Foro Global sobre Seguridad Alimentaria y Nutrición (Foro FSN)

Hi everyone,

I think this is an interesting topic for discussion. However, I am not sure there is any expert could share their experience in this issue because we are talking to the future after trade agreements related to food security.

In my opinions, term of food security is also under top national security of any country. Therefore, every country will have their national strategy to ensure their food security under trade agreements. Maybe developed country will focus on technology and science as well as environment friendly production practices to increase value of food and standard from low cost. Whereas, developing countries will have to face to great issues such as seedling, technology, administration, legal and sustainable environment. All of them will make food in developing countries will higher than at developed countries. But in earlier stage  it will be supported by cheap cost of natural resources and environmental use. After this time, price of food will increase fast and high in these countries because cheap cost also go together with not sustainability.

In general, the linkage in earlier time will affect actively to four dimensions for global consumers and producers  both but long term will be great challenges to consumers and producers in developing countries. Then, we hope that international institutions and developing countries should prepare/develop suitable strategies/ approaches in the future. Specially, in beginning of trade agreements to exploit/attract and use effectively the investment flows to escape the trap of the trades.

I am sure that globalization is an indispensable orientation of history that help use every source  in the most safety but it also requires  acceptance from members. 


Best regards,

KIEN

Land: Impact FDIs vs “100% Exporters”

Ms. Bookie Ezeomah’s questions about land-grabbing and the potential negative effects of FDI (Foreign Direct Investments) on trade and local African markets is important to the discussion of trade policy & food security.

There are at least three immediate negative impacts of FDI and foreign acquisition of farmland that one must be careful to avoid:  1) acquiring land rights from the national government without permission from the local tribal owners; 2) selling (or giving away) food that drives down the local price of food; and 3) producing food purely for export to the home country, effectively removing (potential) farmland assets from providing food security for local population.  Additionally, there are the negative longer-term environmental effects of water usage, pollution, and mono-farming. 

First, permission to farm land should be negotiated at both the national and local level, customized to each individual countries unique structure and tribal culture.  This is more complex, but would avoid much of the abuses we have seen from many African land grabs.  Essentially, the private company should conduct themselves as a citizen of both the national government and the local tribe and village region.   Local partnership is crucial to success.  

Bottom line, unless the investors behind the FDI are Impact Investors, or Social Investors, where the goal is to both make a return on capital while positively affecting the holistic food value chain, it is very difficult to achieve this “human rights” and “positive local citizenship” goal.

A second, more rare situation is where FDI is adversely affecting local food prices by flooding local markets with too much food.  Most FDI cannot afford that luxury, even if they are Impact Investors.  However, it does occasionally happen, where food surplus is so high that it drives down prices temporarily and causes famers to stop growing surplus food. One solution which we are using to avoid this affect is to purchase surplus grain from local farmers, and add that to our Food Value Chain.  We are actually encouraging local farmers to produce surplus grain that we will purchase, store, transport and sell, just as a farmer cooperative would - but on a larger scale.  Our pilot test of this approach nearly doubled local food production in a single year, as the farmers were confident they had a willing buyer of their surplus grain.  BTW, the farmers used the same inputs and their traditional farming methods, yet doubled their production.

The worst situation, in my opinion, is where the FDI acquires (vacant or otherwise) farmland with the express goal of producing food for export to the home country.  Currently, there are FDI investors from China, India, and the Mideast who are seeking as much farmland as possible in order to produce food solely for export to their home markets.  In five years, if these projects are approved and implemented, the amount of “available” farmland necessary to feed local populations will be significantly reduced.  It is quite possible to have a situation where local farm production is high, but the local population are food deficit/food insecure because FDI food production is exported without the possibility of local sales.

There are multiple ways to restrict or inhibit the “100% export” FDI from acquiring (vacant or otherwise) farmland.  Insisting on both national and local permission to farm, a percentage of local ownership, and due diligence of potential FDIs are some of the approaches that could be utilized.  Restricting exports to a percentage of the total is also possible, but more difficult to craft in legal language that encourages FDI while protecting local food security.  Again, Impact FDI are less of a concern in this, because it would be unusual for them to be acquiring land for 100% export.

Much of the negative environmental effects Ms. Ezeomah and others have mentioned should be able to be avoided with Impact FDI’s, as opposed to the “100% Export” FDIs.  FDIs that are serious about good local citizenship will by definition be sustainable, and long-term stewards of the land, people and resources.  Often the 100% Exporters are solely interested in local land exploitation, to the detriment of the local people and eco-system.  

This issue of sustainability and good local citizenship is going to become even more important as countries with large wealth funds and foreign currency reserves seek to acquire land resources in Africa primary to secure scarce African farmland resources.  Some have observed that this is similar to the colonial rush for mining resources, or the rush for oil, which is then restricted to the foreign owners sole benefit.  The 2015 SDGs should help address these concerns, but the international trade and food security negotiations around this issue are going to be “challenging”.

Dennis Bennett

CEO, AfriGrains

Linking Agricultural Research for Development (AR4D) to Extension and Advisory Services (EAS) to support food security and access to agricultural markets

The consequences of climate change have a negative impact on agriculture and rural and vulnerable population, which has already been affected by the severe outcomes of the recent global economic crisis. Since the recent food and financial crises, the prices of nearly every agricultural commodity have risen sharply, in a process which does not seem to have peaked yet. Several factors contributed to these price increases: increasing frequency and severity of droughts, rising energy prices and subsidized bio-fuel production, income and population growth, and market and trade policies that had a distorting effect. Poor people spend 50–70 percent of their income on food. Because wages for unskilled labor tend not to rise in line with food inflation, the poor have little capacity to adapt as prices rise. Moreover, even before the recent food crisis, the poorest of the poor were being left behind. Relevant coordinated interventions are needed to address production and productivity through policy and institutional innovations, improved markets and market linkages for smallholder agriculture.

