83978 Food Price Watch YEAR 4 • ISSUE 14 • JULY 2013 Prices of internationally traded food have declined for the third consecutive quarter since their historical peak in August 2012. Increased production, declining demand from large importers, and increasing stocks are exerting downward pressures on international prices, but global markets continue to be tight for maize. Prices remain high with recent price increases in May and June. Uncertainties surrounding weather conditions and domestic policy decisions among key producers warrant close scrutiny. Domestic prices have generally followed seasonal trends, but wide variations remain. Large increases in domestic prices between February and June 2013 are due to unfavorable weather conditions, dwindling supplies, currency devaluations, and large public purchases. In addition, consumer price subsidies, far from being a thing of the past, continue to be used despite their past record of meager benefits to the poor, high fiscal costs, corruption episodes, and questionable nutritional effects. Global Price Trends The prices of internationally traded food commodities Figure 1. World Bank Global Food Price Index declined between February and June 2013 (figure 1). The 300 World Bank’s Food Price Index decreased by 2% between those months,1 with sustained month-to-month declines 250 from February to May. Prices in May went up by more than 2% and up-ticked in June. The Bank’s Food Price Index in 200 June remains 12% below the recent all-time peak in August 2012, but is only 2% lower than a year ago. 150 Prices of all the three main food categories declined 100 between February and June 2013. Prices of grains in June were 2% lower than in February; 3% lower in the case of 50 food grains fats and oils; and 1% lower for others, which include sugar fats & oils other food and meat, among others (see table 1). 0 2000M01 2000M09 2001M05 2002M01 2002M09 2003M05 2004M01 2004M09 2005M05 2006M01 2006M09 2007M05 2008M01 2008M09 2009M05 2010M01 2010M09 2011M05 2012M01 2012M09 2013M05 However, the food prices of key commodities followed different behaviors in this period. The price of internationally traded wheat dropped by 2%, after Source: World Bank DECPG. sustaining five consecutive monthly declines from Note: The Global Food Price Index weighs export prices of a variety of food commodities around the world in nominal U.S. dollar prices, 2005=100. December 2012 until its strong increase in May 2013. In June, wheat prices fell again, undoing May’s increases. In Food Price Watch, produced by the Poverty Reduction and Equity Group at the World Bank, is a series that aims at drawing attention to trends in domestic food prices in low- and middle-income countries and their policy implications. Contact: José Cuesta (jcuesta@worldbank.org) Table 1. Price Change of Key Food Commodities United States (due to the significant expansion of Feb 2013– June 2012– plantings), China, Europe, Brazil, and Argentina.4 Notable Indices June 2013 (%) June 2013 (%) increases in the use of maize for ethanol in the United Food -2 -2 States (after two years of consecutive reductions);5 higher demand from major importers such as the Arab Republic Grains -2 5 of Egypt, Japan, and China;6 and increasing public Fats and oils -3 -6 stockholding in large producers (such as China and Brazil)7 Other -1 -4 have all contributed to recent price increases. Inventories Fertilizers -8 -15 are not expected to increase until 2014, which indicates Prices that international maize markets remain tight. Maize -1 12 Rice prices continued to decrease moderately from a Rice (Thai, 5%) -4 -10 combination of offsetting factors. Downward price Wheat (U.S., HRW) -2 13 pressures from good harvests in Thailand and Vietnam Sugar (world) -6 -16 counteracted upward pressures from increasing demand Soybean oil -11 -12 and thinner supplies in India, Pakistan (both also associated with increasing public procurement),8 the United States, Crude oil, average -7 10 and South America. Despite the increasing demand from Source: World Bank, DECPG. China, overall import demand is weakening due to reduced purchases from Indonesia, the Philippines, and Nigeria (all contrast, the international price of maize followed a with improved domestic supplies). The large public pattern of subsequent increases and decreases from purchases by the Thai government have kept Thai export February to June, ending some 1% below its February level. rice prices high and prevented the country from recovering The price of rice (Thai 5%) has sustained monthly decreases its recently lost world’s top rice exporter designation. and stands 4% below February levels.2 Sustained declines “Bulging inventories”9 in Thailand, China, and India were also observed between February and June 2013 for translate into comfortable world-level inventories, the international prices of crude oil and fertilizers, by 8 estimated to exceed 35% in 2013. and 7%, respectively. The