The Possible Impact of a Food Crisis in Moldova andRecommendations for Immediate Reaction for Rural Agriculture Development

November 10, 2008Prepared by AM

The food crisis is affecting over three billion people—half the world’s population. The trigger for the present crisis was food price inflation. The World Bank reported that global food prices rose 83% over the last three years and the FAO cited a 45% increase in their world food price index over just nine months.

The Economist’s food price index stands at its highest point since it was originally formulated in 1845. As of March 2008, average world wheat prices were 130% above their level a year earlier, soy prices were 87% higher, rice had climbed 74%, and maize was up 31%. While grain prices have come down slightly, food prices are still high, and because low-income and poor families are faced with higher fuel and housing costs, they are still unable to buy sufficient food.

The food crisis appeared to explode overnight, reinforcing fears that there are just too many people in the world. According to the FAO, there were record grain harvests in 2007. There is more than enough food in the world to feed everyone. In fact, over the last 20 years, world food production has risen steadily at over 2% a year, while the rate of global population growth has dropped to 1.14% a year.4 Population is not outstripping food supply. There is food on the shelves but people are priced out of the market.

But in the winter of 2007, instead of shortages, food price inflation exploded on world markets—in spite of that year’s record harvests. As a result, the number of hungry people jumped dramatically to 982 million in just one year. The rebellions that quickly spread across the globe took place not in areas where war or displacement made food unavailable, but where available food was too expensive for the poor.

While the food crisis sent grain prices on the global market skyrocketing, farmers growing the grain won’t see much of this windfall for long. Why? The spectacular increase in the price of corn (from $2 to as high as $8 a bushel) was quickly followed by an increase in the price of farm inputs. Profit margins are rapidly thinning for both conventional and organic farmers. In general, farmers report that their costs are increasing faster than prices for their goods. Farmers receive less than 20 cents of the food dollar, out of which they must pay for production costs that have increased by 45% since 2002. The prices of most fertilizers have tripled over the past 18 months. Urea, the most common nitrogen fertilizer, has risen in price from an average of US $281 per ton in January 2007 to $402 in January 2008, and then to $815 in August–an increase of 300%. Diesel prices to farmers have increased 40% over the last two years.

To solve the food crisis we need to fix the food system.

This entails re-regulating the market, reducing the oligopolistic power of the agri-foods corporations, and building agro-ecologically resilient family agriculture. We need to make food affordable by turning the food system into an engine for local economic development in both rural and urban areas. These tasks are not mutually exclusive—we don’t have to wait to fix the food system before making food affordable, marketing fair or farming viable. In fact, the three need to work in concert, complementing each other.

Main Objectives are:

1) Support domestic food production internationally based on social, ecological and economic justice and the human right to healthy food.

2) Stabilize and guarantee fair prices to farmers, workers and consumers by re-establishing floor prices and publicly-owned national grain reserves at home and abroad.

3) Halt agrofuels expansion. Suspend international agrofuels trade and investment.

4) Re-regulate finance sector investment in food commodities.

5) Promote a return to smallholder farming.

6) Support Agro-ecological and locally-based approaches to food production and food system management.

7) Food Sovereignty: Democratize the Food System! Food sovereignty is the right of all people to healthy and culturally appropriate food produced through ecologically sound and sustainable methods, and their right to define their own food and agriculture systems. At the heart of these concepts is the belief that we need to democratize our food system in order to ensure equity and sustainability. The democratization of our food systems requires a social change in the way we manage food. We must reduce the political influence of the industrial agri-foods complex and strengthen antitrust laws and enforcement. These changes will require both changes in practices and in legislation in order to establish a regulatory context for sustainable and equitable food systems. These changes also depend on the degree of political will on the part of business, our legislators, and our communities. Political will results from social pressure from informed social movements. These movements already exist, and are gaining strength in the face of the food crisis.

Specific Objectives:Food crises, and policies designed to respond to them, have effects at national, household, and individual levels. First, national decision makers and policy analysts must understand the degree to which their country and population groups within it are exposed to the negative effects of rising food prices or could exploit new opportunities offered by the higher prices. This understanding requires information on• global market developments;• the characteristics of their country with regard to international trade in food;• trends in local wages, food and agricultural prices, and energy prices;• the composition of income and expenditure among different population groups in the country;• and the responses of producers, consumers, and the government to rising food prices.

At the national level, the actual effects of a global food crisis depend on• the net trade position (exporter or importer) in agricultural commodities relative to the size of the economy;• the degree to which changes in global prices are transmitted to local markets;• the sensitivity of government revenue and expenditures to rising food prices; and• the political and fiscal capacity of the government to respond to the crisis.

At more local levels, the effects of a crisis will differ among communities and from household to household depending on • a household’s net sales (or net purchases) of food relative to household income;

• the level of a household’s income and assets, which influences its food security and vulnerability to shocks; and• the existence and effectiveness of government programs and policies to protect vulnerable households in a community.

Within households, members are likely to be affected by a crisis to varying degrees, with the nutritionally vulnerable members—women of childbearing age and young children— being most at risk.

As policymakers assess the effects of a global food crisis on their country and on various population groups, the most important sources of data include nationally representative household surveys, food price series from important commodity marketplaces in a country, and trade statistics.

Where such data are missing for a country, they must rely on qualitative or indicative, rather than representative, data to make short-run assessments. However, a more thorough assessment of the impact of a global food crisis on a country and its citizens and of the best course of action to follow in response requires detailed data and relatively sophisticated analytical capacity for investigating some of the national issues associated with global food crises.

