THE DARK SIDE OF FOOD SECURITY
AMT Conference
30 September 2013
Presented by Pieter Esterhuysen
Poverty and hunger
50% of world population live with less than $2.5/day
Asia most poor people – then Africa ($1.25/day)
7 out of 10 most food vulnerable countries are in Africa
WFP
GDP of 41 most indebted countries ˂ income of 7 most wealthy people
Global food stocks under pressure – consume same and more than production
Food reserves 110 days consumption 10 years ago now about 80 days
Land sold to other countries and speculators = enough to produce food for a
billion people – there are about a billion malnourished people globally
Nearly 60% of global land deals in the last decade = grow crops suitable for bio fuel
Record commodity prices last 2 years
Commodity market volatility increased from +- 10% in 90’s to 30% + now
Hunger Demography
2011
World population = 7 billion
2050
Up 30% to 9.3 billion
78 million more to feed every year
214 000 additional mouths to feed per day
39 of the 58 countries contributing are in Africa
24% will live in Africa vs. 15% currently
2100
10 out of 20 most populous countries in Africa
Nigeria 4th most populous country
Poverty and hunger
1996 World Food Summit = target – to halve undernourished by 2015.
2010 the number was 925 vs. 824 mil in 1996
We are not making progress – situation is deteriorating
UN warns of looming worldwide food crisis in 2013
Global grain reserves hit critically low levels
Extreme weather means climate 'is no longer reliable'
Rising food prices threaten disaster and unrest
‘Earth to run out of food by 2050?’ Time magazine’s December 2010 headline
“Our time is running out” – Oxfam
Food scarcity: the time bomb setting nation against nation – OXFAM
‘Hunger is dehumanizing. It gets to a level where you do not know how you will
survive and you will do anything for a simple kernel of corn’
‘It is a traumatizing situation as a young child to be without food. Your stomach
is so empty that even when you are thirsty and you take water it makes you dizzy.
You get so nauseated your body wants to vomit, but you haven’t eaten.’
Peter Kimeu – small scale farmer in Nachakos, Kenya.
Food security
Poverty/Hunger statistics/realities = Food security strategy/policy
______________________
Food security exists when all people, at all
times have physical and economic access
to sufficient , safe and nutritious food to meet
their dietary needs and food preferences
for an active and healthy life (FAO)
Food security strategies and policies
Actions and projects
Regulations
Aid
External/international relations
Protectionism
Etc
This presentation focuses on the negative impact or dark side
of selected actions/ projects driven by food security policies
and strategies of governments and donors
Discussion
Photograph: Jerome Delay/AP
International aid
Government intervention
Reputation
Expatriate contribution
Aid and food security
International Aid
Total aid to Africa per annum = $50 billion
Last 50 years = $2 to $3 trillion
Number of Africans who live on $1/day has doubled in last +-20
years
Total annual food aid = 4 to 5 million mt
Food aid less than 1% of food production – insignificant impact on
food markets - but can have an impact on recipient markets
IITA
International Aid
The determinates of Food Aid Provisions to Africa and the Developing World
Nun (Harvard) en Qian (Yale) - 2011
Normally food aid increase when recipient production decrease
US food aid correlates with US surpluses – not recipient conditions
Aid flows to former colonial tied countries are less responsive to
recipient production – especially Africa – effectivity low
Bi-lateral aid + poorly targeted and less effective vs. multilateral aid
which has a counter-cyclical and stabilising impact on local food prices
International Aid: Inefficiency
MALARIA infects 300 million to 500 million people pa
At least a million people die pa.
A child dies every 30 seconds of malaria
More than 80 percent occur in the poor countries of Africa.
Reuters
William Easterly - ‘The white man’s burden’
Mosquito nets handouts = markets/fishing/bridal veils and killing local industry
Malawi Aid project = local production of nets – selling in cities @ $5 and in rural
markets @ 50c (Population Services International)
Malawi under 5 net utilisation increased from 8 % to 55%
Zambia follow up after handouts = 70% never used the nets
Easterly said: "is the tragedy in which the West spent $2.3 trillion on foreign aid over
the last five decades and still had not managed to get $4 bed nets to poor families. The
West is not stingy. It is ineffective.”
