Globalization of the agri-food system and the poor in developing countriesDriving forces, consequences and policy implications

Globalization of the agri-food system
and the poor in developing countries
Driving forces, consequences and policy
implications

Joachim von Braun
International Food Policy Research Institute

2nd Willard W. Cochrane Lecture
Department of Applied Economics
University of Minnesota
November 15, 2006

IFPRI’s mission is “To provide policy solutions
that cut hunger and malnutrition”
Basics
• A public institution, part of CGIAR
• Staff of 260 (ca. 80 PhDs; from ca. 30 countries)
• Washington, Addis Ababa and New Delhi
• Budget: US$ 40 million (2006),
• Governed by an international board of trustees
• Six Divisions: Production & Environment;
Markets & Trade; Consumption & Nutrition;
Strategy & Governance; Capacity
Strengthening; and communications

Joachim von Braun, IFPRI, November 2006

Overview of presentation on
globalization of the agri-food system…

1. Global context
2. Key drivers
- Trade and FDI
- Demand
- ICT
- R&D
3. Growth and poverty
4. Policy implications


What is the “globalization of agri-food
systems”?

Global integration (across national
borders) of production and
consumption of food and agriculture

Joachim von Braun, IFPRI, November 2006 Source: von Braun and Diaz-Bonilla (2006, draft)

Elements of the Changing Global Context

• Globalization in trade and investment
• Spread and deepening of rule of law
• Decentralization of state control
• Rapid change of technology
• Accelerated migration
• Increased global health linkages

…are not separate trends but linked


Changing Global Food and Agriculture
Systems

• Growing role of retail industry
(super markets)
• Intensified rural-urban linkages
• Changing governance in global
natural resource use
• New technologies


The impact of globalization on the poor:
Contentious issue

Divergent assessment of globalization
and its effects due to different
 standards of assessment level
(aggregate vs. case-specific)
 temporal perspective (short-term vs.
long term trends)
 assessment of the functioning of
markets and other institutions


Overview

1. Global context
2. Key drivers
- Trade and FDI
- Demand
- ICT
- R&D
3. Growth and poverty


2. Drivers of Globalization of the
Agri-Food System

1. Trade and FDI
2. Demand and consumer behavior
3. ICT and information flows
4. Science in food and agriculture

and policies affecting the drivers (macro
frameworks, geo-political conflicts, aid,
governance, …)


Drivers:
(1) Trade and FDI and related policies

Agriculture trade policy: where to
with WTO Development Round?

FDI in agriculture


Surprise? No strong increase agricultural trade shares
Agriculture trade in percent of production

Export/Production 1960s 1970s 1980s 1990s 2000-02

Latin America and the Caribbean 23.6 24.7 24.5 26.7 31.4
Sub-Saharan Africa a 28.5 23 17.2 15.3 13.2
Asia Developing 5.4 5.7 6.4 6.4 6.4

All Three Regions 12.1 11.8 11.3 11 11.6

Import/Production 1960s 1970s 1980s 1990s 2000–02

Latin America and the Caribbean 6.7 8.6 11.2 14 15.7
Sub-Saharan Africa a 8.1 9.4 12.6 12.3 13.5
Asia Developing 7.1 7.7 9.2 8.9 8.8
All Three Regions 7.1 8 10 10.1 10.5

a Does not include South Africa.

Data source: World Bank, WDI 2005


But: Increased trade in processed and
high-value goods

40
Imports/production (%) exports/production (%)
35 Meat 45
30 Milk (no Butter) 40
Cereals 35
25
Vegetable Oils 30
20
25
15 20
10 15
10
5
5
0
0
1960s 1970s 1980s 1990s 2000–01 1960s 1970s 1980s 1990s 2000–01

Data source: based on data from FAOSTAT 2005


Surprise? Estimated welfare benefits of
trade liberalization: studies 1999 - 2006

Source: Bouët 2006a

WTO Doha negotiations: Scenarios with
MIRAGE/IFPRI CGE model
Developed Middle income Low-income
countries countries countries

Initial share in real world income 80 18.7 1.2

Basic scenario
Real income gain (billions of US$) 32 21.7 1

Share of real income gain (%) 58.5 39.6 1.9

Free LDC access to OECD
Real income gain (billions of US$) 38.9 23 7


Fewer sensitive/special products
Real income gain (billions of US$) 38.3 22.6 1.1


Source: Bouët 2006

Growing FDI to developing countries in the food and
agricultural sectors (% of world total), 1990 and 2003

