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Executive Summary Efforts to estimate future world food aid needs are fraught with difficulties. At the outset, one must distinguish between estimates of pure need and estimates of the amount that is likely to be provided. Second, difficulties of definition arise between food export subsidies and food aid. Third, obtaining reliable data from Third World countries regarding such essential information as food supplies (including imports and exports) and population growth presents a serious constraint to analysts. Then, even when the data are relatively firm, those engaged in food need projections do not always agree on the methods of processing the data to obtain meaningful estimates. And finally, country-specific food aid "needs" estimates often imply not only economic and political failures on the part of the recipients, but also certain ill-defined and complex ethical responsibilities and political- economic objectives on the part of the donors. It is hardly surprising, therefore, that food aid needs estimates invariably generate considerable interest and discussion, and often disagreement. The premise of the meeting was that recent efforts to estimate global, regional, and country-specific food trade and food aid needs are sufficiently advanced to warrant a sys- tematic review of the various methodologies, and a comparison of the resulting projections, in the hope that it would yield valuable findings for those concerned with alleviating world hunger. To this end, representatives of the following organizations met in October 1988 under the aegis of the National Research Council to compare food aid projections and methodologies: United Nations Food and Agriculture Organization (FAG) Iowa State University Center for Agriculture and Rural Development (CARD) World Bank U.S. Department of Agriculture (USDA) International Institute for Applied Systems Analysis (IlASA) International Food Policy Research Institute (IFPRI) Cornell University Food & Nutrition Policy Program The Alan S. Feinstein World Hunger Program, Brown University The Food Policy Program, Swarthmore College 1
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U.S. Agency for International Development University of Guelph, Ontario, Canada Tufts University, Massachusetts Project Link, University of Pennsylvania. below. The principal findings, and the discussions on which they were based, are summarized PRINCIPAL FINDINGS 1. Doubling food aid over present levels of about 10 million metric tons per year would be necessary to meet projected market needs throughout the decade of the nineties. 2. Projected nutritional needs estimates are much higher: a quadrupling (or more) over present levels could be needed by the year 2000. 3. While there is a high likelihood that a major drought or other natural catastrophe will depress food supplies during the 1990s, there is no way to predict the time, place, or size of occurrence. The best that modelers can over, therefore, is to recalculate food aid need estimates after the occurrence, while urging planners, beforehand, to add the equivalent of insurance reserves against unforeseen events. Developing methods of making projections that allow for the effects of natural disasters is a research priority. 4. There is no evidence that the "greenhouse effect" is already exerting a measurable influence on food production, and the consensus is that, during the 1990s, natural forces will not reverse the slow downward trend of commodity prices and slow upward trend in per capita income that have been observed in developing countries over the past several decades. 5. Africa will continue to be the important focus of concern for food aid—and the region of greatest uncertainty because of continuing conflict, locust plagues, cycles of drought and flood, and low economic growth combined with high rates of population growth. However, in the long run, Asia may again be the most troubling food-deficient area. An unfavorable man:land ratio in Asia may be unable to support continued improvements in agricultural productivity that the "green revolution" sustained over the 1970s and 1980s, while increased population and prosperity will increase demand, especially for animal feed grains. DEFINITIONS OF FOOD AID Food aid "needs" are defined in two principal ways: 1. Price-stabilizing food aid: food commodities, or entitlements to buy them at concessional rates, that will make up a shortfall between historical domestic availability and consumption in the recipient country, thereby keeping food prices and the incidence of hunger from rising; and 2. Hunger-reducing food aid: food commodities or cash supplied to recipient countries that not only stabilizes prices but also, through targeting, increases the food intake of historically hungry populations. Neither of these definitions specifically includes emergency food aid, nor would they pick up commodity imports subsidized under export promotion programs. These additional 2
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. . types of "food aid", however, may be taken into account in the historical database from which projections of future trade and aid needs are made. In practice, "need" estimates are not predictions of anticipated future food aid flows. Food aid flows are governed by domestic politics of donors, shifting priority given food aid in the international community, and the supply-demand situation of particular commodities, especially in donor countries. Needs for food aid reflect principally recipient country situations. Because of the difficulties inherent in estimating the amounts of commodity required to stabilize prices and alleviate hunger, and the uncertainty that any given level of food aid could, in fact, achieve its purposes (especially given that hunger-reducing aid is difficult and costly to administer and therefore politically difficult to justify), forecasts of food aid needs should be seen as judgments as to reasonable targets. These are formulated by projecting past aid and import levels as adjusted to future economic and population changes, and, as appropriate, to take into account other foreseeable short-term factors. In discussing these projections of food aid needs in the next decade, the group did not advocate substituting food aid for other types of aid, or vice versa, and made no special assumptions about its legislative support per se. Food aid is historical phenomenon of forty years' standing, and promises to continue at some level. The workshop addressed what ranges and roughly what areas would be eligible to use it, based on trade projections. It should be pointed out, however, that there is a school of thought that advocates abolishing food aid per se, allowing financial aid to assist recipient countries to make up food import shortfalls. Financial aid instead of food aid, it is believed, would enable donor countries to dispense with complex and cumbersome systems of administering food aid, and allow free market forces to operate more efficiently, in the expectation that in the Tong term this would give greater impetus to economic growth in recipient countries, removing more quickly the need for assistance with food imports. In fact, however, food aid programs historically have operated in just this self-correcting fashion. Optimism about the ability of free markets alone to provide a long-term solution to filling food deficits, moreover, is countered by preliminary evidence from the Interna- tional Institute for Applied Systems Analysis Basic Linked Systems (~lASA/BI.S) general equilibrium model. Results indicate that removal of subsidies and other restrictions on free trade would be likely to widen the food gap in Third World countries. In the short run, the economic growth effect of free trade for developing countries would be lower than with tar- geted transfers of funds and continuation of food aid and the maintenance of trade barriers. This topic remains, however, a point of contention among economists, and further study is needed of "absorptive capacity" of developing countries with respect to aid mechanisms, the role of parastatals in food distribution (and the problems caused by their "rent seeking"), as well as on the opportunity costs of other forms of aid. METHODOLOGIES There is no single generally accepted methodology for estimating food aid needs. Several approaches were discussed at the workshop, reflecting the different assumptions made by participants in their forecasting efforts. One view proposed is that it would be best, where possible, to employ general analysis to determine food aid needs. Modeling future food aid contributions simultaneously with all other relevant economic variables in recipient countries, however, requires both complex analysis and availability of reliable data, and modelers have so far been discouraged from searching for results from this approach. Many economists believe that partial analysis can 3
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yield satisfactory results by holding a number of the variables in the economy constant, whereas food aid estimates are calculated on the basis of variation among a small number of factors directly connected with food systems. If economic equilibrium is assumed or achieved (which, apartfroma few financialmarkets, is the exception, not the ruTe) the methods are respectively general or partial equilibrium analysis. The partial approach, however, is less useful for analyzing the effects of policy. Both approaches lose their usefulness for forecasting beyond shorter-term projections. The prob- lem is whether feedback effects exist from the estimated dependent variables to the assumed independent variables. The main contribution of the general models is to incorporate sec- ondary or indirect effects; when these are large in relation to primary erects, partial models can be misreading. Over periods as short as ten-year estimates, especially if modest per- turbations of the economy and exogenous political constraints are included, a wide range of estimates can be derived. In addition, problems arise because developing basic model features and estimating parameters inevitably involves compromises. As a result, different models have evolved for different purposes. Ultimately, apart from the International Food Policy Research Institute (IFPRI) method, the estimates proposed during the workshop were based on rather simple projections and logical deductions from world grain commodi- ties trade models. They relied heavily on expert judgment in their underlying assumptions and implications, rather than on complex modeling techniques. DEMOGRAPHIC CONSIDERATIONS Greater "need" for food arises from population growth and greater economic wealth. Projections of population growth, especially in Africa, have tended to underestimate the range of uncertainty significantly, even for projections a few years into the future. For exam- ple, decline in fertility rates has not yet begun in many African countries, and substantial variations in projections of future African population growth remain. Much of this growth will take place in cities; UN figures show an African urban population of more than 400 million by the year 2000, and, notably, these projections do not allow for surprises like the proliferation of AIDS, or for interactions with economic, social, or technological trends. Thus, the assumption that population can be treated exogenously in those models could prove to be dangerous. The composition of the diet in terms of the proportion of food calories consumed as animal products can have a significant effect on the quantity of agricultural commodities needed. Rising income is the major force driving up non-cereal food demand. Using FAO/WHO/UNU standards for caloric needs and computing food supply from FAO data shows that there is enough food in the world at present to feed some 6 billion people if most foods are directly consumed. However, as the demand for animal products rises, the need for primary agricultural products also increases. A diet for everyone in the world consisting of about 30 percent animal products doubles the need for primary agricultural products significantly above what is currently produced in the world. This variation due to dietary composition is much larger than the potential differences in projected demand due to different population growth projections. Over the past several decades, the proportion of hungry in the developing world as defined by the FAO standard declined from about 34 percent in 1948-50 to 17 percent in 1978-80. However, the rate of decline appears to have leveled oh in the past decade, with only about a 1-percent decline in the subsequent 5-year period. Projecting this current slow rate of decline into the future, the actual numbers of hungry could still rise during the next 4
