World Food In The 1990s

Production, Trade, And Aid

Lehman Fletcher

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000011029
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

In this book contributors from various scholarly backgrounds interpret past trends in world food trade, aid and security and propose new policy options for the 1990s. They address the problems facing the distribution of global economic growth and trade between industrialized and developing countries while exploring the effects that supply, demand, assistance programmes, foreign aid and other policy variables have on the evolving world trade and food system. This book should prove of interest to a range of scholars and policymakers dealing with food, health, human rights, Third World development, agricultural economics, international political economy and trade policy.

1 Rethinking World Food, Trade, Aid, and Food Security Issues for the 1990s: An Introductory Essay

Lehman B. Fletcher

DOI: 10.4324/9780429268021-1

Two Conflicting Perspectives on World Food and Agriculture

Concerns about world food and agricultural prospects for the 1990s have coalesced around two conflicting perspectives. One forecasts substantial food shortages occurring during the decade, causing higher world food prices and more hunger in poorer countries. The other foresees a continuation of surplus food production, low or declining food prices, and subsidized exports by industrialized western countries in the absence of a multilateral agreement to reform their agricultural support policies and liberalize international agricultural trade.

Food Pessimism

Proponents of the food shortage perspective support their position by pointing to evidence that food production growth has slackened in recent years. Optimism abounded on the food front in the early 1980s, after world grain production more than doubled between 1950 and 1984. In the mid-1980s, grain stocks in exporting countries reached all-time highs and world (real) prices fell to historical lows, continuing their slow long-term downward trend that dates to the beginning of this century.

International agricultural trade grew rapidly during the 1970s until a world recession in the early 1980s caused export sales to slump. As costs of domestic farm support programs rose to politically painful levels, the United States and the European Community (EC) escalated their use of export subsidies to bolster sales in a world market shrunken by the inability of poorer, indebted, and low-growth developing countries to import enough food to meet their growing consumption needs.

U.S. agricultural legislation in 1985 initiated a trend to lower government support levels for corn, wheat, soybeans, and other major traded commodities. Using export subsidies, both the United States and the EC boosted overseas sales, but at declining world prices and to a degree at the expense of other exporters. By 1989 the volume of U.S. grain and oilseed exports equaled 1983 levels although export value was lower by some $5 billion. Entering the 1990s, world prices for wheat and corn were above U.S. producer floor prices and stocks had fallen.

Drought in the United States and other important producing countries in 1987 and 1988 reduced world grain stocks to their lowest level, relative to world consumption, in two decades. In response, world prices for food and feed grains rose sharply, although by less than in 1972-73 when international prices doubled. A continued shortfall of production below consumption in 1989 further diminished stocks and kept world prices above their trend levels.

Production increases consonant with consumption responses to population and income growth are necessary for replenished stocks and stabilized food prices in line with their long-term trends. The "food pessimists" cite reasons to believe that pushing production above consumption growth is becoming more and more difficult. The most recent assessment of prospects for feeding the world in the 1990s by the Worldwatch Institute, a group renowned for its pessimism, asserts, "Growth in world food output is being slowed by environmental degradation, a worldwide scarcity of cropland and irrigation water, and a diminishing response to the use of additional chemical fertilizer" (Brown and Young 1990, 59).

This group's opinion on the continued momentum of the Green Revolution is equally pessimistic: "To be sure, there will be some further gains in output from high-yielding crop varieties, but they are not likely to make the impressive jumps registered from the mid-sixties to the mid-eighties" (Brown and Young 1990, 77).

Perceiving limited promise for future crop production gains from biotechnology and holding low expectations that agricultural reforms will quickly end the USSR's dependence on grain imports, these "futurists" conclude,

If the world continues with business-as-usual policies in agriculture and family planning, a food emergency within a matter of years may be inevitable. . . . Soaring grain prices and ensuing food riots could both destabilize national governments and threaten the integrity of the international monetary system (Brown and Young 1990, 77).

World Agricultural Trade and National Policy Reforms

The apocalyptic food perspective described above stands in sharp contrast to the one implicit in the debate over the reform of protectionist agricultural policies in industrial market countries. Many studies have quantified the burdens of domestic agricultural support that are borne by consumers and taxpayers, which in most countries far outweigh benefits to producers, Multicommodity, multicountry models have revealed sizable potential gains in real income, globally and for individual countries, that would result from multilateral liberalization of agricultural trade.

High government outlays, in the face of government budget pressures, have created strong motivation for the United States and countries of the European Community—the world's largest agricultural exporters—to move in the direction of coordinated policy reforms. Policy measures in these countries have also imposed severe losses on other countries heavily dependent on agricultural exports. Importing countries, however, have received immediate' benefits from the commodity bargains emanating from the subsidized farm sectors of industrial countries but doubt the wisdom of basing their plans for future food and feed supplies on a continuation of those conditions. Not only is there understandable concern in these countries about the long-term availability of such cut-rate priced commodities, but there is also the important question of the need for an agriculturally-led growth strategy in most of them—especially in Africa—that have been left behind economically in the 1980s.

