Research & Policy Briefs From the World Bank Malaysia Hub No. 61 January 3, 2023 From Food Security to Nutrition Security in the East Asia and Pacific Region Mateo Ambrosio, David Dawe, Ergys Islamaj, Alban Mas Aparisi, Aaditya Mattoo, Aka Kyaw Min Maw, and Animesh Shrivastava The East Asia and Pacific (EAP) region has been less exposed to the food price shock arising from Russia’s invasion of Ukraine than other world regions. East Asia and Pacific economies have not imported much directly from the war-affected countries and have consumed less wheat (prices for which spiked) and more rice (prices for which remained stable). But the region has still imported inflation because of its dependence on imports of non-rice food and fertilizers. This dependence arises, first, because policy support to rice production through trade restrictions and subsidies discourages diversified domestic production and creates a mismatch with increasingly diversified domestic consumption. Second, input subsidies have encouraged input-intensive production, which magnifies the need for fertilizer and petroleum imports. Because these subsidies also encourage the excessive use of water, they worsen the environment. Governments need to shift their focus from rice-centric food security to nutrition security, reduce subsidies and trade barriers that favor the production of rice, and shift support from input subsidies to encourage higher agricultural productivity, production diversity, and greater sustainability. The Impact of the Recent Food Crisis Map 1. The intensity of food inflation varies widely around the world On the face of it, the East Asia and Pacific (EAP) region has been relatively less affected by the recent food crisis than other world Food inflation heat map regions. An international comparison of real food inflation during the April–July 2022 period shows that inflation was in the low band of 0 percent to 2 percent in EAP most economies (map 1). The low impact is not surprising because the EAP region was structurally less susceptible to shocks generated by the war in Ukraine. Russia, Ukraine, and Belarus combined represent 16 percent of the world’s exports of cereal (mainly wheat), 10 percent of the exports of animal/vegetable fats or oils, and 21 percent of the exports of fertilizer. However, wheat accounts for a small percentage of net cereal trade in EAP economies (figure 1). Similarly, sunflower/safflower oil imports account for a small share Source: World Bank, Food Security Update, August 11, 2022. of total edible oils and fats imports of EAP countries. However, Note: Food inflation for each country is based on the latest month from April to July 2022 for which data on the food component of the Consumer Price about one-quarter of the fertilizer imports of EAP economies do Index (CPI) and overall CPI data are available. Real food inflation is defined as come from Russia, Ukraine, and Belarus. food inflation minus overall inflation. Figure 1. The war in Ukraine has shocked the global food system a. Share of Russia, Ukraine, and Belarus in world b. East Asia and Pacific economies’ net exports of rice, exports (average value, 2018−20) wheat, and fertilizer (percent of GDP, 2015–19 average) Belarus Russia Ukraine 2 Rice Corn 21% 1 Wheat and meslin Fertilizers 16% Percent of GDP 0 -1 10% -2 -3 THA KHM LAO MMR CHN VNM IDN MNG PHL PNG TLS TON PLW WSM VUT T UV MYS FSM FJI SLB KIR Cereals Animal or vegetable Fertilizers fats and oi ls East Asia Island economies Source: World Bank staff estimates using data from the World Integrated Trade Solution (WITS) database. Note: In panel a, cereals include wheat, meslin, barley, and maize. Animal or vegetable fats or oils include soya-bean, sunflower, safflower, rape, colza, or mustard oil. Fertilizers include N-fertilizer, K-fertilizer, and fertilizer with two or three elements (N, P, K) (nitrogen, phosphorus, potassium). Panel b uses International Organization for Standardization country codes. Affiliations: Ergys Islamaj and Aaditya Mattoo, World Bank East Asia and Pacific Chief Economist Office; Animesh Shrivastava, World Bank East Asia and Pacific, Agriculture Practice; Mateo Ambrosio, David Dawe, Alban Mas Aparisi, and Aka Kyaw Min Maw, consultants. Acknowledgements: The team benefitted from discussion and comments from Ndiame Diop, Manuela V. Ferro, Andy Mason, Tobias Pfutze, Peter Timmer, Dina Umali-Deininger, and Hassan Zaman. Nancy Morrison provided editorial assistance. Objective and disclaimer: Research & Policy Briefs synthetize existing research and data to shed light on a useful and interesting question for policy debate. Research & Policy Briefs carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions are entirely those of the authors. They do not necessarily represent the views of the World Bank Group, its Executive Directors, or the governments they represent. From Food Security to Nutrition Security in the East Asia and Pacific Region The second reason the EAP region has been less affected is Figure 2. Prices for rice, the staple cereal for East Asia and Pacific economies, have been stable recently because the price of rice, which is the main food staple, has been generally stable throughout the recent crisis. Since early 2021, the rice price has kept declining even as the price of wheat has nearly Rice Wheat Maize 250 doubled (figure 2). 200 Even though EAP economies have generally been less affected than other economies, food prices have nevertheless increased Index 150 considerably in Indonesia, Malaysia, the Philippines, and Thailand following Russia’s invasion of Ukraine. In fact, rising food prices 100 have been the major contributor to higher inflation in the region’s 50 major economies (figure 3). Moreover, country-level data show that despite the stable 0 (even falling) price of rice, consumers have had to endure both Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 price increases and price swings for food driven, for example, by changing prices of animal protein. This is because the contribution (“weight”) of rice to the overall Consumer Price Index (CPI) is Source: World Bank staff calculations using data from World Bank Commodity dwarfed by that of non-rice food items (figure 4). This has Price Data (The Pink Sheet). important consequences for consumer welfare and food security Note: The figure shows monthly cereal price indexes (January 2020=100). strategy and policies. Figure 3. These price increases have generated inflationary pressures in some East Asia and Pacific economies 10 Food & Beverage Housing & furnishing Transport & communication Others CPI 8 Percentage point 6 4 2 0 -2 -4 Jun-20 Jul-22 Jan-20 Jun-20 Nov-20 Apr-21 Jan-20 Jun-20 Nov-20 Apr-21 Jul-22 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Jan-20 Nov-20 Apr-21 Sep-21 Feb-22 Sep-21 Feb-22 Jul-22 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Sep-21 Feb-22 China Indonesia Malaysia Philippines Thailand Vietnam Source: Haver Analytics. Note: The figure shows the contribution to Consumer Price Index (CPI) inflation (year on year). China’s CPI weight is estimated. Figure 4. Regional demand for and consumption of food are diversifying out of rice Developed East Asia South and Southeast Asia 400 30 300 25 200 Calories per capita 20 100 Percent 0 15 -100 Fruits & vegetables Meat, dairy, eggs & fish Oils and fats Sugar Others Rice Non-rice cereals & starchy roots 10 5 0 Staples Meat Dairy Fish Sugar Vegeta ble oil Source: FAO 2022 (retrieved on Aug 20, 2022); OECD/FAO 2022 Note: In panel a, the Developed East Asia group includes 5 countries: Australia, China, Japan, the Republic of Korea, and New Zealand. The South and Southeast Asia group includes: Afghanistan; American Samoa; Bangladesh; Bhutan; Brunei Darussalam; Cambodia; Cook Islands; Fiji; French Polynesia; Guam; Hong Kong SAR, China; Kiribati; Korea, Democratic People’s Republic of; Lao People's Democratic Republic; Macao SAR, China; Maldives; Marshall Islands; Micronesia; Mongolia; Myanmar; Nauru; Nepal; New Caledonia; Niue; Palau; Papua New Guinea; Samoa; Singapore; Solomon Islands; Sri Lanka; Taiwan, China; Timor-Leste; Tokelau; Tonga; Tuvalu; Vanuatu; Wallis and Futuna Islands. In panel b, East Asia and Pacific economies include developed East Asia and South and Southeast Asia. 2 Research & Policy Brief No.61 Longer-Term Challenges Figure 6. Trade and policy measures in East Asia and Pacific have increased during the recent crisis It is imperative to address three long-term challenges to strengthen food security in EAP economies. First, as noted, there is a growing mismatch between food demand and supply. Food 12 Export policy Subsidy demand is moving away from rice as consumers grow richer, more Number of measures nutritionally conscious, and more urbanized. However, insufficient 9 diversification in domestic production has led to an increase in imports in important categories of food products, especially meats 6 and edible offal, maize, and soybeans. 3 Second, climate change presents major risks to the food security of EAP economies. Figure 5 shows the rising frequency of natural disasters in the EAP region. Agriculture is both a 0 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 “perpetrator” of climate change (a major contributor of greenhouse gases) and a “victim” (one of the sectors expected to be hardest hit). Food security policies need to address the fact that current agricultural practices and land use changes are Source: World Bank staff estimates using data from Global Trade Alert. Note: The figure shows restrictive policy announcements in 8 EAP economies compromising the natural resource base and future production related to only food, fertilizer, and feed. Export restrictions include export potential. Evidence shows a direct negative impact of climate bans, export licensing requirements, export quotas, export tariff quotas, export taxes, export-related non-tariff measures, tax or social insurance relief, change on the growth of agricultural productivity. There is need to and local supply requirements for exports. Subsidies includes capital injection promote adaptation by investing in new technologies, adapted and equity stakes (including bailouts), financial grants, in-kind grants, interest seeds, and better management practices. payment subsidies, loan guarantees, localization incentives, price stabilization, production subsidies, state aid, state loan, and tax or social insurance relief. Third, the current crisis has highlighted the need to increase resilience to fuel and fertilizer shocks. The crisis has ratcheted up and have involved a mix of measures to restrict trade, subsidies, both fuel and fertilizer prices. Historically, fertilizer prices have had and social protection support. Figure 6 shows that a number of a close influence on grain prices. In the short term, there is need export restrictions and market interventions were introduced in to diversify fertilizer imports to secure supplies for the coming response to the current crisis. Export restriction can, however, planting seasons. In the longer term, to promote sustainability and amplify price fluctuations. Globally, measures to protect domestic resilience, it is important that food security policies both promote markets and consumers introduced during the 2010–11 food price optimum use of fertilizers (which reduces per unit consumption) spike are estimated to have accounted for 40 percent of the and reduce the fuel-intensity of agriculture by transitioning to increase in the world price of wheat and 25 percent of the increase lower-carbon approaches and green energy sources in both in the world price of maize (Laborde, Lakatos, and Martin 2019). agriculture production and distribution. Several countries in the region announced price stabilizing Recent Policy Response measures on crucial food items such as rice, meat, and cooking oil, and subsidies to limit price increases in early 2022 to cap the The short-term responses to recent crises have been enacted increase in food prices (table 1). Commodity exporters Indonesia against a backdrop of longer-term trend that supports production, and Malaysia benefited from fiscal windfalls that made the Figure 5. Asia region is particularly vulnerable to natural Table 1. East Asia and Pacific countries have pursued various disasters market and fiscal interventions to support food security since Russia’s invasion of Ukraine Hydrological Market intervention Fiscal intervention (percent of GDP) Geophysical Price Trade Food Agriculture / Fuel Other 200 Climate- and weather-related control restriction subsidy fertilizer subsidy transfersa subsidy Number of events 150 Malaysia Chicken etc. Poultry 0.10 0.80 1.40 0.20 export ban Food, Thailand construction 0.39 0.56 0.27 100 material etc. Temporary Indonesia Cooking oil export ban 0.04 1.10 of palm oil 50 Philippines 0.12 0.02 0.21 0 Vietnam 0.30 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 Coal tariff elimination, China Coal Fertilizer export 0.02 restrictions Source: World Bank staff estimates using EM-DAT data. Note: The figure covers 46 Asian economies reporting any natural non-biological disasters. Biological disasters are excluded. EM-DAT refers to Source: World Bank Emergency Events Database launched by the Centre for Research on the Note: The figure covers February 2022-August 2022 period. Epidemiology of Disasters (CRED), within the Université Catholique de Louvain a. Other transfers include cash transfers to low-income households, the (UCLouvain), Belgium. tourism sector, and social security contributions. 3 From Food Security to Nutrition Security in the East Asia and Pacific Region support agriculture, net of associated budgetary receipts—for Figure 7. Policy support for agriculture, as a share of GDP, is among the highest in the world in Indonesia, the Philippines, agriculture are some of the highest in the world (figure 7). and China The Organisation for Economic Co-operation and Development (OECD) measures two types of support to _ agriculture: through policy distortions that drive up (or down) 2010 20 2021 farm-gate prices (the prices received by farmers for their produce 4 at the location of farm); and through budget transfers. Farm-gate Percent of GDP 3 price distortions are computed by calculating the difference 2 between observed farm-gate prices and a reference farm-gate price free of the effect of policy distortions. This reference 1 farm-gate price is calculated by adjusting the border price of net 0 imports (net of cost, insurance, and freight, CIF) or net exports -1 (freight on board, FOB) for domestic marketing costs, quality, and Indonesia Philippines Türkiye China Korea, Rep. Japan Russia OECD EU United States Brazil Vietnam South Africa Australia quantity differences, thereby reflecting the farm-gate price that would prevail in the absence of trade barriers and price-administering policies. The price gap between observed and reference prices is calculated for each commodity, then multiplied by the volume of production and aggregated to calculate the market price support. This support is sometimes referred to by Source: World Bank staff estimates from OECD 2021. Note: EU = European Union; OECD = Organisation for Economic Co-operation the OECD as “implicit support” because it is not provided through and Development. budget transfers. Budget transfers include producer subsidies (input and output subsidies), general service support estimates subsidies more affordable than they have been in other countries (such as research, extension, irrigation) and consumer transfers such as Thailand. While helpful in containing price pressures in the (such as food aid). They are sometimes referred to by the OECD as short term, subsidies impose a significant fiscal cost. “explicit support”. Long-Standing Distortions In China, Indonesia, and the Philippines, budget support is More importantly, many aspects of current agricultural policies currently dwarfed by market price support (MPS) in agriculture, and public expenditures do not support needed transformations which households pay for and which significantly distorts for greater nutritional security. In the EAP region, the Total Support production, consumption, and resource allocation decisions. Estimates (TSE)—the annual monetary value of all gross transfers Market price support—or support through fixing prices and from taxpayers and consumers arising from policy measures that maintaining trade barriers—is 2.5 to 4 times higher than budget support (figure 8), except in Vietnam, where domestic farm gate Figure 8. Public policy support through market price support is prices are lower than reference international prices. Further, at least twice as great as through budget support in some East market price support and subsidies are heavily biased toward Asian countries production of livestock and grains, especially rice. This support inhibits diversification into horticulture (fruits and vegetables), which can have positive nutrition effects and give farmers higher 100 incomes at undistorted market prices. Also, rice and livestock are 80 a significant source of greenhouse gas (GHG) emissions in agriculture (FAO 2020). Repurposing this support for green 60 innovation (for instance, improved breeds and rice farming technologies) could lead to both productivity increases and GHG Percent 40 emission decreases (OECD 2019). 20 An average of 37 percent of budget support to agriculture is spent on direct subsidies across China, Indonesia, Philippines and 0 Vietnam, the four largest economies in the EAP region, excluding Thailand. Direct subsidies—paid for by taxpayers—serve to lower -20 the cost of inputs (fertilizer, seeds, power, other), and these often -40 entrench food production patterns that do not support diversification to meet changing demand patterns. These patterns -60 can also have high (hidden) costs in terms of GHG emissions, land China Indonesia Phili ppines Vietnam degradation, and environmental pollution. In a context of constrained fiscal space, they also represent a lost opportunity for Market price support Transfers public investments in knowledge and innovation, which are Source: World Bank staff estimates from OECD 2022. critical to develop technologies that increase agricultural Note: The figure shows the 2010–20 average for both explicit (budgetary) and productivity, sustainability, and resilience. These investments implicit (market price support) to agriculture. 4 receive a limited 8 percent of budget support (figure 9). Research & Policy Brief No.61 Figure 9. Between 40 percent and 70 percent of budget The Way Forward support to agriculture has gone to direct subsidies and In the EAP region there is a need to shift focus from rice-centric irrigation in some East Asian countries food security to nutrition-centric food security. Food consumption has been diversifying out of rice over the years. Therefore, stable rice prices have not insulated EAP consumers from food inflation 100 or food price volatility. More than 99 percent of the population in East Asia and Southeast Asia can afford a diet sufficient in calories 80 (food energy), but less than 50 percent in Southeast Asia can afford a healthy diet (intended to meet all nutrient intake requirements and to help prevent malnutrition in all its forms) Percent 60 (FAO et al. 2020). 40 Food security has three key dimensions: availability (ensuring adequate overall supplies); access (ensuring physical and economic access at the household level); and stability (ensuring 20 continuity over time of the “food secure” status of all households). Table 2 identifies the relevant set of issues, and the risks relating to 0 them, for these three dimensions of food security. As the table shows, food security policies need to include supply-side China Indonesia Philippines Vietnam measures as well as steps to insure against a range of risks and shocks, both internal and external. The directions of change for strengthening food security in EAP Other Hydrological infrastructure are clear: nutritional diversity needs to be enhanced; food prices need to be lowered; incomes of vulnerable populations need to be Agricultural knowledge Production support subsidies increased; resilience to shocks must be strengthened; and the and innovation system sustainability of the agri-food system needs to be ensured (table 3). Given the current structure and legacy of food security policies Source: World Bank staff estimates from OECD 2022. and approaches in the EAP economies, and the evolving nature of Note: The figure shows the 2010–20 average of explicit (budgetary) support to the food security challenges, some key policy shifts will be agriculture. desirable, going forward. There are some areas where the Table 2. Food security in East Asia and Pacific: Issues and risks Dimension of food security Issues Risks Availability • Increase domestic productivity • Inputs shocks (fuel, fertilizers, seeds) • Increase product diversity • Natural shocks • Increase trade • Trade shocks Access • Increase incomes and transfers to • Income shocks the vulnerable • Transfers shocks (change in • Reduce cost of food remittances, state protection) • Competitive markets with related • Political shocks (e.g., internal logistics for stable prices conflicts, FCV situations) disupting logistics, trade and markets Stability • Inventory (public, commercial and • Hoarding, panic buying private stocks) to ease seasonal • Inadequate institutional capacity to variations offset shocks • Strategic reserves to offset shocks • Ineffective (“time-inconsistent”) offset shocks insurance arrangements • Risk spreading to cope with shocks: • Logistical bottlenecks insurance, trade and forward markets • Regulatory hurdles • Deepen markets and strengthen • Supply chain shocks (e.g., internal supply chains (to dampen price conflicts, logistics) fluctuations) Source: World Bank staff elaboration. Note: FCV = fragility, conflict and violence. 5 From Food Security to Nutrition Security in the East Asia and Pacific Region government can do more (listed in the “consider” column in table diversity and stability of supplies over time, an integrated set of 3) and other areas where it can do less or work differently (listed in measures is needed. Policy biases and distortions that currently the “reconsider” column in table 3). favor the production of rice need to be reduced. Public expenditures need to be repurposed to help farmers diversify their For instance, to improve affordability, agricultural support production to livestock and other high-value agriculture goods and policies should be recast to focus on increasing productivity nutritious foods. Food marketing and logistics should be expanded because that would lower the cost of food for consumers and to make the domestic food system more resilient to internal and increase the incomes of farmers. In the face of shocks, it may be external shocks and to further stabilize prices. necessary to shield consumers from price spikes and producers from price crashes. Where additional support for consumers is Finally, to improve sustainability, governments should deemed necessary, it would ideally take the form of income safeguard the environmental and ecological health of land, water, transfers rather than price controls. Similarly, support to producers and air. Necessary measures include reducing subsidies that would ideally take the form of direct transfers decoupled from encourage input-intensive agriculture and strengthening production. incentives to reduce negative spillovers. To enhance climate resilience of agriculture, governments need to promote the use of Lowering trade barriers would also improve consumer access more resilient breeds/varieties and smarter agriculture water to cheaper and more diverse food products. To maintain product management. These recommendations are presented in table 3. Table 3. East Asia and Pacific governments should reconsider some current policies and consider some new ones to strengthen food security Dimensions Reconsider… Consider… Producer/input subsidies, which distort crop Support to producers decoupled from production choice and inputs-mix; impede improvement in to enhance technical and allocative efficiency productivity and/or resilience; and crowd-out (inputs-mix and crop choices) at the farm level. Availability other public expenditures. Repurposing public expenditures away from Trade restrictions and price band policies, which input, output subsidies towards research, impede stabilizing role of trade and distort extension and other public investments that production and consumption decisions. increase productivity and diversification. Market price support, which is paid by taxpayers Targeted transfers to vulnerable consumers and all consumers, raising food prices. Improving storage and processing Access infrastructure to lower transaction costs and minimize food losses. More open and competitive food marketing and trade arrangements. Unsustainable producer support, such as Support to shift from inputs- to knowledge- input/output subsidies that encourage greater intensive production, such as improved use of land, water, fertilizer and other inputs, breeds/varieties, precision agriculture, increase GHG emissions, and support low-nutrition, measures to lower GHG emissions. Stability low-value crops. Over-reliance on “short-horizon” ex post risk Building long-term resilience to shocks through management policies, such as ad hoc post-shock ex-ante preparedness (such as risk assessments, farmer and consumer transfers, protective trade early warning systems) and improved ex-post policies, market price interventions. management capacities and funds). Source: World Bank. Note: GHG = greenhouse gas. 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