At a Glance High volatility in food prices, combined with the impact of the financial crisis, threatens to further increase food insecurity and exacerbate the hardships faced by the poor.
In response to the severity of the crisis and the need for prompt action, the World Bank set up a US$1.2 billion rapid financing facility under the Global Food Price Crisis Response Program (GFRP) in May 2008 that is providing Bank financing and technical advice to countries affected by the food crisis.The Bank increased the GFRP ceiling to US$2 billion in April 2009 in response to high demand. This will allow for accelerated processing of an additional US$800 million of International Development Association (IDA) or International Bank for Reconstruction and Development (IBRD) resources for food crisis response during the next year, if requested by clients.
The continuing Bank response has been articulated in coordination with the United Nations’ High-Level Task Force on food security. Through its response, the Bank is supporting the implementation of the joint Comprehensive Framework for Action.
GFRP projects from Bank funds—either Board-approved or well along the pipeline for Board approval—totaled US$1.19 billion in 36 countries as of end August 2009.
To date, the Bank has mobilized around US$200 million in external funds for activities under GFRP. These funds will be provided as grants to 19 countries.
In addition to GFRP, IFC has invested US$2 billion in FY 2009 in agribusiness supply chains, a 42 percent increase over FY08. Moreover, investments in Africa reached US$160 million, representing a 38 percent growth over last year.
The World Bank Group is also working to help countries develop financial market insurance products and risk management strategies to increase capacity to respond to future price increases.
Volatile and high food prices continue to impact the poorest. Food prices accelerated sharply in the first half of 2008. Although prices have declined from their peaks last year, major food grain prices are still substantially higher than average. World grain prices remain 60 percent higher than at the start of 2006 despite the 40-percent decline since the 2008 price peaks. Rice prices remain twice as high as those at the start of 2006 despite a 37 percent decline, while maize and wheat prices remain 48 percent and 35 percent higher, respectively. Although international prices have declined from their peaks, this has not necessarily translated into a matching decline in local prices in many countries, with local conditions often driving the price difference. Real staple food prices are forecast to be, on average, about 25 percent higher during 2009-2018 compared with 1999-2007, and will very likely be much more volatile. Events outside the food sector are increasingly driving global food prices, as biofuels and commodity index funds drive the transfer of the higher price volatility of fuel and metals markets to grain markets, and the prospect of climate change looms especially large for agricultural yields in the tropics. High volatility in food prices, combined with the impact of the financial crisis, threatens to further increase food insecurity and exacerbate the hardships faced by the poorest. The most recent estimates from FAO are that—for the first time in human history—more than a billion people go to bed hungry each night. Hunger now affects one out of every three people in Sub-Saharan Africa. When faced with high prices and left to their own devices, food-insecure households have few options other than to reduce their current levels of food consumption, shift to lower quality and less-expensive foods, or forego critical expenditures on health and education. The Bank is responding to the food crisis in coordination with development partners. In early 2008, the Chief Executives Board (CEB) of the United Nations (UN) established a High-Level Task Force (HLTF) on the Global Food Crisis, under the leadership of the UN Secretary-General. The task force brought together the heads of the UN specialized agencies, funds, and programs, the Bretton Woods institutions, and relevant parts of the UN Secretariat to develop the Comprehensive Framework for Action (CFA), which was adopted by the General Assembly in September 2008. The CFA is consistent with the Global Food Crisis Response Program (GFRP) Framework Document endorsed by the Bank’s Board of Executive Directors on May 29, 2008, and sets out the joint position of HLTF members on proposed actions to: (a) address the immediate threats and opportunities resulting from food price rises and volatility; (b) create policy changes to avoid future food crises; and (c) contribute to country, regional, and global food and nutritional security. The Bank is supporting the implementation of the CFA through investments under the GFRP and coordinated engagement on policy, advocacy, and resource mobilization. The HLTF assisted in resource mobilization from the European Union, which is contributing 1 billion Euros to HLTF members and other partners for fighting the food crisis through the new European Food Facility. Consistent with the agreements reached at the Accra High Level Forum on Aid Effectiveness, the HLTF Coordination Team is working through existing country-level coordination mechanisms and regional initiatives such as the Comprehensive African Agriculture Development Program (CAADP) to identify opportunities and constraints in CFA implementation on the ground. The World Bank’s response to the food crisis. The Bank has responded to country requests for assistance around five main areas. It has helped to: (a) identify appropriate mixes of short- and medium-term policies needed to protect vulnerable groups; (b) expedite financial support to ease the adjustment to a more difficult food environment while expanding finance for longer-term investments in agriculture and rural development and social protection; (c) facilitate private sector resource inflow into food production and distribution in poor countries; (d) reduce food security-related risks; and (e) seek better ways of dealing with changed circumstances.
