8^th Geneva Roundtable on Trade-related Issues

COMMODITY-SPECIFIC TRADE ISSUES AND THE IMPLICATIONS OF POSSIBLE

MODALITIES FOR COMMITMENTS IN THE CONTEXT OF THE

WTO NEGOTIATIONS ON AGRICULTURE

Geneva, 8 November 2002

Paper No. 1

Salient trends in world agricultural production, demand and trade and in food security

Commodities and Trade Division

Salient trends in world agricultural production, demand and trade and in food security

The paper reviews major trends in, and the medium- and longer-term outlook for, agricultural demand, supply and trade at the global and regional levels. It also summarizes the current progress towards the reduction of hunger and presents outlook for coming years. The overall picture that emerges is that under the business-as-usual scenario, the world will continue to witness large pockets of poverty and hunger amidst plenty of food globally.

I. PRODUCTION AND DEMAND

1. World food production has outpaced population for the most part of the last four decades. The volume of world food production has nearly tripled whereas world population only doubled between 1960 and 2000. The growth rate varies among products and regions (see Table 1). Although the volume of production has been increasing mainly due to technological change and producer friendly policies in many regions, the rate of increase has slowed down in recent years. Among the developing regions, the East and South Asia countries made the most impressive gains in production since the 1970s, more than doubling their cereals production and maintaining their share of global cereals output above a third. The Latin American and the Caribbean countries also increased their growth in production but at a much lower pace than the East and South Asian countries. On the other hand, the countries of sub-Saharan Africa only realised marginal increase in their agricultural production growth rates.

2. The slow down in the rate of increase in world agricultural production over the last decade has been, in general, due to physical and other constraints including supply control policies in many developed countries. For the developing countries, the slow down in production is mainly the result of inadequate support to the sector, low investment and depressed prices.

3. On the demand side, global consumption of agricultural commodities has exhibited a similar trend as production (see Table 1). Consumption in the developing countries has been growing at much higher rates than in either the developed countries or the economies in transition. However, consumption of basic foodstuff (i.e. cereals, meats and dairy products) dropped considerably during the 1980s, the same can said for root crops, which together with cereals constitute the main source of calories in most developing countries.

The available evidence has been that the growth of the productive potential of global agriculture has been more than sufficient to meet the growth of effective demand. An indication of this is the long-term decline in the real price of foods. In reality, world agriculture has been operating in a demand-constrained environment, with production closely following the demand. This situation co-existed with hundreds of millions of the world population not having enough food to eat.

4. In the future, the growth in the demand for agricultural products (crops and livestock) is projected to be lower, from around 2 percent per annum in the past 20 years to 1.5 percent over the next 30 years¹. This deceleration will be much more marked for developing countries as the growth in demand for them reduced from close to 4 percent per annum to 2 percent in the future. At the global level, the same reasons that led to the faster growth in demand in the past will work towards lowering the demand growth in the future. These are slowdown in population growth, rising saturation of food consumption for an increasing share of world population, and lack of effective demand for food and/or resources to produce food on the part of a significant proportion of the population. One additional factor is the slowdown in the demand for food in China, where the very high growth rates has been tapering off in recent years.

5. The overall picture for total agricultural production is shown in Table 1. The historical trend in production is similar to demand at the global level. This will be the case in the future as well. Thus, agricultural production at the world level will grow at about 1.5 percent per annum in the next 30 years, which represents a deceleration from about 2 percent growth in the past. For individual countries and country groups, however, the two growth rates will differ and it will be the net trade that will balance the account.

6. Detailed analysis shows that, globally, there is enough land, soil and water, and enough potential for further growth in yields, to make the necessary production feasible. Yield growth will be slower than in the past, but at the global level this is not necessarily a cause for alarm because production must grow at a similar rate as demand. The issue is not so much of adequate production at the global level but one of producing food, or incomes to buy the food, where this is needed the most, i.e. in the developing countries, if hunger is to be eliminated.

7. In summary, the limited scope for further growth in per caput consumption in most developed countries has a major impact on the scope for further expansion of the world totals because the developed countries account for a high share of world consumption of agricultural products, notwithstanding their much lower share in world population. At the same time, the considerable scope for further growth in consumption in most developing countries gets expressed as effective demand only gradually, for the well-known reasons of the slow growth in their per caput incomes and, in the countries facing production constraints, import financing capacity.

