Food Crises and the WTO

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The WTO rules need revision; they reflect the uneven distribution of agricultural support and negotiating power at the time of the last negotiations and they need updating in the light of the changes in the international food system over the two decades since the AoA was concluded. The draft agricultural modalities in the Doha Round address some of these weaknesses and it is important to spell out what is on offer, and what is at stake if an agreement is not concluded.

Global Report on Food Crises – 2019 - To The Point

The agreement on a limited package of measures at the 9th WTO Ministerial Conference in Bali at the end of was welcome, but the broader Doha Round remains stalled despite its potential to update trade rules which would bring about a significant improvement in the governance of global food security. While the prospects look daunting, creating a more open international trade system to underpin a global system of food security is surely a prize that makes it worthwhile.

Before embarking on the rest of the paper, it is important to avoid two misunderstandings. Promoting an open and rules-based trading system as part of global food security governance should not be at the expense of the necessary investment in domestic agricultural production in developing countries. Low productivity in developing country agriculture is an important cause of poverty and hunger, and there is now a broad consensus in favour of investing in smallholder agriculture and in creating a better enabling environment for small farmers to thrive CFS, This may well lead to countries moving closer to domestic food self-sufficiency, but this is the secondary consequence, not an objective in itself, of the primary goal of ensuring the efficient exploitation of a nation's resources.

Second, food insecurity is ultimately felt at the household level; the measures to eliminate food insecurity are primarily domestic measures to be taken by states. An open and rules-based trade system is, on balance, beneficial for household food security but cannot ensure it on its own.

Thus, there is a need for flanking measures which, despite their importance, are not further discussed in this paper.

WTO Rules and Food Crisis in the Least Developed Countries (LDCs).

Some of these will be trade-related, for example, to assist producers to take advantage of the opportunities created by trade or to help them adjust to increased import competition. More important are the domestic measures, including the provision of social safety-nets, which can ensure freedom from hunger for all CFS, Global trade rules should facilitate the contribution that trade can make to food security. This definition points to four dimensions of food security: availability, access, utilisation and stability. Agricultural trade can influence all four dimensions.

The most important role of trade is to balance the demands of net food importers with the surpluses of net food exporters. By allowing production to take place in those regions best suited to it, significant efficiency gains in food production implying resource-saving and environmental benefits provided these resources are properly priced can be achieved.

The cost of producing the global food supply is minimised and food prices to consumers are lower than they otherwise would be. Globally, domestic production is the main source for consumption and trade plays a relatively minor role. Some developing countries are heavily dependent on imports although, as a group, import dependence remains low.

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In the case of cereals, for example, their import dependency ratio was This dependency ratio was actually slightly lower than for developed countries Whether trade will play a more or less important role in balancing food supply and demand in developing countries in future will depend on relative trends in food demand and domestic supply capacities in each country, which in turn will be influenced by the evolution of policy. There are reasons why current food importers might expect to experience a steadily deteriorating comparative advantage in food production.

Net food importing countries have, in general, more rapidly growing populations and more rapidly growing food demand per capita than net exporters. Net food importers also have, on average, poorer resource endowments in terms of land and water availability, with yield outcomes that will potentially be more adversely affected by climate change. On the other hand, greater investments in increasing agricultural productivity in sustainable ways could significantly improve production and productivity growth.

For example, yield gaps are high in many net food-importing countries in Africa; closing these yield gaps would narrow the difference between consumption and production. How productivity growth in farming evolves relative to non-agricultural production will also determine future comparative advantage in food production. Model simulations which capture the combined impact of these supply and demand drivers produce a wide range of estimates of the likely net trade positions of countries in Alexandratos and Bruinsma, ; Fader et al. There has been a steady increase in the number of developing countries which have turned from being net food exporters to net food importers OECD, b.

