INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

Theme 5

Globalization – What’s in it for the Poor in Terms of Water and

Food Security?

EWRI, Anchorage2005

IFPRI

Theme 5

Forces outside of the water sector are changing water management rapidly today and into the future – they include globalization, trade,and climate change

GLOBALIZATION, WATER & FOOD

IFPRI

Theme 5

Changes in Global Water & Food Demand

Globalization - Food Security

The Role of Trade• Example of Indonesia• Virtual Water• MFA• International Agreements and FDI

Some Conclusions

OUTLINE

IFPRI

Theme 5

CHANGE IN GLOBAL WATER AND FOOD DEMAND

IFPRI

Theme 5

1,092

684

1,804

803

0

500

1,000

1,500

2,000

Developing countries Developed countries

1995 2025million metric tons

Source: Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

CEREAL DEMAND 1995 and 2025 BASELINE

IFPRI

Theme 5

101.6 96.4

220.5

115.5

0

50

100

150

200

250

Developing countries Developed countries

1995 2025million metric tons

Source: Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

MEAT DEMAND 1995 and 2025 BASELINE

IFPRI

Theme 5

AQUACULTURE % IN FISH PRODUCTION 1997 AND INCREASE 1997-2020

Capture32%

Aqua-culture

68%

Capture69%

Aqua-culture

31%

Fish production 1997 Increase in fish production,1997-2020

IFPRI

Theme 5

20

4060

80

100

120

Household Industrial Livestock Irrigation

perc

enta

ge c

hang

e

Developing Countries World

0

INCREASE IN WATER CONSUMPTION BETWEEN 1995 AND 2025

Source: Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

IFPRI

Theme 5

US4%

China29%

India18%

Rest Deved

16%

Rest Deving

33%

IRRIGATED CEREAL HARVESTED AREA, 1995 AND 2025

From 213 Mio in 1995 ha to 237 Mio ha by 2025

Source: Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

IFPRI

Theme 5

Rainfed Developed countries

20%

Rainfed Developing countries

30%

Irrigated Developing countries

39%

Irrigated Developed countries

11%

Rainfed Developed countries

20%

Rainfed Developing countries

30%

Irrigated Developing countries

39%

Irrigated Developed countries

11%

Source: Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

SHARE OF IRRIGATION AND RAINFED IN CEREAL PRODUCTION INCREASE, 1995-2025

IFPRI

Theme 5

Sources: FAOStat Agriculture 2004. Statistical database; Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

0.0

0.5

1.0

1.5

2.0

2.5

DevelopingCountries

DevelopedCountries

Worldperc

ent g

row

th ra

te p

er y

ear

1982-1992 1992-2002 2002-2025

ANNUAL CEREAL YIELD GROWTH RATES, 1982-92, 1992-2002, 2002-2025

IFPRI

Theme 5

2025 Sustainable Water Use

2025 Water Crisis

19952025

Business as Usual

-500

-400

-300

-200

-100

0

mill

ion

mt

Source: Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

LOSS OF GRAIN PRODUCTION DUE TO WATER SCARCITY, DEVELOPING COUNTRIES

IFPRI

Theme 5

-38

-20 -17-10 -7 -4

4

-83

-17

-42-35

-6

-21 -19

-90-80-70-60-50-40-30-20-10

010

1995 2025

WANA LAC China SSA SEA

S Asia (w/o India)

Indiamillion metric tons

Source: Rosegrant et al. 2002. World Water and Food to 2025: Dealing with Scarcity

REGIONAL CEREAL NET TRADE, 1995 and 2025 BASELINE

IFPRI

Theme 5

85

33

19 18

6 5

60

38

137 4 2

0

20

40

60

80

100

South Asia SSA South EastAsia

China WANA LatinAmerica

1997 2025million children

Source: Rosegrant et al. 2005. Looking Ahead: Long-Term Prospects for Africa’s Food and Nutrition Security

NUMBER OF MALNOURISHED CHILDRENBY REGION, 1997 and 2025 BASELINE

GLOBALIZATION –FOOD/WATER SECURITY

IFPRI

Theme 5

Goods and services – water & food Capital Labor Information Technology Disease-causing agents Weapons, terrorism, war Insecurity

