Import surges in a changing global market context: Implications for African countries

6 May 2015

The incidence of import surges fell during the recent period of higher global food prices. Perhaps counter-intuitively, this was not because import volumes fell, but because they increased at a rapid and more constant rate. The implications of different patterns of imports therefore need to be better reflected in the design of safeguard mechanisms.

 

International trade in food products has increased rapidly in recent decades. Although this trend is widely held to have been beneficial in terms of increasing the availability of, and access to, food there remain concerns that openness to trade can expose developing agriculture sectors to greater levels of market instability and disruption. For example, significant, unexpected increases in imports – so-called “import surges” - can depress incentives for investment in domestic market development by private sector actors who generally have limited recourse to risk management instruments.

One of the modalities currently under negotiation in the Doha Round, and which is designed to address such concerns, is the establishment of a new Special Safeguard Mechanism (SSM) for use by developing countries. Negotiations on this mechanism have been particularly difficult, highlighting different perceptions about its effectiveness and the potentially negative consequences of its use, particularly if it were to be used in ways that unnecessarily disrupt trade.

The negotiations leading up to the release of the draft modalities texts in 2008 took place during a period of historically low agricultural market prices where further price depressions associated with significant increases in import volumes were deemed to be harmful.  Since then, the global market context has changed dramatically and has created a very different scenario with respect to expectations regarding the incidence and impact of surges, and the requirements of a safeguard mechanism. Following an extended period of relatively low and stable global market prices, prices started to increase in the early 2000s. They rose sharply in 2007-2008, fell back somewhat during the next two years, before peaking in 2011. Since 2011 prices have followed a downward trend, but remain well above the levels of the 1980s and 1990s. Perhaps less well appreciated is that while global food prices have risen significantly since the 1990s, import volumes to an aggregate of 103 food importing developing countries, have also risen rapidly.

What are import surges and how can they be identified?

The term “import surge” has been used to highlight two types of potential shock to domestic agriculture sectors which may arise from increased openness to trade: (i) significant increases in volumes of imports from one period to the next, and (ii) depressions to domestic market prices that may result from increased connectivity to global market prices. 

Previous FAO analysis demonstrated that import surges can be the result of factors internal to the domestic economy, such as domestic production shortfalls due to climatic reasons or to poorly functioning local markets, or they can be the result of external, global market factors such as diversion of product to new markets as a consequence of trade restrictions imposed in traditional markets. Whilst surges generated by external shocks can be potentially disruptive to domestic agriculture, those generated by domestic factors do not necessarily imply negative impacts. It is critically important therefore to keep in mind that the incidence of surges does not imply that a safeguard remedy should, or indeed is likely, to be applied in all identified cases.

There is no agreed definition of an import surge or of a methodology for their measurement. Commonly used definitions tend to be based on differing thresholds, with an import surge said to have occurred when the actual imports surpass that threshold. According to recent research, the total number of surges identified during the 30 year period 1984 – 2013  shows that the highest incidence of surges occurred in meats, to a slightly lesser extent in dairy products, significantly lower in most oilseeds, and with a mixed pattern in cereals.  Across the time periods, a higher incidence of import surges was observed in 1994-2003 than in 1984-1993 (mainly meat and dairy).  By contrast, all but two of the commodity groups saw a falling incidence from the period 1994-2003 to 2004-2013.  The incidence of surges in all commodities continued to fall in the most recent decade, with total surges in 2009-2013 at approximately two-thirds of the 2004-2008 level. 

Interestingly, the lower number of surges was not the result of a reduction in imports. Indeed, typical of many of the analysed country/commodity cases, imports of palm oil to Kenya have risen relatively constantly since the early 1980s with very limited variation around the trend. As a result, the threshold of a three year moving average plus 30% (typically used in analysis related to import surges) remains significantly above the actual level of imports and no surges are identified. By contrast, imports of maize to Ghana have been more volatile, with annual increases often surpassing the threshold (see Figure 1 and 2 below). The pattern of imports is therefore a key variable in determining the incidence of surges.

   

 

Table 2 below depicts the average incidence of surges in different country groupings and geographical areas.   It is notable that countries in the Small and Vulnerable Economies (SVE) group observed significantly fewer surges on average, with the Caribbean as a geographical grouping also reflecting that lower average number.  Given their relatively high reliance on food imports as a proportion of total consumption, actual surges in some SVEs are unlikely to create significant deviations from the moving average, but the potential for negative ramifications can still exist.

The incidence of price depressions fell more dramatically reflecting the rapid price increases during the recent period. A significant reduction in the number of identified depressions was recorded between 1983-2003 and 2004-2011. In comparison to the 102 incidences recorded in the 21 years to 2003, only 4 cases (wheat, butter, SMP and WMP) are recorded in the 8 years between 2004 and 2011.

Implications for African countries

The sharp fall in the incidence of price depressions is unsurprising during a period in which prices rose significantly. However the fall in the incidence of volume surges is interesting in that it does not generally reflect a reduction in import volumes.  Indeed, far from being the result of lower levels of imports (or lower rates of increases in imports), the reduced incidence of volume surges has been identified during a period in which imports of many commodities, by many African food importing countries, has been increasing significantly albeit at a more constant rate. 

In Sub-Saharan Africa, economic growth rates have been lower than in many emerging developing countries suggesting that the increases in import volumes are more likely to be a result of population growth than of income growth. In many cases, structural deficiencies have prevented domestic production from growing as quickly as increases in demand. In such cases, a safeguard mechanism is unlikely to be used. Similarly, in North African countries, many of which face agro-climatic constraints to increased production, imports will continue to play an increasingly important role in satisfying consumption needs. Under these conditions, where imports increase at a relatively constant rate, the importance of a safeguard mechanism and the likelihood that it will be used to justify the imposition of an additional trade duty, is reduced.

However, the analysis also demonstrates that the sensitivity of the incidence of surges depends very much on the pattern of imports. In those cases where imports have fluctuated widely, such as in the Ghana example above, there remains a rationale for an effective mechanism for use in cases where surges could have potentially detrimental impacts.

While introducing country differentiation into the mechanism may be problematic, consideration could be given to the use of different trigger levels by country group.  The analysis suggests that import patterns and hence the effectiveness of different trigger levels can differ quite significantly by country group.  For some groups of countries, such as the SVEs, a more sensitive volume trigger may be appropriate.

 

Authors: Jamie Morrison is Senior Economist, Trade and Markets Division, FAO and George Mermigkas is Economist, FAO Liaison Office in Geneva.

 

This article draws of FAO (2014)  Import surges and the Special Safeguard Mechanism Revisited. FAO Trade Policy Technical Notes on issues related to the WTO negotiations on agriculture. No. 15. FAO, Rome. May 2014

The views expressed in this chapter are those of the authors and do not necessarily reflect the views of the Food and Agriculture Organization of the United Nations (FAO)

 

 

This article is published under
6 May 2015
What are the intra-regional trade and trade facilitation situations in North Africa ? What actions need to be taken to support trade and economic integration in the region ? The WTO General Council...
Share: 
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...
Share: