Technical
background
document
Executive summary
© FAO, 1996
1. INTRODUCTION
2. CHARACTERISTICS OF AGRICULTURAL TRADE
The meaning of food security
Trade and food availability
Trade and food supply instability
Trade and income growth
Trade, income distribution and household food security
4. TRADE, SUSTAINABILITY AND FOOD SECURITY
General considerations
Environmental implications of agricultural trade liberalization
Effect of higher environmental standards on agricultural trade
5. THE CHANGING POLICY ENVIRONMENT FOR FOOD SECURITY
Changing national agricultural policies
The Uruguay Round and income growth
The Uruguay Round Agreement on Agriculture
Implications of the Uruguay Round
Special concerns of developing countries
Longer-term outlook
6. FUTURE DEVELOPMENTS IN TRADE NEGOTIATIONS
The preparation of the World Food Summit technical background documents has mobilized, in addition to FAO's own staff contribution, a considerable amount of expertise in the international scientific community, drawn from partner international institutions and governmental or non-governmental circles. The process has been monitored at FAO by an internal Reading Committee, composed of staff selected ad personam and established to ensure that the whole collection meet appropriate quality and consistency criteria.
This document is based on an initial study prepared by Prof. Alan Matthews of Trinity College, Dublin, Ireland and subsequently elaborated by FAO's Jim Greenfield and Panos Konandreas, under the general guidance of Hartwig de Haen. After initial review within FAO by invited colleagues and the Reading Committee, a first version was published and circulated for comments to governments, intergovernmental organizations (IGOs) and non-governmental organizations (NGOs), as well as to peer reviewers. Much appreciated comments and advice have been received from Prof. Tim Josling of Stanford University, United States; Prof. Adel Beshai of the American University in Cairo, Egypt; Dr Romeo Bautista of the International Food Policy Research Institute (IFPRI), United States; Dr M. Kassas of the University of Cairo, Egypt; Dr Ammar Siamwalla of the Thai Development Research Institute; the Organisation for Economic Co-operation and Development (OECD); the World Trade Organization (WTO); United Nations Conference on Trade and Development (UNCTAD); Consumers International; the Southeast Asian NGO Liaison Committee on Food Security and Trade; and the Focus on the Global South.
While most grateful for the contributions received from all reviewers, the FAO Secretariat bears the final responsibility for the content of the document.
Trade is vital to world food security. Without trade, countries would have to rely exclusively on their own production; overall incomes would be far lower, the choice of goods would be far less and hunger would increase. While this much is common ground, especially with respect to trade within national boundaries, the relation of trade to food security raises a number of complex issues that are discussed below.
World trade in goods and services in 1994 reached US$5 190 billion, of which agricultural trade amounted to US$485 billion and food trade US$266 billion. Since the World Food Conference in 1974, the volume of agricultural trade has increased by 75 percent and its value has more than tripled. Food trade has also tripled in value. As a result of successive rounds of trade liberalization, world trade has expanded much more quickly than production. In consequence, the world economy is more integrated today than ever before: countries rely increasingly on trade, both as a source of earnings and as a source of supply. The growing integration of the world economy is part of the trend towards globalization.
International trade influences food security in several ways. In the first place, trade allows food consumption to exceed food
production in those countries where output is constrained. Over the period 1970 to 1990, consumption of agricultural
products grew 10 percent more quickly than production in the 93 developing countries covered by the 1995 FAO study
World agriculture:
towards 2010
(WAT2010). Resorting to imports generally allows food consumption needs to
be met more cheaply than by relying on domestic production alone. While there
can be specific reasons for some countries to aim at substantial food
self-sufficiency, in general it makes better economic sense to follow the more
flexible policy of food self-reliance, provided importers can rely on the world
market as a dependable and efficient source of supply and exporters have an
expanding market for their products. Notwithstanding notification and
consultation obligations of World Trade Organization (WTO) members on export
restrictions, particular concerns for importing countries are whether imports
will be available when needed and the possible risk of trade embargoes. To some
extent the expansion of the world cereal trade should allay fears about the
adequacy of overall supply but importers continue to be concerned by the use of
measures that restrict exports. As regards the role of the world market as a
source of earnings for developing countries, the strong expansion in the volume
of their trade has been accompanied by declining terms of trade for the products
of developing countries, which have eroded possible gains considerably. In
addition, their food import capacity has frequently been constrained by having
to make large debt service repayments.
