CCP 03/10

Table of Contents

I. INTRODUCTION

II. ANALYSIS OF FOOD IMPORT SURGES

III. POLICY ISSUES RELATING TO IMPORT SURGES

IV. RECENT TRENDS IN FOOD IMPORTS

V. POLICY ISSUES RELATING TO FOOD IMPORT TRENDS

VI. SUMMARY AND SOME AREAS FOR FURTHER CONSIDERATION

I. INTRODUCTION

1. Recent trends and projections indicate that global trade in basic foods, in particular imports by food deficit countries, could increase substantially in the coming years. These trends may have positive as well as negative consequences for food security. In addition, the incidence of external shocks in the form of depressed prices and import surges is expected to rise as the trade environment becomes increasingly open, while production and export subsidies remain high in some major producing areas. At its 63^rd session, CCP reviewed the experience with the implementation of the Uruguay Round Agreement on Agriculture. The Committee recommended that the Secretariat continue to monitor the effects of the implementation of the Agreement on Agriculture, with special emphasis on consequences for food security. With the assistance of the present document, the Committee will have an opportunity to review recent experiences and problems and to discuss response mechanisms, covering both WTO-related instruments and other policy measures.

2. Trade in agricultural products, particularly foodstuffs, is of major importance to both importing and exporting countries and is vital for enhancing food security. Whereas developing countries in general, including Low-Income Food-Deficit Countries (LIFDCs), were previously net exporters of agricultural products, since the late 1970s there has been a sharply rising trend in their net food imports which has turned them into net importers of agricultural products. FAO’s medium-term projections to the year 2010 as well as its long-term perspective outlook to the year 2030 suggest a continuing rising trend in the net food imports of the developing countries¹. In addition, since the 1980s when significant structural reforms, including unilateral trade liberalizations, were undertaken in many developing countries, there has been an increase in the frequency of import surges (sharp temporary rises in imports above their trend levels). The frequency has increased further since 1995. While in some cases temporary production shortfalls due to local weather conditions and other factors that disrupt national production might explain a surge in imports of certain products for a country, in other cases where a surge occurs without a preceding production shortfall, other factors are at play. These developments – rising food imports and import surges - pose two sets of problems relating to food security. One is how, and whether, the LIFDCs in particular would be able to finance their projected increasing food import requirements, and the other is the impact of import surges on efforts in these countries to develop the local agro-ecological potential for sustainable food production.

3. This paper provides an analysis of these issues. A companion paper (CCP 03/9) deals with issues regarding exports. The next section provides an analysis of the occurrence of food import surges, while section III discusses related policy issues. Section IV then analyses shifts in food imports by developing countries, particularly LIFDCs, and Section V discusses their implications. Issues for further consideration and analysis are summarized in section VI.  

II. ANALYSIS OF FOOD IMPORT SURGES

4. Since the mid-1990s, there have been increasing reports of developing countries, particularly low-income food insecure countries, experiencing surges in food imports which tend to disrupt local markets, including the transmission of depressed world prices to domestic markets, with negative effects on local production in many cases. In the case studies undertaken by FAO on the experience with the implementation of the AoA, many cases were reported of food import surges². Several national and international civil society organizations have also documented cases of import surges based on detailed field work.³

5. In order to assess further the extent of this phenomenon, the Secretariat has undertaken additional investigation aimed at determining the nature and extent of import surges in developing country markets. Using imports and production data for basic foodstuffs for the period 1980-2000, the analysis has attempted to document the number of cases of import surges as well as production shortfalls for a sample of LIFDCs.

6. For the purpose of analysis, an import surge is defined as a 20 percent (positive) deviation from a 5-year moving average for each commodity/country.⁴ The number of import surges identified over the period 1984-2000 is summarised in Table 1. It shows that the frequency of the surges is marked, occurring on average in about one-third of the period covered. The phenomenon was relatively frequent for some product groups, notably some meats and vegetable oils. Similarly, although all countries experienced import surges, some were affected more often than others, Guinea, Malawi, Niger, Philippines and Tanzania being some examples. Finally, and on the whole, import surges have occurred more frequently in the post-1994 period.

