Food and Agricultural Trade: Implications for Food Security

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Presentation given in Vienna, on April 6th 2010 during a World Bank Institute workshop for MENA experts.
I discuss the complex interactions between trade and food security.

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Food and Agricultural Trade: Implications for Food Security

  1. 1. Food and Agricultural Trade: Implications for Food Security David Laborde Debucquet, IFPRI d.laborde@cgiar.org WBI Course on Agricultural Trade and Export Vienna, April 2010
  2. 2. Overview • Definitions • Stylized facts • Protection • Hunger • Trade and Trade liberalization: Which implications for the food security objective? • Theories • Illustrations • The role of regional integration • The EU experience • Challenges in MENA INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2
  3. 3. Definitions • Differences between Agricultural and Food Trade • Using a HS6 nomenclature; • WTO: about 700 products over 5200. Does not include Fisheries but includes all raw agricultural commodities (wheat, cotton, hides…) but also processed foods. Ethanol but not biodiesel. • FAO: covers agriculture and fisheries, but some processed food are not covered by FAO statistics; • In EU trade agreements: own definition of agricultural products based on the coverage of the Common Agricultural Policies • Not official definition of Food. Should it be Agriculture minus non edible agricultural products. • What about tobacco and alcohol products? INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3
  4. 4. Definitions (2) • Food security: • Millennium development goals • Reduce Hunger • Implies Food Safety, too. • Does not imply self sufficiency • Can be achieved through increased imports and/or domestic production • Understanding two different contexts: • The business as usual case. Targets: increased quantity available at a low price with good quality • The Crisis situation. Domestic and/or International. Protecting domestic consumers against these extreme risks. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 4
  5. 5. STYLISED FACTS INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 5
  6. 6. Applied protection 2004 Goods World HIC MIC LDC Agricultural goods 18.9 18.0 20.8 14.1 of which: primary and semi-processed 12.8 12.1 14.2 9.5 final 22.8 21.7 25.4 16.8 Industrial goods 4.4 2.7 8.9 11.7 of which: primary and semi-processed 2.8 1.2 6.2 10.9 final 5.0 2.9 9.9 11.9 Extraction and Energy 1.9 0.6 5.6 12.7 of which: primary and semi-processed 1.4 0.3 4.6 14.4 final 3.3 1.4 7.6 11.2 All products 5.1 3.3 9.6 12.2 of which: primary and semi-processed 3.3 1.8 6.8 11.4 final 6.0 3.9 11.0 12.4 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Source: Laborde, 2008
  7. 7. Average protection faced and applied by developing countries on agricultural products. Protection faced by developing Protection applied on countries’ exports developing countries’ imports TRQ_ PREF_ AD_VAL TRQ_ PREF_ AD_VAL Partner Total MARG MARG comp. Total MARG MARG comp. World 19.84% 2.54% 2.35% 11.22% 20.32% 2.77% 1.83% 18.58% HICs 17.98% 2.42% 3.35% 4.88% 18.42% 2.82% 2.62% 17.26% MICs 23.02% 2.91% 0.97% 20.47% 22.64% 2.83% 0.96% 20.23% LDCs 13.89% 0.00% 0.78% 13.78% 18.17% 0.57% 1.05% 16.29% Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 7
  8. 8. Protection applied on agricultural imports Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8
  9. 9. Protection faced on agricultural exports Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9
  10. 10. Agricultural vs Food protection • World protection: agriculture=18.85%, non Food=13.21% , Food = 21.12% HS2 chapte World Simple >20 r # Sector description average1 Average2 percent >40 percent (in percent) 1 Live animals 12.6 12.9 12.3 4.1 2 Meat and edible meat offal 38.5 27.7 41.8 13.7 3 Fish and crustaceans 6.7 15.8 30.8 4.8 4 Dairy, eggs, honey, & ed. products 37.4 23.2 30.1 15.1 5 Products of animal origin nsp. 4.6 10.2 17.8 2.1 6 Live trees and other plants 7.7 20 16.4 6.2 Edible vegetables and certain roots and 7 tubers 13.6 20.2 28.8 7.5 8 Edible fruits & nuts, peel of citrus/melons 14.7 21 40.4 8.9 9 Coffee, tea, maté and spices 6.4 15.4 23.3 4.1 10 Cereals 25.4 13.9 15.1 6.8 11 Milling industry products 27.4 16.4 21.2 6.2 12 Oil seeds/misc. grains/med. plants/straw 5.6 7.5 8.2 1.4 Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10
  11. 11. HS2 protection (2) Simple HS2 chapter # Sector description World average1 Average2 >20 percent >40 percent (in percent) Lac., gums, resins and other veg. saps 13 and extracts 4.5 7.3 7.5 0.7 14 Vegetable plaiting materials 5.9 8.1 6.8 1.4 15 Animal or vegetable fats, oils & waxes 19.3 16 25.3 6.2 Edible preparation of meat, fish, 16 crustaceans, etc. 14.4 22.9 39.7 8.9 17 Sugars and sugar confectionery 47.8 22.9 43.8 10.3 18 Cocoa and cocoa preparations 6.4 17.1 29.5 4.8 Preparations of cereals, flour, starch or 19 milk 15.7 17.2 28.8 2.1 20 Preparations of vegetables, fruit, nuts etc. 16.5 22.9 41.8 8.9 21 Miscellaneous edible preparations 15 18.3 28.8 4.8 22 Beverages, spirits and vinegar 23.6 55.7 65.1 33.6 Residues from food industries, animal 23 feed 10.4 8.7 8.2 0.7 Tobacco and manufactured tobacco 24 substitutes 30.1 54.1 52.1 21.2 Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11
