Global Food Security: What Role for Trade Policies?


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Prof Kym Anderson's talk from the Australian Agricultural & Resource Economics Society's event "Reframing the Food Agenda: Setting the Scene for Australia" held August 19, 2011

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Global Food Security: What Role for Trade Policies?

  1. 1. Global food security:what role for trade policies?<br />Kym Anderson<br />(drawing on collaborations with Signe Nelgen and Anna Strutt)<br />University of Adelaide<br /><br />Reframing the Food Agenda Workshop <br />Adelaide, 19 August 2011<br />
  2. 2. Take-away messages<br />Food security is a consumption issue nationally, but also a prod’n issue globally, esp. in long run<br />Global agric prod’n would be more sustainable, int’l food prices less volatile, and food security far greater, if govts. reduced their interventions in agric markets (esp. at their border)<br />Climate change is adding to global vulnerability & food insecurity, hence to need for policy reform<br />Current food security concerns (SR price spikes, LR crop yield declines in face of rising demand) provide reform opportunity: don’t waste a crisis!<br />
  3. 3. Defining food security<br />At the national level, food security is a consumption issue<br />a state “when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life” (FAO)<br />Hence reducing poverty can add to nat’l food security<br />But globally, food security is also a production issue, as that too affects price <br />
  4. 4. Short-run vs long run concerns<br />Current political interest stems mainly from recent food price spikes (around trend level)<br />But longer-run concern has to do more with rising trend level of prices, due to:<br />rapid income growth in Asia and emergence of biofuel demand, plus declining crop yield growth<br />Both SR and LR concerns tend to be addressed nationally by trade policy choices<br />Yet SR and LR global food security concerns are exacerbated by those same trade policies<br />
  5. 5. The ‘F’ crises, plural<br />In addition to the global financial crisis, 2008 saw a spike in food and fuel prices, following their gradual rise since 2003<br />Food prices rose in parallel with energy prices<br />unlike during 1960-80<br />Both spiked in mid-2008, and again this year<br />With both price indexes now above mid-2008<br />
  6. 6. Int’l food and energy price indexes, 1960-2011 (Jan-July 2011 only), nominal US$, WB<br />
  7. 7. What policies need reforming to improve SR and LR food security?<br />Need to reflect on causes of recent SR price spikes and reversal of longer-run downward price trend<br />A major cause is market intervention by governments<br />Especially trade and storage policies<br />
  8. 8. Causes of global food security concerns<br />Food demand factors:<br />Short-term, maybe one-off: hedging against wobbles in financial and housing markets<br />New, but intermittent: US and EU biofuel subsidies and mandates (for energy security) <br />adding hugely to global grain, oilseed & sugar demand whenever oil price exceeds a threshold<br />Long-term, continuing: Rapid income growth in Asia is expanding demand for livestock products, hence also for feedgrains and oilseeds<br />as well as for minerals and energy raw materials<br />Long-term, prospective: carbon tax (implicit if not explicit) on fossil fuel consumption, which will add to demand for biofuels<br />
  9. 9. US maize availability gross & net of use in energy prod’n, 1990 to 2010<br />
  10. 10. Cause for food security concerns (continued)<br />Food supply factors:<br />Short-term:<br />Drought/floods/wildfires<br />Rundown in grain reserves<br />Long-term, continuing: <br />Slowdown in intensity of agric R&D investment has reduced crop TFP growth<br />Climate change expected to continue to slow crop yield growth and raise both the mean and variance of int’l food prices<br />
  11. 11. Causes of food security concern (continued)<br />Net long-term effects:<br />Greater volatility of food demand (biofuels mandates) and supply (climate change) mean greater future fluctuations in int’l food market, other things equal<br />Faster growth in demand for food (Asian growth) and biofuels (due to carbon tax’n), and slower growth in supply (climate change, slowdown in agric TFP growth) mean higher trend level of food prices<br />
  12. 12. Typical food policy responses, esp. in emerging countries, to SR price volatility<br />Export restrictions in the case of food-surplus countries when int’l prices spike up (as in 2008) or domestic crop failure (as in Russia 2010)<br />to protect domestic consumers<br />Tougher import restrictions when int’l prices collapse (as in 1986)<br />to protect farmers<br />Net effect: ‘thinner’, hence more volatile, international food market<br />Hence govts. are less willing to be import dependent, more inclined to engage in public grain reserves<br />
  13. 13. Evidence of slow-growing and ‘thin’ international food market<br />Since 1974, share of global agric prod’n traded has grown little, apart from intra-EU trade<br />So by 2004, the share of global prod’n exported (excluding intra-EU trade) was:<br /> 8% for agriculture and food, in contrast to<br />31% for other primary products,<br />25% for all other goods<br />