Present efforts for multilateral agricultural policy reforms are taking place in the framework of the Uruguay Round of trade negotiations under the General Agreement on Tariffs and Trade (GATT). The conditions leading to these reforms have resulted in great costs to the industrial and developing countries alike. Recent U.S. and EC policies have limited the markets of competing exporters and undercut incentives of food-importing developing countries to accelerate their own agricultural output.

Trade in agricultural commodities across national boundaries has long been an important feature of the world economy. Differences in resources, climate, technology, and economic institutions lead to significant differences in costs of producing food and fiber commodities from country to country. From the beginning of economics, agriculture has provided important examples of international trade that benefit consumers through expansion of output by lower-cost producers. Recent estimates show that about 17 percent of world production of goods and services is traded across national boundaries. For agriculture, the figure is a surprising 30 percent: some 12 percent of total trade is in agricultural products (Jones 1983-84). The latter figure, however, keeps falling as nonagricultural trade grows faster than agricultural trade.

Changes in the internal economic structures of nations are mirrored in their trade relations with other countries. Development economists have documented the pattern of internal shifts in the agricultural sector as countries grow: an increase in marketed production; a declining share of overall national production and labor force; and increased production, yields, and labor productivity based, in part, on inputs purchased from the nonagricultural sector. These changes, nonetheless, do not appear to have often been linked to the displacement of imports and the expansion of exports of agricultural products. Rather, rapid economic growth, even when accompanied by increased agricultural production, has most often been associated with rising rather than falling agricultural imports. Domestic demand for foodstuffs has often expanded faster than domestic production, leading countries to depend upon growing imports from world markets. Becoming richer, their populations turn from traditional food staples to more consumption of animal products, fruits, and vegetables causing growing imports of grains, oilseeds, and oilseed cake for animal feed. As a result, the internationally traded share of world grain and oilseed production has risen: grains alone account for some 20 percent of world agricultural trade. More and more, richer urban populations in both developing and industrialized socialist countries are consuming animal products fattened on feedstuffs imported largely from the handful of industrial and developing countries whose production exceeds domestic consumption.

Two quite different implications for food trade and aid policies emerge. First, many of the poorer countries, particularly in sub-Saharan Africa, have lagged economically in the 1980s. These countries face the continuing problems of dependence on traditional crop exports, declining terms of trade, widespread poverty, rising food imports, and reliance on food aid. Foreign assistance policies need to focus on the development of these countries, but commodity pricing and trade policies are generally a weak instrument for that purpose. Second, shifts in trade patterns are bringing new pressures to resolve agricultural commodity trade issues. Importing countries are now more exposed to commodity cost fluctuations and the impacts of domestic policies in major exporting countries. High levels of agricultural protection in industrialized countries restrict trade and limit the opportunities for developing countries to utilize new agricultural technology without imposing painful adjustments in agricultural income and employment on rich and near-rich countries. Further attempts to reduce barriers to trade are needed for both industrial and agricultural products. In this process, developing countries should participate more actively. The current GATT negotiations in the Uruguay Round offers an opportunity.

Most of the support given to crop producers in the Organization for Economic Cooperation and Development (OECD) countries is directly tied to production. The resulting price incentives have increased output while world effective demand has grown slowly. When consumer prices are maintained through government purchase programs, large stocks of surplus commodities can be acquired. The costs of carrying excess stocks and subsidies to dispose of them in international markets are additional sources of social losses to the producing countries, their international competitors, and possibly the importing countries as well. In addition, the domestic structural problems of industrial countries are, to a degree, a direct consequence of government programs linked to production that provide continuing incentives to maintain excess resources in agricultural production.

The policies underlying these distortions are fashioned through domestic political processes in pursuit of national objectives. They exist primarily to increase incomes of domestic farmers and in some cases promote national self-sufficiency. Policies to raise domestic prices above world levels require control of imports and, if the country is already self-sufficient, stock accumulation, exports, or some other form of surplus disposal. Excess incentives given to domestic production shrink markets and reduce the gains from trade. Importing countries may even be turned into net exporters. The EC, for example, used to be a large net importer of grains. By 1985, the EC was exporting 16 million metric tons (mmt), a reduction in the market for other exporters of 35 mmt within a decade. Similar net-trade reversals have also occurred in sugar and meat markets.