Considering these challenges, CGIAR[1] Research Programs together with National Agricultural Research Systems and Rural Advisory Services joined efforts and set as primary objectives addressing the issues in order to improve agricultural productivity, increase the quality and quantity of food through intensification and diversification of sustainable agriculture and to develop the knowledge for the efficient use of natural resources, mitigating the negative impact of the consequences of climate change. A priority cross-cutting issue is addressing the needs of vulnerable and low income groups minimising projected adverse effects of the above mentioned threats.

Joint efforts of Agricultural Research Systems and Rural Advisory Services are focused on four main goals of regional development:

1. Improving the well-being of the rural population, particularly vulnerable groups and those dependent on agriculture;
2. Guaranteed improvement of the quality and quantity of nutritious food through the intensification and diversification of agriculture;
3. Rational use of natural resources;
4. Mitigating adverse effects of climate change.

The Strategies of agricultural research and innovation for future with food security stipulate an integrated approach based on (i) need for an integrated regional agricultural policies aimed at achieving the above goals; (ii) the opportunities for bigger impact by strengthening cooperation between national research institutions and multi-stakeholder regional centers and institutions in the field of agricultural research, innovation and education to facilitate actions for development along agricultural production and food chains; (iii) the implementation of collective actions to overcome the common problems at the regional level, such as trans-boundary diseases, use of natural (water, land) resources, and (iv) the further improvement of food security policy, providing for the development and integration of regional markets, enhancement in trade and commercial relations and modernization of communication infrastructure, and others.

Currently the CGIAR has developed strong research competencies in:

• Improvement of crop and animal production for commodities of importance to the poor;
• natural resource management for sustainable agriculture, including conservation and improved use of water, soils and forests; and
• social sciences and policy research which benefit the poor through improving access to agricultural resources, food and markets.

Agricultural growth through improved productivity, markets and incomes has shown to be a particularly effective contributor to reducing poverty especially in the initial stages of development. Good practices and research are critical for fostering the positive change in policies, governance arrangement and market systems to allow agriculture fully contributing to poverty reduction and development. As society and environment are constantly changing and interconnected a reconsideration of formerly proven principles are required. For instance, climate change shifts the parameters for crop yield improvement, policies promote socio-political dynamics, institutions and markets promote greater equity and environmental protection, and increasing agricultural productivity is critical to meet the needs of rising populations.

Reducing rural poverty and improving food security are conjunctive and require studies to develop and validate specific agricultural investments appropriate to different agrarian economies. Such research would involve a range of integrated components, including improving varieties of crops and livestock, restoration of degraded natural resources and improved value chains and markets. Outcomes of such interventions would be applicable for out-scaling the capacity for sustainable intensification of production with improved stability of yield and resilience to shocks, as well as improved household food security, increased stability of production and resilience to shocks and increased income from farm and non-farm activities, permitting investment in health, education and other poverty-reducing activities.

Improving food security and nutrition requires studies to develop and validate agricultural investments appropriate to high potential areas, including studies on improvement of crop and livestock productivity, a sustainable provision of natural resources which anticipates climate change, and improvements in policies on markets and trade which help to reduce and stabilize prices. Changing levels of production, price and access to affordable food by the urban and rural poor are considered as proper indicators of those interventions.

Creating effective mechanisms of delivering nutrient-rich foods to vulnerable groups, particularly those nutrients essential to growth and development of children is critical as well to cost-effective targeting of multi-stakeholders interventions. These may range from increasing the nutritional value and safety of relatively more available, staple foods, to increasing production and consumption of foods rich in micronutrients, particularly animal products, vegetables and fruit, through local agricultural diversification and improved market chains. There is a need for more evidence on where and how local improvements in agriculture lead to reduced undernutrition. For today, many programs on food supplementation and fortification have evidences of addressing undernutrition, but are rarely linked to local agricultural production which could present opportunities for agricultural improvement and sustained access to nutritional foods. Because of the critical importance of women in child nutrition, understanding and enhancing their role in the production and distribution of food at the household level must be an essential part of any strategy to reduce undernutrition.

Market driven changes, particularly in food security, should  involve different institutional arrangements in generating outcomes of coordinated interventions, especially with the private sector, which play critical role in the supply of genetic technologies and seeds, agrochemicals, veterinary products, agricultural machinery and implements, and even human nutrition. This role will continue to grow as the cost of biotechnology applications continues to fall, intellectual protection instruments become more standard and input and service markets consolidate. Multinational and national input supply firms are focused mostly on the commercial agriculture sector where the market and institutional conditions are present to ensure suitable rates of return for their investments, and this will continue to be so for quite some time. However, their up-stream domains will have an increasingly wider application scope and this will open up important partnering opportunities with public entities –both national and international – that have downstream capacities across different crops and agro-ecological environments.

Thank you to the facilitators for raising such interesting questions, as well as to the many insightful commentators. As many important arguments have already been made, I would like to simply add a historic perspective, as well as highlight some aspects I feel have not yet been highlighted.

The salubriousness of international 'free' trade for developing (and often food insecure) nations has been questions by 'experts' within the International Community as early as 1950s, when the GATT economists investigated the 'disturbing elements of agricultural protectionism' (Trends in International Trade, GATT, 1958, also known as the Haberler Report)

The agricultural subsidies of developed countries, that the 'Haberler Report'  identified as pernicious for trade of developing countries have declined since then, e.g. in the European Community from about 70% of the budget (in the 1960s) to around 40% in recent years. Yet the negotiation rounds, such as Uruguay or Doha, have still not allowed for a realignment towards a fairer trade regime in the sector.

