Macroeconomic Policies and Food Security: Focus Must Extend Beyond Trade

Additional macroeconomic variables besides trade have a role in achieving food security objectives, and history shows that excluding them from the equation can lead to ineffective or counter-productive policymaking.

“The first cause of malnutrition and hunger is poverty. It is useless to produce more food unless men and nations provide the markets to absorb it. There must be an expansion of the whole world economy to provide the purchasing power sufficient to maintain an adequate diet for all. With full employment in all countries, enlarged industrial production, the absence of exploitation, an increasing flow of trade within and between countries, an orderly management of domestic and international investment and currencies, and sustained internal and international economic equilibrium, the food which is produced can be made available to all people”
– Final Declaration from United Nations Conference on Food and Agriculture, 1943

The United Nations Conference on Food and Agriculture in 1943, the gathering that led to the creation of the FAO, offered a robust conceptualization of food security for the world’s population. Poverty was called out as a root cause of hunger and malnutrition. Furthermore, while production, trade, and market access were identified as key factors to ensuring food security, the declaration went a step further, linking microeconomic conditions such as “full employment,” and an “orderly management” of investments and currencies to the ability to maintain an adequate diet.

While production and trade have been consistently the focus of the debates about food security, in his IFPRI Working Paper “Macroeconomic Policies and Food Security” Eugenio Diaz-Bonilla argues for the need to reclaim the more comprehensive conceptualization put forth 1943-- and a more inclusive policy analysis is necessary to support it. There, he explains the events and policy perspectives behind that evolution and argues that exclusive focus on trade, while a relevant policy concern, ignores significant economy-wide issues and policies affecting food and nutrition security.

In the wake of WWII, concerns over food shortages during the reconstruction of Europe and Japan led to a concentration of focus on food production and trade in the 1950s and 1960s. The price shocks of the early 1970s further fueled fear of insufficient production. Policymaking in the 1970s continued to focus on production and trade, even though the price spikes of the decade (which affected all commodities, not just food) were linked to additional macroeconomic phenomena: the steep devaluation of the dollar after the breakdown of Bretton Woods, expansive monetary and fiscal policies, and strong global economic growth (see Díaz-Bonilla, 2010).

The pendulum swung in the other direction in the 1980s, when agricultural policies in the United States and European Union “expanded trade-distorting support for agriculture at the same time that the world was experiencing weak demand due to slow global growth and the debt crisis in developing countries,” writes Diaz-Bonilla. The oversupply of world markets were dealt with by an “export subsidy war” between these major powers that eventually led to the Uruguay Round Agreement and the creation of the WTO. Meanwhile, this battle of the titans sidelined low-income countries for which agriculture accounted for the bulk of their economic activity, the potential growth multiplier effects of their agricultural sectors going untapped. The heavy subsidization of food exports also turned several developing countries into food importers, with the shift to further specialization in tropical agricultural increasing the external vulnerability and food insecurity of those countries.

After the collapse of commodity prices in the second half of the 1980s, basic points from the declaration in 1943 gained newfound recognition. An abundant supply is not a cure-all for hunger; the main obstacle to food access was poverty, and employment opportunities needed to give people the purchasing power to not just survive but thrive—to maintain a level of nutrition than enables people to live an active, healthy life. Today, food security is widely defined as food availability (physical availability of food), access (individuals must be able to buy or otherwise get a hold of that food), utilization (which depends on the quality of food, as well as on other factors), and stability (the fact that physical and economic access should be available at all times). While trade policy has a clear impact on the four components of food security, other macroeconomic factors such as monetary frameworks and exchange rate policies influence them as well.

“Macroeconomic Policies and Food Security,” based in part on Eugenio Díaz-Bonilla’s upcoming book on the topic (publisher: IFPRI ), offers clear examples of why and how the discussion of food security needs to expand beyond the realm of trade policies to achieve the most robust food security-supporting policy framework possible.

Note: This working paper will be also Chapter 2 in the forthcoming book Food Security in an Uncertain World: An International Perspective edited by Andrew Schmitz, P. Lynn Kennedy, and Troy G. Schmitz.

BY: Rachel Kohn, IFPRI