Download ARTNeT CONFERENCE Parallel Session 2: Food security and trade

ASIA-PACIFIC RESEARCH AND TRAINING NETWORK ON TRADE
ARTNeT CONFERENCE
ARTNeT Trade Economists’ Conference
Trade in the Asian century - delivering on the promise of economic prosperity
22-23rd September 2014
Parallel Session 2:
Food security and trade
9/22/2014
www.artnetontrade.org
1
Domestic Food Security and
Multilateral Trade Rules
A Critical Evaluation of the Available
Options
Biswajit Dhar
Roshan Kishore
1
Food security is back on WTO agenda: Bali
decision
What was demanded?
G-33 wanted a permanent solution to food security
concerns by way of an amendment in the “Green Box”
provisions. Essentially it would have allowed developing
countries to use public stockholding route of food
security without having to worry about violating their
domestic support commitments in the WTO.
What was given?
No permanent solution, but two sops:
(i) Agreement on efforts to find a permanent solution
(ii) Peace Clause till the 11th Ministerial Conference
(2017)
2
Paper’s objective: putting the
debate in context
Food Security as an important pillar of
agricultural policy (Section I)
 Existing options for food security policy
in
AoA and
G-33’s
proposed
amendments (Section II)
 Are
“Green Box” food security
programmes unambiguously superior
and non trade distorting? (Section III)

3
Understanding food security for a
better food security policy


“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.”
(World Food Summit)
4 key dimensions: Food Availability, Economic and
Physical Access to Food, Food Utilization and
Stability (Vulnerability and Shocks) over time. (FAO,
The State of Food Insecurity in the World 2013)
Both demand and supply side factors
crucial to food security
4
Agriculture is crucial for food
security in developing countries
Promoting domestic food production
and guarding against loss of livelihoods
in the farm sector is key to ensuring
food security in developing countries.
 Different policies might be needed to
achieve common objectives given the
diversity
in
developing
country
agriculture.

5
Need for a diverse policy paradigm is well
recognized in multilateral discussions
Plan of Action adopted by World Food Summit
“Each nation must adopt a strategy consistent with
its resources and capacities to achieve its individual
goals and, at the same time, co-operate regionally
and internationally in order to organise collective
solutions to global issues of food security.”
 All countries to “strive to ensure that food,
agricultural trade and overall trade policies are
conducive to fostering food security for all through a
fair and market oriented world trade system” .

WTO’s Doha Round mandate also talks about
taking into account food security needs of
developing countries
6
Food Security,
Agriculture and Trade
Liberalization – Seeking
Truth From the Facts
7
Food prices are increasing
Food Price Index, 2005 = 100, includes Cereal,Vegetable
Oils, Meat, Seafood, Sugar, Bananas, and Oranges Price
Indices
210
190
170
150
130
110
90
70
50
Source: IMF Primary Commodity Database
8
Regional diversity in food price behaviour
Consumer Prices, Food Indies 2000=100
400
350
300
World
Africa
250
Northern America
South America
200
Asia
Southern Asia
Europe
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: FAOSTAT Data
9
World’s per capita cereal production was
declining before the food price spike
Per Capita Cereal (rice, milled equivalent) Production World
340
350
330
kg/person/year
320
310
300
290
280
270
260
250
Per Capita Production
5 per. Mov. Avg. (Per Capita Production )
Source: Calculated from FAOSTAT Data
10
Per capita cereal production has stagnated in
developed countries
Per Capita Cereal (rice, milled equivalent) Production:
Europe and North America
1600
1400
kg/person/year
1200
1000
800
600
400
200
0
19611963196519671969197119731975197719791981198319851987198919911993199519971999200120032005200720092011
5 per. Mov. Avg. (Europe)
Source: Calculated from FAOSTAT Data
5 per. Mov. Avg. (Northern America )
11
Stagnant /Declining per capita production in
developing world pulled down the global average
400
240
380
kg/person/year
220
360
340
200
320
180
300
160
280
260
140
240
120
220
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
200
1961
100
5 per. Mov. Avg. (Africa)
5 per. Mov. Avg. (Asia)
5 per. Mov. Avg. (Southern Asia)
5 per. Mov. Avg. (South America on secondary axis)
Source: Calculated from FAOSTAT Data
12
Unprecedented tightness in global agricultural
markets
World Merchandise Export and Production in
Agricultural Products (Index, 2005-100)
250
200
150
100
50
0
exports value
exports volume
Source: International Trade Statistics, WTO 2013
production volume
13
Stagnant cereal production and increasing
feed/fuel demand is leading to fall in export from
North America
North American Cereal Exports – Per Capita and as
Share of World Exports
600
65
550
60
500
55
50
400
45
350
40
percent
kg/person/year
450
300
35
250
200
30
150
25
100
20
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
Source: Calculated from FAOSTAT Data
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
Percentage Share in World Exports
Per Capita Exports
14
Imbalances persist between share of agriculture
in income and employment
Regions
Percent Share of Agriculture in Total
Employment
Share of Agriculture in Value Added
1995
2010
1990
2000
2011
East and North-East Asia
46.3
33
5
5
5
South-East Asia
52.1
41.5
15
12
12
South and South-West Asia
52.9
49.4
23
19
15
North and Central Asia
21.3
19.3
19
8
5
Pacific
17.3
17.1
4
5
3
Asia and the Pacific
49.5
39
11
7
7
Africa
61.7
56.2
17
14
16
Europe
12.4
6.7
4
2
2
Latin America and Caribbean
23.2
16.2
9
5
5
3
1.7
2
1
1
North America
Source: Statistical Yearbook for Asia and the Pacific, 2013
15
Summary of facts
Declining per capita cereal production
and worsening employment-income
balance poses threat to food security
from supply and demand side.
 Trade route to meeting food shortage is
coming under squeeze because of
declining export from North America.
 Food price shocks are more severe for
developing countries.

