritonna. Bank, Washington, DC. 2009. “A Picture of Tariff Protection across the Hoekman, B., and J. Zarrouk. 2009. “Changes World, MAcMap-HS6, Version 2.� IFPRI Dis- in Cross-Border Trade Costs in the Pan-Arab cussion Paper 903, International Food Policy Free Trade Area, 2001–2008.� Policy Research Research Institute, Washington, DC. Working Paper 5031, World Bank, Washing- Canuto, O. 2011. “Fiscal Consequences of Food ton, DC. and Agricultural Commodities Inflation.� Ivanic, M., W. Martin, and H. Zaman. 2011. Remarks for the World Bank GAIM/GMA, “Estimating the Short-Run Poverty Impacts 134 USING TRADE POLICY TO OVERCOME FOOD INSECURITY GLOBAL MONITORING REPORT 2012 of the 2010–11 Surge in Food Prices.� Policy Rubey, L. 2005. “Malawi’s Food Crisis: Causes Research Working Paper 5633, World Bank, and Solutions.� Report for USAID, Lilongwe. Washington, DC. Saez, S. 2011. “Trade Policy Options and Interna- Jayne, T., A. Chapoto, and J. Govereh. 2007. tional Food Prices.� World Bank, Washington, “Grain Marketing Policy at the Crossroads: DC. Challenges for Eastern and Southern Africa.� Shepherd, B. 2011. “Trade Costs in the Maghreb Paper prepared for the FAO Workshop on 2000–2009.� Developing Trade Consultants “Staple Food Trade and Market Policy Options Ltd. for Promoting Development in Eastern and Tschirley, D., D. Abdula, and M. Weber. 2005. Southern Africa,� March 1–2, Rome. “Toward Improved Marketing and Trade Poli- Kshirsagar, V., and J. Baffes. 2011. “The Nature cies to Promote Household Food Security in and Structure of Global Food Markets.� World Central and Southern Mozambique.� Michi- Bank, Washington, DC. gan State University. Laborde, D., W. Martin, and D. van der World Bank. 2005. “Infraestructura logística en Mensbrugghe. 2011. “Implications of the Colombia.� Report 35061-CO, Departamento Doha Market Access Proposals for Developing de Finanzas, Sector Privado e Infraestructura, Countries.� Policy Research Working Paper Región de América Latina y el Caribe, Wash- 5697, World Bank, Washington, DC. ington, DC. Martin, W., and K. Anderson. 2011. “Export ———. 2009a. “Eastern Africa: A Study of Restrictions and Price Insulation during Com- the Regional Maize Market and Marketing modity Price Booms.� Policy Research Paper Costs.� Agriculture and Rural Development 5645, World Bank, Washington, DC. Unit, Africa Region, World Bank, Washing- Mavroidis, P. 2007. Trade in Goods. New York: ton, DC. Oxford University Press. ———. 2009b. “Rising Food Prices: Policy Nijhoff, J., T. Jayne, B. Mwiinga, and J. Shaffer. Options and World Bank Response.� World 2002. “Markets Need Predictable Government Bank, Washington, DC. Actions to Function Effectively: The Case of ———. 2011a. “Food Price Watch February Importing Maize in Times of De�cit.� Policy 2011.� Poverty Reduction and Equity Group, Synthesis 6, Food Security Research Project, World Bank, Washington, DC. Lusaka. ———. 2011b. “Food Price Watch April 2011.� Nijhoff, J., D. Tschirley, T. Jayne, G. Tembo, Poverty Reduction and Equity Group, World P. Arlindo, B. Mwiinga, J. Shaffer, M. Weber, Bank, Washington, DC. C. Donovan, and D. Boughton. 2003. “Coor- ———. 2011d. “Russia and Central Asia: Win- dination for Long-Term Food Security by Gov- Win Approaches in Trade Integration.� ECSPE ernment, Private Sector and Donors: Issues and and the Eurasian Development Bank Center Challenges.� Policy Synthesis 65, Michigan for Integration, Washington, DC. State University. ———. 2012. “De-Fragmenting Africa: Deepen- Nyameino, D., B. Kagira, and S. Njukia. 2003. ing Regional Trade Integration in Goods and “Maize Market Assessment and Baseline Services.� World Bank, Washington, DC. Study for Kenya.� Regional Agricultural Trade WTO (World Trade Organization). 2011a. “Aid Expansion Support Program, Nairobi. for Trade Work Programme 2012–2013— OECD (Organisation for Economic Co-operation Deepening Coherence.� JOB/DEV/12, Com- and Development). 2011. “Agricultural Pol- mittee of Trade and Development, Geneva. icy Monitoring and Evaluation 2011: OECD ———. 2011b. Report on G-20 Trade Measures. Countries and Emerging Economies.� Paris. Geneva. 5 Aid and International Financial Institutions Summary and Main Messages may take several years before the full impact of the global financial crisis on aid flows Official development assistance (ODA) becomes apparent. This is underscored by has strengthened remarkably over the past the just-released (April 2012) preliminary decade, despite the disruptions of the global OECD data indicating that ODA disburse- �nancial crisis centered in high-income coun- ments declined by 2.7 percent in 2011 (at tries. Net ODA reported to the Develop- 2010 prices), as � scal consolidation in sev- ment Assistance Committee (DAC) of the eral DAC countries has cut into their aid Organisation for Economic Co-operation budgets. and Development (OECD) rose from 0.22 Despite the recent spikes in food prices, percent of donors' gross national income ODA commitments to agriculture, food, and (GNI) in 2000 to 0.32 percent in 2010 and nutrition are limited. The share of aid com- reached a record high of $127.3 billion in mitments directed toward agriculture, food, 2010 (at 2009 prices), very close to the target and nutrition has remained at about 10 per- set at the Group of Eight Gleneagles Sum- cent since the MDGs were agreed upon in mit in 2005. And among the 15 European 2000. Further increases in aid for nutrition Union (EU) member countries that commit- are particularly important: assistance for ted to raising ODA to 0.51 percent of GNI nutrition represents only 3 percent of total by 2010, 8 countries reached the goal and aid flows to agriculture, food, and nutrition, another 4 countries made signi�cant prog- yet improved nutrition and gains in early ress toward it. There is some evidence that childhood development are critical to eco- international coordination, notably the com- nomic progress. mitments made at Gleneagles, contributed to Tight budget constraints in many donor the rise in aid disbursements (Kharas 2010). countries underscore the need for improv- Nevertheless, aid remains well short of the ing aid effectiveness to meet the MDGs in goal of 0.7 percent of GNI set by the United 2015. Progress in improving aid effectiveness Nations some 40 years ago and substantially has fallen short. Only 1 of the 13 global tar- below various estimates (Atisophon and oth- gets set out in the Paris Declaration on Aid ers 2011) of annual disbursements required Effectiveness (2005) to be achieved by 2010 to meet the Millennium Development Goals has been met, and only limited progress has (MDGs). Further, a key concern is that it been achieved on the other 12. Directing a 137 138 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 larger share of disbursements to country pro- of many international activities that sup- grammable aid (CPA, a core subset of ODA, port development and poverty alleviation which accounts for about 60 percent of total (Zoellick 2011). Nevertheless, ODA remains DAC gross bilateral ODA and excludes particularly important for low-income coun- unpredictable components such as food aid tries. It represented more than 60 percent and aid flows that do not have direct devel- of their external finance during 2005–10, opment impacts such as donor administra- compared with a mere 4 percent for middle- tive costs) would also help to mitigate the income countries (Adugna et al. 2011). ODA impact of weakened aid flows. is critical for fragile and conflict-affected The very welcome expansion of new states, where integration with global mar- donors has raised new challenges for aid kets has been severely hampered. Recog- recipients and has led to shifts in the inter- nizing that few conflict-affected countries national aid agenda. While data remain would achieve a single MDG by 2015, the limited, the Bank estimates that aid dis- New Deal for Engagement in Fragile States bursements by non-DAC bilateral donors (which stakeholders endorsed at the Fourth (including new donor middle-income coun- High Level Forum in Busan) sets out 5 pri- tries) and private actors such as philan- orities to work toward: legitimate politics, thropic organizations reached $63.5 billion justice, security, economic foundations, and in 2009. The lion’s share, $52.5 billion, revenues and services. came from private nongovernmental orga- Fiscal consolidation in many large donor nizations (NGOs) (Hudson Institute 2011) countries is likely to slow the growth of aid and the remaining $11 billion came from in coming years. Donor reports indicate non-DAC donors (accounting for $7.3 bil- that the growth of disbursements of coun- lion) and new middle-income donors Brazil, try programmable aid could fall from an China, India, the Russian Federation, and average of 5 percent a year recorded during South Africa (together accounting for $3.7 2001–10 to an average of 2 percent during billion) (Zimmermann and Smith 2011). The 2011–13. This implies an annual per capita rapid rise in the number of donors and proj- decline of 0.2 percent of CPA disbursements ects has increased the administrative burden for recipient countries. Disbursements to facing recipients, particularly for fragile and countries in conflict or fragile situations conflict-affected states (OECD 2011c). The may decline by an annual 2.1 percent on a sharp rise in stakeholders has contributed to per capita basis, although they would remain important shifts in the aid agenda, including four times the per capita level expected for calls for strengthening country leadership other aid recipients. If realized, lower per and ownership of the aid management pro- capita CPA disbursements could have sig- cess; promoting a more inclusive process of ni�cantly negative �scal implications for the development cooperation; improving deliv- countries affected—and potentially for the ery, measurement, and monitoring of results; achievement of the MDGs. This potential and improving harmonization and transpar- aid decline underscores calls at the Fourth ency of aid management and delivery prac- High Level Forum on Aid Effectiveness in tices—common goals that the development Busan to focus on results, to scale up aid for community endorsed in the Global Partner- fragile states and underaided countries, and ship for Effective Development at the Fourth to improve aid coordination. High Level Forum on Aid Effectiveness in Busan in 2011. Additionally, participation by new actors, particularly the private sec- Recent trends in the tor, has led to calls for greater emphasis on disbursement and composition innovation (Gates 2011). of aid With increased international trade, for- Of�cial development assistance strengthened eign investment, and remittances flows, substantially in 2010, despite ongoing chal- ODA is now viewed as only one component lenges tied to the global � nancial crisis and GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 139 limited fiscal space in many high-income FIGURE 5.1 DAC members’ net ODA bilateral disbursements countries. DAC member countries’ bilat- eral ODA net disbursements increased by 140,000 0.35 6.3 percent in constant dollars to $127.3 billion, the highest level on record, exceed- 120,000 0.3 ing the previous peak of $122.3 billion in 2009 constant US$, millions 100,000 0.25 2005. This increase followed weak volume growth of 1 percent in 2009, as the global 80,000 0.2 Percent economy grappled with recession. Bilateral 60,000 0.15 ODA net disbursements rose to 0.32 percent of DAC donors’ GNI in 2010, up from 0.22 40,000 0.1 percent in 2000 and the highest share since 20,000 0.05 the record 0.33 percent posted in 2005 (�g- T to LICs (left axis) ure 5.1). Of the $127 billion in ODA net dis- 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 bursements from DAC countries, 29 percent was directed to low-income countries, 18 ODA as percent of donors’ GNI (right axis) Total ODA (left axis) percent to middle-income countries, and 30 Total ODA to low-income countries (left axis) percent to multilateral institutions.1 In contrast to DAC bilateral ODA, multi- Source: OECD DAC. lateral net disbursements for development contracted by 1.6 percent in 2010 to $13.2 billion in constant 2009 prices. Since multi- TABLE 5.1 Decadal changes in bilateral official development lateral disbursements accounted for only 9 assistance percent of total disbursements (DAC bilateral Constant 2009 prices, decade ending in year noted ODA and multilateral aid) in 2010, the rise in Bilateral ODA 1970 1980 1990 2000 2010 DAC bilateral ODA more than offset the mul- Percent growth 0.8 46.5 38.2 –9.2 60.0 tilateral decline; aggregate DAC bilateral and Level change (US$ millions) 339 19,418 22,870 (7,902) 47,799 multilateral net aid disbursements reported Source: OECD DAC. to the OECD reached a record high of $147.5 billion in 2010 at constant 2009 prices. The increase in ODA in 2010 continued the general trend of rising flows throughout substantial increases in international aid much of the decade. DAC bilateral ODA reg- and debt relief. These include agreements istered a cumulative net gain over the decade reached in 2002 in Monterrey and in 2005 of nearly $48 billion in constant prices. This in Gleneagles and Paris and the Multilateral 60 percent real increase was by far the larg- Debt Relief Initiative (MDRI), as well as the est decadal gain since data collection began Heavily Indebted Poor Countries (HIPC) in 1960 (table 5.1). In the 40 years through Initiative dating back to 1996. The surge 2000, DAC ODA grew by an annual average in ODA in 2005 in particular reflects debt of 2.1 percent in real terms, while during the relief tied to HIPC, MDRI, and traditional decade through 2010 the pace accelerated debt relief mechanisms under the Paris Club, to an average 5.5 percent. The general trend which in aggregate accounted for 17 percent- of rising annual flows during the 2000s was age points of the 31.6 percent real increase in only briefly constrained by the onset of the ODA for the year. Debt relief represented 10 global � nancial crisis in 2008, with a sharp percent of ODA over the decade (2001–10), deceleration in growth to 1 percent in 2009. peaking at 22.2 percent in 2005. This level To a large extent the buoyancy in aid compares with a somewhat smaller average disbursements over the decade is tied to the share of 7.8 percent during the 1990s and a 31.6 percent surge (in real terms) in DAC much smaller 2.3 percent share in the three bilateral ODA in 2005 that is associated earlier decades (1960s through 1980s). The with international agreements that targeted upswing in multilateral ODA helped reverse 140 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 the contractions in DAC bilateral ODA of percent in the 1990s). As a consequence, the 5.2 percent in 2006 and 8.1 percent in 2007 simple average of the DAC country effort (in real terms). has come to exceed, by a wide and growing 2010 was the deadline to achieve very margin, the income-weighted average (which ambitious targets that donors and part- weighs the given country’s effort by its GDP, ner countries set for themselves in 2005 to and thus giving larger economies a larger increase development aid flows in an effort to weight). While the DAC countries’ total help realize achievement of the Millennium weighted ODA disbursements as a share of Development Goals in 2015. More specifi- GNI rose to 0.32 percent in 2010, the average cally, at the G-8 Gleneagles Summit in 2005, unweighted country share rose to a record donors agreed to raise annual ODA disburse- high of 0.47 percent in 2010 (up from 0.36 ments by about $50 billion by 2010 and the percent in 2000) (�gure 5.2). 