GLOBALIZATION, INCREASING INTERNATIONAL FLOWS IN…

IFPRI

Theme 5

FOOD SECURITY & THE POOR

Food security:• National level - supply & trade• HH level – access to food [requires (farm) income]• Individual level – nutrition security, sufficient calories of

sufficient quality

Caloric availability has gone up 30% since 60s No. malnourished children from 46% to 31% in

developing countries (from 1970 to 97) Food prices ½ or less compared to 60s/70s

[bad for producers, good for consumer, majority] Globalization played a major role [technology

transfer/information/trade] – picture less clear for water security & the poor [ltd technology & inv]

IFPRI

Theme 5

Countries with worsening indicators 21 countries less calories and proteins

per capita than 1960s (26 less calories; 33 less proteins)

Number and incidence of malnourished children up in SSA by 17 million

Number of hungry people still high, mostly in SSA and South Asia

World not on path to achieving international targets to reduce hunger [MDG – given up on total eradication]

FOOD SECURITY & THE POOR

IFPRI

Theme 5

THE ROLE OF TRADE+ INDONESIA EXAMPLE

IFPRI

Theme 5

World agriculture [crops/livestock] trade: increase by a factor of 15 over 40 years [T&A: 30, Manufacturing: 55] from $32 billion in early 1960s to about $500 billion today

In fisheries, global supply shifts from developed to developing countries. Developing country exports rose 8%/yr 1976–2002, half of all fish exports now originate from these countries (~$60 billion)

Large FDI investments, f.ex. manufacturing industries relying on water supplies [impact water & food indirectly]; privatization of water supplies

TRADE SITUATION

IFPRI

Theme 5

112161

273

166

310

476

0

100

200

300

400

500

primary processed total

US$

bill

ion1981-1990 1991-2000

Developing country share in processed declined from 27% to 25% in these two periods

VALUE OF WORLD AGRICULTURAL EXPORTS (crops & livestock)

IFPRI

Theme 5

TRADE LIBERALIZATION INCLUDES

Reduction in trade barriers, including tariffs and quotas

Reduction in output price protection and input subsidies

Privatization of agricultural marketing and trade

Increased reliance on markets rather than planning and the public sector

… < 20% of food imported, but can help … but high subsidies in OECD countries

IFPRI

Theme 5

275

343 347

1986-1988 1999-2001 20010

50

100

150

200

250

300

350

400EUR Billions

EU

USA

Japan

Others

EUEU

USA USA

Japan Japan

Others Others

SUPPORT TO AGRICULTURE

Source: OECD (2002)

IFPRI

Theme 5Source: OECD (2002)

SwitzerlandNorway

KoreaJapan

EUOECD

USACzech Republic

HungarySlovak Republic

PolandAustralia

New Zealand

0 10 20 30 40 50 60 70 80Percent

1

1712

1110

4

213535

5964

6769

PRODUCER SUPPORT AS A SHARE OF TOTAL FARM RECEIPTS

IFPRI

Theme 5

ALTERNATIVE TRADE SCENARIOS

Trade Scenarios [DEDLIB, DINGLIB, FLIB] model a removal vs. increase of wedges (PSE and CSE) between domestic and international prices for agricultural commodities - Reductions are phased between 2005 and 2006 – results 2020

Net benefits to producers + net benefits to consumers + tax savings due to removal of subsidies under the Full Trade Liberalization Scenario, compared to the Baseline Scenario

