Asia Pacific Regional Workshop on National Food Policy

 

28-30 September 2000
Kuala Lumpur
CI-ROAP and SEA Council

 

Components of National Food Policy -- The Role of the Multilateral Trading System

  1. Today it is my task to discuss some of the factors that determine food security policy in the international context. I want to start this exercise by reflecting on some more general policy questions, however, to help set the scene.

  2. First of all, to determine the best policy, we need a goal. There are many definitions of food security and we need to agree on what our goal is to decide the best definition. The right to food provides one vision of food security.[1] Governments at the World Food Summit provided another, slightly different formulation. The goal is very important -- if we truly believe that food security depends above all on access to food, then we assess policies differently than if we are preoccupied above all with supply. Similarly, if the goal of culturally appropriate food is considered central, then just access to food in any form will again not be sufficient. It is here at the level of definitions and goals that we already find the reasons for some of our differences, as NGOs, with the World Trade Organization’s approach to food security, as well as with the preoccupation of agricultural research with yield-enhancing technology at the expense of other food security concerns.

  3. Having formulated our goal, we need to survey the landscape to decide how best to realize that goal. What policies affect food security? A brief list would include: agriculture, health & nutrition, trade & investment, finance & taxation, research & education, land use, rural development, urban development, gender, infrastructure development, environment, consumer, employment, and education. The result is more than a little overwhelming, whether you are in the government or working on public policy as an NGO. Food policy is enormously complex and the lack of coordination among ministries responsible for food is a significant problem. Few countries have a dedicated national food policy. Rather, they have a number of policies for different components of food policy, with gaps where components have been ignored or forgotten.

  4. The same problem is evident at the multilateral level -- consider the number of agencies responsible for some aspect of food or food-related policy: the UN Food and Agriculture Organization, the World Food Programme, the International Fund for Agriculture and Development, UNICEF, the UN Development Programme, the UN Environment Programme, the World Health Organization, the World Bank, the regional development banks; the list goes on. These institutions lack coherence, and some NGOs, and even the Ethiopian government, have talked about the role a possible UN Convention on Food Security could play in providing a coordinating framework.

  5. Having identified the actors, we also need to understand what their relative power is. There is not time to go into this more than briefly here, but this has been a very important lesson for us in the United States, in trying to understand the perhaps terminal crisis in parts of agriculture there. Policy can only work if the people that it targets are able to respond to the signals the policy is sending. After years of failed agricultural policies in the United States, some analysts suggest the explanation lies with trying to direct farmers’ behaviour, when farmers are undoubtedly the least powerful actors in our food system.

  6. The graphs in the annex illustrate the point. Over a period of decades, the relative share of farmers in the very profitable US agri-food system has declined precipitously. While marketing food was always the most profitable end of the business, the shift in the relative division of the profits is astounding. The vast majority of farmers are now completely dependent on government payments to make ends meet. Most of the money goes to very few farmers, because of the structure of the payments. A recent survey shows the top 10 per cent of farm payment recipients received 61 per cent of the farm payments.[2] A more effective agricultural policy will have to address such issues as corporate concentration among agri-businesses, the vertical integration of the food system, and the social, economic and ecological limits of our industrial agricultural model. We will come back to these points a bit later, as, not surprisingly, they affect not just the domestic agricultural context, but the international context as well. The United States poses an interesting dilemma for policy makers -- it would seem that a profitable agricultural export sector does not guarantee a profitable farm sector. Quite the reverse, in fact. The export sector seems to profit from the collapse in farmgate prices.

  7. The lesson for policy-makers is that we have to "unpack" the food and agriculture sector into its component parts and understand that the relationship of those parts to one another is dynamic. The relative power balance is always in flux.

  8. In many of the ASEAN countries, farmers are relatively more powerful, both numerically, and in their share of the agricultural sector’s profits, than their American counterparts. Yet, the US experience might still be worth thinking about in relation to your own countries. What do we learn from our policy failures? Many look at the United States and say the lesson is that farmers ought not to be farming because they go bankrupt even with enormous government support. Others, however, look at the situation and judge that the problem is not that farming is an inefficient sector, although it is far from perfect, but rather that the returns to agriculture are unequally distributed. Ostensibly about helping farmers stay in business, U.S. farm payments are actually a subsidy to the companies that buy, transport, process and sell grain, both at home and abroad. The payments make it possible for the companies to pay less than cost of production prices at the farmgate. The payments also subsidize the market in seeds and farm equipment. The manufacturers of these inputs, who face little competition in their sector, are quick to capture any increase in payments to farmers with an increase in the prices they charge. Due to the lack of competition, the price changes are asymetrical; there is no pressure to reduce input prices when farm income falls.