price of crude oil has dropped Yet caution is warranted going forward. Recently just below US$100 per barrel (Bank’s crude oil average). unfavorable weather conditions in northern and central Improved weather conditions and weaker imports are Europe, the Russian Federation, and China may affect the behind price declines in this quarter. Current prices of prospects of a rebound in world wheat production.10 There wheat reflect expectations that world production will are concerns about the extent of the planting expansion rebound this year from last year’s declines, which were the officially announced for U.S. maize, which also relies on result of the U.S. drought and dry weather elsewhere. assumptions of favorable weather conditions.11 Due to its Good harvests are expected from major producers such as late planting, the U.S. maize harvest will undergo its most Australia, Europe, the Black Sea region, and China because sensitive phase over a much reduced period of time, of favorable weather and increased plantings. Interestingly, making it very vulnerable to hot and dry weather during Chinese wheat production has increased not only as a that period.12 In addition, there are a number of result of favorable weather, but also because of an increase uncertainties surrounding policy decisions. The fear of a in subsidized inputs including seeds, fertilizers, and fuel.3 vast release of public stocks of Thai rice has been linked to The United States is the exception among major producers; the removal of the minimum export price in Vietnam.13 its output for the spring wheat is set to decrease as a result Moreover, the Thai government stunned markets in June of slow plantings in May. Good harvests, increasing stocks, by announcing a reduction of the guaranteed price to and declining imports—except in China—are also reported farmers by some 20%, and then back-stepping on its in large importer countries in the Middle East and North decision two weeks later.14 In India, the government Africa, further contributing to the easing in international recently approved the sale of 10 million metric tons of markets. wheat (and 500,000 tons of rice) to domestic markets, as Maize production is expected to reach a new record uncertainty mounts on the expansion of the subsidized high this year, with substantial increases expected in the rice distribution program, which might potentially affect POVERTY REDUCTION & EQUITY GROUP • WWW.WORLDBANK.ORG/POVERTY POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP 2 India’s export supplies.15 The political turmoil and dire (Baidoa) and around 30% in Bolivia (La Paz) and Rwanda economic situation in Egypt may also have consequences (Kigali), all related to seasonal trends and reduced harvests on the international demand and prices of wheat: wheat from unfavorable weather. Decreases in maize prices imports in Egypt, the world’s top wheat importer, are reached 38% in markets in Tanzania and exceeded 30% in critical for the country’s political stability because they monitored markets in Malawi and Mozambique due to contribute to the massive subsidized bread program.16 On seasonal trends. Between February 2013 and June 2013, a more positive note, there are no changes foreseen in oil rice prices increased by 46% in certain markets in Bolivia markets: the World Bank’s “Commodity Markets due to sharp declines in production caused by a drought Outlook”17 reports that oil demand growth remains weak, early in the year. Substantial increases were also observed crude stocks are high, and the Organization of Petroleum in monitored markets in Somalia, Rwanda, India, and Exporting Countries (OPEC) is unlikely to change Pakistan.23 The largest declines in the price of rice took production policy given current economic conditions. place in markets in Thailand (6%, due to good harvests), the Democratic Republic of Congo (10%), Uganda (14%), Domestic Price Trends and Tanzania (23%). Domestic price variations between June 2012 and Domestic prices of grains have generally followed seasonal June 2013 show the usual wide range in yearly prices. patterns across regions. Prices of staples in western, eastern, The price of wheat in June 2013 was 95% higher than 12 and southern Africa have typically stabilized or decreased months ago in El Salvador (San Salvador), reflecting due to improved food availability from current and/or last increased imports and market structure, and 50% higher year’s good harvests, with the important exceptions of in Sudan (Khartoum), 48% higher in Belarus (national Nigeria and South Africa.18 In Central America and the average), and 43% higher in Moldova (Chisnau). Annual Caribbean, prices of beans and maize have followed seasonal price increases ranging between 30 and 40% were also trends, with the price of maize strengthening as supplies observed in markets across Tajikistan, the Kyrgyz from last year’s harvests dwindle. As bumper crops are being Republic, and