Recommendations on the short-medium term agriculture resilience package that will include

1. Scale up investments for sustained community agricultural growth. To transform the crisis into an opportunity for farmers and to build resilience to future food crises, a transition to viable long-term investments in support of sustained agricultural growth is urgently needed. Such investments are particularly needed in view of the emerging stress factors for agriculture from climate change that threaten to perpetuate the current crisis. Investments for sustained agricultural growth include expanded public spending for rural infrastructure, services, agricultural research, science, and technology.New and innovative crop insurance mechanisms should be introduced and tested at a larger scale.Information technology, improved weather data, and the expected high returns to insurance make innovation in this field now much more feasible.

The needed supply response is not just a matter of the farm-level expansion of production, but must comprise the whole food value chain, with private sector actors in the food-processing and retail industries playing key roles. New—and much broader—concepts of corporate social responsibility are called for.What could be expected from these measures? These investments would have high returns not only in terms of agricultural growth, but also in terms of poverty reduction in both rural and urban areas through increased production and employment and lower food prices.Who would be the key actors? Donors, UN, regional organizations, foundations, and the private sector.

2. Calm markets with market-oriented regulation of speculation, shared public grain stocks, strengthened food import financing, and reliable food aid.Speculation is mainly a consequence, not a cause, of the price crisis, so overregulation and market policing would be inappropriate responses. Surveillance and regulatory measures, however, such as monitoring speculative capital or limiting futures trading, should be taken to curb excessive speculation in agricultural commodity markets.Under the current tight market conditions, it is infeasible to accumulate a global stock of grain that would bring the desired calming effect into the markets. The needed incremental supply is missing.Agreements on joint pooling of fixed portions of national stocks at the regional or global level would seem feasible, however. A coordinated set of pledges for a modest grain reserve to be made by the main grain-producing countries (including coordinated releases from the reserve for regional emergencies when prices increase excessively over what market fundamentals indicate) should be established at global or regional levels. A global intelligence network should inform the management of these international coordinated reserves.The Food Aid Convention should be renegotiated and reformed, while current grain delivery and cash commitments should be expanded. An accompanying option could be a finance facility, provided by the International Monetary Fund (IMF), for imports by countries in food emergencies.

What could be expected from this initiative? The pooling of global or regional public stocks, complemented by an import-financing facility, would allow countries with greater food deficits in a particular region to gain access to food supplies at reasonable and stable prices in times of crisis. It would also help contain the speculative expectations that fuel further price rises during the upswing. Its celare that such reserves have costs, depending upon their size, which need to be carefully weighed against potential benefits.Who are the key actors? The UNDP, FAO, WB, sub-regional organizations, and commodity exchanges.

3. Invest in rural social protection. Comprehensive rural social protection initiatives are required to address the risks facing the poor due to reduced access to food as a consequence of high prices. A hierarchy of appropriate social protection interventions includes both protective actions to mitigate short-term risks and preventative actions to preclude long-term negative consequences. Introducing or scaling up these interventions is complex, associated with substantial costs, and dependent on knowledge base and capacity.At the core of the protective actions are conditional cash transfer programs, pension systems, and employment programs. However, targeted cash transfer programs should be introduced in the short term. If food markets function poorly or are absent, however, providing food is a better option than providing cash. Microfinance, which includes both credit and savings, is also advisable to permit the poor to avoid drastic actions such as distress sales of productive assets that can permanently damage their future earning potential. The large global networks of

microfinance institutions should consider responding to the price crisis by temporarily loosening repayment conditions, as the poor need access to food consumption credit and debt relief.Preventative health and nutrition programs targeted to vulnerable population groups (such as mothers, young children, and people living with HIV/AIDS) should be strengthened and scaled up to ensure universal coverage. This measure is essential to prevent the long-term consequences of malnutritionon lifelong health and economic productivity. In addition, school feeding programs can play an important role in increasing school enrollment, retaining children in school, and enhancing their academic achievement.Donors should expand support for such programs in conjunction with sound public expenditure reviews.What could be expected from these measures? These steps can prevent the long-term adverse consequences of early childhood malnutrition, protect the assets of the poor, and maintain school participation rates.Who would be the key actors? The UN, national governments, donors, NGOs, and civil society organizations.

Recommendations on rural agriculture development in Moldova

1. A country wanting to develop its rural agriculture sector needs to perform an in-depth integrated assessment of its general agriculture policies, programmes and plans, to understand how they affect the competitiveness and the conditions of the value add agriculture sector.2. The objectives for government involvement for the development of the rural agriculture, particularly value add agriculture sector needs to be clarified before actions are undertaken. All stakeholders should be involved in the policy development and development of plans and programmes.3. General and rural agriculture policies should support each other to the greatest extent possible to promote effective policy coherence, especially if values add agriculture is promoted as a mainstream solution.4. An action plan for the rural agriculture sector should be developed based on analysis of the state of the sector, participatory consultations, a needs assessment and proper sequencing of actions. The action plan should state measurable targets for the rural agriculture sector to help agencies and stakeholders focus their efforts.5. One government ministry or agency should be assigned a leading role and rural agriculture desks should be established in other relevant ministries and agencies.6. Governments should recognize the diverse interests represented in the rural agriculture sector and ensure that all of them are considered properly as well as direct special attention to disadvantaged groups.7. A permanent body should be established for the consultations between the Government and the private sector.8. Governments should actively contribute to awareness rising for rural agriculture development on all levels.9. Data about value add agriculture production and markets need to be collected over the years, analyzed and made available to the sector and policymakers.