Food Crisis—Facing the Facts

September 14, 2009—More than a year ago, food prices around the world started rising. This, combined with the global economic downturn, pushed millions more people around the world into poverty. In 2009, the number of hungry people on the planet is predicted to reach a historic high of 1.02 billion. The impact has been especially harsh in parts of Africa.

Youthink! chatted with Shantayanan "Shanta" Devarajan, Chief Economist of the Africa Region at the World Bank, to get his perspective on the food crisis.

Youthink!: First of all, tell us about what you do.

Shanta: As Chief Economist of the Africa region, I try to do 4 things. First is to bring forward the best possible knowledge on the development problems of Africa. Secondly, the Chief Economist is responsible for the strategy of the region, as well as to support the strategies in the individual countries. Because I like to think as an economist, we don't have a bias toward any particular sector. Third, I'm responsible for the quality of the economic work, both in our knowledge work as well as in our loans. Finally—and this I really enjoy—I try to build a community of economists, both within the Africa region at the Bank, and also on the continent itself.

Youthink!: What's the news regarding the food crisis? How have things changed in one year? Is the situation better or worse?

Shanta: Well, we know that food prices went up about 50% about a year ago. And the impact on Africa, and particularly the poor in Africa, was really quite devastating. In Africa the poor spend about 70% of their income on food. And it's the poor who have the least cushion to deal with this. My bottom line assessment is that while it was a huge crisis, it could have been a lot worse. Thanks to the response by African governments, to some extent supported by the Bank and other external donors, we avoided a true calamity.

Youthink!: What did that response involve?

Shanta: About three things happened that all sort of came together:

The first is that because this was a targeted crisis, that is, it mainly hit the urban poor—and to some extent the rural poor—who are net consumers (those who consume more food than they produce) of food, it was possible to target the assistance too. So, one response was to very quickly expand safety net programs, some of which were already working well. For example in Ethiopia they have a Public Works program and they just doubled the daily wage, which helps get more money to the poor more quickly. Being a public works program, only the poor are willing to come and work at that low wage anyway. Countries like Liberia and Sierra Leone also had public works programs that they expanded.

Secondly, the food crisis made people realize something which has helped quite a bit going forward: making sure that African farmers could benefit from the higher food prices. See, high food prices are a bad thing if you're a net food consumer, but they are a good thing if you're a net food producer (those who produce more food than they consume). And there are a large number of farmers, including some very poor farmers, who are net food producers. They have been hurt by low food prices for the past 10-15 years, so this was a chance for them to benefit from the increase in food prices. Still, it wasn't that straightforward because an increase in world food prices doesn't necessarily translate to higher selling prices for the farmers because there are a lot of middle men in the chain, including truckers and the traders.

Another thing to keep in mind is that alongside the increase in food prices came an increase in fuel prices, which meant that transport costs went up. And fertilizer costs went up too. So, some farmers were actually not receiving more income, even though the prices rose. And then sometimes the farmers could produce more, but they couldn't sell it because the roads were bad and they couldn't get the stuff out.

So, we had to work on all of these different factors. Some of these were problems that existed from before, but the rise in food prices provided a shot in the arm and there was a real impetus. There were collaborations among the World Bank, FAO (Food and Agriculture Organization) and the African Union, to try to make use of this opportunity to benefit African farmers. And the program has sustained itself in a major way. The Bank itself is now lending $1.5 billion dollars a year for agriculture. (It used to be about half a billion in the past). There has been an increase in agricultural productivity, which is the key. It's not just about overall production, but output per worker.

Youthink!: So the food crisis helped productivity?

Shanta: Yes, because the farmers had an incentive to produce more, now that they were earning more! The third aspect of the response was that unlike in the past, the response by African governments at the national level was quite prudent. For instance, in the past when they've had price increases, both food and fuel—and by the past I mean like 20 years ago—the reaction was to put on price controls. Virtually none of that happened this time. Because we've realized that price controls are actually counter-productive.  They do 2 things: they take away from the possibility of farmers benefitting from price rises. Plus, they lead to an excess demand. Which means resources become scarce and it's usually the non-poor who have better access to the scarce resources, and the poor get left out. So you put on price controls thinking you'll help the poor and end up hurting them. I think this time that lesson came out loud and clear. So only in very, very few cases did we see the introduction of price controls, and when they did introduce it, they took away as soon as they could.

Now there was a related, slightly disturbing trend and that was putting on export bans. Fortunately, that didn't last very long. The idea there was: "food is scarce, so let's not sell it to foreigners; let's keep it in our own country." Sometimes politically that's very appealing. But the truth of the matter is that it also hurts the farmers. There are 2 other things that happen: Firstly, it's a "beggar thy neighbor" policy, because the neighbor needs the food just as much as you do and you're cutting them off at the border. And that could create political tension.

But the other thing—and I think this is why they abandoned it—is that it's very ineffective. Because you can't actually police these borders! Farmers were smuggling the stuff out anyway. These people are rational; they want to make money! If the government tries to stop them they'll find some way to get around it. So, anyway, that didn't last very long either. Some governments prudently lowered import tariffs on imported food. They had existing tariffs on imported food, which they lowered when the world price went up, to keep the domestic price at least manageable. That struck me as being a very rational thing to do, because you're actually reducing a distortion that didn't have to be there.