Table 1: Number of cases of import surges (selected countries and foods, 1984-2000)

7. Given the large number of cases of import surges, and increasing reports of the phenomenon from around the world, this could be potentially a serious problem. As part of the additional investigation on this topic, production shortfalls were also documented for the same period. The results, i.e. the number of cases of production shortfalls during the same period (1984-2000), are given in Annex Table 1.⁵ Figure 1 shows some examples of import surges and production shortfalls in graphical form, while Box 1 presents a number of illustrative cases. While, thus, there is a good evidence of the phenomenon, as well as negative effects in many cases, this topic remains to be thoroughly investigated. It is relatively straightforward to document the number of cases of import surges and production shortfalls, it is more difficult, without individual country analysis, to establish a causal link between surges and shortfalls, and the negative effects.⁶

III. POLICY ISSUES RELATING TO IMPORT SURGES

8. Countries facing import surges have resorted to, or could in principle utilize, a number of instruments to counteract the possible negative effects on efforts to develop their potentials for sustainable food production. In the WTO framework, relevant trade remedy measures include the Special Safeguard (SSG) of the Agreement on Agriculture (AoA), anti-dumping measures, countervailing action against subsidized exports and emergency safeguards (under the WTO Agreement on Safeguards). These measures allow importing countries to take remedial measures (e.g. raise duties, restrict import etc.) when certain specified conditions are met. There are some important differences in how responses are triggered and what conditions have to be met, but basically most trade remedy measures are based on two key facts: i) that there was a surge in imports; and ii) that the import caused negative impact on the domestic industry. The three general trade remedy measures require that both these conditions are met while the second test (injury) is not required in the case of the agricultural SSG.

9. During 1995-2001, the WTO trade remedy measures have not been used much for agricultural products, relative to their potential use. For example, only 10 WTO Members (out of 38 with access to the instrument) used the SSG, only two of these 10 being developing countries. When compared with the maximum potential use of the measure by all eligible Members/commodities, actual use was 3.4 percent for developed countries and 0.3 percent for developing countries. Four product groups – cereals, meat, dairy and oilseeds and products – accounted for 64 percent of all SSGs triggered in this period. Similarly, only seven developing countries initiated or implemented emergency safeguards (the popular form of trade remedy measure on agriculture, after the SSG) in the same period for a total of 16 agricultural products. The use of anti-dumping and countervailing measures has been even fewer.

10. There are some good reasons why this is the case, i.e. fewer cases of countries resorting to the WTO trade remedy measures compared with the large number of cases of import surges reported elsewhere, although there is not as yet a comprehensive analysis of this issue. First, the SSGs are available to only 20 developing countries for designated tariff lines. This apart, the SSG criteria for a surge have to be met for a formal recourse, whereas surges have been defined and understood variously in the literature. In the case of the emergency safeguard (and other general trade remedy measures), it may be the case that there were import surges but these did not necessarily cause negative effects to the extent required to trigger the response. Besides these technicalities, it is known that many developing countries, especially lower-income ones, lack institutional capability to undertake the detailed procedural measures required to trigger the safeguard; many do not even have a legislative framework to recourse to these measures.

11. The many reports of these cases that make headlines on almost a daily basis show that this is a serious concern and could be a serious problem. The problem is not lack of WTO instruments to respond but one of the capability of individual countries to use them (in case of the agricultural SSG, accessibility is also an issue). Besides trade instruments, response mechanisms also include a host of domestic measures (e.g. risk management instruments, crop insurance schemes, government payments etc.), but again these measures are often not easily accessible to farmers in lower-income countries for lack of funding or instruments. As a result, although most instruments are potentially accessible to all, in practice many countries are severely restricted when it comes to the range of feasible instruments.

