Globalization of Food and Agriculture and the Poor: Driving Forces, Consequences and Policy Implications

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Published on August 17, 2009

Author: jvonbraun

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A Millennium Lecture at the
Hindu Media Resource Center of
MS Swaminathan Research Foundation,
Chennai, India, August 22, 2007

Globalization of Food and Agriculture and the Poor: Driving forces, Consequences and Policy Implications Joachim von Braun International Food Policy Research Institute A Millennium Lecture at the Hindu Media Resource Center of MS Swaminathan Research Foundation, Chennai, India, August 22, 2007

Overview 1. Issues and conceptual framework 2. Drivers of agriculture and food related globalization and impacts on the poor 3. Policy and research implications

Context of global change around food and agriculture 1. Global economy‟s fast growth 2. Energy price and climate change 3. Health risks and agriculture 4. breakthroughs in science and technology 5. Urban/rural change & migration 6. Governance and decentralization a mix of opportunities and risks for the poor in “globalization”

The problem with the globalization debates Divisiveness between the two globalization views: 1] economic-lens approach, narrowly focused 2] unfocused systems approach, neglecting opportunities and both have particularly distorted and dogmatic perspectives around agriculture – food – poverty linkages

What is “globalization” of agriculture and food? A technical definition: Global integration—across national borders—of production, processing, marketing, retailing, and consumption of agriculture and food items

And what are the links to poverty? Need for a conceptual framework that connects globalization drivers to well being at different levels… • Global • National and state • Community and household …to facilitate action

Conceptual framework: drivers and examples of actions at different levels MARKETS INVESTMENT INFORMATION SOCIAL & & POLICY CAPITAL INNOVATION FLOWS Exogenous factors DOMESTIC GLOBALIZATION Increased Improved ICTs Aid; LEVEL I access to Expansion human outputs, Innovation & of FDI right to inputs, IPR food labor Competition Technology policy LEVEL II POLICY policy Pro-poor Market social opening Political & Public R&D actions institutional investments changes RIGHTS HOUSEHOLDS LEVEL III PRICES EMPLOYMENT HOUSEHOLD CONSUMPTION PRODUCTION ENDOWMENTS Source: von Braun, 2007

The slow changes in poverty • Slow reduction in income poverty • Increased vulnerabilities • Stagnation in nutrition improvements • Growing in-equities despite of of massive expansions of opportunities under globalization

Mixed Evidence: Poverty headcount ratio at $1 and $2 a day (PPP) as % of total population Share of people living on less than $2 a day (% of population) Share of people living on less than $1 a day (% of population) 100 70 90 80 60 70 50 60 40 50 30 40 30 20 20 10 10 0 0 1981 1984 1987 1990 1993 1996 1999 2002 1981 1984 1987 1990 1993 1996 1999 2002 East Asia & Pacific Europe & Central Asia East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa South Asia Sub-Saharan Africa Source: Based on data from the 2006 WDI database Note: 2002 data are preliminary

Poor and ultra poor in Asia 2004 and percent in South Asia 1$ - .75$/day: 372 million (71%) .75$ - .50$/day: 213 million (77%) Below .50$/day: 29 million (70%) Source: Akhter Ahmend et.al. IFPRI, 2007

Towards urbanization of poverty? Urban and rural share of the poor (%) 1993 2002 18.88 24.67 75.33 81.13 urban share of the poor (%) rural share of the poor (%) Source: Ravallion et al., 2007 Note: Poverty line is set at $1.08/day

Regional Hunger Trends 45 40.3 40 GH I 1981 35 GH I 1992 32 GH I 1997 30 27.9 27.3 27 26.6 GH I 2003 25.4 25.1 25 22.5 20 15.1 15 12.6 11.9 10.9 11.4 9.4 8.4 8.0 7.9 10 7.5 6.6 6.0 5.6 5 0 Sub-Saharan So uth A sia So utheast N ear East & Latin A merica Eastern A frica A sia N o rth A frica & C aribbean Euro pe & F o rmer So viet Unio n Source: Wiesmann, 2006

Overview 1. Issues and conceptual framework 2. Drivers of agriculture and food related globalization and impacts on the poor 3. Policy and research implications

1) Markets and trade

1. Trade: Stagnation of developing countries‟ export shares, more global integration on the import side 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 11.0 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 8.0 10.0 10.1 10.5 a Does not include South Africa. Data source: World Bank, WDI 2005

Regional trade trends Agriculture trade in percent of total merchandise trade Agr. Exports/Total Merchandize 1980 1990 2000 2003 Latin America and Caribbean 27.8 26.1 17.4 20.6 Sub-Saharan Africa a 19.8 20.0 15.2 16.9 East and Southeast Asia 13.3 7.7 3.7 3.8 South Asia 33.8 18.6 10.8 10.6 Agr. Imports/Total Merchandise 1980 1990 2000 2003 Latin America and Caribbean 11.6 12.3 9.0 10.3 Sub-Saharan Africa a 15.4 16.3 17.1 17.9 East and Southeast Asia 14.2 8.0 4.8 4.7 South Asia 13.8 10.3 9.3 9.3 Data source: FAO, 2004; Note: a Does not include South Africa

But: global increased trade in processed and high-value goods World export value (billions of US$) 100 90 Coarse Grains 80 Fruits & vegetables 70 Meat 60 Milk 50 40 30 20 10 0 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Data source: based on data from FAOSTAT 2006