  12. 12. Net Trade Balance as a % of GDP 30 Middle Income Countries Least Developed Countries 20 A g r i 10 c u B l a 0 t l -30 -25 -20 -15 -10 -5 0 5 10 15 20 u a r n a -10 c l e T r -20 a d e -30 Food Trade Balance -40 Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 12
  13. 13. Protection and Trade Position 70.00% Middle Income Countries 60.00% Least Developed Countries Average protection on food products 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -30 -25 -20 -15 -10 -5 0 5 10 15 20 Net Trade Balance for food products as % of GDP INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 13
  14. 14. Food Security Indicator • The Global Hunger Indicator • IFPRI • Composite Index INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 14
  15. 15. Global Hunder Index (2009) Source: GHI 2009, IFPRI INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 15
  16. 16. Global Hunder Index (changes 90’s  00’s) Source: GHI 2009, IFPRI INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 16
  17. 17. Changes in protection and hunger 1.50 1.00 Change in agriculture protection 0.50 0.00 -0.60 -0.50 -0.40 -0.30 -0.20 -0.10 0.00 0.10 0.20 -0.50 -1.00 Change in Hunger Index INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 17
  18. 18. LINKS BETWEEN TRADE AND FOOD SECURITY INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 18
  19. 19. Achieving food security Domestic production Domestic Trade demand policies for food products Imports INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 19
  20. 20. How to achieve food security through trade • Trade:  Increased specialization  Increased production in some countries, decreased production in others  More interdependency • Agricultural trade liberalization:  Tariff elimination = Boost Demand  Elimination of subsidies = Limit Supply  Increase world prices  Higher prices for producers in exporting countries  Stimulate supply and investments, Higher incomes for poor producers  Reduction of tariffs allows price reduction for consumers in importing countries (but reduced production in these countries) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 20
  21. 21. Objectives for a food importing country: • Availability of food products (quantity) • Trade allows to rely on world supply (large and stable) • At a low price • By definition, for importing countries : world price < domestic price • In “real” terms: increasing income of households  trade liberalization • Of good quality • More or less constraints/technology on foreign producers? • Role of SPS, can boost or reduce trade. • Constraints, in particular in terms of crisis (domestic or international) • Balance of payments for importing countries • Income constraints for household INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 21
  22. 22. Objectives for a food/agricultural exporting country: • Trade increases income for domestic producers but will raise price for domestic consumers since domestic production is exported; • If non food products are exported, the Food balance is not affected and can become positive; • But due to supply constraint, careful analysis is needed: • Substitution for the producer between cash crops and food products: e.g. more tobacco  less corn. • Complementarity between agricultural production: e.g. more cotton  more maize. • Positive externalities: investment, fertilizers INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 22
  23. 23. Public intervention (small country) Policy Instrument Domestic Domestic Trade Self production consumption Sufficiency ( Hunger?) Import duties + - - + Import subsidy - + + - Production subsidy + 0 - + Consumption subsidy 0 + + - Export Tax - + - + Export Subsidy + - + - • But… Global externalities. E.g. Export taxes by main exporters  Higher costs for importing countries  Role of global discipline INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 23
  24. 24. Trade and Volatility • When do we need protection? • Role of Tariff rate quotas • Role of contingent protection: Safeguards mechanisms • Supporting domestic production: • Gains in productivity  Private Investment in agriculture  Requires Price stability? • Achieved through public policy or without public policy • Food security during crisis • World market less reliable than domestic producers? • Depends on the source of volatility: • Endogenous (behaviour), Can the government limit it? • Exogenous (rainfall), Risk analyisis (as in finance theory) • Fixed cost to trade and trust relations • As before, non cooperative trade policies  Increase in global instability • The role of safety net INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 24
  25. 25. Input-Output relations in Agriculture • Complex IO relations: few countries can be “self- sufficient” in everything: • Cereals and Cattle • Fertilizers and Crops • What does it mean to be food secure in this situation? • Role of regional integration INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 25
  26. 26. ILLUSTRATION: THE EFFECTS OF FULL TRADE LIBERALIZATION INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 26