16
What is to be done?
•
Promoting Self-sufficiency in food
production instead of reliance on trade.
• Stabilization of food prices.
• Protecting livelihoods in agriculture for
those who cannot find gainful
employment outside.
Policy space should allow pursuit of these
objectives
17
AoA Rules and food security:
what is allowed and what is
not?
18
Everything except procurement is
unrestricted

Food Security is a “Green Box”
expenditure subject to two conditions:
◦ Beneficiaries must be selected on the basis
of a “clearly-defined criteria related to
nutritional objectives”.
◦ In case of a country using the public
stockholding route the difference between
acquisition price and “external reference
price” is to be included in the Aggregate
Measure of Support
19
What is External Reference Price?



Average
international
price
of
the
commodities during 1986-88 (fob/cif price,
depending on whether a country was
exporter/importer).
GATT Argument provided for ERP to “be
applied for a negotiated period” and said this
“price may be subject to periodic
reassessment”.
No member raised these issues during the
mandated review of AoA during 1999-2001.
20
How is ERP hurting developing
countries?
Acquisition prices have to be adjusted
for increasing cost of cultivation.
 Food price inflation is much higher in
developing countries.
 ERP does not represent the competitive
international price anymore. India
notified
ERP
$262
for
rice,
international price is well above $500
today.

21
What was G-33’s demand vis-a-vis
AoA rules on food-aid?



Do not include expenditure on acquisition of
foodstuffs from low-income or resource-poor farmers
in AMS.
Do not include the difference between acquisition
price and ERP when foodstuffs are acquired for
running subsidized food-aid programmes.
Calculate ERP on the basis of (i) a 3 year average
(fob or cif price) based on the preceding 5 year
period excluding the highest or lowest entry, or (ii)
previous year’s average producer/farm-gate price in
the 1-3 largest suppliers of a foodstuff in the country
concerned.
22
What other ways were proposed?
Allowing for inflation adjustment of
AMS.
 Peace Clause to provide immunity from
disputes in the WTO until a permanent
solution is found.

23
What came out of Bali?
Substantial demands for amendments
in AoA were not entertained.
 Peace Clause which would last till 11th
Ministerial Conference to be held in
2017.
 Even this “Interim Arrangement” is
laden with notification and monitoring
conditions.

24
WTO negotiations and Bali outcome
on food security: Déjà vu
Developing countries have failed to shift
the momentum of WTO negotiations on
agriculture in their favour.
 Developed countries led by the US would
resist all attempts to find a permanent
solution to G-33’s proposal which involves
an amendment to Green Box part of AoA
because (i) they are at an advantage with
the status quo (ii) any amendment would
set a precedent and floodgates would open.

25
Other side of the picture: Is
Green Box food-aid really
non-trade distorting?
Examining the SNAP in US
26
SNAP’s real purpose – disposing
surplus or ensuring nutrition?