15 EU countries that are members of OECD The considerable rise in aid flows over the DAC committed to raise ODA flows to 0.51 past decade has been accompanied by a sig- percent as a share of GNI by 2010. While nificant reorientation of flows toward low- neither target was met, signi�cant progress income countries, where aid also represents was made despite the severe disruptions tied a much larger source of external financing to the global �nancial crisis since 2008—and needs (figure 5.3). Low-income countries the commitments made at Gleneagles and accounted for a peak 61.9 percent of aid flows other international initiatives (such as the in 2010, compared with 46.9 percent and High Level Forums) appear to have contrib- 44.3 percent in 2000 and 1990, respectively.3 uted to the rise in aid disbursements (Kharas In contrast, ODA flows to middle-income 2010). Aid disbursements reached a record countries fell from 56.7 percent of the total high of $127.3 billion in 2010 and helped in 1990 to 38.1 percent in 2010. The rise in bring donors very close to achieving the G-8 the low-income-country share of ODA flows Gleneagles target for 2010 of $130 billion (at represents a recent acceleration of a long-term 2009 prices). Additionally, 8 of the 15 EU trend: these countries received only 35 per- member countries that committed to the 0.51 cent of ODA flows to developing countries in percent target reached it, and 4 countries the 1960s (and a historical low of 27 percent made signi�cant progress toward the goal.2 in 1961, with available data starting in 1960). More countries made larger ODA dis- The recent rise in disbursements to them in bursements relative to their GNI over the part reflects efforts tied to the war on terror- past decade than during the 1990s—or ism. Nevertheless, if total ODA disbursements indeed since the 1960s. The individual coun- try efforts of smaller countries have exceeded those of the larger DAC bilateral donor coun- FIGURE 5.2 DAC ODA as a share of donor GNI Percent share, current prices tries. EU member countries have led this trend. For example, ODA disbursements rose by a minimum of one-tenth of a percentage 0.6 point as a share of GNI in Belgium (from % share, current prices 0.5 0.53 percent to 0.64 percent), Denmark (0.81 0.4 percent to 0.91 percent), Ireland (0.42 per- cent to 0.52 percent), Luxembourg (0.79 per- 0.3 cent to 1.05 percent), Spain (0.27 percent to 0.2 0.43 percent), and the United Kingdom (0.47 0.1 percent to 0.57 percent) between 2005 and 2010, reflecting a concerted effort to meet 0 05 60 65 70 75 80 85 90 95 00 10 their Gleneagles 2010 commitment. By con- 20 19 19 19 19 19 19 19 19 20 20 trast, U.S. ODA disbursements averaged 0.17 DAC countries total Average Median percent of GNI during the decade through 2010, (notably rising from an average of 0.13 Sources: OECD Creditor Reporting System and World Bank. GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 141 from all donors to Afghanistan are excluded, in the 1990s to $27.9 billion in the 2000s, the trend is still evident and becomes more whereas Bangladesh and India experienced a pronounced later in the 2000s. And notably, decrease in real ODA disbursements of about the surge in flows to middle-income countries 20 percent. Afghanistan accounts for 41 per- during the mid-2000s is accounted for by cent of real ODA to South Asia, followed by disbursements to Iraq (largely in the form of Pakistan (17 percent), India (16 percent), and debt forgiveness). Aid flows are a signi�cant Bangladesh (12 percent). source of external � nancing for low-income In the Middle East and North Africa, the countries, with ODA representing more than Arab Republic of Egypt received more than 60 percent of total external financing for 50 percent of regional ODA disbursements them from 2005 to 2010, in contrast to a from 1990 to 1999, followed by Morocco mere 4 percent for middle-income countries, (11 percent) and Jordan (8 percent). That where foreign direct investment (FDI) and changed during the 2000s, when disburse- other sources of private �nancing accounted ments to Iraq surged as it became a strategic for more than three-�fths of external �nanc- focus for the United States. Iraq has received ing needs (Adugna et al. 2011). more than $60 billion since 2000, or 59 per- Regional shifts in ODA reflect the reori- cent of regional ODA flows during the 2000s entation in aid toward low-income countries (in real terms). and an increased concentration of flows by Among the other developing regions, large donor countries toward strategically Sub-Saharan Africa also saw a signi� cant important recipient countries. A key example upswing in real ODA disbursements dur- of the latter is the United States, which has ing 2001–10 compared with 1991–2000, concentrated its bilateral aid flows in Afghan- re flecting efforts by donors to support istan over the past decade (along with Iraq, a acceleration in progress toward meeting lower-middle income country; see �gure 5.3). the MDGs. Nigeria, Democratic Repub- In South Asia, real ODA disbursements lic of Congo, and Tanzania experienced to Afghanistan increased from $1.6 billion the largest increases in aid disbursements FIGURE 5.3 Net ODA disbursements to low- and middle-income countries and by region a. Net ODA disbursements to b. Net ODA disbursements to developing regions low- and middle-income countries 50,000 250,000 45,000 40,000 200,000 US$ millions (2009 prices) US$ millions (2009 prices) 35,000 30,000 150,000 25,000 20,000 100,000 15,000 10,000 50,000 5,000 0 0 East Asia Europe Latin Middle South Sub-Saharan 90 92 94 96 98 00 02 04 06 08 10 and and America East and Asia Africa 19 19 19 19 19 20 20 20 20 20 20 Pacific Central and the North Middle-income countries Asia Caribbean Africa Low-income countries Low-income countries, excluding Afghanistan 1991–2000 2001–10 Middle-income countries, excluding Iraq Source: OECD DAC. 142 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 to the region, accounting for 25 percent states held steady (both including and exclud- of regional ODA disbursements. Europe ing China and India).5 and Central Asia also saw a substantial Corresponding to the trend of higher increase in ODA, albeit from a low base. ODA to low-income countries, the level of Real aid disbursements shifted from Bosnia- net ODA received on a per capita basis has Herzegovina (30 percent of regional dis- shifted increasingly toward countries that bursements) and Turkey (17 percent) toward are furthest from achieving the MDGs. For Serbia. Real ODA to Serbia increased from example, the group of countries that have $1.6 billion in the 1990s to $10.3 billion in met or are currently on track to achieve no the 2000s. more than two MDGs received an annual Regional ODA flows have remained average of $48 per capita in 2008–10, up roughly stable in Latin America and the by 20 percent in real terms compared with Caribbean in real terms. Colombia saw the 1990–92, and more strikingly up 85 per- largest percentage rise in disbursements, cent compared with 2000–2002 (�gure 5.4). from $2.1 billion in the 1990s to $7.8 billion This rise in flows to countries that are fur- in the last decade (a real increase of 262 per- thest from attaining the MDGs represents an cent). In contrast to the rest of the develop- important trade-off between need and per- ing regions, ODA disbursements in East Asia formance, because aid effectiveness (improve- and Paci�c declined markedly in real terms ment in outcomes per dollar spent) in these in the last decade, as the region made strong countries is likely to be weaker compared gains toward poverty alleviation. In particu- with other countries closer to the 2015 tar- lar, the aid decline reflects a fall-off in flows gets. However, successfully tackling circum- of more than 30 percent to the large regional stances where performance has been severely economies of China, Indonesia, and the hampered (by confl ict or natural disasters, Philippines. These declines more than offset for example) also provides scope for the the 159 percent increase in disbursements greatest possible gains. to Vietnam, which became the top regional recipient with 22 percent of the region’s total ODA in 2010. FIGURE 5.4 Net ODA received per capita by Another important development over groups of countries ranked by MDG targets met or on track to be met by 2015 recent years, attendant with increased focus of aid flows to low-income countries, is that aid is increasingly being directed to fragile 60 states and situations (FSS).4 The severity of 50 48 the situations in FSSs has widespread effects that are manifest locally, regionally, and 40 US$ (constant 2009) 40 globally. The 32 countries categorized as FSSs (according to the International Devel- 30 opment Association, or IDA) accounted for 26 about 18 percent of total net bilateral ODA 20 disbursements and multilateral development 14 13 13 12 assistance and 25 percent of net bilateral 10 9 7 disbursements from DAC countries in 2010. These countries represent 425 million people. 0 Some other de�nitions of countries in fragile 1990–92 2000–02 2008–10 situations include countries with as many as 0–2 targets (45 countries) 1.5 billion people (World Bank 2011b). ODA 3–5 targets (54 countries) 6–10 targets (40 countries) disbursements to fragile states increased in 2001–10 (both including and excluding Iraq Source: World Development Indicators database, OECD DAC, and World and Afghanistan), while aid to nonfragile Bank staff calculations. GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 143 Recent trends in the composition FIGURE 5.5 Share of committed ODA to food, nutrition, and agriculture by donor of aid for agriculture, food, and nutrition 16 Despite the spike in food prices, ODA com- mitments from all donors to agriculture, 14 14% food, and nutrition did not increase as a % of total commitments 12 12% share of total ODA between 2000 and 2010. 10% While aid commitments from DAC bilateral 11% 10% 10 10% ODA and multilateral developmental assis- 9% 9% tance to agriculture, food, and nutrition 8 rose from $8.7 billion in constant terms in 2000 to near $16 billion in 2010, the share 6 remained roughly unchanged at close to 10 4 percent. In the mid-2000s, increased focus 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 was paid to debt forgiveness (particularly for All donors DAC countries Multilateral highly indebted poor countries and Iraq). As All donors (net of debt support) a result, and despite a 75 percent increase in committed support to agriculture, food, and Source: World Bank staff calculations based on OECD DAC. nutrition from all donors, the actual share in total ODA commitments declined from 10 percent in 2000 to about 7 percent in 2006. percent share recorded during the � rst few Excluding debt forgiveness, ODA for agricul- years of the decade (�gure 5.5). ture, food, and nutrition from all donors has Assistance for nutrition represents only 3 remained more stable since the mid-2000s percent of total agriculture, food, and nutri- at about 10 percent of total remaining com- tion commitments, despite widespread evi- mitments, 1 percentage point below the 11 dence that improved nutrition and gains in FIGURE 5.6 Composition of committed ODA and commitments by donors in year 2010 Constant 2009 millions, unless otherwise noted Basic nutrition 3% 240 46 113 Emergency food aid 16% 2,242 349 Total commitments (excluding food, nutrition, Rural development 19% 830 1,714 412 and agriculture) 147,373 Food aid/food security 1,344 24 273 programs 9% Food, nutrition, and agriculture 15,857 Agriculture and agro-industries 52% 5,337 936 1,965 DAC countries World Bank Multilaterals (except for the World Bank) Source: World Bank staff calculations based on OECD DAC. 144 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 early childhood development are key in mak- support to programs aimed at bolstering pro- ing long-term progress in development (�gure ductivity and long-term growth in agricul- 5.6). Since 2000 support from IDA to nutri- ture. In this new architecture, DAC countries tion has decreased, whereas commitments have concentrated their efforts on emergency from DAC countries and other multilaterals response and food aid programs, whereas have doubled. However, actual aid-� nanced international financial institutions (IFIs), expenditures on nutrition may be higher than particularly the World Bank, have focused reported, because other sources of aid may on rural development, agriculture, and agro- be devoted to purchasing food. For example, industries. (See the annex for further discus- research shows that spending on social safety sion of the IFIs’ response to the recent spikes nets has often been used by bene�ciaries to in food prices.) purchase more and better food (as discussed ODA commitments by income group for in chapter 2). Similarly, there is evidence that agriculture, food, and nutrition have increas- programs that provide a basic package of ingly shifted toward low-income countries. free health care services to poor households On average during the decade through 2010, is also spent by bene�ciaries on food. Addi- this group received about two-thirds of total tionally, aid delivered as fungible budget sup- ODA commitments for this category. ODA port can be used to support particular needs commitments for basic nutrition for low- (which may be nutrition) or sectors of the income countries accounted for 0.2 percent economy (which may be agriculture). of total ODA commitments for all catego- More than 40 percent of food-related ries during the decade, twice the amount development assistance commitments were received by lower-middle-income countries directed to agriculture and agro-business in (0.1 percent), and twice again that received the year 2000. Remaining aid commitments by upper-middle-income countries (0.05 per- were intended for programs related to food cent) (see �gure 5.7 and the appendix for the aid and food security (30 percent), rural classi�cation of economies). development (16 percent), emergency food aid (7 percent), and basic nutrition (2 per- cent). Recent data (2010) show that agricul- Expansion of the donor ture and agro-industries, rural development, community and emergency food aid have gained signi�- Recent years have witnessed an expan- cantly in aid importance, whereas commit- sion and diversification of the donor base ted resources to food aid and food security for concessional aid, notably from NGOs programs have considerably decreased (table and, to a lesser extent, the emergence of a 5.2). This pattern illustrates a shift in the number of middle-income countries as new donor community to focus on alleviating the donors (even while in some cases they are short-term impact of food crises on the most still receiving ODA). This expansion of the vulnerable, while at the same time providing donor community appears to be reinforcing TABLE 5.2 Composition of committed ODA to nutrition, food, and agriculture 2000 2010 Creditor Reporting Constant Share of Constant Share of Category System code 2009 $ commitments (%) 2009 $ commitments (%) Basic nutrition 12240 216 2 398 3 Emergency food aid 72040 603 7 2,598 16 Rural development 43040 1,358 16 2,960 19 Food aid/food security programmes 52010 2,640 30 1,644 10 Agriculture and