The relationship between trade reforms and food security status can be conceptualised at a fairly general level, depicted in Figure 16.1, as a two stage relationship where a set of causal factors impact on a series of intermediate indicators, which in turn determine the final outcome in terms of changes in food security status. It is recognised that an identical policy change in two different contexts, whether within a country at two discrete points in time, or across a set of countries, can result in quite different outcomes, because of modifying factors.
Figure 16.1 A simple analytical framework for linking trade reforms and food security
Any attempt to assess the impact of trade reform on levels of food security must therefore take into account the existing policy and institutional environment, the agro-climatic constraints, and the level of physical and human capital which will all influence the extent to which reform will cause a change in the intermediate indicators. In addition, even if increases in aggregate agricultural production and net incomes do result from such reforms, it does not necessarily follow that the level of food security of the insecure will rise, especially if the distribution of the benefits associated with increased agricultural production is not in their favour, or the potential impacts of changes in agricultural production levels are offset, or indeed swamped, by changes elsewhere in the economy. In other words, the effective route will be context specific.
In order to conceptualize the context specificity of the implications of economic reforms on food security, a framework is proposed in which the impact on food security is described as a two stage process, the strength and extent of which is determined by a set of parameters. It is these parameters that account for the diversity of national- and household-level responses to a policy change both between and within countries.
The framework proposed incorporates some significant components of that developed by McCulloch et al.: the extent of price transmission, the ability of farmers to respond to price changes and the impact of this response upon farm enterprise profitability, labour use and real incomes in the local economy, and changes in the government fiscal position and its response in terms of changes in poverty reducing expenditure. It differs, however, by focusing on agriculture-related reforms and food security, and adopting a case-study methodology designed to capture more completely the micro-level factors that influence the direction and strength of the relationship. In the conceptual framework described below, greater emphasis is placed on the diversity of country positions with respect to trade and food security, and to both the regional differences and the diversity of household types within and between countries. This emphasis enables the identification of the winners and losers from trade reform in both the short run and in the longer term. It also allows the endogenization of the domestic institutional and policy environment in order to identify other domestic reforms that may have modified the impact of trade reforms.
Figure 16.2 shows the relationship between trade reforms and a set of food security indicators, and lists examples of the key modifying parameters. Columns 1, 3 and 5 depict an elaboration of the simple causal relationship from Figure 16.1. Columns 2 and 4 list examples of the types of parameters that might affect the strength, and indeed the direction, of the causal linkages in a particular context.
Fig 16.2 A conceptual framework for analysing the impact of reform on food security
The parameters can be categorized into two groups:
Those that can be considered as impacting on the incentives faced by producers (i.e. modifying the degree to which changes in relative border prices are transmitted to producers and consumers) and on the magnitude of the consequent response in supply or demand, as suggested in Column 2.
Those that determine the way in which the agricultural supply and demand responses will feed through to impact upon the food security status of different groups of individuals.
Developing a better appreciation of the importance of these parameters will enable a more informed understanding of the relationship between trade reform and food security.
In the remaining sections of this chapter, the components of the framework depicted in Figure 16.1 are first discussed in more detail at a conceptual level, before focusing in on the two sets of modifying parameters, where the discussion revolves around the types of questions that researchers might ask in interpreting the strength of the relationship. In the following chapter, methodological guidelines are developed with a view to explaining how the conceptual framework might be operationalized in practice.
In Column 1 of the diagram, examples of both potential reforms within the agriculture sector, and of reforms external to the sector, but which influence incentives within it (for example macroeconomic reforms) are listed. While the focus is on the impact of trade liberalization, it is recognized that the extent, speed and sequencing of associated reforms in the agricultural sector and in the wider national and international economy will influence both the incentives faced by producers, and the food prices faced by net producers and net consumers. This impact will often be greater than that of agricultural trade liberalization alone.
Parameters modifying the degree of price transmission and supply response
The second column reflects the factors that may influence the impact of economic reforms. It describes a set of parameters that can modify both the transmission of prices to producers as well as the response to any price changes. Fully implemented reforms, which liberalize the economy or increase its openness, may be expected to improve both price transmission from border to producer, and the ability of producers to respond. This response can, however, be muted by a series of factors related to both the type, sequencing and speed of the reforms and to the context in which they are implemented. In order to examine both the extent of price transmission and any consequent response, it is therefore necessary to investigate the extent of the influence of both the institutional and policy environments.
In this respect, two broad issues appear relevant for further research: first, the functionality of markets used by different groups of agricultural producers in terms of their access and integration; and second, access to productive assets These may include, in addition to assets that can be procured in functioning markets, natural, social, financial and infrastructural capital to which the producers have access. Three broad categories of questions may be investigated:
market access, which relates to the ability of producers to engage in the production of marketed crops and/or to obtain marketed inputs;
market integration which relates to how well changes in prices in one market, for example at the border, are reflected as changes in other related markets, for example, the wholesale or retail market. Trade liberalization, by definition, causes changes in relative prices at the border but often these changes are only partially transmitted to producers;
the degree of access to marketed assets. This will in part be governed by the functionality of the markets to which producers have access, but access to financial capital and other, non-marketed assets (which might include land and water for example) is conditioned by a range of additional non-market institutions. It is essential therefore to understand how alternative institutional reforms promote (or hinder) such institutions.
