Tuesday, December 7, 2010

Martin Ravallion is unhappy with HDI

The 20th Human Development Report has introduced a new version of its famous Human Development Index (HDI). The HDI aggregates country-level attainments in life expectancy, schooling and income per capita. Each year's rankings by the HDI are keenly watched in both rich and poor countries. The main change in the 2010 HDI is that it relaxes its past assumption of perfect substitutability between its three components. However, most users will probably not realize that the new HDI has also greatly reduced its implicit weight on longevity in poor countries, relative to rich ones. A poor country experiencing falling life expectancy due to (say) a collapse in its health-care system could still see its HDI improve with even a small rate of economic growth. By contrast, the new HDI's valuations of the gains from extra schooling seem unreasonably high -- many times greater than the economic returns to schooling. These troubling tradeoffs could have been largely avoided using a different aggregation function for the HDI, while still allowing imperfect substitution. While some difficult value judgments are faced in constructing and assessing the HDI, making its assumed tradeoffs more explicit would be a welcome step.

Full policy research working paper here.

Climate Change, Agriculture & Poverty in South Asia

[This blog post is adapted from Upali Wickramasinghe’s article on Trade Insight Vol.6, No.3-4, 2010, p.43-45. For a piece on the impact of climate change on agricultural trade in South Asia click here.]

Climate Change, agriculture and poverty: South Asian agenda

“Most severe flooding the country has seen in over 100 years”, is a heading that appeared in newspapers across the globe several times in the recent past. Two most vivid recent examples are the floods in October 2009 in India and in mid-2010 in Pakistan. The number of such floods has quadrupled between 1980 and 2006. The intensity of other natural disasters such as heat waves and severe cold spells has increased manifold.

The Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) states that climate change will have severe impacts on South Asia. The 2010 Climate Change Vulnerability Index, compiled by the British firm Maplecroft on the basis of 42 social, economic and environmental factors, corroborated this recently. Of the 16 countries listed as being at “extreme” risk over the next 30 years, five are from South Asia, with Bangladesh and India in the first and second places, Nepal in fourth, Afghanistan in eighth and Pakistan in 16th. These disasters disproportionately affect the poor, as they depend on agriculture for livelihoods—an activity heavily dependent on nature.

South Asian countries, individually as well as regionally, have made significant efforts towards tackling the challenges posed by global warming. The Thimpu Statement on Climate Change issued on 28–29 April 2010 during the 16th Summit of the South Asian Association for Regional Cooperation (SAARC) covers most of the critical concerns on climate change and the environment, and proposes an action-oriented programme. However, it does not explicitly recognize the impact of climate change on agriculture and food security although adaptation and mitigation are mentioned.

Vulnerability of South Asia

According to the IPCC’s Fourth Assessment Report, the future impacts of climate change on South Asia include the following: the glacier melting in the Himalayas causing increased flooding and affecting water resources; increased pressures on natural resources and the environment; increased mortality due to diarrhoea primarily associated with floods and droughts; and increased threats from sea-level rise resulting in inundation, storm surge, erosion, and other coastal hazards.

The Himalaya ecological system, comprising the upper Himalaya glaciers and the Ganges, Indus, and Meghna river systems, was the cradle of civilization in South Asia. It allowed some 1.5 billion people to cultivate lands, rear animals and prosper. With climate change, this seemingly endless cycle of life is likely to transform itself. The Himalayan-Hindu Kush glaciers have been receding since 1800, but the pace has accelerated in recent years. If this trend continues, melting ice will increase flood risks in the short term and threaten water supplies in the long run. The effects are magnified due to the fact that 75 percent of the poor live in rural areas and 60 percent of the labour force relies on agriculture for livelihood.

Other areas projected to face severe impacts include the Terrai grasslands and forests of the southern Himalayas, the Western Ghats biosphere of western India; and the Sundarbans wet- lands of West Bengal and Bangladesh. A decrease in wet rainforests and an increase in dry rainforests, prompting more forest fires in places like Sri Lanka, are projected to occur.

