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The Impact of the Global Economic and
Financial Crisis on Food Security
and the Agricultural Sector
Johan F.M. Swinnen and Kristine Van HerckJohan 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• Impact on poverty and food security
• Policy recommendations
Evolution of the crisis
■ Crisis index of 1
■ Crisis index of 2■ Crisis index of 2
■ Crisis index of 3
■ Crisis index of 4
“Not affected period” (July 2007 to September 2008)
• Booming economy as usual….
300
350
Armenia
50
100
150
200
250
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
GD
P p
er c
ap
ita
(1
99
4=
10
0)
Azerbaijan
Belarus
Georgia
Kazakhstan
Kyrgyz Republic
Moldova
Mongolia
Russia
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
“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
500
600
700
FD
I in
flo
w (
US
$ p
er c
ap
ita
)
Armenia
Belarus
0
100
200
300
400
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
FD
I in
flo
w (
US
$ p
er c
ap
ita
)
Belarus
Georgia
Moldova
Ukraine
Russia
Kazakhstan
Kyrgyz Republic
Tajikistan
Turkmenistan
Uzbekistan
Decline in domestic production
15
20
25
30
Gro
wth
in
rea
l G
DP
(%
)
-20
-15
-10
-5
0
5
10
Arm
en
ia
Azerb
aij
an
Bela
rus
Geo
rgia
Mo
ldo
va
Ka
za
kh
stan
Ky
rgy
z R
ep
ub
lic
Mo
ngo
lia
Ru
ssia
Ta
jik
ista
n
Tu
rkey
Tu
rkm
en
ista
n
Uk
rain
e
Uzb
ek
ista
n
Gro
wth
in
rea
l G
DP
(%
)
2007
2008
2009
Decline in exports
40
60
80
Ch
an
ge
in m
erch
an
dis
e ex
po
rts
(yea
r to
yea
r p
erce
nta
ge
chn
ag
e)
-60
-40
-20
0
20
Armenia Belarus Kazakhstan Kyrgyz Republic
Moldova Russian Federation
Turkey Ukraine
Ch
an
ge
in m
erch
an
dis
e ex
po
rts
(yea
r to
yea
r p
erce
nta
ge
chn
ag
e)
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
Decline in migration (data from Armenia)
30000
35000
40000
45000
50000
Mig
rati
on
to
CIS
cou
ntr
ies
( p
erso
ns)
Jan Feb Mar
2008 39168 38327 46423
2009 35571 33128 34772
0
5000
10000
15000
20000
25000
Mig
rati
on
to
CIS
cou
ntr
ies
( p
erso
ns)
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
12
14
16
18
Un
emp
loym
ent
rate
(%
)
2008Q2
0
2
4
6
8
10
Belarus Moldova Russia Turkey Ukraine
Un
emp
loym
ent
rate
(%
)
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
Effect on exchange rates
40
50
60
70
Dep
rectia
tio
n (
%)
0
10
20
30
40
Ukraine Kazakhstan Turkey Armenia Georgia Russia Tajikistan Kyrgyz Republic
Dep
rectia
tio
n (
%)
Effect on inflation rates
50
60
70
An
nu
al
infl
ati
on
(%
)
Armenia
Azerbaijan
Belarus
0
10
20
30
40
2001 2002 2003 2004 2005 2006 2007 2008 2009e
An
nu
al
infl
ati
on
(%
)
Georgia
Kazakhstan
Kyrgyz Republic
Moldova
Russia
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
Effect on non-performing loans
Agricultural sector
• Agricultural sector largely affected by the transition to a more market-orientated economy in beginning of 1990seconomy in beginning of 1990s
• Impossible to look at the effect of the financial crisis without considering the recent evolutions in the sector
Agricultural output
30
50
70
Ch
an
ge
in G
ross
Ag
ricu
ltu
ral O
utp
ut
(199
0=
0)
Belarus
Russian Federation
Ukraine
Armenia
-70
-50
-30
-10
10
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Ch
an
ge
in G
ross
Ag
ricu
ltu
ral O
utp
ut
(199
0=
0)
Azerbaijan
Georgia
Kazakhstan
Kyrgyz Republic
Moldova
Tajikistan
Turkmenistan
Uzbekistan
Agricultural labor productivity
20
40
60
Ch
ange
in A
LP
(19
90=
0)
Armenia
Azerbaijan
Belarus
-80
-60
-40
-20
0
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
Ch
ange
in A
LP
(19
90=
0)
Belarus
Georgia
Kyrgyz Republic
Moldova
Russian Federation
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
Change in grain yields
80
100
120
140C
ha
ng
e in
gra
in y
ield
(19
90
=0
)
Belarus
-60
-40
-20
0
20
40
60
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Ch
an
ge
in g
rain
yie
ld (
19
90
=0
)
Belarus
Russia
Ukraine
Kazakhstan
Kyrgyzstan
Tajikistan
Turkmenistan
Uzbekistan
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 crisisFood crisis
Financial crisis
Poverty and food security beforethe crisis periods
Strong decrease in poverty due to economic growth
10261,2
80%
90%
100%
215,1264,2
160,7
153,3
0%
10%
20%
30%
40%
50%
60%
70%
80%
1998-9 2002-3
% o
f th
e p
op
ula
tion
Poor (less than $ 2,15 per day)
Vulnerable (between $ 2,15 and $ 4,30 per day)
Non poor (more than $ 4,30 per day)
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
• Negative impact on household income
– Increase in unemployment
– Decline in remittances
– Examples:
Impact of the financial crisis
– 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 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