  9. For developing countries, this experience in the United States might prompt a re-examination of whether the failure of traditional agriculture in their countries is due to its inefficiency as a model or due to economic causes, such as uneven market power. It also raises the question of whether a traditional model should be transformed into an industrial model, such as that espoused in Europe or the United States, or into something that can avoid the pitfalls of industrial agriculture. The role of trade in the chosen food policy should follow from broader policy objectives.

  10. Fourthly, having identified policy goals, tools, actors and their relative strength, there is the question of political will. Hunger deserves the same kind of attention as a national security policy, or a national energy policy -- yet it seldom receives it. No country wants to allow food to go short, because bread or rice riots are one of the surest ways to lose power as a government. But allowing people to live with chronic hunger is something that politicians can survive. In the United States, for instance, with the highest GDP in the world, and the lowest levels of unemployment in decades, we still have 4.2 million households (that is 4.1% of all households in the country) that experience hunger at least part of the year. Nor are we anywhere near our World Food Summit target of halving hunger in the country by 2005. The United States is proof that economic growth on its own, while central, is not enough to ensure people have enough to eat. Many poorer countries do a much better job of feeding their people.

  11. Then, finally, there is the external environment -- other, linked policy areas, as well as uncontrollable events, such as natural disasters and the weather. Some of these elements can only be anticipated and prepared for - the weather, for instance. Other policies that affect food security in the external environment can be designed with food security in mind. Gender and environment are both areas increasingly understood to be key in addressing food security. And now, although only slowly, and with much resistance from some of the actors involved, we are looking at taxation, currency levels, trade balances, investment policies, energy choices and the development of infrastructure as all being important elements in food security.

  12. Before turning to the World Trade Organization (WTO) and the Agreement on Agriculture, let me say a few words about regional trading agreements. For this region, ASEAN is a central actor, with its own policy of food reserves that dates back to at least 1976. I do not plan to discuss the ASEAN food security reserve here, but one general point, rather an obvious one, can be made -- a regional approach to food security is almost certain to be more efficient and effective than a purely national strategy. It provides a way of coping with weather-related shortfalls, with a high likelihood of securing culturally appropriate food at relatively low transport cost.

  13. That said, there are sure to be elements of competition and unequal market power within regions that are problematic. In our own region of North America, the integration of agriculture through the North American Free Trade Agreement (NAFTA) has been devastating for many farmers. Mexican maize farmers have been forced off the land in their millions, while the ever-simmering conflicts between US and Canada on beef, wheat, and dairy products continue to erupt into trade disputes. The analysis from many farmers is that this is to do with the terms of integration and the concentrated power of agri-business, who provide farmers with their inputs and buy their products. The conclusion many of them draw is not that a regional strategy per se is wrong, but that the economic model informing NAFTA is wrong, at least from a food security perspective. In considering regionally-based integration, it is important to consider the relative economic power of the countries involved and to look at how deep the process of integration is to be. NAFTA integrates the capital and trade side of the member economies quite deeply, but barely considers the mobility of labour at all. This kind of imbalance creates tensions and distortions that undermine the theoretical benefits of liberal models of economies.

  14. Turning then to the WTO, then, this point is still valid: the terms of economic integration are vital to the success of the initiative. Few people contest the importance of multilateral rules to govern trade. The problem comes with the power imbalances at the WTO and the very imperfect translation of theory into practice. The governments that set the multilateral trade agenda treat trade as a policy objective in its own right, rather than as a tool, and the analysis that informs their negotiating positions too often ignores very important market realities.

  15. A lot has been said and written about the Agreement on Agriculture in this context. Among others, Aileen Kwa, with Walden Bello, has written a very clear analysis of the problems with the Agreement from a developing country perspective. I do not want to go into great detail here on this, but will touch on a few points to set the context, before offering an analysis of where we should focus to strengthen our ability to build effective national food policies.

