CABRI Agriculture Sector Dialogue: Climate Change and Disaster Preparedness 29-30 July 2013

Budgeting for Uncertainty African Agriculture Vision 2035 Where are we now? How can we better understand and address the threat of climate change to African agriculture? What tools are available to governments and budget practitioners to mitigate these risks? Vision – Where do we want to be in 2025? What will African agriculture look like? What development impact will this have? How do we get there? – Where are we now? How do we deal with climate risk? Are we planning for climate change already? Do we have all of the facts? What are the tools available to governments

African Agriculture Vision 2035 Participants volunteer visions for their countries. Brainstorm on flip chart Probable: “we’ve achieved food security and now we’re exporting to neighboring countries.” “We’ve formed a regional commodity exchange” “We intend to be in the top five exporters of X cash crop and Y biofuel base” “We have synchronized our policies such that all value-added processes for my country and the region happen here”

Vision 2035 We’ve achieved food security and have been exporting to neighboring countries for years. We now have well-functioning, regional commodity exchanges. We have built the capacity for value-added processing of our major crops thereby exponentially increasing incomes in the agricultural sector. We are among the top five global producers of cashews, coffee, rice... We have doubled or trebled cereal yields/ha

Where are we now?

Cost of Disasters in Africa Global. Just under 50% of all emergency multilateral food assistance to Africa is due to natural disasters. 2009 Drought: 53 million people and US $2.5 billion National. Disasters threaten record GDP growth. A 1-in-10 year drought event would have an estimated adverse impact of 4% on the annual GDP of Malawi Household. Low resilience households must grow by more than 3% annually in real terms to withstand medium shocks. The income of the most vulnerable households in Niger would have to grow 3.4% annually over the next five years to build sufficient resilience to cope without external assistance GLOBAL: To give an order of magnitude using World Food Programme (WFP) operations as a proxy for international aid flows, in 2009 WFP assisted 53 million people in sub-Saharan Africa, spending US $2.5 billion – 63% of WFP’s global expenditure that year. By comparison the Consolidated and Flash Appeal for 2009 required over US $6 billion for Africa covering all sectors, for which approximately US $4.5 billion of contributions were received, with drought accounting for an average of 36% of all responses. WFP in Africa: 2009 Facts and Figures; www.reliefweb.int/fts (Table ref: R21). NATIONAL A 1-in-10 year drought event would have an estimated adverse impact of 4% on the annual GDP of Malawi, with even larger impacts for 1-in-15 and 1-in-25 year events. Such decreased productivity detracts from economic growth, causes major budget dislocation, erodes development gains and resilience, and requires additional emergency aid from the international community in the future. HOUSEHOLD For many countries in Africa, a small shock in terms of a rainfall deficit or elevated food prices can precipitate a call for a major humanitarian intervention and emergency response. The resilience in such countries is significantly low such that they struggle through most years, let alone during a drought. For example, in a country such as Niger, where households currently display very low resilience, the ARC team has calculated that to withstand a 1-in-5 year drought event, the income of the most vulnerable households would have to grow by an annual average of 3.4% over the next five years in real terms to build sufficient resilience in order to adequately cope without requiring external assistance. In the meantime, insurance is not the correct tool to deal with this chronic risk. In order to improve such countries’ resilience to natural disasters, thereby enabling sustained growth on the continent, two key elements are required: risk management and investment.   The analysis measures resiliency as a household's distance from the international poverty line, in this case assumed to be US $1.25 per day, and uses a scaling factor of 1.5 to quantify the loss of agricultural income from a given deviation in an area’s drought index from normal conditions (based on Africa RiskView default model settings). Using 1-in-5, 1-in-10 and 1-in-15 year events as estimates for different drought severity, the minimum loss of livelihood in dollar terms associated with all three frequencies of event in each region of the country is estimated, and then averaged across all areas to calculate a national figure. Finally, the required income today to withstand those losses 5, 10 and 15 years ahead is calculated in order to determine the annual growth rate (i.e. the geometric average) to reach such levels.

The way disaster response in Africa works now… Household Coping Mechanisms Eat less-preferred food Other work Use savings and borrow Sell non-productive assets Reduce food intake Sell productive assets Rains Fail Pre-Harvest… Up to 3 months… 3-5 months 5 months plus… Current Disaster Response Rains Fail Assess Funding Appeal Humanitarian assistance is effective at protecting lives, but not always livelihoods Major (unbudgeted) costs of disaster relief Household asset depletion, national budget dislocation, long-term effects of stunting and chronic food insecurity on economic growth, etc. Difficulties of targeting relief aid to the intended beneficiaries Relief can distort incentives for local production Aid is primarily imported, in-kind donations If purchased in local/regional commodity markets, price spikes due to buyer footprint Moral hazard: if we wait long enough, aid is free, diminishing incentives for risk reduction and retention Institutionalisation of dependency Every major shock, more people fall into chronic food insecurity How do we allocate certain resources against risks that are probable, but uncertain in terms of their timing and their magnitude? 1 Clarke/Hill, Cost-Benefit Analysis of the African Risk Capacity Facility, 2012 Harvest -2 -1 1 2 3 4 5 6 7 8 9 -3 Timeline (months) How do we allocate certain resources against risks that are probable, but uncertain in terms of their magnitude and their timing?

Understanding Climate Risk

Policy Questions 1. Is the historical and current data you would need to quantify disaster risk in dollar terms available in-country? Is it standardized, digitized, reliable? 2. Is the data in a format that lends itself to decision-making and concrete action? 3. How is information shared between relevant ministries or departments including Finance/Economic Planning, Agriculture, Disaster Management, Meteorology, etc?

Policy Questions 4. In practice, how does the national government balance the need for long-term planning with immediate development/public service priorities? Do the existing institutional structures and processes support an appropriate or desirable balance? 5. If pan-African solidarity in approaching climate risk makes financial sense, what mechanisms for policy coordination does the national government use at the continental level?

National Contingency Fund Strategic food reserves Matching the Tools to the Risks Appeal Shock Frequency (years) Different tools are available to address different layers of risks based on frequency and magnitude Appeal Insurance National capacity overwhelmed National Contingency Fund Strategic food reserves Social safety nets

Investment & Diversification Building Resilience to Climate Change Risk management is critical to protecting development gains from investment. 1:5 ARC Contingent Loans Investment & Diversification Commercial Insurance Present +5 years +10 years +15 years +20 years Safety Nets Investment & Diversification Resilience Threshold1 1:20 1:15 1:10 Appeal Shock Frequency (years) Potential cereal yield per ha, Sub-Saharan Africa (2035): 3900 kg3 Cereal yield per ha, Sub-Saharan Africa (2010): 1335 kg2 1 Resilience Threshold: Limit of national coping capacity 2 Source: World Bank. 3 Current yield in Latin American countries.  Source:  World Bank. Improvement results from better use of technology in agriculture.

Policy Questions 6. Are the tools available or being considered applicable and useful in the African context? (contingent loans, sovereign level risk insurance, national reserve accounts, regional reserves, etc)

Fatima KASSAM Fatou DIAGNE Chief of Governmental Affairs & Policy fatima.kassam@africanriskcapacity.org Fatou DIAGNE Regional Programme Officer fatou.diagne@africanriskcapacity.org