Theories which govern world trade, and its arising inequalities, have been contested by a number of internationally respected economist since then as well, e.g. Raúl Prebisch (in the 70s), Joseph Stiglitz and Ha-Joon Chang (recent years), arguing that we should learn from history and allow a' fairer' trading system (also note the excellent resource pointed to by the facilitators: Jennifer Clapp's “Linkages of 'Trade Liberalization and Food Security”, 2014, for an overview on issues of underlying economic theories).

Dumping surplus production as 'food aid' has slowed since its apexes of the1980s, but continued until just recently by the US, e.g. in the West of the DRC, where I was able to see how US AID rice undermined local production as recent as 2013.

Trade liberalizing agreements are not the only culprit undermining food security, particularly in Sub-Saharan Africa, which is still suffering from the highest prevalence of undernourishment worldwide.

Political will must be examined as well. My experience in the DRC has strengthened this conviction, as well as the need for political stability. Nevertheless, the aforementioned public investment (by other commentators) are direly needed (such as infrastructure, storage facilities, market price information systems, education etc.), and Least Developed Countries, in theory are not hindered by the WTO 10% de minimis clause, yet many LDC countries have not even reached this low threshold. Considering the high percentage of its population relying on agriculture for their livelihoods (and despite the CAADP - Comprehensive Africa Agriculture Development Programme, initiated by the AU) this development should be questioned from a political will perspective also.  

Understanding and involving local small scale farmers, which will play a vital role for insuring food security (see Olivere De Schuetter for excellent reports on the subject), have been neglected by local and international policy makers and influencers alike (Governments, aid agencies and NGOs etc.)

Second to last I would like to caution against an over-emphasis on production to eradicate food insecurity without acknowledging the effects industrial agriculture has had on the soils as well as biodiversity in countries using a surfeit of chemical pesticides and fertilizers since WWII. Based on FAO reports 1/3 of soils are already 'severely depleted', so to ensure sustainability nature needs a seat at the negotiation table. Furthermore the IPCC (2007) report pointed to the thus far neglected potential for soil carbon sequestration through sustainable farming methods, slowing down climate change. 

Last but not least, I would like to draw attention to the power of consumers of the north, of which I am currently one myself, and know quiet a few personally. Here the vote for certain shapes, colors and prices happen every day, often in favor of fruits and vegetables produced unsustainably. The understanding and importance of the farmer in our societies has almost disappeared, and while the large-scale producers are continued to be supported (mostly due to powerful lobbyism) the small scale farmer is choked and disappeared across Europe and the United States also.

Questioning the currently economic paradigms underlying our free trade regime is important, but I would argue, it is just one of multiple steps we must take to ensure long term food security. 

Dear Friends,

I have been hesitating to comment on this theme. It interests me very much but I also know just how little I understand about international trade in agricultural products. I will, however, make a few short observations based more on intuition than on any in-depth knowledge of the subject.

1.      The rules that have painfully emerged from long-drawn out GATT and then WTO negotiations are generally benign (especially from the perspective of improving efficiency), but the manoeuvring in which nations and regional groups quickly engage following agreements prevents the achievement of their intended purposes. Thus, for example, the farm subsidy bill of the OECD countries has continued to rise (to US$415 billion in 2012): adjustments have been introduced in the purposes for which payments are made so as to conform with WTO requirements, but with the same ultimate effect of lowering food prices for consumers and producers within the rich countries – and with knock on effects on international markets. Witness also the abusive use of non-tariff barriers for protection of national agricultural products and the selective application of food import/export sanctions in the context of international political disputes (e.g. EU-Russia).

2.       Most governments implicitly favour policies that keep food prices low for consumers, claiming that this enables the poor and hungry to have easier access to food. A blind eye tends to be turned to the conditions of work endured by people working in the food chain and to the low incentives such policies offer for new investment in farming. The result of these policies may be to increase rural deprivation and hunger. Interestingly, when prices rose in 2007-08 and 2011, the medium-long term effect was to reduce poverty (both rural and urban) in developing countries (see Headey, D., Food Prices and Poverty in the Long Run, IFPRI, 2014).

3.      “Conventional” food policies tend to reinforce the asymmetries which already exist in commercial food marketing systems (both national and international). They effectively subsidise all consumers (encouraging over-consumption and waste), rather than benefit poor families who need better access to food – an issue best addressed through social security programmes, freeing up subsidy funds to provide farmers with incentives to adopt sustainable production systems..

4.      It is most unlikely that the handful of international corporations that dominates the international trade of each of the major food commodities is in any way committed to improving human  nutrition or food security. The fact that several of these same corporations also dominate the international trade in farm inputs implies that their interests are in extending input-intensive agriculture at a time when the shift to genuinely sustainable production systems based on harnessing agro-ecology-driven processes is urgently needed on environmental and climate change grounds.

5.      While it would be wrong to blame the current trading rules and systems for the fact that more than half the world’s population are malnourished (800 million chronically hungry; 1.5 billion overweight or obese and rising fast; probably 2 billion with micronutrient deficiency), they certainly don’t help matters. From a global perspective, it would seem to be extraordinarily rash to perpetuate a system in which the food and farm input trade which plays such a fundamental role in the health and survival of the world’s population as well as the health of natural resources is in the hands of what amounts to a privately run cartel, whose members are largely above the law and not accountable to any national or international authorities.

6.      The lack of apparent concern about an issue of such massive significance for the human race is perplexing. To the extent that there is concern, it is exemplified by the fair trade movement and some certification schemes through which consumers who are conscious of the inequities and environmental risks inherent in the current system seek to bypass it, but these still account for only a small proportion of traded food products.

7.      We have been fortunate, since the end of World War 2 to have been able to meet the food needs of a rapidly growing population, thanks, in part, to the globalisation of the food market and the uptake of input-intensive farming. But the need now is to translate ample food availability into healthy eating by all people and to shift food production and consumption onto a truly sustainable basis. This can only be achieved by the emergence of strong institutions that are able to exert themselves in the global public interest.

