1. The Food Crisis: The Role of the Advanced Economies in Europe and North America Marek Belka Executive Secretary Economic Commission for Europe

2. Cereal Prices: A steady increase before the explosion, then retreat

3. World Cereal Production The 2007/08 price explosion was due to increased demand, oil induced cost-push pressures, inventory reductions due to poor harvests in

4. The Global Food Market
World food prices increased by 50% from 2002 to 2006 and then doubled between the beginning of 2006 and the summer of 2008
Overall food production is up in 2008 and has continued to grow at about the same rates as it had over the last decade.
World cereal production (basically wheat, corn and rice) after declining by 1% in 2005 and 2% in 2006, increased by 5.4% in 2007 and is forecast to increase by 2.8% in 2008; these increases are above the 1.2% average increase over
World population has been increasing at 1.28% a year, so the world has not been creating any extra supply to provide additional food for the 800 million that are malnourished or for middle-income persons that might want to increase their consumption (of cereal using meat), or for bio-fuel
Between 1999 and 2007 there has been a steady decline in the stocks of cereal from 115 days to 54 which is the lowest in 30 years. This represents a situation in which demand has exceeded supply by about 3% a year.

5. 1. Increase the amount of aid overall as well as the proportion allocated to food programs
ODA for agriculture development in the developing countries has fallen to one-half of the level in 1980
Because of high agriculture prices, the EU has had to contribute less out of its budget for farm subsidies. There is the possibility that up to 1.8 billion euros of unused farm subsidies can be used as food aid over the next 2 years
Aid needs to be targeted so as not to damage developing country farmers
Aid should go where its needed not to geo-strategic priorities; aid with origin requirements limits its value

6. 2. Reform agricultural support programs in the EU and US that discourage production in developing countries
The EU and the US have contributed to the underdevelopment of agriculture markets in the developing countries. Import restrictions and production subsidies lower world prices. Although this may benefit some importing countries, they harm developing country agricultural producers and exporters.
North America (22%) and Europe (24%) produce almost one-half (46) % of the world’s cereal production. Europe is concentrated in wheat and the US in corn; neither produces much rice, but both have large support for rice farmers.
The US and EU account for 60% of OECD agriculture support and 80% of government subsidies; the average tariff on developing country agricultural exports is 34% for the EU, 11% for Canada, 5% for the US.
Although these farm policies have distorted trade in a number products, there is often a misconception that they are flooding world markets with agricultural goods. The EU, US and Russia are net importers of food products. Canada is a net exporter.

7. Producer Support as a Percentage of Gross Farm Receipts: OECD Ave=31% (1.2% of GDP) This has not declined since Uruguay

8. Reducing subsidies is in the advanced economies interests also:
2b. Reform agricultural support programs in the EU and US that discourage production in developing countries
Reducing subsidies is in the advanced economies interests also:
They are a drain on the budgets of the EU and US; taxpayers and consumers lose.
Benefits go increasingly to a smaller percentage of farmers
In US, top 10% get 72% of payments
In EU, top 20% get 80% of CAP subsidies
Farm income is often higher than nonfarm income:
Example: US farm income was ½ average income in 1950 but is now 1/3 more
As a result farm programs have moved from being a income support for poor people to primarily a type of “industrial” policy to promote a sector.
Farm policy is increasingly at odds with sustainable development.
Continued support for farm incomes should focus on income support not linked to production, with payments mainly in “bad” years.

9. U.S. Agricultural Exports
As with Industrial Exports, the Advanced Economies Increasingly Specialize in High-Valued Products
U.S. Agricultural Exports

10. 3. Reform global agriculture markets by completing the Doha Round and placing limits on export restraints
Currently OECD members support for agriculture is $1 billion a day. (3 times ODA).
Global agricultural distortions are estimated to have lowered world agricultural prices by 12 per cent, over time this has reduced supply.
40 countries have recently imposed restrictions on exports of food: examples - India (November 2007) Vietnam (2008) and Cambodia (2008) restricted rice exports.
Although this improves supply at home it worsens the situation for importers.
A multilateral solution is needed to reduce distortions in agriculture markets. Uruguay Round was a limited success
Doha Agreement: Half the gains from goods (i.e., excluding services) liberalization of an agreement would come from the agriculture sector.
And ½ of these would go to developing countries.
Most of this income would flow to poor rural farmers, i.e. those most in need.

11. 3b. Reform global agriculture markets by completing the Doha Round and placing limits on export restraints
Fundamental trade-off between food security and efficiency
Some countries may reasonably decide not to move to a purely market oriented outcome.
Note that the EU CAP resulted from WWII memories about food shortages: US farm support started during the Great Depression
Insurance and futures markets can help achieve security and efficiency but there are clear limitations on what these can achieve.
Improving trade facilitation is equally important
Tremendous potential gains from harmonizing product standards, harmonizing customs procedures and documentation, using electronic customs procedures.
The ECE is doing important work in this area and this can be of great benefit to the developing world.

12. 4. Scale back bio-fuel programs; reorient them to bio sources that do not compete with food products; reduce tariffs on biofuels
Recently accelerated bio-fuel programs in the US and the EU are one significant component of this increased demand for agriculture products and cropland.
Estimates are that they have increased world corn prices by 20% and wheat prices by 10%.
In 2008, approximately one-third of the total US corn crop is likely to be used to produce ethanol; this is up from 1/6 in 2006.
Reorient bio-fuels to algae or wood chips.
In 2007 EU governments pledged to have bio-fuels account for 5% of transport fuels by 2015 and 10% by 2020; these targets need to focus on non-food sources.

13. 5. Increase research and technical assistance for agriculture back to the levels of the 1970s
Research spending on agriculture research has declined over the last decades and as a result agricultural productivity growth has declined.
The annual growth of the world’s yield per acre has declined by half, falling from a growth rate of 2.7% during to only 1.2% during
Note that this increased yield per acre is a little smaller than the increase in world population, so that requires that more marginal land be brought under cultivation.

14. If There Is a Shortage and the Proper Incentives Are Provided, There Is a Tremendous Potential for Increasing Output: US Farm Productivity Has Grown at Twice the Rate of Nonfarm Productivity

15. Public agricultural R&D has been growing in developing economies and now accounts for 2/3, but most is in China & India, little is in Africa

16. 6. Encourage foreign private investment in agriculture initiatives; promote financial innovation to increase investment in developing countries
Increased foreign investment could contribute to greater technological transfer
Improve financial resources available for small farmers so they can invest in fertilizers, better seeds, equipment
EU regulations on genetically modified products have limited Africa’s ability to exploit the latest agricultural technologies
Less than 3% of developing country farmers grow genetically modified crops

17. 7. Macroeconomic policy needs to focus on growth
The current financial crisis is global. Developing countries will experience difficulties in servicing current account deficits and attracting new investment while exports, remittances and domestic investment fall.
As a result income growth will decline in the developing world and exports will fall. This will rob them of the income and foreign exchange they need to import food.
We know from experience that financial crises have large and detrimental effects for the poorest people.
Therefore efforts by the advanced economies to address and limit the scope of the current turmoil will be critical to maintaining living standards (and addressing poverty) in the developing economies.
The commodity price rise has reduced the ability of central banks to respond to the financial crisis.
The global economic slowdown will cause food prices to decline (although so will incomes): this window of time should be used to increase production.
In the longer run, as the international financial system is redesigned, its structure should place more emphasis on global development objectives.