ACDI/VOCA Perspective on Global Food Crisis

Background on the Crisis
Long-term Agricultural Development Neglected
What Can be Done—The Big Picture
ACDI/VOCA’s Role
What Lies Ahead?

Background on the Crisis

A convergence of factors, including high income growth in emerging economies, reduced production of wheat in the U.S., high energy costs, use of crops for biofuels, bad weather in certain key growing areas, export restrictions, government stockpiling, the relative inelasticity of supply, historically low stock levels and some speculative investment, has created a profound global food crisis.

The UN World Food Program (WFP) estimates that its cost of procuring food leaped 55 percent between June 2007 and April 2008. For American households, spending typically less than 20 percent of their income on food, higher food costs are a painful adjustment—for the world’s truly poor, who may use 70 to 80 percent of their money to stay ahead of starvation, they are a disaster. (For example, according to the International Food Policy Research Institute (IFPRI), a Bangladeshi family of five living on $5 a day must cut $1.75 of their expenditures when there is a 50 percent increase in food and energy prices.)

The World Bank estimates that over the last 2 years some 100 million people may have been pushed into poverty as a result of high prices, and the WFP estimates that an additional 100 million may now join them. The result is increased hunger and malnutrition, the selling of productive assets among the poor and instability.

There is debate about the causes of the crisis, but its scope and dimensions are incontrovertible—as is its longevity. “Our best guess is these high prices will continue to stay high,” said John Hoddinott, a researcher for IFPRI. Rising energy prices, which are driving fertilizer and pesticide costs higher, could cause food prices to rise even more sharply in months to come. The UN’s Food and Agriculture Organization’s report issued on May 29 predicts continued substantially higher prices over the next decade because of fundamental changes in demand, even though prices should decrease some as weather conditions return to normal and crop yields improve. However, IFPRI Director General Joachim von Braun has pointed out that over the long term climate change will reduce production growth in many of the poorest regions, bringing about further price increasing effects. However, he believes that proper climate change policy can generate income for small farmers and investment flows for rural communities.

As World Bank President Robert Zoellick said on April 29, “The international community needs to commit to working together to respond with policy initiatives, so that this year’s crisis doesn’t become a generation’s fact of life.”

Ellen Levinson, executive director of the Alliance for Food Aid, echoed that notion in a letter to the Hill: “While the reasons for increased prices will continue to be debated, one thing is agreed: this is not just a one-year aberration and its impact will require more than a one-time increased infusion of food aid.”

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Long-term Agricultural Development Neglected

One lesson from the crisis is that the diminution of development aid devoted to agriculture over recent decades has had terrible consequences. As Keith Bradsher and Andrew Martin wrote in a front-page article in the New York Times May 19, “Experts say that during the food surpluses of recent decades, governments and development agencies lost focus on the importance of helping poor countries improve their agriculture.” According to this article, “Adjusting for inflation and exchange rates, the wealthy countries, as a group, cut such donations roughly in half from 1980 to 2006, to $2.8 billion a year from $6 billion.”

On May 29 Jacques Diouf, secretary general of the FAO, said, “Agricultural development was not given sufficient priority over the last decades, and its importance was underestimated.”

ACDI/VOCA’s raison d’ệtre is that economic growth through agriculture is key to breaking the cycle of poverty, hunger, disease and instability. Three-quarters of the 1.1 billion people who subsist on less than a dollar a day live in rural areas and depend on agriculture for a living. The World Bank calculates that for the poorest people, GDP growth originating in agriculture is about four times more effective in raising incomes of extremely poor people than non-agricultural GDP growth. Its 2007 World Development Report shows that agriculture can drive massive poverty reduction and overall development, and posits that almost no country has managed a rapid rise from poverty without increasing agricultural productivity.

Underperforming local agriculture not only creates widespread hunger and poverty—it also results in poor education, high incidence of disease (including HIV/AIDS and malaria) and infant mortality, and massive out-migration from rural areas that creates spiraling problems in overcrowded cities. All these blights are reprehensible on their own, but they also contribute to dependency, failed and unstable states, despoiled environments and pollution, tainted food production and a host of other problems that cannot be contained within borders.

Despite the urgent, obvious need, the percentage of global official development assistance that went to agriculture fell from over 16 percent in 1980, to under 4 percent in 2004; in addition, agriculture accounts for only 4 percent of public spending in agriculture-based developing countries. Even the World Bank’s own financing devoted to more productive farming dropped to 12 percent in 2007, from 30 percent in 1980.

