Ms. Shamshad Akhtar,
Vice President, Middle East and North Africa,
The World Bank

Key Note Address
First Arab Development Symposium
Food and Water Security in the Arab World
Kuwait, March 14-15, 2011

Introduction

1. Excellencies let me welcome you all to the launching of the First Arab Development Symposium. This Symposium is a collaboration between the World Bank and the Arab Fund led by Mr. Abdlatif Yousef Al-Hamad, Director General and Chairman of the Board of Directors of the Arab Fund. Today’s session has been dedicated to the topic of food and water security – a top priority for the Region.

2. We are meeting amidst historic and momentous events in the Region, witnessing an awakening and movement that bears tremendous hope and opportunity for the future development of the Region. However, the political transition and transformation could be complicated if some attendant risks are not effectively addressed. Besides the need to address concerns of governance, youth unemployment and level of exclusion of women and other vulnerable groups from the benefits of growth, the Region has to tackle the twin deficits of food and water and their serious social consequences. This Symposium, along with other initiatives discussed later, should help the Arab World to develop strategic thinking to shape effective responses.

3. In my remarks today, I plan to (i) discuss the recurrent rise and high volatility in international food prices, (ii) highlight the key factors contributing to these trends, (iii) share concerns regarding the growing vulnerabilities among the poor and at the country level, and (iv) offer some insights into World Bank initiatives to address the challenges of food insecurity.
Food Price Increases and Volatility

4. The recent recurrence of a sharp rise in food prices after the episode of 2008 has again triggered grave concerns about food security, malnutrition and increased poverty in Arab World. This round is of more concern as it is occurring at a time when the Region is undergoing political turmoil. This in turn is adversely affecting regional growth prospects and macro-economic imbalances that are coming under pressure as governments attempt to offer a range of wage and subsidy increases and other benefits to settle the public agitation and mitigate consequences of the rising food prices.

5. Food price rises and volatility, though not new phenomena, appear to have increased markedly over the last six years. In this round, international food prices are not only higher (almost reaching their 2008 peak at the end of January 2011) but also appear to be more volatile. Large and unpredictable variations in international prices are particularly problematic as they increase economic risks for both producers and importers, and pose fundamental food security risks for consumers and governments, while discouraging needed investment in agriculture for development.

6. The ratio of stocks for major grains (wheat, maize, and rice) to use is also an important driver of change in international commodity prices and one where the countries in the region can actually play a significant role because MENA consumes 30 percent of the world's wheat. When stock-to-use ratios are low, prices rise. Good public management of stocks and involvement of the private sector should be a major emphasis going forward. If the Arab World, as the largest single importer, has high reserve stocks then they put less pressure on thin food markets. Two important caveats are in order: (i) it would be counterproductive to try and increase stocks in lean times because this will drive prices up; and (ii) this is about ensuring access to food rather than minimizing cost (because storage does cost money).

Factors Contributing to Agriculture Commodity Price Trends

7. A number of factors behind the current high agricultural prices are similar to those observed in 2007/08 such as high energy prices, depreciation of US$ against most currencies, and high level of financial investment in agricultural commodities. At the same time, there are some additional factors worth highlighting relative to trends observed for 2008. These include (i) more broad based rise in agriculture commodity prices; (ii) adversities prompted by inclement weather, and (iii) trade policy responses such as Russia’s ban on exports in late 2010 that further raised the amplitude of the grain price spikes in 2011.

8. Aside from this, there are more penetrating factors that have and will continue to impact the food security situation in the Arab World:

• Growing population and income growth and urbanization driving food demand: the Arab population growth rate is 1.9%, which is higher than the average world rate of 1.2% and urbanization, which is correlated with increased caloric intake, is also on the rise.
• Limited water resources in the Arab World limits potential for domestic food production. Water stress has been rising and per-capita renewable water resources fell by 75% since 1950. Some 60% of the region’s water flows across international borders, further complicating the water resource management challenge. Rainfall patterns are predicted to shift as a result of climate change. Estimates show that per capita water availability will be cut in half by 2050. This calls for a number of policy measures to be adopted by countries in the region to increase agricultural water productivity through the shifting of water management strategy from supply-side to demand-side.
• Opportunities for expansion of arable land are limited. Excluding Sudan, the amount of permanent and arable cropland increased at an annual growth rate of 1.7% from 1995–2005 relative to 6.7% growth in Sudan and 2.3% worldwide.
• A rapidly growing population may combine to create a troubling future: by 2050, arable land per capita is projected to reach 0.12 hectares, a fall of 63% from its 1990s level.