agro-industries 3110-95 3,863 45 8,257 52 Total 8,680 100 15,857 100 Source: OECD DAC, Creditor Reporting System. GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 145 FIGURE 5.7 ODA commitments by income group a. ODA commitments to food, nutrition, and agriculture b. ODA commitments to basic nutrition as a share of 100 total commitments (all sectors) 0.5 90 80 0.4 57 51 58 64 70 72 69 66 73 74 69 % of committed ODA 70 % of committed ODA 60 0.3 50 40 0.2 30 20 38 45 39 32 29 25 27 30 23 23 27 0.1 10 5 4 3 4 2 3 4 4 4 3 5 0.0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Low-income countries Lower middle-income countries Low-income countries Lower middle-income countries Upper-middle-income countries Upper-middle-income countries Source: OECD DAC, Creditor Reporting System. Note: See the appendix for the classification of economies. the increased concentration of aid flows to 44 percent in 2009, up from zero reported low-income countries (noted earlier). While aid in 1992. the broadening of the donor base has been More and more countries are provid- apparent for decades, it intensified in the ing ODA, and more and more countries are 1990s and particularly in the second half of reporting data on their ODA disbursements. the 2000s, and in part simply reflects better For example, the OECD reports on non-DAC reporting of aid flows. The proliferation and ODA—aid flows from countries that are increased diversity of donors bring a number not members of the Development Assistance of bene�ts aside from increased aid disburse- Committee—but not in the same detail as ments—including complementarities, addi- the DAC member countries provide. Twenty tional resources, and technical expertise— non-DAC countries reported to the OECD but the proliferation of donors also poses in 2009, up from 10 in 2000. The disburse- important new challenges, including rising ment of non-DAC aid reported to the OECD transaction and administrative costs for both increased to $7.3 billion in 2009 from $1.3 donors and recipients. billion in 2000 (at constant 2009 prices). As Data regarding concessional flows for a share of DAC bilateral ODA, non-DAC development from NGOs, middle-income ODA rose to 6.1 percent in 2009 from 1.7 countries, and other newer donors remain percent in 2000 in constant prices. The extremely sparse, although they have non-DAC countries include both high- and improved. For example, the Gates Founda- middle-income countries. The Arabian coun- tion has begun reporting aid disbursements tries of Saudi Arabia, Kuwait, and the United to OECD DAC. Latest available estimates Arab Emirates, and to a lesser extent, new from the Hudson Institute indicate that pri- European Union member countries Estonia, vate NGOs (foundations, philanthropist Latvia, Lithuania, Romania, and Slovenia, organizations, and corporations) provided account for much of the increase in non-DAC $52.5 billion of international developmental flows reported to the OECD. Among the non- flows in 2009 (latest available). Measured as DAC middle-income countries, the Republic a share of total bilateral ODA reported by of Korea and Turkey markedly increased aid OECD DAC, NGO contributions surged to assistance during the decade, from near zero; 146 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 FIGURE 5.8 ODA from Brazil, Russia, India, China, Among those reporting of�cial bilateral data and South Africa are Brazil, China, India, Russia, and South Africa (BRICS). These data are dif�cult to 4,500 compile, given different reporting methods. 4,000 However, various estimates are available. 3,500 Zimmermann and Smith (2011) estimated the South-South flows of the BRICS—which 3,000 account for much of the increase in South- US$ millions 2,500 South aid flows in recent years—grew to $3.7 2,000 billion in 2009 from $0.6 billion in 2003 (�g- 1,500 ure 5.8). China accounted for 53 percent of 1,000 the total ODA from BRICS in 2009 (reaching 500 $1.9 billion up from an estimated $0.6 billion 0 in 2003), and Russia and India accounted 2003 2004 2005 2006 2007 2008 2009 for 21 percent and 13 percent, respectively. South Africa Russian India While the aid flows from BRICS remain rela- Brazil Federation China tively small compared with DAC flows, they represented just over half (50.5 percent) of Sources: OECD DAC; Zimmermann and Smith 2011. total non-DAC flows reported to the OECD in 2009, up from about one-�fth in 2003. To the extent data on aid from BRICS is avail- both were among aid recipients until a few able, given irregular reporting and differ- years ago. Notably, Korea, an aid success ent methodologies, some general trends are story, became a DAC donor in 2009. emerging. BRICS’ aid is generally delivered Data reporting has also improved in some to bilateral partners with a combination of middle-income countries that are new donors, conditional and nonconditional financing, although they do not report to the OECD. usually without policy conditions, and is TABLE 5.3 Key characteristics of BRIC financing Characteristic Brazil Russian Federation India China Key agency Brazilian Cooperation Department of Indian International No development agency Agency International Finance Development Cooperation (discussions are ongoing) Agencya Key ministry Ministry of External Ministry of Finance and Ministry of External Affairs Department of Aid in Ministry Relations Ministry of Foreign Affairs of Commerce Form Loans and grants Mostly grants and debt Grants, credit lines, interest-free Grants, credit lines, relief loans, and other concessional interest-free-loans, and and nonconcessional loans other concessional and nonconcessional loans Country focus Latin America and Mostly Commonwealth Neighboring countries Widespread through large Africa (especially of Independent States (Afghanistan, Bhutan, Myanmar, amounts concentrated in a Lusophone) (especially Kazakhstan and Nepal) and Africa small number of countries and the Kyrgyz Republic) Sector Mostly agriculture, Mostly general budget Grants for rural development, Mostly energy, transport, and education, and health support education, health, technical communications, but also cooperation; loans for construction of schools and infrastructure and disaster relief hospitals and prestige projects (such as stadiums) Source: Mwase and Yang 2012. Note: There is no systematic reporting of aid data for South Africa (Adugna et al. 2011). a. Proposed in 2007 but not yet established. GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 147 often directed toward infrastructure and pro- increased markedly over the past decades. ductive sector investment projects (table 5.3). For instance, the OECD alone reports that in Geographically, the BRICS tend to extend 2009 the average OECD donor was present aid to neighboring countries, with the excep- in 71 of 152 ODA-eligible countries (73 for tion of China, which delivers signi�cant aid DAC countries and 69 for multilateral agen- flows to other regions. For example, India’s cies), and that the average number of donors aid is largely directed toward Afghanistan, present in each recipient country was 21 Bhutan, Myanmar, and Nepal (Mwase and (OECD 2011d). Aid fragmentation is greater Yang 2012). if new agents (NGOs and middle-income NGO concessional aid flows were the countries) are included. As a consequence, leading dynamic behind the doubling of real partner country institutions are facing rising aid flows from 1992 to 2009. An aggrega- transaction costs, as they are required to dedi- tion of the Hudson Institute’s NGO aid esti- cate more and more resources toward engage- mates with the OECD’s bilateral DAC and ment with donor agents, while the average non-DAC ODA disbursements—along with size of projects has declined (in part the result Zimmerman and Smith’s (2011) estimates of improved reporting). Because anecdotal of ODA from BRICS—indicates that total evidence suggests a growing duplication of global aid reached $183.3 billion dollars in effort, increased coordination among donors, 2009, up from $90 billion in 1992 (in real as well as between donors and recipients, terms) (figure 5.9). NGOs represented 29 could generate signi�cant gains in ef�ciency. percent of this global total. OECD non-DAC The OECD reports that the global frag- countries and BRICS represented 6 percent— mentation ratio (number of nonsignificant which together with NGOs accounted for donors compared with the overall number of more than one-third of reported total global donors) has risen in recent years, with fragile aid in 2009. The Hudson Institute’s estimates and conflict-affected states seeing the largest indicate that private NGO aid flows have increase (table 5.4). As of 2009, two of every come to eclipse ODA originating from new �ve DAC countries’ aid relations were clas- donor countries, despite their rapid growth si�ed as nonsigni�cant, representing a total over the last decade. of about $2.9 billion or a mere 3 percent of With the growing number of countries total global CPA transactions. In response to and organizations contributing ODA and the increased fragmentation of aid, several development aid, the number of counterparts donors have undertaken efforts to concen- with which a recipient country engages has trate aid disbursements on fewer recipient FIGURE 5.9 Changes in sources of estimated global concessional developmental flows a. 1992 b. 2009 Total flows = $90 billion Total flows = $183.3 billion 3% 6% 29% NGOs, including philanthropist organizations DAC ODA Non-DAC ODA (plus BRICs) 97% 65% Sources: Hudson Institute 2010, 2011; OECD DAC; Zimmermann and Smith 2011; Fengler and Kharas 2010. 148 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 TABLE 5.4 Aid fragmentation by income group and fragile and conflict-affected states Number Significant Nonsignificant Total Fragmentation 2008 2004 of relations relations relations ratio (F-ratio) F-ratio F-ratio Income group countries (A) (B) (A+B) B/(A+B) (%) (%) (%) Lower 61 985 557 1,542 36 34 33 Lower-middle 48 590 531 1,121 47 46 46 Upper-middle 43 390 204 594 34 35 33 Total 152 1,965 1,292 3,257 40 38 38 Memo: fragile and conflict-affected 41 622 436 1,058 41 39 36 Memo: Other 111 1,343 856 2,199 39 38 38 Source: OECD 2011d. countries. Notably, phasing out nonsigni�- the Monterrey Consensus was adopted by cant relations is largely an uncoordinated more than 50 heads of state and gained the exercise and points to risks for recipient coun- support of the International Monetary Fund, tries that have a high fragmentation ratio, the World Bank, and the World Trade Orga- such as fragile and conflict-affected states. nization. The Monterrey Consensus high- lights the importance of development coop- eration, recognizing that both domestic and Aid effectiveness agenda international resources need to be mobilized The marked changes in aid architecture for development. Donors agreed to ramp up over the past decade have coincided with a aid flows. Participants at Monterrey also rec- reexamination of ODA, with heightened scru- ognized that aid needs to be optimally used tiny on the effectiveness of aid and results. to accomplish the MDGs by 2015. A number of fundamental shifts in the aid Since adoption of the Monterrey Consen- agenda and approaches have become increas- sus, the international framework for action ingly apparent. In part, new donors and non- on aid effectiveness has come to be articu- state participants have made demands for lated at the High Level Forums.6 In 2003 the increased accountability and the effective use international aid community met in Rome for of money spent on development assistance. the First High Level Forum, which focused These demands have translated into calls for on harmonization among donors. Among the greater transparency in aid flows at all lev- outcomes in Rome, donor institutions com- els and across agents, and have highlighted mitted to improve coordination of their pro- the need for strengthening institutions to grams and to streamline activities. make them more results oriented for better At the Second High Level Forum in 2005 monitoring of development programs and to in Paris, stakeholders endorsed the Paris Dec- broaden participation. In response, the devel- laration on Aid Effectiveness, an effort to opment community has increasingly pursued comprehensively revamp the way donor and various avenues to strengthen accountability recipient countries work together to improve and transparency among donors and recipi- poverty reduction outcomes and achieve ents to improve outcomes, along with more long-term sustainable development. The Paris rigorous measures of aid effectiveness. Declaration on Aid Effectiveness placed the Improving aid effectiveness has been a key country ownership of policies and programs focus at various international development at the center of an international reform forums over the past decade, especially fol- agenda to make aid more effective, with the lowing the signing of the Millennium Devel- international community recognizing that opment Declaration in 2000. In particular, far-reaching and monitorable actions and the aid effectiveness movement, with a focus greater focus on results would be necessary to on results, gained momentum in 2002, when improve the delivery and management of aid GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 149 to maximize its contribution to the achieve- transparent and more volatile. Insufficient ment of the MDGs. Five shared principles transparency was identi�ed as an important of aid effectiveness were set out in the Paris bottleneck to improving outcomes,8 including Declaration, along with more than 50 com- the need to achieve greater partner participa- mitments. A distinct feature was the commit- tion and harmonization with local objectives. ment by donors and developing countries to Separately, a number of NGO initiatives have hold each other accountable for implement- been undertaken to improve the tracking of ing the declaration through a set of clear aid flows and transparency along with the indicators of progress with 13 measurable ability to assess aid effectiveness. Initiatives targets.7 The 5 principles call for strength- include those by Publish What You Fund ened partner country ownership (partners (PWYF Index), the joint effort by the Cen- setting the agenda); improved donor align- ter for Global Development and Brookings ment with partners’ agenda; harmonization (Quality of Of�cial Development Assistance, across donors (establishing common arrange- or QuODA), and Give Directly (box 5.1). ments, simplifying procedures, sharing infor- In 2008 the Third High Level Forum mation); managing for development results; in Accra recognized an increased role for and mutual accountability. a range of development actors beyond the Participants recognized that while the state that broadened the principle of owner- recent proliferation of donor agents contrib- ship, strengthened participation of partner uted to higher aid flows, it also led to frag- countries and other stakeholders (such as phil- mentation of aid, making it less predictable, anthropic foundations and global programs), BOX 5.1 Examples of independent initiatives to improve aid effectiveness Publish What You Fund (PWYF) campaigns for in the Paris Declaration and Accra Agenda for Action. improved aid transparency, that is, more and better The QuODA assessments are compiled by construct- information about aid. The organization’s 2010 Aid ing four dimensions or pillars of aid quality, built up Transparency Assessment (the first global assess- from 30 separate indicators. The four dimensions are ment for aid transparency) and its 2011 Index show maximizing ef�ciency, promoting transparency and that the aid information currently made available learning, fostering institutions, and reducing burden. by donors is very limited and that there is a lack of Countries are ranked according to these assessments, comparable and primary data available. Their index which are intended to inform users of how much and compares transparency of 30 major donors by seven what type of quality is “purchased� with the given weighted indicators that fall into three categories— country, agency, or multilateral aid delivery. high-level commitment to transparency, transpar- Give Directly is a nonprofit initiative to create ency to recipient government, and transparency to an ef�cient and transparent way to provide aid. The civil society. PWYF reports wide variation in levels of organization allows individuals to donate money donor aid transparency and signi�cant weaknesses in through its website to impoverished households in many donors across the seven indicators. Kenya that Give Directly has identi�ed. Give Directly The Center for Global Development and Brook- transfers the donations electronically to the recipient’s ings released the Quality of Official Development mobile phone, and the poor choose to what purpose Assistance (QuODA) assessment in 2010. The they want to direct the funds. QuODA assessment is similar to the PWYF’s aid transparency index; however, it also seeks to address Sources: http://www.Publishwhatyoufund.org/resources/ the broader issues of aid effectiveness and capture index/assessment; www.givedirectly.org; and Birdsall and donor adherence to international standards outlined Kharas 2010. 