The FY09 U.S. budget proposes that only 2 percent of foreign aid expenditures be directed to agriculture. The U.S. commitment to agricultural development has declined from $489 million in 2005 to the current level of $283 million in 2008, the lowest level of U.S. agricultural development spending in more than a decade, even before adjusting for inflation. Even where we still spend on agriculture, some money has been shifted away from crop-productivity work into issues like nutrition and food safety.

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What Can be Done—The Big Picture

Long-term agricultural development is vital, but the crisis is exigent and immediate new responses are needed. Director of U.S. Foreign Assistance and USAID Administrator Henrietta Fore testified on May 14 that the U.S. response will be three-pronged: “1) Expand humanitarian assistance, looking at the most critical needs globally; 2) attack the underlying causes of food insecurity through a significant increase in staple food production; and 3) address policy barriers and trade policies adversely impacting food prices.”

Unfortunately, the most direct response available, food aid, is underfunded and hamstrung by politics. The recent spike in prices has slashed the amount of food commodities our government buys to its lowest level in a decade. The United States, the world’s dominant donor, purchased less than half the amount of food aid in 2007 that it did in 2000. Increases are being planned, but most will not go into effect until 2009.

Also, basic elements of food aid program design are at issue. As Roger Thurow and John D. McKinnon pointed out May 2 in the online Wall Street Journal, the U.S. approach of shipping food aid overseas at subsidized prices helps alleviate short-term hunger but usually does not provide sustainable solutions (ACDI/VOCA’s monetization approach, the sale of U.S. commodities in a foreign country to generate funds for development activities, is an exception).

The same WSJ article describes recent reform proposals from the WFP, which wants to evolve from its traditional role of distributing food obtained elsewhere into a market-led food development program that features sustainability. Its so-called “Purchase for Progress” plan seeks to incentivize local production, particularly in Africa, with guaranteed markets and steady prices. The plan is gaining adherents.

The World Bank on May 29 announced that it would increase spending on agriculture and food programs to $6 billion in the coming fiscal year, which begins June 1, up from $4 billion. The funds include $800 million that has already been earmarked for Africa and an additional $1.2 billion that will be spent on such things as nutrition programs for schoolchildren and pregnant women, and seeds and fertilizer for small-scale farmers to improve harvests.

“These initiatives will help address the immediate danger of hunger and malnutrition for the 2 billion people struggling to survive in the face of rising food prices,” the president of the World Bank Group, Robert B. Zoellick, said in a statement. He said $200 million of the $1.2 billion would be used as grants for countries most vulnerable to the food crisis.

The Bush administration has called for emergency increase in U.S. aid of $770 million in 2009. Of that, $395 million will boost USAID's Office of Food for Peace’s purchasing power. An additional $225 million of International Disaster Assistance will support crucial nutritional interventions, increased access to farm inputs, improved abilities to monitor widespread vulnerability, and local procurement and redistribution of commodities to stimulate production in surplus areas.

The administration’s push for a shift to a percentage of cash donations instead of food has been controversial among U.S. farmers, but the current robust demand for their crops obviates their need to sell into food aid channels and may allow more objective consideration of this needed reform.

Ms. Fore in her testimony recommended targeted voucher programs that can “help the poorest obtain basic food staples without undermining commercial incentives for local food production and marketing.” She promised to work closely with other countries, the World Bank, IMF, foundations and other organizations to seek wise policies that favor agricultural trade, avoiding export restrictions and other market interventions that exacerbate the supply-demand imbalance.

And she said that $150 million of the proposed increase is an “investment for FY 2009 in agriculture development assistance funding and work to leverage additional resources from the private sector.” She mentioned ag research, in particular biotechnology, but as Bradsher and Martin pointed out in their May 19 Times article, the United States is in the midst of slashing its support for the Consultative Group on International Agricultural Research, a global research network that focuses on improving crops vital to agriculture in poor countries.

The FAO’s May 29 report on the food crisis encourages targeted food giveaways and food subsidies to the world’s poor, and short-term subsidies to small-scale farmers to provide them with seeds, fertilizer and animal feed to increase production. For the long term, it emphasizes public and private investment in agricultural research and outreach.