9. Over the longer term, energy prices and total factor productivity are additional key drivers likely to shape world food price levels. Crude oil prices will not only exert upward pressure due to increased costs of agricultural inputs, production and transport, but also through increased demand for biofuel feedstock.

10. Regarding self-sufficiency in the Arab World it is best addressed in terms of trade-offs between food availability in the market and access to it. The trade-off for food security has to do with spending valuable water, land, and capital to grow crops that are typically low value (wheat) versus using these resources to produce higher value crops and/or invest in much needed social sectors such as education, health and jobs. Furthermore, most MENA governments are subsidizing wheat production in most years in order to encourage farmers to produce wheat for food security reasons. This is obviously not the most efficient use of resources.

Vulnerabilities From Surging Food Commodity Prices

11. In view of the issues and constraints highlighted above, Arab World is the largest net importer of cereals and sugar. Surging international prices and sharp swings induce upward pressure on the national and household budgets, depending on the level of domestic consumption, subsidies and the pass-through from international prices. Prices of two principal commodities, cereal and sugar, that account for roughly 61% of per capita caloric consumption face high degree of volatility. This is largely because 58% of consumed cereal and 75% of sugar is imported in Arab World and the price index of these two commodities rose by 40% and 77%, respectively. A sustained surge in international prices of food will likely hit the poor significantly as they spend as much as 65% of their income on food.

12. The most vulnerable countries (defined as those with high exposure to food price and quantity risk that are a function of fiscal balances and dependence on food imports) are Yemen, Jordan, Djibouti, Lebanon, Iraq, and Tunisia with low grain reserve stocks and less fiscal room to bear the costs of imports and its subsidization. The Kingdom of Saudi Arabia, Kuwait and few other oil surpluses economies would be able to mitigate vulnerabilities as fiscal surpluses benefit from oil price rise that allow build up of high reserve stocks and offer subsidies to avoid pass through of international prices. Egypt, Syria, and Morocco face high price risk, but their quantity risk is lower due to higher domestic production levels. However, over the medium to long-run water scarcity and climate change will stress domestic production, thereby increasing price risk.

13. Over the short-run, despite the political distraction, policy makers and development agencies need to be vigilant to ensure food availability and affordability for the vulnerable groups and ensure that proper humanitarian assistance is provided to those drifting across the borders between Libya-Tunisia and Libya-Egypt. Evidence emerging from the Region however is that food vulnerability is highest in countries around or below 3 months of grain stocks. Irrespective of stocks, most countries maintain food subsidies and/or maintain broad based food distribution systems–both quite inefficient in targeting poor besides these being fiscally unsustainable. What is more surprising that MENA has steeper fuel subsidy than food subsidies – though both commodities are victims of price volatility but the latter is absolute necessity and constitute bulk of poor households consumption basket.

The World Bank Group’s Response to the Food Crisis

14. The World Bank Group is responding with an expanded menu of options for both short-term rapid response and a longer-term scale-up of investment in agricultural public goods, tailored to differing client needs and circumstances. The short-term rapid responses focus on fiscal support, safety nets for the most vulnerable, and stimulating short-term food production to avoid further problems in the next harvest cycle. The longer-term scale up focuses on raising agricultural productivity and improving future resilience of supply chains. The instruments include:

• Grant funding for rapid response in the poorest and most vulnerable countries and expedited use of IDA and IBRD funds under programs such as the Global Food Crisis Response Program (GFRP)—a $1.5 billion program—and the new IDA Crisis Response Window;
• Facilitation of long-term aid effectiveness programs in agriculture and food security in IDA countries through the establishment of the Global Agriculture and Food Security Program (GAFSP) in 2010, with total pledges amounting to $925 million;
• A scaled-up regular program of IBRD and IDA lending, policy advice and technical assistance for long-term results. Seventy one percent of World Bank agriculture program goes to raise productivity; and
• IFC further closes the loop through its various programs for lending to the private sector, including the set up of a private sector window for GAFSP and a planned Global Agriculture Price Risk Management Facility.