8.       Worryingly, there is little appetite for moves in this direction. We easily forget that, partly because of the absence of such a capacity, 258,000 fellow humans died in Somalia just 4 years ago for lack of food, in a world with more than enough food for all to eat well – and waste much of what has been produced. We must not wait for a truly catastrophic global food shortage to force us to face up to the need for global institutions empowered to shape the ways in which our food systems are managed in the global rather than private interest.

Best wishes,

Andrew

In response to a question from Mr. Bennett’s presentation “How is what is grown determined so that diversity, including dietary diversity, is encouraged and how does this approach ensure that food gets to the hungriest regions”?

A major concern for me is Land grabbing and foreign direct investment in Africa and the effect it has on trade and the local African markets. Super economies (e.g China) have acquired large expanse of land in Africa to produce food for their increasing population. This has fostered growth of large scale monocultures to the detriment of small holders and their small scale mixed farming model. By exporting food produced in Africa to China for example, valuable resources are exploited such as water and nutrients, and tress cut down in land preparation have increase green house gas accumulation in these areas. How are small holders protected from the adverse effects emanating from large scale farms such as ground water pollution from fertilizers and other agro-chemicals? Foreign direct investment and trade policies should include agreements such that at least 10% of land purchased in another country (especially developing economies) is dedicated to growing indigenous varieties of local food which will be sold in local market at appropriate market prices (which will not compete with ongoing prices) to support food security. These companies should be encouraged to invest in research and propagation of these local varieties as a social service. It is also the duty of governments to maintain seed banks and preserve genetic diversity of indigenous food. 

The cornerstone of modern society over the past 340 years has been financial banking, reflecting, the more you have, the more you contribute. The reality is contributing to the financial bank has actually drawn upon, close to the point of no return, the cornerstone Bank of Assets of mankind and all living matter Soil-Water-Vegetation-Atmosphere (SWVA).

Reality is, every aspect of our daily lives, directly and indirectly, we are drawing upon SWVA and have done so at the start of industrial revolution. It is now mandatory that, we view all forms of financial banking income be correlated to, the drawing-down of the bank of assets (SWVA).  Be it mining-petroleum-fracking, forestry harvesting, power generation, manufacturing transport include airlines, & farming drawing the carbon and elements from the soil into food on the table.

Based on my decades involved in lecturing and growing soil, soil-carbon and elements in deserts viewing firsthand anthropogenic poverty on all continents clearly a new global accounting balancing protocol is demanded.

Clearly scientifically proven SWVA is in overdraft. If we are to return the planet in full working order to the historians of tomorrow (who indeed have their pens poised) we need to act to avert the receiver Nature imposing serious hardships.

Based on hands on experience reversing deserts to grow soil food and fodder with dedicated vegetation sequesters mass volumes of CO2e and via the root systems manure become soil, soil-carbon and elements. Well planned and design under UNFCCC emissions all of the above can be offset at low to zero cost. Applying financial accounting terms meeting of the UNFCCC 100 year secure storage of CO2 the income outweighs all the profit of all the above.

Addressing Climate Change is the greatest business opportunity ever and it is perpetual. Bottom line well planned there is more returns saving the Planet than stripping it!

Robert Vincin

Australia

Me, with Mr. Mohamed Aw-Dahir,  would like to share our insights from the Near Eastern and North African Region below:

1. From your knowledge and experience how have trade agreements and rules affected the 4 dimensions of food security (availability, access, utilization, stability)?

Trade agreements govern the ability to export-- the ability to earn foreign exchange which can be used to finance food imports-- and the ability to import. At global level, probably the most important contribution of the trade agreements and rules to food security is the increased access to markets (and thus, increased availability of food) through bilateral/regional/multilateral agreements.  Agreements are designed to keep farm and non-farm trade barriers falling, to encourage the secure flow of international investments, which might in turn increase agricultural development and self-sufficiency. Another benefit of transparent global trade regime is the improved access to low cost food markets by the world’s poor.                                              

The Near Eastern and North African (NENA) region which is highly dependent on international market imports for about 60 percent of its food needs to cover the domestic requirement/consumption needs. Most of the countries in the region are therefore vulnerable to food price shocks and projections indicate that their vulnerability will increase. Such vulnerability/their food security can be improved by more effectively mitigating the effects of cereal price and quantity risks which is dictated by international markets/trade agreements and rules. Market and trade agreements are therefore crucial to ease and to stabilize food import flows from net exporter countries to NENA region. It is very important to note that the interconnected markets created by global trade have created not just new strengths but also weaknesses that have jeopardized food security as in the case of global food price spikes (in 2007-08 and 2011). With the food price volatility at international markets, export bans, export taxes, domestic production subsidies and other forms of trade distortions the ability of the countries in the region to sustain food security through imports faced serious challenges, as witnessed during 2007-08 and lately in 2011 food price spikes. In North African countries, the wheat import bill has increased by 62 to 178 percent during 2006–08.

The trade barriers imposed by the net exporting countries affected all dimensions of food security, especially availability, access and stability at market and household levels. For instance, in 2007 the impact of price shocks on food security has been very negative for a number of countries in the Arab region. Food price inflation stemming from global commodity price shocks in 2007-08 has been associated with an additional 4 million undernourished people in this region. Similarly in the year leading up to the Arab Spring, food prices rose by an estimated 13 percent and 20 percent in Syria and Egypt, respectively. The cost of a typical household food basket in Egypt rose by almost 50 percent over the 2005-08 period leading to a lower living standard and increased poverty level. Food exporting countries reacted to seasonal shortages of production by issuing export bans, export taxes, domestic production subsidies and other forms of trade distortions to keep the available produce at home.  For instance, the Russian Federation, one of the leading grain exporters to the NENA region, banned exports altogether when faced with shortages, leading to social unrest in selected NENA countries,  as consumers could not afford higher food prices due to lack of supply in the global markets. More studies support the hypothesis that social unrests in NENA countries are due higher food prices when confronted with limited global supply (due distorted trade), rather than fuelled by political motives. These periods led some of the NENA countries to implement short term food security policies in uncoordinated manner. Some of these policies were however negating each other and were sometimes costly and to the expenses of the long term development/investment needed in food security.

