Over the course of the past 40 years, the net flow of agricultural commodities between developed and developing countries has reversed direction. In the early 1960s, developing countries had an overall agricultural trade surplus of almost US$7 billion per year. By the end of the 1980s, however, this surplus had disappeared. During most of the 1990s and early 2000s, developing countries were net importers of agricultural products. FAO has projected that this agricultural trade deficit is likely to widen markedly.
The change has been even more pronounced for the LDCs, which over the same period have changed from being net exporters to significant net importers of agricultural commodities. By the end of the 1990s, imports by the LDCs were more than double their exports.
Global trade in foodstuffs has grown rapidly and changed radically over recent decades. Between 1970 and 2001, gross world food imports, measured in terms of calorie equivalents, rose by almost 60 percent. But this growth differed markedly among both country and commodity groups.
Gross imports of food by developing countries grew by 115 percent over this period. Imports by developed countries, which already import a higher proportion of their food, grew by 45 percent. A closer look at the data reveals that food imports by developing countries increased rapidly during the 1970s, grew more slowly during the 1980s and accelerated again over the 1990s. This pattern holds true both for the volume of food imports and for the ratio of food imports to availability for consumption per capita. The expansion of food imports meant that the food trade surplus of US$1 billion of developing countries was transformed into a deficit of more than US$11 billion during this period. Moreover, this trend is expected to continue: according to FAO projections, by the year 2030, the net food trade deficit of developing countries is expected to swell to more than US$50 billion in constant 1997-99 US$.
Despite substantial differences in the trade and dietary profiles of developed and developing countries, imports of particular commodities appear to be evolving in a similar manner.
Among the five broad food commodity groups - cereals, edible oils, animal products, sugar, and fruit and vegetables
- cereal foodstuffs once dominated international trade. Now, however, the share of cereals in total agricultural imports has fallen below 50 percent in developing countries and below one-third in developed countries. While the share of cereal imports has declined, both developed and developing countries are importing greater quantities of higher-value and processed foods, particularly edible oils, livestock products and fruits and vegetables.
The falling relative importance of cereal trade has masked divergent trends among different grains. Trade shares of the "premium" cereals - wheat and rice - have registered strong growth, but calorie dependence on traded coarse grains has decreased sharply.
The relative importance of imported sugar also has been in long-term decline. With expanded production and use of non-cane sugar and other sweeteners, sugar imports by developed countries have fallen.
Changes in patterns of production, advances in technology and changes in domestic and trade policies play an important role in determining the structure of international trade. However, the diets and preferences of consumers and the demands of an increasingly concentrated food industry have driven many of the shifts in trade among commodities. These have been further influenced by globalization and the spreading presence of the fast-food industry in developing countries.
Income growth, relative price changes, urbanization and shifts in consumer preference have altered dietary patterns in both the developed and developing countries. When people have more money to spend, they add more variety and more expensive and high-value foods to their diets. These changes are reflected in both the volume and the composition of world trade in agricultural commodities.
Expenditures on foodstuffs and responses to income changes differ between developing and developed countries. In the latter, most consumers can already afford the foods they prefer. When their incomes rise, changes in their diets and food purchases are therefore relatively small.
In developing countries, on the other hand, rising incomes have an immediate and pronounced impact on diets and consequently on trade in both commodities and processed foods, as people adjust their budgets to include higher-value food items. Similarly, declining real food prices have allowed poor consumers access to improved diets at existing income levels.
Since the mid-1970s, for example, per capita meat consumption in developing countries has more than doubled. Over the same period, these countries have changed from being net exporters of more than 500 000 tonnes of meat to net importers of more than 1.2 million tonnes. FAO has estimated that over the next 30 years people in the developing world will increase the quantity of meat, dairy products and oils in their diets by 30 percent or more. Per capita consumption of cereals in these countries is not expected to change, although total cereal use per person may continue to rise owing to the growing use of coarse grains as feed.
In addition to rising incomes, rapid urbanization has contributed to changes in lifestyles, food preferences and the structure of commodity trade. As their numbers and purchasing power have grown, city-dwellers have increased demand not only for more dietary diversity, but also for products that require less time to prepare. Imports of high-value and processed food products have risen to meet this demand. A growing problem of overnutrition and obesity in both developed and developing countries has appeared alongside the existing problem of undernutrition.