The availability of water for human consumption and agriculture is a major concern. It is predicted that a 2–4 percent rise in temperature will expose up to 924 million people to water stress. If climate-induced glacial retreat happens at the predicted rate, the water available from the Himalayan glaciers in South Asia will decline from the current level of 85 percent of total water consumption to 30 percent over the next 50 years.

By 2020, South Asia will have five of the world’s mega cities: Mumbai, Delhi, Dhaka, Karachi and Kolkata. A majority of the people in those cities will also be living in slums with little infrastructure and poor sanitation. Supplying water to these mega cities while allocating enough for agriculture will be a challenge.

Coastal ecosystems, particularly low-lying mega deltas, coastal regions and small islands, are at severe risk from climate change. Land loss due to sea flooding, seawater intrusion into freshwater sources and increased salinity will have a significant impact on economic activities, including fisheries. A one metre rise in sea level can displace several million people in the region’s coastal zones. The social and economic impact will be severe in densely populated areas such as Bangladesh and east India.

Intricacies of climate change and poverty

Climate change, agriculture, poverty and food security are intricately linked, and thus removing constraints for economic development and human well-being will certainly require careful scrutiny of the global environment.

Agriculture contributes a quarter of South Asia’s national income and over 50 percent of employment. South Asia’s population is estimated to exceed 2.2 billion from the current level of 1.5 billion by 2050. Over 600 million people live on less than US$1.25 a day and mostly rely on agriculture and forest resources. It needs only a minor change in the economy for the millions languishing just above the poverty threshold to fall back into poverty, as happened during the 2007–2008 food and financial crises.

Detailed projections based on simulation models1 suggest a 15–30 percent decline of cereal productivity on average across the region by the middle of the century, but the declines will be higher in arid zones and flood-prone areas where agriculture has reached tolerance limits. Rice yields are expected to decline by 0.75 tons/ha if temperature rises by 2–4 degrees Celsius. If these models include the possible impacts of diseases, pests and microorganisms, crop yields and production will face steep declines. As crops respond to climate change differently, the impact on food security will depend on crop intensity.

Food consumption is determined by the interaction of individual preferences, incomes, prices and other social characteristics, whereas prices are determined by the interaction of demand, supply and the market structure. From 2000 to 2050, population and income growth would push global food prices up by as much as 62 percent for rice, 63 percent for maize, 72 percent for soybeans and 39 percent for wheat.2 Climate change expects to raise food prices by 32–37 percent for rice, 52–55 percent for maize, 94–111 percent for wheat, and 11–14 percent for soybeans.

The predicted rise in food prices, particularly cereal prices, due to climate change will further reduce the amount of food that the poor can consume as the share of food expenditure among the poor is already high. They often switch to cheaper food alternatives and give up nutritious food. It should be noted that South Asia will have 52 million undernourished people even under a no-climate-change scenario.

Another group of victims will be female children in societies where female children are less likely to get the same amount of food as male children when faced with shortages.

One silver lining is that South Asia has the potential for further gains in agricultural productivity. If productivity can be increased by the introduction of better technology and institutional innovations, the above scenarios could substantially be altered. Agricultural gross domestic product (GDP) growth is more effective in reducing poverty, compared to non-agricultural GDP growth.

The crucial test will be on how much technology can be transferred and investment is carried out to improve critical infrastructure in rural areas. According to available estimates, South Asia can counter the effects of climate change on nutrition with an additional annual investment expenditure of US$1.5 billion, covering irrigation efficiency, irrigation expansion, agricultural research and rural roads. This should also extend to investment in biodiversity conservation, as in the rice seed bank maintained by the International Rice Research Institute in the Philippines.

Agenda for action

The Thimpu 16-point agenda provides a useful framework to think through how SAARC member states can collaborate to thwart the potential disastrous consequences of climate change on agriculture and food security, although it does not mention agriculture and food security explicitly.