Boxes 16.1 to 16.3 provide examples of the types of researchable questions that might be considered in investigating the impact of these parameters.
Box 16.1 Questions relating to market access
· Is there differential access to output, input or credit markets for small compared to large producers?
· Is there differential access to markets for those engaged in the production of key cash crops as opposed to food crops?
· Has market access for different categories of agricultural producers improved or deteriorated as a result of trade reforms? Does this vary depending on the commodity in question?
· What has been the role of government in improving market access, or protecting small farmers against exclusion?
· Have new institutional arrangements emerged? In particular, what alternative arrangements have replaced the activities of agricultural parastatals?
· What is the best way of promoting competition in agriculture? Is improved competition in input provision essential? Are there examples of successful institutional arrangements?
· Do farmers have more or less choice of market outlet following the reforms?
Box 16.2 Questions relating to market integration
· Is the producer price for a particular crop identical for all regions and producers?
· Is there a differential price related to the time of sale or availability of market information?
· Are there any mechanisms to offset the effect of price fluctuations (for example, storage capacity, warehouse receipt systems)?
· What mechanisms are effective in helping to manage commodity price risk?
· Can the extent of reform be linked to the degree of price transmission?
· What is the effect of reducing the activities of marketing boards on price transmission?
· Does transmission vary according to whether trade is in local, regional or national goods?
· Does transmission differ by crop type?
· Is it more positive for cash as opposed to food crops?
· Do all producers benefit from reform (for example, is transmission negatively associated with geographic remoteness)?
Box 16.3 Questions relating to access to assets
· What is the current policy on land ownership?
· Is ownership skewed in favour of certain categories of farmers?
· Are producers able to expand land area in response to improved incentives?
· Are tradable inputs readily available to all categories? (this relates to previous questions about market access)?
· Is there differential access between farmers to other forms of non-marketed productive asset (for example land or water)
Simple examples of the impact of these parameters may include those associated with the impact of reducing or eliminating the activities of an organization involved with integrating cash crop and input distribution systems, including the provision of credit to smallholders. A set of reforms that resulted in improved price incentives, but at the same time reduced access to inputs, could result in a negative supply response if alternative institutions facilitating input supply are not in place. On the other hand, where a positive response does occur despite a reduction in the availability of inputs, this may be based on the extensification of cropping, which itself may not be sustainable as an expansion strategy.
Once a better understanding of incentive transmission and access to assets has been achieved, questions related to agricultural supply response can be more appropriately answered. The intermediate impact column of Figure 16.1 identifies indicators of a broad set of possible responses to changes in incentives faced by the agriculture sector.
In assessing supply response, the interest is not only in understanding the response of the sector in aggregate, but also how this response differs between producer categories. It is also important to know whether expansion in agricultural output has occurred as a result of substitution between crops, or extensification onto new land; or intensification on existing cropped land.
In addition to issues related to the empirical measurement of both national and household agricultural supply response, a number of questions relating to the preceding discussion are of interest to the investigation. These include whether (and why) changes in cropping patterns in response to changed incentives may result in:
reduced production of food as opposed to non food commodities;
changes in the relative levels of traditional as opposed to non-traditional commodities produced;
increased production of tradables compared to non tradables;
different outcomes among producer categories with respect to technology adoption, and with respect to the area under food as opposed to export crops.
Given an improved understanding of both the extent, and sources, of supply response, it is important to relate this information to the reforms implemented, and to the degree of market functionality. This facilitates better understanding of the first stage link set out in the conceptual framework. Research questions might include the following.
What is the evidence that completeness, speed and sequencing of reforms negatively affect price transmission or supply response?
Has agricultural production grown faster in countries in which reforms have been more fully implemented?
What are the characteristics of an investment climate that is conducive to growth in the agriculture sector?
Is there a differential response in the food compared to the cash crop sector, and if so, and is this differential influenced by the extent of reform?
Answers to these types of questions may then be used to inform these further investigations.
What policy packages appear to be best at helping small-scale farmers to improve productivity (or shift out of agriculture) when exposed to liberalization?
How should the activities of parastatals and other STEs be regulated by international agreements?
However, the influence of changes in relative prices needs to be considered at a broader level than simply investigating changes in aggregate levels or values of agricultural production and trade.
For example, a recent FAO/WB publication considers the importance of dominant farming systems on strategies followed by farm households. They list five broad strategies:
the intensification of existing production patterns;
farm diversification of production and processing;
expanded farm or herd size;
increased off farm income (both agricultural and non agricultural); and
complete exit from agriculture.
