Globalization means that we are all connected—for good or for bad. Systems are connected across countries and sectors. For instance, food production is intimately connected to energy, water, and finance, and drought in the United States can raise food prices for people all around the world. Changes in one or a few factors in interlinked systems may trigger crises that cascade across time and space in unpredictable ways.
A new WRI issue brief, Weaving the Net, explores how complex, global crises can have profound impacts on low-income, vulnerable households. In many cases, climate change can exacerbate these impacts. The world experienced this fact—to dramatic effect—when the food crisis unexpectedly erupted in 2008.
Anatomy of a Complex Crisis
After being almost stable for 20 years, the FAO food price index more than doubled between 2007 and 2008, a spike unpredicted by any of the early warning systems. This dramatic rise was due to a confluence of factors including: high oil prices due to increased demand that could not be met by increased production, a resulting demand and use of land for biofuel ethanol as a substitute for oil, low food reserves, and countries implementing food export bans to protect their domestic economies and citizens.
Source: FAO Food Price Index (last accessed 27 October 2013)
Extreme weather and climate events in the form of droughts and floods reduced food output in major grain-producing countries like Australia, Russia, and the United States, adding to the surge in food prices, as shown in the figure above. In 2009, there was a boost in grain production, in response to high demand, which resulted in food prices falling again. This trend was coupled with falling food and energy demand as a result of the U.S. housing market collapse, which triggered a global financial crisis that especially impacted low-income communities and households.
In 2010, climate variability played an important role again. Wheat prices began to rise as a result of crop failures in Russia due to a severe heat wave, and in Australia due to floods. At the same time, China’s main wheat-growing region was experiencing unprecedented drought, and the country, which had thus far been mainly self-sufficient in wheat, began large-scale imports. Some suggest that two other dramatic phenomena connect to the food and finance crises: the problem of land deals for biofuels and the role of food scarcity in the “Arab Spring.” As countries try to find substitutes for oil, the market for biofuels becomes more profitable than that for food. In Guatemala, for instance, land-owners are already displacing tenants to lease land for large-scale ethanol production from sugar cane. Meanwhile, countries like Tunisia, Egypt, and Libya are highly dependent on food imports, and food expenses account for 34-45 percent of per capita income (in comparison to less than 10 percent in most developed countries). Skyrocketing bread prices and the widening gap between the rich and poor added to other economic, social, and political drivers of the Arab Spring uprising.
Helping Those Who Cope with the Negative Effects of Complex Crises
A 2012 study by the Institute for Development Studies and the World Bank shed light on the ways in which households in poor communities were impacted by, and dealt with, the 2008-2011 crisis period. The research found that in all countries studied, an early reaction to rising food prices was a reduction in the quantity and quality of food consumed. Women assumed the role of “shock absorbers” by eating fewer meals to provide more for other family members, proving that coping mechanisms are not gender neutral. As the crisis continued, sales of assets and indebtedness became increasingly common, which limited the resilience of households to contend with new shocks. A heartening finding was that removing children from school was far less common than in earlier crisis events. Parents often made great sacrifices to keep their children in school. Another study found that migration for labor, and associated remittances, constituted one of the least volatile and most resilient financial flows to households in need in developing countries. While there was a dip in remittances during the 2008 food crisis, it was much less than the dip in foreign direct investments.
Crises seem to have very similar outcomes among vulnerable communities and households despite having varied and complex causality. The findings from the IDS and World Bank study show that outcomes from the 2008 food crisis are notably similar to other crisis events such as floods, storms, droughts or earthquakes. Development investments therefore need to focus on a core group of policies that can preempt the negative effects of a broad range of crises.
Weaving the Net Highlights the Need to:
- Establish vulnerability observation systems, utilizing both longitudinal research data and data that is routinely collected through national systems such as censuses;
- Strengthen safety nets, using “new generation” designs, to protect poor households and help them on the way out of poverty;
- Support the building of adaptive capacity, which in turn requires strong institutions and enabling policies, for instance on mobility and migration, and
- Promote “risk governance,” which is the set of policies and instruments a government employs to protect people, natural and physical infrastructure.
Crises like the 2008 food crisis will only become more complex and common in an increasingly globalized world. But by understanding these crises and developing risk-mitigation policies that work effectively across a range of crises, we can better protect vulnerable communities from their dangerous effects.
- LEARN MORE: Read WRI's new Issue Brief, Weaving the Net.