IFPRI- Food Security and Trade- A Ganesh-Kumar, IGIDR

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The presentation was part of the Food Security in India: the Interactions of Climate Change, Economics, Politics and Trade workshop, organized by IFPRI-CUTS on March 11 in New Delhi, India. The project seeks to explore a model for analyzing food security in India through the interactions of climate change, economics, politics and trade.

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IFPRI- Food Security and Trade- A Ganesh-Kumar, IGIDR

  1. 1. Workshop on Food Security in India IFPRI, New Delhi 11 March, 2014 Food Security and Trade A. Ganesh-Kumar
  2. 2. Well known definition (World Food Summit, 1996) “food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life”  Reconfirmed at the World Food Summit, 2009  4-pillars of food security o Availability, Access, Utilisation and Stability Problem is multi-level  National level o Trade has an important role  Household level o Income and price are the primary determinants o Trade can play a role here too  Intra-household level o Trade has no role here Food security Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 2
  3. 3. Trade affects availability & domestic price  Imports add to availability – reduces price  Exports reduce availability – raises price Volatility in wold market affects domestic price  Itself a reflection of world supply-demand balance o Supply – influenced by long-run trends (technology, productivity, cropping pattern), short-term shocks (weather, wars, …) and possible structural change (climate change) o Demand – influenced by long-run trends (growth, tastes, …)  Other factors can also cause volatility o Policy shocks – imposition / relaxation of trade barriers o Volatility in related markets – energy, commodity markets in general o Increasing financialisation of commodity markets Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 3 Where does trade fit in? At the national level
  4. 4. International trade offers income earning potential for traders and producers Exploiting this potential requires several complementary conditions But is also a source of competition Producers need to be equipped to face import competition oProductivity & technology are the keys Where is India placed on these aspects? Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 4 Where does trade fit in? At the household level
  5. 5. 5Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 National level food security and international trade
  6. 6. Answer to this question depends on what we mean by FOOD? Most assessments of food availability focus only on cereals  That too only rice and wheat Government policies and interventions are also mainly in rice & wheat  Public procurement, price support, PDS  National Food security Bill  Interventions involving other food items are much smaller o ICDS, Mid-day meals, etc. But food is NOT just cereals, NOT just rice & wheat alone Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 6 What is the food availability situation in India?
  7. 7. Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 7 Diets are diversifying Cereals & sugar are losing shares
  8. 8. Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 8 Dairy, egg, meat, fish, F&V, beverages are gaining shares
  9. 9. Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 9 Share of pulses, edible oils, salt & spices are fluctuating
  10. 10. Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 10 Price rise in recent years more in the high value products than in cereals
  11. 11. Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 11 Price rise in recent years more in these high value products than cereals …
  12. 12. Amongst major food items  Net-exporter – rice, other cereals, spices  Changing situation – wheat, sugar  Net-importer – pulses (& edible oils) o Very high import dependency o Persistent deficit over several decades Amongst high value products  Net-exporter – vegetables, meat, fishery  Self-sufficient – dairy products Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 12 Domestic supply-demand conditions
  13. 13. Past trends in supply-demand gap likely to persist in the foreseeable future Planning Commission 12th Plan Working Group (2011)  Surplus – cereals, sugar  Deficit – pulses, oilseeds / edible oils  No assessment in case of F&V (no supply forecast) Ganesh-Kumar et al. (2012)  Surplus in 2025 – rice & wheat Dastagiri (2004)  Surplus in 2020 – milk, mutton & goat meat, beef & buffalo meat, chicken meat, and eggs Link between FS & trade likely to be more via exports Pulses and edible oils are the exceptions Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 13 Few comprehensive long-run supply- demand gap assessments
  14. 14. Exchange rate risk  Recent times have seen high volatility in exchange rate  Linked to global economic conditions and India’s macroeconomic fundamentals  Situation likely to persist in the foreseeable future Commodity-level price risks  Sharp downswings / sharp upswings  Impacts would depend upon net-trade position  Impacts on importers & exporters would vary  Limited policy instruments to handle volatility o Not comprehensive – not all situations can be handled o Nor complete – cannot offset risk totally o Inadequate market institutions to handle risk – futures markets & agricultural insurance Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 14 But risks would persist
  15. 15. Net-exportables  Exports turn unattractive  Exporters would have to take a price cut  Un-exported surpluses likely  Would dampen domestic price  Farmers would suffer  Domestic consumers would benefit No real instrument here Net-importables  Mainly pulses, edible oils  Helps domestic consumers  But domestic producers could suffer Tariff rate changes have been used in past to balance these concerns  Feasible due to significant tariff binding overhang Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 15 Sharp downswings in world price
  16. 16. Net-exportables  Exports more profitable o Exporters would benefit  Export surge would reduce domestic availability o Domestic price would rise o Farmers would benefit o Domestic consumers would be hurt Export bans have been used in past  Protection for consumers at the cost of producers  Exacerbates world market imbalances Net-importables  Mainly pulses, edible oils  Imports can shrink o Domestic prices would rise o Hurts domestic consumers o Reduced import competition can benefit domestic producers Tariff rate cuts can help  Limited depending upon applied rates Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 16 Sharp upswings in world price
  17. 17. 17Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 Household level food security and international trade
  18. 18. Planning Commission poverty estimates for 2011-12 Rural poverty – 217 million persons (25.7%) Urban poverty – 53 million persons (13.7%) Total poverty – 270 million persons (21.9%) All the urban poor and a good chunk of rural poor are net-buyers of food A majority of the rural poor are agricultural labourers and farmers themselves Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 18 Which household?
  19. 19. Income level and food price level are the drivers of their food security Income level depends upon level and dynamism of economic activity  Includes agricultural performance, especially if the household is dependent on agriculture  Trade regime & global market conditions can affect the level of economic activity Food price depends upon national level availability situation  Here trade plays an important role  But so too domestic supply chain issues  Safety nets are important Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 19 Poor net-buyers of food
  20. 20. Their dependence on market for food consumption could be limited But their income levels are low and that makes them vulnerable to shocks to their farm output  Especially so for small & marginal farmers Expanding their markets and strengthening their income earning potential is the key  Exports play a role here  Productivity improvements to strengthen their capacity to face import competition  Complementary role of domestic supply chains Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 20 Poor farm households
  21. 21. 21Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 Complementary conditions to reap the benefits of international trade for food security
  22. 22. Efficient domestic supply chains are essential To maintain price stability – critical for net-food buyers To ensure farmers reap benefit of expanding markets including exports Enormous scope for domestic reforms Laws, inter-state movement barriers, tax structure, transport & storage infrastructure, trading structures and marketing linkages, agro-processing industry, … Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 22 Domestic supply chains
  23. 23. Ensuring open and stable trade policy Export support measures (not subsidies)  Meeting SPS requirements Infrastructure development Technological support to boost productivity & enable farmers face import competition Market deepening including futures market and insurance for handling risks Safety nets for consumers and producers Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 23 Government role
  24. 24. Significant distortions persist in international trade regime w.r.t agriculture Legacy issues from the Uruguay Round Slow progress in multilateral trade negotiations RTAs an increasing challenge to multilateral rule based trade in agriculture  377 of 583 RTAs as of 31-Jan-2014 are in force  16 RTAs involving India in force Political issues stalling / slowing cooperation in South Asia Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 24 Conducive global trade regime
  25. 25. WTO Bali deal is indication that there is still some will amongst nations to take forward multilateral trade talks But the deal itself appears more like buying time to set the house in order India’s huge public procurement will not be challenged for 4 years – what later? Legacy issues from the Uruguay Round such as Base support calculation, export / domestic subsidies, etc., remain unresolved Eventual outcome of the Doha Round remains unclear Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 25 Conducive global trade regime …
  26. 26. Approach to food security has to be broad based in terms of food items Trade can help improve food security at the national and household levels This requires several complementary conditions to be in place The bigger challenge, however, is to set right the complementary conditions that can help reap the benefits  Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 26 Bottom-line

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