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Food security: Thinking beyond export curbs by Ujal singh Bhatia
In an address to the Berlin Agriculture Ministers meeting last month, World Trade Organisation (WTO) Director General Pascal Lamy said export restrictions are a prime cause of recent surges in global food prices, and countries should find other ways of securing domestic supplies (“WTO chief: Alternatives to food export curbs needed”, Business Standard, January 23). Though export restrictions are an important contributor to rising food prices, they are by no means the only one. The search for cooperative solutions to global food shortages and price volatility has to be broader. An undue focus on export restrictions alone obscures the role played by equally important factors like those leading to the sharp decline in public investment in agriculture in small developing countries and an increasing flow of speculative funds into commodity markets.

In order for a discussion on this issue to be useful, it is important to begin by dispelling the notion that high and volatile global food prices are necessarily due to a misalignment between supply and demand. Global food production touched record levels in 2008 and 2010, and yet these periods have witnessed very high prices.

What is not disputed is the suffering caused to the world’s poor. The Food and Agriculture Organisation (FAO) estimates that just under a billion people in the world are now “food insecure” and lists 82 countries as being “Low Income Food Deficit Countries”. The plight of these countries highlights a misalignment of another kind- between continuing high levels of production in several developed countries fuelled by the high levels of domestic support as well as export subsidies still permitted under WTO rules, and the sharp decline in public investments in agriculture in poor countries over the last two decades, largely due to policies imposed by World Bank/International Monetary Fund (IMF) and bilateral donors. Such policy prescriptions were usually accompanied by calls for “liberalising” the agriculture sector by sharply reducing tariffs and removing other barriers to market access. This policy double whammy has led to a surge of imports of (usually) subsidised agricultural products into these countries, devastating their low-productivity agricultural sectors and rendering millions of people unemployed and hungry. It is obvious that any meaningful initiative to improve global food security must begin by seeking to reverse the effects of these policies.
Till recently, analysts have paid inadequate attention to the impact of the increasing “commodification” of agricultural products on global food prices. Commodity futures markets now play an important role in price determination of food commodities. As an interesting paper by Jennifer Clapp and Eric Helleiner points out, a series of deregulatory decisions in the US since the 1980s made it possible for large investors to move into commodity market investments through Commodity Index Funds(CIFs) and similar instruments. As a result, there was a large inflow of funds into commodity fund instruments, and investments in CIFs had swelled to $200 billion by 2008. This increasing financialisation tended to exacerbate food price volatility as investors continuously shuffled their investments to insulate themselves from the turbulence in global financial markets. There is growing consensus around the view that such investments have played an important role in recent food price spikes.

In recent months, the US has taken remarkable steps to regulate agricultural derivatives markets. These moves received a fillip after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. Among the various reforms introduced through this Act was a provision mandating regulators to impose position limits on all institutions on their total exposure, including in foreign markets. These reforms have been supported by domestic agricultural sector interests who aligned themselves with a broader coalition including domestic groups concerned about energy prices and prominent consumer advocacy groups.

It is important that the US reforms are discussed and debated in the wider global community concerned with food security issues with the objective of arriving at a global consensus on regulatory policies for commodity market investments. The G20 is the obvious forum for such a discussion. French President Nicolas Sarkozy is deeply committed to such an initiative and the next G20 meeting that France is hosting should, therefore, provide a good opportunity to build consensus around the issue.

It has been often argued that the Doha Round, when completed, will have a positive impact on global food security by providing much-needed incentives to developing countries to increase their productive capacities. There is a hint of exaggeration in this claim. Present levels of support in major subsidising countries like the European Union, Japan and the US are not expected to be impacted as a result of the negotiations. However, the improvement of disciplines and the lowering of caps on support are expected to reduce distortions to an extent. Similarly, in market access, the bulk of the products of export interest to developing countries are expected to be designated as Sensitive Products in developed markets, with the main increase in market access being effected through higher Tariff Rate Quotas (TRQs). The major benefits of the higher TRQs will be garnered by the most competitive exporters, not the poorest countries that need the access the most. The Doha mandate has little to address the issue of food price volatility, except for the Special Safeguard Mechanism which remains deadlocked. The issue of export restrictions is not a part of the mandate.

Developing countries like India should not shy away from a discussion on export restrictions either. A positive feature of the agriculture negotiations under the Doha Round has been the agreement on the issue of public food procurement in developing countries, an issue actively pursued by India. Food procurement operations taken up with the objective of fighting hunger and poverty can now be accounted for in the Green Box, thus keeping them away from any challenge on the issue of subsidies. India can now consider widening the ambit of foodgrain reserves to the regional level on terms to be negotiated with our neighbours. Such an initiative would go a long way in ensuring regional food security.

In brief, the global food security issue has to be addressed in an integrated and pragmatic manner, discarding the shibboleths and ideological baggage of the past. The positive approach to regulation of agricultural derivatives trading in the US and the commitment of President Sarkozy to such an initiative together provide a favourable background for addressing the issue in the G20. However, it is important that India provides the development perspective to the debate, especially by highlighting the need to address the investment deficit in agriculture in poor countries. Though trade can at times mitigate food shortages, it is important to bear in mind that food security concerns cannot be outsourced to the global trading system. The major challenge for developing countries is to improve agricultural productivity through appropriate domestic policy interventions. For this, they require a positive international policy environment, which, hopefully, the G20 can provide.

The writer is India’s former Ambassador to the WTO, Geneva (2004 to 2010)