WORLD TRADE  
ORGANIZATION   
G/AG/GEN/96 
4 November 2011 
 (11-5611) 
Committee on Agriculture Original:   English 
  
 
FOLLOW-UP TO THE MARRAKESH MINI STERIAL DECISION ON MEASURES 
CONCERNING THE POSSIBLE NEGATIVE EF FECTS OF THE REFORM PROGRAMME 
ON LEAST-DEVELOPED AND NET FOOD-IMPORTING 
DEVELOPING COUNTRIES 
 
Submission by the World Bank 
 
  The following submission, dated 2 November 2011, is being circulated at the request of the World Bank. 
 
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 1. This intervention briefly summarises recent estimates by the World Bank on how price-
insulating policies by Members during the crises ha ve magnified price movements, how the World 
Bank has been assisting low-income and net-impor ting developing countri es through its Global Food 
Crisis Response Programme (GFRP), Rapid Social  Response (RSR) Programme and the Horn of 
Africa Regional Drought Response Plan, and agricu ltural lending, and how the adoption of a new 
trade strategy will contribute to our assistance in the future. 
I. THE SECOND FOOD CRISIS – PRICES, VOLATILITY, AND EFFECTS OF TRADE 
MEASURES 
2. Following the food crisis between 2006 and 2008, prices for agricultural commodities again 
started to rise from the middle of 2010 until March 2011.  Since then, prices have stabilised but the 
World Bank's commodity price index for agriculture re mains at a higher level than during the peak of 
the 2006-2008 crisis.  Price volatility has also been high, with low stocks of wheat and maize making 
world markets vulnerable to adverse supply shocks. 
3. Trade policy responses—including export restri ctions and import barri er reductions—appear 
to have been important influences on price levels and volatility in recent years.  For the 2005 to 2008 
period, we now have the data on trade needed to assess policy responses to world price changes 
(Anderson and Nelgen 2012).  These data suggest th at a large number of countries—and countries 
that account for a large share of production and c onsumption— responded to higher world prices with 
price-insulating policies such as export restricti ons or import duty reductions.  This response is 
completely understandable for individual developing countries given the importance of staple foods in 
consumer budgets in many poor c ountries (see Gouel and Jean 2011). 
4. However, the use of these policies by countries th at collectively account for a large share of 
consumption creates a collective action problem—the  more countries insulate, the more unstable the 
world price becomes (Martin and Anderson 2011).  If all countries resist a price increase arising from 
a series of bad harvests or an increase in biofuel pr oduction, the effect is to push up the world price 
even more.  While insulating policies can lead to a relative stabilisation of domestic prices in those 
countries that undertake such policies in the short ru n, they can only work as long as not all countries G/AG/GEN/96 
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  undertake similar policies.  Over the longer term, f undamental shifts in demand and supply conditions 
will also lead to structural changes in prices th at will have to be reflected in domestic prices. 
5. At the same time, insulating policies that ach ieved relative price stabilisation have increased 
global volatility of prices, and co ntributed to pushing global prices higher by stimulating demand.  
This has particularly affected NFIDCs, whose domestic prices depend on the world market.  So from 
their point of view the situation is worse as the increase in the volatility of world prices directly 
increases the volatility of their food import bills. 
6. How important has price insulation been in in creasing the size of price shocks in world 
markets for staple foods?  Martin  and Anderson (2011) estimate that the adjustments to world prices 
in response to the crisis contributed close to half  of increase in world prices of rice between 2005 and 
2008.  This means that the increase in world rice pr ices was almost twice as large as it would have 
been in the absence of pr ice insulation.  For an NFIDC, this means a near doubling of the adverse 
income shock and the food import bill, creating pot entially serious problems both for poor consumers 
and—where governments are involved in importing food—for government budgets. 
7. This analysis shows that NFIDCs have been a ffected by the externalities generated by policies 
adopted by other countries, substantially increasi ng food price increases on global markets.  At the 
same time, many NFIDCs have little ability to insu late their economies from increases in world food 
prices and are forced to transmit these changes into  domestic prices.  This benefits farmers who are 
net sellers of food, and hurts those households wh o are net buyers of food.  The net impact on the 
poverty rate depends on where low-income households  get their income, and the pattern of their 
expenditures.  For most countries, it turns out that higher prices increase poverty rates in the short run, 
because poor consumers spend very large fractions of their incomes on food, and many poor farmers 
are net buyers of food.  In some cases, these impact s can be very large.  Ivanic and Martin (2008) 
found that even a 10 per cent increase in the price of core staple foods would raise poverty by an 
average of 0.6 percentage points in a sample of eight low-income countries. 
8. Dealing with this collective action problem is  very challenging given individual governments' 
concerns about food price volatility and their vulnerability to shocks resulting from beggar-thy-
neighbour policies adopted by other countries.   But, once the problem is recognized and 
