Friday, September 2, 2011

Trade policy, domestic agri policy and food security

Excerpts from the WTO Director General Pascal Lamy’s address to the XIIIth Congress of the European Association of Agricultural Economists.

[..]Many factors have been cited as the cause of these repeated crises, some long-term structural factors, and others short-term, such as: biofuels, rising oil prices, changing Asian diets, declining grain stocks, financial speculation, and climate change and its associated risk. Some would add that food export bans have themselves been the cause of the price hike, in particular for certain commodities such as rice. And we could debate at great length what is a “structural” phenomenon and what is merely “cyclical.” For example, biofuels policies, in particular the production of biofuels from feedstock that do not lead to significant greenhouse-gas savings, are being put into question. Will these policies persist, or will they be abandoned in future? An open question.

[…]International trade, if properly instrumentalized, though should help us exit these repeated crises. And, to my mind, the Doha Round remains an opportunity for vital agricultural reform.

Domestic agriculture policies are vital

[…]no matter how sophisticated our trade policies are, if domestic policies do not themselves incentivize agriculture, and internalize negative social and environmental externalities, we will not be satisfied with our agricultural systems.

[…]Land management, water and natural resource management, property rights, storage, energy, transportation and distribution networks, credit systems, and science and technology, are all key elements of a successful agricultural policy and food security system.

Trade policy cannot address each and every challenge in agriculture. But, it can help us “exit repeated crises”.

[…]global integration allows us to think of efficiency beyond national boundaries. It allows us to score efficiency gains on a global scale by shifting agricultural production to where it can best take place. It can also allow for a more efficient sourcing of the inputs to agricultural production.

[…]The efficiency gains brought about by international trade are also vital in light of the environmental challenges that we face. As I often say, if a country such as Egypt were to aim for self-sufficiency in agriculture, it would soon need more than one River Nile. International trade in food is water-saving. And, with the impending climate crisis, international trade in food will rise further in importance as we come to the aid of drought-stricken countries.

[…]international trade was not the source of the food crises. If anything, international trade has reduced the price of food over the years through greater competition, and enhanced consumer purchasing power. International trade has also brought about undisputable efficiency gains in agricultural production.

[…]International trade in agriculture is less than 10% of world trade. Furthermore, whereas 50% of the world's production of industrial goods enters international trade, it is important that you know that only 25% of the world's agricultural production is traded globally. In the case of rice, this figure drops to 5-7%, making for a particularly thin international rice market. In addition, of the world's 25% of food production that enters international trade, the vast majority (two-thirds) is processed food, and not rice, wheat, or soya as some would like to claim. To suggest that less trade, and greater self-sufficiency, are the solutions to food security, would be to argue that trade was itself to blame for the crisis.

[…]It is because of how little international trade there is in rice, that rice prices reacted so dramatically to export restrictions. The limited international trade in rice made rice prices more, and not less, volatile. Deeper international commodity markets are less prone to crises.

[…]international trade, and indeed improvements to international trade rules through the Doha Round, would be only one component of better agricultural policy globally. Agricultural policy starts at home, and not at the international level. However, the reform of global trade rules and a better functioning international transmission belt for food, are vital components of an enhanced food security picture.

Agriculture has been treated differently and relatively more protected.

[…]the world's trade-weighted average industrial goods tariff is about 8%, in agriculture it is 25%. Not to mention tariff peaks, which in agriculture still rise up to 1000%!

Agriculture trade policy after the food crises and “land grabs”

[…]In response to the crises, some started looking further inwards, and we saw a whole host of export restrictions flourish. These export restrictions had a domino, market-closing, effect, with one restriction bringing about another, as the world started to anticipate a global food shortage.

[…]Yet others started looking further outwards in response to these food crises; namely, the world's net-food importing countries. Countries that are dependent on international trade to feed themselves. They asked that food export restrictions be immediately lifted. Surprising about this situation was that countries sitting on opposite sides of the export barrier fence all complained of the same thing — namely, hunger. And hence the phenomenon of the purchase of agricultural land abroad — dubbed “land grabs” by some, that we now witness. An attempt to overcome the problem of export restrictions by buying land abroad and cultivating it for the importing country's use. As though export restrictions would respect land ownership rights!

Safety-nets needed in case of high prices and volatility.

[…]But we must ask ourselves why there is such widespread resentment to trade opening, if such opening is indeed vital to global food security. To me the answer is clear. It is because we have yet to build robust safety-nets for the world's poor. Each and every government must turn its attention to this issue, urgently, in my view. In the absence of such safety nets, there will always be resentment at a time of crisis to a country's food supply going abroad.