  16. Why should we trade at all, if our preoccupation is food security? Here is a brief list of the general arguments commonly made in favour of trade as an instrument of food security. The key point is that these are possible, not necessary, results of trade:

  17. Why then would we object to trade as an instrument to realize food security? Again, the list is of possible outcomes, although I can give examples to demonstrate each point:

  18. The challenge is to build a system that realised the potential of trade but accepts and takes steps to counter the problems that we now are very familiar with. The Agreement on Agriculture, unfortunately, does not address the drawbacks of trade as an instrument for the realisation of food security. The WTO is based on reciprocity -- I will give you access to my market based on how much I want access to your market. If your market consists in 50 million people, of whom 60 per cent live below the poverty line, then you are much less interesting than a country with one hundred million or more people with disposable wealth. There are large parts of the world, and billions of people, who cannot offer much in this kind of exchange. Countries can benefit peripherally from the deals struck between the European Union and the United States, using the WTO rule that what applies to the most favoured trading partner must be applied to all countries that belong to the WTO. Yet, these countries will always have to accept an agenda that revolves around the trade interests of the largest economic powers.

  19. This is a fundamental, and possibly fatal, flaw for the WTO. The institution lacks legitimacy in the public eye because it negotiates agreements that are widely acknowledged, in advance, to not only not help the weakest members of the international community, but to actually worsen their problems. This was the case with the Uruguay Round and its predicted impact on the African continent. This is not only what NGOs predicted, moreover, but what the WTO, then GATT, itself, as well as the World Bank and Organization for Economic Co-operation and Development themselves predicted. From its inception, the WTO was a statement from governments that it is acceptable to build institutions that harm the least advantaged members of the international community.

  20. The failure of the world’s trade community to agree a framework for renewed trade negotiations in Seattle last year reflected in part this crisis in legitimacy. So far, it would seem that neither Europe nor the United States has learned the lesson. Developing countries have still not had any satisfaction in their struggle to deal with implementation issues arising from the Uruguay Round agreements. We will have to wait and see what that means for future negotiations.

  21. A second broad criticism of the WTO can be raised against the model of agriculture that the WTO rules establish as a world model. The assumptions behind existing trade rules are that where food comes from does not matter, how it is produced does not matter, how far it travels does not matter and what it actually is (white maize or yellow maize -- hugely important from a nutritional point of view, or from a producer point of view, yet irrelevant from a trade perspective) again, does not matter. Yet, all of these things matter enormously in our list of food security concerns. We want nutritious, culturally appropriate food. We want to produce it without jeopardising our environment. We want to ensure a measure of economic distribution that creates a stable basis for development. We want to mitigate some of the risks inherent in agricultural production, and ensure a stable, affordable food supply year round for our people.

  22. The point is not to require the WTO to work through all these issues. Instead we have to think through how to ensure trade rules do not make it more difficult, or even impossible, to realize food security at the national and regional level. If export based agriculture is not a good model for food security, we will need to build back into our trade rules greater flexibility not just for emergencies, which already exists, but also for long-term development goals.

  23. Within the WTO agreement itself, there is much room for improvement. The following thumbnail sketch is intended to provide a simple overview -- the discussion rapidly becomes technical and I do not want to lose sight of our focus on national food security strategies.

  24. There are three broad areas in the Agreement on Agriculture at the WTO: market access, domestic support payments and export subsidies. In each area, attempts were made to quantify the measures involved, and then to agree reduction commitments (to tariffs, support payments and subsidies). Developed countries were to reduce support by about 36% and developing countries by 24% over what governments claimed as existing levels. Least developed countries were excluded from reduction commitments, although they are bound by the so-called spirit of the agreement to not introduce new supports in these areas, where they do not already exist.

  25. In none of the three areas does the agreement offer much to developing countries. First, consider market access. It is widely recognised that most developing countries face enormous obstacles in their bid to supply world markets, even where market access is granted. Tariff peaks and tariff escalation persist despite their obvious trade distorting effects. Rich countries continue to protect specific sensitive sectors, such as dairy production and sugar, while the WTO rules prohibit developing countries from protecting themselves against the one-way liberalisation going on in agriculture.

