Subsidies often keep poor hungry, boost fiscal deficits and encourage corruption
WASHINGTON – Global food prices declined for three consecutive quarters, then rose in May and June, remaining close to historical peaks. Some countries with high poverty and weak safety nets are now responding to this chronic volatility by scaling up consumer food subsidies but these are often counter-productive, the World Bank Group’s quarterly Food Price Watch reported today (July 25, 2013).
“Poorly designed food subsidy programs that lack transparency and accountability in implementation do not benefit poor people. These programs can be very costly and prone to corruption, and waste scarce fiscal resources,” said Jaime Saavedra, World Bank Group’s Acting Vice President for Poverty Reduction and Economic Management. “Reforming such programs is a policy priority, leading the way to smart subsidies that target the most needed and complement existing safety nets.” Saavedra added.
International food prices have declined for the third consecutive quarter and are now 12% below the historical peak in August 2012, according to the World Bank’s Food Price Watch report. But the report says the continued popularity of food subsidies often do not deliver the results policy makers are seeking.
According to the latest edition of the Food Price Watch, global food prices continued to fall between February and June 2013 – a trend observed since the recent all-time peak in August 2012 – but prices were only 12 percent below the August peak. Higher production, declining imports and lower demand generally pushed export prices down although international markets continue to be tight for maize (corn).
Current prices of wheat reflect expectations that world production will rebound this year from last year’s declines. Rice prices continued to decrease moderately from a combination of offsetting factors. Downward price pressures from good harvests in Thailand and Vietnam counteracted upward pressures from increasing demand and thinner supplies in India, Pakistan, the United States, and South America.
Looking ahead, uncertainty in the international market remains. Recently unfavorable weather conditions in northern and central Europe, the Russian Federation and China may affect the prospects of a rebound in the world wheat production. The current situation in Egypt may also impact international markets of wheat, given Egypt is the world’s top wheat importer.
Domestic prices meanwhile generally followed seasonal trends but wide variations continued: where prices rose between February and June 2013 it was mainly due to a combination of factors including bad weather, dwindling supplies, currency devaluations and public procurement policies.
How the World Bank Group is helping
- Investment in agriculture and rural development is a priority for the World Bank Group, which boosted agriculture and agriculture-related investment to over $9 billion in FY12.IBRD/IDA assistance in FY12 was the highest in 20 years.
- IFC made $4.5 billion in private sector investments across the food supply chain in FY13. These investments supported projects that promote access to finance, access to inputs like seeds, equipment and advice, and access to markets through infrastructure and food-processing facilities.
- The WBG supports the Global Agriculture and Food Security Program (GAFSP). Nine countries and the Gates Foundation have pledged about $1.3 billion over 3 years, with $959.8 million received.
- The Global Food Price Crisis Response Program (GFRP) has reached 66 million people in 49 countries – through $1.56 billion in emergency support. As of July 2012, the Bank’s emergency response is channeled through IDA’s Crisis Response Window and the Immediate Response Mechanism.
- Boosting IBRD/IDA allocations to safety nets (rose sixfold from $1.2 billion in the FY06-08 pre-crises period to over $10 billion in FY09-12.
- Coordinating with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with non-governmental organizations, and supporting the Partnership for Agricultural Market Information System (AMIS) to improve food market transparency.
- Advocacy for more investment in agriculture research–including through the Consultative Group on International Agriculture Research (CGIAR) – and monitoring agricultural trade to identify potential food shortages.
- Supporting improved nutrition among vulnerable groups: As of FY12, it is estimated that the World Bank has reached 14.3 million pregnant and lactating women, adolescent girls, and children under five with basic nutrition services. The Bank is also an active member of the Scaling Up Nutrition global movement Scaling Up Nutrition movement and supports the SecureNutrition Knowledge Platform www.securenutritionplatform.org which aims to improve nutrition through agriculture investments.
IFC is launching the Global Irrigation Program (GIP), providing support to irrigation suppliers to increase availability and access for efficient irrigation equipment to better manage water use for agriculture.