Tuesday, May 8, 2012

Hunger Alleviation Fund

In a new report on food security and poverty in Asia, the ADB has recommended governments to set up a “hunger alleviation fund” and contribute 1% of GDP to the fund, which could be used when food prices growth beyond the reach of the poor. Furthermore, it recommends joint management of the fund with the private sector and encourage contributions by giving giving tax break incentives. It is already being followed in the developed countries. It bats for targeted subsidies to deliver help to those who need it most.

Reducing food waste and storage losses could close the gap between supply and demand by 15-25% and a second Green Revolution – one that relies on biotechnology to increase food production – is needed. Weather-based crop insurance, as well as futures contracts that would give farmers a guaranteed minimum income for their crops, are other measures worth exploring, the report said.

“Policies should enable producers to calculate revenues in advance, providing enough incentive to boost production, and should include social security safety nets to protect consumers and give the most vulnerable sections of society the means to feed themselves,” Pierre Jacquet, chief economist with the Agence Française de Développement, said at the seminar Seven Billion and Growing : How will the World Feed Itself?

To promote food security, the policy strategies outlined are:

  • Safety nets and social protection programs
  • Agriculture productivity
  • Rural development
  • Agriculture research
  • Human capital investment

Earlier, in a working paper (Food Price Escalation in South Asia: A Serious and Growing Concern), Bruno Carrasco and Hiranya Mukhopadhaya of the ADB argued that “a spike in the cost of food staples like rice and wheat could push tens of millions more people into extreme poverty in South Asia but food subsidies targeted at the very poorest in the region would help them cope with still-high prices”. Low income households in South Asia spend more than 50 percent of their budget on food. It also notes that while Nepal and Sri Lanka would be less affected, although a further surge in wheat prices would be especially painful for Sri Lanka, which is completely dependent on imports of the staple and has already seen prices hit historical highs in recent years. More here. Larson et al. argue that storage can help ensure food security if the target is set high and reserves are adequate. Meanwhile, Gouel and Sebastien recommend an activist policy to stabilize the impact of high food prices. They argue that the optimal trade policy for a single low-income country is to subsidize imports when domestic availability is low and tax exports when world prices are high, which will benefit consumers at the expense of producers, because it reduces the likelihood of high prices. But, a pure storage policy might have an opposite effect: it raises the average domestic price because of the increased stock accumulation, and is detrimental to consumers. They argue that to protect consumers from food price volatility in an efficient way, storage policies need to be complemented by trade policies, which would provide some isolation from the world market.

Note that a study (Global Food Price Inflation and Developing Asia) by ADB showed that a 10 percent increase in food prices will increase the number of poor people (in millions) living below US$1.25-a-day by 3.8, 0.01, 22.8, 6.7, 0.6, 3.5, and 0.2 in Bangladesh, Bhutan, rural India, urban India, Nepal, Pakistan, and Sri Lanka, respectively.