Challenges facing poor food-importing countries: Can WTO disciplines help?

6 May 2015

The food security of poor developing countries has been challenged in recent years due to high world market prices and price volatility. What have been the policy responses and what are the implications for WTO disciplines?

 

The food security of poor developing countries, especially the Least Developed Countries (LDCs), as defined by the United Nations, and the Net Food-Importing Developing Countries (NFIDCs), as established under the WTO, has been challenged in recent years on account of high world market prices and price volatility. In a span of a few years, global food markets have entered a period of constrained supply, after a very long period of ample supplies characterised by demand-constrained global markets.

As this transition was unfolding, some provisions of the Uruguay Round Agreement on Agriculture (AoA) were put at on a test with regard to their continuing relevance and adequacy, since they had been negotiated at a period of relative surplus in world food markets. While existing AoA disciplines on imports and domestic support provide a degree of comfort and predictability to exporting countries, similar disciplines on the export side, catering for the interests of net food-importing countries, have proven inadequate.

Policy responses

The recent period of global market volatility in food commodities has been characterised by considerable activity in trade and domestic policies. It is therefore relevant to ask what the policy interventions have been and what their effects on food security were, including in third countries. It is also relevant to ask if WTO rules have provided countries with the needed flexibility and whether they succeeded in restraining countries from adopting policies that could potentially harm others.

Among trade-based policies, reduction of tariffs has been the most widely adopted measure in importing countries. Although its impact on prices can be substantial, this option is severely limited when applied tariffs are already low, as is generally the case in many poor countries. For exporting countries, export taxes and export restrictions and prohibitions have been commonly used. Because of the short-term imperative of containing an increase in domestic market prices, longer-term effects on food security are rarely considered in such policy choices.

In addition, by insulating domestic markets from world price changes, trade measures not only fail to help the food insecure but also impose greater adjustment on other countries, which in turn respond with similar measures, so that each successive intervention undermines the efforts of others to stabilise domestic markets. Some authors have estimated that such restrictions were responsible for world price increases of around two fifths, one fifth and one tenth for rice, maize and wheat, respectively.

The release of public stocks was also among the most common domestic market-based measures applied by countries during 2007–08 to contain the effects of rising food prices. These were associated with providing targeted and untargeted subsidies for staple food. The extent to which market prices were contained clearly depended on the size of stocks released and the degree of targeting involved. For large countries with dominant public procurement and distribution systems, this type of intervention was more effective than for small open economies.

Consumer-oriented policy responses that provide direct support to consumers (safety nets) have been relatively less common than market and trade interventions in developing countries, due to lack of resources to mobilise the necessary cash or food. Specific policies reported include cash transfers, direct food assistance and measures aimed at increasing disposable income. While such policy interventions are administratively more demanding, they are nonetheless among the best food security approaches to reach populations in need and to provide them with a substantial transfer value in relation to the cost of the policy. At the same time, market distorting effects are minimal compared to trade restrictions.

Finally, production-oriented measures include actions directed at supporting producers through non-market and market mechanisms. Most measures taken concerned non-market-based production support, including production subsidies, untargeted input subsidies and improved access to credit. By and large, developing countries – especially the poorest among them – have considerable scope for providing non-product and product-specific support to their farmers, especially under the special and differentiated treatment (SDT) provisions of the AoA. The limited use of these flexibilities has been due to a lack of resources.

Some implications for WTO disciplines

The recent period of world market volatility – through the policy responses it triggered – has been instrumental in revealing some weak points of the multilateral trading system (MTS) as well as the elements that need to be fixed for the system to be valuable for all participants. Four categories of concerns may be identified: (a) issues related to the interpretation of existing provisions; (b) issues related to the weakness of existing provisions in balancing out the interests of exporting and importing countries (and the absence of disciplines to restrain countries taking policies potentially harmful to others); (c) disciplines missing from the system altogether (especially in helping food-insecure countries improve their food security); (d) elements of the Uruguay Round Agreement of potential importance to food-insecure countries that have not been implemented at all.

A prominent example of a measure in the first category is public stockholding governed by clear food security purposes.  Such stocks have proven to be of great importance to several countries in the recent period of price hikes. Questions have been raised about the compliance of some developing countries with domestic support commitments, considering that most of them can provide market price support only up to their de minimis level of 10 percent of the value of national production. The way such market price support is calculated remains a contentious issue and resulted in the “peace clause” agreed in Bali.