International Aid: Inefficiency
A US Government Accountability Office study indicated that only +-35% of aid
money spent is spent on food
Analysis (Nov 2012) of $5 million US aid to Cambodia in 2010 indicated that
$3.5 million (70%) was spent on freight and logistics
Another US food aid project to Cambodia in the same year implied local
Cambodian procurement – logistics and freight cost amounted to only 19% of
the total cost.
Bloomberg
International Aid: Motive
International aid is not always what it seems to be
China case:
Grants/Zero interest loans/concessional loans
Thinkstock/Imagebank
By 2009 47% of all Chinese aid went to Africa
2010 – 2012 - $10 billion loans for Africa
China Eximbank and China Development bank – 1994 – develop China
Support China equity in Africa
Aid excluded African countries with ties to Taiwan – aid follows
diplomatic ties
Ghana Bui dam – financed guaranteed by cocoa beans (40 000 mt paX20)
DRC reconstruction – Chinese credit line $3 billion - equity control copper
and cobalt mine – payment via resources receipts
Definition of aid?? Economic cooperation??
Aid .... Sometimes for donating country’s own food security – China
Food Aid: Political instrument
Food aid = valuable instrument to optimise political power
Ethiopian case:
Ethiopia = low income/food deficit/limited infrastructure and purchase power
Largest aid recipient in Africa (second globally) – $2.39 billion pa average
Relative good state and planning institutional capacity
Constant substantial food aid
Government distribution is focusing on supporters – withhold aid from
Communities not supporting - support 99.6% 2010 election
Common practice – farmers not getting access to seed/ferts/assistance for
not supporting government
‘Ask your own party for help’
‘You are suffering so much problems, why don’t you write a letter of
regret and join the ruling party?’
Effect of aid on production
Food aid normally has a short term focus – sometimes resulting in long
term damage
Haiti case:
US rice aid to Haiti over past few decades as example
March 2010 – Pres Clinton apologised for US dumping cheap rice in Haiti –
to the detriment of local producers
Haiti produced 47% of the country’s rice in 1988 – 2008 = 15%
US rice are still part of bilateral aid to Haiti
Reuters
Negative impact of Aid on recipient country
James Bovard (Wall Street Journal and Chicago Tribune)
‘The continuing failure of foreign aid’
Allow governments to postpone essential ag reforms
Fails to provide sufficient support to ag investments
Maintain a pricing system which give farmers an inadequate incentive to
increase production
----------------------------------------------------------Small scale farmers – 50% of Russia’s food production on 25% of land
Ukraine – 55% of output on 16% of land
External food aid deliveries can disturb this structure easily
IITA
Tied aid – Political/economic leverage through Aid
US aid
Provide own produce – indirect support of own agricultural sector –
provides more than 50% of WFP aid
Support own companies – Monsanto – drive for GM commodity aid
At least 75% of all food donations must be supplied/processed/transported
by US companies
65% of all food aid by the US is consumed by logistics (up to 35% more
expensive than local purchases) and takes 2 to 3 months longer
Without aid shipments the US cargo fleet will loose 15% capacity and
16 000 to 30 000 jobs
Effect of Food aid on social and military conflict
Correlation between food shortages and conflict. 2007/08 food crisis – record
Prices - Riots/protests in 48 countries
2011 food price index of FAO – new records – wave of protests across
North Africa and the middle East – Toppled both the Egyptian and Tunisian
presidents
Research showed a correlation between aid and conflict
Food aid = crowding out effect/local production decrease/mis-use = conflict
Malawi government + University of Texas + AidData – created an interactive
mapping tool overlaying data on aid projects/climate change and conflict
US food aid 1 000 mt increase risk of civil conflict by 0.38% - the same shipment
will reduce probability of existing civil war ending in single year with 0.55% points
(Nunn & Qain)
Number of Food Price Riots
Price Indices (100 = Year 2000 Price)
Food Prices and Rioting, 2007-2008
FAO Cereals Price Index
FAO Food Price Index
UNCTAD Rice Price Index
Food Riots
WFP and FAO
Food Aid: Corruption
Jeffrey Winters – Northwestern University in the US – World Bank loans
+- $100 billion lost to corruption – loan funds for development
Some years ago the African Union estimated that corruption of roughly $150 billion
pa – cost for the continent
DRC’s president Mobuto Sese Seko - stole billions of aid dollars
(Transparency International)
Former Malawi president Bakili Muluze was charged with embezzling aid