The Bank also continues to collaborate closely with the UN agencies on a common food crisis strategy. 1. Policy advice. The Bank is engaged in policy dialogue with more than 40 countries to help them address the food crisis. The instruments used include rapid country diagnostics, high-level dialogue, public communications, and in-depth analytical work. In Kazakhstan, the Bank held a workshop on food prices with the prime minister and the cabinet to assess options for managing inflationary pressures and the agricultural response.
In the Africa region, the Bank is engaged in a range of analytical and advisory activities in 16 countries. In Mozambique, for example, the Bank organized a cabinet-level workshop to discuss policy options on the food crisis. In Nicaragua, a team briefed a summit of 14 Latin American and Caribbean nation leaders on food price increases and regional impacts. In East Asia, the Bank is providing inputs to regional dialogue, supporting regional initiatives in agricultural research, and facilitating trade coordination. Analysis supports policy advice: In the “agriculture and rural development” sector alone, the Bank delivered 25 economic and sector work (ESW) products and 17 technical assistance (TA) products in FY 2009 at a cost of US$11 million. 2. Expedited financial support. On May 29, 2008, the Bank Board of Executive Directors endorsed the Global Food Price Crisis Response Program (GFRP), initially a US$1.2 billion rapid financing facility that is providing financial assistance as well as policy and technical advice for the poorest and most vulnerable countries affected by the food crisis.
The GFRP encompasses the Food Price Crisis Response (FPCR) trust fund of US$200 million from IBRD surplus, and fast-tracking of substantial IDA/IBRD resources for food crisis response. Given high demand, the Bank increased the GFRP ceiling to US$2 billion on April 16, 2009, allowing for accelerated processing of an additional US$800 million in IDA/IBRD resources during the next year (FY10). The overall aim of the GFRP is to minimize the threat posed by high food prices and sharply rising agricultural production and marketing costs to the livelihoods of both poor urban and rural residents in developing countries. The program is an umbrella facility offering access under fast-track procedures to IDA/IBRD grants, credits, and loans for both investment lending and development policy operations. All Bank-member countries adversely affected by the food crisis are eligible to participate in the GFRP, while access to the US$200 million of FPCR grant funding is targeted to the most fragile, poor, and heavily impacted countries and territories with little access to alternative funding. As of end-August 2009, total Bank-funded GFRP projects (Board approved and pipeline) amounted to US$1.19 billion. This includes US$1.164 billion in Board-approved projects for 35 countries. Furthermore, projects are being prepared for GFRP support in four additional countries totaling US$26.4 million. In addition to these IDA and IBRD resources, grant funding has been made available through several external-source trust funds in support of the full range of interventions available under the GFRP. A Multi-Donor Trust Fund, which has received a contribution of AUD 50 million from the Australian government, has allocated funds for technical assistance, investment lending, and budget support operations in Senegal, Cambodia, the Pacific Islands, Vietnam, Zimbabwe, and Sierra Leone. The Russian Federation has also allocated $US15 million for the food crisis response in the Kyrgyz Republic and Tajikistan. Lastly, the European Commission has allocated EUR 48.5 million for projects in Ethiopia, Gambia, Guinea-Bissau, and Kenya, and pledged an additional EUR 62.3 for projects in Honduras, Mali, Benin, Kyrgyz Republic, Laos, and Yemen. The resources made available through the GFRP are already having a significant impact on the ground. In Burundi, a grant has supported suspension of custom duties and domestic sales taxes on 13 basic items, while creating fiscal space for strengthening food security and school feeding programs. Sixty additional primary schools will benefit from the school feeding programs and an estimated 120,000 additional hot meals will be distributed. In Rwanda, grant support helped fill a financing gap for bulk fertilizer purchase and supported development of private sector-friendly auction and voucher distribution schemes. Roughly 19,000 vouchers for purchasing fertilizer benefitting 46,000 farmers were distributed ahead of the fall planting season. The increase in productivity and production of wheat and/or maize harvest benefitted around 230,000 people at a time of high prices for farmers and consumers. In Tajikistan, 1,265 tons of high-quality winter wheat seed and 