15. While these instruments are largely geared towards low-income countries, the challenge ahead for all of us is to start working on Arab World-specific solutions. Arab World countries are middle- and high-income, with the exception of Djibouti and Yemen which are IDA recipients. On one hand, we can work with Arab World to increase food production at home, even with the constraints imposed by the limited availability of water and land. Since 2008, the World Bank has provided assistance of close to $450 million for enhancing agriculture productivity and irrigation efficiency in Morocco, Egypt, Yemen, Tunisia, and Djibouti for investments in technology, research and development, and improved agricultural water management. This can be complemented with additional sector specific interventions as well as support for increase public access to information on the quantity and quality of grain stocks; improve weather forecasting and monitoring; improving food security risk management options; give countries access to fast-disbursing food-oriented support as an alternative to food export bans or price fixing; ensure effective social safety nets that include a focus on nutritional outcomes; and help smallholder farmers become a bigger part of the global solution to food security.

16. On the other hand recognizing that the Arab World will remain net cereal importers and around 75% of the retail price of food is attributable to production, transportation, and marketing, the World Bank has an ongoing regional study of 10 countries to examine the efficiency of wheat import supply chains and how these can be improved to increase food security. Drawing from this evidence, the World Bank is exploring options to develop facility to support potential investments – in transportation, logistics, and storage - that can reduce the time and cost of importing food and ultimately serve as a buffer against international price spikes. In supporting this facility, the World Bank can offer IBRD funding and seek options of buy down of interest charges by grant funding from other development agencies.

17. Finally, the World Bank is also helping countries with analytical work such as analysis of country specific bread distribution system and poverty targeting in Egypt, and launching technical work and studies to better understand various dimension of food and water security. In this context, Bank staff has contributed to a special issue of the Journal Food Security entitled Food Security in the Arab World--Partnerships for a Sustainable Future.

18. The World Bank’s dominant focus for the Arab World going forward is on strengthening safety nets, increasing agricultural and water productivity, and reducing vulnerability to international food price shocks through improved grain logistics, storage and handling.

• For countries highly dependent on cereal imports with fiscal deficits (Egypt, Djibouti, Jordan, Algeria, Lebanon, Tunisia, Yemen, Iraq & Bahrain) priority is given to strategies to improving safety nets and better managing exposure to market volatility, then to investments in agricultural research and development and rural livelihoods.
• For countries that are not highly dependent on cereal imports, but have fiscal deficits (e.g. Morocco, Iran, Syria), the priorities are: better manage agricultural and water to productivity; invest in agricultural research and development and rural livelihoods; and better manage exposure to market volatility.
• For countries with a higher dependence on cereal imports, but with fiscal surpluses (Kuwait, Libya, Oman, Qatar, Saudi Arabia, United Arab Emirates), emphasis is on better management of grain imports through reduction of bottlenecks in critical infrastructure, strategic grain reserves, port facilities and roads.
• Further efforts will also be made to diversify incomes through creating opportunities for high value fruit and vegetable exports and through improved skills development, especially for rural youth.

19. The idea of buying land overseas and matching Arab capital with land and labor in other countries to produce food is in principle a good one, but will only help address global food supply (a positive spill over) as opposed to directly helping the region’s own food security situation. The global demand for farmland has increased significantly since the 2008 food crisis. More than 70% of such demand has been in Africa. There are a wide range of risks associated with the rising of commercial pressure on productive resources that should not be overlooked. These are highlighted in the recent World Bank study “ Rising Global Interest in Farmland” They include, inter alia, issues of land rights, transparency, good governance, environmental sustainability, and food security.

Conclusion

20. The sharp rise in food prices has triggered grave concerns about food security, malnutrition and increased poverty throughout the world. And it is increasingly being recognized that, due to a confluence of factors, international food commodity prices are likely to exhibit a rising and more volatile medium-term trend. This trend is of particular concern for Arab countries because of their rapidly growing populations, limited water and arable land resources, and significant dependence on international food commodity markets.

21. Arab countries want and need to act urgently to improve food security. Projections of the region’s food balance indicate that dependence on imports will increase by almost 64% over the next twenty years. Going forward we need to deploy together our efforts to help offset vulnerability to future food price shocks in the region by focusing on investment in three key areas: (i) Strengthening safety nets; (ii) Enhancing food supply; and (iii) Reducing exposure to international commodity market volatility.