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Statement by Lennart Båge to the European Parliament's Committee of Development

Mr Chairman, Committee members, Ladies and Gentlemen.  First let me thank you for your kind invitation to address this distinguished Committee.   

Today a crisis is looming.  In many countries, the rapidly increasing food prices has meant hardship and despair among ordinary citizens.  Unable to maintain their standard of living; forced to choose between feeding their families or sending their children to school or looking after their health, these people have taken to the streets. 

While the world food price index rose on average by 9% in 2006 over 2005, it increased 23% in 2007 compared with the previous year and has this year continued to surge.  The prices of basic staples – wheat, maize, rice – are at record highs, up 50% or more in the past six months.  Stocks are at record lows – the global supply of wheat is lower than it has been in about 50 years.   And there are many predictions that cereal prices will continue to rise.   

The impact of rising food and commodity prices is being felt globally.  But it could spell noting short of disaster for many in the developing world.  Many developing countries are net importers of cereals.  In 23 net food importing countries, from Bangladesh to Zambia, nearly 40% of their populations, or 170 million people, are already classified as undernourished.       

Faced with hungry and restless populations, many governments are seeking to protect their consumers through food subsidies and import tariff reductions.  But this is at best a short-term fix.  In the longer term, their capacity to intervene will be eroded and government budgets undermined.   Political and economic stability will be threatened.  And many households will risk slipping back into poverty.

Much has already been written about what might have caused this unprecedented hike in prices.  Let me quickly mention five main factors.

First, a growing global population – 75 million more very year – is demanding more food.   

Secondly, a rapid rise in living standards, particularly in Asia, translates into demand for a more varied diet.  If the growing middle classes in India and China want to eat more meat and dairy products, then more grain will be required as feedstock. It takes seven to eight kilos of grain to produce one kilo of beef.  In China, per capita meat consumption has increased from 20kg in 1980 to 50kg now.  The biggest consumers of grain are not the humans but the animals.

Thirdly, rising input costs, including energy and fertiliser.  Last month, oil prices continued to break all time highs.  Fuel is important not only for cultivation but also for processing and freight.  Freight transport costs doubled between 2006 and 2007, and shipping costs are now ten times higher than in 1998.  Fertiliser costs are also rising sharply.  For example, nitrogen fertiliser is now three and a half times its 1999 level.

Continuing high oil prices, as well as concerns about energy security and the need to mitigate climate change, have raised interest in bio-fuel production – a fourth cause.  Ethanol production is now using over 30% of the US corn crop.  It was virtually zero 10 years ago.  The expansion of bio-fuel production is diverting agricultural land from food to bio-fuel.   

Finally, looming over all of these drivers is the long-term effect of climate change.  Rising temperatures, climate variability, uncertain growing seasons, decreased water availability, new pests and diseases and decreasing biodiversity – this potentially disastrous combination will most likely contribute to slowing the supply response, and record floors and droughts are already having a negative impact. 

By 2050 sub-Saharan Africa is predicted to have up to 10 per cent less annual rainfall in its interior.  Given that 96% of African agriculture is rain-fed, the consequences of less rain for African agricultural production are of concern.  By 2020, world agricultural production is projected to decrease by 16% as a result of global warming.  

Impact on poor rural people
With the adoption in the year 2000 of the Millennium Development Goals, the world established for the first time a universal framework for development.  Much progress has been made to reduce poverty over the past decades.  And at a global level the first MDG is likely to be met.  But poverty remains widespread across the globe and remains a particular challenge in Africa.  The proportion of people in sub-Saharan Africa living in extreme poverty is still above 40%, placing the first MDG beyond the reach of many African countries.

In the face of today's challenges, our immediate priority must be to look after the interests of those already living in poverty: the more than two billion who live on less than US$2 a day and the close to one billion who have to survive on less than US$1 a day. 

Low income households spend a proportionally larger share of their income on food – up to 75%, compared with around 15% for richer ones.  So soaring food prices will either force these households to spend less on food and/or constrain them to reduce their spending on other activities, like schooling or health. 

When my colleague in Rome from the World Food Programme, Josette Sheeran, addressed you last month, she brought to your attention the difficulties that the WFP faces due solely to soaring food and fuel costs.  Because of rising costs, WFP needs an additional US$500 million to maintain its purchasing power. 