According to United Nations estimates, the world's urban population is expected to increase by 70 percent over the next three decades. Most of this growth will take place in developing countries, particularly in Africa and Asia. As recently as 1985, almost 70 percent of the population in developing countries lived in rural areas; by the year 2020, more than half of these 6 billion people are expected to live in cities. Their higher incomes and urban lifestyles are likely to bring about further changes in the structure of global imports, accelerating the trend towards higher-value and processed foodstuffs.
Recent increases in food imports have been particularly significant among many of the countries that are most vulnerable to food insecurity. For developing countries as a whole, the volume of gross food imports grew at an annual rate of 5.6 percent - far higher than the 1.9 percent annual growth in developed countries.
The economic performance of individual developing countries played an important part in determining how quickly they increased their food imports during the 1990s. Countries that recorded strong overall economic growth, as measured by per capita GDP, increased food imports more quickly. Rapid growth in the agriculture sector had the opposite effect. Where agricultural value added per capita grew more quickly, food imports generally did not.
Neither of these effects is surprising. Food production responds relatively slowly to changes in demand, as it takes some time for farmers to increase plantings, harvests or herd sizes. Expansion of domestic production can also be hindered by inherent weaknesses in domestic food production and distribution systems. Examples of such weaknesses include low productivity, inefficiencies in supply chains and marketing systems needed to reach urban consumers, and lack of competitiveness with imported supplies - especially where the latter may have benefited from developed country subsidies. Thus, when incomes and demand rise rapidly, imports can scale up more quickly than domestic production. More rapid growth in the agriculture sector, on the other hand, often increases the availability of domestic foods, reducing the demand for imports.
Paying for food imports can strain the resources of countries where economic growth lags and foreign exchange earnings are limited. Examining how large a slice food import bills take out of GDP and export earnings (total merchandise exports) provides a way of gauging the level of "stress" food imports may represent.
Over the past three decades, the share of gross food import bills in GDP more than doubled for an average developing country. The increase was most pronounced for the LDCs, where the value of food imports rose from about 1 percent of their GDP to over 4 percent. This means that the growth of gross food import bills has outstripped overall economic growth in developing countries, straining their economic resources.
Comparing the cost of gross food imports with export earnings reveals the strain food bills may place on foreign exchange. It also reveals that over the past 30 years the countries most vulnerable to food insecurity (the LDCs) have spent, on average, an increasing share of their limited foreign exchange earnings to import food. In the early 1970s, they spent around 43 percent of their export earnings on commercial food imports, with the other developing countries spending around 36 percent. Since that time, however, the average share for the LDCs increased to 54 percent but declined to 24 percent for the other developing countries.
In addition to spending an increasing share of their GDP and foreign exchange earnings on food imports, LDCs are also major recipients of food aid. When less food aid flows to countries that suffer from food shortages, it might be expected that commercial food imports would increase - and the data tend to confirm that this is the case.
When the value of food aid increased as a share of total food imports during the early 1980s, LDCs spent a significantly smaller share of their GDP and export earnings on commercial food imports. Since the mid-1980s, however, this trend has reversed. The value of food aid has declined significantly compared with the total value of food imports. LDCs appear to have compensated by dedicating a larger share of domestic resources to boosting commercial food imports and maintaining national food security.
Variations in food import bills result from variations in both the prices and the quantities of food imported. Import price variation is largely the result of international market volatility. Increasing prices reduce the demand for imported foods and, if import demand is inelastic, lead to higher import bills at a lower quantity of imports, with negative consequences for food security. The opposite occurs where import prices fall. Import quantity variation is affected not only by price, as demand adjusts to price changes, but also by other important factors, including exogenous changes in domestic production and demand. Analysing the contribution of changes in prices and quantities of food imports to changes in the food import bills of LDCs could shed some light on the types of policy that would be appropriate for reducing market risks and uncertainties faced by vulnerable developing countries at the national level.