150 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 and deepened efforts to harmonize donor involved a wider set of stakeholders than pre- activities to improve the effectiveness of aid. vious high-level forums, including civil soci- Participants reaf� rmed and deepened their ety organizations, representatives of private commitments made in Rome and Paris and sector organizations, and countries that had agreed on the need to accelerate progress until Busan played a less active role in inter- toward improved cooperation and stronger national dialogue on aid effectiveness (includ- results orientation. The Accra Agenda for ing a number of middle-income countries). Action consolidated the Paris Declaration The Busan Partnership agreement is principles and called for heightened focus complemented by a range of initiatives pre- on country ownership and leadership, more sented as “Busan building blocks� that bring inclusive partnerships, and increased account- together groups of like-minded stakeholders ability for, and transparency about, develop- around common goals and determined to ment results. The Accra Agenda committed take the agenda forward at the country level. donors to publicly disclose regular, detailed, These efforts were intended to operational- and timely information on volume, alloca- ize principles and commitments set out in the tion, and, when available, results of develop- outcome document, allowing for a deepening ment expenditure to enable more accurate of commitments and, in places, further inno- budgeting, accounting, and auditing by devel- vation on a voluntary basis at the country oping countries. Additionally, recognizing the level. To support improved knowledge shar- need to strengthen local capacity to monitor ing and accountability, the Open Aid Part- progress toward achieving the MDGs, inter- nership (OAP) was launched at Busan with national stakeholders at Accra mounted an support from the World Bank, the United effort to improve national statistical systems Kingdom, Sweden, Spain, the Netherlands, (box 5.2). The International Aid Transpar- Estonia, and Finland. More speci�cally, the ency Initiative aims to help donor signatories OAP seeks to enhance transparency of pub- meet this commitment in the most coherent lic budgets, service delivery, and development and consistent ways, and to bring together assistance, which are critical for improv- donors, partner countries, civil society orga- ing governance accountability and citizen nizations, parliamentarians, and aid informa- engagement. It builds on the International tion experts to agree on common information Aid Transparency Initiative data standard to standards applicable to aid flows. make aid information more accessible and In 2011 the international development meaningful to citizens, and is complementary community met at the Busan High Level to ongoing efforts of the Open Government Forum to assess progress on the MDGs Partnership. The Results and Accountability and to determine where adjustments can be Building Block focused on operationalizing a made to improve the outlook for meeting the transparent, country-led results framework goals by 2015, including ways to improve aid and exploring additional initiatives at the effectiveness and to better address the needs country level aimed at improving the deliv- of under-aided countries and fragile states. ery, measurement, learning, and accountabil- Stakeholders reaf� rmed the relevance of the ity for results. aid effectiveness principles as stated in the Recognizing that few conflict-affected Paris Declaration and deepened in the Accra countries will achieve a single Millennium Agenda for Action. In an evolving develop- Development Goal by 2015, a number of ment landscape, stakeholders recognized that countries and international organizations at further efforts to increase the effectiveness Busan endorsed the New Deal for Engage- of aid needed to be grounded in the broader ment in Fragile States. The New Deal sets development context, embracing the increas- out 5 goals—legitimate politics, justice, secu- ing diversity of development actors and seiz- rity, economic foundations, and revenues and ing opportunities to leverage a wider range of services—to give clarity on the priorities in sources of development � nance. Discussions fragile states.9 Stakeholders agreed that the GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 151 BOX 5.2 Better statistics for all: Monitoring the millennium development goals The need for reliable and timely statistics to monitor mark level of 54 in 1999 to 67 in 2011 (see table). the results of development programs was recognized The availability of data for monitoring the MDGs has long before the Millennium Development Goals were improved commensurately: in 2003 only 4 countries promulgated, but the widespread attention given to had two data points for 16 or more of 22 principle their quantitative targets has increased the demand MDG indicators; by 2009 118 countries met this for regular and uniform reporting of key indicators. measure (OECD 2009b). Of 79 low-income IDA Faced with large gaps in the international database, countries, only 8 do not have a national strategy for the Partnership in Statistics for Development in the the development of statistics and are not planning 21st Century (PARIS21) was established in 1999 to to prepare one. Implementing these strategies is well coordinate efforts to increase the statistical capacity under way in many countries. After the 2010 census of developing countries. In 2004 the Second Round- round concludes in 2014, 98 percent of the world’s table on Managing for Development Results endorsed population will have been counted. Since donors the Marrakech Action Plan for Statistics (MAPS), began reporting support for statistical capacity devel- establishing an international agenda for support to opment in 2008, � nancial commitments to statistics statistics in developing countries. Subsequently the increased by 60 percent to $1.6 billion over the period Accra Agenda for Action made broad commitments 2008–10. More than 55 developing countries have on behalf of donors and developing countries to improved their practices in data collection, manage- strengthen national statistical systems. More recently, ment, and dissemination of household surveys. The at the November 2011 Fourth High Level Forum on United Nations Interagency and Expert Group on the Aid Effectiveness, held in Busan, heads of state, min- MDGs has conducted a series of regional workshops isters, and other representatives of developing and aimed at improving the monitoring of the MDGs and developed countries endorsed a global action plan has reported annually on progress. for statistics.a This is the �rst time a statistical action plan has received explicit endorsement globally from the highest political levels. a. Busan Partnership for Effective Development Co- Much progress has been made. The quality of operation. Para 18.c of http://www.aid effectiveness.org/ statistics as measured by the World Bank’s statisti- busanhlf4/images/stories/ hlf4/OU TCOME _ cal capacity indicator has improved from its bench- DOCUMENT_-_FINAL_EN.pdf. World bank statistical capacity index of IDA-eligible countries All Sub-Saharan Africa non-Sub-Saharan Africa 1999 2011 1999 2011 1999 2011 Overall 54 67 49 58 49 68 Methodology 44 57 35 39 39 59 Source data 53 65 46 53 51 65 Periodicity 65 81 65 82 58 81 Source: For more on the World Bank statistical capacity index, see http://data.worldbank.org/data-catalog/bulletin- board-on-statistical-capacity Note: Countries included are those IDA-eligible countries with a population above 1 million. current ways of working in fragile states need that transitioning out of fragility is long, serious improvement, and that despite the sig- political work that requires country leader- ni�cant investment and the commitments of ship and ownership. The New Deal recom- the Paris Declaration and the Accra Agenda, mends the use of peace-building and state- results and gains in value for money have building goals as an important foundation to been modest. Stakeholders also recognized enable progress toward the MDGs. The New 152 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 Deal also calls for an increase in the predict- frameworks and platforms, and ensure that ability of aid, including by publishing three- increased aid inflows are absorbed and to-�ve year indicative forward estimates (as spent ef�ciently to enhance growth. Donors committed in the Accra Agenda for Action). pledged to ramp up efforts to fully unwind Another main outcome from Busan was and end the practice of tied aid (which the creation of a global partnership to sup- requires recipient countries to spend aid dol- port global-level monitoring and account- lars on deliverables from companies in donor ability through a new and more inclusive countries)—including efforts to improve the development agenda. Delegates in Busan, quality and transparency of reporting on the including Brazil, China, and India, endorsed process of untying aid. the Busan Partnership for Effective Devel- While remarkable progress has been made opment Cooperation (Global Partnership) toward increasing aid disbursements, prog- on common goals, shared principles, and ress toward improving aid effectiveness has differentiated commitments.10 The Global been less impressive—aside from achieving Partnership recognizes that , whereas the broad consensus in identifying speci�c areas different types of aid donors should work that need to be addressed. In Paris in 2005, toward common goals, donors can achieve for example, the development community of them by “embracing their respective and dif- donors and recipients agreed to pursue, and ferent commitments.� The new development hold each other accountable for, reaching 13 agenda is based on 4 principles: ownership of very ambitious global targets. By the 2010 development priorities by developing coun- deadline only 1 of the targets had been met, tries, focus on results, inclusive development although there were some apparent gains partnerships, and transparency and account- toward achieving the other targets (table 5.5). ability. Donors pledged to make their aid While many of the reforms that were needed information available to the public and to to reach the Paris Declaration targets were help recipient countries establish transparent widely recognized as being very ambitious, public � nancial management and aid infor- the targets are nevertheless attainable. mation management systems. To increase Some measurable, if limited, improve- focus on development results, the Global ments have been made in aid effectiveness, Partnership seeks to strengthen partner particularly in recipient countries, and spe- country ownership and to strengthen their ci�cally in the areas of monitoring capacity policies and core institutions through the cre- and policy framework, as well as in collab- ation of transparent and country-led results oration and harmonization among donors TABLE 5.5 Progress toward Paris Declaration targets Survey outcomes in percentages, unless otherwise noted Indicator 2010 Actual 2010 Target Status Operational development strategies 37 75 not met Reliable public �nancial management (PFM) systems 38 50 not met Aid flows aligned with national priorities 41 85 not met Strengthen capacity by coordinated support 57 50 met Use of country PFM systems 48 55 not met Strengthen capacity by avoiding parallel projects (number) 1,158 565 not met Aid is more predictable 43 71 not met Aid is untied 86 > 89 not met Use of common arrangements, procedures 45 66 not met Joint missions 19 40 not met Joint country analytic work 43 66 not met Results-oriented frameworks 20 36 not met Mutual accountability 38 100 not met Source: OECD 2011a. GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 153 and partner countries. According to a prog- the World Bank, have made signi�cant gains ress report on implementing the Paris Dec- across many of the Paris Declaration targets laration based on 2010 surveys of donors (box 5.3). Another example is the Consul- and recipients, the proportion of developing tative Group on International Agricultural countries with sound national development Research (CGIAR), which has improved col- strategies in place more than tripled from laboration and harmonization to enhance 2005 to 2010 (OECD 2011a). The results- results on the ground (box 5.4). oriented frameworks to deliver results and Multilateral development banks (MDBs) monitor progress against national develop- have also made significant progress in ment priorities are in place in one-fourth of attaining the Paris Declaration targets. The reporting developing countries, and statistics country-led development model—direct related to the MDGs are becoming increas- funding of government expenditures, support ingly available. for the private sector based on national pri- Progress has been moderate or mixed in orities, or both—has allowed for the main- the areas of capacity development and the streaming of aid effectiveness principles. As quality of country public � nancial manage- a whole, MDBs have outperformed devel- ment (PFM) systems in partner countries. opment partner performance, according The OECD also reports that support for to the 2010 Paris Declaration survey (table capacity development is often supply driven, 5.6). Key challenges, identified in the sur- rather than geared toward the developing vey, remain, however. These include the use countries’ needs, and remains an area for fur- of country systems (especially procurement), ther improvement (OECD 2011a). Neverthe- aid