Critics worry about the affordability of continued increases in food imports by developing countries. A rising food import bill can be evidence of an under-performing agricultural sector, but it can also be the consequence of a welcome rapid rise in consumer incomes in developing countries. With high-income elasticities of food demand, the growth in food demand can often outpace the ability of even successful agricultural systems to expand production Mellor and Johnston, Despite the sharp rise in both food prices and food import bills in recent years, the ability of food-importing developing countries in aggregate to afford food imports during this period has hardly changed, although individual countries can have had very different experiences.

Two indicators measure the ability of developing countries to finance food imports. The first is the share of food import expenditure in total merchandise imports. A rising share suggests increasing difficulty in acquiring the desired level of imports. This evidence suggests that, for food-importing developing countries in general, meeting the cost of food import bills has become less onerous over time.

A second indicator of affordability is the coverage ratio, defined as the share of food import expenditure in a country's foreign exchange earnings.

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Import expenditure can be financed by aid inflows and by borrowing, but in the longer run, a country will find it easier to rely on food imports if it can finance these imports from its own foreign earnings. Foreign earnings include not only merchandise trade but also service export earnings and migrants' remittances on the debit side, unavoidable debt service might be deducted. This coverage ratio also shows a sharp downward trend for LDCs but with some reversal in recent years.

Did the WTO Play a Role in the Food Crisis?

However, there is no evidence at an aggregate level of an unsustainable rise in food import bills, despite the historically high food prices in recent years. Trade also impacts on the access to food of the poor and those likely to be affected by hunger. It does this mainly by facilitating economic growth, leading to rising incomes.

The relationship between agricultural exports, development and poverty has been central to modern development economics since the s. By providing producers with access to larger markets outside of their local and regional areas, economies of size can be achieved, enabling countries to expand food output efficiently. More generally, the creation of markets where none previously existed has the potential to bring gains in output and income which are a multiple of the traditional allocative efficiency gains from participation in trade.

Participation in trade also creates new opportunities for innovation and stronger productivity growth. Trade and investment flows spread new ideas, new technologies and the best research, leading to improvements in the techniques and practices available to farmers and food companies Fleming and Abler, Trade openness also leads to a different set of relative prices, compared with an environment in which markets are protected.

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That leads to efficiency gains, but creates winners and losers, the winners being consumers and potential exporters, the losers those producers who formerly benefited from import protection. In a dynamic sense, the producer gains translate into export opportunities, while the losses correspond to adjustment pressure.

However, there are fears that only larger commercial farmers may be in a position to benefit from improved export opportunities, and that smallholders may not be in a position to compete with lower priced food available on international markets. Smallholders may have difficulties in taking advantage of export opportunities in the absence of public investments to underpin market transactions. Even where there are clear revenue advantages to cash cropping, farmers may be reluctant to commit to producing for the market given rudimentary infrastructure and the high variability of prices Brown and Kennedy, These constraints of weak market linkages and high market frictions are amplified by a new set of challenges associated with compliance with product and process standards Lee, Gereffi and Beauvais, Sometimes these standards are set and enforced by governments, but increasingly compliance is required even to gain access to private sector supply chains.

There is concern that the productivity or production cost advantages that small-scale farmers might have are increasingly outweighed by the escalating transaction costs associated with facilitating, monitoring and certifying their compliance with standards. This leads to a risk of growing polarisation between agribusiness and smallholder farming systems, reducing the poverty alleviating effects of trade if smallholders are excluded or pushed out of high-value production chains as a result Vorley and Fox, The literature provides different answers as to whether these developments in global food supply chains create a serious barrier to using agricultural exports to alleviate rural poverty and improve food security Swinnen, ; Minten, Randrianarison and Swinnen, ; Reardon et al.

Public policy interventions will be important to make export markets work for the poor. Public investments in rural transportation and market infrastructure as well as the provision of support services are essential for small farmers to effectively participate in markets and to minimise risk. Helping small farmers to organise through farm associations and cooperatives can assist them overcome diseconomies of scale and to bargain more effectively.