  14. 14. Evidence of partial price insulation when int’l food prices fluctuate around trend<br />Farm product nominal rates of assistance (NRAs) tend to be highly correlated with corresponding consumer tax equivalents (CTE)<br />i.e., trade policy instruments dominate, so we can focus just on NRAs (or NAC, where NAC=(100+NRA)/100)<br />NRAs (hence also CTEs) are strongly negatively correlated with movements in pertinent int’l price<br />On average, for the most-traded farm products, barely half the change in pertinent int’l price is transmitted to domestic markets within one year<br />
  15. 15. Rice NRA for South Asia, 1970-2008<br />
  16. 16. NACs change during price spikes<br />NAC falls (rises) when int’l prices spike upwards (down), and equally in:<br />food-surplus and food-deficit countries<br />high-income and developing countries<br />See Anderson and Nelgen (World Development, 2011) for evidence and Martin and Anderson (AmJAE, Jan. 2012) for why it increases int’l price instability while doing little to stabilize domestic price<br />
  17. 17. % change in NAC for rice in price-spike periods (importers vs exporters)<br />
  18. 18. % change in NAC for wheat in price-spike periods (importers vs exporters)<br />
  19. 19. % changes in NACs from pre-spike period<br />
  20. 20. Short-run price transmission elasticity<br />
  21. 21. Evidence of rundown in public grain reserves<br />China’s grain stockpile from late 1980s was run down from late 1990s<br />Private-sector storage has not (yet) expanded in response <br />Hence any short-term fluctuation in demand or supply causes price spike<br />See Brian Wright (AEPP, Jan. 2011)<br />
  22. 22. Global stocks-to-use ratio, in calories, for wheat, maize & rice<br />
  23. 23. International food markets are ‘thin’ for another reason too<br />Not only because of insulating nature of variable restrictions on agric trade …<br />… but also because of anti-trade bias in the way governments tend to alter the trend level of domestic (relative to int’l) agric prices as their economy develops<br />
  24. 24. Will emerging economies increasingly protect farmers as their incomes rise?<br />
  25. 25. Korea and Taiwan followed Japan …<br />
  26. 26. … so will China and India too, to avoid social unrest from widening urban-rural income gap?<br />
  27. 27. Will growth in emerging economies push up int’l food prices, in contrast to 20th century?<br />Less so if China and India (and others) choose to follow Japan and Korea’s costly agric protection growth path<br />which their WTO commitments allow<br />But that would mean less agric import growth in those countries, hence lower int’l prices for Aust farm exports than otherwise<br />
  28. 28. Will growth in emerging economies push up int’l food prices (continued)?<br />China’s impact so far has been much less on int’l prices for food than for minerals and energy<br />But partly because of gradual removal of agric disincentives over past 3 decades<br />True also of India, plus Green Revolution contributed to its food self sufficiency from 1960s<br />If they chose to not become agricultural protectionists, they could well become ever-larger agric importers<br />
  29. 29. Agric self sufficiency (%) (GTAP projections to 2030)<br />
  30. 30. Shares of China, India and ASEAN in global markets, 2004 and 2030<br />
  31. 31. Increased competition in export markets from land-abundant emerging economies <br />Brazil: Chose to invest heavily in ag R&D over past 3 decades, & develop crop land<br />Now the world’s largest exporter of beef, poultry, coffee, sugar, ethanol; 2nd largest exporter of maize and soybean<br />Former USSR: also switched from net importer to major exporter of e.g. wheat<br />Argentina: Since its 2/3rds devaluation in late 2001, agric exports have boomed, incl. wine (it’s exempt from export tax)<br />
  32. 32. How can Australian agribusinesses benefit from prospective developments?<br />Invest more in R&D all along value chain<br />e.g. adopt varieties more suited to changing climate<br />Differentiate product from the basic commodity<br />Anticipate consumer demand for environmentally sustainable production/processing/transporting<br />Pressure govt to re-start WTO’s Doha round of trade negotiations<br />Demand better water market institutions/policies<br />Hedge against price & exchange rate fluctuations<br />
  33. 33. Thanks!<br /><br />Anderson, K. (ed), Distortions to Agricultural Incentives: A Global Perspective, 1955-2007 , London: Palgrave Macmillan and Washington DC: World Bank, 2009.<br />Anderson, K. and S. Nelgen, “Trade Barrier Volatility and Agricultural Price Stabilization”, World Development 39, 2011 (forthcoming).<br />Anderson, K. and W. Martin, “Export Restrictions and Price Insulation During Commodity Price Booms”, American Jou of Agric Econ94(1),January 2012 (forthcoming).<br />Anderson, K. and A. Strutt, “Asia’s Changing Role in World Trade: Prospects for South-South Trade Growth to 2030”, Background Paper for the Asian Development Bank’s Asian Development Outlook 2011, Manila, February.<br />