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January 11, 2011

Does India need aid and if so, what kind?

January 11, 2011

The food price crisis and the World Bank's blind spots

January 11, 2011
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World Bank President Robert Zoellick, or at least his press team, responded promptly to last week’s concerns on a new Zoellickfood price spike with a comment piece in the FT. It’s fascinating as much for what is missing as for what is in there.

On the plus side, Zoellick gives due priority to food as ‘the essence of life’ and argues that the G20 needs to show leadership on this (alas, in traditional World Bank style, he completely ignores the UN’s Committee on Food Security (CFS), which leads the international response). He stresses the importance of price stability, and supporting small farmers as both a way to produce local food, and to raise the incomes of poor people.

There are several nice nudges and tweaks – access to information on grain stocks to calm market fears; small regional reserves for fast-disbursing food aid; source food aid from local small farmers to boost agriculture. But the whole piece seems to suffer from a straitjacket of free market ideology (he probably didn’t pick the title ‘Free markets can still feed the world’, but it’s a pretty accurate reflection of the tone of the piece). Whatever the problem, the answer can’t go beyond liberalizing trade and investment, voluntary codes of conduct, access to information, and improved aid and safety nets for those that fall through the cracks.

What do we want? More than tweaks and nudges......

What do we want? More than tweaks and nudges......

This was captured in one of his proposals: ‘give countries access to fast-disbursing support as an alternative to export bans or price fixing’. Export bans, which he presents as the major problem to be confronted, can indeed damage poor people in food importing countries, and need to be discussed. But ‘price fixing’, if by that he means deliberate government intervention to stabilise prices for consumers and producers, has been an effective tool in countries such as Vietnam to reduce food insecurity and provide incentives for farmers to increase food production. So why lump the two together? As far as I can see, the only thing they have in common is that they both interfere with the purported magic of untrammelled markets.

The suggestions for supporting small farmers by sourcing food aid from them are pretty pitiful too – what about government investment in extension services and infrastructure for small farmers rather than big farm lobbies? Or land reform to ensure secure access to land, credit etc, especially for women, the most excluded farmers of all?

Zoellick concludes that ‘the answer to food price volatility is not to prosecute or block markets, but to use them better’. What’s missing is the bit in between his two extremes – regulating markets so they work to the benefit of all, not just the powerful.

Finally, I assume this piece was looking purely to short term action, because it focuses on short-term measures rather than longer-term reform. He fails to mention the long-term drivers of high food prices, such as climate change, the redirection of land to producing biofuels rather than food, the spate of large scale land grabs by foreign investors in many of the world’s poorest countries, the possible role of commodity investment funds and other financial speculation in exacerbating price volatility, or the distorted way that technologies are developed and implemented, that all too often gives priority to large, rich agriculture and fails to really benefit small farmers. If the food price crisis really erupts this year, as seems increasingly likely, we need to have a much deeper discussion than this of its causes and how to respond.

To be fair, Zoellick was one of the earliest international leaders to sound the alarm on the 2008 food price crisis and made some pretty significant shifts in the Bank’s priorities in response.  This time around, the measure of success should be whether poor people are insulated from shocks, how markets can be re-engineered to deliver a combination of stability and sustainability, and whether poor producers can benefit from the market opportunities of higher agriculture prices.   Instead, if this piece is anything to go by, the Bank seems to have a myopic focus on maintaining the integrity of trade and markets.

10 comments

  1. It’s interesting to see these knee-kerk reactions coming back again and again, vs. some more nuanced positions – by the same agency, but not in the press. I was surprised last year about the extent to which “the Bank” was cautious and even alarmist about land grabbing for instance – though not using the word in the title “Rising Global Interest in Farmland” http://siteresources.worldbank.org/DEC/Resources/Rising-Global-Interest-in-Farmland.pdf. I guess we have to be cautious too when we read these reports…

  2. Helping smallholder farmers take advantage of high prices and at the same time increase supply is important – but why does so much of this discussion ignore the other 50% or so of smallholders in Africa and India who have to buy food – not because they choose to sell cash crops, but because they are too poor to produce enough food for themselves?

  3. You’ve put your finger on the problem by writing sarcastically of the “magic of untrammelled markets.” For the last two or three decades, the failure of economies managed from top to bottom has puffed up defenders of the other extreme with an arrogance that makes them unable to consider empirical challenges to their doctrine. They dismiss critics of untrammelled markets as naïvely unscientific—believers in magic, as it were. Yet their own airtight account of history, which ended with the transition of China’s economy and the collapse of the Soviet bloc, leaves no room for evidence that might compel new, carefully nuanced lessons.

