Agricultural trade and food security

Agricultural Trade and Food Security

By Stephen Greenberg

THE DANGERS OF INTERNATIONAL TRADE

Food security defined

In 1996 the World Food Summit Food officially defined food security as existing when: “All people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life”¹.

Accordingly, three pillars underpin food security:

• 
  food availability,
  
• 
  food access and
  
• 
  food utilisation².
  

Food access and Amartya Sen’s exchange entitlements
Food access is similar to Amartya Sen’s ‘exchange entitlements’. Sen’s concept of “exchange entitlements” simply points to the set of things a person is able to swap for what they own or the relationship between the assets a person has and what those assets can be exchanged for³. Sen puts forward that availability of food as well as the individual’s ability to exchange their assets (including labour power and the productive use of resources) for a “commodity bundle” that includes sufficient food must be considered when looking at food security.
What entitlement do individuals have to available food?
People may have entitlements through direct ownership of food or through the ability to exchange something else owned by the individual for food not directly produced by the individual. Food insecurity can occur “either because one has produced less food for own consumption, or because one can obtain less food through trading by exchanging one’s commodity (which may include money from selling labour power) for food”⁴.
Policy aimed at improving food security can thus look to either of the following:

• 
  strengthening the individual’s assets or “endowments”, or
  
• 
  improving their exchange entitlements, or both.
  

This takes us beyond the truism that food security is based on a combination of an ability to produce food and an ability to buy food. It considers the relationship between the two more closely, and the relationship between access to income and the possibility of converting that into enough food.

THE ROLE OF TRADE IN ENHANCING FOOD SECURITY
The definition of food security provided at the World Food Summit in 1996 describes the vision, but not necessarily the way to get there. Agricultural trade is seen by many as a key element in securing both availability of and access to food.
The Summit declared that “trade is a key element in achieving food security. We agree to pursue food trade and overall trade policies that will encourage our producers and consumers to utilise available resources in an economically sound and sustainable manner”⁵.
This paper focuses on the role of agricultural trade in enhancing or undermining food security. It puts forward that trade should be less important to other activities in building food security. But insofar as there will be trade in food, recommendations are made seeking to eliminate the negative effects and enhance any potential positive effects of trade on food security.
Global food consumption
Most food produced in the world is consumed in the country of production as seen with the following percentages:

• 
  Wheat is the largest export cereal crop, yet just 17% of total wheat production is traded internationally.
  
• 
  Beef is the largest exported animal crop with just 10% of total production being traded.
  
• 
  Soya beans, around which much of the global feed industry revolves, has an export share of 30% of total soya production⁶.
  

However, these figures indicate a sharp increase from two decades previously.

The theory of international trade
Theoretically, free international trade allows the supply of goods to where they are demanded at least cost. The theory of comparative advantage holds that a country with a comparative advantage in a certain product will benefit by exporting that product and importing those products in which it does not have a comparative advantage. International trade in food allows countries unable to produce for themselves to buy from other countries at the lowest cost.
It also allows countries to produce something of greater value for export, and use some of the money earned to import products for which their opportunity cost of production is greater. For example, it may be economically more advantageous to build a factory on a piece of land and export the products, than to use the same piece of land to produce food crops that could be imported for less than the income received from the manufactured goods.

The reality of international agricultural trade

Imports and exports of developed and developing countries

The theory of comparative advantage would thus predict that the industrialised countries should produce and export processed and manufactured goods. Raw materials including agricultural products would therefore be imported. However, industrialised countries are the major exporters of most traded agricultural products⁷.

Industrialised countries dominate exports of the following:

• 
  wheat
  
• 
  coarse grains
  
• 
  soybeans
  
• 
  meat and
  
• 
  dairy products⁸.
  

Industrial countries are also the major importers of agricultural products, with the exception of wheat and coarse grains.

Developing countries⁹ therefore import staples and export other agricultural products. Overall, industrialised countries dominate international trade in food, and they account for a greater percentage of exports than the theory of comparative advantage would predict. One reason for this is that most developed countries protect their agricultural industries. More detail on this will be presented later, in the discussion on the World Trade Organisation (WTO) and the EU’s Common Agricultural Policy (CAP).
International agricultural trade thus does not work as the theory predicts it should, and there are a number of reasons for this.

• 
  The ability to influence world market prices:
  

World prices should reflect the balance of world demand and supply. However, there are a number of barriers to this. For some products, individual countries have such a large number of buyers or sellers that they can have a disproportionate effect on world market prices¹⁰. This is related to tendencies towards monopolisation or “cartelisation” of branches of agriculture. While consumers should benefit from cheaper imports, they may stand to lose in the long run if trade liberalisation gives more power to monopolies¹¹.

This refers to the influence of corporate hegemony – the “unmentioned agenda” of the ownership, control and concentration of the food and agricultural industry¹². This concentration of ownership and control leads to distortions in the structure and price mechanism of the world market. An important aspect of this is “planned scarcity” to stabilise food prices at the highest possible level over a prolonged period, thus allowing multinationals to accrue the largest profits possible¹³.