12. Among relevant trade instruments, the agricultural SSG or a similar instrument would be relevant for those countries that lack the institutional or other resources to resort to the general WTO safeguards. While this is an immediate problem, efforts are required to strengthen the capability to resort to the general trade remedy measures. Higher, or appropriate, tariff bindings have also been proposed, as an instrument of safeguard⁷, but the access to the SSG would obviate, to a large extent, the need for maintaining high bound tariffs for the purpose of the safeguard. The third important consideration would be to minimize some of the sources of the surge itself, both unfair trade practices (e.g. dumping) and practices currently permitted by the AoA but which nevertheless could cause surges (i.e. subsidies on exports, domestic production subsidies). Several recent studies on import surge, especially by civil society organizations, trace the problem to these practices. Indeed, import surges seem to be more common in product groups that are subject to high levels of subsidies in exporting countries, notably dairy/livestock products (milk powder, poultry parts), certain fruit and vegetable preparations and sugar.

IV. RECENT TRENDS IN FOOD IMPORTS

13. Food imports by developing countries have increased markedly. Their import of basic foods increased at the rate of 5.6 percent per annum in the 1990s, in constant 1989-91 prices, more than double the rate of population growth. Among these countries, imports by the LIFDCs as a whole rose at the rate of 6.9 percent per annum and by the rest of the developing countries at 4.5 percent (Table 2). The data also show that the import of basic foods (in constant prices) was 40 percent higher in 1995-2000 compared with 1990-94 for developing countries, 47 percent for the LIFDCs and 31 percent for the rest (Table 3). Further analysis shows that food imports in 1995-2000 were also higher than extrapolated levels derived from the trend for 1986-94, an indication of the accelerating trend.

Table 2: Trend growth rate of food imports (percent per annum, 1990-2000)¹

Table 3: Food imports in 1990-94 and 1995-2000 (in 1989-91 constant prices)¹

14. Import trends were particularly high in the case of oilseeds and oils, meat and meat preparations and sugar. For example, the volume of sugar imports by developing countries increased at the rate of 4.7 percent per annum in the 1990s, as high as 8 percent by the LIFDCs and 10 percent by least-developed countries (LDCs). These are indeed very high rates, about four times the population growth rate. Moreover, imports were markedly higher in 1995-2000 compared with 1990-94 (by 60 percent for LIFDCs and 80 percent for LDCs). Although it is difficult to determine the impact, positive or negative, on agriculture and food security of these imports for individual countries, these trends do certainly require attention and more in-depth research as regards the impact.

15. The food import statistics for the 1990s also show some shifts toward the import of foods in primary form, away from foods in processed form, for some product groups. For example, the rate of growth of oilseeds imports in volume terms by developing countries was twice that of vegetable oils (14 percent versus 6 percent per annum). Developing countries’ import of oilseeds in 1995-2000 was 114 percent higher than in 1990-94 (46 percent for oils); for LIFDCs the change was 155 percent (76 percent for oils). Similar shifts have taken place in sugar. The rate of import growth of raw sugar in volume terms by developing countries was also twice the rate for refined sugar (6 and 3 percent per annum respectively). As a result, the import of raw sugar in 1995-2000 was 54 percent more than in 1990-94 (22 percent higher for refined sugar). The data for the LDCs is striking – their import of raw sugar more than tripled between the two periods while refined sugar increased by 56 percent only. To the extent that these shifts in import patterns contributed to net value addition at home, this would be a positive development for food insecure countries. But it is also possible that food imports in primary form mainly benefits industry at the cost of farmers. Analysing the impact of these trends on food security is a priority task.

16. It is a fact that increased food imports add to domestic supplies and consumption, and, depending on the distribution of the consumption, to the reduction of hunger. This direct contribution of trade to food security is well recognized by, inter alia, the Rome Declaration on World Food Security. But increasing trends in food imports could also be a matter of concern under certain circumstances.

17. Recent trends and the medium and longer term projections for the growth of export earnings of the LIFDCs suggest that earnings are unlikely to keep pace, and would fall sharply short of, food import growth of these countries. Thus, an issue is how could these countries be able to finance their growing net food imports, since current trends in imports do not seem sustainable because food imports are financed not out of current export earnings but with external borrowing.⁸ The second scenario is one where imports are taking place in such volumes that they have negative impact on domestic food production, in terms of undermining otherwise viable, efficient domestic producing sectors. Imports can also contribute to economic growth when these are raw materials to sustain domestic processing industries. Thus, there are different trade policy issues associated with these trends and phenomena which need to be recognized in order to respond to the problem where it is the case.

