1. What is the situation with prices especially food prices in the global markets? A few days ago the Bank published its Global Index Price, which is only 3 percentage points lower than the highest point in 2008. Is the world facing a new prices crisis and a food crisis at the same time?
World food prices have been increasing since mid-2010 and hit record highs in January 2011. The WBG’s food price index rose by 15 percent between October 2010 and January 2011. It is 29 percent above its level a year earlier, and is, indeed, only 3 percent below its 2008 peak. The key driver behind the upward spiral in the food price index has been sharp rises in the prices of wheat, maize, sugar and oils. Wheat prices surged almost 12 percent in December 2010 alone. Higher global wheat prices have directly fed into sharp increases in domestic wheat prices in many countries. In just six months, prices for wheat rose by more than 50% in Kyrgyzstan; 45% in Bangladesh and 33% in Mongolia. Reflecting pick-up in global growth and demand, other commodity prices are also rising, including oil prices. They rose about 20 percent relative to the previous year contributing to higher food prices through increased transportation costs.
On a positive side, increases in global prices of rice have been moderate and the outlook for the rice market appears stable. Good harvests in many African countries have kept local prices stable. This mitigated the global impact of the food price increase. Yet, the World Bank estimates that about 44 million people globally fell under the poverty line of one and quarter dollar per day since June 2010 due to rising food prices.
So, what is happening? One of the reasons is insufficient attention given to agriculture in many countries by the end of the last century. The consequences are still being felt despite the welcome reversal in the last several years. In 2008, global development assistance to agriculture was roughly twice to what it was between 1998 and 2004. The World Bank Group is increasing its spending to agriculture to $6-8 billion a year compared to slightly over $4 billion in 2008. The IFC has significantly scaled-up its investments in the sector, providing nearly $2 billion in 2010.
Against increasing attention and investments, weather shocks within the last nine months have affected global food availability. Devastating floods in Australia, Brazil, Pakistan, and West Africa, and extremely hot summer in Russia all happened within a very short time span. Albania has not escaped weather-related emergencies, having experienced two massive floods in 2010. Of further concern is whether the on-going global climate change will make such extreme events more frequent.
To summarize, the world is facing the challenge of continued food price volatility, which was highlighted by the Group 20 meeting of finance ministers over the weekend. The World Bank played a major role in putting the issue on the top of the G20 agenda.
2. The experts highlight that developing economies are affected the most, due to the largest share of foods in the families' budgets. Will Albania face this risk?
Volatile food prices are a challenge for every developing country and particularly the poor families. In Albania, bread and cereals prices have been rising but mildly and not as fast as in 2007. As of January 2011, bread and cereals prices rose by 9 percent year-on-year compared to 23 percent at end December 2007 and 35 percent increase at their peak in May 2008. Good news is that Albania is an upper middle income country that achieved major reductions in poverty over the past decade. Albania is thus less vulnerable than poorer countries, where large shares of the population are below the poverty line and may spend 70 or higher percentage of their income on food, which consist mainly of bread and cereals. When it comes to food prices, one of the main concerns is the impact on child malnutrition. In Albania, fortunately, this is not a big issue. Another piece of good news is that Albania, together with several other Western Balkan countries, had some of the lowest food inflation levels in 2010 across the countries of Eastern Europe and Central Asia.
Yet, there is no reason for complacency. In Albania, the poorest 20 percent of households spend about 20 percent of their budgets on bread and cereals, which constitutes about 30 percent of their total food budget. These households can feel the impact of price shocks. To compare, the richest 20 percent spend 5 percent of total expenditures and 11 percent of the food budget on bread and cereals. What really counts is the effectiveness of measures to protect the poor.
The government considers eliminating extreme poverty and improving social protection among top priorities. Total spending levels for social protection in Albania are in line with regional comparators and countries with similar demographic profile. An important new law to improve the performance and targeting of the Ndihma Ekonomike, the main social assistance program, is now in Parliament. The adoption and implementation of the law will help cushion the effect on the poor from rising food prices and other shocks, by strengthening the mechanisms to allocate funds and select beneficiaries. The World Bank assisted with the preparation of this law and will support its implementation. I would like to stress that successful implementation of this law will be critical and require effective collaboration between central government, local authorities and civil society.
We are also closely working with the Albania Statistical Institute to monitor the trends in poverty, including the incidence of increasing food prices, and new data will be collected this year. This will allow a better understanding of the recent poverty trends.
3. It seems that this price hike is a continuation of the crisis of two years ago, interrupted temporarily by the financial crisis. Due to the constant risk of prices, especially of the food prices, which are some of the measures at a short term and strategic ones in a long term that Albania should consider to minimize the costs?
I already mentioned the importance of strengthening social safety nets.
In the medium to long term, the key is to modernize agriculture and develop new business models. While Albania is a net food importer, it has potential for increasing agricultural productivity and output. Yields per hectare have increased over the past decade, yet still lag behind Europe for many crops. The Agricultural Services Project financed by the World Bank contributed to increased yields by improving farmer access to high quality seed, exposing over 20,000 farmers to new production and processing technologies, and piloting a grant program that facilitated adoption of improved technologies. Using this experience, the government launched in 2008 a program of grants to farmers to assist with cultivating higher value products and invest in modern irrigation, storage and processing capacities. The program also provides credit instruments for export oriented activities.
Looking forward, this program and a number of other actions will help improve the productivity, competitiveness and resilience of Albania’s agriculture. Not pretending to be comprehensive, I can mention a few steps:
- Increasing access to credit for modernization and innovation in agriculture
- Increasing security and clarity of titles for agriculture land - a critical factor for accessing credit, attracting capital and developing rural land market
- Continuing rehabilitation of the irrigation system in a broader context of improved water resource management and flood control. The WB supported the irrigation investments earlier and we are now preparing, with the Ministries of Agriculture and Environment a new water resource and irrigation project. We are also supporting the preparation of a comprehensive flood management plan for the Drina-Buna basin.
- Strengthening food safety and control. This will improve export possibilities, with positive impacts on incomes and access to capital and new technologies. The World Bank–supported Business Environment strengthening project also contributes to exporting through standardization and accreditation of Albanian products, including agricultural and processed products.
- Understanding and managing linkages of agricultural productivity with anticipated climate changes, including new technologies and practices that might be necessary to promote. This is a new area where knowledge is lacking. The World Bank has undertaken, on a pilot basis, an assessment of these linkages for Albania, and a consultation workshop will take place next week.
Albania also has an opportunity of accessing EU IPA funds for rural development. It can move faster to fully seize this opportunity and address the sector transition towards EU compliance and improved sector performance in tandem. The World Bank has experience of supporting other countries in this process which we can share with Albanian authorities.
Thank you for the opportunity to discuss this important topic.