DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
LAUNCH OF THE STATE OF AGRICULTURAL COMMODITY MARKETS 2020
Remarks of Alan Wm. Wolff, Deputy Director General World Trade Organization
1) What is the Future of Agricultural Trade and Global Agricultural Value Chains?
My congratulations to the FAO on this latest edition of The State of Agriculture and Commodity Markets (or SOCO 2020) report.
The report demonstrates that international trade in food and agricultural commodities is absolutely central to the future of agriculture. The world is now so interconnected that we cannot speak or conceive of global food security in the absence of international trade.
International trade in food feeds one in every six people around the globe, and as the report demonstrates, this ratio has been growing steadily. In fact, international trade in food and agriculture has doubled in real terms since the entry into force of the WTO Agreement on Agriculture, from 1 January 1995 to today. It currently stands at $1.5 trillion annually.
International trade in food allows food to move from lands where supplies are robust to areas where there is scarcity. Nothing is more important than human survival. Trade allows for the optimum allocation of food and for minimizing hunger.
Trade also leads to a more efficient allocation of the natural resources that go into food production. Trade in agricultural commodities is tantamount to trade in land and water. As the UNDP tells us, in the absence of international trade in food, a country like Egypt would need three Nile Rivers, not one, were it to aim for food self-sufficiency.
The ongoing climate crisis makes global cooperation on food, and in particular food and agriculture trade policy, even more vital. We unfortunately now live in a world where climate calamities and natural disasters can be expected to become a regular feature of our lives, and trade will be key to not letting a neighbor in need starve.
This makes international trade in food and agriculture vital to fulfilling the SDGs and the main pillars of Agenda 2030. It can help reduce poverty by expanding market opportunities for farmers; combat hunger by making food available where it otherwise would not; and improve the allocation of the world’s scarce natural resources.
Today about one third of all global agricultural and food exports are traded within Global Value Chains (GVCs). International trade in food has now gone far beyond a bag of rice or a bushel of wheat crossing a national border. In fact, primary commodities cross national borders at least twice, as they are exported for processing into food products and when those food products are made, many will return to the place of origin.
With these facts in mind, what should our trade priorities be?
I would propose the following:
- First, keep markets open. At the height of the COVID-19 pandemic, there were serious concerns that we would see a repeat of the 2008 food price crisis, triggered by a wave of food export restrictions. This fear prompted global policy makers, the G20 Ministers of Agriculture, and the G20 Ministers of Trade, to call for policy restraint. This call was largely answered. There has been a significant roll-back of restrictions that were put into place.
- Ministers asked that agricultural GVCs not be disrupted. Currently, there are ongoing negotiations in the WTO on food export restrictions that aim to bring greater transparency to these measures, and greater advance notice to food importers. The FAO's SOCO 2020 Report is right in highlighting this issue.
- Second, continue to pursue the long and arduous journey of agricultural trade policy reform at the WTO.
- The journey started with the 1995 WTO Agreement on Agriculture, but has not ended. Embedded in the Agreement is a call for a continued reform agenda.
- The average agricultural tariff is almost double the average of industrial tariffs, and there continues to be wide gap in the WTO between countries’ bound and applied tariff rates.
- Agricultural subsidies, domestic support in WTO terminology, are very high, and often compared to energy subsidies in their magnitude. These subsidies distort trade and blur the price signals which make it efficient to trade. Trade can only allow for an optimal allocation of resources (natural and otherwise) if its underlying price signals are not misleading.
- Export competition policies must also contribute to a level playing field.
- Food security must be assured by a trading system that is responsive without inadvertently distorting world trade.
- Third, recognize that trade in food and agriculture cannot take place without trade in many other goods and services.
- The WTO rulebook must be viewed as a whole.
- For example, if trade in agriculture were to be liberalized but trade in fertilizer is hampered, agriculture would invariably suffer. Fertilizers in the WTO are an industrial product, and about 190 million tons of them are traded internationally each year to make agriculture happen. The same for tractors, ploughs and all other products, including drones and sophisticated remotely controlled equipment that are vital for contemporary agricultural production.
- Services trade is just as essential. Farmers need weather forecasting services, commodity exchanges, banking and insurance services, transportation services and more.
- The farmers' right to full participation in the global digital economy needs to be recognized.
- We must therefore strive for more open trade across all economic sectors in order to support agriculture, and in particular for the essential global value chains for today and tomorrow.