• 
  Subsidisation of production in industrial countries:
  

While it is assumed food commodities will be sold on world markets at the price of production, industrial countries subsidise production to undermine this.

The result of subsidised oversupply is to drag the world market price below the costs of even the most efficient producers. Government policies and resource transfers to producers gives industrialised countries the “competitive advantage”. This means that developing country producers are unable to compete regardless of their efficiency. Therefore, available resources to provide support to producers become critical in determining whether a country will be a net exporter or a net importer of agricultural products.

• 
  International trade in agriculture is problematic in terms of pricing.
  

Exports make up only a small proportion of most food and agricultural commodities, as discussed above. Countries usually produce first for their domestic markets and then export what is left. Thus, in years of shortage they will export less than normal, and in years of surplus they will export more than normal. If there is a variation of 5% from the norm year to year in a market where only 10% of the product is exported, this can result in a 50% increase or decrease in export volumes from year to year¹⁴.

Since food and agricultural products have a low price elasticity of demand¹⁵, prices will be highly volatile. This means that a small drop in the volume being traded can result in a rapid increase in the price, and that a small rise in volumes traded can result in a rapid drop in the price.
Causes of debt in developing countries
This volatility creates problems food importing countries, since they cannot be sure of a stable supply or how much the food will cost them. As noted earlier, developing countries are the main importers of wheat and coarse grain – staple crops.
In fact, one direct causes of the current debt of developing countries¹⁶ is the conversion of the agricultural economies from self-sufficiency in staples to becoming food-importing countries. This conversion took place in the post World War 2 period combined with the wheat crisis in the early 1970s. In turn, the indebtedness has led to structural adjustment and underdevelopment.
The theory of free trade
Free trade is based on the principle of supply and demand. Accordingly, a demand for a commodity is apparently best met through the mechanism of the free market not controlled by government intervention.

Effective demand

However, the demand itself is always qualified when dealing with the market, since the market only responds to “effective demand”, i.e. the ability to pay for the commodity at prevailing prices. This ‘effective demand’ excludes most of the world’s population that lacks a “market-based entitlement” and is unable to purchase food as a commodity.

Indeed, the market system is more likely to remove food from areas where the needs for it are greatest, since “effective demand” comes from those able to pay for the food, and not those unable to pay.¹⁷ Therefore, using current economic mechanisms, trade fails to distribute food to where it is really needed. Since the market is based on ownership rights, legal exchanges and so on, “the law stands between food availability and food entitlement”.¹⁸
From a production point of view, theoretical comparative advantage and incentives for higher production are fairly meaningless when the conditions for increased production are not present, and the resources necessary for production are inaccessible.
The reality of free trade
International trade in food may end up only benefiting those with access to productive resources at scale, and those who are in the market to purchase food. Therefore, trade liberalisation may – and does – result in greater power to larger producers including multinational corporations, at the expense of small and resource-poor producers and consumers.
Food security requires the sustainable use of productive resources, because unsustainable use means that production will decline in the long term. From an ecological perspective, sustainable agriculture rests on the preservation of the productive capacity of natural systems, and the minimisation of non-renewable resources.
However, there is a growing contradiction between trade and sustainable resource use. It is increasingly difficult to meet the requirements of sustainable agriculture the further physically removed food production and consumption are from one another. This is because to retain high production levels with minimal use of non-renewable resources, agriculture must be based on optimal use of locally available resources. Large-scale production based on regional specialisation and long distance transport undermines this possibility¹⁹.
There are many consequences of international trade in food as it happens in practice. It has an influence on both exports and imports. Since “effective demand” dictates what should be produced, production is skewed towards the requirements of those with resources.
Simply put, producers in developing countries are more likely to produce cash crops for export to lucrative markets in industrialised countries (or even domestically) than produce staples. Government subsidisation of producers in the industrialised countries reduces the world price. This has a negative effect on producers in the countries without subsidies, since developing countries have to compete against subsidised products. At the same time, subsidised exports from industrialised countries results in the dumping of surpluses in developing countries, mainly to the long-term detriment of local primary as well as secondary (processing) production.
The relationship between food security and international agricultural trade

Many questions therefore need to be asked concerning the relationship between food security and international agricultural trade:

• 
  What are the underlying reasons for trading in food?
  
• 
  Is it to generate foreign exchange, or to ensure that all people have enough food to eat?
  
• 
  Who leads the agenda and for what motives?
  

As it stands at present, trade policy in every country generally reflects commercial interests²⁰. It is not countries that trade, but companies, and this suggests that trade negotiations are carried out by governments on behalf of particular corporations. Overall, a distinction needs to be made between food security concerns and agricultural export concerns. The “right to export” that underpins trade agreements is not compatible with food security²¹.

In recent times, there has been an increasing alignment of international agreements. It has become impossible for international negotiations to be held without reference to other discussions and agreements made elsewhere by the same parties. The World Summit on Sustainable Development (WSSD) is one in a line of upcoming meetings of governments to deal with issues of global scope.
The power of the WTO, and its position as the only enforceable agreement, has established trade as the over-riding priority for international agreements. The role of trade in enhancing or undermining sustainable agriculture, and hence food security, will therefore have to be dealt with at the WSSD.