Finding some focus: Trade and food securityJune 6th, 2012 | by Gawain Kripke
President Eisenhower once (may have) said, “being shot at focuses the mind wonderfully.” In the land of policy geeks, the equivalent of getting shot at is sitting on a public panel. Tomorrow, I’ll be sitting on one hosted by the estimable Washington International Trade Association. The topic is food security.
Now, Oxfam and I have thought a lot about food security over the years. And Oxfam and I have thought a lot about trade over the years. But we have not necessarily integrated this thinking over these years. This panel—like being shot at—seems like an opportunity to focus a bit.
So how are food security and trade connected?
During the 1990s and early 2000s, heady days for globalization and liberalization, the theory was that trade might improve food security by making more food available to consumers and lowering prices through markets. Food shortages in one region of the world could be offset by surpluses elsewhere. Frictionless trade, transport, and markets would facilitate the movement. This was a time of declining commodity prices and massive food surpluses. Food security in that context seemed a simple matter of allocation—almost silly to spend too much time worrying on it. This kind of theorizing drove leaders to focus on promoting trade, reducing trade barriers, opening markets. It also led many to neglect or reduce spending for domestic agriculture development leading to a long, steady decline in public support for agriculture.
This theory began to unwind during the 2007/8 food price crisis. As food prices skyrocketed and global food supplies thinned, the old strategy began to look outdated. Suddenly food importing countries faced crisis as food supplies were unavailable and civil unrest mushroomed everywhere. Important food exporting countries closed the doors to hold on to their surpluses. Panic! And websites proliferated!!!
The changing tide on food prices and food security in recent years has actually produced a challenge to believers in the trading system to deliver improved food security. When push came to shove, no authority could keep food exporters from closing the doors and holding on to their food. The WTO couldn’t do it, the G20 hasn’t done it. International markets couldn’t deliver food to importers in an orderly manner and at affordable prices. Contracts were broken, hording (in various forms) emerged.
Food prices remain high today, but the panic has eased and the trading system appears to be functioning for the moment. But policy makers won’t forget the vulnerabilities that emerged in the system in 2007/8 and are taking steps to hedge against those risks. Many of these steps are fundamentally good ideas and made sense even before the food crisis:
- Investing in food production and productivity—agriculture research, agriculture extension, etc. —to raise incomes, reduce food insecurity and curb food import dependency;
- Creating and improving food safety nets for vulnerable populations;
- Targeting resource-poor and vulnerable food producers for special assistance;
- Reviewing biofuels policy and reducing the competition for food and agriculture resources between energy and food markets;
- Use of food reserves to mediate shocks, address food crises.
Some of the steps countries are taking are potentially problematic:
- Procuring land for food production in other countries;
- New special arrangements and bilateral contracts between importers and exporters to secure supplies—which aren’t transparent and bottle up supplies for commodities on broader markets;
- Large investment flows into commodities markets futures and derivatives;
- Continued restrictions on food exports.
Where does this leave us?
I think there are a few lessons to take.
First, trade isn’t—and never was—a silver bullet. Not for food security or really any other purpose. Trade offers important advantages, and when it works well, it reduces costs, improves consumer options, and assists in managing risks. But over-reliance on trade—either as importers or exporters—has real economic and food security risks.
Second, in global food supply and prices, the world may have passed an important inflection point (peak food?). Even with a huge effort, food may become an increasingly scarce resource. If so, food crises, price shocks, acute scarcity, droughts and floods will be a bigger part of our future. Policy makers should start designing better prevention and response mechanisms. There’s still plenty of food in the world and no one needs go hungry. But making this true will take a real political commitment.
Third, hedging strategies are important. Many countries rely on food imports, and will continue to do so in the future. But investing in domestic food production and capacity is advisable, even if it can seem expensive and unnecessary. And preparing financial and physical hedges against risks is critical. Shocks happen, and it’s better to assume they will then to be surprised and face a crisis.
Fourth, if trade can play a bigger role in food supply and food security in the future, the reliability of trade, markets, and contracts should be improved. There could be regulatory or institutional measures to help. But most important would be for participants—traders, countries, market managers—to provide guarantees and compensation for vulnerable participants.
Still working on this trade-food security linkage, but these are my preliminary thoughts. Feel free to take some shots to improve my focus.