The results of a study of a sample of important food commodities - wheat, coarse grains, rice, sugar, chicken, skim milk, soybeans and palm oil - reveal consistent differences among commodities in the relative importance of price and quantity variation in determining changes in food import bills. The contributions of the variations in import prices to import bills ranges from around 35 percent to nearly 70 percent. The contribution of price variations is significantly (in statistical terms) lower for basic staples (such as sugar, rice, coarse grains and wheat) than for those products with higher price and income elasticities (such as chicken and palm oil). This implies that food import bills for staple foods in LDCs are more influenced by variations in domestic production that prompt adjustments in imports to satisfy domestic basic food consumption needs. For instance, a large negative shock to domestic staple food production, given the high self-sufficiency in basic foods of most LDCs, translates into a large increase in demand for imports. Given the inelastic food-security consumption needs of LDCs, such large increases in import demand are not influenced greatly by international prices. From a policy perspective, these findings suggest that measures designed to address instability in domestic markets for basic food staples may play a relatively greater role in reducing instability in their food import bills.
However, measures to cope with the effects of international price instability may still be an important component of an overall strategy to address the uncertainty that is inherent in food import bills. Import price changes have a strong influence on LDC food import bills and, with so much of their limited foreign exchange earnings being spent on food imports, LDCs are particularly vulnerable to unexpected price spikes and instability in international food markets. A price spike is defined as an unpredictable extreme price increase beyond what could be expected as a normal response to the evolution of prices and quantities. Spikes in international prices for basic foods can impose serious strains on foreign exchange reserves, especially when they occur simultaneously with negative shocks in domestic food production.
Although the number of price spikes has diminished for many basic food commodities since the 1970s, many LDCs have suffered from extreme price volatility, with a large number of spikes in the prices of basic food commodities they must import to ensure the food security of their population.
Most of these spikes coincided with major events that affected food production and markets worldwide, such as the "global food crisis" of 1974-75. Others, however, coincided with important policy decisions in major industrialized regions, such as changes in domestic support policies in the United States and the EU that exacerbated price changes in international markets resulting from normal supply and demand variations.
Over the past 30 years, the food import bills of LDCs have grown much faster than both their overall economies and their export earnings. LDCs have also experienced much greater volatility in their food import bills, particularly in relation to their overall economic growth and export earnings. The combination of high and unpredictable food import bills undoubtedly strains the ability of some LDCs to ensure food security at a national level.
Sudden changes in the markets triggered by major policy decisions appear to have had a measurable and potentially damaging impact on these vulnerable countries. Analysis of these price spikes and their relation to decisions on agricultural and trade policies taken by developed countries highlights the need to assess the potential impacts of the latter on LDCs during international policy deliberations, such as those in the World Trade Organization (WTO), and to plan measures to mitigate them. In addition, steps should be taken to reduce the vulnerability of LDCs and ensure their access to a steady supply of food on international markets by addressing problems of short-term world price volatility.
Food imports, economic development and food security
Developing countries that suffer from widespread hunger tend to depend
heavily on agriculture for employment and incomes and on exports of agricultural
commodities for foreign exchange revenues. Even though their populations
tend to be predominantly rural and their economies agricultural, these
countries also rely increasingly on
Analysis of a wide range of variables related to economic and agricultural development, food imports and food insecurity suggests that the nature and degree of involvement in international trade by developing countries are associated with levels of hunger and food insecurity in developing countries.
The relationships between food imports, involvement in international trade and food security can be demonstrated by dividing developing countries into two broad groups, based on the proportion of their population that is chronically hungry. Countries where more than 15 percent of the population is undernourished are classified as food insecure. Those where the prevalence of undernourishment is less than 15 percent are considered to be relatively food secure.
Statistical analysis reveals that food insecurity is highly correlated with a composite index based on three indicators related to the structure of their international trade - the share of food imports in total merchandise exports, the share of food aid in food imports and the share of total food imports in calories available for consumption.
It appears that countries where hunger is widespread spend a far higher proportion of their export earnings on food imports. Despite this heavy expenditure of limited foreign exchange, however, these food-insecure countries cover a smaller share of their apparent consumption from food imports. This suggests that food-insecure countries might import even more food to cover shortfalls in domestic production and ensure food security if they were not constrained by limited export earnings. It also suggests that the need to expend such a high proportion of foreign exchange resources on food imports may reduce the ability of these food-insecure countries to invest in other areas that would stimulate development and reduce their long-term vulnerability.