World Bank Closely Monitoring Food Prices as Droughts Take Toll on Crops

Droughts in the United States, continuous rains in Europe, and poor monsoon conditions in India pushed grain commodity prices this month to levels not seen since 2007 and 2008, years when high prices and price volatility touched off a food crisis in developing countries around the world.

Food prices are already high, and the recent crop damage and likelihood that rising commodity prices will translate into even higher food prices over the coming months is raising concerns among aid officials and those working on poverty reduction.

Prices have risen substantially across all the major grains except rice. Wheat prices are up over 50 percent since mid-June; the price for corn has risen more than 45 percent since mid-June; and soybeans are up almost 30 percent since the beginning of June and up almost 60 percent since the end of last year. Global stocks of most of the tradable grains are also lower now than they have been historically.

In the poorest countries, where people already spend up to two-thirds of their daily income on food, rising food prices can become a threat to growth and social stability, as well as health, nutrition and schooling.

“When food prices rise sharply, families cope by pulling their kids out of school and eating cheaper, less nutritious food, which can have catastrophic life-long effects on the social, physical, and mental well being of millions of young people,” said World Bank Group President Jim Kim.

“The World Bank and our partners are monitoring this situation closely so we can help governments put policies in place to help people better cope,” he said.

Crisis response & building resilience

The World Bank Group has several programs in place that already assist client countries with agriculture and agriculture-related investment, policy advice, and fast-track financing for crisis situations.

The Bank’s Global Food Crisis Response Program (GFRP), which launched in 2008 and ran through June 2012, has reached about 40 million people in 47 countries with short- and medium-term food supply response measures, social safety nets, and other funding. From July 2012, the Bank’s emergency response will be channeled through the International Development Association’s Crisis Response Window and the recently approved Immediate Response Mechanism that will provide the basis for emergency assistance in the future.

The Bank also administers the multi-donor Global Agriculture and Food Security Program (GAFSP), which has been lauded as a model for international food security outreach.

In Haiti, where the population is still recovering from a deadly earthquake two years ago, a grant from GAFSP is working on a long-term food security by helping to improve agriculture technology, government services for farmers, and training. The $35 million GAFSP grant will boost Haiti’s efforts to increase agriculture productivity, equality of available foods, and farmer incomes in a country where national agriculture production currently only satisfies about 45 percent of its food demand.

In Rwanda, GAFSP has been providing seeds and training and helping farmers build terraces on the steep hillsides to increase their crop production and their income. Since the project started, potato growers have been able to sell their crops at market value and save enough money to expand their businesses and send their children to school.

“Before, our harvest was not good. For example, we own one quarter of an acre. We could only harvest 500 kilos of Irish potatoes,” said Elias Nsangwahose, whose family benefits from the GAFSP program in Rwanda. “Previously people were abandoning farming to find alternative forms of income, but now everyone is liking farming again.”

Boosting investment

In addition to responding to immediate crises, the World Bank is also boosting its agriculture-related investments. Over the past year, new Bank Group commitments to agriculture and related sectors reached over $9 billion, exceeding the Bank’s Agriculture Action Plan, which foresaw an increase from an average of $4.1 billion annually in FY06-08 to $6.2-$8.3 billion annually in FY10-12. The Bank is also working with several countries to build resilience to shocks and help soften the impact of future crises by addressing longterm food security and vulnerability issues.

In March, the Bank announced that a $1.8 billion Drought Response Plan for the Horn of Africa and the Sahel was underway to meet immediate food needs while looking at a broad, longer-term approach that combines investments in health and nutrition, with better weather forecasting, early warning systems, drought resilience, and other risk management measures.

To increase the speed, efficiency and reach of crisis response, the Bank coordinates with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with non-governmental organizations. The World Bank also supports policy development for food security, such as through the Partnership for Agricultural Market Information System (AMIS) to improve food market transparency and to help governments make informed responses to global food price spikes.

Food prices: The impact on lives

The nutritional consequences of food price increases can quickly become devastating, particularly for the poor and the nearly one billion people go hungry worldwide. The crop losses send grain prices higher, which affects not just bread and other grain-based foods but also animal feed prices, sending meat prices higher, as well.

When food prices rises, the poor typically buy cheaper, less nutritious food and eat less. Some families forgo medical care, sell productive assets such as livestock, or stop sending their children to school so they can afford to eat.

Reduced consumption of basic foods can lead to increased risk of malnutrition, susceptibility to infections, slow cognitive development, poorer school performance, and reduced work productivity. Save the Children recently estimated that an additional 400,000 children’s lives may be at risk following price increases in 2011.