predictability, and common arrangements less, donors met the target on technical coop- with other development partners. eration. And while more than one-third of Areas of limited or no progress include partner countries showed improvement in the untying aid, common arrangements or proce- quality of PFM systems from 2005 through dures, aid fragmentation, and medium-term 2010, one-fourth experienced setbacks. predictability of aid. In its progress report, Donor countries are using partner country the OECD reports that the untying of aid PFM systems more extensively than they did shows no improvement and that aid is becom- in 2005, but they have fallen short of the tar- ing increasingly fragmented (OECD 2011a). get. More speci�cally, donors’ use of country Survey results also show limited progress PFM systems could be strengthened where has been achieved among donors to imple- the systems have been made more reliable. ment common arrangements or procedures Some donors have made measurable and to conduct join missions and analytic progress and have introduced innovative work. Donor information on future aid dis- approaches and reforms to improve aid effec- bursements remains very limited, and hence tiveness and to meet the Paris Declaration the predictability of aid remains a key chal- targets. Among bilateral donors for exam- lenge for developing country governments. ple, the United Kingdom’s Department for Additionally, the majority of partner coun- International Development (DFID) initiated tries have yet to implement thorough, mutual results-based �nancing in 2010, focusing spe- (government-donor) reviews of performance. ci�c outputs at a more micro level by offer- ing incentives to a service provider or ben- e�ciary of services (de Hennin and Rozema Country programmable aid and 2011). The intent is that from 2011 through outlook for ODA flows through 2014, all of DFID’s bilateral ODA allocations 2013 will be based on evidence-supported “results Among efforts to improve aid effective- offers,� which are competitively bid upon ness, DAC donors in 2007 agreed to provide by country and regional of�ces around the annual forward spending plans for country world (Birdsall 2010). Some IFIs, including programmable aid (CPA)—to improve the 154 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 BOX 5.3 The World Bank has made significant progress on the aid effectiveness agenda, but there is room for improvement Because of its mission, mandate, and country-driven development partner average, and the Bank has met business model, the World Bank demonstrates strong or is close to meeting the majority of targets (box performance on the Paris Declaration monitoring table). The World Bank Group also performs well on survey, the main tool for tracking progress globally other independent rankings such as those conducted on the aid effectiveness agenda. In 2011 the Bank’s by Publish What You Fund and the Center for Global results on the survey were better than the overall Development and Brookings. (see box 5.1). Overall results World Bank results Paris Declaration survey indicators Target 2010a Meeting Target 2010a Meeting Progress (development partner performance) (%) (%) target? (%) (%) target? since 2005? 3. Aid flows are aligned with national priorities 85 41 85 74 + (aid on budget) 4. Strengthen capacity by coordinated support 50 57 50 73 + (technical assistance) 5a. Use of country PFM systems 55 48 51 69 + 5b. Use of country procurement systems — 44  50b 54 + 6. Strengthen capacity by avoiding parallel project –67 –32 –67 –80 + implementation units 7. Aid is more predictable 71 43 83 61 – 8. Aid is untied 89 86 100 100 = 9. Use of common arrangements or procedures 66 45 66 59 + (program based approach) 10a. Joint missions to the �eld 40 19 40 29 + 10b. Joint country analytic work 66 43 66 59 + Source: OECD-DAC and World Bank. denotes the target is achieved; denotes the target is nearly achieved (gap is about 10%). denotes the target is not achieved. a. Indicators 3, 5a, 5b, 6, and 7 are calculated for the 30 countries that participated in the 2006 baseline survey and the 2011 survey. b. The 2008 Accra Agenda for Action target of 50% is applied. — = not available. Nevertheless, while it has made signi�cant gains of country systems (procurement, � nancial man- across the Paris Declaration survey indicators, the agement, safeguards, statistics, monitoring and Bank fell signi� cantly short of the target in some evaluation, budget, project management) is critical areas, particularly in making aid more predict- to country ownership and leadership; and Capacity able and, to a lesser extent, in donor coordination development is key to strengthening country sys- (joint missions to the � eld and joint country ana- tems and building effective institutions. lytic work) and in aligning aid flows with national • Development partnerships beyond aid: New priorities. partnerships and approaches need to be rec- The Bank has been playing a key role in shap- ognized—DAC donors and traditional donor/ ing the international aid effectiveness agenda over recipient models of aid are no longer the only the years, and has mainstreamed the aid effective- approach; the aid landscape is evolving—middle- ness agenda at the country and corporate levels. The income countries play an increasingly important World Bank’s aid effectiveness priorities are based on role as providers of development assistance; foun- a country-based business model and an ongoing work dations, global funds and programs, NGOs and program focused on: the private sector are also major providers of assis- tance; partners use a multiplicity of approaches— • Country ownership and leadership: Country-led South-South cooperation, knowledge exchange, aid management and coordination is paramount technology transfer, foreign direct investment, (evolution away from donor harmonization); use trade, � nancing, aid. GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 155 BOX 5.3 The World Bank has made significant progress on the aid effectiveness agenda, but there is room for improvement (continued) • Transparency for Results: The World Bank is a • Fragile and Conflict Situations: These countries are path-breaker on transparency—access to informa- a special focus for the Bank, including supporting tion policy, open data initiative, project database, better aid management and coordination. international aid transparency initiative. The Bank is also strong on results—IDA and Corporate Source: World Bank. Food Crisis: Issue Briefs. Available scorecard; core sector indicators country, project, online at World Bank. “The World Bank and Aid Effective- and program level results frameworks; statistical ness: Performance to Date and Agenda Ahead.� November and monitoring and evaluation capacity develop- 2011. ment; Development Impact Evaluation Initiative. BOX 5.4 CGIAR: Improved collaboration and harmonization to strengthen delivery The Consultative Group on International Agricul- relevant products that respond effectively to the needs tural Research (CGIAR) is a global partnership that of rural households in developing countries. unites 15 International Research Centers and partner In response to a rapidly changing global develop- organizations engaged in research for sustainable ment environment, the CGIAR had gone through development with the major global funders of this a major reform to further improve its delivery of work. Its vision is to “reduce poverty and hunger, research results and on-the-ground impact. The improve human health and nutrition, and enhance reform is designed to give rise to a more results- ecosystem resilience through high-quality interna- oriented research agenda, clearer accountability tional agricultural research, partnership and leader- across the CGIAR, streamlined governance, and ship.� The funders include developing- and industrial- increased ef�ciency. A new CGIAR fund will improve country governments, foundations, and international the quality and quantity of funding by harmonizing and regional organizations. donor contributions, while a consortium structure The vision is supported by three strategic objec- will unite the CGIAR Research Centers under a legal tives: Food for People, to create and accelerate sus- entity that provides the fund a single entry point for tainable increases in the productivity and production contracting centers and other partners to conduct of healthy food by and for the poor; Environment research under results-based performance agree- for People, to conserve, enhance, and sustainably use ments. The shift to a more programmatic approach natural resources and biodiversity to improve the live- provides for centers to operate within a strategy and lihoods of the poor in response to climate change and results framework, aimed at strengthening collabora- other factors; and Policies for People, to promote pol- tion for greater ef�ciency and development impact. icy and institutional change that will stimulate agri- A portfolio of CGIAR research programs was devel- cultural growth and equity to bene�t the poor, espe- oped that remains the centerpiece of the reform. cially rural women and other disadvantaged groups. Total contributions to the CGIAR in 2011 were The collaborative work of the CGIAR over the past approximately $706 million, with $384 million chan- 40 years has resulted in development impacts on a scale neled through the fund. Of that, about 80 percent that is without parallel in the international community. was untied aid, evidence of widespread faith in a mul- They are the result of “international public goods,� tilateral approach to funding agricultural research including improved crop varieties, better farming for development. This is only a year after the new methods, incisive policy analysis, and associated new CGIAR fund was established. knowledge. These products are made freely available to national partners, who transform them into locally Source: CGIAR Fund Council. 156 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 TABLE 5.6 Multilateral development bank progress on Paris Declaration survey indicators Percentage Overall results MDB performance Paris Declaration survey indicators Global 2010 2010 Progress (development partner performance) target (%) (%) (%) since 2005? 3. Aid flows are aligned with national priorities 85 41 59 = (aid on budget)a 4. Strengthen capacity by coordinated support 50 57 71 + (technical assistance) 5a. Use of country PFM systems 55 48 70 + 5b. Use of country procurement systems 50b 44 48 + 6. Strengthen capacity by avoiding parallel –67 –32 –73 + project implementation units 7. Aid is more predictablea 71 43 51 – 8. Aid is untied 89 86 100 = 9. Use of common arrangements or procedures 66 45 56 + (program based approach) 10a. Joint missions to the �eld 40 19 27 + 10b. Joint country analytic work 66 43 56 = Sources: World Bank and OECD-DAC. Note: MDBs include African Development Bank, Asian Development, Inter-American Development Bank, and the World Bank. Data are for all participating countries, except for indicator 7 on aid predictability. +, –, and = respectively denote improved, deteriorated and unchanged performance. a. Unweighted average. b. AAA target of at least 50 percent is used. predictability and transparency of flows.11 were programmed in early 2008, early 2009, The forward-spending plans can be used to and early 2010 relative to actual CPA 2010 provide a good indication of actual CPA dis- disbursements averaged 95.3 percent (OECD bursements and provide a rough indication of 2011c). the prospects for total bilateral ODA flows in Latest available OECD DAC forward the coming years. survey data indicate that the annual average Country programmable aid is a core sub- growth rate of CPA may decelerate in real set of ODA (representing about 60 percent of terms from 4.9 percent during 2001–10 to total DAC gross bilateral ODA) and is consid- 2.1 percent during 2011–201313 (albeit this ered critical support in achieving the MDGs. represents a recovery from the 0.7 percent CPA is aid that has a direct development contraction in 2010) (�gure 5.10). Planned impact and upon which recipient countries disbursements by multilateral agencies have, or could have, some input—and for account for much of the 2 percent increase which donors are expected to be accountable expected during the coming years. In com- for delivering.12 Planned disbursements are parison, annual bilateral CPA from the DAC reported for the upcoming three years (with countries is expected to grow by a more mod- latest available forward plans ending in 2013, est 1.3 percent. Additionally, actual disburse- based on surveys conducted from December ment rates (versus planned) for CPA declined 2010 through February 2011). Forward CPA in 2010, suggesting that the actual pace of is intended to reduce uncertainty about aid growth may be weaker than the anticipated flows in recipient countries and thus enable 2 percent rate (OECD 2011). better management of government spending In per capita terms, CPA is projected to plans, improve recipient country ownership, decline by an annual 0.2 percent. Countries and help reveal gaps in development aid. in conflict or fragile situations are on track to As a predictor of actual disbursements, see a sharper decline in CPA disbursements planned CPA has proven reliable. For exam- of 2.1 percent a year on a per capita basis— ple, the predictability ratio of 2010 flows that although they are expected to continue to GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 157 FIGURE 5.10 Country programmable aid a. CPA disbursements are expected to level off in coming b. CPA flows per capita to fragile years with donor fiscal consolidation and nonfragile situations 100,000 50 47.6 44.8 95,000 90,000 40 US$ (constant 2009) 85,000 US$ millions 80,000 30 75,000 70,000 20 65,000 12.5 12.6 60,000 10 55,000 50,000 0 2000 2002 2004 2006 2008 2010 2012 2010 2011–13 Actual Planned Fragile situations Nonfragile situations Source: OECD CPA. receive about four times the per capita CPA plans for the developing regions indicate the disbursements expected for nonfragile coun- following projected trends. tries—underscoring calls at the Busan High South Asia is expected to post the stron- Level Forum to scale up aid for fragile and gest gains in CPA inflows over the 2011–13 conflict-affected countries and offset this period, with average annual real growth of expected decline. 7.7 percent. Three of the projected top four Lower CPA flows could have signifi- country aid recipients across regions dur- cant fiscal implications for the countries ing 2011–13 are in South Asia: Bangladesh, affected—particularly for those that rely India, and Pakistan (the fourth is Vietnam). heavily on ODA for external financing Projected CPA represents a 4.7 percent needs—and potentially on the achievement annual increase to South Asia and largely of the MDGs. Aid flows are much more sig- reflects strong growth in flows to Bangla- ni�cant as a source of external �nancing for desh, India, and Pakistan, more than offset- low-income countries. As noted, on average ting declines in planned flows to Afghanistan during 2005–10, ODA represented more and, to a lesser extent, Sri Lanka. than 60 percent of total external � nancing East Asia and the Paci�c and Sub-Saharan for low-income countries in contrast to a Africa are expected to see an average annual mere 4 percent for middle-income countries, real increase in CPA disbursements of 2.2 where private � nancing accounted for more than 60 percent of external �nancing needs. TABLE 5.7 CPA by region During 2011–13, the share of each devel- Percent share of total oping region in total CPA is expected to Region 2005 2010 2011–13 remain broadly stable. The biggest shifts are East Asia and Paci�c 18.8 16.8 16.9 expected for Latin America and the Carib- Europe and Central Asia 6.7 8.0 7.8 Latin America and the Caribbean 9.6 9.6 8.7 bean, where the share is on track to decline Middle East and North Africa 20.7 10.7 10.6 from 9.6 percent of the total in 2010 to 8.7 South Asia 16.8 20.2 21.3 Sub-Saharan Africa 27.4 34.7 34.8 percent on average, and in South Asia, which Memo: is expected to see a 1.1 percentage point Fragile situations — 25.3 25.6 increase to 21.3 percent on average (table 5.7, Sources: OECD, CPA and World Bank staff calculations. �gure 5.11). More speci�cally, the latest CPA — = Not available. 