As noted, trade and trade liberalisation also changes relative prices. Some households may lose out if their primary production now competes with lower-cost imports. However, trade liberalisation involves not only losses for some groups but also a re-allocation of resources towards higher-productivity activities.

The extent to which relative prices are affected by trade liberalisation depends on the extent of price transmission from the border to producers and consumers. This in turn will depend on the quality of the infrastructure, the behaviour of domestic marketing margins, and geographical factors Hertel, Also, the first-round effects where net food-consuming households gain from lower prices following trade liberalisation and vice versa can be overturned in the wake of subsequent adjustments in consumption and production FAO, Thus, the impacts of agricultural trade liberalisation on food security are ambiguous.

A detailed review of the evidence gave no consistent conclusions McCorriston et al. Partly, this is because agricultural trade liberalisation is often introduced as part of wider reforms which make it difficult to isolate the agricultural trade liberalisation impacts alone.

There are also different metrics which can be used to measure food security. More generally, if agricultural trade were harmful to food security, then a high degree of agricultural trade openness would tend to be associated with a high proportion of undernourished people in the population.

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  • However, plotting agricultural trade openness against two food security indicators, the prevalence of undernutrition and the percentage of children under five underweight does not support this expectation FAO, While no causal relationship is implied, the evidence does not suggest that engagement in agricultural trade is associated with high levels of undernourishment but, rather, the opposite.

    However, the study observes that there is a wide degree of dispersion in the data. Each level of trade openness is associated with a wide range of hunger indicators. This suggests that the impact of agricultural trade and trade liberalisation on food security is mediated by many other factors, such as markets, infrastructure, institutions and the complementary policy environment in which trade liberalisation takes place. In the absence of domestic measures to mitigate income losses, some households will lose in the process of trade liberalisation, leaving their food security compromised.

    Hence, domestic policy reform must accompany trade reforms to enhance the positive effects of trade and to cushion any negative impacts on the hungry. The FAO definition of food security implies that people do not just have access to food in sufficient quantities in terms of dietary energy but that their intake is of adequate composition and quality in terms of its content in micronutrients minerals and vitamins and its impact on health. This is referred to as the utilisation dimension of food security. That trade can influence diets and food choices has been highlighted by a number of commentators writing mainly from a public health perspective.

    As for the other dimensions of food security, the relationship between international trade and nutrition is ambiguous, given that nutritional problems lie along a spectrum from under- to over-nutrition Hawkes, Trade can help to address undernutrition by raising incomes, cheapening food and increasing the diversity of food available for consumption.

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    Critics argue that, by reducing the price and increasing the availability of unhealthy foods, typically those that are calorie-rich, nutrient-poor and high in saturated fats and salt, trade liberalisation can adversely affect food consumption and health Thow, Thow and Hawkes argue that trade liberalisation in Central America appears to have directly influenced the availability and price of meat and processed foods, many of which are energy-dense and high in fats, sugars and salt. On the other hand, Owen and Wu find that increased openness to trade is associated with lower rates of infant mortality and higher life expectancies, especially in developing countries.

    The rising burden of non-communicable diseases partly as a result of inappropriate diets is a challenge for policy-makers in both developed and developing countries. Emphasising personal responsibility, more widespread nutrition education and greater use of nutrition labelling in an attempt to change consumer behaviour is important but experience suggests these approaches will have limited success in the absence of more structural interventions to influence the food environment in which consumers make their food choices.

    However, restricting trade as a way to modify consumer behaviour is likely to be both inefficient and ineffective. More holistic approaches, possibly including taxation measures, working with the food industry to examine packaging and sizes, food recipe composition, marketing regulations and facilitating opportunities for more exercise and play are likely to be more effective tools at the disposal of policy-makers. International trade can play an important role in reducing price risk through enabling countries to make use of world markets in the face of domestic production variability.

    A move from autarky towards free trade can reduce total price risk through diversification of supplies, as long as the shocks in individual markets are not perfectly correlated.