IFPRI’s von Braun has said in February that much of the adaptation necessary to cope with the crisis is merely an extension of good development policy:

• promoting growth and diversification
• investing in research and development, education and health
• creating markets in water and environmental services
• improving the international trade system
• enhancing resilience to disasters and improving disaster management
• promoting risk-sharing, including social safety nets, weather insurance

He cautions the global community to avoid

• export stops (starving your neighbor)
• food subsidies for the vocal middle class
• slow change in outdated production control policies
• continued public underinvestment in agriculture productivity increases
• exclusion of agriculture from climate change mitigation strategies

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ACDI/VOCA’s Role

The crisis is not entirely new to ACDI/VOCA, which former USAID Administrator Andrew Natsios called "the premier agricultural development NGO in the world."

ACDI/VOCA has worked in 145 nations in agriculture and food systems, addressing the root causes of food insecurity by building the capacity of people to produce their own food, which is the most sustainable and cheapest method of addressing world hunger and poverty. This agribusiness systems work is at the heart of our enterprise. Enterprise development and financial services projects in our portfolio also address income generation, because often people who are hungry have access to food but cannot afford it. ACDI/VOCA enables poor countries to build an indigenous business, agriculture and trade capacity and participate in the integrated global food economy where it does exist. The company is a leader in value chain approaches designed to yield far-reaching and sustainable results. Its work in biofuels is limited to jatropha, which is not a food crop.

ACDI/VOCA also responds to immediate need through food aid programming. Since 1989, ACDI/VOCA has been a global leader in the innovative and effective management of food aid-based projects that have positive development effects. Our food aid projects are designed to avoid fostering dependency and undermining commercial markets. ACDI/VOCA addresses the availability, access to and utilization of food through several mechanisms including monetization of commodities in low-income, food-deficit countries with sales proceeds being used for development activities, direct distribution of rations to vulnerable populations and use of direct funding to address food security issues among target populations. Currently, ACDI/VOCA operates food aid-based development programs in Ecuador, Haiti, Indonesia, Liberia, the Philippines, Vietnam, West Bank, Uganda and Rwanda.

Although food shortages, high prices and inefficiency in the world food economy have been ACDI/VOCA’s preoccupations for 45 years, we have never before seen the likes of this “perfect storm” food crisis.

Notwithstanding the need for new funding and new policies that boost agricultural production, reduce vulnerability of the poor and promote trade and efficiency, ACDI/VOCA President Carl Leonard on May 5 called for the formation of a Global Food Crisis Team and urged the company to “think boldly regarding how ACDI/VOCA might muster an enhanced response to the crisis.” He asked company experts to contribute their critical thinking to the worldwide colloquy and to further position ACDI/VOCA in the marketplace as an organization that can render effective interventions. Heading up the team is Senior Managing Director for Food Security and Specialty Crops, Avram E. “Buzz” Guroff, a former national food security coordinator and secretary for the U.S. delegation to the 1996 World Food Summit.

While acknowledging that many ACDI/VOCA projects already address food supply, Leonard pointed out that today’s crisis transcends business as usual and compels new ideas and approaches. And he said that the responses need to be companywide, since “all our projects stand to suffer as beneficiaries’ assets dwindle and they lose faith in an integrated global food economy.”

He charged the ACDI/VOCA food crisis team to examine such questions as

• Do we understand secondary risks associated with the crisis, e.g., instability, high-risk survival strategies, and the threat of disease?
• For staple crop production programs, are there market linkages to help get food where it is needed (i.e., can WFP purchase from our producer groups)?
• Should we shift Title II programs to more direct distribution, especially where we have distribution systems in place?
• Should cash transfers and voucher systems become a new priority?
• Are short-term strategies aligned with long-term development goals?
• Should we expand our approaches oriented toward staple crops?
• How can we help raise awareness of the crisis and prompt the needed response?

The ACDI/VOCA food crisis team has formed an online discussion group, and discussions are under way on appropriate company responses. Mr. Guroff will coordinate the drafting of a position paper that will serve as an action framework for all staff. A food crisis workshop to explore further solutions will be held at ACDI/VOCA’s upcoming Technical Summit in Cairo.

The team is examining the International Food Policy Research Institute (IFPRI) policy paper, High Food Prices, which provides the following useful framework for responses at various levels, both short- and long-term. (NOTE—where NGOs such as ACDI/VOCA are considered to have a role in responding, suggested actions are in brackets.)

EMERGENCY PACKAGE:

1. expand emergency responses and humanitarian assistance to food-insecure people and people threatening government legitimacy;

[Food or cash transfers should be expanded and should target the poorest people, with a focus on early childhood nutrition, regions in distress, school feeding with take-home rations, and food and cash for work.]