  27. 27. A CGE assessment Export volume – Changes % Study design 60.00 • Bouet & Laborde, 2009a 50.00 Free Trade with • MIRAGE CGE model: multi elimination of Domestic sector, multi country, 40.00 Support dynamic Free Trade 30.00 • Full trade liberalization: all 20.00 sectors 10.00 0.00 Agro-food Industry Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 27
  28. 28. Agricultural and Agro food production by region 10.00 Free Trade with domestic support elimination 5.00 Free Trade 0.00 -5.00 -10.00 -15.00 -20.00 Source: Bouet & Laborde, 2009a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 28
  29. 29. 0.00 1.00 2.00 3.00 4.00 -7.00 -6.00 -5.00 -4.00 -3.00 -2.00 -1.00 Argentina Australia and New Zealand Bangladesh Brazil Cambodia Canada China EFTA EU 27 Hong Kong and Singapore Free Trade INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE India Japan Korea and Taiwan Mexico Middle East and North Africa Nigeria Pakistan Rest of East Asia Rest of Europe Rest of LAC Rest of SADC Rest of South Asia Real Income by region Free Trade with Elimination of the Domestic Support Rest of Sub Saharan Africa Russia Selected Sub Saharan African LDCs South Africa Sri Lanka Thailand Turkey Source: Bouet & Laborde, 2009a United States Page 29
  30. 30. Food consumption evolution 16.00% 14.00% Free Trade 12.00% Free Trade with Elimation of Domestic support 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 30
  31. 31. THE EFFECTS OF EXPORT TAXES INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 31
  32. 32. Experiment design • Bouet & Laborde, 2009b • Demand shock on the world market for one commodity. E.g. wheat • How different countries can react? • Exporters  Export tax to neutralize effects on domestic prices • Importers  Reduction in tariffs and, import subsidies? • Interaction between exporters and importers policies INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 32
  33. 33. Results on average prices Average Average trade Wheat production price price 1 – Exogenous demand increase 9.10% 10.8% 2 – 1 + Implementation/increase of export taxes to mitigate the shock on domestic prices 1.52% 16.76% 3 – 1+ Elimination/reduction of import duties to mitigate the shock on domestic prices 9.05% 12.62% 4 – 1+ Elimination/reduction of import duties and import subsidies to mitigate the shock on domestic prices 20.12% 27.31% 5 – 2 & 4: Combined non cooperative policies allowing import subsidies 16.00% 41.10% 6 – 2 & 3: Combined non cooperative policies without import subsidies 7.05% 20.58% INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 33
  34. 34. Results on real income (welfare, %) 0.80 0.60 0.40 0.20 0.00 -0.20 1 – Exogenous demand increase -0.40 2 – 1 + Implementation/increase of export taxes to mitigate the shock on domestic prices -0.60 3 – 1+ Elimination/reduction of import duties to mitigate the shock on domestic prices 4 – 1+ Elimination/reduction of import duties and import subsidies to mitigate the -0.80 shock on domestic prices 5 – 2 & 4: Combined non cooperative policies allowing import subsidies -1.00 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 34
  35. 35. THE EC EXAMPLE INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 35
  36. 36. The Common Agricultural Policy • Treaty of Rome, 1957. The CAP (article 39): • to increase productivity, by promoting technical progress and ensuring the optimal use of factors of production, in particular labour; • to ensure a fair standard of living for the agricultural Community; • to stabilise markets; • to secure availability of supplies; • to provide consumers with food at reasonable prices. • CAP and Agricultural Trade policies: • Subsidies, tariffs, tariff rate quotas and public intervention (target price) • Developing a regional market: “Fortress Europe” • The role of monetary integration INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 36
  37. 37. A clear success Source: European Commission, 2009 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 37
  38. 38. But too successful and too costly  Reforms • Cost for EU Tax payers • Subsidies • Storage • Half of the EU budget. EUR46 billions + envirnt (11 bios x 2/3). • Cost for EU consumers • Final consumers • Intermediate consumers • Cost for Trade partners • WTO led reform. Uruguay Round and the Blairhouse agreements Source: European Commission, 2009 Source: European Commission, 2009 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 38
  39. 39. Evolution of CAP expenditures billion € Rural development 60 Decoupled payments 50 Direct aids Market support 40 Export subsidies 30 20 10 0 1998 2003 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2004 2005 2006 2007 Source: European Commission, 2009 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 39
  40. 40. INSIGHTS FOR MENA INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 40
  41. 41. • Configuration of trade liberalization: • Multilateral • Regional • Defining a regional market: • Larger as possible to have a stable supply • But: • Need transportation capacity and effective integration • Difficulty to define regional policies with too many countries (transfers problem) • Trade liberalization and: • Agricultural policies • Capital market integration and efficiency • Safety net INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 41

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