The Impact of the Global Economic and Financial Crisis on Food - - PowerPoint PPT Presentation

The Impact of the Global Economic and Financial Crisis on Food Security and the Agricultural Sector

Johan F.M. Swinnen and Kristine Van Herck Johan F.M. Swinnen and Kristine Van Herck

LICOS Centre for Institutions and Economic Performance University of Leuven (KUL), Belgium

UN/IFI Dialogue Meeting on the Social Impacts of the Global Economic and Financial Crisis in Eastern Europe and Central Asia, Almaty, Kazakhstan, December 2009

Outline

• Evolution of the crisis
• Impact on the agricultural sector
• Impact on poverty and food security
• Policy recommendations

Evolution of the crisis

Crisis index of 1 Crisis index of 2 Crisis index of 3 Crisis index of 4

“Not affected period”

(July 2007 to September 2008)

• Booming economy as usual….

300 350 Armenia 50 100 150 200 250 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 GDP per capita (1994=100) Azerbaijan Belarus Georgia Kazakhstan Kyrgyz Republic Moldova Mongolia Russia Tajikistan Turkmenistan Ukraine Uzbekistan

“Crisis period”

(September 2008 to March 2009)

• Reasons:

– Increase of risk premia for investments in emerging economies – Decrease cross border lending – Decrease cross border lending – Collapse of commodity prices

• Consequences:

Reduction in investments

500 600 700 pita) Armenia Belarus 100 200 300 400 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 FDI inflow (US$ per capi Belarus Georgia Moldova Ukraine Russia Kazakhstan Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan

Decline in domestic production

15 20 25 30 DP (%)

• 20
• 15
• 10
• 5

5 10 Armenia Azerbaijan Belarus Georgia Moldova Kazakhstan Kyrgyz Republic Mongolia Russia Tajikistan Turkey Turkmenistan Ukraine Uzbekistan Growth in real GDP 2007 2008 2009

Decline in exports

40 60 80 ar percentage chnage)

• 60
• 40
• 20

20 Armenia Belarus Kazakhstan Kyrgyz Republic Moldova Russian Federation Turkey Ukraine Change in merchandise exports (year to year 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2

Decline in migration

(data from Armenia)

30000 35000 40000 45000 50000 untries ( persons) Jan Feb Mar 2008 39168 38327 46423 2009 35571 33128 34772 5000 10000 15000 20000 25000 Migration to CIS cou

Decline in remittances

(data from Tajikistan in mio US$)

“Stabilization period”

(April 2009 to Present)

• Recovery of the international markets at

the start of the second quarter of 2009

• Ripple effects of the crisis on the overall

evonomy and individual households become clear:

Effect on unemployment

12 14 16 18 rate (%) 2008Q2 2 4 6 8 10 Belarus Moldova Russia Turkey Ukraine Unemployment ra 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2

Effect on exchange rates

50 60 70

• n (%)

10 20 30 40 Ukraine Kazakhstan Turkey Armenia Georgia Russia Tajikistan Kyrgyz Republic Deprectiation

Effect on inflation rates

50 60 70 %) Armenia Azerbaijan Belarus 10 20 30 40 2001 2002 2003 2004 2005 2006 2007 2008 2009e Annual inflation (% Georgia Kazakhstan Kyrgyz Republic Moldova Russia Tajikistan Turkmenistan Ukraine Uzbekistan

Effect on non-performing loans

Agricultural sector

• Agricultural sector largely affected by the

transition to a more market-orientated economy in beginning of 1990s economy in beginning of 1990s

• Impossible to look at the effect of the

financial crisis without considering the recent evolutions in the sector

Agricultural output

30 50 70 l Output (1990=0) Belarus Russian Federation Ukraine Armenia

• 70
• 50
• 30
• 10

10 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change in Gross Agricultural O Azerbaijan Georgia Kazakhstan Kyrgyz Republic Moldova Tajikistan Turkmenistan Uzbekistan

Agricultural labor productivity

20 40 60 990=0) Armenia Azerbaijan Belarus

• 80
• 60
• 40
• 20

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change in ALP (199 Belarus Georgia Kyrgyz Republic Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan

Change in grain yields

80 100 120 140 990=0) Belarus

• 60
• 40
• 20

20 40 60 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change in grain yield (19 Belarus Russia Ukraine Kazakhstan Kyrgyzstan Tajikistan Turkmenistan Uzbekistan

Impact of the crisis

• Decrease in loans to private borrowers/

investments

Impact of the crisis

• Reduced demand for high value products
• Switch to basic products
• Examples:
• Examples:
• In Kazakhstan and Turkey: risk coping by

switching to lower quality food

• In Russia, for the first time in ten years:

decrease in dairy consumption

Impact of the crisis

• Increase in public expenditures on

agriculture in Russia and Kazakhstan

Be careful that the increase in government Be careful that the increase in government intervention does not lead to a (partial) reversal of reforms and does not affect efficiency in the sector

Poverty and food security

• Poverty and food security improved strongly

until crisis periods hit the region:

Food crisis Financial crisis

Poverty and food security before the crisis periods

Strong decrease in poverty due to economic growth

102 61,2 90% 100% 215,1 264,2 160,7 153,3 0% 10% 20% 30% 40% 50% 60% 70% 80% 1998-9 2002-3 % of the population Poor (less than $ 2,15 per day) Vulnerable (between $ 2,15 and $ 4,30 per day) Non poor (more than $ 4,30 per day)

Impact of the food crisis

• In general: higher food prices are worser for

the urban than for the rural (farm) population But Rural population is heterogeneous:

• subsistence farmers who still buy food products
• agricultural labourers
• net producers of agricultural products

• Negative impact on household income

– Increase in unemployment – Decline in remittances

Impact of the financial crisis

– Examples:

• Tajikistan: 30% decline in remittances

decline in consumption of the poorest households between 17% (rural) and 21% (urban)

• Russia: number of people below the poverty line

increased from 13,5% in the last quarter of 2008 to 17,4% in the first quarter of 2009

Impact of the financial crisis

• Negative effect on government revenue

trough taxes and other revenues

Possible negative impact on government Possible negative impact on government spending on social assistance programs: Preliminary data from a few countries found a significant decrease in the number of beneficiaries between June 2008 and June 2009, the period when more households have become vulnerable

Policy recommendations

• Enhance economic growth
• Enhance investments
• Enhance social security safety nets
• Avoid non effective policies
• Avoid short run policies that conflict with

long run development goals

Enhance economic growth

• Effect on poverty:

Reduces poverty in two ways:

• Increase in households income
• Increase in government budget which can be used
• Increase in government budget which can be used

to enhance social safety nets

• Effect on the agricultural sector:

Reduces surplus labour and increase R&D Increases agricultural productivity

Enhance investments

• Government should provide favorable

regulatory climate to attract investments:

• Invest in R&D and rural infrastructure
• Continue the reform process (currently

slowdown in reforms)

Enhance social security safety nets

• Scale up the programs that reach the poorest
• Introduce new poverty focused programs:

Focused on people that will fall into poverty Focused on people that will fall into poverty because of the crisis and that are not reached by the existing programs (e.g. migrant workers that return to their home countries)

Avoid short run policies that conflict with long run development goals

• No inappropriate short run policies:

Welfare consequences can be far larger than the welfare losses resulting directly from the shocks themselves (e.g. trade restrictions introduced as a consequence of the food crisis)

• No policies that conflict with the key longer-

term reform agenda