158 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 FIGURE 5.11 CPA flows to developing regions annual decline in planned disbursements for the region. 30,000 The Middle East and North Africa region is projected to see a modest 0.9 per- 25,000 cent expansion of CPA disbursements; how- ever, strong population growth implies an 20,000 annual average 2.4 percent contraction (in US$ millions real terms). Planned disbursements to Alge- 15,000 ria, Iraq, Jordan, and Tunisia are expected to decline, while those to Egypt and the Repub- 10,000 lic of Yemen are expected to increase. 5,000 Planned CPA disbursements to Europe and Central Asia are on track to decline by 0 0.8 percent overall and by 1.3 percent in per East Asia Europe Latin Middle South Sub- capita terms (at constant 2009 prices). Tur- and and America East and Asia Saharan Pacific Central and the North Africa key is expected to continue to post the largest Asia Caribbean Africa CPA, and modest growth in the share, over 2005 2010 2011–13 (annual average) the 2011–13 time horizon, while Uzbekistan is expected to see the strongest growth. Bos- Source: OECD CPA. nia and Herzegovina, Georgia, Kosovo, Mol- dova, and Tajikistan are among the countries percent and 2.1 percent, respectively. For expected to see signi�cant declines. Sub-Saharan Africa, this increase represents A significant share of the projected a sharp deceleration from the 13 percent declines in CPA going forward reflect planned annual average increase from 2008 through phasing-out of aid by donor countries tied to 2010. On a per capita basis, East Asia and the efforts to concentrate aid on fewer partner Paci�c is expected to see more modest growth countries and increased pressures on donor of 1 percent, while Sub-Saharan Africa, given country coffers (OECD 2011c). To reduce the rapid population growth rate, will see a transaction costs for recipient countries, 3 percent annual decline. Kenya, Ethiopia, where the capacity to manage the admin- Madagascar, and the Democratic Republic istration costs of projects is limited, donor of Congo are among the expected top 10 countries have been phasing out programs CPA recipients from 2010–13. Vietnam will where disbursements are small. For exam- receive the largest CPA disbursements in East ple, preliminary findings suggest that 162 Asia and the Pacific, if plans are realized. aid relations between DAC EU member and Although Indonesia and the Philippines are partner countries are expected to be phased expected to continue to account for a large out between 2011 and 2013, accounting for 8 share of the CPA flows to East Asia and percent of DAC EU total CPA in 2009. From Paci�c, the share is expected to contract com- a partner country perspective, while a given pared with 2010. donor may not provide large aid volumes in Latin America and the Caribbean is on terms of total aid received, it might neverthe- track to post the largest real regional decline less represent a sizable share of aid directed in CPA through 2013 of close to 7.9 percent to a speci�c sector or region where only a few a year on average—with the vast majority of donors may be present. the countries in the region recording a con- Real CPA flows to low-income coun- traction. Aid disbursements are expected tries are set to decelerate markedly, from to decline in nearly 80 percent of partner an average rate of expansion of 8.6 per- countries, with 40 percent of these linked to cent during 2008–10 to 1.4 percent over phase-out decisions. On a per capita basis, 2011–13. Planned CPA disbursements to that translates into a 9.8 percent average middle-income countries would shift from an GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 159 FIGURE 5.12 CPA received by number of MDG FIGURE 5.13 CPA by low- and middle-income countries, 2003–13 targets achieved or on track 55 45 41 41 41 50 % of total CPA to developing countries 40 US$ billions (2009 prices) 36 36 45 35 31 30 28 40 25 23 23 35 20 30 15 25 10 20 5 2003 2005 2007 2009 2011 2013 (projected) (projected) 0 2005 2010 2011–13 Middle-income countries 0–2 targets 3–5 targets 6–10 targets Low-income countries Sources: OECD CPA and DAC, and World Bank staff calculations. Sources: OECD CPA and World Bank staff calculations. average real growth rate of 2.2 percent in the FIGURE 5.14 Eurobarometer surveys earlier period to a 0.2 percent average rate of contraction during 2011–13 (�gure 5.12). 100 91 88 CPA flows to both low- and middle-income 90 countries are expected to contract on a per 80 capita basis. The largest share of CPA flows 70 % of respondents are expected to continue to be directed to the 60 countries that are furthest from attaining the 50 MDGs (�gure 5.13). 40 The projected decline in the growth of 30 CPA disbursements likely reflects the need 20 10 7 9 for signi�cant � scal consolidation in many 2 3 high-income countries. Among the 23 OECD 0 Important, Not very Don’t know donor countries, 9 have �scal de�cits equiv- fairly important alent to or greater than 5 percent of their important or not at all important GDP.14 These countries accounted for 57 Winter 2004 Spring 2009 percent of bilateral OECD disbursements in 2010 and contributed 22 percentage points to Source: Eurobarometer 2009. the 63 percent real increase in aid flows from Note: Survey respondents were asked, “In your opinion, is it very impor- 2000 to 2010 (or $28 billion of the $49 bil- tant, fairly important, not very important, or not at all important to help people in developing countries?� lion level increase). There is also some indica- tion of a slight decline in public support for development assistance. For example, the beyond existing aid commitments to the share of respondents in a post-crisis Euroba- developing world, support for development rometer survey that considered development cooperation remained strong: 72 percent of important or fairly important fell from 91 Europeans were in favor of honoring or going percent in 2004 to 88 percent in 2009 (�gure beyond existing aid commitments, while only 5.14). Nevertheless, according to the same 7 percent deemed that current contribution survey, when asked about honoring or going levels were “too high.� 160 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 Annex IFI responses to food price spikes International �nancial institutions (IFIs) have programs to ensure production of major food responded to recent food price hikes through crops, while supporting alternative income- different lending and nonlending mecha- generating activities in rural areas for the nisms (table A5.1). poorest segments of the population. These responses include emergency �nan- The AfDB’s support is channeled through cial support to the most vulnerable countries; its Agriculture Sector Strategy, which seeks medium-term assistance to strengthen social to increase agricultural productivity, enhance safety nets and agribusiness; and long-term incomes, and improve food security on a sus- programs to enhance infrastructure, rural tainable basis. It does this through the imple- development, and productivity along the mentation of two mutually reinforcing pillars. food value chain. The �rst pillar focuses on rural infrastruc- Several high-level meetings in 2008 and ture—including water resources manage- after, in addition to the already established ment and storage, agroprocessing, and trade- Committee on Food Security and the recently related capacities for accessing local and created United Nations High Level Task regional markets—as a means of increasing Force, of which the World Bank is a member, agricultural productivity and food security. helped galvanize the international commu- In line with the AfDB’s principles of strategic nity by increasing coordination among sister focus and selectivity, 80 percent of the 2011 institutions and policy dialogue with local total approvals for the sector were allocated authorities. to rural infrastructure. The second pillar aims to improve the resilience of the natural resource base. Its African Development Bank focus is threefold, namely. forestry, sustain- The African Development Bank (AfDB) able land management, and climate change established the Africa Food Crisis Response mitigation and adaptation. Accordingly, the initiative in 2008, providing approximately AfDB recently approved a $63 million grant $3 billion to reduce food poverty and mal- to support agricultural research on four nutrition in the short term and to ensure crops (cassava, maize, rice, and wheat) that sustainable food security in the medium African heads of state defined as strategic to longer term. The aim of this initiative is for the region, through the Comprehensive to strengthen the capacity to closely moni- African Agricultural Development Program. tor the food security situation in each of the bank’s member countries through the col- lection, analysis, and dissemination of food Asian Development Bank security information; to boost sensitization The Asian Development Bank (ADB) has among the different stakeholders in mem- sought mainly to address the structural and ber countries on the dangers, but also on long-term problems associated with food the potential opportunities, that high food insecurity. The ADB’s medium-term invest- prices entail; and to provide budgetary sup- ments on food security aim to ease the struc- port to low-income food-de�cient countries tural constraints pertaining to productivity, experiencing large �scal and current account connectivity, and resilience of its developing de�cits to strengthen food safety-nets for the member countries’ food systems. As part of most vulnerable. In the medium to long term, its response, the ADB continued to provide the objective is to help member countries financing for critical agriculture and food design and implement national food security security research programs by international GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 161 TABLE 5A.1 Responses from the international donor community to recent food price spikes Institution Emergency support Long-term programs African Development Bank Africa Food Crisis Response Initiative: $730 million Africa Food Crisis Response Initiative: $2.2 billion for increased provision of agricultural inputs for agricultural infrastructure, including water through emergency budget support, use mobilization for irrigation, rural access roads, and of high-yield New Rice for Africa (NERICA), facilities for reducing post-harvest losses (2008). allocation of resources to fragile states (2008). Asian Development Bank $700 million for food safety net measures, Operational Plan for Sustainable Food Security emergency food assistance, and food policy in Asia and the Paci�c: $6.8 billion lending and reforms in Bangladesh, Cambodia, Mongolia, nonlending assistance allocated to transport and Pakistan (2007–08). and communications, agriculture and natural resources, natural resources management, and rural infrastructure (2009–11). European Bank for Reconstruction EBRD Agribusiness Strategy: investments in the and Development private sector along the food value chain to foster productivity growth, enhance global food security, and limit food price inflation. $1.3 billion provided (debt and equity) to private agriculture enterprises (2011). Inter-American $1.8 billion approved for agriculture and rural Development Bank development over the period 2009–11 (including $551 million for food and agriculture in 2011). $26 million technical assistance projects on concessional terms for small and vulnerable countries in 2011. The IDB Food Security Strategic Thematic Fund ($3.5 million) to provide assistance to Bank borrowing member countries to improve agricultural production and productivity as a means to enhance their food security (supply side). World Bank Global Food Crisis Response Program: $2 billion Scale up of regular lending program in agriculture (extended through June 2012) to provide and social safety nets. Commitments to agriculture �nancial assistance, policy, and technical advice in 2011 reached $3.6 billion. Commitments to social to the poorest and most vulnerable countries safety nets accounted for $2.9 billion. (2008–12). Global Agriculture and Food Security Program: Global Food Initiative (IFC): $600 million in $20 billion �nancing mechanism to manage the investment lending and $300 million in G-20’s increased support to agriculture and food advisory services to support agribusiness value security. The program is implemented as a Financial chain in IDA and IDA/IBRD (blend) countries. Intermediary Fund for which the Bank serves as trustee (launched in April 2010). Sources: World Bank and partner institutions. and national agricultural research centers. At Food Policy Research Institute, the Inter- the same time, it actively carried out strate- national Rice Research Institute, and other gic studies to inform and influence relevant partners. policy making, and to promote regional col- The ADB’s assistance to meet food secu- lective actions for sustainable food security. rity concerns became more strategic and In carrying out these �nancing and advisory focused during the food crisis of 2007–08. services, the ADB worked effectively with the The continued uptrend in food prices and Food and Agriculture Organization of the forecast of more frequent food price surges United Nations, the International Fund for prompted it to develop its Operational Plan Agricultural Development, the International for Sustainable Food Security in Asia and 162 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 the Paci�c in 2009. From 2009 to 2011 the warehouse receipt and crop receipt programs. ADB has provided food-security-related lend- The value chain approach recognizes the ing and nonlending assistance of $6.8 billion. instrumental role that the supply side in gen- About $3 billion was allocated to transport eral, and infrastructure and trade logistics in and communications, mainly roads, followed particular, can play in smoothing price varia- by agriculture and natural resources ($2.0 tions on international commodity markets. billion) comprising mainly irrigation, drain- Even amid the food and � nancial crises, age, and flood control, water-based natural the EBRD signed 59 projects in 2009, com- resources management, and agriculture and mitting €639 million across central Europe rural sector development. By region, ADB and Central Asia. Of this, 42 percent was food security investments were $2.7 billion committed to crisis response projects, with to South Asia, $1.8 billion to East Asia, $1.1 emphasis