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decade, even if the proportion of hungry continues to decline, because of the increase in total population. NUTRITIONAL CONSIDERATIONS Nutritional status is influenced by food and health, both of which are influenced, in turn, by prices and incomes. Food aid influences nutrition and health. It is not a question of total food quantity per se, nor average supply and demand per se, but rather how food prices are determined and the extent to which the incomes of populations at risk are insufficient to afford adequate food. Program food aid can have an important impact on nutrition by lowering prices, or at least keeping them level; that is, there is an impact beyond targeted nutrition projects. There are two components of need: a market- demonstrated price response to need, and the physical response of malnutrition from those who cannot satisfy their need through the market. If food aid is really intended to eliminate malnutrition, it must not only provide adequate amounts of cereals to the market, but also reach beyond market exchanges. In this way, effective demand can be met without lower prices reaching the point at which producers are hurt. Combining the goals of stabilizing prices and meeting nutritional needs would be the most effective use of food aid from a nutritional standpoint. Using food aid to increase the incomes of the poor could be accomplished by targeting food aid to the malnourished through selective systems such as food stamps or ration cards. In this approach, targeted food aid is used as a resource to maintain prices (perhaps substituting for imports) and at the same time aimed selectively to eliminate malnutrition. An additional benefit would be to provide an outlet for surplus food aid grain, which may be important for producers. The IFPRI estimate is that by 1995 37 million metric tons (MMT) will be needed annually just to keep prices stable in developing countries, using current commercial mechanisms of non-targeted food aid. This is double the FAO estimate for 1988-89 though the basis for the two estimates are different. Nutritional needs require definition. The FAO uses as a minimum need 1.2-1.4 times the Basal Metabolic Rate (BMR), the amount of energy required to maintain body processes at rest. Assuming household uniformity and distribution efficiency, this minimum need was seen as simply inadequate. Not only are the assumptions about equitable distribution dubious, but the BMR figure allows little energy for productive work. There is also a need, some believed, for an upward revision of protein requirements. Based on recent Massachusetts Institute of Technology studies, consumption behavior should be examined for variety in diets, including a balanced calorie:protein ratio, rather than just calories, and should predict requirements higher than the 1,700-1,900 kcals/head/day (equivalent to 1.2-1.4 BMR) so that allowances for normal movement and work are included. ESTIMATES COMPARED Estimates generated by different groups of specialists and based on different definitions are shown in Table 1. The average of demand-based estimates for the decade 1990-2000 projected by the five groups show substantial convergence. One simplification of annual food aid estimates presented at the meeting offered the following: 5
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10 MMT actual food aid delivery 1987-88 20 MMT estimated aid to meet food price stabilization needs in 1990; also, Tow range estimates of food price stabilization needs for 1995 30 MMT average annual price stabilization needs for 1995-2000 40 MMT high range estimates of annual food price stabilization needs 1995-2000 50 MMT average annual food aid to achieve price stabilization plus food aid for hunger/nutritional adequacy 1995-2000. These crude figures simplify: . the results of the modelers regarding the demand for food based on projected population numbers; . growth of GNP per capita (which stimulates increases in grain consumption, even in middle-income countries, through a demand for feed grains for animal feedstuffs); the future imports of food commodities by developing countries; and . the ability of countries to pay for imports of commodities. Much of the detail from which this ladder of numbers was derived is found in the projections below, and in the papers presented, which are included as annexes to this report. Estimates tended to be conservative. The highest figures among the results, from IFPRI, are also based on the most complex and detailed methods of projection; further, they lack any "political" constraints. Variations among the estimates arise for several reasons. One is that each model includes or excludes different countries from its analysis. For example, Korea, which has the ability to pay for its import needs, is not in every analysis although it still receives food aid shipments. Similarly, China, which is largely self-sufficient, also receives food aid and is not always included. This inclusion or exclusion of countries from any analysis significantly alters its overall projections. In spite of this, there is surprising agreement among the models on aggregate and regional trade projections. Consequently these projections seemed reasonably useful for policy planning, at least as assessed by the experts at the workshop. Average, high, and low range values as shown in Table 1 indicate a reliability or robustness among estimates of food aid needs. The commitment of the industrial countries to meet food aid needs, however, falls short of the minimum food stabilization requirements of the poorest countries. Current -food aid shipments (10-11 MMT in 1987) meet only half of these needs. Satisfying the lower estimates of stabilization needs would therefore require a doubling of food aid in the near term. It was estimated that existing calorie deficiencies owing to lack of purchasing power amount to roughly 15-18 MMT of cereals per year. Assuming a perfect