WTO NEWS: SPEECHES — DG PASCAL LAMY

International Trade — A Vital Component of the Food Security Picture
Opening Address by Mr Pascal Lamy at the XIIIth Congress of the European Association of Agricultural Economists

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Ladies and gentlemen,

It is a pleasure to be here with you today for the XIIIth Congress of the European Association of Agricultural Economists. This Congress could not be more timely. It comes in the wake of repeated “food price crises,” with the World Bank Food Price index showing a 33% rise in July from a year-ago, and staying close to 2008 peak levels. Price rises have been particularly high for maize, corn, and sugar. Stocks at the international level are also at record low levels. While the rise in food prices can be beneficial to farmers, it endangers the food security of many vulnerable consumers. In fact, the rise in food prices has been an important factor in the social unrest that we have witnessed in some quarters of the globe recently.

Many factors have been cited as the cause of these repeated crises, some long-term structural factors, and others short-term, such as: biofuels, rising oil prices, changing Asian diets, declining grain stocks, financial speculation, and climate change and its associated risk. Some would add that food export bans have themselves been the cause of the price hike, in particular for certain commodities such as rice. And we could debate at great length what is a “structural” phenomenon and what is merely “cyclical.” For example, biofuels policies, in particular the production of biofuels from feedstock that do not lead to significant greenhouse-gas savings, are being put into question. Will these policies persist, or will they be abandoned in future? An open question.

As you will be debating various aspects of food and agricultural policy throughout this Congress, probably looking at the repeated food crises in the process, my goal will be to provide you with the broader trade policy context. In my opinion, the world still has a long way to go in designing a coherent international agricultural trade policy framework. This has been visible in the Doha Round of trade talks. International trade, if properly instrumentalized, though should help us exit these repeated crises. And, to my mind, the Doha Round remains an opportunity for vital agricultural reform.

But prior to delving into the trade policy sphere, allow me to start with a cautionary note. Neither food nor agricultural trade policy operates in a vacuum. In other words, no matter how sophisticated our trade policies are, if domestic policies do not themselves incentivize agriculture, and internalize negative social and environmental externalities, we will not be satisfied with our agricultural systems.

Land management, water and natural resource management, property rights, storage, energy, transportation and distribution networks, credit systems, and science and technology, are all key elements of a successful agricultural policy and food security system.

Trade policy — no doubt — has its place in this picture. But it cannot and does not, by itself, answer each and every challenge in agriculture. Not least because, at the end of the day, trade is no more than a simple transmission belt between supply and demand. It allows food-surplus countries to complement the countries in food-deficit. That transmission belt has to work smoothly, with as little friction as possible, but it is simply one element of a much more complex machine.

Now, while the international community broadly-speaking agrees on what the basic objectives of agricultural policy are, I believe that there continues to be a disagreement on what “global integration” can do for agriculture (in particular, international trade). Is greater global integration beneficial or harmful to agriculture? That is the question that underlies trade negotiations in this field at the World Trade Organization, but it is also a question for which a coherent response has yet to emerge.

Let me explain. Clearly all agricultural policy-makers would want agricultural systems that deliver sufficient food, feed and fibre. That deliver nutritious food and feed. That deliver safe food and feed. They would want a decent and rising living standard for farmers. They would want food to be available and affordable for the consumer. They would want agricultural production systems that are in tune with local culture and customs, and that respect the environment throughout a product's entire life-cycle. And, clearly, they would aspire to agricultural systems that are also capable of responding to the challenge of climate change.

But where the international community still disagrees is on what global integration could bring to this process. To my mind, global integration allows us to think of efficiency beyond national boundaries. It allows us to score efficiency gains on a global scale by shifting agricultural production to where it can best take place. It can also allow for a more efficient sourcing of the inputs to agricultural production.

We need to remember that national boundaries were defined by none other than a long historical game of musical chairs. While some sit on fertile lands, blessed with sunshine and freshwater, others are condemned to arid and inhospitable terrains. Trade imposed itself because of differences across countries, in these natural endowments or in the productivity of labour, that cause differences in the relative efficiency of production (otherwise known as comparative advantage). But there are other reasons for trade too, such as economies of scale (which Nobel-Laureate Paul Krugman has told us all about).

The efficiency gains brought about by international trade are also vital in light of the environmental challenges that we face. As I often say, if a country such as Egypt were to aim for self-sufficiency in agriculture, it would soon need more than one River Nile. International trade in food is water-saving. And, with the impending climate crisis, international trade in food will rise further in importance as we come to the aid of drought-stricken countries.

Yet, in the World Trade Organization, members disagree on whether agriculture is like shirts, shoes or tyres, and should fall under the same trade regime. In other words, on whether the agricultural sector ought to be exposed to the same level of competition as other economic sectors. Efficient agricultural exporting countries believe that it should be, but several others believe the opposite. Their argument? That labour-intensive subsistence agriculture, or production for local consumption, cannot compete in open markets against produce emanating from highly capital-intensive agricultural systems.

Hence the compromise found on the specificity of agriculture in the WTO rule-book, if I may say so. It made its entry into that rule-book about 50 years after industrial goods, and managed to step-in on a different footing. For example, export subsidies which are completely prohibited for industrial goods, are yet to be phased-out through the Doha Round in the area of agriculture!