on supporting low-income and billion to Southeast Asia, $888 million to early transition countries. Central and West Asia, and $146 million to In 2010 the EBRD scaled up its invest- Paci�c countries. ments and completed 63 transactions for From January to December 2011 ADB’s a record €836 million. In 2011 it surpassed food-security-related lending and nonlending the previous year’s volume, providing pri- assistance amounted to $2 billion, $1.8 bil- vate agriculture enterprises with debt and lion of which went to agriculture and natural equity in the amount of €945 million in resources, energy, transport, and commu- transactions. nication. The remaining $200 million was In addition, EBRD offers a range of invested in education, � nance, industry and instruments that help manage the � nancial trade, public-sector management, and multi- risk of exogenous shocks such as those asso- sector activities. Of these investments, $739 ciated with commodity price volatility. These million was allocated to South Asia, $470 instruments include policy loans with contin- million to Central and West Asia, $310 mil- gent credit lines, catastrophe risk � nancing lion to South East Asia, $307 million to East instruments, and interest rate hedges using Asia, and $105 million to Paci�c countries. stand-alone swaps. In parallel with invest- ment, these products allow tailored risk man- agement along the food value chain. European Bank for Reconstruction EBRD has been actively engaged through and Development the Private Sector for Food Security Ini- As the single largest investor in agriculture tiative in inducing regulatory and institu- in its countries of operations, the European tional changes in six main areas: promot- Bank for Reconstruction and Development ing public-private sector policy dialogue to (EBRD) takes action through both debt and achieve greater policy transparency and coor- equity investments, and complements this dination through the establishment of regular investment with technical cooperation and public-private working groups (for example policy dialogue. the Ukrainian Grain Sector Working Group); In agribusiness, EBRD has adopted a food promoting collateralization of soft commodi- value chain approach, mobilizing investment ties through technical assistance (implemen- from farming and processing to logistics tation of warehouse receipt legislation in and retail, entirely through the private sec- Russia, Ukraine, Kazakhstan, and Serbia); tor. Ongoing projects include direct support improving commodity trading and risk man- to the primary agriculture sector and lead- agement; enhancing quality standards along ing companies with strong links to the sec- the whole food value chain through private tor. Particularly relevant in response to recent and public-sector engagement; increasing food price surges are the EBRD’s activities local currency � nancing options; and pilot- in improving farmers’ risk management and ing water audits and policy advise on water- enabling access to seasonal � nance through ef�cient production technology. GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 163 Inter-American agricultural direct payments. Climate change Development Bank aspects are considered across all activities directed toward agriculture. The Inter-American Development Bank In parallel, the IDB will work to develop (IDB) established the Food Security Fund in new instruments that address the negative 2008 to address the consequences of major impact of price volatility on food security. price hikes of food that erupted in 2007. The As part of the G-20’s focus on agricultural fund was originally conceived as a two-tiered price volatility, the IDB has joined with the response to the food-price crisis: in the short World Bank, Agence Française de Développe- to medium term, it helped alleviate the impact ment, and the International Fund for Agri- of the crisis on the most vulnerable people culture and Development to collaborate in an of the region; in the long term, it aimed to exchange of information on successful poli- increase agricultural and agro-industrial out- cies and instruments. put and address trade-related policy issues. The fund has recently been refocused on the longer-term objective of improving agricul- World Bank tural production, productivity, and trade as Responding to the severity of the 2008 cri- a means to enhance food security. The new sis and the need for prompt action, the Food Security Strategic Thematic Fund will World Bank set up the Global Food Crisis provide technical assistance on concessional Response Program (GFRP) in May 2008 to terms. Since 2009, 18 technical assistance provide Bank �nancing and technical advice projects have been approved for a total of to affected countries. The GFRP has now $11.9 million. Eleven of these operations reached 40 million people in 47 countries. were approved for small and vulnerable Investment in agriculture and rural devel- countries. opment remains a high priority. The World Food security has been made a priority Bank Group is boosting agriculture and area for the IDB as part of the mandates of agriculture-related investment to some $6 its Ninth Capital Replenishment (IDB-9). billion to $8 billion a year from $4.1 billion One of the five priority areas of IDB-9 is in 2008. In April 2010, at the request of the “Protecting the environment, responding to G-20, the World Bank launched the Global climate change, promoting renewable energy, Agriculture and Food Security Program—a and enhancing food security.� The IDB-9 multilateral mechanism in support of agri- Results Framework established a speci�c tar- culture that takes up where emergency and get in this regard: by 2015, 5 million farmers recovery assistance leaves off, targeting should have access to improved agricultural transformative and lasting change in the agri- services and investments. Nearly 1 million culture and food security of poor countries farmers were assisted in 2010; 2.5 million through financial support to existing aid were assisted in 2011. effectiveness processes. To date, seven coun- Moving forward, the IDB will continue tries and the Gates Foundation have pledged to concentrate on productive activities in about $1.1 billion over the next three years, order to improve the supply response in the with $612 million received. longer term. The IDB’s investments toward The World Bank has responded to the agriculture growth in the region have quin- food crisis around �ve main areas: tupled in the past �ve years, from an aver- age of less than $100 million a year between Policy advice. The Bank has engaged in pol- 2004 and 2006 to nearly $500 million a year icy dialogue with more than 40 countries, at for 2009–2011. The IDB’s strategic focus is their request, to help them address the food twofold: to increase access to improved agri- crisis. Instruments used include rapid country cultural services and rural infrastructure, diagnostics, high-level dialogue, public com- and to enhance the quality and ef�ciency of munications, and in-depth analytical work. A 164 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 study on sources of food price inflation and Financial market insurance products and risk appropriate policy responses in Ethiopia is management strategies. In developing coun- ongoing. In the Middle East and North Africa tries, farmers, agro-enterprises, and govern- region, the World Bank, in collaboration ments can employ a range of technical, man- with the Food and Agriculture Organization agerial, and �nancial approaches to mitigate, and the International Fund for Agriculture transfer, and cope with risks. The World Development, released a paper on “Improv- Bank supports the development and imple- ing Food Security in Arab Countries.� mentation of agricultural sector and supply chain risk management strategies in a grow- Expedited � nancial support. In May 2008, ing number of developing countries through the Bank’s Board of Executive Directors the provision of technical assistance, capacity endorsed the GFRP, initially a $1.2 billion transfer, and training. rapid financing facility providing financial assistance as well as policy and technical Research to address critical knowledge gaps. advice to the poorest and most vulnerable In collaboration with other agencies and countries. The Bank increased the size of the institutions, the Bank is undertaking a com- facility to $2 billion in April 2009, and the prehensive analytical program. In addition, program was recently extended until June the Bank continues its support to the Con- 2012 to allow for a swift response to calls sultative Group on International Agricultural for assistance from countries hard hit by Research (CGIAR). A new CGIAR Multi- price spikes. As of January 2012, the GFRP Donor Trust Fund was established to harmo- had � nanced operations amounting to $1.5 nize donor investments and is being hosted billion; some 82 percent of funds had been and managed by the World Bank. Six new disbursed, reaching at least 40 million vul- results-oriented research programs submit- nerable people in 47 countries. In addition to ted by the Consortium of International Agri- Bank resources, grant funding has been made cultural Research Centers have been recently available through three externally funded approved for funding by the CGIAR Fund trust funds that amounted to about $358 mil- Council. lion. A Multi-Donor Trust Fund has received contributions from Australia ($A50 million), The World Bank is also responding to Spain (€80 million), the Republic of Korea the food crisis in coordination with develop- (W9.5 billion), Canada (Can $30 million), and ment partners. The World Bank is actively the International Finance Corporation (IFC) engaged with the United Nations High Level ($150,000). The Russia Food Price Crisis Task Force on the Global Food Security Cri- Rapid Response Trust Fund has allocated $15 sis. Established in April 2008, the task force million for the Kyrgyz Republic and Tajiki- brings together the heads of UN specialized stan. Last, the European Union has allocated agencies, funds, and programs with the Bret- €111.8 million to operations in 10 countries. ton Woods institutions. The World Bank is providing �nancial support to the task force Increased IFC investment in agribusiness. secretariat through the World Bank’s Devel- The Action Plan projects an increase in sup- opment Grant Facility and also participated port from the World Bank Group (IDA, in the updating of the UN’s Comprehensive IBRD, Special Financing, and IFC) to agri- Framework for Action. The World Bank is culture and related sectors to between $6.2 also contributing to several agricultural and and $8.3 billion annually over FY10–12. For food security working groups drafting rec- FY11, IFC invested $2.1 billion across the ommendations for the G-20, at the request agribusiness value chain. This leads to a total of the French presidency. Several G-20 initia- of $5.7 billion for overall World Bank Group tives to address food price volatility are being lending in FY11. implemented in collaboration with partners, GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 165 BOX 5A.1 Food price hikes and nutrition: The United Kingdom’s response The 2008 food price hike prompted the international target for 2015 is to reach 20 million children under community and partner governments to take a num- the age of 5 years with nutrition-related interventions. ber of steps to develop a more coordinated and com- The agency is scaling up a range of programs across prehensive response to undernourishment. As the sectors as well as making signi�cant investments in risks to improved nutrition from high food prices and research and impact evaluation to address some of the continued volatility became more apparent, so too key evidence gaps. For example: did the concern about the lack of progress in tackling hunger and undernourishment (MDG 1). • In Nigeria, a new six-year program aimed at signi�- Along with other governments, the United King- cantly increasing the coverage of nutrition-speci�c dom, led by its Department for International Devel- interventions (treatment of severe acute malnutri- opment (DFID), developed a strategic approach tion, support to infant and young child feeding, to undernourishment based on an evidence paper and micronutrient supplementation) in the north- (“Nutrition and Development: The Evidence�), which ern states. culminated in a position paper (“Scaling Up Nutri- • In Zambia, DFID is providing 10 years of support tion: The UK’s Position Paper on Nutrition�) pub- to the government’s child grant program aimed at lished in September 2012. These reflect the interna- addressing the economic barriers to good nutrition tional policy consensus that undernourishment is for children under �ve. best addressed through efforts that reach children • In Bangladesh, DFID will strengthen the nutri- in their � rst 1,000 days of life before the effects are tional impact of existing extreme poverty programs irreversible, and that a twin-track approach is needed by integrating the delivery of nutrition specific which scales up nutrition-speci�c interventions, often interventions to enhance the impact of the asset delivered by the health sector, in combination with transfers, cash transfers, training and income gen- nutrition-sensitive investments in agriculture, social eration which these programs already provide. protection, gender empowerment, and water and • A key research priority is to develop a better under- sanitation, speci�cally designed to improve nutrition. standing of the relationship between nutrition out- The United Kingdom actively supports the Scal- comes and agricultural growth, including the nutri- ing Up Nutrition movement, which brings together tional impacts of investments in food staples versus international partners including civil society and the other food crops. private sector, with country governments to acceler- ate progress in reducing undernourishment. DFID’s Source: DFID. including the Agricultural Market Informa- Bilateral agencies have also undertaken tion System launched to improve global agri- major initiatives to respond to the food crisis, cultural market transparency. The World as well. Such efforts include, the United King- Bank also regularly participates in the Multi- dom’s Department for International Devel- lateral Development Banks’ Working Group opment (box A5.1) and the European Union on Food and Water Security. (box A5.2). 