  26. Then there is the public response to recent rulings by the World Trade Organization in food-related trade disputes. While the idea of international standards for food safety is a useful one, the public in many developed countries is sceptical that the result will mean safe food. Particularly in Europe, a series of food scares, some of them with fatal consequences, has generated a real mistrust of large-scale agriculture and imported foods. The fight over biotechnology is part of this response to industrial agriculture. The insistence of the U.S. government on "sound science" (defined in their laboratories) as the standard for the world is a losing concern. It ignores a very simple market principle: there is no point making something the customer will not buy, no matter how "emotional" her rejection. In the end, the market requires that you have a willing customer, not a government that forces your product onto a market where it isn’t wanted. If fruit from Chile is found to be contaminated with a pesticide residue or bacteria, it is likely the fruit exports from Brazil and Guatemala will suffer too, however irrational the response may seem. The international market is not a strictly rational place in which to operate.

  27. For developing countries this is important. If your national food security strategy is to sell commodities to generate foreign exchange to buy food on the world market, a policy advocated by many international institutions, than you have to be very sure you can sell your commodities, and for enough money. Although you would not believe it just listening to the discussion in Geneva, the trend is increasingly for market access struggles to be about fights over production and processing methods, environmental concerns, and workers’ rights. They are less about reducing non-tariff barriers, such as import quotas, which are now restricted under the WTO rules, although there are still significant barriers to trade at the borders as well. Undoubtedly, some of these newer concerns are used in a protectionist manner. Yet, it cannot be denied that they are real fights, for important causes. At some point as NGOs, we need to decide how we can fight for economic justice without getting trapped in the false dilemma the WTO creates for us, to take sides for or against free trade. We can and should object to protectionist behaviour by the United States without accepting that environmental damage and child labour are an acceptable basis for development. Trade sanctions are not the solution, but nor is ignoring the problem.

  28. The second pillar of the Agreement on Agriculture is domestic support. The different levels of reduction commitment were supposed to reflect the principle of Special and Differential Treatment (SDT) for developing countries. However, as many commentators have noted, the actual agreement shows rather more SDT for developed countries. Most important are the so-called blue and green boxes. The blue box exempts from reduction commitments the kind of farm payments made by the European Union and, at the time of signing the agreement, the United States. These payments, determined by production levels and the number of units of production, are considered to be highly trade distorting, because they interfere with the price signals going to producers. It proved politically impossible to force the Europeans to abandon the measures. Meanwhile, the United States moved quickly to change its domestic farm programme to end the use of farm payments tied to production levels. However, overall spending on domestic support in the United States remains abnormally high. Many developing countries are now targeting the spending classified as green box in order to curtail the level of subsidies to agriculture.

  29. The green box is Annex 2 of the Agreement on Agriculture. It lists exemptions to domestic support payments that are considered to be less trade distorting than those tied to production levels, and that are deemed important for other reasons. They include payments to protect the environment, for example, as well as food aid and emergency relief. It is not clear as yet whether the United States will try to get its recent spending, upwards of US $20 billion in 2000, classified as green box as well. We do know, however, that US food aid donations, which are classified in the green box, have increased dramatically as world prices for commodities have collapsed.

  30. Thirdly, the Agreement addresses export subsides. Again, rich countries were able to lock in significant levels of spending, although capped and set to reduce, while countries that were not using export subsidies were forbidden from introducing them, creating another degree of disparity in rich countries’ favour.

  31. It is also important to recognise that, while export subsidies undoubtedly a significant problem in the world market, the focus on subsidies has highlighted European practices but ignored other ways in which countries support their exporters. These include dumping, which is the practice of selling goods at below cost of production prices. IATP analysis of US Department of Agriculture numbers indicate that the United States dumps wheat and rice persistently, and hovers very close to dumping for maize. If reasonable profit is added to the price, which it generally is in definitions of dumping, then corn also can be seen as a dumped commodity. This problem is not captured by WTO rules, because US domestic prices are often as low or lower than the export price. The WTO measures dumping by comparing domestic and export prices. However, neither price is as high as the cost of production, which shows that dumping is occurring. IATP argues that this is a major distortion in world market prices, forcing farmers around the world to compete with artificially cheap grain prices set in the United States. In Mexico, for example, the impact is clear, as it has been in Mindanao in the Philippines, where maize farmers have lost their access to domestic grain millers to imports from the United States.

