Food Crisis: Background Note

Contacts:

In Washington: Amy Stilwell (202) 458 4906 

astilwell@worldbank.org;

Geetanjali Chopra (202) 473 0243

Gchopra@worldbank.org;

TV/Radio: Camille Funnell (202) 458 9369

cfunnell@worldbank.org

Global Food Crisis Response Facility:

The new facility will provide rapid response financing for investment and budget support programs in IDA and IBRD countries to address immediate needs arising from the food crisis.  As well as supporting new operations, the $1.2 billion facility will also fast track operations under preparation, such as a $200 million Bangladesh Transitional Support Credit, designed to help the Government of Bangladesh address the crisis.

Single Donor Trust Fund:

Using a transfer from the income of the International Bank for Reconstruction and Development (IBRD), the World Bank arm for middle-income countries, the World Bank is creating a $200 million trust fund. This trust fund will provide rapid assistance to the most fragile, poor and heavily-impacted countries and territories with little access to immediate funding. Access to the trust fund is capped at $10 million for each country, grants for Haiti ($10m), Djibouti ($5m), and Liberia ($10m) are being approved today in conjunction with the Facility. In June, requests will be processed for Tajikistan, Togo, and Yemen. These projects will support safety nets for the most vulnerable, micronutrients to fight malnutrition,  rapid provision of seeds and fertilizer to small farmers, and will compensate for sharp reductions in fiscal revenues in some countries. The Bank has received requests from seven other countries and will process these rapidly.

Multi Donor Trust Fund:

To facilitate other development partners to support country efforts to address the crisis, a Multi Donor Trust Fund (MDTF) is being created. The Trust Fund is designed to complement the emergency food assistance activities of the WFP, FAO, and IFAD by providing immediate support for production such as seeds and fertilizers for the upcoming harvests, particularly for small farmers. The MDTF will also facilitate policy and operational coordination among development partners and help ensure that support to countries is comprehensive and country specific.

Boost in agriculture support:

The World Bank Group is boosting overall support for global agriculture to $6 billion from $4 billion over the coming year. This includes IBRD lending, grants and highly concessional credits from the World Bank’s International Development Association (IDA), which supports the world’s poorest countries, and finance for agri-businesses and trade finance. For example, in Africa agriculture lending will increase from US$ 450 to over US$ 800 million, in Latin America from US$250 million to over $400 million. The Bank will continue to support over $1 billion of new projects in agriculture and rural development in South Asia. The Bank also expects to double its lending for social protection, nutrition and food security, and social risk mitigation over the next year to about US$ 800 million. The IFC expects to increase it agribusiness and agriculture trade related finance activities to over US$ 1.7 billion, up from a current $1.3 billion this year.

Risk management tools:

Several proposals are being presented for consideration by the World Bank’s Board of Executive Directors.

In June, the Board is considering a proposal for the World Bank to act as an intermediary in the financial markets for poor countries to access weather derivatives. The proposals protects these countries from a drought causing the price of maize to rise to a price which they can ill-afford. The derivative is linked to an index that measures rainfall. When the rainfall falls below a certain level this triggers a payout to the country. With this money, the country can buy a call option which will cap the price of maize.

A second proposal under consideration comes from IFC, the World Bank Group member that promotes private sector development. It is planning to support crop and livestock insurance for small-holders in developing countries by creating a company to underwrite index-based weather and other catastrophe risks. The Global Index Reinsurance Facility targets farmers and agrarian communities among other beneficiaries.

The Bank and partner agencies are already working on weather hedges. In Ethiopia, WFP, with technical assistance from the World Bank’s Commodity Risk Management Group, launched a humanitarian aid weather derivative providing contingency funding in case of extreme drought during Ethiopia’s 2006 agricultural season.

Policy Support:

In addition to our financial support the Bank is also providing policy, technical and research advice to countries. Over the last 6 months, over 40 governments have sought policy advice from the Bank on how to deal with the rising food prices.  Working in partnership with WFP, FAO, IFAD,NEPAD, UNICEF and others, the World Bank has concluded needs assessments in over 25 countries and has over a dozen more underway. The social as well as agricultural needs assessments will serve to guide policy responses as well as financial assistance to these countries. 

Some Examples of Bank Group activities underway:

In Africa:

The Bank is making $100 million available in Burkina Faso, Burundi, Cote d'Ivoire, Ghana, Madagascar, Mali, and Niger through additional financing and restructuring of existing operations.

Rapid needs assessments have been completed for Burkina Faso, Burundi, Liberia, Mali, Sierra Leone, and Togo.  Assessments are ongoing in Eritrea, Guinea, Guinea-Bissau, Kenya, Malawi, Mauritania, and Niger. 

In Guinea, the Bank is preparing an emergency budget-support operation to help the government manage the sharp rise in food and oil prices. 

The Bank is working on irrigation and water management in Ethiopia, fertilizer use in Malawi, market access for smallholders in Senegal, and crop diversification in Mali and Uganda.

In Europe and Central Asia:

The Bank is working with Kyrgyz and Tajikistan to provide immediate financial assistance for nutritional supplements to pregnant women, lactating mothers, infants and small children focusing on under nutrition and specific deficiencies such as Vitamin A, iron and folate. Projects are under preparation in both countries to improve the institutional and infrastructure environment for farmers and herders and increase production and productivity.

In Ukraine and Russia the World Bank is supporting agricultural production and productivity increases.

In Latin America and the Caribbean:

The Bank is making a $US10 million grant available to the Government of Haiti to maintain macroeconomic stability, improve targeted assistance, and support income enhancing supply responses by farmers.

In Honduras, the Bank is preparing a food crisis related emergency operation to expand support for the country’s efforts to tackle the adverse effects of the rising food prices.

In the Middle East and North Africa:

The Bank is preparing two rapid response operations in Djibouti and Yemen. In Djibouti, the government has reduced to zero all domestic consumption taxes on the five basic staple foods. The Bank’s support will help the government maintain its fiscal balance while it develops new tax policy levers.