166 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 BOX 5A.2 EU initiatives on agriculture, food security, and nutrition The European Commission remains a committed in L’Aquila to support agriculture and food security partner both politically and � nancially to ensuring with $3.8 billion in 2010–12; in 2010 alone, the global food security and nutrition. In terms of �nan- European Commission had already committed over cial initiatives for food security, EU cooperation with 50 percent ($2.02 billion) of its pledge. developing countries is mainly delivered through The European Commission is taking concerted country programs such as the European Development action on food security. It is a major contributor to Fund, where support to agriculture, rural develop- global food security governance—especially through ment, and food security is over €1 billion for Africa its backing for reform of the Committee on World alone (2008–13). This support is often complemented Food Security and for implementation of the Food by other means such as the €1 billion EU Food Facil- Security agenda in the G8/G20 context. ity (2009–11) and the almost €1.7 billion Food Secu- Food security is also a priority topic in the EU-US rity Thematic Programme (2007–13). Development Dialogue, with interesting initiatives The Food Facility is a prime example of the Euro- taking place on the ground. The European Commis- pean Union’s ability to react rapidly, ef�ciently, and sion has also signed onto a new Strategic Framework transparently to a global food security crisis. This of Cooperation, encouraging greater collaboration temporary instrument was created as a rapid and spe- between several international food agencies and ci�c response to help millions of people in the worst stressing the need for them to focus on their areas of affected countries in the short and medium term, fol- expertise. lowing the food price crisis of 2007–08. The launch of a global initiative to tackle In late 2010, to speed up progress on the MDGs, undernutrition and boost effor ts to achieve the European Union announced a €1 billion initia- MDG 1.c on malnourishment culminated in the Scal- tive to assist those countries struggling to reach the ing Up Nutrition (SUN) initiative following months MDG targets; this effort focuses on the MDGs that of technical work by experts worldwide, including are most off track, in particular MDG 1—eradication representatives from the Commission and EU mem- of hunger and malnutrition. ber states (see chapter 2). As the world’s largest grant donor, the Euro- pean Union is living up to the pledge made in 2009 Source: European Union. Notes of GNI, while disbursements from Austria and Italy declined as a share of GNI from 0.52 per- 1. The remaining disbursements are for “oth- cent and 0.29 percent in 2005 to 0.32 percent ers,� made up of more advanced develop- and 0.15 percent in 2010, respectively. ing countries and territories and amounts 3. The GNI for the 35 low-income countries (of unspeci�ed by country. a total of 139 developing countries with CPA 2. Countries that reached the goal are Ireland data) represented a mere 2 percent of total (0.52 percent of GNI), Finland (0.55 per- developing-country GNI in 2010. cent), United Kingdom (0.57 percent), Bel- 4. IDA de�nes “fragile situations� as either IDA- gium (0.64 percent), Netherlands (0.81 per- eligible countries with a harmonized average cent), Denmark (0.91 percent), Sweden (0.97 Country Policy and Institutional Assessment percent), and Luxembourg (1.05 percent). (CPIA, made by World Bank staff each year) Others raised disbursements but did not country rating of 3.2 or less (or no CPIA), or reach the target: France (0.50 percent), Spain the presence of a United Nations or regional (0.43 percent), Germany (0.39 percent), Por- peacekeeping or peace-building mission, or tugal (0.29 percent). Greek (0.17 percent) both, during the past three years. On average, disbursements remained constant as a share countries in fragile situations reported a CPIA GLOBAL MONITORING REPORT 2012 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS 167 of 2.9 in 2010, compared with 3.6 by non- as food aid, aid from local governments, fragile-situation countries. aid through secondary agencies). Addition- 5. For example, Kharas et al. (2011) estimate ally, CPA does not net out loan repayments, that net ODA delivered to fragile states rose to because these are not typically factored into an average of $50.4 per capita during 2005– aid allocation decisions (OECD 2010). 08 from an average of $21.4 during 1995–98, 13. The 2011 CPA survey includes forward aid per capita disbursements to non-fragile states plans for all DAC countries and the largest 23 remained stable at $10 per capita. multilateral agencies, including multilateral 6. The driving force behind these forums has development banks, UN agencies, and global been the Working Party on Aid Effective- funds. ness, hosted at the OECD Development Assis- 14. The countries are Canada, Greece, Ireland, tance Committee. What started as a donor- Japan, the Netherlands, Portugal, Spain, the only grouping in 2003 has now emerged as United Kingdom, and the United States. a major international partnership, a forum where donors, developing countries, inter- national organizations, civil society organi- References zations, parliaments, and the private sector Adugna, Abebe, et al. 2011. “Trends and Oppor- meet to discuss how to improve ways to work tunities in a Changing Landscape.� CFP together. Working Paper 8, World Bank, Concessional 7. The number of Paris Declaration indicators is Finance and Global Partnerships, Washington, 12, but 3 indicators have subindicators, bring- DC (November). ing the total to 15. However, 2 indicators do Atisophon, Vararat, Jesus Bueren, Gregory De not have global targets, so there are 13 indica- Paepe, Christopher Garroway, and Jean- tors with global targets. Philippe Stijns. 2011. “Revisiting MDG Cost 8. Estimates of the associated costs of the unpre- Estimates from a Domestic Resource Mobi- dictability of aid range between 10 percent lization Perspective.� Working Paper 306, and 20 percent of developing-country pro- OECD, Paris (December). grammable aid from the European Union Birdsall, Nancy. 2010. “Wow: Will This Results- over recent years (Kharas 2008). Based Approach Change DfID Country Allo- 9. “A New Deal for Engagement in Fragile cations?� Center for Global Development, States.� 2011. http://www.oecd.org/data Washington, DC (December). oecd/35/50/49151944.pdf. Birdsall, Nancy, and Homi Kharas. 2010. “Qual- 10. “Busan Global Partnership for Effective ity of Of�cial Development Assistance Assess- Development Cooperation.� 2011. www.aid ment.� Brookings Institution and the Center effectiveness.org/busanhlf4/images/stories/ for Global Development, Washington, DC. hlf4/OUTCOME_DOCUMENT_-_FINAL_ de Hennin, Carlo, and Harm Rozema. 2011. EN.pdf. “Study on Results-Based Programming and 11. The CPA survey was intended as a means to Financing in Support of Shaping the Multi- gain a better understanding of donors’ aid Annual Financial Framework after 2013.� allocation policies and to track aid commit- European Union (March). ments made by the G-8 at Gleneagles. Eurobarometer. 2009. “Development Aid in 12. More speci�cally, CPA is calculated by start- Times of Economic Turmoil,� Special Euroba- ing with gross ODA flows, and then exclud- rometer for the European Commission, http:// ing aid that is inherently unpredictable (such ec.europa.eu/public_opinion/archives/ebs/ as humanitarian aid and debt relief); entails ebs_318_en.pdf. no flows to the recipient country (such as Fengler, Wolfgang, and Homi Kharas. 2010. donor administrative costs and donor costs Delivering Aid Differently—Lessons from the of development awareness and research); and Field. Washington, DC: Brookings Press. is usually not under discussion between the Gates, Bill. 2011. “Innovation with Impact: donor agency and partner governments (such Financing 21st Century Development.� 168 AID AND INTERNATIONAL FINANCIAL INSTITUTIONS GLOBAL MONITORING REPORT 2012 Speech delivered at the Cannes G-20 Summit ———. 2011a. “Aid Effectiveness 2005–2010: (November). Progress in Implementing the Paris Declara- Hudson Institute. 2010, 2011. “The Index of tion.� Paris. Global Philanthropy and Remittances.� ———. 2011b. “Confl ict and Fragility: Interna- Kharas, Homi. 2008. “Measuring the Cost of Aid tional Engagement in Fragile States, Can’t We Volatility.� WP3, Brookings Institution, Wash- Do Better?� Paris. ington, DC. ———. 2011c. “2011 OECD Report on Aid ———. 2010. “The Hidden Aid Story: Ambition Predictability: Survey on Donors’ Forward Breeds Success.� Brookings Institution, Wash- Spending Plans 2011–2013. Draft.� Paris ington, DC. (November). Kharas, Homi, et al 2011. “Overview: An Agenda ———. 2011d. “2011 OECD Report on Division for the Busan High-Level Forum on Aid of Labour: Addressing Cross-Country Frag- Effectiveness.� mentation of Aid.� Paris. Mwase, Nkunde, and Yongzheng Yang. 2012. World Bank. 2011. World Development Report “BR ICs’ Philosophies for Development 2011: Conflict, Security and Development. Financing and Their Implications for LICs.� Washington, DC. WP/12/72, International Monetary Fund, Zimmermann, Felix, and Kimberly Smith. 2011. Washington, DC. “More Actors, More Money, More Ideas for OECD (Organisation for Economic Co-operation International Development Co-operation.� and Development). 2009a. “Aid Orphans: Journal of International Development 23: Whose Responsibility?� Development Brief, 722–38. Issue 1, Paris. Zoellick, Robert. 2011. “Beyond Aid.� Speech ———. 2009b. “PARIS21 at Ten: Improvements delivered at George Washington University, in Statistical Capacity since 1999� (October). Washington, DC (September). http://www.paris21.org/sites/default/files/ P21-at-10.pdf. ———. 2010. “Getting Closer to the Core—Mea- suring Country Programmable Aid.� Develop- ment Brief, Issue 1, Paris. GLOBAL MONITORING REPORT 2012 APPENDIX 169 Appendix Classification of Economies by Region and Income, Fiscal 2012 East Asia and Pacific   Latin America and the Caribbean South Asia   High-income OECD economies American Samoa UMC Antigua and Barbuda UMC Afghanistan LIC Australia Cambodia LIC Argentina UMC Bangladesh LIC Austria China UMC Belize LMC Bhutan LMC Belgium Fiji LMC Bolivia LMC India LMC Canada Indonesia LMC Brazil UMC Maldives UMC Czech Republic Kiribati LMC Chile UMC Nepal LIC Denmark Korea, Dem. Rep. LIC Colombia UMC Pakistan LMC Estonia Lao PDR LMC Costa Rica UMC Sri Lanka LMC Finland Malaysia UMC Cuba UMC France Marshall Islands LMC Dominica UMC Sub-Saharan Africa Germany Micronesia, Fed. Sts. LMC Dominican Republic UMC Angola LMC Greece Mongolia LMC Ecuador UMC Benin LIC Hungary Myanmar LIC El Salvador LMC Botswana UMC Iceland Palau UMC Grenada UMC Burkina Faso LIC Ireland Papua New Guinea LMC Guatemala LMC Burundi LIC Israel Philippines LMC Guyana LMC Cameroon LMC Italy Samoa LMC Haiti LIC Cape Verde LMC Japan Solomon Islands LMC Honduras LMC Central African Republic LIC Korea, Rep. Thailand UMC Jamaica UMC Chad LIC Luxembourg Timor-Leste LMC Mexico UMC Comoros LIC Netherlands Tonga LMC Nicaragua LMC Congo, Dem. Rep. LIC New Zealand Tuvalu LMC Panama UMC Congo, Rep. LMC Norway Vanuatu LMC Paraguay LMC Côte d'Ivoire LMC Poland Vietnam LMC Peru UMC Eritrea LIC Portugal St. Kitts and Nevis UMC Ethiopia LIC Slovak Republic Europe and Central Asia St. Lucia UMC Gabon UMC Slovenia Albania UMC St. Vincent and the Gambia, The LIC Spain Armenia LMC Grenadines UMC Ghana LMC Sweden Azerbaijan UMC Suriname UMC Guinea LIC Switzerland Belarus UMC Uruguay UMC Guinea-Bissau LIC United Kingdom Bosnia and Herzegovina UMC Venezuela, RB UMC Kenya LIC United States Bulgaria UMC Lesotho LMC Georgia LMC Middle East and North Africa Liberia LIC Other high-income economies Kazakhstan UMC Algeria UMC Madagascar LIC Andorra Kosovo LMC Djibouti LMC Malawi LIC Aruba Kyrgyz Republic LIC Egypt, Arab Rep. LMC Mali LIC Bahamas, The Latvia UMC Iran, Islamic Rep. UMC Mauritania LMC Bahrain Lithuania UMC Iraq LMC Mauritius UMC Barbados Macedonia, FYR UMC Jordan UMC Mayotte UMC Bermuda Moldova LMC Lebanon UMC Mozambique LIC Brunei Darussalam Montenegro UMC Libya UMC Namibia UMC Cayman Islands Romania UMC Morocco LMC Niger LIC Channel Islands Russian Federation UMC Syrian Arab Republic LMC Nigeria LMC Croatia Serbia UMC Tunisia UMC Rwanda LIC Curaçao Tajikistan LIC West Bank and Gaza LMC São Tomé and Principe LMC Cyprus Turkey UMC Yemen, Rep. LMC Senegal LMC Equatorial Guinea Turkmenistan LMC Seychelles UMC Faeroe Islands Ukraine LMC Sierra Leone LIC French Polynesia Uzbekistan LMC Somalia LIC Gibraltar South Africa UMC Greenland Sudan LMC Guam Swaziland LMC Hong Kong SAR, China Tanzania LIC Isle of Man Togo LIC Kuwait Uganda LIC Liechtenstein Zambia LMC Macao SAR, China Zimbabwe LIC Malta Monaco New Caledonia Northern Mariana Islands Oman Puerto Rico Qatar San Marino Saudi Arabia Singapore Sint Maarten (Dutch part) St. Martin (French part) Taiwan, China Trinidad and Tobago Turks and Caicos Islands United Arab Emirates Virgin Islands (U.S.) Source: World Bank data. Note: This table classi�es all World Bank member economies, and all other economies with populations of more than 30,000. Economies are divided among income groups according to 2010 GNI per capita, calculated using the World Bank Atlas method. The groups are: low income, $1,005 or less; lower middle income, $1,006–$3,975; upper middle income, $3,976–$12,275; and high income, $12,276 or more. ECO-AUDIT Environmental Benefits Statement The World Bank is committed to preserving Saved: endangered forests and natural resources. • 21 trees The Office of the Publisher has chosen to • 8 million BTU of print Global Monitoring Report 2012: Food total energy Prices, Nutrition, and the Millennium • 2,111 pounds of CO2 Development Goals on recycled paper with equivalent of 30 percent post-consumer waste, in accord- greenhouse gases ance with the recommended standards for • 9,517 gallons of paper usage set by the Green Press Initiative, wastewater a nonprofit program supporting publishers • 603 pounds of in using fiber that is not sourced from solid waste endangered forests. For more information, visit www.greenpressinitiative.org. hat has been the impact of yet another food price spike on not �t all and that sequencing and prioritizing various policy W developing countries’ ability to make progress toward the Millennium Development Goals (MDGs)? How many poor initiatives depend critically on the initial situation a country or region finds itself in. It also discusses support by the people have been prevented from lifting themselves out of international community. poverty? How many people, and how many children, have seen The world has met two global MDG targets well before the their personal growth and development permanently harmed 2015 deadline. Estimates based on preliminary surveys indicate because their families could not afford to buy food? Finally, what that the share of people living in extreme poverty in 2010 was can countries do to respond to higher and more volatile food half what it was in 1990. The world has also halved the share of prices? Global Monitoring Report 2012: Food Prices, Nutrition, and people with no safe drinking water. The goal of gender parity in the Millennium Development Goals examines these questions. It primary and secondary education is on track to be met in 2015, summarizes the effects of food prices on several MDGs, stressing and the goal of ensuring that children everywhere—boys and that recent food price spikes have prevented millions of girls alike—are able to complete primary school is nearly on households from escaping extreme poverty. The report track. But the MDGs closely linked to food and nutrition, advocates using agricultural policy to orchestrate a supply particularly those that aim to reduce child and maternal response; deploying social safety nets to improve resilience; mortality, are lagging. strengthening nutritional policy to manage the implications of Global Monitoring Report 2012 was prepared jointly by the early childhood development; and implementing trade policy to World Bank and the International Monetary Fund, with improve access to food markets, reduce volatility, and induce consultations and collaborations with regional development productivity gains. The report acknowledges that one size does banks and other multilateral partners. ISBN 978-0-8213-9451-9 SKU 19451