money worth $ 12 million
Former Zambian president Frederic Chiluba are still in court case regarding
millions of dollars personal enrichment
New York Times – 11/3/10 - 50% of Somalia’s aid money – militants/officials/business men
and UN personnel – project fed 2.5 mil people/$.5 billion - Somali authorities collaborated
with pirates – hijacked ships. Auctioned of EU visas – pirates as officials to EU
Food Aid
Real motives
Efficiency of spending
Impact on production in receiving country
Political leverage (donor and recipient)
Corruption
Political and social conflict
Government intervention and food security
Government intervention
Food security policy/strategy
Floor
Prices
Ceiling
Prices
Import
Control
Export
Food
Input
Control Reserves Support
Era of increased government involvement
Grain storage capacity seen as collective/strategic
UN Global Compact Project Team
Government intervention
Markets are sensitive – need confidence to develop – market can solve problems
if developed – careful how you intervene
Malawi case:
2012 crop – government buys at $180 and instruct private sector to do the same
Local/smaller companies bought at lower prices/foreign companies did not
Theoretical price – not enough finance for Gov agencies
Close borders for exports – end up with artificial low prices – local farmer under
pressure - will plant less next season
Withdraw export permits after private sector contracted
No market carry for stocks – private sector got out of positions
Currency MK164 = $1 to MK300 = $1 in 1 year
$ are not available for repatriation
Focus on other crops
Impact of Government intervention on markets
Zambian Government involvement
Input supply program/Food reserve program/ subsidised maize supplies
2012/13 planting season –
182 000 mt fertiliser and 9 000 mt maize seed = $150 mil
Bought 1mil mt of maize @ $265/mt = total $415 mil (19% over priced)
FRA selling at $225/mt (-$40/mt = total of $40 million – losses)
Volatility down 35%
Government also apply export bans - food security (700 000 mt + surplus)
Previous season – election year - more aggressive – volume and price
Market: No space for private sector/no market development
No price discovery system development/no hedging mechanism,
No natural integrated market development/consumer pay price/
Commercial production focuses on other crops
Government Intervention: Price transmission
Sensitivity of one market for another market = price transmission
Maize prices in eastern and southern Africa (FAO)
Government Intervention: Price transmission
Malawian markets are integrated but with a lag
Bangula is an exception (border)
4 month lag – government intervention/logistical limitations
FAO
Government Intervention: Price transmission
Integrated with international markets
Time lag = 6 months – RSA - government / infrastructure
Ndola = exception – border town
Price adjustment in maize markets in Zambia
Price adjustment in maize
markets in Malawi
FAO
Government intervention
Government intervention in markets – motivated by Food Security
is probably the darkest side of food security
Destroy or contaminate markets
Short to medium term focus with long term destruction
Many times politically driven
Resource distribution distorted
Economic value and long term prosperity destroyed
Role of expatriates in Africa
In light of a dwindling professional sector, African institutions are increasingly
dependent on foreign expertise. To fill the human resource gap created by
brain drain, Africa employs up to 150,000 expatriate professionals at a cost of
US$4 billion a year. 35% of total ODA to Africa is spent on expatriate professionals.
Food Security and your reputation
23 August 2012
We'll make a killing out of food crisis, Glencore trading boss
Chris Mahoney boasts
Drought is good for business, says world's largest commodities trading company
Aid Agencies, the UK and the UN attacked the company; Vatican called for a G20
emergency global food summit; Germany’s Commerzbank, Deutche Bank en Austria’s
Volksbanken removed agricultural products from some of their investment funds sensitive to accusations that speculation is pushing up prices
So what?
Understand government’s food security policy and philosophy
Develop warning signals to trigger protective actions
Develop alternative hedges ($ based commodities vs. exchange rate risk)
Business agility is important – change business model quickly
Understand aid programmes and tap into programmes to unlock value
Be visible especially through social involvement
Honour the regulatory environment
Unfortunately local influence/network is important
Food aid focuses on poor and hungry people – not ‘capitalists’ –
no mercy!
Remember - Food security and national interest justifies anything!