1990
100
90
80
70
60
50
40
30
20
10
0

Agriculture, hunting, Food, beverages, and
forestry, and fishing tobacco
2003 Industrial countries
100
80
60 Developing countries
40
20
0
Agriculture, hunting, forestry, and Food, beverages, and tobacco
fishing

Source: based on data from UNCTAD 2004


Drivers (2) Demand and consumer behavior

• Changes in lifestyle, rising incomes & availability of
wider variety of food at cheaper prices

• Increased concern with food safety & environmental
impacts of food production processes

(1) Reorganization of food chain- Closer to
the consumer
(2) Stricter standards for food quality and
safety
(3) Monitoring and enforcement of
production methods

1-The corporate world food system, 2005

Consumers
Agricultural Food
input processors Food
industry Farms and traders retailers

top 10: $37 bln Agricultural top 10: $363 bln top 10:$777bln
value added:
• Syngenta $1,315 bln • Nestle • Wal-Mart
• Bayer • Cargill • Carrefour

$4.000 billion
• BASF 450 million • Unilever • Royal Ahold
• Monsanto >100 ha: 0.5% • Metro AG
• ADM
• DuPont • Kraft Foods • Tesco
< 2 ha: 85%

Source: von Braun 2005

Performance of the top 10 in the global
Agri-food business, 2004–2005
Percentage change of stock prices and in Agricultural GDP
Percent
80
70
70
60
50

40
30
22
20

10 3 -4
0
Agricultural inputs Food processors Agricultural GDP Food retailers
-10
and traders ('00-'03)

Source: based on stock market data, Wall Street Journal 2005 and WDI 2005


What future for the small farms?

Number of farms
Farm Size (ha) % of all farms
(millions)
<2 85 387
2 - 10 12 54
10 - 100 2.7 12
> 100 0.5 2
Total 100 455

The numbers still increase in Africa and diminish very slowly in Asia
Source: von Braun 2003,

The dynamics of linkages:
Between farms and food industries

Large retailers Fragmentation in
and Processors Consolidation of retail & farming
processing – FDI influence
(China: 40% retail growth
after FDI entry in 1992)

Emerging mutual
need for linkages

Shrinking
bottom Expanding
bottom:
Increasing share
of small holders

Forward pyramid: Farmers pyramid
Retailers/ processors
Joachim von Braun, IFPRI, November 2006 Source: Gulati 2005

But globalization of food markets is also
shaping consumers’ habits …

Failed “Nutrition transition” and
consumption habits:
• Poor quality diets among low income
groups rising rates of obesity & diet-
related chronic diseases
• high costs of healthy diets
• Information and demand habits


Drivers: (3) ICT and information flows

 Ongoing technological advances
 Privatization of national telecom.
monopolies in many developing
countries in 1980s and 1990s


Drivers: ICT Revolution

500
Fixed line and mobile phone subscribers
400 (Per 1,000 people)
300
200
100
0
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

150 Internet users
World (Per 1,000 people)
100 Low income
Middle income
50

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Data source: World Bank, WDI 2006

Information and
Communication
Technologies for
Development and
Poverty Reduction
The Potential of
Telecommunications

Edited by
Maximo Torero
Joachim von Braun

Johns Hopkins UP 2006

Drivers: ICT

Development of new services, for e.g.
exponential increase in cellular telephone
penetration
Faster & more efficient communication
Enhanced network building & greater
inclusion of individuals within networks

Results of macro-analysis: minimum
threshold of telecom density (around
24 percent) required for positive
growth effects

ICT and the poor

• Telephones annual growth, 1990–2003
- South Asia: 22 %
- Sub Saharan Africa: 17%
but access remains too low: 6% in 2003

• Net value for the rural poor of a phone call
- Peru: US$ 1.62
- Bangladesh: US$ 1.19

>Opportunities for linking small farmers to
markets (price and transactions cost cutting)
>Building the info-chain along the food chain

Source: Torero and von Braun 2005

Drivers:
(4) science in food and agriculture

Total global R&D spending:
1995: 562 bln$ 2000: 731 bln$
Dev. Countries 18% 22%
-----------------------------------------------------------
Total public agricultural R&D spending:
1995: 20 bln$ 2000: 23 bln$
Dev. Countries 47% 56%

---------------------------------------
$= in purchasing power parity
Source: Pardey et.al. IFPRI 2006


Global bi-furcation in agr. R&D

80 developing countries spend a total of 1.4 bln$
on agric R&D: 6% (of global)
China & India 22%
High income countries 44%

Toward agr. R&D orphans


A changing environment for innovation
Blocks to globalization of R&D
Introduction of patent rights for
agricultural inventions under TRIPS
agreement
Bio-safety regimes and reduced
exchange (e.g. genetic resources)
Technology spillover pathways to
developing countries for productivity
enhancement reduced
Source: Pardey et.al. IFPRI 2006


And: Global challenge of Climate change:
adaptation in low income countries needs R&D


Accelerated agricultural growth under globalization?