targeting of food aid to poorest households suffering from such deficiencies, and further assuming that each metric ton will result in a net increase in consumption within those households of one-half of each metric ton targeted to such households because of an estimated 50 percent substitution "leakage" factor, 3~36 MMT of grain would have to be targeted on these households. This would result in a net increase in market demand of 15-18 MMT among the targeted population and the use of the other 15-18 MMT to meet market demand so as to stabilize, but not reduce, local food prices, while saving foreign exchange expenditures. Current levels of food aid, representing only 50 percent of near-term minimum stabiliza- tion needs, reflect political priorities and constraints on the part of the industrial countries. Although doubling food aid could reduce hunger without distorting global supply or price conditions during the coming decade, it would not happen automatically, and to be effective it would have to be allocated according to need. Moreover, this doubling in itself, even if 6
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TABLE 1 Estimates of Annual Food Aid Needs for 1990-2000 Institutional Source Low Average High IFPRIa 29-39 37-56 55-74 IIASA/BLS 30 USDA 21 29 56 Nutritional Needb 30 42 55 Iowa State U./FAPRI 34 FAG 19 30 38 Note: All estimates were made in million metric tons of cereal equivalent, MMT/CE. All except IFPRI estimates were deductions from trade flows assuming some constant fraction of food aid. 2Variations based on including different countries. Pinstrup-Andersen calculation based on IFPRI figures. allocated to countries in most need, might still not reach the people targeted, since they are left unaffected by many current food aid modalities. The targeting task requires ad- ditional resources and mechanisms of distribution through food for work, food stamps, or entitlement measures, all of which target food beyond those currently included. Innovative mechanisms might improve the ability to distribute food through the private sector at no additional government cost, and achieve price stabilization (and linked development) and nutritional objectives. The history of food aid availability shows that it has been governed substantially by donor supply and trade pressures. This orientation has tended to keep food aid levels lower than estimated needs. Global food stabilization goals compete with these other pressures, as seen in the 1973-74 period oftiaht supplies. suite unfavorably. While `3onor~ are r.on`~.~rn~H ~ v ~ ~ ~ ~ ,~ ~ ~ .. . . . . . . . ~ . . . . . WIth world hunger it Is a mayor political issue in the industrial countries other forces, such as domestic economic priorities, are ultimately more important policy determinants. In addition. Dolitical and dinlomatin c.nnr.~rn~ ~1.~n have level t.n ~~,h~t.~nt.i~1 n~lit.i~1 ~r~nt.rnl ever _v~..~-~^ Rae- ~'~~' ~ food aid allocations. Skepticism was expressed by modeling experts, therefore, regarding donor willingness to add substantial resources to food aid, even for innovative targeted programs so as to satisfy minimum nutritional needs. SHOCKS THAT COULD AFFECT FUTURE PROJECTIONS The workshop also considered distortions and shocks to the system of food commodity trade and aid. Major distortions to commodity flows arise more from the policies of the rich countries than from the performance of poor countries. Weather and Climate There is a constant prospect of shocks owing to climatic forces, such as the drought in the United States in 1988. Participants agreed that it is highly likely that some shocks will affect supplies during the coming decade. Climate effects are very difficult to predict. Although experts now agree that there is strong evidence for expecting a "greenhouse" eject to
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increase average global temperatures as a result of the cumulative effects of emissions of gases into the atmosphere, including particularly carbon dioxide and chlorinated fluorocarbons, there is no firm evidence as to when this effect will occur, or where and how it will affect agriculture. Effects of such weather-related factors as erosion of soil and salinization of croplands from irrigation with insufficient drainage are causes of more immediate concern, while technical questions exist for the long period as to the ultimate biological constraints on production as farm efficiency approaches theoretical limits. None of these factors is believed likely to present especially limiting conditions during the next decade. Growth in global commodity production has continued in a steady upwarc] trend, through periods of perturbation, since the 1950s. This has been accompanied by a secular downward trend in world food market prices. It is felt that overall, though there may be local or even worldwide shortages for which emergency food assistance will be needed, there is no indication that historic upward production trends will be reversed during the coming decade. Other External Factors Among other types of shocks considered that might affect global food production during the decade of the 1990s were those principally linked to relations among the great powers, including the possibility of the "nuclear winter" of war. It was concluded that recent developments in relations between the U.S. and the Soviet Union had reduced the likelihood of this type of catastrophe. Optimistic forecasts saw increased diversion of funds from defense expenditures to investments in support of economic development. The consequence of this optimistic projection would be to raise global demand for food and feed grains, though it would probably take longer than the next decade to show measurable impact. While it was agreed that there is a high probability of a major drought, or other natural catastrophe, occurring during the 1990s, the best that modelers can do at present is to recalculate estimates after its occurrence, or add to their estimates the equivalent of an insurance reserve against unforeseen events. Employing stochastic simulations to model the effects of a large number of variables, such as those of weather and climate, was suggested as a worthwhile avenue for research. 8
Representative terms from entire chapter: