Food (In)Security: A Macroeconomic Perspective

Food insecurity is not just a humanitarian or moral concern; it is also a critical economic issue with detrimental implications for national economies and the global economy alike. It, therefore, is highly relevant to the International Monetary Fund (IMF), an international financial institution with a macroeconomic and financial stability mandate. This article examines food insecurity through a macroeconomic lens, exploring its economic aspects, particularly in the context of increasing geopolitical fragmentation. It also discusses various policy responses by countries and the IMF’s role in the global effort to combat food insecurity.

Editor's note:

This Argument appears in JIA's Special Digital Issue, "Global Food Security" (Spring/Summer 2024), a collaboration with the International Fund for Agricultural Development. 

By
Rhoda Weeks-Brown
July 08, 2024

Introduction

Food security goes beyond simply having a full stomach. While its humanitarian dimension is undeniable and heartbreaking, food insecurity also presents a critical economic challenge. It has substantial negative implications for national economies and the global economy alike, making it highly relevant to an international financial institution like the International Monetary Fund (“IMF” or “Fund”) whose mandate focuses on domestic and global macroeconomic and financial stability.

This article brings a macroeconomic lens to food insecurity. It explores key economic linkages and the impact of rising geopolitical fragmentation. The article also discusses the IMF’s role in the global effort to address and mitigate food insecurity in and across countries. Ultimately, effectively tackling this fundamental challenge requires enhanced international cooperation and collaboration from a diverse coalition of players.

A Critical Economic Issue

Economic research has established that an adequately nourished population is critical to productivity and sustainable growth. Food insecurity hinders countries from achieving real growth rates sufficient to reduce poverty.[1] In 2022, the UN estimated that 735 million people (9.2 percent of the world’s population) suffered from "chronic hunger."[2] This translates to significant economic consequences.

A key channel for transmission of these economic effects is the negative impact of poor nutrition on health and human capital accumulation.[3] This is reflected in the United Nations’ Sustainable Development Goal 2: "Zero Hunger." The UN notes that "[e]xtreme hunger and malnutrition remain a barrier to sustainable development and…mean less productive individuals, who are more prone to disease and thus often unable to earn more and improve their livelihoods."[4]

The Cost of Hunger in Africa Study (COHA), led by the African Union Commission, provides a stark illustration of these economic consequences across several dimensions. The study estimates that undernutrition in the 21 participating Member States has resulted in (a) increased child mortality (which translates to a 16.1 percent loss of the current workforce); (b) lower educational achievement (which has caused about $4.17 billion in annual productivity losses); (c) decreased manual labor productivity (valued at about $5.9 billion); and (d) increased healthcare costs (participating Member States have spent approximately $3.2 billion treating undernutrition and related illnesses). COHA estimates the total losses in productivity to be approximately $26.8 billion.[5] In addition to these somewhat calculable costs, food insecurity also fuels conflict and mass migration, further impacting economies by, among other effects, eroding consumer and investor confidence.[6]

Food insecurity can also have broader macroeconomic effects, particularly when the food shock involves high food prices, which, in turn, exacerbate food insecurity. First, inflation skyrockets. In 2023, almost a quarter of Low-Income Countries (LICs) experienced annual domestic food inflation of more than 15 percent.[7] Second, poverty deepens. The 2007-2008 food price spike is estimated to have kept or pushed 105 million people into poverty.[8] Finally, food shocks create or exacerbate balance of payments (BOP) difficulties, particularly in countries that are net importers of food. They also put pressures on these countries’ foreign exchange needs and central bank international reserves.

Policy Responses

Countries have implemented various measures to mitigate the adverse macroeconomic effects of higher global food prices. These measures typically involve adjustments to fiscal, monetary and exchange rate, and trade policies.

One common fiscal policy change involves cutting food taxes and tariffs. In 2007, for example, 84 countries reduced food taxes and 76 decreased food import taxes. Similarly, in 2022, 8 of the 48 countries identified by the IMF as highly exposed to food insecurity reduced customs duties.[9]

Another fiscal measure involves targeted transfer programs, such as school lunch programs, cash transfers, and agricultural subsidies to low-income farmers. These programs aim to more directly and efficiently lessen the impact of food shocks on the poor.[10] In 2008, 56 countries reported implementing targeted transfer programs costing up to 4.8 percent of their GDP. Notably, in 2022, 5 of the 48 countries identified by the IMF as highly exposed to food insecurity used cash transfers.[11] Targeted transfers are generally viewed positively as they minimize price distortions and can be adjusted for inflation. However, they require significant administrative capacity, which can be a challenge for many LICs.

Countries also use monetary and exchange rate policies to mitigate the impact of higher food prices. Ideally, these policies should maintain alignment with broader disinflation goals. Sometimes, the exchange rate can also act as a shock absorber. For example, during the 2008 food crisis, countries in the CFA franc zone, pegged to the euro, were shielded from the rise in the US dollar price of food and oil in international markets as the euro appreciated against the dollar.[12]

Crucially, in response to food shocks, it is not unusual for food-exporting countries to restrict or tax food exports to reduce domestic food prices. While this aims to maintain enough domestic food supplies, it can also be counterproductive as it can limit the international supply and flow of food. This happened in 2022 when approximately 30 countries imposed export restrictions or bans on agricultural commodities.[13]

 Current Challenges

The ability of countries to respond to the current food crisis has been constrained by several factors. Compared to pre-pandemic levels, many countries are in weaker fiscal positions. This is compounded by a challenging macroeconomic landscape involving higher energy prices, tighter global liquidity conditions, weakened GDP growth, elevated inflation, and high debt levels, with 55 percent of LICs at high risk of or already in debt distress.[14]

Additionally, the COVID-19 pandemic and the war in Ukraine have exacerbated geopolitical tensions among major economies. This could result in a reversal of global economic integration and cooperation with adverse consequences for global financial stability and food security.[15]

Geopolitical fragmentation has already worsened global food insecurity through food price shocks. Before the war, Ukraine and Russia together supplied 30 percent of globally traded wheat, 20 percent of maize, and 75 percent of sunflower oil.[16] Fears of declining output and new export restrictions by several food-exporting countries led to a surge in global food prices between February and April 2022, hitting a 60-year high in March 2022 when adjusted for inflation.[17] If geopolitical tensions intensify, there is a major risk of more extreme fragmentation of commodity trade, including agricultural products. This would disproportionately impact LICs that rely heavily on agricultural imports.[18]

The IMF’s Role

The IMF recognizes that food insecurity is a complex, multifaceted challenge with demonstrated criticality for its macroeconomic and financial stability mandate.[19] The institution has a long history of collaborating with other international organizations, such as the World Bank, World Trade Organization, and the World Food Program, to coordinate global policy responses to address food insecurity, primarily concerning food shocks.[20]

The IMF contributes through the exercise of all three of its broad powers provided for in its Articles of Agreement. First, pursuant to its regulatory or oversight powers, the Fund provides policy advice to its members on a bilateral basis in the ordinary course of its regular economic policy discussions with each country, which provide ongoing and timely insights into each country’s economic situation. This routine (generally annual) engagement is unique to the IMF, and together with analytical tools like its Food Insecurity Assessment Tool[21] allows the organization to make informed assessments of the potential macroeconomic impact of food shocks on each country and provide tailored policy recommendations.

Second, the IMF helps strengthen the capacity of members to design and implement policies recommended in the context of the Fund’s surveillance and/or financing activities. This capacity development includes advice on responding to food crises.

Third, the IMF provides BOP financing to its member countries, recognizing that for the most vulnerable countries, grants and highly concessional financing from other international partners should be the first lines of defense.

IMF financing is provided in two broad categories: (i) “upper credit tranche” (UCT) financing and (ii) non-UCT financing. UCT financing supports members that have a detailed economic program designed to help them resolve their BOP problems and regain medium-term external viability. Non-UCT financing supports members that have an urgent BOP need for financing but who either cannot (i) at that time design or implement a UCT-quality program or (ii) have a BOP need that is expected to be resolved within a year with no major policy adjustments. IMF Staff estimates that since February 2022, the IMF has approved approximately $33.9 billion in UCT financing for countries identified as highly exposed to food insecurity.[22]

In addition to UCT financing, the IMF has provided a substantial amount of food-related financial assistance through non-UCT emergency financing. A key example is the Food Shock Window (FSW), a temporary emergency window the IMF developed in 2022 specifically to address food shocks. To create the FSW, the IMF leveraged both of its existing emergency financing instruments, namely the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI). While the RCF provides concessional emergency financing for LICs, the RFI provides non-concessional emergency financing. The FSW was first drawn in September 2022 to provide financing to Ukraine and was initially designed to operate for 12 months, later extended to 18 months.

The FSW’s purpose was to provide additional non-UCT financing under the RCF and RFI to countries facing urgent BOP needs associated with the global food shock, and for which a UCT-quality program was either not currently feasible or not necessary. For low-income countries, access to the FSW was at concessional terms, with the amount based on their actual BOP needs. There was a cap, however, set at 50 percent of each country’s quota (similar to shares) in the IMF. Importantly, access to the FSW was designed to be on top of, not replace, the annual access limits under the RCF or RFI.[23] This meant that countries that had already maxed out on emergency assistance could still receive additional funding.

Six countries – Burkina Faso, Guinea, Haiti, Malawi, South Sudan, and Ukraine – utilized the FSW, receiving a total of $1.8 billion in financial assistance.[24] Ukraine, Burkina Faso, and Malawi have since transitioned to UCT-quality programs. Loan repayment varies depending on the instrument used (RCF or RFI) and ranges from 3¼ to 10 years.

The FSW itself expired at the end of March 2024. However, other measures were already in place to ensure continued support for vulnerable countries.[25] In particular, the Fund extended higher cumulative access limits for the RCF. This ensured that all LICs then eligible for the FSW were either supported by a UCT-quality program or had space for additional emergency financing to weather the ongoing food shock, should a UCT-quality program not be feasible.[26]

The IMF’s recent, swift support for countries most impacted by the food shock aligns with its longstanding commitment to addressing food security challenges, including through financing. Beyond its support during the recent food crises, the Fund has also provided special financing focused on food shocks in the past. In fact, as early as 1981, the organization expanded its first-ever special financing facility, the Compensatory Financing Facility (CFF), to address BOP problems stemming from excess increases in the cost of cereal imports.[27]

Crucially, while the Fund has played a role in addressing food insecurity specifically, its broader work supporting member countries’ economic development also helps protect countries from food insecurity. This is because the stronger a country’s economy, the better it is able to withstand food shocks. Thus, the fundamental policies to address food insecurity are the same as those to support economic development more generally. For example, investment in infrastructure and education and diversification of the economy all contribute to economic development, higher productivity, and growth, which make countries less vulnerable to food price volatility. 

Conclusion

The far-reaching human and economic costs of food insecurity mean that no country is immune. Moreover, food insecurity is not a problem that a single individual, community, or country can solve on its own. Its multifaceted nature demands global cooperation, both in responding to immediate food crises and in strengthening long-term food security globally. The international community must seize every opportunity for even closer coordination and action. This means moving away from geoeconomic fragmentation and towards improved economic cooperation and stronger domestic and international economic policies. We can and must succeed; the alternative is simply too dire to contemplate.

 

Rhoda Weeks-Brown is the General Counsel and Director of the Legal Department of the IMF. The views expressed in this article are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or its management. The author would like to thank Pheabe Morris for her invaluable input and support with this article, and Gabriela Rosenberg, Naoya Kato, Catherine Pattillo, Ervin Prifti, and Martin Schindler, for very helpful comments. 

 


[1] IMF Note Tackling the Global Food Crisis: Impact, Policy Response, and the Role of the IMF September 29, 2022, page 3, https://www.imf.org/en/Publications/IMF-Notes/Issues/2022/09/27/Tackling-the-Global-Food-Crisis-Impact-Policy-Response-and-the-Role-of-the-IMF-523919?cid=bl-com-INSEA2022004.

[2] UN Sustainable Development Goals, Goal 2: Zero Hunger, https://www.un.org/sustainabledevelopment/hunger/; See also The State of Food Security and Nutrition in the World 2023, reporting that global hunger, measured by the prevalence of undernourishment (SDG Indicator 2.1.1), affected around 9.2 percent of the world population in 2022 compared with 7.9 percent in 2019. The State of Food Security and Nutrition in the World 2023 (fao.org).

[3] IMF Note Tackling the Global Food Crisis: Impact, Policy Response, and the Role of the IMF September 29, 2022, page 3, https://www.imf.org/en/Publications/IMF-Notes/Issues/2022/09/27/Tackling-the-Global-Food-Crisis-Impact-Policy-Response-and-the-Role-of-the-IMF-523919?cid=bl-com-INSEA2022004.

[4] https://www.un.org/sustainabledevelopment/hunger/. Recognizing the “immense” challenge of meeting SDG-2, the UN also projects that 600 million people will be facing hunger still in 2030. While SDG-2 focuses specifically on hunger and food insecurity, food security is also relevant for other SDGs, including 1 (no poverty), 8 (decent work and economic growth) and 12 (responsible consumption and production including issues of food waste).

[5]  The Cost of Hunger In Africa (COHA) Continental Report : Social and Economic Impact of Child Under nutrition | African Union (au.int) Chapters V and VI.

[6] IMF paper Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses, June 30, 2008, page 18, https://www.imf.org/en/Publications/Policy-Papers/Issues/2016/12/31/Food-and-Fuel-Prices-Recent-Developments-Macroeconomic-Impact-and-Policy-Responses-PP4266

[7] IMF Note Fall 2023 Global Food Crisis Update— Recent Developments, Outlook, and IMF Engagement, October 2023, page 3. See link at bottom of page at https://www.imf.org/en/Publications/IMF-Notes/Issues/2023/04/12/Global-Food-Crisis-Update-Recent-Developments-Outlook-and-IMF-Engagement-531948.

[8] Global Monitoring Report, Food Prices, Nutrition, and the Millennium Development Goals: Food Prices, Nutrition, and the Millennium Development Goals, Chapter 1, IMF, April 25, 2012

[9]  IMF paper Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses, June 30, 2008, pages 26-27 https://www.imf.org/en/Publications/Policy-Papers/Issues/2016/12/31/Food-and-Fuel-Prices-Recent-Developments-Macroeconomic-Impact-and-Policy-Responses-PP4266; IMF Note Tackling the Global Food Crisis: Impact, Policy Response, and the Role of the IMF September 29, 2022, page 17, https://www.imf.org/en/Publications/IMF-Notes/Issues/2022/09/27/Tackling-the-Global-Food-Crisis-Impact-Policy-Response-and-the-Role-of-the-IMF-523919?cid=bl-com-INSEA2022004

[10] Income Versus Prices: How Does the Business Cycle Affect Food (In)-Security? (imf.org)

[11] IMF paper Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses, June 30, 2008, page 30 https://www.imf.org/en/Publications/Policy-Papers/Issues/2016/12/31/Food-and-Fuel-Prices-Recent-Developments-Macroeconomic-Impact-and-Policy-Responses-PP4266; IMF Note Tackling the Global Food Crisis: Impact, Policy Response, and the Role of the IMF September 29, 2022, page 17, https://www.imf.org/en/Publications/IMF-Notes/Issues/2022/09/27/Tackling-the-Global-Food-Crisis-Impact-Policy-Response-and-the-Role-of-the-IMF-523919?cid=bl-com-INSEA2022004

[12] IMF paper Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses, June 30, 2008, page 32, https://www.imf.org/en/Publications/Policy-Papers/Issues/2016/12/31/Food-and-Fuel-Prices-Recent-Developments-Macroeconomic-Impact-and-Policy-Responses-PP4266

[13] As of September 9, 2022. Based on World Trade Organization (WTO), International Food Policy Research Institute (IFPRI), and IMF monitoring of trade policy changes since February 2022.

[14] IMF Note Global Food Crisis Update— Recent Developments, Outlook, and IMF Engagement, October 2023, page 5;  See link at bottom of page at https://www.imf.org/en/Publications/IMF-Notes/Issues/2023/04/12/Global-Food-Crisis-Update-Recent-Developments-Outlook-and-IMF-Engagement-531948; IMF Note Global Food Crisis Update— Recent Developments, Outlook, and IMF Engagement, April 2023, page 7;  https://www.imf.org/en/Publications/IMF-Notes/Issues/2023/04/12/Global-Food-Crisis-Update-Recent-Developments-Outlook-and-IMF-Engagement-531948; Report on Macroeconomic Developments and Prospects For Low-Income Countries—2024,  Paras 4 and 16, https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/04/02/Macroeconomic-Developments-and-Prospects-For-Low-Income-Countries-2024-547064

[15] The Price of Fragmentation, Why the Global Economy isn’t Ready for the Shocks Ahead, Kristalina Georgieva, September/October 2023,  https://www.foreignaffairs.com/world/price-fragmentation-global-economy-shock. Notably, trade restrictions have proliferated at a rapid clip in recent years: with countries imposing fewer than 1,000 such restrictions in 2019, which by 2022 had ballooned to almost 3,000.

[16] U.S. Department of Agriculture, Economic Research Service; Ukraine War Threatens to Cause a Global Food Crisis - The New York Times (nytimes.com)

[17]  FAO Food Price Index | Food and Agriculture Organization of the United Nations

[18] World Economic Outlook, October 2023Chapter 3: Fragmentation and Commodity Markets: Vulnerabilities and Risks, page 71, 76, https://www.imf.org/en/Publications/WEO/Issues/2023/10/10/world-economic-outlook-october-2023#:~:text=The%20chapter%20reaches%20four%20conclusions,commodity%20prices%20and%20more%20volatility. Symptoms of fragmentation identified in this World Economic Chapter, include (a) six times more new restrictions affecting trade in commodities in 2022 than the 2016–19 average and trade-restricting measures on overall trade having increased 3.5 times; (b) price dispersion increases in major commodity markets in 2022; and (c) a decline in commodity FDI and cross-border mergers and acquisitions. Moreover, analysis of trade patterns suggests that commodity trade is historically associated with countries’ geopolitical alignment, indicating that changes in military alliances because of rising geopolitical tensions could go hand in hand with disruptions of trade flows and fuel fragmentation of commodity trade.  

[19] See The IMF’s Evolving Role Within a Constant Mandate, Kristalina Georgieva, Rhoda Weeks-Brown, Journal of International and Economic Law, January 25, 2023, https://academic.oup.com/jiel/article/26/1/17/7003371, and IMF Board Paper, The Fund’s Mandate—The Legal Framework (22 February 2010), available at https://www.imf.org/external/np/pp/eng/2010/022210.pdf, for a detailed discussion of the IMF’s mandate.  

[20]  One example of such cooperation has been a number of joint statements issued by the heads of the FAO, IMF, WBG, WFP and WTO calling for urgent action to address the global food and nutrition crisis. See Joint Statements: April 13, 2022, https://www.imf.org/en/News/Articles/2022/04/13/pr22117-joint-statement-wbg-imf-wfp-and-wto-call-for-urgent-coordinated-action-on-food-security; July 15, 2022, https://www.imf.org/en/News/Articles/2022/07/15/pr22259-joint-statement-heads-fao-imf-wbg-wfp-wto-global-food-security-crisis; September 21, 2022, https://www.imf.org/en/News/Articles/2022/09/21/pr22313-second-joint-statement-by-the-heads-of-fao-imf-wb-wfp-and-wto-on-the-global-food-security; February 28, 2023, https://www.imf.org/en/News/Articles/2023/02/08/pr2335-joint-statement-by-the-fad-imf-wbg-wfp-and-wto-on-food-and-nutrition-security-crisis

[21] For example, IMF staff developed a Food Insecurity Assessment Tool (FIAT) to assist staff in the assessment of a country's vulnerability to food insecurity based on food availability, accessibility, affordability, and the policy response.

[22]  IMF Finances;  IMF Note Tackling the Global Food Crisis: Impact, Policy Response, and the Role of the IMF September 29, 2022, pages 29-30, https://www.imf.org/en/Publications/IMF-Notes/Issues/2022/09/27/Tackling-the-Global-Food-Crisis-Impact-Policy-Response-and-the-Role-of-the-IMF-523919?cid=bl-com-INSEA2022004.

[23] https://www.imf.org/en/About/Factsheets/Sheets/2023/Rapid-Credit-Facility-RCF#:~:text=A%20higher%20cumulative%20access%20limit,percent%20of%20the%20member's%20GDP.

[24] Some countries particularly affected by the food shock, were nonetheless not eligible to access the FSW because they did not have urgent BOP needs—as the increase in import prices of food and fertilizer was offset by increases in export revenues. Other countries were ineligible for Fund lending due to other conditions, including unsustainable debt. Proposal for a Food Shock Window Under the Rapid Financing Instrument and Rapid Credit Facility, October 5, 2022, https://www.imf.org/en/Publications/Policy-Papers/Issues/2022/09/30/Proposal-for-a-Food-Shock-Window-Under-the-Rapid-Financing-Instrument-and-Rapid-Credit-524079; IMF Paper Review of Experience with the Food Shock Window Under the Rapid Financing Instrument and the Rapid Credit Facility, May 21, 2023, https://www.imf.org/en/Publications/Policy-Papers/Issues/2023/06/30/Review-of-Experience-with-The-Food-Shock-Window-Under-The-Rapid-Financing-Instrument-and-535478.

[25] Report on Macroeconomic Developments and Prospects For Low-Income Countries - 2024, Box 7, https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/04/02/Macroeconomic-Developments-and-Prospects-For-Low-Income-Countries-2024-547064

[26] Report on Macroeconomic Developments and Prospects For Low-Income Countries—2024, Box 7, https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/04/02/Macroeconomic-Developments-and-Prospects-For-Low-Income-Countries-2024-547064; Review of The Cumulative Access Limits Under The Rapid Financing Instrument and The Rapid Credit Facility. IMF Policy Paper, Washington, DC, June 2023. https://www.imf.org/en/Publications/Policy-Papers/Issues/2023/06/30/Review-of-The-Cumulative-Access-Limits-Under-The-Rapid-Financing-Instrument-and-The-Rapid-535486

[27] For a more detailed discussion of these and other aspects of the CFF/CCFF, including of its evolution over time, see Review of the Compensatory and Contingency Financing Facility (CCFF) and Buffer Stock Financing Facility (BSFF)--Preliminary Considerations (imf.org) (1999) including Boxes 1 and 2.