V. POLICY ISSUES RELATING TO FOOD IMPORT TRENDS

18. The context within which trends in food import and surges were discussed in this document is food security, and not the growth of trade, or lack of it, per se. On global food security, the state is not good, as clearly indicated in the 2002 report of the State of Food Insecurity in the World. This basic conclusion has essentially been the same in each of the three previous editions of the report. Moreover, the current report finds that progress in the reduction of the number of undernourished people worldwide has virtually grounded to a halt.

19. To correlate these aggregate trends (i.e. food imports and reduction of hunger) would add little to the debate. More food imports by food insecure countries would, arithmetically speaking, reduce the number of undernourished, but obviously the situation is much more complex than this. In the 1990s, the bulk of the rise in food imports was accounted for by those countries that are considerably food secure, and mainly driven by income and population growth, and supported by increased export earnings. This trend could not be a cause for concern generally and indeed is a positive development – a good example of the contribution of trade to food security. These trends also reflect adjustments to shifting comparative advantage in many cases, also a positive outcome. There may be some exceptions to this characterization, and indeed a reading of the WTO negotiating proposals by relatively food secure developing countries point to some specific concerns associated with high food import trends. These are often problems related to the period required for adjusting to new trade regimes.

20. There are however some significant concerns in the case of countries that are relatively food insecure. First, for many, lack of effective demand for food at the household level and capacity to import food at the national level is the key problem, i.e. the problem is not one of rising food imports but lack of it. For many others, however, sharp trends in food imports pose potential problems, and there are some evidence that the stress is being felt. This comes mainly in two forms: rising ratio of food imports to total exports; and negative effects on domestic agriculture. The problem is more serious in countries where rising food imports are associated with stagnant or shrinking domestic production, with little scope for productive resources to find alternative uses. The possibility of this negative effect has been stressed in several WTO negotiating proposals, and is the raison d’être for special and differential treatment in the WTO rules and commitments.

21. The full range of response measures to address this food security problem goes far beyond trade policies, as elaborated in concrete terms in the document Anti-hunger Programme, produced by FAO in 2002. This programme sets out the following five priority areas for action, including investment requirements:

• Improve agricultural productivity and enhance livelihoods and food security in poor rural communities.
• Develop and conserve natural resources.
• Expand rural infrastructure (including capacity for food safety, plant and animal health) and broaden market access.
• Strengthen capacity for knowledge generation and dissemination (research, extension, education and communication).
• Ensure access to food for the most needy through safety nets and other direct assistance.

22. Although trade policies alone are not the panacea to the food security problem, they can contribute considerably to improving the situation. For example, world agricultural markets, especially food markets, remain highly distorted, with substantial cost in terms of foregone production for those that do not subsidize their agriculture, which include food insecure countries. Substantive reduction of these distortions is in the WTO agenda for negotiations. Equally important is to ensure that new rules and commitments being negotiated do not constrain the ability of the food insecure countries to realize their production potentials, as this is key to improving food security. Thirdly, given that current trends in the ratio of food imports to exports are far from being sustainable, significant growth is needed in exports, through improved market access terms, including for value-added products. Finally, it is also equally important that policy bias against agriculture, if any, in food insecure countries has to be removed. For all these reasons, there is a lot at stake in the ongoing WTO negotiations on agriculture for enhancing global food security.

VI. SUMMARY AND SOME AREAS FOR FURTHER CONSIDERATION

23. The main conclusions, in the context of food security, of the analysis presented in this paper can be summarized as follows. With regard to import surges, the principal findings are that:

• Cases of surges in the import of food products by developing countries appear to be on the rise, particularly since the mid-1990s, often with adverse effects on domestic markets.
• Import surges involving certain food product groups, notably dairy and livestock products, sugar and fruit and vegetable preparations, have been the most prevalent.
• More in-depth analysis, at the level of individual countries experiencing this phenomenon, is required regarding:
• Impact of import surges on domestic agriculture;
• Capability of countries/farmers to cope with the surge; and
• Identification of appropriate instruments for counteracting negative effects of surges on the domestic markets.