A telling example of weak existing disciplines is the export prohibitions and restrictions provisions of the AoA. Export taxation is not disallowed, and this tax could be prohibitively high because, unlike import tariffs, it is not bound. Essentially, current WTO rules allow the use of export prohibitions and restrictions in the face of domestic shortage; however, due consideration must be given to the effects on importing members’ food security. It is not clear to what extent countries that recently resorted to export prohibitions and restrictions have done so.  

The asymmetry of WTO disciplines with regard to importers and exporters of food commodities was pointed out during the Doha Round negotiations on agriculture, and several countries have proposed stronger rules in this area. While the need for more symmetry is broadly recognised, there is also resistance from some WTO Members, casting doubt on whether stronger disciplines on export prohibitions, restrictions and export taxation will materialise anytime soon.

A prominent example for the third category related to missing disciplines on food security is related to the biofuel policies pursued by some countries. Biofuels do not fall under the purview of the AoA, although related policies represent an indirect means of circumvention of AoA commitments. In fact over the last decade, huge quantities of food commodities were diverted to energy production. Recent reductions in distorting policies and the improved rationalisation of the use of biofuel in some major grain-based biofuel producers are welcome developments, but more can be done.

Finally, among the provisions agreed under the Uruguay Round but not implemented is the 1994 Marrakesh Decision.  The Decision recognised that LDCs and NFIDCs could face short-term difficulties in financing normal levels of commercial imports of basic foodstuffs. The Decision also called for differential treatment on export credits as well as technical and financial assistance to improve agricultural productivity and food production. Developing rules on export credits under the Doha Round should aim at targeting LDCs and NFIDCs that face liquidity constraints for the timely scheduling of their food imports, thus avoiding high prices and additional financial charges.

Conclusion

The multilateral negotiations under the WTO have been the dominant force shaping the international policy environment for agricultural commodity trade during the past three decades. The integration of agricultural issues into the multilateral trading system is not yet complete, and the stalled Doha Round negotiations add doubts as to when some of the issues raised above may be adequately addressed.

The existing AoA contains numerous provisions specifically applicable to poor food-insecure developing countries on a SDT basis, aiming at providing more policy space and more flexibility in the implementation of the Agreement. Within this framework, developing countries undertook smaller reduction commitments during a longer implementation period than developed countries. LDCs were exonerated altogether from any reduction commitments.

Nevertheless, while these SDTs offer considerable policy space to food-insecure developing countries, certain provisions still need to be fixed, especially for specific policies (public stockholding for food security purposes) favoured by food-insecure import-dependent developing countries threatened by uncertainties in the world market. However, although doing “more good” by interpreting and/ or amending existing rules is important, it is equally essential to do “less harm” by strengthening provisions that could be detrimental to food security – especially export prohibitions and restrictions – and by developing disciplines and guidelines on production of biofuels and related national biofuel mandates.

Agricultural and food markets have evolved, but trade rules have not. The oversupply in the world market disappeared and periods of scarcity, high prices and price volatility ensued. The provisions of the AoA have proven to be rather weak in safeguarding the interests of importing countries under these new market conditions. Existing disciplines can deal primarily with the challenges of structural oversupply but not with the prospect of scarcity, rising and volatile food markets, which are expected to continue in the future. Exporters can rely on well-defined rules to address distortions in the import side, but not vice versa.

Creating symmetry as regards the needs and aspirations of both exporting and importing countries is a prerequisite for maintaining trust in the multilateral trading system and world food markets. In turn, this is an essential prerequisite towards concluding the reform process initiated in 2001 under the Doha Round.

Author: Panos A. Konandreas, a Greek national, has a Ph.D. in Agricultural Economics, University of California and a M.S. in Electrical and Mechanical Engineering, National Technical University of Athens.

He retired from FAO in May 2008 as Head of FAO's Liaison Office in Geneva, working on trade issues related in particular to the negotiations on agriculture under the WTO.  He spent 16 years in Rome (1982-98) at the FAO Commodities and Trade Division, as Chief of Trade Policy and Commodity Projections Service and other senior positions.  Earlier posts include Principal Economist at the International Livestock Centre for Africa (1979-82) and Research Associate at the International Food Policy Research Institute (1976-79). 

 

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