Restatements of past positions will not contribute to making progress. Solutions to the world's challenges depend on forward-leaning proposals being tabled by WTO's Members, by their engaging in serious deliberations, and by finding common ground which is then reflected in agreements
Agricultural trade has suffered less during the COVID-19 pandemic than have other economic sectors. This is because sectoral demand shocks were not concentrated in food, but in sectors affected by social distancing (such as tourism, travel, hotels and restaurants, and events) and by economic uncertainty. It also true that food consumption cannot without severe risks be depressed or postponed.
Despite this, COVID-19 caused food policy makers serious concerns; hence the global calls for policy restraint. While we saw some food export restrictions emerge at the beginning of the crisis, many were rolled back, and we have also seen a substantial number of trade liberalizing measures to ease access to food (such as the acceptance for e-certificates for food at customs borders, and tariff reductions).
We must learn from COVID-19 by aiming for not only more resilient agricultural trade policy but make global agriculture more agile in order to serve the world's needs.
2) What is the Role for Trade Policy in Boosting Farm Income and Allowing Farmers to Thrive?
Farming is a business and farmers are business people. What anyone in business needs is:
- Policy stability
- Policy predictability
- Policy transparency
- And a level playing field, i.e. a fair chance to compete
This is what the WTO framework aims to provide in the field of agriculture, and in all other economic sectors too. Basically, what the WTO seeks to provide is fairness. If you are good at what you do, whether you are a farmer or a downstream processor of food products, you should have a chance to succeed in both your home market and in global markets.
Continued trade policy reform at the WTO is required to help farmers. There is much unfinished business. Regional and Bilateral Trade Agreements can only provide limited answers. In no economic sector do we see as much of a need for multilateralism as we do in agriculture.
Let me explain. To date, there has not been a single Regional or Bilateral Trade Agreement that has tackled the issue of agricultural subsidies. Narrower agreements tend to focus on immediate market access needs, and do not seek to correct the more deeply embedded trade distortions that prevent farmers, and in particular the smallholder, from competing with an even prospect for success. Indeed, it would impractical for sub-multilateral agreements to deliver on the most difficult issues such as domestic support. The solutions require broad participation.
When the WTO Agreement on Agriculture came into being in 1995, it immediately moved to slash the most trade-distorting agricultural subsidies, known as the Amber Box; pushing developed countries in particular to make significant cuts. Other types of harmful subsidies were cut back too. In no regional or bilateral fora would the developing world have been able to achieve this outcome. More recently, at the WTO Nairobi Ministerial Conference in 2015, the WTO membership codified the complete elimination of agricultural export subsidies. Another milestone.
While continued agricultural trade policy reform at the WTO may seem hard, and may sometimes seem discouragingly slow, progress is essential. Deeper engagement on the basis of serious proposals is needed to begin the process of finding solutions in which all participate.
For trade policy to be successful, domestic policies as well as assistance from donors are essential. SOCO 2020 examines the role of, what I call, the “poor trade infrastructure” that prevents farmers in the developing world from benefitting more fully from international trade. It tells us, for instance, that whereas in developing countries nearly all farmers buy and sell in markets, markets do not always function well and transaction costs are high.
Smallholder farmers, in particular, have low rates of commercialization. Some markets, such as those for insurance and credit, do not function properly or are entirely missing, creating a major setback for food security, livelihood and development.
The WTO-led Aid for Trade initiative encourages developing country governments and donors to recognize the role that trade can play in development. In particular, it seeks to mobilize resources to address the sorts of trade-related constraints identified in SOCO 2020 in the field of agriculture. Through Initiatives such as Aid for Trade we must help the developing world improve its trade infrastructure gap. From 2006-2017, Aid for Trade has disbursed $410 billion to the developing and least-developed world, funding over 178,000 projects. Other development assistance instruments such as the Enhanced Integrated Framework and the Standards and Trade Development Facility (STDF) are also making their mark in reducing the trade infrastructure gap.
Several years ago, the then Director-General of the WTO had a meeting with the then Executive Director of the World Food Program in which they juxtaposed two very interesting maps. The World Hunger Map and the World Agriculture Trade Map. In conducting this exercise something immediately became evident. Where there are no functioning markets, and therefore limited national, regional and international trade, inevitably it appears, this corresponds with hunger as well as depressed farmer income, and increased poverty.
We must continue to strive to make trade possible so as to allow farmers to thrive and enhance our collective food security. The world of agriculture has been improved by the agreements that the have been put in place as part of the WTO acquis. It is vitally important that Members now engage to improve the well-being of farmers and to better serve the peoples of the world depending on the agriculture sector for their life and health.