2,102 tons of fertilizer were distributed to 71,500 households for the spring 2009 winter wheat crop. Furthermore, food packages were delivered to primary health care facilities for distribution to approximately 50,000 women attending these facilities. Nutrition training was delivered to 432 doctors and nurses, and 70,562 pregnant and breastfeeding women participated in nutrition education sessions. In Yemen, the grant is supporting implementation of community-based labor-intensive public works projects that will benefit 8,000–10,000 households. To date, 98 sub-projects in Yemen are under implementation, benefiting 15,668 households. The grant to Nepal has supported food/cash for work programs with 460,000 beneficiaries to date. In addition to short- and medium-term interventions under GFRP, regular Bank-funded projects are being accelerated under normal procedures to support longer-term country responses. For example, irrigation and agricultural research projects are being advanced in the Philippines and Indonesia, while in Africa additional funding has been provided through several ongoing Development Policy Operations. 3. Increased IFC investment in agribusiness supply chains. In FY09 (ended June 30, 2009), the IFC invested US$2 billion along the agribusiness supply chain to boost agricultural production, increase liquidity in supply chains, improve logistics and distribution, and increase access to credit for small farmers. This represents a 42 percent increase over FY08. Half of the committed projects representing nearly 30 percent of the committed volume were in IDA countries. Moreover, FY09 investments in Africa reached US$160 million for primary farming, distribution and storage, grain milling, plantation rehabilitation, and trade finance. This represents a 38 percent growth over FY08. 4. Financial market insurance products and risk management strategies. The food price crisis has raised awareness of the need to develop strategies to help low-income countries mitigate the impact of external shocks. Two of the most severe external shocks—commodity price and weather shocks—are particularly problematic for low-income countries since they are already highly vulnerable to price and weather volatility. Since June 2008, the Bank has been able to offer intermediation services on index-based weather derivatives. Bank intermediation allows clients to access the financial markets and transfer weather-related risk to market counterparts. The weather hedging product is a complement to the broad range of catastrophe financing solutions to help countries plan proactive responses to natural disasters. The first country to use the Bank as an intermediary to access weather derivatives was Malawi. The feasibility of applying such a product is being considered in Ethiopia. The Bank is also providing support for integrating national-level agricultural risk management strategies into new country operations and technical assistance programs in Morocco, Malawi, Mozambique, Haiti, Belize, Grenada, and Jamaica. At the meso and micro levels, the Bank is supporting weather index insurance initiatives in Thailand, Bangladesh, Nicaragua, Senegal, Burkina Faso, Kenya, Jamaica, and Malawi. The Bank and the IFC will soon complete a feasibility study for insuring small-scale maize production in Indonesia. A sourcebook is being prepared to draw lessons from recent and ongoing experiences with weather index insurance in agriculture and to provide guidance to practitioners inside and beyond the World Bank Group. At the policy level, a global study on public interventions in agricultural insurance is being finalized. In addition, the IFC is has created a Global Index Insurance Facility (GIIF) which, among other things, will support agricultural insurance in developing countries. 5. Research to address critical knowledge gaps. Designing appropriate policies to respond to the food crisis requires a solid foundation of empirical knowledge at the global and country level. In collaboration with other agencies and institutions, the Bank is undertaking a comprehensive analytical program in six key areas: (a) global food price developments, increasing volatility, and input to policy discussions on managing food price risks; (b) poverty, gender, and distributional and nutritional impacts of food price increases; (c) fiscal and macroeconomic implications and responses; (d) trade responses and impacts at country and global levels; (e) facilitating an agricultural supply response; and (f) using safety nets to dampen the social impact of the crisis. Media Contacts: Fionna Douglas, (202) 473-8913, fdouglas@worldbank.org Elizabeth Petheo, (202) 458-2209, epetheo@worldbank.org Robert Bisset, (202) 458-5191, rbisset@worldbank.org Updated September 2009 |
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