  32. The Agreement on Agriculture also affects food policy through the areas it fails to address. For example, the Agreement does not take into account the enormous market power of agri-business. Although state-trading enterprises come in for much critical comment at the WTO, the much greater market power of companies such as Cargill is ignored altogether. Some argue that although these companies are few, they compete hard with one another. In the United States, we have proven cases of price-fixing to suggest otherwise. The barriers to entry to the business of grain trading are enormous. The logistics involved and the costs of transportation and storage make grain trading a capital-intensive activity. The presence in the United States of a number of grain traders is deceptive. In practice, there are a number of co-operative agreements among them, effectively reducing actual competition considerably. In practice, farmers are lucky if they have a choice of more than two buyers for their grain in any given market. Cargill now exports some 40 per cent of the yellow corn that leaves the United States. In soybeans, Cargill is one of the top three exporters for both the United States and Argentina, two of the largest suppliers of soybeans in the world. In both countries, Cargill is lobbying for massive public investment in the infrastructure to facilitate the movement of grains out of the country for export. In the U.S. we are told the investment is needed to compete with Latin America. In Brazil and Argentina, they are told they must do it to compete with the United States. Either way, Cargill will benefit as a heavy user of the transport system and a major supplier of transportation services in its own right. This is market power.

  33. A related issue, increasingly coming under scrutiny, is the vertical integration of the agri-food sector. For some time now, grain traders have been involved in the transportation and processing of grains. Many own livestock operations. Now these businesses are moving into deals and mergers with the input suppliers, mostly chemical companies that have moved into the seed business with the advent of biotechnology. Increasingly, you find not only consolidation at any given point of the food chain, but also consolidation along it, from seed to supermarket shelf. The newest manifestation of this integration is the deals between retailers, now operating as global entities, and multinational suppliers. This makes it difficult to set prices with any transparency, introducing another area of significant potential market distortion. Market signals cannot work unless prices can be discovered in an open way.

  34. In conclusion, let me share a few summary thoughts on a trade-dependent food security strategy: it involves countries in a risky game, where the undoubted real and potential gains for economic growth and consumer choice are off-set by considerable room for failure. The very mixed, and often failed, policies introduced under structural adjustment programmes illustrate the many drawbacks associated with a reliance on world markets for development. Even the most ardent advocate of trade as an economic strategy has reason to be cautious in relation to the rules created under the WTO. These rules ignore much of the reality we know as NGOs, working with farmers and people living in hunger, far from the hallways in which these rules become law. Never forget this is about choices. There is nothing inevitable about the direction globalisation has taken, and nothing to stop us creating a system that does much better for many more people.

    35.  

    What can we do?

  35. What kinds of inquiry can NGOs lead to ensure their national food policy takes account of these pressures? We have now a great number of case studies that examine the impact of trade-liberalisation strategies on developing countries. These need to be read, commented on, improved and added to.

    36. Some of the questions that country impact studies could include

  36. At the same time, read the proposals coming from developing and developed countries and consider their likely impacts in your country. If you have not yet acceded to the WTO, work with your government to consider what experiences other countries have had before making commitments. In the ASEAN region, work with Cairns group members to push their attention towards developing country needs. Document the role of multinational companies in the local economy; is trade-related economic activity benefiting the local economy? Consider the practicalities of an export-led strategy on the ground. Often sectors will have competing interests and an analysis of who is most food insecure and how the development of a given sector could unfold will help to choose between sectors and to devise safety nets for possible losers from the change. Go back to that policy goal – you don’t just want food security, but to achieve it in a way that is sustainable, respectful of natural resource limits, and creates jobs. Trade policy needs to be devised accordingly.

 

1 The right to adequate food is realized when every man, woman and child, alone or in community with others, has physical and economic access at all times to adequate food or means for its procurement. (U.N. Committee on Economic, Social and Cultural Rights).

2 Williams-Derry, C. and Cook, K., "Green Acre$: How taxpayers are subsidizing the demise of the family farm", Environmental Working Group, April 2000: USA. Available at http://www.ewg.org.

 

Sophia Murphy, Institute for Agriculture and Trade Policy
2105 1st Ave. S., Minneapolis, MN, 55404, USA.
Tel: +1 612 870 3454; Fax: +1 612 870 4846
E-Mail: smurphy@iatp.org