A key concern is how to feed close to 2.2 billion people who will inhabit South Asia by 2050 while also meeting the challenges of climate change. This is in addition to the higher demand for food generated by higher income. The answer lies in investment in adaptation, enhancing productivity of agriculture and science-based technology such as the development of plant varieties with higher adaptability under severe weather conditions and capacity to perform in a broad set of climate conditions.

Regional investment will help the most vulnerable nations with capacity limitations. Mechanisms such as the SAARC Development Fund should be fully exploited towards this end. In line with other regional development banks, South Asia should also establish a regional bank to mobilize resources for economic development. Adaptation to climate change is easier when individuals have better options to cope with disasters. The best way to ensure that is through the implementation of a pro-agricultural development policy with climate mitigation and adaptation as key components. While efforts towards adaptation are carried out, South Asia should also be ready with sufficient funds to pay for resettlement, rehabilitation and provision of services to climate refugees.

Similar to the proposal made elsewhere (e.g., in the Association of Southeast Asian Nations) to create a fund to pay for efforts towards adaptation, it would be in the interest of South Asia to set up a fund for such an eventuality. This could perhaps be part of the negotiating agenda along with a fund for agricultural adaptation. Among others, the fund could be used for technology transfer, a key component in the struggle against global climate change.

Collective action plays a significant role in adaptation and mitigation. Farmers who are willing to adapt to changes are outnumbered and thus forced to follow outdated techniques and farming cycles for fear of pest at- tacks, if faming activities are not synchronized with the rest. The extent of collective decisions taken and the use of community adaptation strategies will determine the success of adaptation. South Asian countries have both the capacity and resources to help one another in developing adaptable crop varieties. Expansion and support for using the already available advanced technology for monitoring the impact of climate change on agriculture and food security, e.g., remote sensing, will be needed urgently. Developing countries need support from regional and international organizations for new technology and training.

As South Asia is recognized as the worst affected region from climate change, it is legitimate to call for more assistance as committed by the Annex I industrialized countries for developing countries under the United Nations Framework Convention on Climate Change. Such a fund can assist communities or regions that have shown remarkable success in adapting to new situations and still protect the environment.

As climate change has no political boundaries, it is in the best interest of all in South Asia to collaborate both within the region and in international forums. Emissions targets need to be specified in quantitative terms with time-frames, rather than mere commitments to making “deep cuts” in the future, to ensure binding agreements rather than vague statements and commitments. The voice in international forums on climate change will have added strength if it is also in line with the commitments and actions taken within the region to address climate change concerns.

[Dr. Wickramasinghe is Regional Adviser on Poverty Reduction and Food Security, UNESCAP-Centre for Alleviation of Poverty through Sustainable Agriculture (CAPSA), Bogor.]


1 Lobell, D.B. and C.B. Field. 2007. Global Scale Climate-crop Yield Relationships and the Impacts of Recent Warming. Environmental Research Letters 2.

2 Gerald, C. N, M. Rosergrant, et al. 2009. Climate Change: Impact on Agriculture and Costs of Adaptation. October. Washington, D.C.: International Food Policy Research Institute.

Capping microfinance interest rates?

Not a good idea, argues The Economist.

The rush to impose restrictions on MFIs also betrays a fundamental misunderstanding about how the poor use credit. Many politicians cite the existence of clients with loans from several MFIs at once to argue that the poor are over-indebted. This ignores the fact that most microcredit loans are tiny, so that several are needed to meet the needs of even a small business. Indeed, the poor often use microloans to pay off far more expensive loans from village moneylenders. This suggests that restricting people’s access to microcredit by capping rates could have the perverse effect of driving more poor people into the arms of village loan-sharks, who still provide the bulk of rural credit in poor countries. (In rural AP, 82% of households have such informal loans, whereas only 11% have loans from MFIs.) That would be good news for these moneylenders, but is surely not the outcome that policymakers want.