  4. The price hike of food items is phenomenal over the recent years. In the contemporary discourse, the analysis of food hike is always driven by capitalists and their supporters. The voice and perspective of poor women and men living in poverty is often missing. Food represent an “opportunity” to make more funds to keep the greed machine going.

    The food price hike is a significant contributing factor in creating chaotic situations and Pakistan is one of the best example.

  5. Thanks for drawing attention to the critical issues around agriculture and rural development.
    For the benefit of your readers, however, we should note that Mr. Zoellick’s op-ed in the Financial Times was not a comprehensive account of everything the World Bank does on agriculture and rural development. We do much more.

    In fact, as you correctly point out, long range issues make up a significant part of our work [see the Agriculture Action Plan: http://www.worldbank.org/ard.

    On a few particular issues mentioned in your blog, we encourage your readers to learn more about the World Bank Group’s work in this critical sector. Specifically:

    -The importance of agriculture in addressing climate change [http://go.worldbank.org/8J7X0ICLI0, http://go.worldbank.org/CP96TWJZM0, https://blogs.worldbank.org/climatechange/agriculture-forest-climate-change-intersecting-ambitions
    -Recent developments around the Global Agriculture and Food Security Program–in which members of civil society are also engaged [http://www.gafspfund.org]
    -Support to global public investment in agricultural research – including through the Consultative Group on International Agricultural Research [http://www.cgiar.org/]

    These are all testament to our comprehensive approach, and we welcome continued public dialogue on investment in this important sector.

    Fionna Douglas, Program Manager, Agriculture and Rural Development
    World Bank

    Duncan: Thanks for the additional info, Fionna. As I acknowledged in the original post, the Bank has shown welcome leadership in recent years in reviving the discussion on agriculture as a core development issue. But that made it all the more surprising that the FT piece seemed to revert to a more market fundamentalist position than we have seen in recent years. I think this matters for at least two reason: first, as we find in our own work, emergency responses need to be coherent with longer-term thinking (the humanitarian-development divide), or you end up with real problems when moving from one to the other. Second, it’s the emergency responses that get the most public attention, so getting the overall development messages right is particularly important.

  6. After over two decades of condemning the role of food stocks, the Bank and others seem to have become blinded to the fact that no market mechanism is going to overcome market shortages. Additional supply in the short term which does not simply drive the price higher is essential. Let’s hope the G-20 is less blind.

  7. Thanks for the great debate, Duncan. I wonder if, in a world where there is a growing disconnect between international food prices and ‘real’ demand-supply dynamics (i.e. food prices being increasingly detached from agriculture…), it’s time for governments to rethink approaches and engage more creatively. The high volatility in food prices suggests that the time to setup responses to protect consumers/importers is tight (and so is for farmers/exporters to seize opportunities). So governments need quicker action, and better if planned ex-ante. In this regard, I wonder if there is scope for government to engage, in some way, in commodity markets themselves (buying shares in times of low prices) and in managing virtual food reserves throughout. The latter would become ‘real’ or monetized in times of need (today). The bottom line being that if governments need to confront price-induced shocks, they may need to engage in the same ball game. I suspect that, in addition to traditional safety net responses, governments may find it effective to tap virtual reserves to cushion virtually-generated crises. I remember some preliminary ideas being circulated in 2008/9, but haven’t heard much discussion on the topic this time around. Of course, I’m very interested in your views…

    Duncan: interesting ideas, Ugo – governments could become as active on food prices as they are on, say, inflation in general. Calorific quantitative easing anyone?

  8. We have heard this before, and so many times…it is becoming a mockery of calls for evidence-based policy. Not one word about the role of financial markets and speculation; nothing on those mechanisms supposed to stabilise prices and ending up as instruments for short-term gains of traders who do not trade a single real bag of food; and as usual, wishy-washy fantasies about market information and weather indices as if rural Tanzania was Montana; and the usual fantasy that smallholders just need a bit of help, a tiny bit more land to become commercial farmers selling enough surplus to take advantage of ‘free markets’ (refer to point by Andrew Dorward on who the net food buyers are). Supply-side measure have been proposed ad nauseam when we have a serious problem of demand management and regulation of commodity markets. And, please, let’s not be patronising and naive and ask countries to think about the pernicious effects of export bans on the correct functioning of world markets. These ‘irresponsible’ governments do their job in protecting their ‘national interest’ -and, by the way, their chances of staying in power-. Food and food prices are not a stupid thing to gamble on. Ask Mubarak.

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