Food trade also has an important role to play in stabilizing domestic supplies and prices. Without trade, domestic production fluctuations would have to be borne by adjustments in consumption and/or stocks. Trade allows consumption fluctuations to be reduced and relieves countries of part of the burden of stockholding. For regular importers (and exporters), however, international price instability can be a problem for consumers, producers, processors and governments.
International trade has a major bearing on access to food via its effect on incomes and employment. While more liberal trade policies over time contribute to economic growth, the main issue for food security is whether this economic growth reaches the poor. Although some evidence shows that in most developing countries export industries were more labour intensive than import-substituting industries and that employment tended to grow in outward-oriented economies, the linkages between trade, growth, employment and poverty are not clearcut since each of these variables is influenced by other factors.
Provided domestic policies are in place to ensure that gains from trade reach the poor and to safeguard them from possible negative impacts, trade liberalization can play an important role in improving food security even though there may be problems with adjustment to the new trade regime. Although estimates of the impact of trade liberalization, including the Uruguay Round, range widely, studies point to significant income gains over the next few years. Adding the immeasurable effects of improvements in trade rules and the impact of the Uruguay Round Agreement on Services, the overall impact of the Uruguay Round should be to provide the wherewithal to improve income levels and hence food security. The difficulties that countries may face during the reform process have been recognized and developing countries have been given special and differential treatment, mainly in the form of longer periods to make adjustments and lower reduction commitments. The Uruguay Round also recognizes that during the process of reform the least-developed and net food-importing countries may experience negative effects in terms of the availability of adequate imported supplies of basic foodstuffs on reasonable terms and conditions. Accordingly, great importance is attached to ensuring that the Uruguay Round Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries is implemented rapidly.
It should be noted that the Uruguay Round may not make much difference to the volume of food aid for, while the amount linked to surplus disposal may decline, the quantities linked to assistance under the above-mentioned decision could well increase. Countries not giving aid-in-kind should actively consider the use of triangular food aid transactions and other means of technical and financial assistance to increase productivity in the countries affected.
Trade liberalization as reflected in the Uruguay Round is not likely to affect significantly the net availability of food globally, as reduced output in high-cost countries will be generally replaced by increased output in other countries. In view of the likely change in the medium term in favour of the relative prices of food commodities, countries should consider revising their agricultural policies and passing on increases in world prices to their domestic sectors so as to stimulate investment in food production. The effect of the Uruguay Round on the stability of world food prices is uncertain. Four factors are at play: the positive effect of tariffication, the negative effect of declining global food stocks, the positive impact of the greater share of stocks in private hands and the uncertain effect of shifting the location of production.
Overall, by encouraging income growth, by broadening the range and variety of foods available domestically, by reducing the risks arising from domestic production fluctuations and by enabling global food security to be produced more efficiently, trade liberalization contributes to improving food security in each of its three dimensions of access, availability and stability. However, trade liberalization has raised concerns that the structural changes that accompany economic growth can lead to reduced food security among very poor countries and households unable to take advantage of the new trading opportunities; that food imports may become more expensive; that world food price instability may increase if global stocks decline; and that certain non-trade concerns, e.g. the environment and the viability of rural communities, may be affected. Each country should ensure that such concerns, when applicable, are duly addressed by national policies.
Trade, environment, sustainability and food security are also closely related. In the long term, global food security depends on maintaining and conserving the national resource base for food production. Trade affects the environment in three ways: it raises incomes, hence boosting the demand for environmental goods and the means of satisfying these demands; it changes the location of production and consumption; and, the act of trading itself uses resources and may lead to spillages and other environmental damage.
Of growing concern is the impact of higher environmental standards on agricultural trade and hence eventually on the export earnings and food security of the developing countries. The international community is currently in the process of developing new policies in this area. These issues will undoubtedly figure prominently in future multilateral trade discussions.
The case for further trade liberalization in agriculture is that, despite significant progress, agricultural protectionism is still extensive. Indeed, the Uruguay Round Agreement on Agriculture recognized that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process. Negotiations for continuing the process will start in 1999.