II. AGRICULTURAL TRADE

8. The main trends in food and agricultural trade during the past few decades relate to: its continuing importance for both developed and developing countries in terms of incomes as well as supply of food; its uneven growth patterns over the period, with rapid expansion in the 1970s followed by virtual stagnation in the mid-1980s and a slow recovery since then; the collapse of commodity prices during the 1980s; the changing directions and commodity composition of trade, in part related to the proliferation of regional trade agreements; and recent policy changes related to the Uruguay Round Agreement on Agriculture.

9. Although, on the one hand, lower commodity prices are expected to benefit the food importing developing countries, on the other hand, weakened commodity prices had negative implications for many developing countries that depend heavily on primary commodity exports. Traditionally, developing countries as a whole had a net surplus in agricultural trade. In value terms, this peaked at US$17.5 billion in 1977. The trend since then has been for their imports to grow faster than their exports. The agricultural trade balance of the developing countries has gradually dwindled until, by the mid-1990s, it was more often negative than positive. The highest recorded deficit was US$6 billion, in 1996.

10. This overall trend obviously masks a complex picture, which varies from one commodity to another and from one country to another. The marked decline in developing countries' net surplus in sugar, oilseeds and vegetable oils, for example, reflects growing consumption as well as the effects of protectionist policies in the major industrial countries. For commodities produced almost entirely in developing countries and consumed predominantly in the industrial countries, such as coffee and cocoa, slow growth in demand prevented the trade balance of the developing countries from improving. Fluctuating and, on balance, declining prices further contributed to the problem.

11. The projections to 2030 show the agricultural trade deficit of developing countries growing still further. In particular, net imports of cereals and livestock products will continue to rise quite rapidly. In the case of other products where developing countries have traditionally experienced trade surplus, the surplus is not projected to increase as much. For example, the net surplus in sugar trade of 5.8 million tonnes in 1997-99 will fall by 40 percent to 3.5 million tonnes by 2030. For other products with trade surplus, e.g. tropical beverages, vegetable oils and rice and rubber, the surplus is not expected to grow much further. For several of these commodities, progress in trade liberalization would be conducive for increased exports.

12. The net import of cereals by developing countries is projected to rise from about 100 million tonnes in 1997-99 to 190 million tonnes by 2015 and 265 million tonnes by 2030 (Table 3). These translate into self-sufficiency ratios of 91 percent in 1997-99 and 86 percent in 2030. This outlook could be a matter of serious concern, inter alia for two reasons. First, there is an uncertainty over the ability of many of these countries to earn enough foreign exchange to import the foods. Second, such large scale imports of basic foods have the potential to undermine the domestic agricultural production base of these countries.

13. On the means to finance food imports, agricultural exports will continue to play an important role for many of these economies. Besides an expansion in the volume of export itself, exports also need to be diversified. The total value of processed agricultural products at the world level has increased significantly in recent years, by 60 percent between 1986-90 and 1996-00, compared with only 36 percent growth for primary products. All major country groups have seen their value of processed products increase in this period (Table II). While this is the case in an absolute sense, the same data show that developing countries have not been able to increase their share as a percentage of the global total. In fact, their share fell slightly from 47 to 46 percent in this period while for the LDCs the share fell from 3.9 to 3.5 percent.

III. FOOD SECURITY

14. Over the past four decades, strides have been made in improving food security globally. The proportion of people living in developing countries with average food intakes below 2 200 kcal per day fell from 57 percent in 1964-66 to just 10 percent in 1997-99. Yet, 799 million people in developing countries were undernourished in 1999-2000.

15. In 1996, the World Food Summit set the target of reducing the number of undernourished population in the world by half, to about 400 millions, by the year 2015. FAO’s latest estimate indicates that there were 799 million undernourished people in the developing world. This represents a reduction of 20 million since 1990-92 (the benchmark period used by the World Food Summit). This translates into an average annual decline of about 4 million people per year, which is clearly not adequate to meet the Summit target, which requires a decline of 20-22 million undernourished persons per year². These recent trends underscore the scale of the challenge facing us.