I wholeheartedly support the WFP's efforts. Food to hungry people must be our first priority.  But we must also invest in a more productive agriculture so as to minimise the need for food aid in the longer term.  If we are to respond effectively to the twin challenges of rising food prices and global warming, we must address the supply response.  This means, among other things, to improve the capacity of the 400 million smallholder farmers both to access resources and to use them better.  This is at the core of IFAD's mandate.

Agriculture is key
Global poverty continues to be predominantly a rural problem.  Three-quarters of those living on less than a dollar a day, or some 720 million, live in rural areas, depending on agriculture for their livelihoods.  And of these, almost three quarters live either in South Asia or sub-Saharan Africa.   

Investment in agriculture has been shown time and again to have a powerful impact on poverty reduction.  Growth in agriculture has driven wider economic growth throughout history – from 18th century England, to 19th century Japan, to 20th century India, China and Viet Nam.  According to the World Development Report last year, GDP growth generated by agriculture is up to four times more effective in reducing poverty than growth in other sectors. 

But government spending on agriculture in most poor countries was in sharp decline until recent years.  In most countries in Africa, less than 5% of government budgets went into agriculture.  And development aid for agriculture has not so much fallen as plummeted.  From 18% of all aid in 1979, to 3.5% in 2004, and a pitiful 2.9% in 2006. 

IFAD's role: unlocking the potential
IFAD is the only International Financial Institution with an explicit mandate to invest in agriculture specifically to help eradicate rural poverty, create economic opportunities for the rural poor, and ensure food security.  We have accumulated thirty years of experience.  Over this time we have provided over US$10 billion in loans and grants to poor rural women and men.  

Today we are one of the largest sources of development financing for agriculture and rural development in many developing countries.  We have increased our programme of work on average by 10% a year for the last five years, and this will continue both this year and next.  Nearly 50% of our funding goes to Africa, placing us among the top three multilateral institutions investing in agriculture there.

We are making particular efforts to assist the rural poor both to adapt better to climate change and even to be part of global efforts to mitigate it.  Poor rural people are often powerless but they are not irrelevant.  How they manage their land matters to us all.  Whether they store or release carbon will depend on the opportunities they have and the incentives they are offered.  We can help them to become part of the solution – helping to feed the world and store the carbon. 

Our challenge is to enable poor rural men and women to take advantage of the current trends, by helping them improve their capacity to produce.  Rising food prices could bring significant benefits to smallholder farmers, making smallholder family agriculture more economically viable.  There are 80 million smallholder farmers in Africa alone; over 400 million worldwide supporting more than two billion people and their families.  But their supply response remains constrained by lack of access to land and water, to inputs, to services, to finance and infrastructures.  If we are to ensure that these farmers can seize the longer-term opportunities presented by higher food prices, we must provide them with the means to increase their productivity, and to benefit from better access to natural resources, services and markets.  This is IFAD's mandate.  And I believe it is more relevant and important than ever.

We also recognise that bio-fuels, especially second generation bio-fuels that can be grown on marginal lands, could offer smallholder farmers significant new income sources.  We are already working to enable farmers to take advantage where they can of the huge market for bio-fuel production, but not at the expense of others in need, or of the environment.  For example, we are funding research into bio-fuel crops, such as jatropha, pongamia and sweet sorghum, which can grow under the adverse conditions of remote, marginal lands.   

Farmers' organisations have a key role in the empowerment of poor rural people.  They represent rural producers' interests and they act as institutions delivering services to their members. As such, they are important partners both in development programmes and in policy dialogue. 

The Farmers' Forum, established by IFAD four years ago, provides farmers' organisations around the world with greater opportunity for sharing experiences and fostering collaboration.  The most recent Forum took place in Rome in February this year, and brought together over 70 global, regional and national organisations, representing literally hundreds of millions of farmers from Asia, Africa and Latin America, for consultation and dialogue with IFAD and governments. 

Thanks to this bottom-up process, representatives of farmers' organisations now participate in the development of most of the country strategies, programmes and projects funded by IFAD.