IFPRI

Theme 5

PRICES INCREASE AS A RESULT OF REMOVING TRADE DISTORTIONS

18

9

24

6

13

20

14

7

13

32 31

16

11

19

0

5

10

15

20

25

30

35

Milk Sugarcane Rice Maize Beef

perc

ent c

hang

e in

202

0

DEDLIB DINGLIB FLIB

IFPRI

Theme 5

EXAMPLE INDONESIA – IMPACT ON CEREAL PRODUCTION & DEMAND

222 222 215 215232

211246 245 259 258

240265

0

50

100

150

200

250

300

BASE DEDLIB DINGLIB FLIB IIPR ILIB

kg/c

ap

2020 cereal prod/cap 2020 cereal dem/cap

IFPRI

Theme 5

EXAMPLE INDONESIA – IMPACT ON NET CEREAL IMPORTS

-2184

-6033 -6359

-11182 -11501

-14274-16000

-14000

-12000

-10000

-8000

-6000

-4000

-2000

0IIPR DEDLIB BASE FLIB DINGLIB ILIB

thou

sand

met

ric to

ns

IFPRI

Theme 5

EXAMPLE INDONESIA – IMPACT ON No. MALNOURISHED CHILDREN

5,565

5,213 5,1724,967 4,927

4,756

4,2004,4004,6004,8005,0005,2005,4005,6005,800

IIPR DEDLIB BASE FLIB DINGLIB ILIB

thou

sand

chi

ldre

n

IFPRI

Theme 5

Under FLIB, direction & magnitude of responds depends on degree of protection of farmers / taxation of consumers compared to other countries, and on the respective supply/demand elasticitiesIn the case of Indonesia, full worldwide trade liberalization does lead to a relative decline in local production and a relative increase in domestic demand, which shows that without liberalization, the country is protecting local farmers while hurting domestic consumers

INDONESIA – FULL LIBERALIZATION

IFPRI

Theme 5

Annual Economic Benefits 2025(billion US dollars)

West Asia/ North Africa 1.9Latin America 3.7Sub-Saharan Africa 3.3East Asia 3.0South Asia 2.0Southeast Asia 0.4Developing Countries 14.4Developed Countries 10.0World 24.4(2000 GDP China 1080 Billion US$, India 457 Billion US$, Ag Value added China 172 Billion US$, India 103 Billion US$[WDI 2002)

FULL LIBERALIZATION - BENEFITS

IFPRI

Theme 5

FULL LIBERALIZATION - BENEFITS

Current trade distortions displace $40 billion of developing country exports

If trade distortions were removed, estimates range from 40 [Anderson] -500 [Cline] million people [out of about 2500 million] being lifted out of poverty within 15 years or so

Poverty would increase in some countries, but decline in others [f.ex. Decline in poverty by 3.5% in Indonesia]

Trade alone is not sufficient to lift them out of poverty

Comparative advantage argument -

VIRTUAL WATER TRADE

IFPRI

Theme 5

Virtual water = the amount of water used in the production of agricultural commodities—and in other sectors

Food importing countries indirectly purchase water resources from exporting countries , thereby saving water they would have used

Global water savings occur when exporters are more water efficient than importers

Global irrigation water savings occur when exporters produce under rainfed conditions, while importers would have used irrigation otherwise

TRADE IN VIRTUAL WATER

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

VIRTUAL WATER FLOWS (1995)measured in crop ET, cereals

EU (15) excluding intra-trade Source: DeFraiture et al. 2002

IFPRI

Theme 5

VIRTUAL WATER FLOWS (2025)measured in crop ET, cereals

Source: DeFraiture et al. 2002

IFPRI

Theme 5

In 1995, 7% of total crop evaporation and 5% of irrigation water depletion was used to produce cereal crops for export

In 2025 this will rise to 8% and 5%, respectively Trade saves limited (irrigation) water: cereal

water use would only be 6% higher without virtual water trade & ca. 20% of cereal trade may be water related – thus water scarcity currently plays a modest role in trade pattern -expected to rise to 38% by 2025 for cereals

Instead other factors, like subsidies, and trade arrangements determine trade outcomes

TRADE IN VIRTUAL WATER

IFPRI

Theme 5

TRADE IN VIRTUAL WATER

Estimated Cereal ET total: - 2622 km3 (1995)- 2758 km3 (2025)

Savings due to trade: - 190 km3 (1995)- 355 km3 (2025)Savings due to water productivity (IE)improvement over the period 1995-2025:- 1215 km3

Water productivity improvements are more important than trade

Source: DeFraiture et al. 2002

MULTI-FIBER ARRANGEMENT

IFPRI

Theme 5

Established in 1974 to partially [~40%] protect the textile and apparel industries of developed countries from the low-cost competition of T&A (textiles and apparel [more]) from developing countries [originally Japan] in the form of quantitative restrictions

Trade shifted to Asian NICs quota system, production to India/China, Nepal/ Bangladesh /Mauritius [no concentration]

raised prices and depressed consumption depressed fiber crop production (implicit tax

of 20% vs. manmade fibers)

BACKGROUND ON MFA

IFPRI

Theme 5

OTHER IMPORTANT FACTORS

• High tariffs: 10-20% for textiles; 20-40% for clothing (2nd after agriculture)

• Other trade arrangements matter (NAFTA, EU-EE, Caribbean, etc.)

