Food security and international trade

Blog Inclusive Growth

As the Eleventh WTO Ministerial Conference is in progress at Buenos Aires, this column looks at the role trade plays in ensuring food security through increased enhanced international cooperation on a multilateral scale.

Although food security has long been recognized as a universal human right, 815 million people worldwide remained undernourished in 2016. In addition, the number of hungry people around the world increased by 38 million between 2015 and 2016, marking a reversal in the trend of falling hunger seen over the past 20 years.

Historically, international trade has helped reduce food insecurity by connecting regions with limited agricultural potential and large populations to regions with comparative advantages in agriculture. It has also provided consumers access to a more diversified and nutritious food basket. However, for trade to improve food security for the greatest number of people, greater international cooperation is necessary. Such cooperation has twice failed to materialize since 2000: first with the World Trade Organization's (WTO) failure to successfully negotiate the Doha Development Agenda since 2001 and second with the surge in international food prices in 2007-2008.

These two failures illustrate the need for a new approach to global trade integration that avoids their pitfalls and addresses the long-term problems of trade and food insecurity. The WTO should declare the end of the failed Doha Round so that new multilateral negotiations might being with a new approach that fully accounts for the current realities of global trade and takes advantage of existing means for extending more manageable agreements to the full conference of parties.

The challenges to the Doha Round of WTO talks, launched in November 2001, began with an expanded WTO membership - the number of WTO member countries grew from 128 members in 1994 to 162 in 2015. The Doha Round also proposed to cover an extensive set of topics, including agriculture, industry, services, and intellectual property. Designing an agreement that satisfies so many countries has proven to be an almost impossible challenge - sixteen years after the start of these negotiations, the Round has still not been completed.

A successful Doha Development  Agenda  (DDA) would have led to substantial gains for both developing and developed countries, including increased global production of food and industrial goods, better trade infrastructure, more efficient customs procedures, lower tariff protection, and reduced production- and trade-distorting domestic support policies. However, with the failure of the Round, these benefits have not materialized.

The first step to addressing the failure of the Doha Development Agenda, is the revitalization of the multilateral trade negotiations. Regional and bilateral trade negotiations should remain a stepping stone toward multilateral outcomes, not a substitute or a default choice. Such regional agreements may help, but they have serious limitations: lack of transparency in negotiations; overlapping and non-harmonized rules; and, by definition, discriminatory tariffs. These agreements are also unlikely to address key issues, such as domestic subsidies in agriculture. Further, because exporters receive access to key markets under regional trade agreements, their incentives to lobby for a more open trade agenda are removed, or even reversed. For all of these reasons, the multilateral approach remains the best and more inclusive direction for trade integration in the long run. A moratorium on major regional trade deals would be desirable until multilateral talks are redefined and restarted.

To move forward with multilateral negotiations though the end of the Doha Round must be declared and a new round begun afresh. A new WTO Round should fully capture the political economy constraints faced by policymakers with limited political capital to spend on trade liberalization issues. The new Round should also favor regular incremental gains and consolidations instead of major breakthroughs once a decade.

Such a Round could have one or several of the following features. First, the plurilateral approach could be utilized more often; in this approach, trade concessions are negotiated between a group of countries and are extended to other WTO members due the Most Favored Nation clause. Second, the domain of the negotiations could be extended to allow for concessions in new sectors; for example, rich countries could accept ambitious cuts in agricultural tariffs if the negotiations were expanded to include services. Third, side payments could be implemented to compensate countries that do not benefit from the trade deal and thus gain their approval; for example, Aid for Trade is sometimes seen as a way of compensating the losers from a trade deal.

A new Round of negotiations should also take into account the evolving reality of international trade: the emergence of countries like Brazil, China, and India; the new, less trade-distorting type of support that rich countries give to their farmers; the emergence of massive domestic agricultural support in emerging countries (China, India, etc.); and the recent regional and preferential trade agreements signed between WTO members.

Price volatility has been another major obstacle to capturing the full benefits of integrated trade for improving food security, most clearly seen during the global food price crisis of 2007-2008. Global agricultural markets experienced record growth in some commodity prices during this period. Many different factors contributed to the price surge, which was exacerbated by misguided beggar-thy-neighbor trade policies meant to address domestic food security concerns. New export restrictions, increased export taxes, and decreased import tariffs on agricultural commodities reinforced the initial shocks to global agricultural prices. Such policies only served to make the problem worse because while export taxes/restrictions decrease domestic prices, they only drive global prices even higher.

Beyond trade policy instruments, the creation of food stocks has also been a common policy response to recent global food crises. However, food stocks often have too many objectives to be truly effective: emergency aid, helping poor consumers in times of food scarcity or in times of high prices, and providing support to producers in order to keep prices at profitable levels. Furthermore, food stocks are costly to maintain and difficult to distribute effectively and fairly.

There are more direct instruments (such as investments in food supplies and agricultural research and development) with which to address supply-side problems; in addition, safety nets and cash/in-kind transfers can better help poor households cope with higher food prices, while still allowing prices to remain high and thus spurring local production in the medium term. Poverty-based cash transfers can also compensate for other negative shocks from which poor households, both urban and rural, may suffer. Indeed, cash transfers are the best policy with which to help poor urban and rural households in times of high food prices;[2] thus, transfer policies should be used instead of food stocks, when possible.

The WTO currently has limited capacity to address these policy issues. For example, there is no discipline on the use of export taxes by WTO members, and quantitative export restrictions are permitted to prevent food shortages. Several approaches could be used to address this issue. First, agreements on the binding of current export taxes, and perhaps the banning of new ones, can be negotiated on a plurilateral basis. Second, the WTO should enforce a strong monitoring and notification process, since export restrictions have negative impacts on other countries in the rest of the world. Finally, it could be desirable to consider a Pigovian tax: when a country implements a new export restriction on food products, it would have to pay a fee. These fees could go to an international fund to help vulnerable countries pay their food import bill in time of crisis or food shortage.

Moving forward, basic WTO rules need to be respected and strengthened. The WTO offers an international public good, particularly through its rules regarding (i) non-discrimination (which give countries an equal chance to compete); (ii) national treatment (which ensure that commitments to open markets are not negated by behind-the-border measures that penalize foreign suppliers); (iii) binding of tariffs (which prevent countries from increasing tariffs beyond an agreed-upon level); and (iv) transparency (which make the trading system more trustworthy and equitable). The WTO also already offers two instruments for protection against systemic risk: bound tariffs (which forbid WTO members from raising import duties to excessively high levels) and the trade dispute settlement procedure (which offers trade disputes litigations). These instruments, and the multilateral approach as a whole, provide important advantages for trade liberalization and should continue to be supported.

As we move toward the Eleventh WTO Ministerial Conference in Buenos Aires, the role of trade in reducing hunger and ensuring food security must be prioritized. This calls for enhanced international cooperation on a multilateral scale.