Bolivia.24 For those markets for which harvested in South America, prices of maize are generally information is available, the capital cities in Mauritania declining.19 Prices have also declined in Central Asia, and Colombia and monitored markets in Ethiopia report reflecting good prospects for wheat production in the region decreases in the domestic price of wheat between 7 and and the beginning of the 2013 winter harvest. In East and 20%, mainly due to larger supplies. Large increases in the South Asia, prices of rice have remained relatively stable annual price of maize have occurred in some monitored from offsetting pressures: downward pressure from markets in Malawi (Liwonde, 135%) due to high inflation abundant supplies and upward pressure from increasing and currency devaluation, and in markets in Mozambique domestic public procurement schemes. The high level of (Milange, 62%), Nicaragua, and Haiti (52 and 43%, exports in some exporting countries has also exerted respectively) as a result of production shortages, pressure on domestic prices.20 increasing import prices, transportation costs, and Between February 2013 and June 2013, the largest currency depreciation. Sharp increases also occurred in wheat price increases (table 2) took place across monitored Bolivia and the Russian Federation (48 and 37%, national markets in India (25%),21 Ethiopia (19%) and Sudan (14%), average increases). The price of maize went down in the and in the capital cities of Bolivia and Nepal (13 and 9%, last year across certain markets in Togo, Kenya, Chad, and respectively), due to several reasons ranging from Uganda (between 28 and 38%) because of good supplies, procurement policies to seasonal trends, low supplies, and and in Uganda because of reduced export pressures.25 currency depreciation. In contrast, double-digit wheat The price of rice increased in monitored domestic price reductions were observed in markets in the markets in Bolivia (53%), Mexico (36%),26 India (31%),27 Democratic Republic of Congo, Colombia and Afghanistan Brazil (29%) and Haiti (22%), influenced by unfavorable (between 10 and 15%), associated with seasonal factors harvests, high import prices, and currency depreciation. and reduced prices of imports.22 Domestic maize prices In contrast, the annual rice price went down between 15 have varied more markedly, with increases of 52% in and 25% in the capital cities of Chad, Thailand, Tanzania, monitored markets in the producing south of Somalia and Somalia. POVERTY REDUCTION & EQUITY GROUP • WWW.WORLDBANK.ORG/POVERTY POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP 3 Table 2. Largest Variations in Domestic Prices Quarterly Price Movements: February 2013 – June 2013 % % Wheat Maize change change India, Patna, retail (Indian rupee/kg) 25 Somalia, Baidoa, white, retail (Somali shilling/kg) 52 Ethiopia, Debre Marcos, white, wholesale (Ethiopian birr/local) 19 Bolivia, La Paz, hard yellow, cubano, wholesale (boliviano/local) 33 Sudan, Kadugli, wholesale (Sudanese pound/local) 14 Rwanda, Kigali, wholesale (US$/ton) 27 Bolivia, La Paz, flour, imported, Argentina, wholesale (boliviano/ 13 Ethiopia, Mekele, wholesale (Ethiopian birr/local) 23 local) Nepal, Kathmandu, flour, retail (Nepalese rupee/kg) 9 Honduras, Tegucigalpa, white, wholesale (US$/kg) 20 Russian Fed., natl. avg., flour (high grade), retail (Russian ruble/ 5 Uganda, Lira, wholesale (US$/ton) -14 kg) South Africa, Randfontein, wholesale (rand/ton) 3 Brazil, natl. avg., yellow, wholesale (Brazilian real/kg) -20 Dem. Rep. of Congo, Kinshasa, flour, retail (CGF/kg) -10 Mozambique, Nampula, white, retail (metical/kg) -32 Colombia, Bogotá, flour, wholesale (Colombian peso/kg) -12 Malawi, Nsanje, retail (kwacha/kg) -37 Kyrgyzstan, Osh, flour (first grade), retail (som/kg) -13 United Rep. of Tanzania, Dar es Salaam, wholesale (US$/ton) -38 Afghanistan, Kabul, flour, retail (Afghani/kg) -15 % % Rice Sorghum change change Bolivia, Cochabamba, grano de oro, wholesale (boliviano/local) 46 Somalia, Baidoa, red, retail (Somali shilling/kg) 52 Somalia, Belet Weyne, imported, retail (Somali shilling/kg) 25 Togo, Anie, retail (CFA franc/kg) 47 Rwanda, Kigali, wholesale (US$/ton) 21 Nigeria, Kano, wholesale (naira/local) 27 India, Patna, retail (Indian rupee/kg) 18 El Salvador, San Salvador, Maicillo, wholesale (US$/local) 20 Pakistan, Karachi, basmati, retail (Pakistan rupee/kg) 15 Ethiopia, Addis Ababa, white, wholesale (US$/kg) 16 Thailand, Bangkok, 5% broken, wholesale (baht/ton) -6 Niger, Dosso, local, wholesale (CFA franc/local) 15 Cape Verde, S.Vincente, long grain, imported, retail (escudo/kg) -7 Sudan, Dongola, Feterita, wholesale (Sudanese pound/local) -4 Dem. Rep. of Congo, Kinshasa, imported, retail (CGF/kg) -10 Chad, Abeche, retail, (CFA franc/kg) -14 Uganda, Kampala, wholesale (US$/ton) -14 Burkina Faso, Ouagadougou, wholesale (CFA franc/local) -16 United Rep. of Tanzania, Dar es Salaam, wholesale (US$/ton) -23 