These strong reversals in the international market position of the EC have been bought with expensive export subsidies. But the EC is by no means the only subsidizer of agricultural exports. The United States, using marketing loans under the Food Security Act of 1985, is subsidizing exports of cotton and rice—a policy that may be extended to other major crops, such as soybeans. The act also provided for an "export enhancement program," which allows the U.S. Department of Agriculture (USDA) to use subsidies in specific markets against countries deemed to be engaging in unfair trade. So far this program has mainly been applied against the EC in grains and a few other products. In the case of rice, U.S. subsidies are having a clearly negative effect on Thailand, the other major rice exporter.

Sugar is a striking example in which all important OECD sugar producers maintain domestic price supports protected by border measures. This approach has resulted in a situation in which prices in the freely traded world market have on occasion fallen as low as one-fourth of those in the protected domestic markets, creating income losses for traditional developing-country sugar exporters. Another feature of the sugar market is the extreme fluctuations that commonly occur in international prices, an instability that reflects the residual character of the world market in contrast to the comparative stability of prices within the insulated domestic markets of the protectionist countries. Moreover, domestic supply responses to supported prices and competition from other sweeteners have eroded markets for tropical cane sugar producers.

Other factors have also affected world commodity markets. Debt and balance-of-payments deficits have combined with low-income growth to depress imports in countries where they might otherwise have grown rapidly. Production increases in India and China have kept those huge countries essentially self-sufficient. Where agricultural and economic growth are not associated with significant gains in employment and income for the poorer groups, a country may become an exporter of agricultural products even when the food and nutritional needs of its own population are far from satisfied. India and Brazil provide contrasting examples, with China illustrating how more equitable distribution can absorb large food production increments and even imports when production growth slows.

Agricultural Policy Reforms in Industrialized Market Countries

A number of studies have evaluated the potential economic implications of agricultural policy reform in industrial countries. In one of the most recent, Economic Research Service (ERS) staff used a multicommodity, multicountry world model to show the magnitude and distribution of benefits from agricultural trade liberalization (Roningen and Dixit 1989). The model included 22 commodities, which together make up almost 90 percent of the total value of U.S. agricultural production. It did not include tropical or beverage products other than sugar, although those products account for the majority of exports by developing countries. The results indicated that world agricultural prices overall would increase by 22 percent if industrial countries simultaneously eliminated all assistance to agriculture. The simulated rise in world prices was greatest for dairy products (65 percent) and next greatest for sugar (53 percent). World prices for food grains, feed grains, and meat also rose (wheat—37 percent, rice—26 percent, coarse grains—26 percent, red meat—21 percent, other meat—12 percent). Only prices of oilseeds and products rose less than 10 percent.

The study documented gains and losses to producers, consumers, and taxpayers, and overall efficiency gains, that would come from multilateral trade liberalization. Aggregate gains to liberalizing industrial countries were estimated at $35 billion annually, about 10 percent of their combined agricultural gross domestic product but less than 0.5 percent of their total gross domestic product.

Trade liberalization would cause production of most agricultural commodities to fall in the protectionist industrial countries due to declines in domestic producer prices. Total farm output would fall in the United States and Canada by 11 and 2 percent, respectively. In the EC and Japan, it would decline by 7 and 32 percent, respectively. Farm output would increase in Australia and New Zealand because their producers would receive higher prices since increases in world prices would more than offset declines in their domestic assistance.

These results are qualitatively consistent with a recent OECD study also based on a multicommodity, multicountry model that incorporated a multisector analytical capability (OECD 1989-90). The model was used to see what would happen if OECD agricultural support based on 1986-88 average levels were to be eliminated. It also showed prices would rise and agricultural output in the OECD would fall, the latter by 13.6 percent, according to the model. Gains in output in Australia and New Zealand would be more than offset by declines in other countries: by 24 percent in Japan, 19 percent in the EC, 17 percent in Canada, and 7 percent in the United States. The resources released would expand industrial and service output and raise real household income everywhere in the OECD. The average rise of 1 percent in real household income implies that agricultural protection currently costs the OECD countries as much as $72 billion (in 1988 prices) in lost income by diverting resources from more productive uses in other sectors.

Both of these studies confirm that agricultural production would contract in Japan, Canada, the EC, and the United States if subsidies were eliminated. The OECD study shows a larger production decline overall, and even a surprising 17 percent fall in Canada.

Much less attention has been given to the potential effects on developing and socialist industrial countries. In general, the studies undertaken so far have shown that the impacts of total agricultural trade liberalization by the OECD countries on other countries differ depending on whether the country is a net importer or exporter of a given product. Exporters of commodities, or close substitute commodities, that are in surplus supply at depressed prices are the most vulnerable. Thailand, an exporter of rice, has already been identified as a good example.

In contrast, net food importers now receive immediate benefit from low world prices caused by current policies. Thus it would appear at first glance that they would lose from liberalization. They would respond to higher prices by importing less. Tighter domestic supplies, especially if accompanied by higher domestic prices, would make it more difficult for poorer groups in those countries to meet their minimum food needs. Hunger ...