2. eliminate agricultural export bans and export restrictions;



3. undertake fast-impact food production programs in key areas;

[Short-term action to promote agricultural growth with seeds, fertilizers and credit for the small-farm sector. Small farmer access to procurement programs for their agricultural products at guaranteed minimum prices that reflect long-term international market prices. Subsidized programs for seeds, fertilizers, irrigation, electricity and water should involve the private sector from the beginning and facilitate a transition from initial “crash programs” to market-based arrangements. Such subsidized programs should be focused on and limited to least-developed countries. The timing of these actions is crucial for achieving a rapid production stimulus for smallholder agriculture and the small business sector serving agriculture. Banking and finance are also critical for success. These short-term programs should have clearly defined and communicated exit strategies. Even though the production response should be quick, it needs to be driven largely by higher yields rather than area expansion.]



4. change biofuel policies.

RESILIENCY PACKAGE:

1. calm markets with the use of market-oriented regulation of speculation, shared public grain stocks, strengthened food-import financing and reliable food aid;



2. invest in social protection;

[Microfinance, which includes both credit and savings to permit the poor to avoid drastic actions such as distress sales of productive assets that can permanently damage their future earning potential is needed. Preventative health and nutrition programs targeted to vulnerable population groups (such as mothers, young children, and people living with HIV/AIDS) should be strengthened and scaled up to ensure universal coverage. This measure is essential to prevent the long-term consequences of malnutrition on lifelong health and economic productivity. In addition, school feeding programs can play an important role in increasing school enrollment, retaining children in school, and enhancing their academic achievement.]



3. scale up investments for sustained agricultural growth;



4. complete the Doha Round of World Trade Organization (WTO) negotiations.

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What Lies Ahead?

Alex Evans, of the Centre on International Cooperation at New York University, points out that concerns over inflation and prices have led some countries to reduce exports and others to try to build up stocks, thus driving prices up further. In the medium to longer term, what he called “scarcity trends”—climate change, the cost of energy inputs, scarcity of land and water—could limit the supply-side response. He, like many others, suggests moving away from in-kind food aid and towards cash transfers or voucher systems, although, he says, “…there are outstanding questions about how these social protection systems will work, and they should not be seen as a panacea. The issue of compensatory financing may also arise for some countries facing balance-of-payments difficulties.”

The World Bank estimates that demand for food will rise by 50 percent by 2030, as a result of rising affluence and growing world population. Evans says, “Meeting this challenge will require something close to a revolution, and a massive investment in agriculture in developing countries.” He adds ominously, “If supply fails to keep pace with rising demand, then the question of ‘fair shares’ is likely to emerge as a significant global issue.”

“We need a 21st century Green Revolution designed for the special and diverse needs of Africa,” said World Bank President Zoellick. “It must be driven by greater investments in technological research and dissemination, sustainable land management, agricultural supply chains, irrigation, rural microcredit, and policies that strengthen market opportunities while assisting with rural vulnerabilities and insecurities.”

Ironically, development success, such as that carried out by ACDI/VOCA, has helped to bring about one of the foremost drivers of the crisis, income growth in the developing world. However, all the experts agree that development and economic growth must continue, though at a greater pace, and with better distribution. And that equitable investments in food production must somehow match population and economic growth.

IFPRI’s von Braun, in a presentation in Rome in February, said, “Projections, which have underestimated price increases, need to accommodate the new complex nature of the world food equation; past trends no longer inform about the future.” As IFPRI points out in its policy report, The World Food Situation, “The influence of the private sector in the world food system, especially the leverage of food retailers, is also rapidly increasing. Changes in food availability, rising commodity prices, and new producer-consumer linkages have crucial implications for the livelihoods of poor and food-insecure people. Analyzing and interpreting recent trends and emerging challenges in the world food situation are essential in order to provide policymakers with the necessary information to mobilize adequate responses at the local, national, regional, and international levels."

In an op-ed in the Wall Street Journal Asia and European edition on April 25, Nancy Birdsall and Arvind Subramanian wrote, “It sounds counterintuitive, but the challenge of the food crisis affords a win-win opportunity: to collectively agree to policies that promote trade and efficiency while also boosting agricultural production and reducing the vulnerability of the poorest around the world. The challenge for world leaders is to seize that opportunity.”

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Last updated: 6/08