Mali, Sikasso, wholesale (CFA franc/local) -22 Annual Price Movements: June 2012 – June 2013 % % Wheat Maize change change El Salvador, San Salvador, flour, wholesale (US$/local) 95 Malawi, Liwonde, retail (kwacha/kg) 135 Sudan, Khartoum, wholesale (Sudanese pound/local) 50 Mozambique, Milange, white, retail (metical/kg) 62 Belarus, natl. avg., flour, retail (Belarussian ruble/kg) 48 Nicaragua, natl. avg., white, wholesale (cordoba oro/kg) 52 Moldova, Chisinau, retail (Moldovan leu/kg) 43 Bolivia, Cochabamba, hard yellow, cubano, wholesale (boliviano/ 48 local) Bolivia, La Paz, flour, imported, Argentina, wholesale (boliviano/ 42 Haiti, Port-au-Prince, meal (local), retail (gourde/local) 43 local) Kyrgyzstan, Jalal-Abad, flour (first grade), retail (som/kg) 40 Russian Fed., natl. avg., offer EXW, wholesale (Russian ruble/ 37 kg) Tajikistan, natl. avg., flour (first grade), retail (somoni/kg) 37 Togo, Amegnran, white, retail (CFA franc/kg) -28 Mauritania, Nouakchott, retail (ouguiya/kg) -7 Kenya, Kisumu, wholesale (US$/ton) -29 Colombia, Bogotá, flour, wholesale (Colombian peso/kg) -13 Chad, Moussoro, retail (CFA franc/kg) -33 Ethiopia, Shashemene, white, wholesale (Ethiopian birr/local) -20 Uganda, Lira, wholesale (US$/ton) -38 table continues on next page POVERTY REDUCTION & EQUITY GROUP • WWW.WORLDBANK.ORG/POVERTY POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP 4 Table 2. Largest Variations in Domestic Prices, continued % % Rice Sorghum change change Bolivia, Cochabamba, grano de oro, wholesale (boliviano/local) 53 Togo, Korbongou, retail (CFA franc/kg) 39 Mexico, Mexico City, morelos, wholesale (Mexican peso/kg) 36 Nigeria, Kano, wholesale (naira/local) 23 India, Chennai, retail (Indian rupee/kg) 31 Lesotho, Maseru, meal, retail (loti/kg) 17 Brazil, natl. avg., paddy, wholesale (Brazilian real/kg) 29 Niger, Maradi, wholesale (CFA franc/local) 14 Haiti, Port-au-Prince, imported, retail (gourde/local) 22 Haiti, Port-au-Prince, retail (gourde/local) 11 Chad, N’Djamena, imported, retail, (CFA franc/kg) -15 Sudan, Al-Fashir, Feterita, wholesale (Sudanese pound/local) -21 Thailand, Bangkok, 5% broken, wholesale (baht/ton) -15 Somalia, Baidoa, red, retail (Somali shilling/kg) -26 Niger, Agadez, imported, wholesale (CFA franc/local) -18 Burkina Faso, Ouagadougou, wholesale (CFA franc/local) -33 United Rep. of Tanzania, Dar es Salaam, wholesale (US$/ton) -21 Mali, Bamako, wholesale (CFA franc/local) -44 Somalia, Mogadishu, imported, retail (Somali shilling/kg) -25 Chad, Abeche, retail (CFA franc/kg) -50 Source: Food and Agriculture Organization (FAO) and Global Information and Early Warning System (GIEWS). Note: Currencies as originally reported by FAO. Food Consumer Subsidies across several transfer schemes: food subsidies—mostly universal and self-targeted—performed the worst compared Recent announcements by the governments of India, to other forms of transfers, including food rations, food Indonesia, and Benin regarding the extension of subsidized stamps, cash transfers, nonfood subsidies, and public food programs indicate that these subsidies are not a thing of works.32 Country-specific estimates also confirm that the the past (between the 1950s and 1970s, developing share of benefits from food subsidies reaching the poor is a countries used universal food subsidies as major components fraction of total benefits. Figure 2 reports those shares for of poverty alleviation strategies).28 Rising food prices and three countries, Burkina Faso, Egypt and the Philippines recurrent price spikes have revived their popularity, as (although its program has sharply declined in the last five countries with high poverty and weak safety nets are scaling years);33 in these countries, the poor typically benefit from up subsidized food programs.29 Box 1 describes the recent less than 20% of the total subsidy. debate around India’s National Food Security Act. Yet, the long-held consensus regarding food Figure 2. Share of Food Subsidy Benefits Accruing to the consumer subsidies—along with electricity and Poor, Selected Countries fuel subsidies—is that, unless properly targeted, 100 these subsidies are not effective in helping the 78.6 80 83.8 poor and may distort market prices and 82.9 83.3 80.8 agriculture production as well as entail a hefty 60 percent fiscal bill.30 A few figures for the Middle East 40 and North Africa region—the region most 20 dependent on generalized subsidies, including 21.4 16.2 19.2 17.1 16.7 food, electricity, and fuel—illustrate the harmful 0 equity and fiscal implications of consumer rice all rice baladi rice bread subsidies. According to International Monetary Fund (IMF) estimates, just 35% of the amount Burkina Faso Egypt, Arab Rep. of Philippines spent to subsidize food prices reaches the % beneficiaries: poor % beneficiaries: nonpoor poverty incidence bottom 40% of the population (20% in the case Source: Burkina Faso (2008 data): J. Arze del Granado and