Managing Vulnerability and Risk in the

Rural Space

Joachim von Braun

International Food Policy Research Institute

Annual Agriculture and Rural Development Week

World Bank, Washington D.C.

March 31, 2005

Big pictures:

It is risky to live in the rural space of the

poor parts of the world

Food insecurity, and under-nutrition

Lack of rights and law enforcement

Lack of (market) institutions for coping

>>>poverty is risky<<<

Big picture: Insecurity, growth,

nutrition…

>>Poor rural economies have high political

instability<<

Political stability good for growth

Growth good for political stability…

So what? (both matter)

Insecurity & poverty (under-nutrition)

Not a simple relationship !

Africa:Prevalence of Child Malnutrition

and Degree of Insecurity (Xiaobo Zhang, IFPRI, 2004)

0

5

10

15

20

25

30

35

40

45

50

90 100 110 120 130 140

Degree of Insecurity

Pro

port

ion o

f C

hildre

n U

nder

Fiv

e a

nd U

nder

Weig

ht

(%)

AGOSDN

BDI

SLE

ZAR

ETH

TCD

RWA

MRT

CAF

UGA

ZWE

COG

BWA

ZAF

CMR

MOZ

MLI

NGA

TZA

SW

GAB

LSO

GMBKEN

NERMDG

BFA

ZMB

MWI

GHACIV

BEN

TGOGIN

NAM

SEN

Insecurity and under-nutrition:

Not so simple a relationship !

The challenge: reaching critical thresh holds of security for growth

But how???

1. Agricultural & Rural growth

2. Market policies and stabilization

3. Credit

4. Social protection

5. Insurance of people, not only crops

and: comprehensive public security action

1. Agricultural and Rural Growth

The strategies are increasingly understood:

Infrastructure, technology, research are key

Scaling up is central for most MDGs !

Implementation is a strategic matter, too

The tool box for getting strategies done is

deficient: capacity !!

Accelerated rural growth for reduced

vulnerability

A Time Bomb or an opportunity? the small farms in transition

Farm Size (ha) % of all farmsNumber of farms

(millions)

< 2 85 387.24

2 - 10 12 54.05

10 - 100 2.7 12.51

> 100 0.5 2.28

Total 100 456.07

Source: Von Braun (2003)

2. Market policies and stock holding

…market openness helps the poor in general

and in crises

Market openness helps in natural disastersExample: Bangladesh- Rice prices in the 1998 floods

But public action matters tooExample: countries with/without food stock programs

Period Coefficient of variation of

producer prices

Countries with food stock programs

India 1971-2002 0.13

Indonesia 1973-2002 0.10

Countries without food stock programs

Mexico 1971-2002 0.84

Brazil 1985-2002 0.77

Variability of producer prices for maize

Source: Hazell, Shields and Shields 2005

3. Credit…

The biggest Bank serving the poor is…?

Family and friends

Credit mechanismsExample: formal and informal rural credit in China

All

households

(650)

Took loan

(31%)Took no loan

(69%)

Loan sourcesLoan use

Agricultural

production

(34%)

Bank (30%)Private

(70%)Other

production

(14%)

Consumption

(52%)

All

households

(650)

Took loan

(31%)Took no loan

(69%)

Loan sourcesLoan use

Agricultural

production

(34%)

Bank (30%)Private

(70%)Other

production

(14%)

Consumption

(52%)

Loan structure and use pattern among poor households

Source: Ling, Zhongyi and von Braun (1997)

The poor need “consumption” Credit: Example: 1998 Bangladesh floods- outstanding loans

Outstanding loans as a percentage of household expenditure for the poorest 40

percent of households

(59.7)

(64.0)

(7.6)

(72.9)

0

20

40

60

80

100

120

140

160

180

Dec '97 Nov '98 May '99 Nov '99

% o

f to

tal

mo

nth

ly

ex

pen

dit

ure

Note: Figures in parentheses denote the percentage of households with outstanding loans

Source: del Ninno and Dorosh (2002)

4. Social protection programs

… address chronic and transitory risks

Direct nutrition action is needed …

with fostering behavioral change.

Social ProtectionExample: Conditional Cash Transfers in Nicaragua,

Impact on food expenditures, school enrollment and health

Average effect

on per capita

annual food

expenditures (in

Nicaraguan

Cordóba)

Average effect on

enrollment, 7-13

years old in 1st-4th

grade (in

percentage points)

Net effect on the

percentage of

children under 5

years old who are

underweight (in

percentage points)

Difference

2002-2000 556 17.7 -6.0

Source: Maluccio and Flores, IFPRI 2004

5. What Insurances?

Production ?

People ?

Insurance mechanisms

Example: India- Index based weather insurance

Weather volatility in India: big risk faced by

non-irrigated farmers

ICICI-Lombard index-based rainfall insurance

• Based on a rainfall index

• Pilot program in Andhra Pradesh groundnuts

and castor farmers

• Win-win outcome: Farmers insured, banks

benefit from increased lending, reduced needs

for emergency assistance

Community and Household Insurance

MechanismsExample: rural Ethiopia

Illness of household head…

• did not affect basic food consumption

>Reliance on own production and/or

community gifts<

• BUT, lowered nonfood consumption

(education, health etc.) by 24 %

Potentially large welfare gains from

community (health) insurance schemes

(Asfaw and von Braun 2004)

Strategy for managing risk and vulnerability

in the rural space

is about this PORTFOLIO

1. Agricultural & Rural growth

2. Market policies and stabilization

3. Credit

4. Social protection for food security

5. Insurance of people, not only crops

and: comprehensive public security action

And how to prioritize among these ?

Context, institutions, capacities!

Experimentation and trans-national learning

Scenarios: Risks and Opportunities

Progressive Policy Actions Scenario:

New Focus on Agricultural Growth and Rural

Development

Policy Failure Scenario:

Trade and Political Conflict, rise in protectionism

worldwide

Technology and Resource Management Failure

Scenario:

Adverse technology/natural resource interactions

Three Scenarios to 2050: Undernourished Children, Sub-Saharan Africa

0

5

10

15

20

25

30

35

40

45

50

1997 2015 2030 2050

Mill

ion

ch

ildre

n

Progressive Policy

Actions

Policy Failure

Technology and

Resource

Management Failure

Source: IFPRI IMPACT projections (September 2004)