This document discusses the implications of the financial crisis for agricultural growth in developing countries. It identifies four main impact channels: reduced export demand and terms of trade; decreased liquidity, FDI, remittances and trade credit; constraints on foreign exchange and fiscal deficits; and domestic policy responses. The document also examines lessons from past crises, long-term challenges of meeting poverty reduction goals through agricultural growth, and the need for crisis responses to prioritize growth and avoid reversing progress on sector policies and public expenditures.

1. IMPLICATIONS OF THE FINANCIAL CRISIS FOR
AGRICULTURAL GROWTH IN DEVELOPING COUNTRIES
Ousmane Badiane
Director for Africa
IFPRI

2. IMPLICATIONS OF THE FINANCIAL CRISIS FOR
AGRICULTURAL GROWTH IN DEVELOPING COUNTRIES
1. IMPACT CHANNELS
2. LESSONS FROM PAST CRISES
3.
3 IMPLICATIONS FOR LONG TERM GROWTH / POVERTY REDUCTION
4. LESSONS FOR POLICY AND ASSISTANCE RESPONSES

3. IMPLICATIONS OF THE FINANCIAL CRISIS FOR
AGRICULTURAL GROWTH
IMPACT CHANNELS
1 RECESSION – EXPORT DEMAND - TERMS OF TRADE – AG. INCOMES
2 LIQUIDITY TRAP – FDI – REMITTANCES -TRADE CREDIT – AG. FINANCE
3 FOREX AND FISCAL DEFICITS – AG EXPENDITURE / INVESTMENT
4 DOMESTIC AND ASSISTANCE POLICY RESPONSES ???

4. SECTOR GROWTH DURING PAST ECONOMIC CRISES
NON AGRICULTURAL AGRICULTURAL
SECTOR SECTOR
Indonesia: 1998 -16.1 -1.3
Malaysia: 1998
M l i -5.0
50 -2.8
28
Thailand: 1998 -12.1 -1.5
Korea: 1998 -5.8 -6.4
Mexico: 1982-86 -0.7 0.4
Honduras: 1982 -2 5
2.5 4.5
45
Mexico: 1994 -7.8 1.8
Honduras: 1994 -2.8 0.9
Nigeria: 1981-84 -3.8 -3.5
Zambia: 1998 -1.9 1.2
Source: D. Heady based on data from UN (2009): National Accounts Main Aggregates Database

5. VULNERABILITY OF AGRICULTURE TO GLOBAL MARKET CHANGES
RATIO VALUE AGRIC TRADE TO AGRIC GDP RATIO VALUE AGRIC TRADE TO AGRIC GDP
2000 - 2006 2000 - 2006
0.7 7.0
S. LANKA ASIA CARIBBEAN
0.6 6.0
TRINIDAD & T
0.5 5.0
0.4 4.0
0.3 3.0
0.2 2.0
0.1 1.0 HAITI
INDIA
- -
Individual Countries Individual Countries
RATIO VALUE AGRIC TRADE TO AGRIC GDP RATIO VALUE AGRIC TRADE TO AGRIC GDP
2000 - 2006 2000 - 2006
1.4 CHILE
1.2 S. AMERICA
DRC
AFRICA 1.2
1
1.0
0.8
0.8
0.6 0.6
0.4 0.4 COLUMBIA
0.2 0.2
CAR
0 -
Individual Countries Individual Countries
NOTES: Agricultural trade is the value of agricultural exports plus value of agricultural imports
SOURCES: Agricultural trade: Food and Agriculture Organization, FOASTAT 2008
Agricultural value added: World Development Indicators, 2008

6. LONG TERM CHALLENGE NO. 1
BRIDGING THE GROWTH GAP TO MEET THE POVERTY MDG TARGET
100
90 1990 Poverty Rate
80
70
(%)
60
2015 Target Poverty Rate
50
40
30
20
10
0
go
Benin
Zambia
so
na
er
ue
da
ya
wi
da
Malaw
Nige
Tog
Keny
Ghan
Burkina Fas
Mozambiqu
Ugand
Rwand
2015 Poverty Rate under CAADP 6% Growth Rate
Source: Poverty Rates from World Bank, Pov Cal Net, 2008;
CAADP Poverty and Agricultural Spending Rates from various IFPRI country CAADP Growth Options Studies

7. LONG TERM CHALLENGE NO. 2
BRIDGING THE EXPENDITURE GAP TO MEET THE POVERTY MDG TARGET
100
90 1990 Poverty Rate
80
70
(%)
60
2015 Target Poverty Rate
50
40
30
20
10
0
go
Benin
Zambia
so
na
er
ue
da
ya
wi
da
Malaw
Nige
Tog
Keny
Ghan
Burkina Fas
Mozambiqu
Ugand
Rwand
2015 Poverty Rate under CAADP 6% Growth Rate
Required Ag. Spending Growth Rate to CAADP 6% Growth
Source: Poverty Rates from World Bank, Pov Cal Net, 2008;
CAADP Poverty and Agricultural Spending Rates from various IFPRI country CAADP Growth Options Studies

8. EMERGING RESPONSES AND THE LONG TERM CHALLENGES
FURTHER PUBLIC EXPENDITURE BIAS ?
1000
900
800
700
Index (1980 =100)
600
500
400
I
300
200
100
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Agriculture Education Health Social Serrvices Infrastructure
Source: Data from IMF, Government Financial Statistics, various years

9. EMERGING RESPONSES AND THE LONG TERM CHALLENGES
THE RISK OF POLICY REVERSAL ?
Reduced taxes on food & Incentives for Agricultural input Export prohibition Price setting,
import tariffs on grains & expanding production
import tariffs on grains & expanding production subsidies controls
inputs (credit)
Country
Benin
Burkina Faso
Ethiopia
Ghana
Kenya
Malawi
Mali
Niger
Nigeria
Rwanda
Senegal
Uganda
Zambia √

10. RESPONDING TO THE CRISIS
GROWTH REMAINS THE GOAL
1 COMPENSATE FOREX AND FISCAL LOSSES
2 ENSURE AGRICULTURE FRIENDLY RESPONSES
AVOID SECTOR POLICY REVERSAL
DO NOT WORSEN PE BIAS AGAINST AGRICULTURE
3 PROVIDE GROWTH ORIENTED SAFETY NETS
MAXIMIZE SHORT TERM GROWTH IMPACT OF SOCIAL INVESMENTS
TARGET: RAISE PRODUCTIVITY IN AGRICULTURE AND RURAL AREAS

11. CONCLUSIONS
1. MOST SERIOUS IMPACT IS AT MACRO LEVEL
2. SERIOUS RAMIFICATIONS FOR AGRICULTURE
3. REGIONAL DIFFERENCES
4. RESPONSE HAS TO FOCUS ON GROWTH IN COUNTRIES BEHIND
MDG1
5. NEED FOR GROWTH ORIENTED SOCIAL PROTECTION