TWN Info Service on WTO and Trade Issues (Dec11/04)
20 December 2011
Third World Network

NFIDCs, food security discussed in WTO
Published in SUNS #7264 dated 21 November 2011

Geneva, 18 Nov (Kanaga Raja) - The issue of food security and the situation of the least developed countries (LDCs) and net food-importing developing countries (NFIDCs) were discussed at the regular session of the World Trade Organization's (WTO) Agriculture Committee this week.

According to trade officials, at the meeting on 17 November, the Committee also discussed, amongst others, information that members have recently submitted on their agricultural domestic support and other measures, in particular China's latest notification (G/AG/N/CHN/21).

Trade officials said that a discussion was held on the situation of net food-importing developing and least developed countries, during which the UN Food and Agriculture Organization (FAO) highlighted that the world food import bill is set to reach $1.29 trillion in the current year.

In its submission to the Agriculture Committee (G/AG/GEN/98), the FAO said that at some $250 billion more than the previous year, the food import bill in 2011 would represent a record in both level and increase.

The global food import bill will be marked by year-on-year double-digit percentage increases for all food categories, which are all highly likely to reach record levels in 2011, said the FAO, noting that rising expenditures on grain-based products and vegetable oils have fuelled much of the increase at the world level.

It added that the combined purchase of food commodities falling within these two categories are now foreseen to account for 36 percent of the entire cost of importing food, contributing to well over a third of year-on-year increase in the global bill.

Rapidly rising import costs in 2011 are not only confined to grains and vegetable oils, said the FAO. For instance, world bills for sugar and beverages are anticipated to increase by as much as 23 percent while livestock products (meat and dairy) could rise, on average, by 19 percent. With the inclusion of fish, imports of animal-based proteins are valued at $365 billion, firmly establishing this product group as the most expensive in the globally traded food basket.

The FAO submission underscored that for the most economically vulnerable group of countries, the increase in the cost of purchasing food on the international market in 2011 has outpaced the global average. For instance, the food import bill of Low-Income Food-Deficit Countries (LIFDCs) could register a 27 percent jump, and that of the LDCs is expected to climb by 32 percent, some 5 percent more than the average global rise and by far exceeding the record increase of the 2007-08 high-price year.

Putting these numbers in greater perspective, said the FAO, the cost of imported foodstuffs for vulnerable countries could account for roughly 17 percent of all their expenditures on merchandise imports, compared with a world average of around 7 percent.

Also at the meeting, the World Bank, in its submission (G/AG/GEN/96), said that trade policy responses - including export restrictions and import barrier reductions - appear to have been important influences on price levels and volatility in recent years.

It said that for the 2005 to 2008 period, data suggest that a large number of countries - and countries that account for a large share of production and consumption - responded to higher world prices with price-insulating policies such as export restrictions or import duty reductions.

However, the World Bank added, the use of these policies by countries that collectively account for a large share of consumption creates a collective action problem - the more countries insulate, the more unstable the world price becomes.

"If all countries resist a price increase arising from a series of bad harvests or an increase in biofuel production, the effect is to push up the world price even more. While insulating policies can lead to a relative stabilization of domestic prices in those countries that undertake such policies in the short run, they can only work as long as not all countries undertake similar policies. Over the longer term, fundamental shifts in demand and supply conditions will also lead to structural changes in prices that will have to be reflected in domestic prices."

At the same time, said the World Bank, insulating policies that achieved relative price stabilization have increased global volatility of prices, and contributed to pushing global prices higher by stimulating demand. This has particularly affected NFIDCs, whose domestic prices depend on the world market. So from their point of view, the situation is worse as the increase in the volatility of world prices directly increases the volatility of their food import bills.

"To minimize the impact of future food price spikes, clear commitments to avoiding the use of export restrictions on food will be needed. This should be particularly applied to humanitarian aid, as this will be of critical importance to maintain price stability in periods of food stress," the World Bank said.

According to trade officials, the World Bank's assessment that price-insulating policies by WTO members during the crises have magnified price movements elicited a critical response from some delegations.

Trade officials said that Argentina particularly reacted to the World Bank's view that "trade policy responses - including export restrictions and import barrier reductions - appear to have been important influences on price levels and volatility in recent years," and that "to minimize the impact of future price spikes, clear commitments to avoiding the use of export restrictions on food will be needed. This should be particularly applied to humanitarian aid, as this will be of critical importance to maintain price stability in periods of food stress."

According to trade officials, Argentina said that the World Bank's focus is wrong, and overlooks the destabilising impact of subsidies and other policies in rich countries which distort agricultural trade markets.

Trade officials said that in this year's discussion, delegations made reference to the wider concerns raised by the G-20 leaders and to proposals to include food security on the agenda of the upcoming eighth WTO Ministerial Conference in Geneva (15-17 December).