I. Adenauer, “Burkina Faso—Policies to Protect the of fuel subsidies), compared with 50–75% Poor from the Impact of Food and Energy Price Increases,” IMF Working Paper WP/11/202 (2011). Philippines (2008–9 data): S. Jha and B. Ramaswami “How Can Food Subsidies Work Better? Answers from India and the accruing to the bottom 40% for well-designed Philippines,” Asian Development Bank Economics Working Paper Series No. 221, September (2010). Egypt (2008 cash transfers.31 These estimates support data): World Bank, “Egypt’s Food Subsidies: Benefit Incidence and Leakages,” September (2010). Note: “All’ refers to exempted products from taxes, which constitutes an implicit subsidy, and includes rice, previous evidence in other regions that food vegetable oil, salt, milk, pasta, and soap. Estimates for Burkina Faso and Egypt report benefits accruing to the poor subsidies are, on average, the most regressive from budgeted incomes transfers to households through the subsidy; in the case of the Philippines, estimates include higher prices and illegally diverted food from the program in addition to budgetary allocations. POVERTY REDUCTION & EQUITY GROUP • WWW.WORLDBANK.ORG/POVERTY POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP 5 Food subsidies represent about 0.7% of the regional and nutrients among pregnant and postnatal women, but gross domestic product (GDP) of the Middle East and not among men and adults.38 Although evidence is scarce North Africa, or US$22 billion annually. When electricity and inconclusive so far,39 some argue that food subsidy and fuel subsidies are included, the share of GDP spent on programs that fail to adequately account for food quality consumer subsidies rises to a whopping 7%, a total spending end up subsidizing products like sodas and high-calorie, of US$212 billion a year.34 In countries like Egypt, Jordan less nutritious foods, therefore unintentionally and Morocco, food subsidies alone represent between 1.2 contributing to obesity.40 and 1.8% of GDP, considerably above the resources spent Poorly designed food subsidies that lack transparency, on such subsidies in most of the rest of the world.35 accountability, and promotion of healthy foods most likely Recently, food consumer subsidies have been linked to will fail to sustain positive effects on either nutrition, corruption incidences and disappointing nutritional inequality or growth, and instead could take resources away outcomes. Pilferage in schemes that distribute grains with from more productive uses and threaten macroeconomic little public information on inputs and scarce “voice” stability. Technologies that improve targeting, public among communities may represent up to 50 or 70% of the information, and accountability; reliance on existing safety allocated subsidized food.36 In nutritional terms, a few nets; and sensible compensation interventions have been recent analyses in Asia have shown that the introduction or components of successful food subsidy reforms in Gabon, scaling up of staple subsidies do not necessarily lead to Ghana, Indonesia and Jordan, as reported by the IMF.41 improvements in nutrition. This is either because of low Even though such measures also bear a fiscal cost, they are take-up of the program or because beneficiaries (including long-run investments in smart subsidies. The alternative is the poor) substitute away their staples for tastier but less disheartening: the estimated fiscal bill of continuing the nutritious foods.37 In the United States, food subsidies food subsidies in the Middle East and North Africa region have been shown to increase the intake of intended foods through 2030 roughly doubles the estimated US$125 Box 1. The Current Debate of Food Consumer Subsidies in India The National Food Security Act 2013 (still to be approved by the Indian Parliament at the time of this Food Price Watch) will guarantee cheap supplies to a widened set of the population: 75% of the rural and 50% of the urban population will be entitled each month to 5 kilograms of rice, wheat, and coarse grains at fixed nominal prices of 3, 2 and 1 rupee per kilogram (or US5¢, US3¢, and US2¢), respectively.a Such a program would roughly represent about 25% of the annual production of grains in India.b The program is currently under intense debate in India.c Those against the program highlight prevailing targeting deficiencies in the Public Distribution System in charge of operationalizing the distribution of subsidized food to the poor; the existence of already more comprehensive and inclusive food programs in other states; the automatic exclusion of beneficiaries in rural and urban areas against the principle of right to food; and, ultimately, the conviction that the bill is only a fraction of what is required to deal with nutrition problems in the country. Those supporting the bill argue that it will precisely improve targeting by further prioritizing those who need it the most and will make good