acknowledged, the experience of the Uruguay Round suggests that something might potentially be achieved despite these difficulties.  Prior to the Uruguay Round some of the most intense price insulation was found in the high income countries in the form of variable import levies that completely blocked transmission of changes in world prices into count ries where consumers, 
producers and policy makers had other ways of managing price volatility.  The Uruguay Round ban 
on variable import levies was important progress on d ealing with this problem.  But the industrial 
countries account for only a few per cent of world production and consumption of rice and less than 
30 per cent of world consumption of wheat, so re forms to deal with the negative externalities 
generated by price insulation must  involve developing countries. 
9. From the NFIDCs perspective, this collectiv e action problem would be best addressed by 
agreeing to multilateral disciplines on export restricti ons for food products.  Similarly, developing 
disciplines that would restrict short-term usage of  import policy measures in large economies aimed at 
keeping domestic prices low in times of upward pressure on food prices, could contribute to limiting price movements in global markets.  This is one  reason why further reductions in import tariffs – 
under negotiation in the Doha Round – are important .  Stronger disciplines on both export and import 
policies would limit the impact of the forces that are leading to  upward pressure on food prices, rather 
than re-enforce such pressures, and limit the impact on poor consumers in NFIDCs and other 
countries unable to insulate domestic markets. 
10. The response to these and similar challenges to  the NFIDCs need to be based on multiple 
pillars.  While it is critical to deliver emergency aid in times of urgent need, future crises can only be  G/AG/GEN/96 
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  prevented or limited if structural issues in defi cit countries are addressed.  This includes raising 
productivity and the incomes of poor farmers th rough improved technology and investment, and 
efforts to reduce trade and logistical costs to increase the availability both of food and of needed 
production inputs such as fertilizer. 
II. EMERGENCY AID:  PROVIDING RAPID CRISIS RESPONSE 
11. As reported before, the Worl d Bank launched its Global Food Crisis Response Programme 
(GFRP) to mitigate the harm of soaring costs and help countries adapt to higher and more volatile 
food prices shortly before the last food crisis reac hed its peak in June 2008.  The GFRP was designed 
as a fast-track facility with a total initial ceiling of US$1.2 billion, which was increased in April 2009 
to US$2 billion to enable continued rapid response to the food crisis if demand for assistance were to 
increase.  In light of the recent rise in food prices again from June 2010, the Board reinstated the use 
of expedited processing to June 2 011.  Given growing concern about  continued food price volatility 
and uncertainty in food markets, the Board in J une 2011 further extended the processing of expedited 
processing under GFRP till June 2012.  Since Nove mber 2009, the Japan Social Development Fund 
Emergency Window supports activities of the GF RP with grants of up to US$8 million. 
12. As of 17 October 2011, GFRP resources have financed operations amounting to 
US$1.5 billion, of which 80 per cent has been dis bursed, reaching nearly 40 million vulnerable people 
in 47 countries.  Of these, 59 per cent were allo cated to Sub-Saharan Africa, 16 per cent to South 
Asia, 15 per cent to East Asia and the Pacific, a nd 2-4 per cent each to Europe and Central Asia, the 
Middle East and North Africa and Latin America and the Caribbean. 
13. The resources made available through the GFRP  are already having a significant impact on 
the ground.  In Nepal, a GFRP project has pr ovided food to approximately 940,000 beneficiaries 
through food/cash for work programs.  Based on pr ogram monitoring, 94 per cent of beneficiaries 
reported an increase in food security and an average of 5.5 months of self-sufficiency; 52 per cent of 
respondents reported eating more meal s a day; 45 per cent reported an increase in the variety of food 
consumed and 30 per cent reported eating larger meal s.  In Senegal, grant support from the MDTF is 
scaling up the Government's Nutrition Enhancem ent Program and providing cash transfers to 
vulnerable mothers with children under the age of five. 
14. Since 2008, additional crisis response mechanis ms have been established, among them the 
Horn of Africa Regional Drought Response Plan , and the Rapid Social Response Program. 
15. In mid-September 2011, a US$30 million grant wa s approved that will benefit over half a 
million people, mostly women and ch ildren, allowing them to access nutrition, health and sanitation 
services in refugee settlements along the Somali border in Kenya and Ethiopia.  The grant was drawn 
from the US$250 million earmarked fo r the Horn of Africa drought through the Crisis Response 
Window (CRW) recently established as part of th e International Development Association (IDA). 
16. Under the broader Horn of Africa Regional Drought Response Plan, the World Bank's 
International Development Association (IDA) , the donor-funded Global Facility for Disaster 
Reduction and Recovery (GFDRR), and the Stat e and Peace Building Fund (SPF) are making 
available US$1.88 billion to respond to the drought cris is in the Horn of Africa in three phases:  the 
Rapid Response phase covering the first six months , the Economic Recovery phase covering the first 
two years, and the Drought Resilience phase focusing on implementation over a longer period of time.  The overall thrust of the Bank's response seeks to li nk short-term crisis mitigation with long-term 
development objectives both at country and regional le vels, with an emphasis on partnership to ensure 