Small farms and small businesses can participate +25 jobs From a 2 ha. rice farm to fruit processing firm in Uttar Pradesh: training (her), banking was key; and the road

Estimations of welfare benefits of trade liberalization: studies 1999 - 2006 Source: Bouët, IFPRI, 2006

Two emerging global agro - markets • Biofuels • Carbon trading Both entail opportunities and risks for the poor‟s food security Both require scaling up of R&D, incl. bio- technology, to facilitate food security of the poor and protection of resources

The biofuels boom World ethanol and bio-diesel production, 1975-2005 40 35 4.0 30 3.5 Billion liters 25 3.0 Billion litres 20 2.5 15 2.0 10 1.5 1.0 5 0.5 0 0.0 1975 1980 1985 1990 1995 2000 2005 1991 1993 1995 1997 1999 2001 2003 2005 Ethanol > 90% of biofuel production; Bio-diesel: EU is the largest Brazil & US dominate ethanol market producer & consumer Source: Worldwatch Institute, 2006

Plans annual growth in biofuel production …2010/12 • Ethanol: Biodiesel: - USA: 16% USA: 19% - EU: 45% EU: 37% - Brazil: 8% Malaysia: 248% - India: 15% Indonesia: 143% - China: 3% Thailand: 70% Source: USDA, 2006; 2007

Biofuels change the world food equation Biofuel expansion will… • accelerate globalization of agriculture • raise land values, thereby draw capital into rural areas • create some jobs • increase food prizes

Prices: Agricultural and energy prices increasingly correlate 500 Corn 70 450 Rice 60 Sugar 400 Oil seeds 350 50 Crude oil (right) 300 40 250 30 200 150 20 100 10 50 0 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 …and price variations are up Source: IMF, 2007; OECD, 2005; World Bank, 2007

Carbon markets and Clean Dev. Mechanism Allowances: 2005: 7.9 Bill. $ 2006: 24.6 Bill. $ Project based 2005: 2.9 Bill.$ 2006: 5.5 Bill.$ Agriculture only 1% of CDM offsets Developing countries about 10% of CDM Challenge: inclusion of the poor in this emerging market

2) Investment & capital flows

Drivers: (2) Investment and capital flows 1990 Industrial countries Developing countries FDI in food and Agriculture 100 80 as % of world total FDI 60 1990 and 2004 40 20 0 Agriculture, hunting, Food, beverages and 2004 forestry and fishing tobacco Industrial countries Developing countries Transition countries 100 80 60 40 20 0 Agriculture, hunting, Food, beverages and forestry and fishing tobacco Source: based on data from UNCTAD, 2004

Poverty effects: FDI FDI Labor Intensive Capital / Knowledge Sector Intensive Sector Unskilled labor Skilled labor Reduced Increased Poverty Poverty • Other: Economic growth through forward and backward linkages + knowledge spillovers; • government revenue from corporate taxes for pro-poor investments Vietnam: FDI in rural areas, direct impact on poverty insignificant (Nguyen, 2003) Source: von Braun (2007)

3) Information & innovation

Drivers: 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, 2006

Poverty effects: ICT (macro-level results) • ICTs reduce transaction costs + open markets + additional network externalities • Tele-density is positively associated with growth: - 10 more mobiles per 100 people increase GDP p.c. by 0.6% (Wavermann et. al., 2004) - Minimum threshold: around 15% to get strongest growth effects, actual is only 6% Torero and von Braun, 2006

Science and technology • Rapid expansion of R&D spending needed for agriculture • CGIAR and new global networks to play key roles

Global Public Agricultural R&D: 1981 and 2000 1981 2000 $15.2 billion* $23.0 billion* 100% Middle East-North Africa Latin America-Caribbean 80% Other Asia-Pacific 60% India China 40% Sub-Saharan Africa Developed 20% 0% * in 2000 international prices

A changing environment for innovation • 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 - Less global public goods research when we need more of it (climate, etc.)

Relative roles of drivers? • Markets and trade ? • Investment ? • Information and innovation ? Strong demand (growth) forces change the global food system combined with Institutional and organizational changes

The „corporate‟ global food system 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

3. Policy implications for pro-poor globalization: what can be done? 1. Domestic: the need for complementary domestic policies in developing countries to benefit from globalization 2. International: the responsibility in shaping the operation of a pro-poor world economy in general and the agriculture and food system in particular

Re 1. national policies for pro-poor globalization • Peace and security • Macro-economic policy • Inclusion of the poor into the agri-food value chain • Enhancing the agricultural innovation systems, R&D and education • Public investment in rural areas, where the poor are (ICT, and infrastructure) • Social protection, nutrition and health improvement

Re 2. international policies for pro-poor globalization • Global governance architecture of the food system • Global trade policy reform • International capital and aid flows • Employment and social policies • Global agriculture innovation and technology and environmental policy

A positive future for globalism with a “values-based” approach 1. Overcoming divisiveness, between the two globalization views: 1] narrowly focused economic lens, and 2] unfocused systems approach 2. recognition of interconnectedness of global issues (poverty, environment, migration, trade, failing states, terrorism, infectious disease, political tensions) 3. commitment to international laws and institutions and to domestic responsibilities

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