2. What is your knowledge and experience with creating coherence between food security measures and trade rules? Can rights-based approaches play a role?

Trade rules set by WTO intended to facilitate negotiations for fair trade agreements. Given the prevalence of poverty and hunger, direct and well targeted safety nets and social protection programs based on legal guarantees and solid entitlement would improve food security. As a result of high food prices of the 2007-08 and 2011, the poor people in NENA region had an inadequate intake of essential nutrients which would seem to reinforce the deterioration of food insecurity. Given this dramatic experience, forthcoming trade rules are expected to be re-designed allowing enough flexibility and resilience to ‘right to food’ even under extreme market situations as in the case of 2007-08 crisis.

Any trade policy violating the right of food is expected not to be pursued both by the developed and less developed countries/regions of the world. With a common objective of maintaining their right to food, net food importing states, particularly in the NENA region, developed partnerships with other net food importing countries.

3. How can a food security strategy, including components that explicitly support small-scale farmers in agro-biodiverse settings, be implemented in ways that might be compatible with a global market-based approach to food security?

The foremost motivation for farmers to produce-- regardless of their scale of production-- is the existence of markets to sell their produce:  Even if a local farmer is not selling its produce ‘literally’ in the global market place, his/her production may still be marketed in global terms, i.e., it can reach to consumers buying in foreign markets through the so called ‘intermediaries’ in the value chain. The rules governing the different aspects of value chain development are increasingly integrated in trade agreements, carrying implications for marketing opportunities and productivity in turn.

In order to diversify marketing opportunities for their produce, farmers need to adapt to specific requirements in different destination markets, generally reflected in the form of quality and safety standards. Smallholder productivity growth and increased market integration is critical to meeting increased demands; increased investment in food systems is crucial.

Sometimes, to optimize their earnings, farmers might find it rational to store and introduce their harvests later in markets. Improving the conditions of  storage, distribution and transportation facilities, increasing compatibility of the product with destination market requirements (including the compatibility of post farm activities like packaging, labelling, etc.), can support building chains of supply that would sustain foreign exchange flows in the country, as well as increasing production and lowering prices for local consumption.

NENA region can be a well selected candidate for all the improvements in different parts of the supply chains stated in earlier paragraphs. According to FAO, the amount of food that is lost or wasted is almost 250 kg/ person per year in the NENA region. All food wasted/lost is a contribution towards more-defined food insecurity. The urgent need to consider small scale farmers’ welfare while defining the effects of global trade mechanisms on the economic environment is much more evident in the NENA region. In the region, an average of 73 percent of all farms are ‘small farms’, whereas the same share is only 32 percent in Europe.    

Measures supporting food insecure countries needs to be adopted not only domestic but also at the global level to be effective-- Even if a country has taken all the domestic measures explained in the previous paragraphs and is able to increase its production, it might not attain a food secure-state if its farmers cannot compete in world markets given the financial ability of destination countries’ in supporting their own farmers-- resulting in a trade system which does not depend on comparative advantage, but the financial reserves of the country, thus, biased towards High Income Countries.

Since I haven't seen any posts on buffer stocks I wanted to say something about this as well as give some context. 

In the past 50 years buffer stock schemes disappeared from the international agenda, and are given scant attention by most economists. Yet the rationale for international commodity buffer stocks, especially in a world of global climate change, is stronger than ever. This post tries to put in perspective the role that supranational commodity buffer stocks can play as opposed to national or private buffers, and what that might mean for global food security.

Market volatility and persistence (a long continuing movement away from the mean path) in prices for staple grains, and other primary commodities are well accepted phenomena.   This volatility creates havoc for producer incomes, calculations of long run opportunity costs, optimal investment paths and food security for consumers. The inelasticities that exist in commodity supply and demand, herd behavior in speculative global markets, production lags and cob web cycles in quantity and prices, hoarding with rising food insecurity and beggar thy neighbor trade policies by nations, mean that there are large welfare losses that arise from commodity price volatility.   Market prices for staple foods regularly lose their efficiency properties and normative trade theories that demonish governments for stabilizing food prices and holding national buffer stocks often loose their saliency.

Governments that stabilize domestic food and fuel prices at a low cost to economic growth and with participation by their citizens are typically rewarded with greater political stability, food security and domestic welfare gains [[1], [2]]. Both importing and exporting countries that stabilize stable grain internally will use the world market to dispose of surpluses or meet deficits through imports.  By and large Asia, the US and Europe have figured out how to do this domestically but with large negative spillovers to the rest of the world.  Africa does not have a viable strategy for stabilizing their domestic food prices, and the continent suffers even more from the instability in world markets transmitted from the Asian, Europe and US approach to price stabilization, agricultural subsidies, taxes and agricultural trade policies.   At its heart we have a coordination problem that has resulted in a food crises every three decades, and a system where both public and private sectors in poor regions undervalue agricultural investment and have a bias towards urban domestic policies [[3]]. 

When talking about global markets and food security, it is important to take note of the actual size of world grain stocks, access to these stocks, and the role that private versus public inventories play in smoothing or destabilizing prices.  Those fearful of global warming have advocated that world grain stocks should increase to 110 days (enough stocks to feed the world without any further harvest) to avoid rising volatility.  World grain stocks from1985 to 2000 were often over 100 days. Since 2000, global grain stocks, normalized by consumption, have averaged 12 percent lower than 100 days [[4]] and this might explain higher commodity price volatility.