proper coordination and utilizing the World Bank's extensive experience and knowledge in disaster 
response and drought management in specific. G/AG/GEN/96 
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  17. Of these funds, US$288 million will be allocated during the Rapid Response phase, aiming at 
increasing livelihood protection for vulnerable groups , while US$384 million will be spent during the 
Economic Recovery Phase over the next two year s, enhancing affected people's livelihoods. 
18. In addition, the Rapid Social Response (RSR) Program was established in November 2009 as 
a World Bank response to the Food, Fuel and Financial Crises, alongside the GFRP.  While it 
leverages larger IBRD and IDA resources, the core  of RSR operations is the US$61.7 million trust 
fund (TF) resources donated by the Russian Federa tion, Norway and the United Kingdom, and its 
primary mission is to help low-income countries bu ild social protection systems, so that they are 
ready to protect and invest in their populations in future crises. 
III. TECHNOLOGY AND INVESTMENT:  INCREASING AGRICULTURE LENDING 
19. Beyond making available emergency aid, how ever, many countries will need additional 
assistance to increase long-term produc tivity in the agricultural sector. 
20. The World Bank's Agriculture Action Plan fo r fiscal years 2010-2012 emphasizes increased 
support in five areas:  raising agricultural productivit y; linking farmers to markets;  reducing risk and 
vulnerability;  improving nonfarm rural employment;  and making agriculture more environmentally 
sustainable, as well as a source of positive environm ental services.  To support this, the World Bank 
Group projected an increased support to agricultu re and related sectors, from a baseline average 
support in FY2006-08 of US$4.1 billion annually to  between US$6.2 billion and US$8.3 billion 
annually over the next three years.  In FY11, IBRD/IDA/Special Financing assistance to agriculture 
and related sectors, as described in Implementing Agriculture for Development:  World Bank Group 
Agriculture Action Plan, FY10-12 , was US$3.6 billion (8 per cent of  total IBRD/IDA).  In addition, 
IFC invested US$2.2 billion in the agribusiness and for estry value chain.  This leads to a total of 
US$5.8 billion for overall World Bank Group lending  to agriculture and related sectors in FY11. 
IV. TRADE POLICY: OPENING REGIONAL MARKETS FOR FOOD STAPLES:  
REDUCING NTMS AND TRADE FACILITATION 
21. The World Bank has recently adopted its first Trade Strategy, giving guidance to its trade 
related work.  The strategy is built around four ar eas:  trade competiveness and diversification, trade 
facilitation and transport logistics, support for mark et access and cross-border trade cooperation, and 
managing shocks and promoting greater inclusion. 
22. Access to global and regional markets continues to remain a key pillar for ensuring long-term 
food security.  In particular, expanding South-South integration through trade reform is an area that 
can greatly bolster trade in food products among deve loping countries.  Such integration will also 
have to increasingly focus on removing non-tariff barriers in food staples. 
23. For example, recent work by th e World Bank that focuses on regional trade on food staples in 
Africa has shown that food surplu s areas are often separated from food deficit areas by thick borders 
that substantially increase transport costs.  Conti nued focus on improvements in trade facilitation will 
create new export opportunities and increase incen tives for augmenting food production in more 
fertile areas.  This will reduce costs of food staples,  integrate markets further and thereby reduce price 
volatility.  Promoting competition among transport services and improve border efficiency and to 
support regional integration, particularly for landlo cked countries that may not be integrated into the 
global market.  The World Bank's Trade Facilitation Facility is one vehicle that can be used to financing relevant trade facilitation interventions. 
24. Complementing these reforms, it will be important to bring the private se ctor into the Aid for 
Trade agenda to leverage private investment into  expanding production potential, increasing capacity 
to meet relevant standards, and reducing trans portation costs.  This will allow producers access  G/AG/GEN/96 
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  domestic and overseas markets, increasing predictab ility of reaching markets, prices, and thereby 
reducing uncertainties that often prevent additional investment in agriculture , necessary to increase 
food security over the medium term. 
25. To minimize the impact of future food price spikes, clear commitments to avoiding the use of 
export restrictions on food will be needed.  This shou ld be particularly applied to humanitarian aid, as 
this will be of critical importance to mainta in price stability in periods of food stress. 
 
 
References 
 Anderson, K. (ed.) 2009.  Distortions to Agricultural Incentives:  A Global Perspective, 1955–2007, 
Washington DC: Palgrave Macmillan and World Bank. 
 Anderson, K. and S. Nelgen 2010.  Trade Barrier Volatility and Agri cultural Price Stabilization , 
Policy Research Working Paper 5511, World Bank, Washington DC. 
 
Gouel,C. and Jean, S. (2011).  Optimal food price stabilisation in  a small open developing country  
Paper presented to the Conference on Global Economic Analysis, Venice Italy, June.  Ivanic, M. and Martin, W. 2008.  Implications of higher global food  prices for poverty in low-income 
countries , Agricultural Economics 39 (2008) supplement 405–416. 
 
Martin, W. and Anderson, K. (2011).  Export Restrictions and Price Insulation during Commodity 
Price Booms , Policy Research Working Paper 5645, World Bank, Washington DC. 
  
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