These strategies differ in their impact on the sector with respect to its potential for food production and income generation. The authors contend that although producers will often combine a subset of these strategies, the current farming system (notably its productive potential) is a key determinant of the preferred strategy. For example, in irrigated farming systems, intensification has been observed to be an important strategy for enhancing livelihood standards, compared to leaving agriculture altogether (exit) for some other income generating activity. This is contrasted with pastoral systems where exit is often seen to have the greatest potential for improving livelihoods. This example also raises the issue of the ease with which individual producers or households can diversify into alternative agricultural commodities or non-agricultural activities.
Parameters modifying the transmission of intermediate impacts to final outcomes
Once the extent of agricultural supply response and the factors influencing it have been established, this information needs to be related to the wider economic context in order to determine its contribution to reducing food insecurity. The second stage link between reform and trade security, described in Figure 16.1, requires an understanding of the influence on agricultural supply response of on the one hand, the country-specific economic context and on the other, household characteristics.
The key point here is that even if improvements in the aggregate value of agricultural production (and related activities) do occur, they will not necessarily be translated directly into an improvement in food security. Changes in the incentives facing the agriculture sector do not usually occur in isolation. Other economy-wide changes, for example in non-agricultural employment and income levels, can offset or even negate the potential impacts of any change in agricultural production.
The fourth column in Figure 16.2, therefore, describes a second set of modifying parameters that reflect the structural background to the activities (both producing and consuming) of poor households in different regions and countries. These parameters reflect the economic and institutional structures that can modify the impact of supply response on food security status. It facilitates an understanding of how the agrarian structure determines the characteristics of household groups within the agrarian economy, and consequently why the strategies employed by different household groups will vary in response to changes in the incentives that they face. In this respect, the concept of diversification, both within the agriculture sector or from agriculture to other income earning activities, is useful in describing these responses, and consequently their implications for food security status. Box 16.4 proposes a series of questions that might be relevant in helping to analyse this stage of the relationship.
Box 16.4 Questions relating to agricultural supply response and food security
At the national level:
· What are the sources of agricultural growth and the characteristics of local demand?
· How are surpluses invested? Are increases in export earnings reinvested in agriculture, used to increase food imports or invested in other sectors? Do food deficit countries import more food when export (agricultural or total) earnings increase and vice versa?
· Have there been significant changes in the technologies used in the sector?
· How has the intensity of factor use changed?
· What have been the implications for returns to these factors?
· What are the relative opportunities for investment of surpluses locally, nationally or internationally?
· What are the implications of these findings for the magnitudes of agricultural multipliers?
At the household level:
· How has the net production position of rural households changed?
· What has happened to the levels and sources of household incomes of different household categories: net producers/consumers, urban vs. rural-farm vs. rural-non-farm?
· What is the distribution of earnings from increased agricultural production, and total value added by income class/household type (i.e. what assets do they hold)?
· What are the changes in expenditure patterns of households?
Answers to questions on agriculture supply response and its effect on household incomes can assist in improving our understanding of the complexity of the link between trade reforms to food security. In the fifth column of the table, examples of indicators of food security at both national and household level are listed. These are the types of indicators that will be affected as a result of the changes in agricultural sector performance driven by the reforms.
From a research perspective, a number of general questions arise. For example:
How can country level diversity be accounted for in determining the impact of agricultural growth (or otherwise) on food security?
To what extent can a direct link be made between changes in border measures and food security status at national and household levels?
The answers to these questions can also inform debates on other issues, for example:
To what extent do multilateral agreements influence the incentives faced by agricultural producers?
Are changes related to the changes in international value chains (for example, the increasing power of supermarkets cited in Chapter 10) more relevant than the liberalization of border protection?
How should these changes be factored into both unilateral reforms and multilateral negotiations, in order to allow developing country producers most scope for inclusion in, as opposed to exclusion from, market opportunities?
What are the implications for current WTO negotiations?
The types of question set out above will be common to all countries, but specific questions of interest will vary by country. The most appropriate method for addressing them will depend on depending upon the importance of the questions for a particular country, as well as the existing level of knowledge and data availability.
In the final chapter of this publication, a strategy for operationalizing the framework and for addressing the questions posed in a cross-country case study setting is proposed.
 Prepared with inputs
from Jamie Morrison and Ramesh Sharma.|
 See Chapter 8 for a detailed definition of institutional environment.
 Dixon, J., Gulliver, A. & Gibbon, D. In M. Hall, ed. Farming Systems and Poverty: Improving Farmers Livelihoods in a Changing World. Rome and Washington DC: FAO and World Bank, 2001.
 For categorizing households according to income sources, see Hertel, T., Preckel, P., Cranfield, J. & Ivanic, M. 2002. Multilateral trade liberalisation and poverty reduction: seven country applications. In OECD (ed.). Global forum on agriculture: agricultural trade reform, adjustment and poverty. Paris.
 Here the use of SAM/CGE models and household surveys would be relevant.