Trade dimensions of food security
Jonathan Brooks, Alan Matthews,
The argument that the liberalization of international agricultural markets stabilizes prices is always highlighted by institutions such as the OECD, but it is nevertheless interesting that the research by these institutions is increasingly questioning the complex links between trade liberalization and food security. In a recent OECD report (extract here1), Jonathan Brooks and Alan Matthews enquire about the relative effectiveness of trade policies on agricultural and food balances, strained by an unstable international environment.
Although they use the same old refrains dear to the OECD, with regards the benefits of an open market, it is interesting to note that the two authors also advocate a non-commercial approach and in this sense support the necessity of setting up safety nets, risk management tools, sustainable reforms and long-term investments.
Though there is no lack of advocates for widespread open trade on agricultural products - though far fewer in recent years - it must be noted that the dismantling of public support policies and regulatory mechanisms has not been proved effective, on the contrary. Today even the OECD is prepared to concede that the fight against food insecurity also involves the fight against volatility on agricultural prices and this volatility has been particularly exacerbated by the dismantling of public support and market regulation mechanisms in recent decades.
momagri Editorial Board
The standard FAO definition of food security implies that people can only be considered as food secure when sufficient food is available, they have access to it and it is well utilised. (i.e. their absorption translates into improved nutritional outcomes). A fourth requirement is stability across those three dimensions over time, which means the ability to manage risks effectively.1 Most people in developed countries can be considered as food secure, in the sense that these conditions are generally met, although the economic crisis since 2008 has seen a growth in the number of people seeking food assistance, while there are concerns about poor nutrition, as well as fears that shocks such as trade embargoes could threaten the food security of even wealthier citizens. This study focuses on the links between trade and food security in developing countries where hunger and undernourishment are more acute policy concerns.
On, balance, trade openness improves each dimension of food security. Trade in food and agricultural products increases the availability of food by enabling products to flow from surplus to deficit areas. Beyond the balancing role of trade, open markets improve access by raising the incomes of exporters (via higher prices than would be received in the absence of trade) and importers (through lower prices than would otherwise be paid). More broadly, the location of production in areas where resources are used relatively efficiently contributes to higher per capita incomes and faster economic growth. Open trade can also improve utilisation and nutrition by increasing the diversity of national diets. Finally, open markets generally improve the stability of availability of access, for the simple reason that the risks associated with own food production exceed those of pooled production on international markets.
Yet across each dimension there is a mixture of positive and negative effects resulting from trade openness, and the latter need to be managed. In terms of availability there are concerns about import dependence for countries without a comparative advantage in food production, and the possibility of food supplies being interrupted. With regard to access, there are concerns about the impact of greater openness on the incomes of those who were formerly protected. Rising incomes may increase the utilisation of food, but also contribute to a “nutrition transition”, under which not all effects are positive.
And while open markets reduce the risks associated with poor domestic harvests, they make international instability a more relevant issue. The balance of such trade-offs, and options for managing them, is assessed in this paper. OECD analysis suggests that the negative side-effects of greater openness should be managed as far as possible by non-trade policies that do not forfeit the aggregate gains. Such policies include micro and macro level responses.
At the micro level, flanking policies can help mitigate the burden of reform on those who formerly benefited from protection. This group could potentially include the food insecure, although the main beneficiaries of price protection tend not to be smaller food-insecure farm households but rather more commercial farms with significant food surpluses to sell. The challenge is to either raise productivity and thereby redress a lack of competitiveness, or create new opportunities in other sectors. Social safety nets can help producers who are otherwise unable to respond effectively to new market opportunities, while risk management tools can be used to help improve producers’ resilience to risks emanating from both domestic and international sources. In terms of nutrition, public information and education are the first step towards addressing these issues, while further measures to influence food choices can also be considered.
At the macro level, there have been a few countries for which the financing burden has increased in recent years, mostly Small Island Developing States, but for most countries, the cost of food imports relative to total imports and the cost relative to foreign exchange earnings have been declining over a period of decades, and recent spikes in food prices have been small relative to this overall trend.
Countries can insure themselves against surges in their food import bills by hedging on international markets, while the international community has several financing mechanisms that are potentially available in the event of rare but severe shocks. Countries can also diversify the commodity composition of both exports and imports, as well as the number of trading partners.
Many developing countries have been reluctant to follow the recommendation that they use nontrade instruments to address any negative side-effects of trade reform, including on food security, often on the grounds that they do not have the capacity to implement them while the necessary capacity would take too long to develop. Instead, they have chosen to apply price policies and associated border measures. In this, they have been encouraged by the continued reluctance of many developed countries to forego trade and domestic support measures.
Efforts to affect incomes via price levels and accompanying border measures tend to be ineffective at helping the poor and food insecure. In the case where prices are supported at higher than market levels, the benefits to producers leak away to owners of factor inputs while the linking of support to production inherently tends to favour larger farmers. Moreover, in low-income countries, there are poor people who buy food and poor people who sell food, so changing prices to help one constituency by definition harms the other. Beyond immediate incomes, price support may be used to offset market failures, which in the case of developing countries may result in low level poverty traps. But fundamentally price support tackles the symptoms rather than the causes of those market failures.
There are more plausible arguments for seeking to influence the stability of prices when marketbased risk management tools are weakly developed and social protection (including safety nets) is not widely available. From a political standpoint, price policy responses with associated changes in border measures are also a quick and visible way of responding to shocks such as the 2007-08 food price spike.
These policies are not the most effective that are potentially available, even in low-income countries, and may even be counter-productive. Moreover, they are not a cooperative international solution: efforts to stabilise domestic prices export instability onto world markets, while export bans have resulted in some countries experiencing difficulties in sourcing imports.
There is nevertheless an ongoing debate about the relative effectiveness of trade policies as a “second best” solution pending the development of superior tools. Yet non-trade options are increasingly available to developing countries, even though the evidence shows that large numbers were not in a position to apply them when food prices spiked in 2007-08. Countries would benefit from taking the necessary steps to move towards instrument choices that are likely to be more effective in the long term. In order to do that, (i) supporting institutions need to be developed; (ii) the pacing and sequencing of reforms, and parallel development of non-trade policies, need to be managed; and (iii) the political economy forces that lead policymakers to favour short-term trade measures need to be contained.
The principal recommendation of this study is that the deployment of non-trade policies should be scaled up to enable the poor to cope with any negative side-effects of trade openness, in particular market instability stemming from both domestic and international sources. Trade openness, when accompanied with parallel policy instruments, enhances the scope for developing countries to improve their food security. This paper has highlighted two specific areas where flanking policies could be helpful. One is in mitigating the impacts of periodic extreme international price movements (either upwards or downwards) by ensuring that adequate safeguards are available to manage these risks, yet in a way that does not translate into systemic distortions in the long run. Having such parallel policies in place could help build support for deeper liberalisation. The other is in managing occasional exposure to unsustainably high food bills. This may require the development of some form of insurance, with the support of international financial assistance. More generally, an approach which focuses on coping with the consequences of mostly rare, specific problems is likely to be more helpful to developing countries than resorting to systematic use of trade-distorting policies.
1 The entire report is available from