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Poor turning poorer as food prices zoom

Nov 27, 2012

South Asia’s households fall into poverty as the result of higher food prices as food prices increase.

According to the latest Food Price Watch, global food prices increased 10% between June and July 2012 with staples such as wheat increasing 25% in the period. The crisis continued affecting food and nutrition security throughout South Asia. Bad weather, trade curbs, oil prices and bio-fuel diversions have all led to higher food prices, which destabilizes the incomes and food security of millions across the region.

While rising food prices risks higher core inflation in the developing countries, the volatility proportionally squeezes the poor with considerably detrimental effects for their nutrition outcomes. José Cuesta, Senior Economist at the World Bank said, "food prices increased sharply in the month of July…we see that the effects on poverty can reach up to 20% and the impact on the performance of children in school, their development and growth are not only transitory but can last a lifetime.”
Studies in the last few years in Afghanistan and elsewhere have confirmed that rises in the cost of food have led to a switch in consumption from nutrient rich foods, such as vegetables, meats and other proteins to nutrient-poor staples, such as rice and wheat. There is also evidence of children’s food intake being protected, typically at the cost of women’s consumption. When the effects of the crisis are more severe, households may also sell productive assets, take children out of school, and reduce expenses on health.

“The poverty and nutritional impact of food price spikes on the poor is significant since they spend a larger fraction of their income on food than relatively better off individuals,” said Kalpana Kochhar, Chief Economist of the South Asia region of the World Bank in the South Asia Economic Focus on Food Inflation

While these are not preferred outcomes, they are sadly a reality for the many poor households that face rapidly fluctuating prices. Another South Asia report, Food Price Increases in South Asia: National Responses and Regional Dimensions found that households who previously were living not far above the poverty line are likely to have fallen into poverty as the result of higher food prices.

To continuously monitor such fluctuations, the World Bank’s Poverty Reduction and Equity Group produces its quarterly Food Price Watch which is complementary to the Food and Agriculture Organization (FAO’s) GIEWS Country Briefs on Food Security at the country level.


Concerted efforts should be made at a national level to mitigate the nutritional effects of such shocks, for instance, rice fortification can be a cost-effective means to stabilizing the nutritional impact on these poorest households. Cuestas recommend a balanced set of policies; ones oriented to compensate for the negative impacts of high prices especially through safety nets, as well as medium to long term investments in agriculture; especially on productivity and climate-smart agriculture policies.

As a response the Bank has created several financial instruments to help mitigate the impacts of climate change on food price instability. India has begun making insurance markets for farmers, although there is much scope to scale this up beyond the current pilot. The IMF, which also tracks food price commodity prices, is working to provide policy support and financial assistance to low-income countries facing such food shocks through a funding program called the Exogenous Shocks Facility.
Programs and policies to help mitigate food price hikes include safety nets to ensure poor families can afford basic staples, sustained investments in agriculture, the introduction of drought-resistant crop varieties--which have provided large yield and production gains--and keeping international trade open to the export and import of food.

To combat such trends in South Asia, resources have been made available through 2012 for the Bank’s Global Food Price Crisis Response Program (GFRP) in order to mitigate the worst of these shocks. In Nepal, for instance, a GFRP project has provided food to approximately 940,000 people through food and cash for work programs. Some 94% of beneficiaries reported an increase in food security and an average of 5.5 months of self-sufficiency; 52% of respondents reported eating more meals each day; 45% reported an increase in the variety of food consumed; and 30% reported eating larger meals.

The World Bank is engaged in South Asia in addressing agriculture production and food safety net problems.  Agriculture and Rural development (ARD), with a portfolio of $5.8 billion dollars, constitutes the largest share of the South Asia’s lending program.

SOURCE: World Bank

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