16. In the recent past, the bulk of the increases in food consumption of the developing countries as a whole were met by increases in domestic production but this is so only because of China and India. In the case of China and India, for example, cereals production grew at 3 percent annually in the three decades to the mid-1990s and provided 87 percent of the increase in their consumption. However, for many countries, increased food availability was explained more by rising food imports than production. Food aid also played a role in raising food availability.

17. Like poverty, hunger can be reduced rapidly with strong and sustained economic growth. It is also possible to raise food consumption and nutrition levels even in the absence of significant economic growth, especially in economies where food consumption levels are low. For example, average food consumption in Mali rose by almost a third in the 1980s, although per capita household expenditure fell over this period. Other countries, such as Benin, Burkina Faso, Ghana, Mauritania and Nigeria, achieved similar quantum leaps at times of slow income growth. The common characteristic seems to have been rapid growth in the production of food staples (cereals, roots and tubers). Because a majority of the undernourished households were at or below the subsistence level, increased production led directly to higher food consumption. These experiences underscore the importance of an environment conducive to the production of basic foods, at least in the initial stages where hunger is widespread and alternative means to acquire food are lacking.

18. The recent FAO projections show that the incidence of under-nourishment should fall from 17 percent of the population of developing countries at present to 11 percent in 2015 and just 6 percent in 2030 (Table 4). Two points dilute this otherwise impressive prospect for the reduction in the proportion of undernourished population. First, continuing population growth means that progress in reducing the total number will be slower. The Summit target was of halving the number of undernourished people. The FAO projections show that this may be difficult to achieve: some 610 million people could still be undernourished by 2015, and even by 2030 about 440 million undernourished may remain. Second, this progress in reductions would not be even as some regions/countries will continue to have a significant number of the population undernourished. For example, the proportion of undernourished population has barely changed for least-developed countries since the early 1970s (about 40 percent).

IV. CONCLUSIONS

19. The adequacy of global food supply to satisfy the needs of the world’s population has not been an issue so far, and is unlikely to be so in the foreseeable future. However, this will not eliminate hunger or reduce the number of hungry in the world as targeted. The hungry will need to have effective demand.

20. The declines in world cereal output per person have been due, in the first place and up to quite recently, to policy reforms and supply controls, coinciding with weather shocks, in the main industrialised exporting countries. The longer-term deceleration in the growth of cereals production in those (i.e. developed) countries is largely explained by the inadequate growth of demand for their produce and the associated decline in real prices. The latter in turn reflects both the slowing down of global population growth and the lack of purchasing power in many countries and population groups that have no way of expressing their need to increase consumption.

21. If present trends continue, the 1996 World Food Summit target of halving the number of undernourished population by the year 2015 will not be met. The target requires a decline of 22 million hungry people per year, whereas the actual rate of decline in recent years has been about 6 million per year.

22. The agricultural trade balance of developing countries as a whole has gradually dwindled until, by the mid-1990s, it was more often negative than positive. Projections show net imports of cereals by the developing countries will increase from 103 million tonnes in 1997-99 to 190 in 2015 and 265 million tonnes in 2030. For many of these countries, whether or not food security targets are met will depend to a large extent on what happens to their export earnings.

23. Where food consumption levels are low and a majority of households live at or below subsistence levels, increased production of basic food staples is the quickest and surest way to raise food consumption. This underscores the importance of agricultural development, especially increased production of basic foods, for many of the current economies facing high degrees of food insecurity.

24. For developing countries heavily dependent on a narrow range of commodity exports, price instability increases the uncertainties on income and hence economic development. Thus, measures which reduce excessive commodity price instability will contribute to more efficient functioning of commodity markets by improving the rational use of resources.

25. In summary, a combination of measures will be needed to attack food insecurity. The focus has to be on increasing food production locally by tapping potentials for growth, at least initially. Nevertheless, this would not be feasible for all countries, hence domestic production needs to be complemented by imports. To finance food import bills, market access opportunities for generating foreign exchange earnings will need to improve not only for primary but also for value-added products.

