In Part I, I mentioned the different channels affecting food and nutrition security, focusing on trade and trade policies. In Part II, I will go into more detail regarding the links between trade, trade policies, and food security, specifically in the context of the WTO.
When discussing the WTO context, several things should be noted. First, although most of the ongoing debate seems to focus on the WTO’s Agreement on Agriculture (AoA), other WTO agreements and negotiations also have implications for food security, such as non-agricultural market access (NAMA), intellectual property rights (IPR), sanitary and phytosanitary measures (SPS), technical barriers to trade (TBT), and fisheries. Second, even within the narrower scope of the AoA, not all policies count as “trade policies,” which are understood as measures impacting trade across borders. These would only include the Market Access and Export Subsidies components of the AoA, but the agreement also includes “inside the border” issues, covered under the Agreement’s third pillar of Domestic Support.
And that’s not all. The links between trade, trade policies, and food security get even more complicated.
First, trade, as shown in the chart in Part I, is only one of several factors affecting food security. The best trade policy, or the best WTO framework, will not solve food security problems if other, perhaps more crucial, factors are not addressed simultaneously. Broad-based, pro-poor economic growth is one obvious requirement. Female empowerment and the provision of health services also appear to be equally or even more relevant for food security than food availability per capita in many developing regions ( Smith and Haddad, 2000).
Second, the same trade policy may have different impacts depending on its interactions with other policies and structural factors. For example, a reduction in agricultural tariffs will have different impacts depending on whether it is done unilaterally by a single country or as the result of a multilateral agreement. The effects of such a tariff reduction may also differ depending on whether the reduction applies only to agricultural products or includes other, non-agricultural products and services. These examples can be applied not only to trade policies but also to other macroeconomic factors, such as different exchange rate or monetary policies. Therefore, when we analyze the impact of trade on food security, it is always necessary to use what economists call a “general equilibrium analysis” (i.e. a reasonably holistic view of all policies, links, and impacts). Unfortunately, there are plenty of examples of debates taking place in both civil society and official negotiations that ignore fundamental interactions and thus only provide a partial equilibrium view.
Structural aspects such as land distribution and rural infrastructure also play a crucial role in determining effects of a trade policy on agriculture. Reducing (or increasing) agricultural tariffs in a country with relatively equal land distribution and good infrastructure will most likely have very different impacts than it would in the case of a country with unequal land holdings and poor infrastructure. For instance, general protection and subsidies policies of the type that are limited under the WTO AoA, although in many cases implemented with the argument of helping small farmers, tend to favor larger farmers who have more product to sell and will thus see their incomes increase as a result of these policies. This additional income may lead to more rural employment (a positive impact), but could also tilt the competitive field against smaller producers by reinforcing larger farmers’ economy-of-scale advantages and providing them with the economic means to buy out and displace smaller producers. In this regard, it can be argued that the best way to help small farmers is through an expansion of the AoA’s green box interventions, such as investment in agricultural R&D and infrastructure, which are aimed at reinforcing the competitiveness and sustainability of small producers.
Third, it is at the household and individual levels that food security issues take a concrete form. But trade policies (or any other generalized policies, for that matter) will have different impacts on individual households simply because households are not all the same. Therefore, generalized trade policies can be seen as blunt (i.e., ineffective) instruments with which to address food security problems; more differentiated policy approaches are needed to consider food security’s more complex issues. Economic access is not a problem of food prices per se, but also depends on the relationship between household incomes (broadly defined) on the one hand and the cost of the minimum household food requirements (MHFR) on the other. Both income and costs involve price and quantity variables, but many analyses only compare food prices with wages, ignoring quantity effects such as employment. In order to assess economic access to food, the proper equations to consider are:
Incomes = Wages employment (or Prices Quantity of goods and services sold by the poor) + Subsidies/taxes from Government + Other transfers and services to the poor.
Costs = Food prices MHFR + Costs of complementary goods and services needed to properly utilize food
(The sign “ ” means multiplication. Obviously, taxes enter with a negative sign.)
The general poverty line is usually the cost of MHFR with an additional mark-up representing other expenditures; the line for indigence is usually the cost of MHFR without any additional expenditures. Therefore, poverty and food security measures should move closely together.
If a trade policy measure increases the cost of MHFR, other things being equal, it would negatively affect both poverty headcount and food security for urban households, which are basically net food buyers. In rural areas, there are also families that are net food buyers, such as landless rural workers and farmers who may experience seasonal variations as net sellers/buyers. Thus, only those poor families that are net food sellers (which may not necessarily be the largest percentage of rural families in many developing countries) would benefit from the policy, looking at a short-term and static analysis.
On the other hand, there may be positive dynamic (long-term) effects for net food buyers if the trade policy measure increases employment and/or wages (both in rural and urban areas) by amounts that compensate for the greater cost of food. For example, higher agricultural and food prices may lead to increased investments by both the private and the public sector in agricultural production and rural areas; this increased investment may then generate positive employment and wage effects. Also, there may be some positive dynamic effects if the policy leads to investments in productivity that reduce production costs and prices in the medium-term. Of course, the opposite may also happen: farmers shielded by high protection may not need to incur additional costs and investments to attain the desired levels of profits; therefore, protection, in this scenario, may lead to less investment and lower productivity.Again, all these interactions need to be analyzed in a general equilibrium setting.
When looking at households’ food security and poverty issues, we must consider whether they suffer from chronic poverty/food insecurity (which usually has more fundamental determinants than trade) or whether food and economic insecurity is a transitory problem. In the latter case, we must then determine the external events causing the problems. Typically, only a small part of those external events will be caused by trade and trade policies; rather, most of them will be related to macroeconomic crises, weather shocks, health events, conflict and war, and the like. Those shocks may affect livelihood strategies in ways that perpetuate poverty and increase people’s level of risk aversion, affecting their willingness to adopt new and potentially more productive technologies or activities, thus creating poverty traps.
To boil it all down – the links between trade and food and nutrition security are incredibly complicated. We must remember that trade policies are just one instrument with which to address these concerns, with a variety of potential aggregate and distributive impacts that need to be fully considered. Trade policies do have the potential to make a positive contribution to global poverty alleviation and food security. But to ensure this positive impact, we need a new way of thinking about trade. Rather than aiming policies at a specific food product, which does not necessarily represent the most effective, efficient, or even equitable way of addressing poverty and food insecurity, we need a properly defined global program of macroeconomic, investment, institutional, and social policies, in which differentiated approaches and instruments are targeted to the households and individuals that need our help the most.
References
Smith, L.C., and L.J. Haddad. Explaining Child Malnutrition in Developing Countries: A Cross-Country Analysis . IFPRI Research Report. Washington DC: IFPRI.