use of current huge grain stocks and a distribution system already in place that reaches remote and poor villages typically outside the scope of alternative options (such as, for example, a hypothetical cash transfer program operationalized by banks). Advocates also underscore the additional steps taken by the act in terms of entitling pregnant women and lactating mothers, children under six, and school-age children with maternity benefits, nutritious foods (cooked meals or take home rations) and cooked mid-day meals, respectively, free of charge. Furthermore, they argue that examples of successful programs in other states show that the Public Distribution System is improving and could improve further with additional reforms on transparency and management practices. a. The National Food Security Bill 2013, http://www.thehindu.com/news/resources/national-food-security-bill-2013/article4538647. b. This rate is in line with the historical rates of public procurement of grains between 20 and 25%, reported by A. Gulati, J. Gujral, T. Nandakumar with S. Jain, S. Anand, S. Rath, and P. Joshi, “National Food Security Bill Challenges and Options,” Discussion Paper No. 2, Commission for Agricultural Costs and Prices, Department of Agriculture & Cooperation, Ministry of Agriculture, Government of India, New Delhi, December 2012. c. J. Dreze, “The Food Security Debate in India,” The New York Times, July 9, 2013; R. Khera, “Revival of the Public Distribution System: Evidence and Explanations,” Economic and Political Weekly 46 (Nos. 44 and 45): 36–50, November 5, 2011; Himanshu and A. Sen “Why Not a Universal Food Security Legislation?” Economic and Political Weekly 46 (12): 38–27; March 19, 2011; and multiple articles in favor and against the bill from http://www.righttofoodindia.org/right_to_food_act.html. POVERTY REDUCTION & EQUITY GROUP • WWW.WORLDBANK.ORG/POVERTY POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP 6 billion that would compensate for the global losses from 15. Wall Street Journal, “India Approves Grain Sales to Reduce Stock,” June 21, 2013. It is, however, unclear the extent to which the program could potentially child malnutrition through 2030, according to a study by affect export supplies availability. Ultimately, it will depend on substitution Save the Children.42 These are staggering amounts of and income effects on beneficiaries (and nonbeneficiaries, if they finance the resources that the world cannot afford to mismanage in a subsidy). 16. Egypt has experienced difficulties in buying wheat imports in the markets, se- persistently uncertain context of high food prices. curing only a large purchase early in July since its previous purchases in Febru- ary (Reuters, “France Still Considering Egypt Grain Aid, Trade Doubtful,” July Endnotes 1, 2013). 17. World Bank, Commodity Market Outlook, Volume 2, July 2013. 1. Note that the price variation reported by the FAO Food Price Index for the 18. Nigeria is affected by reduced supplies and civil unrest, while South Africa is same period between February and June 2013 is a marginal increase of 0.2%, affected by the recent reduced harvest and a depreciated currency (FAO instead of the decrease of 2% reported by the World Bank’s Food Price Index. GIEWS, Global Food Price Monitor, July 10, 2013). This difference is explained by the fact that the Bank’s index does not include 19. FAO, Global Food Price Monitor, July 10, 2013. milk and dairy products, which are included in the FAO’s index. The prices of 20. “Some exporting countries” refers to Myanmar, Cambodia, India, and Pakistan. milk spiked in April from localized milk shortages in New Zealand, the world’s 21. However, in other monitored markets in Chennai, Mumbai and Delhi, prices top exporter (see FAO, Food Price Index, May 2013). of wheat have remained more stable, even decreasing during the same period. 2. Regarding year-on-year variations, internationally traded prices of wheat stand This is also true for the price of rice in those markets vis-à-vis price variations 13% higher than a year ago, and maize prices 12% higher. Rice prices, however, reported in Patna. are about 10% lower than in June 2012. 22. FAO GIEWS, Global Food Price Monitor, July 10, 2013; FAO GIEWS, Country 3. FAO, Food Outlook, June 2013. Briefs, http://www.fao.org/giews/countrybrief/; USAID FEWS NET, Price 4. These expectations have been more uncertain and complex and have resulted Watch, May 2013 Prices,” June 28, 2013. in a more volatile evolution of maize prices compared to wheat prices, as de- 23. Substantial increases in Somalia were due in part to increases in port fees, while scribed in the previous paragraph. Expectations at the end of the quarter have in Rwanda increases were due to heavy rain damages, and in India and Pakistan strengthened and point to record levels and increases in maize inventories increases were related to export pressures, tight supply, and public procure- (AMIS [Agricultural