Studies have found that price volatility, while related to many different factors, when coupled with low world stocks can generate large price swings [[5]].  Low interest rates reduce the cost of storage, and can promote private stores that can smooth commodity prices when shocks to supply and demand are thought to be temporary, or idiosyncratic. However private inventories have little effect on the deviations of prices originating from persistent or macroeconomic shocks, as long-lasting shocks do not allow inventory smoothing to be profitable. [[6]]

In a low interest rate environment, the price impact of idiosyncratic shocks is reduced but persistent or common shocks still affect prices and as a result there is a much higher positive correlation between commodity prices [[7]]. Other explanations for the increase in correlation between commodities is financialization of commodities [[8]], and the growing prevalence of common shocks, combined with lower interest rates.

It is possible that public commodity buffer stocks [[9]] may be better at stabilizing prices when there are persistent shocks since governments can go beyond short term views.  In China, where public stocks are more common price volatility and correlation across commodities is lower that in similar commodity prices traded in US financial markets [[10]].  However commodity or grain stocks are not evenly distributed across countries.  For example China with its immense government resources and positive historical experience with the ‘ever-normal granary’ has stockpiled enough grain for 6 months consumption.  With only 20% of the world’s population, China had 45% of corn, 32% of wheat, and 44% of rice world stocks in 2013 [[11]]. 

If we accept that government buffer stock policies may improve the welfare of a country, ignoring the negative spillover effects that policies have on other countries, very few countries are endowed with the resources to finance such stock piles.  Indeed it is typical that those who would best benefit from stockpiling, countries that are dependent on particular primary exports, are least suited to maintaining buffer stocks.  When prices decline and incomes are reduced producer cartels are the least able to spend money in buying stocks and stabilizing the price.  In addition, there is limited incentive to reduce prices and sell from their stockpile when prices are high. This is one reason why producer commodity buffer stocks often fail. 

Likewise, while there is evidence that the size of Chinese stockpiling may have supported world prices in a number of commodities, it did not help dampen price increases since their longer run goal was to secure supplies which created an asymmetric policy of buying when prices were low but not selling when prices were high.

Once we accept the rights of a country to protect its own interests despite the negative spillovers of their national trade policies, such as hoarding during a food crisis, subsidizing inefficient producers, we will find that both national and private stores will be ineffective in stabilizing world market prices from persistent shocks and insulating the poor from food insecurity.

International Buffer Stocks

The simple solution is to have international commodity buffer stocks protecting both producers and consumers.  Various famous economists such as John Maynard Keynes, Richard Kahn, Benjamin Graham, and Nicholas Kaldor all advocated international commodity buffer stocks.  It was argued that this would give autonomy to national actions by limiting the negative spillovers of their national trade policies.  By introducing this residual buffer there would be more welfare improving free trade and commodity supply would be made elastic.  The buffer stocks would be run by an international commodity corporation (ICC) with both producing and consuming countries represented on its board. A corridor floor and ceiling could stabilize either individual prices or a commodity index, and this would encourage long term investment, stabilizing speculation with private inventory smoothing within this range.  Price stabilize would be based on some long run average, discerned by technocrats and experts in charge of running the buffer stock.  The commodity target would be pre-announced and modified rarely.  The ICC would buy commodities when prices fall below a pre-stated floor and sell when prices rise above a pre-stated ceiling. An alternative to individual commodity buffer stocks is the stabilization of a basket of commodities or an index where commodity amounts are weighted in relation to their significance in world trade. This allows individual prices to fluctuate with market supply and demand, and the ICC buys or sells the basket to stabilize the index.  There are some who debate whether stabilizing an index will ultimately stabilize individual prices, but as long as a single commodity in the basket does not dominate the rest, there are no monopoly producer goods included, and there is positive correlation between prices without the ICC, then the stabilization of the index will not only stabilize individual prices but reduce the positive correlation between commodities.  Idiosyncratic shocks  peculiar to each commodity will still be smoothed by private inventories.

While international buffer stocks are a top down policy, they would invest in bottom up growth through the establishment of local storage areas at commodity futures exchanges, ports, and even on-farm silos.  Regular and independent audits would need to occur since the process of storage would be tied to an expansion of local credit facilities. The local exchanges and commodity credit unions could be subsidiaries of the ICC. Small scale farmers would have reduced risk, and the buyer of last resort role of the ICC would disempower transnational intermediaries from making excess profits.  Many developing countries dependent on the export of commodities, would attain the income guarantees necessary for growth and economic diversification away from commodity dependence (not by disinvesting in commodities and agriculture, but rather by investing in commodities and allowing that surplus to finance industrialization and urban growth). 

The discussion over international commodity buffer stocks have a long history.  They were the mechanism for international counter cyclical monetary-fiscal policy in the original 1941 Keynes proposal for Bretton Woods.  International buffer stocks were outlined during the creation of the FAO in 1943. They were in the outline agreed to at Bretton Woods for an international trade organization.  They backed the new commodity reserve currency proposed by Nicholas Kaldor at the first UNCTAD meeting in 1964. And they were central in the discussions over the creation of a Common Fund in 1971.  The political economy of why these proposals have been so thoroughly quashed each time they raise their head is due to an addiction by powerful entities to cheap resources and speculative profits. Their establishment was identified by the US as a transfer of income from developed country consumers to developing country producers.  Since the 1980s and the move to free market economics, national buffer stocks have been dismantled under the criticisms that they were inefficient, corrupt, and destabilizing. Instead producers are encouraged to use futures and forward markets to lock in prices. While such insurance policies may stabilize incomes they do not guarantee stability in world supplies of commodities nor their market prices. In addition they are costly and oriented towards short horizons.

A 2009 World Bank report [[12]] estimated that an international stock-pile to stabilize international grain prices during the 2008 food crisis would have required 10% of global production, worth roughly $66 billion, and costing $4–6 billion to maintain ($1.4 billion in storage costs and $3–5 billion of spoilage costs based on losses in high-income countries). To put this in perspective, total losses to all consumers from rising food prices in 2007 were estimated by the World Bank at $270 billion. Given that people, producers and consumers, value stability over instability, and that food spikes have large welfare losses, $6 billion seems like a small expense.  Despite this, sourcing the cash flow, or loan, even if it is collateralized by the commodity stocks, will be a difficult task for the ICC, let alone a diplomatic nightmare. However, this financing problem was already solved in the original proposals by Keynes, Goudriaan, Hayek, Graham, and Kaldor.  By having the ICC issue a new currency backed by commodities, this body can simply print money, effectively inventory receipts, which will be valued since they are backed by a basket of commodities, and transferable in the market place.  This would involve the creation of a new secondary international reserve, something that many economists are calling for, and allow commodity trade to be denominated in this new currency, thus removing a large component of volatility due to USD exchange rate movements.  

Having supranational body that prints money is not any different from a national central bank. For example, the Federal Reserve bought USD 3 trillion worth of financial assets over the past 7 years, which they now have as assets on their books. These assets will be unwound when the time warrants, and in the process they reduced the risk of deflation, recapitalized the banks, and helped the economy by injecting liquidity into the system.

An international commodity buffer stock bank would do something similar. By standing ready to buy commodities during a period of low prices they would inject reserves and liquidity into the system when commodity prices are low with direct payments to farmers (if needs be). Security in commodity incomes would alleviate country balance of payment constraints and allow them to borrow or earn the new international reserves.  These new assets could recapitalize country balance sheets and stimulate world demand.

The ICC would offer the world an elastic supply of resources to facilitate industrialization and growth, a stable income and price level to producers that would encourage investment, inject liquidity (reserves) into the global financial system on a counter cyclical basis, reduce the negative spillover effects of national trade policies, and offer the world an alternative international reserve to the USD and thereby help amend the global imbalances problem between the US and China which has been blamed as a reason for the international financial crisis which led to the international food crisis [[13]].

Criticisms

There are a number of criticisms and questions regarding this proposal, and I list here only those that I have thought relevant to a discussion on food security and trade policy:

1)    An ICC would encourage production of mono-culture crops.

2)    An ICC reinforces the old colonial system where developing countries produce the raw materials which are sent to the developed countries to produce manufactured goods with higher returns.

3)    An ICC would distort commodity prices and ultimately create a surplus of commodities that would later have to be destroyed.

4)    An exorbitant amount of commodities would need to be stored to stop speculators from betting against and breaking the ‘bank,’ during rising commodity prices.

5)    The cost of storage is expensive and needs to be financed through taxes on countries which will never agree to pay.

6)    Stabilizing an index does not stabilize individual prices

7)    Such a proposal is not politically viable

I will answer these criticism briefly, although each requires further study.  My answers vary depending on the specific operations of the ICC, for example, an ICC that stabilizes a basket versus one that stabilizes multiple individual buffer stocks. The answers here will in most cases assume the more complicated basket buffer stock scheme is used with the ICC announcing a floor and ceiling index price target.  This is similar to the Federal Reserve which targets an overnight interbank interest rate corridor, and offers an infinitely elastic supply of bank reserves until the rate is between their target floor and ceiling.  In our case, supply functions of individual commodities are made more elastic but never necessarily infinitely elastic due to substitution between commodities in the basket. To simplify my explanations, price elasticities of demand for each commodity are considered to be similar.  It is assumed that the weights of the basket (based on some pre-specified objective measure of international trade) approximate a fixed ratio of inputs into ‘balanced’ economic growth (these weights may be updated year to year in a transparent fashion).  The commodities will consist of internationally traded homogeneous goods, that are cheaply stored, and easily rated in terms of quality (e.g Durum wheat US grade No.2).  Most likely they are commodities that are already traded on international commodity futures exchanges and stored at exchanges located near the place of production.

1)    An ICC would encourage production of mono-culture crops.

This criticism is correct in that the role of the ICC is to stabilize and promote international traded commodities. Producers will prefer to grow one of the crops that is included in the basket rather than outside the basket, to the extent that the market for in-basket commodities is more liquid. However, since commodities are substitutable, even out-of-basket grains will have their prices stabilized relative to in-basket grains. If an ICC promotes more trade due to stable prices, this will promote investment in cash crops for export. 

An ICC does not stop governments from subsidizing their own national choices. For example, if there were individual buffer stocks, and the selling price of the buffer stock was set at the marginally efficient producer, then governments that chose to subsidize mono-culture crops would have to bear the burden of those costs by raising taxes on its own nation, rather than have such production depress international prices and burden producers in developing countries.

In an index, excess production by rogue states can still depress prices and may even raise prices of the other commodities in the basket if the ICC is forced to buy.

2)    An ICC reinforces the old colonial system where developing countries produce the raw materials which are sent to the developed countries to produce manufactured goods with higher returns.

Nicholas Kaldor [[14]] along with many other development economists [[15]] argue that agrarian reform and investment in agriculture is essential to industrialization and the reduction of agriculture as a percentage of ones economy. This policy does not promote commodity dependence on exports. Rather it encourages a stable income for commodity exports such that countries can avoid the commodity curse and rely on this surplus to import capital and transform into an industrialized country.

3)    An ICC would distort commodity prices and ultimately create a surplus of commodities that would later have to be destroyed.