1962–1979 1980–2004

Africa, sub-Sahara 2.1 2.8

Asia 3.1 3.9
Latin Am. & Carib. 3.1 2.8

All developing 2.9 3.5
countries
Industrial countries 2.2 0.6

Sub-Sahara African agriculture growth needed for
economy wide growth and poverty reduction

Five year average of annual growth rates (in %)
GDP 1980-84 85-89 90-94 95-99 2000-04
Agriculture 0.1 4.5 1.1 4.5 3.5

Total GDP 1.7 2.6 0.6 3.5 3.8
Data source: World Bank 2006

Correlation between Ag and total GDP growth
remains strong in Africa

Poverty headcount ratio at $1 a day

Poverty headcount ratio at $1 a day (PPP) (% of
population)
70

60

50

40

30

20

10

0
1981 1984 1987 1990 1993 1996 1999 2001

East Asia & Pacific Europe & Central Asia
Latin America & Caribbean South Asia
Sub-Saharan Africa Middle East & North Africa

Joachim von Braun, IFPRI, November 2006 Source: World Bank 2005

Pro-Poor? in some countries growth has been
accompanied by increased poverty…

Out of 30 developing countries (recent world wide data),
 in 12 increased poverty with growth (e.g. Peru,
Uganda, Pakistan
 In 18 reduced poverty with growth

Why?
 Capital / Labor ratios down, returns to capital up
 Returns to unskilled labor down
 Governance and “capture” (exclusion)


Hunger in the developing world

Millions
900

824 815
797
800
Developing world

700

673
651
630
600
Developing world without China

500
1990 1995 2002

Data source: FAO 2005


Who is affected by hunger?

Urban poor
20%
Fishers, herders

Land less, rural Small Farmers
20% 50%

Source: UN Millennium Project, Hunger Task Force, 2005


Territory size based on the proportion
of underweight children that live there

Source: SASI Group (University of Sheffield) and Newman (University of Michigan) 2006


Sticky relation: hunger / income linkage
Undernourishment and GDP/Capita

Source: based on data from World Bank (2005) and FAO (2005)

Joachim von Braun, IFPRI, November 2006 But not in Africa

Bottom line

The potentials of globalization
have not been effectively translated
into poverty reduction and
reduction of bottom end poverty (hunger)
in particular


How to deal with the complexities /
interactions of the divers drivers?

1. Scenarios
2. Inclusion of risks (with probabilities)
and
3. Uncertainties (with subjective expert
panel assessments)

Endogenous and exogenous issues
Families of models


IFPRI global IMPACT Model Scenarios:
Risks and Opportunities 2015 & beyond

Progressive Policy Actions Scenario:
New Focus on Agricultural Growth and
Rural Development, Human Resources
Policy Failure Scenario:
Trade and Political Conflict, rise in
protectionism worldwide
Technology and Resource Management
Failure Scenario:
Adverse technology/natural resource
interactions

Per capita daily availability of calories in
developing countries

Progressive Policy Actions
3,700

Policy Failure
3,500

Technology and Resource
3,300 Management Failure
kcal/capita/day

3,100

2,900

2,700

2,500
1997 2015 2030 2050

Source: IFPRI IMPACT projections (September 2004)

Three Scenarios to 2050:
Undernourished Children, Sub-Saharan
Africa
50

45

40

35
Million children

30
Progressive Policy
25 Actions

20 Policy Failure

15
Technology and
10 Resource
Management Failure
5

0
1997 2015 2030 2050

Source: IFPRI IMPACT projections (September 2004)

Overview

1. Global context
2. Key drivers
- Trade and FDI
- Demand
- ICT
- R&D
3. Agric. growth and poverty


Policy implications for pro-poor outcomes:
International development policies
1. Promoting global peace, and security
2. Global trade policy (market access)
3. Facilitation of capital and aid flows
4. Support of decentralized governance
5. Broad based development in rural
areas, where the poor are
(infrastructure, and technologies)
6. Safety nets for vulnerable
populations


Globalization of the agri-food system and the poor in developing countriesDriving forces, consequences and policy implications

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