Market Information System], Market Monitor, No. 9, June ment (FAO GIEWS, Global Food Price Monitor, July 10, 2013; FAO GIEWS, 2013), even though the current expectations of maize supplies are lower than Country Briefs, http://www.fao.org/giews/countrybrief/; USAID FEWS NET, expected earlier (USDA, World Agricultural Supply and Demand Estimates Price Watch, “May 2013 Prices,” June 28, 2013). [WASDE] 520, July 11, 2013; USDA, Acreage Report, June 28, 2013). Earlier 24. Price increases in Sudan (Khartoum) are associated with reduced imports and unfavorable weather in April and mid-May caused some delays in planting in depreciation; in Belarus increases are associated with inflation and the easing of the United States, which impacted the expectations of March, which had indi- price regulation; in Moldova with sharp increases of imports; and in Tajikistan, cated the largest planted area in the country since 1936 (AMIS, Market Moni- the Kyrgyz Republic, and Bolivia with increasing import prices and fuel and tor, No. 8, May 2013; AMIS, Market Monitor, No. 7, April 2013). transport costs (FAO GIEWS, Global Food Price Monitor, July 10, 2013; FAO 5. This increase is the result of favorable margins for ethanol producers and high- GIEWS, Country Briefs, http://www.fao.org/giews/countrybrief/; USAID er prices for Renewable Identification Numbers (RINs; USDA, WASDE, June FEWS NET, Price Watch, “May 2013 Prices,” June 28, 2013). 10, 2013). 25. Ibid. 6. AMIS, Market Monitor, No. 8, May 2013; USDA, WASDE, June 10, 2013. 26. This figure refers to Morelos rice, which is typically less consumed than the 7. AMIS, Market Monitor, No. 9, June 2013. Sinaloa rice in Mexico. Prices of the Sinaloa rice have been more stable between 8. FAO, Food Outlook, June 2013. June 2012 and July 2013. 9. Ibid, p. 26. 27. Annual variations in the price of rice in other markets (Patna, Mumbai, and 10. In China, wheat losses in the country’s recent harvest due to wet weather likely Delhi) experienced more moderate increases. will affect its stocks (M. Sadler, Domestic Market Report, World Bank, June 29, 28. Some of the most studied food consumer subsidies are schemes in Bangladesh, 2013). USDA (WASDE 520) confirms that projected wheat stocks for China Egypt, India, Pakistan, Sri Lanka, and Tunisia (D. Coady, “Designing and Evalu- declined in July compared to its previous June estimates. ating Social Safety Nets: Theory, Evidence and Policy Conclusions,” FCNDP 11. In addition, AMIS reports those estimates as “surprisingly large” (AMIS, Mar- Discussion Paper No. 172, IFPRI, Washington, DC [2004]). ket Monitor, No. 10, p. 2), a sentiment shared by a growing number of grain 29. For instance, some 33 out of a sample of 98 countries whose policies were fol- analysts, as reported by Reuters, “USDA in bull’s eye again with key corn stocks lowed during the 2007/8 food crisis adopted price subsidies, while 38 coun- report due Friday” (June 28, 2013). Also, as indicated above, the USDA (WAS- tries adopted food assistance, and 33 price controls (I. Ortiz, J. Chai, and M. DE 520) report adjusts downward the supplies of maize in the United States Cummis, “Escalating Food Prices: The Threat to Poor Households and Policies based on the reduced planted area, although the projected world’s production to Safeguard a Recovery for All,” Social and Economic Policy Working Paper, for 2013/14 is still more than 12% above that of 2012/13. UNICEF [2011]). 12. As indicated by T. Polansek (“For Record US Corn Crop, It’s Make or Break in 30. For a discussion on the arguments and empirical evidence, see H. Alderman and Last Week of July,” July 15, 2013, http://www.ubs.wallst.com/ubs/mkt_story. K. Lindert (“The Potential and Limitations of Self-Targeted Food Subsidies,” asp?docKey=1329-L1N0FF0RB-1&first=0), instead of a nationwide crop that World Bank Research Observer 13 [2]: 213–29 [1998]); T. Besley and R. Kanbur matures steadily over four weeks, spreading the risks of bad weather over that (“Food Subsidies and Poverty Alleviation,” Economic Journal 98: 701–19 period, an unprecedented share of the crop will be exposed to bad weather in a [1988]); D. Coady, M. Grosh, and J. Hoddinot (“Targeting Outcomes Redux,” shorter period of time, about the last 10 days of July, concentrating higher risks World Bank Research Observer 19 [1]: 61–85 [2004]); and J. Von Braun (“Impli- in that period of time. cations of Consumer-Oriented Food Subsidies for Domestic Agriculture,” 92– 13. FAO, Food Outlook, June 2013. 107, in Food Subsidies in Developing Countries: Costs, Benefits and Policy Options, 14. Bloomberg, “Rice Exports from Thailand to Advance as Support Prices Cut,” ed. P. Pinstrup-Andersen, Baltimore, MD: John Hopkins Univ. Press [1988]). June 19, 2013; The Star Online, “Thai Government Stuns Market by Scrap- 31. IMF, Survey Magazine, May 14, 2012, http://www.imf.org/external/pubs/ft/ ping Cut in Rice Price,” July 2, 2013. survey/so/2012/car051412b.htm. POVERTY REDUCTION & EQUITY GROUP • WWW.WORLDBANK.ORG/POVERTY POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP 7 32. D. Coady, M. Grosh and J. Hoddinot (“Targeting Outcomes Redux”) include Human Resources, 665–96 [1990]). 122 transfer programs from 48 countries between 1985–2003 in their 38. These results come from a meta-analysis of 14 studies reporting dietary in- study. This study concludes that a government spends about US$3 for each take or health outcomes in the United States spanning 1983 to 2010 (A. US$1spent of food subsidies to benefit the poorest 40% of its population (in Black, J. Brimblecombe, H. Eyles, P. Morris, H. Vally, and K. O’Dea, “Food fact, it spends more if transactions costs are included). In effect, the analysis Subsidy Programs and the Health and Nutritional Status of Disadvantaged of 48 developing countries finds that the bottom 40% typically receives 34% Families in High Income Countries: A Systematic Review,” BMC Public of the benefits of food subsidies, compared to about 60% for food rations and Health 2012, 12:1099–2023, http://www.biomedcentral.com/1471- stamps. 2458/12/1099). Specific to the U.S. food stamp programs, H. Hoynes and D. 33. The publicly distributed rice by the National Food Authority (NFA), has de- Schanzenbach (“Consumption Responses to In-Kind Transfers: Evidence clined sharply coinciding with the introduction of the conditional cash transfer from the Introduction of the Food Stamp Program,” American Economic Jour- program known as 4Ps. The NFA procured 763,000 metric tons in 2011, nal: Applied Economics 1 [4]: 109–39 [2009]) exploit this difference in tim- down from 1.8 million metric tons in 2006, as reported by the NFA (http:// ing to evaluate the impact of the program and show that it led to an overall www.nfa.gov.ph/index.php?lt=3). increase in food expenditures, as expected. J. Butler, J. Ohls, and B. Posner (“The Effect of the Food Stamp Program on the Nutrient Intake of the Eligi- 34. As a whole, IMF reports that Middle East and North Africa region subsidies on ble Elderly,” Journal of Human Resources 20 [3]:405–20 [1985]) find very fuel and electricity represent roughly half of the world’s expenditure on energy small effects of the Food Stamp Program on the nutrient intake of the eligible consumer subsidies (IMF, Survey Magazine, May 14, 2012). elderly, either through stamps or cash. 35. Elsewhere, only Maldives, Burundi, and Timor-Leste spend more in propor- 39. A study by Kaul found that cereal subsidies increased the caloric intake of ben- tional terms on food subsidies. A total of 11 countries in the world spend more eficiaries by more than what was implied by its impact on cereal consumption than 0.5% of their GDP on food consumer subsidies. These shares contrast alone (T. Kaul, “Household Response to Food Subsidies: Evidence from India,” with 0.25% of GDP in the United States or 0.10% in Ethiopia, for example University of Maryland, College Park [2013]). (these figures are for 2008, reported by the World Bank [“Egypt’s Food Subsi- 40. D. Ludwig, S. Blumenthal, and W. Willett explicitly argue that U.S. food subsi- dies: Benefit Incidence and Leakages,” September 16, 2010]). dies (FSNAP, formerly Food Stamps) may have been effective in both reducing 36. A. Mehtaa and S. Jha, “Corruption, Food Subsidies, and Opacity: Evidence undernutrition, but also contributed to the expansion of the obesity epidemic from the Philippines,” Economic Letters 708–11 (2012). (“Opportunities to Reduce Childhood Hunger and Obesity Restructuring the 37. For evidence of this substitution in China, see R. Jensen and T. Miller (“Do Supplemental Nutrition Assistance Program [the Food Stamp Program],” Jour- Consumer Price Subsidies Really Improve Nutrition?” [2011]), in India, see A. nal of the American Medical Association 308 [24]: 2567–68 [2012]). Kochar (“Can Targeted Programs Improve Nutrition? An Empirical Analysis of 41. IMF, “Fuel and Food Price Subsidies: Issues and Reform Options,” Fiscal Affairs India’s Public Distribution System,” Economic Development and Cultural Department, September 8, 2008. Change 54 [1]: 203–35 [2005]), A. Tarozzi (“The Indian Public Distribution 42. The net present value at 5% of the annual US$22 billion between 2012 and System as Provider of Food Security: Evidence from Child Nutrition in Andhra 2030 amounts to US$248 billion (Save the Children, “Food for Thought: Tack- Pradesh,” European Economic Review 49: 1305–30 [2005]), and J. Behrman ling Child Malnutrition to Unlock Potential and Boost Prosperity,” http:// and A. Deolalikar (“The Intrahousehold Demand for Nutrients in Rural South www.savethechildren.org/atf/cf/%7B9def2ebe-10ae-432c-9bd0- India: Individual Estimates, Fixed Effects, and Permanent Income,” Journal of df91d2eba74a%7D/ FOOD_ FOR_ THOUGHT.PDF [2013]). POVERTY REDUCTION & EQUITY GROUP • WWW.WORLDBANK.ORG/POVERTY POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK THE WORLD BANK GROUP 8