Moreover, whereas trade-distorting subsidies for industrial goods are legally-actionable in the WTO, many trade-distorting agricultural subsidies have found shelter in Amber and Blue Boxes, and a Peace Clause. Whereas the world's trade-weighted average industrial goods tariff is about 8%, in agriculture it is 25%. Not to mention tariff peaks, which in agriculture still rise up to 1000%!

This lack of a shared vision took on a different dimension during the multiple food crises of the past few years. In response to the crises, some started looking further inwards, and we saw a whole host of export restrictions flourish. These export restrictions had a domino, market-closing, effect, with one restriction bringing about another, as the world started to anticipate a global food shortage.

Yet others started looking further outwards in response to these food crises; namely, the world's net-food importing countries. Countries that are dependent on international trade to feed themselves. They asked that food export restrictions be immediately lifted. Surprising about this situation was that countries sitting on opposite sides of the export barrier fence all complained of the same thing — namely, hunger. And hence the phenomenon of the purchase of agricultural land abroad — dubbed “land grabs” by some, that we now witness. An attempt to overcome the problem of export restrictions by buying land abroad and cultivating it for the importing country's use. As though export restrictions would respect land ownership rights!

As the multiple food crises were unfolding, we also saw the United Nations Rapporteur on the Right to Food deliver the stark conclusion that we need (I quote): “To limit excessive reliance on international trade in the pursuit of food security.” A conclusion which I contested in a public debate with him in Geneva a couple of years back, and which I still contest today. Various farmers groups have also called for “food sovereignty,” by which they mean greater selfsufficiency, like the United Nations Rapporteur.

Clearly, international trade was not the source of the food crises. If anything, international trade has reduced the price of food over the years through greater competition, and enhanced consumer purchasing power. International trade has also brought about undisputable efficiency gains in agricultural production.

But we must also understand the “size” of agricultural trade to put matters in context. International trade in agriculture is less than 10% of world trade. Furthermore, whereas 50% of the world's production of industrial goods enters international trade, it is important that you know that only 25% of the world's agricultural production is traded globally. In the case of rice, this figure drops to 5-7%, making for a particularly thin international rice market. In addition, of the world's 25% of food production that enters international trade, the vast majority (two-thirds) is processed food, and not rice, wheat, or soya as some would like to claim. To suggest that less trade, and greater self-sufficiency, are the solutions to food security, would be to argue that trade was itself to blame for the crisis. A proposition that would be difficult to sustain in light of the figures I just cited.

The world's thin rice markets is a case in point. Some have called the 2008 food crisis, the “rice price crisis.” It is because of how little international trade there is in rice, that rice prices reacted so dramatically to export restrictions. The limited international trade in rice made rice prices more, and not less, volatile. Deeper international commodity markets are less prone to crises.

I shall never forget a meeting with Yemen's Minister of Trade a few years back in which he complained of the “starve-thy-neighbour” policies that followed from the food crisis of 2008, as Yemen was being starved of its staple rice supply in the wake of numerous export restrictions by others. Do we answer Yemen by recommending self-sufficiency? By recommending the same experiment that Saudi Arabia went through in growing its own wheat, and which it has called-off just this year because of its heavy toll on water? Or do we answer Yemen by strengthening global interdependence, and enhancing the reliability of international trade?

But we must ask ourselves why there is such widespread resentment to trade opening, if such opening is indeed vital to global food security. To me the answer is clear. It is because we have yet to build robust safety-nets for the world's poor. Each and every government must turn its attention to this issue, urgently, in my view. In the absence of such safety nets, there will always be resentment at a time of crisis to a country's food supply going abroad.

Ladies and gentlemen, the Doha Round can bring about much needed reform to agricultural trade policy. In fact, it is the developing world that placed the agricultural negotiations at the heart of the Doha Round, calling them the “engine” of that Round. It is seeking to redress what it sees as a historical injustice in world trade rules; rules which allow the rich to continue to heavily subsidize their agriculture.

The key mandate guiding agriculture negotiators is to achieve substantial improvements in the area of market access (i.e. tariff reduction), substantial reductions in trade-distorting subsidies, and the eventual elimination of all forms of export subsidies; something which had occurred in manufacturing over 50 years ago. And while countries have made substantial progress towards these goals, the last mile of the Round has yet to be completed. I would argue that the greatest challenge before the Doha Round today lies in the area of industrial goods, and not agriculture. And, yet, the result is that the agricultural package of reforms is being held hostage too.

Now, as I said earlier, international trade, and indeed improvements to international trade rules through the Doha Round, would be only one component of better agricultural policy globally. Agricultural policy starts at home, and not at the international level. However, the reform of global trade rules and a better functioning international transmission belt for food, are vital components of an enhanced food security picture.

At the G-20 meeting of agricultural ministers in Paris this year, ministers wrote (I quote): “We agree to remove food export restrictions or extraordinary taxes for food purchased for non-commercial humanitarian purposes by World Food Program and agree not to impose them in the future.” And they agreed to aim for a specific resolution by the WTO, at its Ministerial Conference in December 2011, on this matter. In other words, they have sought to, at least, save the supplies of the World Food Program from the export restrictions stranglehold. It is my sincere hope that this issue will indeed be taken forward by the entirety of the WTO's membership.

Clearly, we must continue to aim for a shared vision of what global integration can bring to agriculture. International trade is not part of the problem, but part of the solution to global food crises.

I thank you for your attention, and wish you every success in your deliberations over the next few days.

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