So, those were the policy responses. It helped that food prices stabilized—they're still higher than they were before all this started, but they did come down.

Youthink!: Are prices expected to stay down?

Shanta: There's a significant possibility that prices will start going back up. To be honest I don't think we fully understand why food prices went up last year. I mean, there are lots of different theories; it's probably a combination of increased demand in China and India, and droughts, and the biofuels. So it's a combination of those things, but no one has really come up with a coherent explanation of all of those.

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Youthink!: That probably makes it hard to predict what will happen?

Shanta: Exactly. We don't know. Certainly, there're some disturbing trends in terms of weather patterns this year. The harvest was not good in different parts of the world, so there is a risk. We haven't seen all the rains come through yet. But what I'm getting at is that, given the policy response that these guys made last time, I think we're in better shape to manage a food price crisis.

Youthink!: You mentioned that the food price rise was an opportunity to help the farmers? Can that end up helping a country's economy as a whole?

Shanta: It probably does, but I don't even worry about that! These farmers are poor! I mean, these are 70% of the poorest people in the country. So helping the farmers is helping the poor. Most African farmers have a tiny plot of land, they're smallholders, they earn about a dollar a day. So as far as I'm concerned, if we can help them, that's it! They're not like the rich agro-business people of the USA and Europe.

Youthink!: Was Africa the worst hit in the food crisis?

Shanta: Yes, in so far as Africa has the highest poverty rate in the world. So yeah, it probably was the worst hit. South Asia was badly hit too—there I think Bangladesh was the worst off

Youthink!: Did other regions have similar policy responses, and did they work?

Shanta: Yes, it was similar, although in South Asia the Indians did place an export ban on rice to Bangladesh. They've since removed it, but the impact was very clear: the day they put on the ban, the price of rice in Dhaka shot up.

Youthink!: Was that mostly bad for Bangladesh, or did it also hurt Indian farmers?

Shanta: It probably wasn't such a good deal for Indian farmers, in fact there were complaints from the farmers in Rajasthan and Bihar that they were getting hit as well. I did a couple of blog posts—this happened when I worked in the South Asia region—the first was titled Beggar Thy Neighbor, and I followed it up with a post called Beggar Thine Own People, about how they were hurting the farmers of India too.

Youthink!: So what's next? How can we prevent another food price crisis?

Shanta: The longer-term agricultural agenda still has to be worked on, which includes getting farmers a bigger a share in the world price, and improving some of the infrastructure constraints. A big issue is also the vulnerability to climate change. Because let's face it, that's going to hurt African farmers, with increased droughts, floods, desertification, and changes in rainfall patterns. You know, only 7% of cultivated land in Africa is irrigated; 93% is rain-fed. So farmers are very vulnerable to fluctuations in rainfall patterns and the need for irrigation is huge.

Social protection is also important. These include public works programs, conditional cash transfers and other kinds of safety nets. I said earlier that we were able to expand some of these programs during the food price crisis. We were also able to find out about the lack of well-functioning safety net programs in many of these countries. We had a school-feeding program, and it turned out they weren't feeding very many school children … in one country we learned that the school feeding program coincidentally was introduced when the president's brother owned the biggest dairy in the country. So, it's bad governance and bad management.

Youthink!: Is bad governance a problem in terms of reducing the effects of the food crisis, or did it also contribute to creating the crisis?

Shanta: That's a little tricky. Bad governance is a chronic problem; it's been there for a long time and will probably be with us for a long time. There are aspects of the governance issue, which have made Africa more vulnerable. For instance, one of the reasons why the agricultural sector has not expanded (in terms of irrigation or removing all those middle men), is bad governance! Politicians tend to blame it on European agricultural subsidies, or world conditions and everything else. What I say is, we can complain about European agricultural subsidies, but the Europeans aren't going to do anything about them unless the domestic political economy in Europe changes. And I don't want to single out the Europeans, I mean the Americans, Japanese, all the rich donor countries are guilty! But there are things that you can do in your own house. For example we looked at transport costs in Africa, which are extremely high. Transport costs in Africa are the highest in the world. But it turns out that the actual vehicle operating costs—driving a truck through these roads in Africa—are no higher than in France. It turns out the difference lies in the profit margin that truckers are earning, because they have monopoly rights, which are guaranteed by the regulations in the country. And of course in one country it doesn't help that the president's brother-in-law, I think, owns the trucking company, so there's no way you're going to get the deregulation. So it's their own doing. You always think when you go on these African roads that the roads are bad and that's why transport costs are so high, but operating the vehicle costs no higher than it does in France.

Youthink!: What can we do as individuals to help?

Shanta: If you're a young person and you believe my story that a large part of what's getting in the way of poverty reduction in Africa is bad governance and bad policies, then you have to be forceful advocates for reform. Because, politicians aren't going to listen to me … but they will listen to their voters! And you're a voter! You don't have to believe my story. But if you do believe the story, then you've got to do something about it—which is to let the politician know that you understand that bad governance is the reason why school children are not being fed. Because politicians are always trying to put the blame on the donors or on somebody else, saying things like, "we don't have money." It's not lack of money, but lack of good governance that's getting in the way of those school children being fed.

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