• NTB (labeling, customs regulations..)• High income elasticity (~0.9), growth in domestic

consumption developing countries• Few restrictions on cotton, share in fiber production

continues to decline• Post-9/11 security measures, f.ex. C-TPAT

(Customs-Trade Partnership Against Terrorism), integration: China, India, Pakistan & USA

• Labor, raw materials, supply reliability

IFPRI

Theme 5

SHIFTS IN TEXTILE AND APPAREL TRADE(in US$ billion)

-80 -60 -40 -20 0 20 40 60 80

USAEUHK

JapanO SasiaMexico

ThailandBangladesh

O SEAsiaPakistan

IndonesiaTurkey

S KoreaTaiwan

IndiaChina

199219972002

IFPRI

Theme 5

IMPORTS DEPEND ON ESTABLISHED RELATIONS AND PROXIMITY (in US$ billion)

0 5 10 15 20

LACChina

Asian NICsDeveloped

SE AsiaS Asia

Africa & ME

FSUEE

2001-021992-93

0 5 10 15 20

Africa & ME

EE

China

S Asia

SE Asia

Asian NICs

Developed

FSU

LAC2001-021992-93

EU USA

IFPRI

Theme 5

IMPACT OF PHASING OUT OF MFA ON … WATER AND FOOD

cotton

yarn

fabric

clothing

Cotton production- competition with other crops

Industrial water use / pollution- competition with other uses

T&A production Water availability

Industrial water use - competition with other uses

Cha

nge

in L

ocat

ion

CI

LI

IFPRI

Theme 5

Significant cotton producer (1) the YRB, incl. Henan & Shandong (vs. soybean/corn); (2) the Yangtze, incl. Jiangsu and Anhui (vs. rice); and (3) the Northwest (Xinjiang) (vs. corn);

With MFA phase-out: Global value of T&A 2.5% higher in 25 years; China: textile +9%, apparel +16%

Global cotton production +3.5%, China +9%, MENA +6%, US -1%

Cotton price +2%,

Source: MacDonald, Somwaru, Meyer, and Diao 2001.

END OF MFA - ROLE OF CHINA

IFPRI

Theme 5

Greater concentration and vertical integration – cotton China, India & Pakistan – small impacts on food/water;

Largest impact through direct incomes in T&A industries, thus indirectly on food and water through lack of purchasing power

THUS, END OF MFA

IFPRI

Theme 5

CONCLUSIONS

IFPRI

Theme 5

CONCLUSIONS Forces outside of the water sector are

changing water management rapidly today and into the future – they include globalization, trade, and climate change

High subsidies to agriculture (& subsidies to water infrastructure) bring inefficiencies into trade, food production, and water use, thus lead to wastage, and contribute to water scarcity, poverty, and food insecurity

‘Unproductive’ subsidies should be invested in ‘productive’ investments, such as infrastructure and technologies, R&D

IFPRI

Theme 5

CONCLUSIONS

Water endowments currently have a limited explanatory power for food and other (indirect) water trade

Overall, trade, if not distorted, and globalization will help the poor increasing food and water availabilities

Need for complementary investment and social policies for poverty alleviation and food security

IFPRI

Theme 5

INVESTMENTS NEEDED IN

Additional water investment in developing countries, public supply / wastewater, & irrigation [including large dams]

Establish well-defined water rights, flexible enough to allow trading

Design water pricing mechanisms to pay irrigators to use less water

Eliminate power subsidies to groundwater pumping

Invest in crop breeding for drought, heat, and saline tolerance

Invest in research on water management, including low tillage, rainwater harvesting