We work directly and consistently with farmers' organisations, grass roots community institutions and the most marginalised of rural populations, including women and indigenous peoples.  This experience gives us a strong basis in the delivery of rural development, and a solid foundation from which to contribute to and help lead broader partnerships aimed at reducing rural poverty.

Working in partnership
Working in partnership is critical to the effectiveness of our activities.  Our key partners are our member governments, the developing countries themselves – the poor rural people and their organisations.  But we also work in close partnership with our sister agencies in Rome, the FAO and WFP, as well as with other UN agencies, on policy issues, operations and business practices, in the context of the One UN process.  Being an IFI we also work closely with the Regional Development Banks and the World Bank.    

Collaboration between the three Rome-based agencies is based on a "twin track" strategy to reduce hunger and rural poverty.  This approach recognises the need to provide both direct support to alleviate hunger immediately for the most vulnerable, and longer term agricultural, food security, nutrition and rural development programmes to eliminate the root causes of hunger.  While our mandate focuses on the latter, the two tracks frequently need to be addressed together, and partnership with the FAO and WFP is crucial. 

As concerns for global food security grow, the need for close partnerships with the FAO and WFP has never been greater.  That is why we are also working with them to identify new areas for greater and more systematic collaboration in the future including on climate change.  We are actively supporting the FAO High Level Conference on climate change, bio-energy and food security, which takes place in Rome in June this year.   

A key strategic partner is also the European Commission, which by the end of this year, with an expected commitment of €121.5 million, will become the largest contributor to IFAD's Supplementary Funds, in particular in support of research through the CGIAR system.  The further development of the agricultural research system, the CGIAR, is key to responding to the new challenges of climate change, bio-fuels and rising food prices.  We are developing a joint approach together with the European Commission. 

Improved aid effectiveness: IFAD reform
But simply channelling our collective resources into developing countries is not enough.  We need to ensure that the resources we provide are used to maximum effect.  We, like you, recognise the need to seek constantly to improve the effectiveness and efficiency of our aid programmes. 

I have worked with international institutions all my professional life.  It was my privilege and pleasure to represent Sweden in the work on UN reform through the Nordic UN project in the early 1990s.  I have felt deeply the sense of both opportunity and responsibility in pushing the envelope of UN reform as a member of the High Level Panel on System-Wide Coherence.  Over the past seven years in Rome, I have given my personal commitment to transform this international institution into a 21st century organisation, with fundamental reforms across the board. 

I am delighted to say that, under our Action Plan to Improve IFAD's Development Effectiveness, endorsed by our governing bodies in 2006, we have been able to develop a series of new tools, organisational processes, policies and strategies to improve our country- and project-level operations and results.  Together, these ensure that key issues such as targeting and gender, innovation and knowledge management, and project sustainability, are now fully mainstreamed within the project cycle.  We are the only UN organisation with a fully independent office of evaluation.   

The Report on IFAD's Development Effectiveness – presented for the first time last year – shows that our performance in key areas, such as effectiveness, efficiency and sustainability, is indeed improving.  While the challenge now is to sustain and deepen reform, I am delighted at the comments of some of our members at the Governing Council in February who see IFAD as a pioneer and model of reform for other IFIs as well as for the UN. 

Reducing poverty in the face of rising prices and against the backdrop of climate change is indeed a daunting challenge.  If we are to meet the first MDG, we need to support some 300 million people to reach above the "dollar-a-day" poverty line between now and 2015.  Given our mandate and 30 years of experience, I believe that IFAD is the right organisation at the right time and in the right condition today to make a much bigger contribution towards this goal. In this our Replenishment year, we stand to increase our programme of work to US$3 billion, to support agricultural development programmes with a total investment cost of US$6 billion.  These programmes are expected to reach 50 million poor rural people.

The challenge is to translate the interest in agriculture, stemming from high food prices today, into a more long term commitment from governments, aid donors and the private sector to focus attention and resources in investing in agricultural productivity and production.  Four hundred million smallholder farmers can be part of the solution to grow the food and store the carbon.  They should not be seen as a poverty problem but as a production potential that the world needs to invest in for food security, for climate change mitigation and for poverty reduction.

Thank you for your attention.

Brussels, 1 April 2008