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

“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 700 600 500 Armenia pita) Belarus Belarus FDI inflow (US$ per capi Georgia 400 Moldova Ukraine Russia 300 Kazakhstan Kyrgyz Republic Tajikistan 200 Turkmenistan Uzbekistan 100 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Decline in domestic production Growth in real GDP DP (%) -20 -15 -10 10 15 20 25 30 -5 0 5 Armenia Azerbaijan Belarus Georgia Moldova Kazakhstan Kyrgyz Republic Mongolia Russia Tajikistan Turkey Turkmenistan Ukraine Uzbekistan 2009 2008 2007

Decline in exports 80 ar percentage chnage) 60 40 Change in merchandise exports (year to year 2008Q2 20 2008Q3 2008Q4 2009Q1 0 2009Q2 Armenia Belarus Kazakhstan Kyrgyz Moldova Russian Turkey Ukraine Republic Federation -20 -40 -60

Decline in migration (data from Armenia) 50000 untries ( persons) 45000 40000 35000 30000 Migration to CIS cou 25000 20000 15000 10000 5000 0 Jan Feb Mar 2008 39168 38327 46423 2009 35571 33128 34772

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 18 16 14 rate (%) 12 2008Q2 2008Q2 Unemployment ra 10 2008Q3 8 2008Q4 2009Q1 6 2009Q2 4 2 0 Belarus Moldova Russia Turkey Ukraine

Effect on exchange rates 70 60 on (%) 50 Deprectiation 40 30 20 10 0 Ukraine Kazakhstan Turkey Armenia Georgia Russia Tajikistan Kyrgyz Republic

Effect on inflation rates 70 60 Armenia Azerbaijan 50 Belarus %) Annual inflation (% Georgia 40 Kazakhstan Kyrgyz Republic 30 Moldova Russia Tajikistan 20 Turkmenistan Ukraine 10 Uzbekistan 0 2001 2002 2003 2004 2005 2006 2007 2008 2009e

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 70 Belarus l Output (1990=0) 50 Russian Federation Ukraine 30 Armenia Change in Gross Agricultural O Azerbaijan 10 Georgia -10 Kazakhstan Kyrgyz Republic -30 Moldova -50 Tajikistan Turkmenistan -70 Uzbekistan 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Agricultural labor productivity 60 40 Armenia 20 Azerbaijan 990=0) Belarus Belarus Change in ALP (199 Georgia 0 Kyrgyz Republic Moldova -20 Russian Federation Tajikistan -40 Turkmenistan Ukraine -60 Uzbekistan -80 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Change in grain yield (19 990=0) 100 120 140 -60 -40 -20 20 40 60 80 0 Change in grain yields 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Uzbekistan Turkmenistan Tajikistan Kyrgyzstan Kazakhstan Ukraine Russia Belarus Belarus

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

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

Impact of the financial crisis • Negative impact on household income – Increase in unemployment – Decline in remittances – 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