International agricultural trade has been a major headline recently, but as the latest WTO Ministerial Conference proves, disagreement about the best way to conduct such trade remains widespread. On one end of the spectrum lies the argument that complete liberalization and free trade will lead to both global economic development and increased food security; on the other end are those who believe that poor populations and developing countries need additional protections to guard against unfair trade practices and transmission of price volatility from global to domestic markets.
In the week leading up to the Nairobi WTO Ministerial, the FAO released the new edition of its flagship report, The State of Agricultural Commodity Markets (SOCO) , which included input from Eugenio Díaz-Bonilla, IFPRI Visiting Senior Research Fellow. The report argues that national and international agricultural trade policies need to be properly aligned and should pay particular attention to improving countries’ food security and overall development. Trade structures and patterns differ widely from region to region and commodity to commodity; similarly, trade impacts the different aspects of food security (availability, access, utilization, and stability) in a variety of ways. Thus, while multilateral trading systems like the WTO play a key role in addressing trade and food security-related issues, the report also highlights the need to balance binding global agreements with sufficient policy space for developing countries to determine and act on their individual needs.
A background paper informing the FAO report by IFPRI Visiting Senior Research Fellow Eugenio Díaz-Bonilla argues that much of the disagreement over the interaction between trade and food security stems from the different understandings of how to define and measure trade and trade policies, the different dimensions associated with food and nutrition security, and the many channels through which food and trade policies are linked. Assessments of the interaction between trade policies and food security are further complicated by the fact that a single trade policy can have widely varying impacts depending on the context and economic structure of the country in which it is enacted, the current global trade and price climate, and any non-agriculture and non-trade elements that may accompany the policy. For example, a reduction of agricultural tariffs will have different results depending on whether the reduction applies only to agricultural products or includes non-agricultural goods and services.
The paper notes that careful empirical reviews clearly show more cases in which trade liberalization policies provide positive food security outcomes rather than the opposite (although there are some of cases of negative outcomes as well). The study finds that in most countries, engaging in trade more successfully stabilizes countries’ domestic food consumption than does relying on domestic production alone; similarly, policies aimed at agricultural self-sufficiency tend to lead to more instability in both domestic food prices and food availability. While recent periods of higher and fluctuating nominal food prices have led many policymakers to try to insulate their domestic markets through protectionist policies, such policies often backfire. Policies like high import tariffs and other import restrictions on food and agricultural products place an undue burden on poor consumers, who spend a greater percentage of their income on food; such policies can also raise the price of agricultural inputs to other sectors, such as processing and agro-industrial sectors, affecting both production and employment levels.
Díaz-Bonilla goes on to point out, however, that completely free trade in food and agricultural products is not necessarily the solution either. Trade liberalization (particularly if implemented with overvalued domestic currencies) could lead to increased unemployment in some sectors and to vulnerable workers and producers with few other employment and production opportunities. The impact on fragile livelihood strategies and the extent of transition costs for the people affected may be substantial, which would require substantial government attention to ensure that unemployed workers and producers, particularly poor or less educated ones, can make the switch to new sectors and activities.
Overall, Díaz-Bonilla emphasizes the fact that while well-designed trade policies are important for food security, trade itself is only one instrument (and an imprecise, or “blunt”, one at that) with which to address food security and hunger concerns. Trade policies need to be balanced with other poverty alleviation efforts, such as support for fair land ownership, climate change adaptation strategies, strengthened safety nets for poor populations, and investment in education, infrastructure, and human capital. The best advice for policymakers, he concludes, is “know your country and its circumstances.”
In order to assist policymakers in gaining this country-specific knowledge, an additional background paper by the same author and Marcelle Thomas (another IFPRI researcher) examines varying methodologies with which to determine countries’ food insecurity conditions. Establishing consistent ways to measure food security indicators is crucial in accurately determining how trade affects each of those indicators.
The paper conducts a cluster analysis using five food security indicators that are considered important for food availability, access, utilization and stability (the four components of food security): domestic food production per capita (constant dollars per capita); a combination of calories and proteins per capita; the ratio of total exports to food imports; the ratio of the non-agricultural population to total population; and a variable based on the mortality rate for children under five. This analysis is used to build a country typology that can guide potential policies to address food and nutrition insecurity by identifying a small number of country groups. While individual countries need to take their unique economic structures, agricultural capabilities, and food security conditions into consideration when building specific policies, such a typology can provide a starting point.
The typology divides countries into food insecure, food neutral, and food secure groups. Understanding some of the characteristics of each of these groups can help policymakers and researchers gain a better sense of how trade policies may work, given a country’s specific circumstances. For example, the paper notes that Africa south of the Sahara and Asia have a larger percentage of food insecure countries and that these countries are generally rural; on the other hand, Latin America and the Caribbean and Eastern Europe fall more into the food neutral category and contain mostly urbanized countries. A policy that keeps domestic food prices low to help consumers, or an opposite policy that increases food prices to support producers will have very different impacts in those two groups of countries. These competing needs from both producers and consumers create a traditional “food policy dilemma,” as Díaz-Bonilla highlights.
Both the supporting background papers and the overall FAO report point to the need for trade policies to be informed by countries’ specific circumstances, capabilities, and needs, and for policymakers to take into account other non-trade-related policies that may impact both food security and trade. Similarly, individual countries, regional trade groups, and multilateral coalitions like the WTO must all learn to better balance short-term and long-term trade, development, and food security objectives.