Ag Specificities and International Trade: Implications for Food Security Bruno Larue Canada Research Chair in International Agri-food Trade Université Laval McGill Conference on Global Food Security: Risks and Threats to Food Security, New Residence Hall, McGill University October 4-6, 2011
The Challenge of Food Security 925 million persons suffer from hunger; Poverty and undernutrition problems are global; Food supplies can be boosted through domestic production, trade and aid, but some parts of the world are economically and politically «disconnected»; Food and ag commodity markets have specificities that must be understood by policymakers.
What is «special» about the supply of agricultural commodities? Production and marketing decisions are separated by years in some cases: expected prices vs realized prices; Production is uncertain because of weather and diseases; Perisheability: short marketing window; Rapid technological change, economies of size, industry concentration; Markets are slow to adjust and may not work well («holdup problems»); The level and nature of distortions vary a lot across commodities and countries.
From low volatile commodity prices to high volatile prices? Crude Oil Price(CA$/barrel) Corn Price (CA$/metric ton) Hog Price (CA$/100kg) 350 300 250 200 150 100 50 0 Mar-89 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Isn t arable land a necessary input? Trends in arable land endowments 600000.00 500000.00 Area (1000 ha) 400000.00 300000.00 200000.00 --Northern America + (Total) --Central America + (Total) --South America + (Total) Africa + (Total) Asia + (Total) Europe + (Total) 100000.00 --Australia and New Zealand + (Total) 0.00
Demand is relentless! # of consumers = world population: 7 billions in 2011, 9 billions by 2045? Food is a recession-proof sector! As countries grow, demand for processed products, including meats, increase; Crops are increasingly used in the production of bioenergy and pharmaceutical products;
Consumer behavior and food prices Food prices are generally less volatile than commodity prices, but some are surprisingly volatile; Consumers can minimize the impact of large food price changes through substitution -> stabilizing effect on purchasing power; Imports increase choice, decrease the price of homogeneous goods and increase purchasing power; Number of supermarkets in LDCs is increasing; The poor faces a limited choice set.
Implications for international Ag trade Much to be gained by exploiting competitive and comparative advantages of nations yet average ag tariff is much higher than non-ag average tariff; Small countries have most to gain from trade liberalization; Today s land use choices may have permanent effect on future trade flows; Trade barriers exacerbate price volatility; From export subsidies to export taxes.
Food Security and High Commodity Prices Food availability at the aggregate level is not a problem in the industrialized world (even when there are severe droughts or floods); Large cities must deal with poverty, unemployment, homelessness and malnutrition but «disconnected» rural areas in some LDCs are vulnerable to famines whether commodity prices are high or low; High commodity prices make winners and losers, but overall effect on poverty (and food security) is negative thus far.
Policy Reactions to High Commodity Prices Survey of 81 LDCs by the FAO showed that more countries restricted or banned exports than provided consumer assistance, thus putting more pressure on world prices; Some used production support measures to offset negative effect of export taxes on production; Survey of emerging economies by OECD showed much variations in policy response (e.g., Chile favored targeted consumer assistance; Argentina, China, Russia and Vietnam imposed export taxes/controls).
An Analysis of Policy Reactions «better-off developing countries and countries with more adequate food availability per capita were more prone to adopt policies to lower food prices»; «it appears that governments were more likely to intervene in countries where agriculture was relatively more important»; «countries with more democratic governments or with freer media or having experienced protest riots were not more likely to intervene than autocratic states»; «Only in terms of the proximity of the next election did we find some evidence that governments were responsive to popular opinion».
Are we in a protectionist vicious circle? WTO allows export taxes and quantitative restrictions under some conditions; Doha negotiations are stalled; Uncertainty about behavior of exporters can trigger protectionist responses by importers; How high would commodity prices be if all countries aimed for self-sufficiency and some countries experienced crop failures?
Thank You! Merci!