Table 1: Growth rates of aggregate demand and production of agricultural products, 1969 to 1999 and projections to 2030 (percent per year)

	1969 to 1999	1979 to 1999	1989 to 1999	1997-99 to 2015	2015 to 2030	1997-99 to 2030
Demand
World	2.2	2.1	2.0	1.6	1.4	1.5
Developing countries	3.7	3.7	4.0	2.2	1.7	2.0
Sub-Saharan Africa	2.8	3.1	3.2	2.9	2.8	2.9
Near East and North Africa	3.8	3	2.7	2.4	2.0	2.2
Latin America and Caribbean	2.9	2.7	3.0	2.1	1.7	1.9
South Asia	3.2	3.3	3.0	2.6	2.0	2.3
East Asia	4.5	4.7	5.2	1.8	1.3	1.6
Developed countries	1.1	1.0	1.0	0.7	0.6	0.7
Transition countries	-0.2	-1.7	-4.4	0.5	0.4	0.5
Production
World	2.2	2.1	2.0	1.6	1.3	1.5
Developing countries	3.5	3.7	3.9	2.0	1.7	1.9
Sub-Saharan Africa	2.3	3.0	3.0	2.8	2.7	2.7
Near East and North Africa	3.1	3.0	2.9	2.1	1.9	2.0
Latin America and Caribbean	2.8	2.6	3.1	2.1	1.7	1.9
South Asia	3.1	3.4	2.9	2.5	1.9	2.2
East Asia	4.4	4.6	5	1.7	1.3	1.5
Developed countries	1.3	1.0	1.4	0.8	0.6	0.7
Transition countries	-0.4	-1.7	-4.7	0.6	0.6	0.6
Population
World	1.7	1.6	1.5	1.2	0.9	1.1
Developing countries	2.0	1.9	1.7	1.4	1.1	1.3
Sub-Saharan Africa	2.9	2.9	2.7	2.6	2.2	2.4
Near East and North Africa	2.7	2.6	2.4	1.9	1.5	1.7
Latin America and Caribbean	2.1	1.9	1.7	1.3	0.9	1.1
South Asia	2.2	2.1	1.9	1.6	1.1	1.3
East Asia	1.6	1.5	1.2	0.9	0.5	0.7
Developed countries	0.7	0.7	0.7	0.4	0.2	0.3
Transition countries	0.6	0.5	0.1	-0.2	-0.3	-0.2
Source: World agriculture: towards 2015/30, FAO, 2002, forthcoming.

Table 2a: Value of world agricultural exports, all commodities (crops and livestock)
	Primary			Processed
	(billion US dollars)*			(billion US dollars)*
	1986-90	1991-95	1996-2000	1986-90	1991-95	1996-2000
Developed	71 175 686	85 328 164	94 862 169	78 406 683	106 129 733	126 651 557
Transition	8 868 216	12 362 023	11 463 510	12 603 827	16 648 632	16 562 673
Developing	47 054 870	54 596 528	66 051 048	69 077 877	90 227 720	108 759 140
LDC	4 896 948	4 595 686	5 215 713	5 680 330	6 524 526	8 283 755
NFIDC	3 187 237	3 606 185	4 094 615	3 435 154	3 740 032	4 280 562
World	118 230 556	139 924 691	160 913 217	147 484 560	196 357 453	235 410 697

* Constant 1991-94 US dollars

Table 2b: Share in world agricultural exports, all commodities (crops and livestock)
	Primary				Processed
	(percent)				(percent)
	1986-90		1991-95	1996-2000	1986-90	1991-95		1996-2000
Developed	60.2	61.0		59.0	53.2	54.0	53.8
Transition	7.5	8.8		7.1	8.5	8.5	7.0
Developing	39.8	39.0		41.0	46.8	46.0	46.2
LDC	4.1	3.3		3.2	3.9	3.3	3.5
NFIDC	2.7	2.6		2.5	2.3	1.9	1.8

Table 2c: Growth rate of agricultural exports, all commodities (crops and livestock)
	Primary				Processed
	(percent per year)				(percent per year)
	1986-90		1991-95	1996-2000	1986-90	1991-95		1996-2000
World	2.1	4.2		2.3	4.1	6.7	2.2
Developed	1.2	5.1		1.2	2.6	7.9	1.9
Transition	-2.5	9.6		-6.0	-3.7	11.4	-5.2
Developing	3.6	2.8		4.0	5.7	5.4	2.5
LDC	0.9	4.4		1.1	0.1	3.1	4.0
NFIDC	-1.0	0.7		3.2	4.2	3.0	3.8

