The Food Crisis: Global
Perspectives and Impact on
MENA
Fiscal & Poverty Impact
Ruslan Yemtsov, MNSED
MENA BBL Monday, June 16
1
Grain Prices (nominal $/ton)
600
500
400
300
200
100
0
2002
2003
2004
Wheat
2005
Rice
2006
2007
2008
Maize
2
US dollar prices overplay real increase
International food price indices, 2000=100
250
Nominal US dollars
200
150
100
Real, i.e. relative to
developing countries’ CPI
50
2000M1 2001M1 2002M1 2003M1 2004M1 2005M1 2006M1 2007M1 2008M1
Source: DECPG
3
Prices of imported and domestic food
percentage change January 2006-January 2008
100
Regional price of
imported food
75
50
Domestic
food price
25
Source: DECPG
IC
H
D
EV
D
av
er
A
h
O
EC
ag
e
a
fr
ic
ia
So
ut
N
ig
er
n
ki
st
a
Pa
In
di
a
Jo
rd
an
Eg
yp
t
C
LA
EE
C
y
Tu
rk
e
us
si
a
R
EA
P
ex
C
CH
hi
na
N
0
4
MENA countries are net importers
of food
5
1. MENA specifics
•
•
•
•
Subsidies dominate the policy response
High share of staples in consumption
High dependence of imported food
Relatively high (for income levels)
malnutrition rates
• Fragile social equilibrium : recent
growth is widely perceived to be prorich
• Absences of targeted safety nets
6
2. Channels of impact on
social/poverty
Channel 1: Cost of living up => poverty up
• Very poor people spend between one fifth and one third of their income
on staples. Staples inflation is faster than CPI ,and food inflation
Channel 2: Incomes from agriculture up => poverty down
• Farmers and farm laborers are often very poor
– Perhaps higher food prices will make rural people better off?
– Perhaps this will lower national poverty levels?
• Poor farmers often self-consume most of their output
– And higher prices only benefit farmers on the share they sell ~
Channels 3/4: Labor demand (wages) up;subst.away=>mitigate
• Higher farm incomes increases demand for labor and push wages up
– Can offset the effect of rising food prices
• Substitution effects away from more expensive food
7
Illustr.: High proportion of food in
expenditure of the poor
Share of food in total expenditures of two lowest quintiles
70
60
50
40
Lowest
Second Lowest
30
20
10
Source: HH surveys
0
Lebanon Jordan
Iran
Morocco Yemen
Egypt
Djibouti
In Egypt staples (wheat, oil, sugar)= 20% of total consumption of the poor
In Morocco staples( )= 15% of total consumption of the poor
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3. Offsetting effects
+ Region has experienced robust growth – this is the
major effect. How inclusive? We do not know yet.
- Here are some facts on possible factors:
– Ch 2: Farmers (and their families) account for about 60 % of
all poor in Egypt and Morocco, but farm makes up only 40% of
their incomes. Most rural poor are net food consumers!!! And
they simultaneously are farmers and sell their labor.
– Ch 2: Changes in farmgate prices so far have fallen below
expectations (MNSSD)
– Ch 2: But market participation rates are high.
– Ch 3: What 1973-75 experience tells? Datt’s study of wages in
rural Egypt: only ½ of food price increases were offset by
increased wages, but long term effects important
– Ch 4: Kraay’s result for Egypt: substitution effects in
consumption are 30 times smaller than direct negative income
effects from increased food prices
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4. Comparing effects of food prices
on poverty in MENA and elsewhere
Egypt 2005-2008:
Morocco 2004-2008:
– Ch 1: 14% increase in food prices
poverty up by +4 pp
– Ch2: but increased prices for
farmers- poverty down by -3 pp
– Ch 3: real consumption up 16%
poverty down by - 5 pp
•
Djibouti 2005-2008:
– Ch 1: 21% increase in CPI for food ,
but staples prices up 43% extreme poverty up from 40% to
54%: +14 pp
– At best wage. growth in the same
period reduced poverty by - 5 pp
12
10
8
6
4
2
0
-2
-4
Rural
Urban
Total
Vi
et
na
m
Za
m
b
Av ia
er
ag
e
•
% pt change in poverty rates
from 2005-7 price changes
Pe
ru
– Ch 1: 30% increase in food prices
poverty up by +12 pp
– Ch 3: real consumption up
25%poverty down by -14 pp
– poverty down by 2 p.p
– But some groups can be strongly
adversely affected!
Bo
liv
Ca
ia
m
bo
M
di
ad
a
ag
as
ca
r
M
al
aw
Ni
i
ca
ra
gu
a
Pa
ki
st
an
•
Source: Maros Ivanic & Will Martin
Note: 2005-8 price changes with partial pass-through and
offsets: rural by 4.2% pts, urban by 5.0% pts and Total by
4.5% pts
10
These are $1 PPP poverty
5. Channels of impact on
fiscal/macro
• Terms of trade effects mitigated by rising oil etc. prices, but not for
all countries
• Exchange rate appreciation partially offsets the effects of increases
in dollar prices
• But everywhere:
•
•
•
•
•
Inflation rates - increased
Cost of food/energy subsidies – increased
Wages and transfers – increased
Import tariffs on food (budget revenue) - reduced
“Food security” projects – increased pressure
• Impacts differ across countries, but
similar challenges
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Higher prices push up cost of
subsidies.
12
10
% of GDP
8
6
4
2
0
2002
2003
Yemen
2004
Syria
Source: EMNs, World Bank country reports, IMF
2005
2006
2007
(e)
Morocco
2008
(f)
Egypt
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Policy responses in MENA to
higher food prices were second or
third best
Country
Economy-wide Policies
Reduce
taxes on
food
Increase
supply
using food
stocks
Egypt
Social Protection Programs
Export
restrictions
Subsidies
and /or
Price
Controls
Cash
transfer
√
√
√
Morocco
√
√
√
Tunisia
√
√
√
Djibouti
√
Yemen
Source: PRMPO
√
√
√
√
√
Food
for
work
Food
ration/
stamp
School
feeding
√
√
√
√
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Thank you!
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