Origins of food-aid in US: Federal Surplus
Relief Corporation (later renamed Federal
Surplus Commodities Corporation) was
formed to distribute the surplus
production in US agriculture which was a
result of farm support.
Food Stamp Act, 1964 had the same
philosophy: distribution in a beneficial
manner of [the] agricultural abundances.
SNAP has retained this policy framework.
27
SNAP: food-aid or counter-cyclical
policy?
Implications of the Bush Stimulus Package(one year $ change in real GDP
for a given $ reduction in federal tax revenue or increase in spending
Tax Cuts
Non-Refundable Lump-Sum Tax Rebate
Refundable Lump-Sum Tax Rebate
1.02
1.26
Temporary Tax Cuts
Payroll Tax Holiday
Across the Board Tax Cut
Accelerated Depreciation
1.29
1.03
0.27
Permanent Tax Cuts
Extended Alternative Minimum Tax Patch
Make Bush Income Tax Cuts Permanent
Make Dividend and Capital Gains Tax Cut Permanent
Cut in Corporate Tax Rate
Spending Increases
Extending Unemployment Benefits
Temporary Increases in Food Stamps
General Aid to State Governments
Increased Infrastructure Spending
Source: Moody’s Economy.com
0.48
0.29
0.37
0.3
1.64
1.73
1.36
1.59
28
60000
12
50000
10
40000
8
30000
6
20000
4
10000
2
0
0
Average Participation
average annual unemployment rate
participation in thousands
SNAP Participation and Unemployment
Rates in the US Economy
Average Annual Unemployment Rate
Source: USDA and Bureau of Labor Statistics Data
29
“Farmers’ Markets” and their link
with domestic food-aid in the US
Beneficiaries can use their entitlements to buy
products in “farmers’ markets” via Electronic
Benefit Transfer scheme. Direct link between
domestic food-aid and agricultural production.
 Currently, more than 3,800 farmers markets are
authorized to accept SNAP in fiscal year 2012,
and farmers markets generate more than $16
million in SNAP sales. (http://agrinewspubs.com/Content/News/LatestNews/Article/USDA-confirms-farmers-markets-growth--sustainability-/8/6/8080)

30
Are Cash Transfers unambiguously
good over other policies?
Huge administrative costs: 4.8 million
SNAP beneficiaries in US, 213.8 million
food insecure people in India.
 Vulnerable to errors of wrong inclusion
and exclusion, like all targeted
programmes.
 Problems of indexation: possibility of
erosion in entitlements and inflationary
spiral due to price inelastic demand.

31
Poor financial inclusion can hamper successful
implementation of cash transfer programmes
Source: IMF Financial Access Database
32
Theoretical underpinnings of AoA
rules on food-aid
AoA prohibits governments from
intervening in food markets. Food-aid
should either be cash transfer or direct
provision of foodstuffs to beneficiaries
bought at market prices.
 Assumes that markets left alone would
always give non-distorted prices and
governments would necessarily create
distortion.

33
Are agricultural markets really
competitive?
Agricultural
population:
person per
holding
Countries
covered 105
Proportion of
farms with less
than 1 ha of land
Countries
covered 82
<2 ha
30
<10 %
4
<2 persons
17
2-5 ha
28
10-30%
21
2-5 person
45
5-20 ha
19
30-50%
11
5-10 person
31
20-100 ha
21
50-70%
12
10 persons or
more
10
100-500 ha
5
70% or more
16
500 ha or more
30
holdings <1 ha
not enumerated
18
Average area
per holding
Countries
covered 103
Source: Compiled from 2000 World Census of Agriculture, FAO 2013
There can be significant differences in price discovery
mechanisms in different countries. Small farmers may
be at a disadvantage if there is no government
intervention.
34
What about international prices?
International prices much more volatile –
seasonal fluctuations, speculative activities etc.
 Subsidized exports from developed world keep
international prices depressed.
 Opening up to international markets can have
adverse effects for domestic food production and
food security in developing countries
 Widely acknowledged in the literature. ( Report
of UN’s Special Rapporteur on Right to Food,
historical evidence in Patnaik 1996)

35
How can procurement based
programmes be better?
Most procurement programmes operate
on cost of production plus normal profit
principle like the Minimum Support
Price scheme in India.
 No subsidy but provides a minimum
price floor. Can be influential in
determining production decisions of
farmers.

36
Dilution of procurement can lead to decline
in food production: India’s experience
1600
wheat area
1400
wheat MSP
1200
million hectares
30
28
1000
26
800
Rs/quintal
32
600
24
400
22
200
20
0
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
Source: Database of Indian Economy, Reserve Bank of India
India had to import 5.4 and 1.8 million tones of wheat on government
account in 2006-07 and 2007-08, respectively
37
Procurement is recognized as an
effective policy instrument to boost
domestic production and safeguard
livelihoods of small farmers


Overview of key recommendations, “Report of the
Special Rapporteur on the right to food, Final
Report: The transformative potential of right to
food”
The Power of Procurement, Public Purchasing in
the Service of Realizing the Right to Food, Briefing
Note 08-April 2014, Oliver De Schutter, United
Nations Special Rapporteur on the right to food”
38
Conclusion





Widespread evidence that procurement based
policies are in congruence with food security needs
in developing countries today.
ERP criteria in AoA makes public stockholding
route a non-starter.
Green Box provisions neither guarantee food
security nor ensure non-trade distorting regime.
Developed countries are blocking suitable
amendments in the AoA rules.
In keeping with the refusal of developed countries
to block Doha Round negotiations, which
recognized the centrality of food security.
39