Table 3: World cereal balances, 1979 to 1999 and projections to 2030

	Demand (million tonnes)			Produc-tion	Net trade*	SSR1 (%)	Growth rates (%)
	Food	Feed	All uses					Demand	Produc-tion
World
1979-81	706	575	1 437	1 442		100	1979-99	1.4	1.4
1997-99	1 003	657	1 864	1 889		101	1989-99	1.0	1.0
2015	1 227	911	2 379	2 387		100	1997-99 to 2015	1.4	1.4
2030	1 406	1 148	2 831	2 839		100	2015-2030	1.2	1.2
Industrial countries
1979-81	110	286	428	551	111	129	1979-99	1.0	0.8
1997-99	142	331	525	652	111	124	1989-99	1.7	1.4
2015	150	387	599	785	187	131	1997-99 to 2015	0.8	1.1
2030	155	425	652	899	247	138	2015-2030	0.6	0.9
Transition countries
1979-81	72	176	297	242	-41	81	1979-99	-1.9	-1.1
1997-99	72	105	211	210	1	100	1989-99	-4.9	-4.2
2015	70	127	237	247	10	104	1997-99 to 2015	0.7	1.0
2030	66	149	261	287	25	110	2015-2030	0.7	1.0
Developing countries
1979-81	524	113	712	649	-66	91	1979-99	2.6	2.5
1997-99	790	222	1 129	1 026	-103	91	1989-99	2.2	2.1
2015	1 007	397	1 544	1 354	-190	88	1997-99 to 2015	1.9	1.6
2030	1 185	573	1 917	1 652	-265	86	2015-2030	1.5	1.3
Sub-Saharan Africa
1979-81	40	2	48	41	-8	85	1979-99	3.4	3.4
1997-99	71	4	86	71	-14	82	1989-99	3.1	2.7
2015	116	8	139	114	-25	82	1997-99 to 2015	2.9	2.8
2030	173	15	208	168	-40	81	2015-2030	2.7	2.6
Near East and North Africa
1979-81	47	19	80	58	-24	72	1979-99	2.7	2.4
1997-99	79	34	133	83	-49	63	1989-99	2.2	1.3
2015	107	62	192	107	-85	56	1997-99 to 2015	2.2	1.5
2030	131	93	249	133	-116	54	2015-2030	1.8	1.5
Latin America and Caribbean
1979-81	46	37	94	87	-8	93	1979-99	2.3	1.8
1997-99	66	60	142	125	-14	88	1989-99	2.8	3.1
2015	85	98	204	188	-16	92	1997-99 to 2015	2.1	2.4
2030	99	135	257	244	-13	95	2015-2030	1.6	1.8
South Asia
1979-81	134	2	151	147	-2	98	1979-99	2.6	2.7
1997-99	208	3	234	239	-3	102	1989-99	1.8	2.0
2015	295	11	335	323	-12	97	1997-99 to 2015	2.1	1.8
2030	360	22	416	393	-22	95	2015-2030	1.5	1.3
East Asia
1979-81	257	53	339	316	-24	93	1979-99	2.5	2.5
1997-99	366	120	534	507	-23	95	1989-99	2.1	2.1
2015	404	218	675	622	-53	92	1997-99 to 2015	1.4	1.2
2030	422	309	787	714	-73	91	2015-2030	1.0	0.9

¹ SSR = Self-sufficiency ratio = Production / total demand. * Net trade does not include changes in stocks

Source: World agriculture: towards 2015/30, FAO, 2002, forthcoming.

Table 4: Incidence of undernourishment and projections to 2015/30, developing countries

	% Population				Million people
	1990-92	1998-2000	2015	2030	1990-92	1998-2000	2015	2030
Developing countries	20	17	11	6	819	799	610	443
Sub-Saharan Africa	35	33	23	15	166	196	205	183
Near East and North Africa	8	10	7	5	26	40	37	34
Latin America and Caribbean	13	13	6	4	59	55	40	25
South Asia	26	24	12	6	292	315	195	119
East Asia	16	10	6	4	198	128	135	82

* Source: State of Food Insecurity in the World, 2002, and World agriculture: towards 20015/30, FAO, 2002, forthcoming.

¹ World agriculture: towards 2015/30, FAO, 2002, forthcoming.

² If China is excluded the number of undernourished increases by almost 40 million.