Knowing where to set the price has been solved with either of two methods. Kahn and at Keynes preferred individual international commodity buffer stocks where experts in the field would manage the buffer stock in order to ‘curb irresponsible movement of the price rather than establish stability within a narrow range of fluctuations’ [[16]] .  Kahn had no stated corridor and the size of the buffer stock would be kept secret. The management would have free discretionary powers to avoid speculators betting against it, and to manage its presumably limited funds to its best advantage. The only rule would be to ‘sell early [when prices rise] and buy late [when prices fall]’ which maximizes efficiency of the buffer stock and is different from private speculators who are concerned with short term profits and tend to buy early when prices start to rise and sell early when prices start to fall.  The buffer stock manager would take a long view and would need their own assessment of the ‘normal’ price working to carry surplus stocks that are ready to hamper extreme price movements.  Financing for these buffer stocks would have come by issuing loans collateralized by the stocks.

While the buffer stock was not a panacea, and there may have been times that the stockpile would be depleted, it is unlikely it would create an excess since the purpose of the buffer stock was to protect consumers from high prices and eliminate marginal producers who required prices above the marginally efficient price to stay in business.

Graham and Kaldor were much more open to non-discretionary transparent policies where an index would be stabilized at a preannounced level (perhaps based on the average of the past 10 years of prices). By stabilizing the index to a peg, individual commodity prices would be free to fluctuate in accordance with market supply and demand, thus precision on the ‘fundamental long run equilibrium’ index was not so important.  Open market operations by the ICC run by technocrats would entail buying and selling the basket, selecting the commodities, and setting the weights in accordance to some objective measure.

The purpose of the buffer stock is to create aggregate demand during a slump by paying producers directly. This would create additional employment and purchasing power in the production of primary commodities have a multiplier effect to add employment and trade activity in other lines, promoting growth and using the ready reserves of raw materials accumulated over the slump by the ICC.

Rather than destruction or restriction of production, these proposals come from a view that economic growth is needed to absorb the commodities, destruction which is complete madness.  Raw materials, even if in abundance, should be considered an international treasure rather than a burden. 

To make this growth more ‘green’ renewable commodities, or sustainably produced commodities could be specified as a minimum percent of the basket.

4)    An exorbitant amount of commodities would need to be stored to stop speculators from betting against and breaking the ‘bank,’ during rising commodity prices.

If the ICC pegs the price or index too low, then there is a chance that speculators may be on the right side of history and break the ICC, in that it runs out of buffer stocks. In such a case there will be run on the CRC.  However, if the CRC is full backed, the real value of the CRC will remain the same basket as promised. Thus while the ICC might run out of commodities, it will simply cease to operate in a period of rising commodity prices and the market will reinstate its dominance in setting the price. The CRC up until that point will still have been beneficial to price stabilization.

5)    The cost of storage is expensive and needs to be financed through taxes on countries.

The ICC can issue a fiduciary (unbacked) amount of CRC and in the process pay for other assets or expenses.  Another method is that a tax could be charged on all countries that hold CRC reserves. This is like a negative interest rate that helps pay for the storage of the commodities (just like storing gold incurs a cost rather than a positive interest rate) and it also limits hoarding of the CRC.  However, hoarding in our model is not a cause of global imbalances because for each creation of a CRC rather than debt being the flip side of this creation it is an actual asset, and income to producers. This means that the money multiplier is tied to a consumption multiplier and should have a strong counter cyclical effect on international demand.

6)    Stabilizing an index does not stabilize individual prices

This criticism needs further research. It is no doubt that the stabilization of an index, will lead to a more complicated price transmission than the one we state here.  Cross substitution and cross price elasticities will mean that there is no simple way of knowing what will occur. However, if commodities are positively correlated due to persistent common shocks then the ICC stabilizing an index will tend to stabilize individual prices.  If individual prices are idiosyncratic and not correlated, then the ICC should let private inventories stabilize these price movements as much as possible. By giving extra liquidity to inventories by being a buyer of last resort, the cost of private inventories should go down, and private entities will be more willing to hold individual commodity inventories to buy and sell in a stabilizing manner, if individual instability is prevalent.

If growth is balanced, that is input ratios remain steady, then stabilizing an index will stabilize prices and support growth at the same time.

7)    Such a proposal is not politically viable

This bold plan for a reserve currency backed by commodities has been proposed before and while it has had eminent economists in favor of it, it required more imagination than was possible.

The ideology of free markets took over in the 1980s and led to deregulation and dismantling of price boards and commodity programs. We have not seen great stability in commodity prices nor significant development and industrialization of countries that depend on commodities for export with this deregulation. Instead, we saw a growing number of countries becoming dependent on commodity imports, especially food imports. It could be said that the current system has not worked. Commodity prices are much more volatile now than they were under Bretton Woods, and not valued as highly as they should be.

I treat this topic as one of social learning, and so did Keynes. In his support for a new international currency that was indexed to a basket of commodities (a tabular standard) he said:

  “I have no quarrel with a tabular standard as being intrinsically more sensible than gold. My own sympathies have always fallen that way. I hope the world will come to some version of it some time.  But … the right way to approach the tabular standard is to evolve a technique and to accustom men's minds to the idea through international buffer stocks. When we have thoroughly mastered the technique of these, which is sufficiently difficult without the further complications of the tabular standard and the oppositions and prejudices which this must overcome, it will be time enough to think again” (Keynes 1944, 429-430) [[17]].

There should be greater discussion on commodity buffer stocks – be they private, national or supranational - especially in a world threatened by global warming and extreme weather patterns. Even when long term market prices are desired, the ruthless actions of markets on short term even transitory events must be steadied.

Endnotes

Bonjour chers tous, 

suite à ma première contribution, je vous fait parvenir un opinion paper que j'ai eu à réaliser avec un collègue afin de partager quelques propositions concrètes sur le lien qu'il existe entre sécuirté alimentaire et ouverture commerciale. 

Ps: ce papier cible plus particulièrement le continent africain.