24. With respect to food import trends, the main conclusions are that:

• Food imports by developing countries, particularly the LIFDCs, have been rising strongly, and projections indicate that this trend would continue in the coming years.
• The food security impact of these trends varies for particular sub-groups of developing countries. High food import trends need not be a negative development where these are associated with rising incomes and export earnings. However, for many developing countries, particularly the food insecure among the LIFDCs, this might not be the case. For them, although higher imports raise food consumption levels, the stress could come from two factors that need to be considered:
• Inadequate growth in export earnings to sustain food imports; and/or
• High import growth undermining otherwise viable domestic production, with little opportunities for alternative use of productive resources.

25. Response measures to address the food insecurity problem for this sub-group of countries, as elaborated in the FAO Anti-hunger Programme, include both trade and non-trade measures. For example:

• Raising agricultural productivity and production, especially of small farmers;
• Increasing investment in the sector;
• Enhancing access to export markets;
• Safety nets for some socio-economic groups for ensuring access to food.

26. The Committee may wish to consider the findings and conclusions of the analysis presented in this document, and to provide guidance to the Secretariat on further research and analysis.

Figure 1: Selected cases of the trends in food imports and production shortfalls

Annex table 1: Number of cases of production shortfalls (selected countries and foods, 1984-2000)

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¹ See, FAO, Medium term prospects for world agricultural commodity markets (CCP 03/8), and FAO, World agriculture: towards 2015/2030 – summary report, Rome, 2002.

² In 1999, FAO undertook 14 country case studies on the experience with the implementation of the AoA. This analysis has been expanded and now covers 23 countries. These studies report several cases of import surges with varying level of negative effects on domestic production. Examples include the experience of Jamaica with respect to chicken, Kenya with respect to dairy product, Senegal with respect to tomato paste and many other countries including Chile, Morocco, Peru and India. All case studies reported that import surges are likely to be potential problems for these countries, if not already a problem, in view of the opening up of the economies at a rapid pace while lacking alternative forms of safeguards for farmers. See, Agriculture, Trade and Food Security, Vol. II: Country Case Studies, FAO, 2000.

³ These include Farmgate: The Developmental Impact of Agricultural Subsidies, 2002, Action Aid, www.actionaid.org; Cultivating Poverty: The Impact of US Cotton Subsidies on Africa, Oxfam Briefing Paper Number 30, 2002, http://www.oxfam.org.uk/policy/papers/30cotton/index.htm and Rigged Rules and Double Standards: Trade, Globalization and the Fight Against Poverty, 2002, OXFAM, http://www.maketradefair.com/.

⁴ In the WTO Agreements on general trade remedy measures (i.e. anti-dumping, countervailing and emergency safeguard), there is no specific definition of an import surge, i.e. with reference to a threshold. The phenomenon is stated generally as significant increase in imports, or in such increased quantities, in absolute terms or relative to production or consumption. In the case of the Agreement on Agriculture (Article 5), however, there is a specific definition – current volume of import exceeding some given trigger level.

The definition and the threshold used in this paper, although arbitrary, are considered reasonable for the purpose of documenting the phenomenon. The use of a 5–year moving average takes into account, to a large extent, disruptions due to climatic variation or other non-systematic factors. In almost all cases, import data include food aid.

⁵ The incidence of production shortfalls was defined similarly as import surges, but only as a 10 percent negative deviation in production from the moving average. The use of the smaller threshold reflects the relative size of the two variables.

⁶ Import surges that would damage or threaten to destroy viable domestic production should lead, rather than lag, production shortfalls. However, if a production shortfall precedes or coincides with an import surge, then the shortfall could well be the “cause” of the surge in imports.

⁷ Several WTO members made such a proposal for the ongoing negotiations, notably in the context of Food Security and/or Development Box.

⁸ There might be some justification for borrowing for food consumption because not doing so has also significant costs, e.g. health and nutrition problems, which ultimately reduce the ability to engage in productive activities.