Several members welcomed the G-20's creation of the Agricultural Market Information System (AMIS), hosted by the FAO and with the participation of a number of international organizations including the WTO.

Trade officials said that one of the proposals for the upcoming Ministerial Conference has come from the net food-importing developing countries, and African and Arab Groups.

The issue was discussed at a specially convened meeting of the Agriculture Committee on 16 November.

According to trade officials, the proposal, presented by Egypt, would ask WTO members' ministers to recognize that ensuring food security for their populations is governments' first priority.

It proposed that the Ministerial Conference direct the General Council to set up a comprehensive work programme for least developed and net food-importing developing countries, to: ensure these countries have access to adequate supplies of basic foodstuffs; consider new rules to exempt them from other WTO members' export restrictions, particularly major exporters; and help these countries have access to trade finance, for example, through a revolving fund offering concessional terms.

While the idea of a work programme received support from some members at the 16 November meeting, several other members said that they needed more time to consider the proposal, which they had just only received, said trade officials.

According to trade officials, some members argued that the WTO is not in a position to ensure food security for anyone, only to devise rules that improve the conditions for food supplies.

Several members noted that the Committee has already spent several years discussing inconclusively the possibility of a revolving fund, some adding that finance of this kind is the responsibility of other organisations such as the International Monetary Fund.

According to trade officials, a large number of questions were posed on the possibility of discussing new rules and how this would relate to the agriculture negotiations in the Doha Round.

Some members were of the view that price volatility and food insecurity are caused by a range of policies that distort markets, not only export restrictions.

Other members said that giving importing countries "policy space" to ensure secure supplies should be balanced with exporting countries' own right to "policy space" in order to ensure their populations have food supplies, said trade officials.

No decisions were taken, said trade officials.

The members that spoke on this issue included: Bangladesh, Japan, Canada, Nigeria, Australia, Switzerland, Jordan, the European Union, Thailand, Dominican Republic, Honduras, El Salvador, Colombia, Bolivia, Tanzania, Zambia, Israel, Argentina, Cuba, the United States, Venezuela, China, Philippines, Brazil, Indonesia and South Africa.

Agriculture Committee Chair, Jonas Skei of Norway, said that he will write a letter to the Chair of the General Council briefly stating that the proposal was circulated and discussed and that a brief summary will be issued.

According to trade officials, the Secretariat will produce the summary report, and the Committee's annual report will be updated, the Chair told the 16 November meeting.

Meanwhile, the United Nations Special Rapporteur on the right to food, Olivier De Schutter, has made some recommendations to put the human right to food at the top of the WTO agenda.

In a press release issued on 16 November, he said: "The world is in the midst of a food crisis which requires a rapid policy response. But the World Trade Organization agenda has failed to adapt, and developing countries are rightly concerned that their hands will be tied by trade rules."

"Food security is the elephant in the room which the WTO must address. Trade did not feed the hungry when food was cheap and abundant, and is even less able to do so now that prices are sky-high. Global food imports shall be worth 1.3 trillion USD in 2011, and the food import bills of the least developed countries have soared by over a third over the last year. The G20 has acknowledged that excessive reliance on food imports has left people in developing countries increasingly vulnerable to price shocks and food shortages," De Schutter said, adding: "The WTO must now do the same".

"We must avoid face-saving, short-term solutions aimed at hauling Doha over the line," the rights expert said.

"Instead, we should grasp the opportunity to ask what kind of trade rules will allow us to combat food insecurity and realize the human right to food."

Noting that higher tariffs, temporary import restrictions, state purchase from small-holders, active marketing boards, safety net insurance schemes, and targeted farm subsidies are increasingly acknowledged as vital measures to rehabilitate local food production capacity in developing countries, De Schutter said that WTO rules leave little space for developing countries to put these measures in place.

"Even if certain policies are not disallowed, they are certainly discouraged by the complexity of the rules and the threat of legal action," the rights expert said. "Current efforts to build humanitarian food reserves in Africa must tip-toe around the WTO rulebook. This is the world turned upside down. WTO rules should revolve around the human right to adequate food, not the other way around."

"If the Doha Round is to move forward, it must lift any possible constraints on policies aimed at securing the right to food: such measures should include food stock-holding that aims to reduce price volatility and ensure access to adequate food at the local level," the rights expert further said.

In a briefing note on the subject, the Special Rapporteur recommended, amongst others, that a panel of experts be convened to systematically analyse the compatibility of existing WTO rules, and those under consideration in the Doha Round, with best practices and current national and international food security strategies and policies.

He also recommended that a protocol be established to evaluate and monitor the impact of trade liberalization on world food prices; that a substantive discussion be initiated at the WTO of the medium and longer-term implications of the lessons learned since the 2007 global food prices crisis for the international trade regime, including the new consensus on the role of States in reinvesting in food security at national level; and for WTO Members to consider a food security-based waiver for situations where trade commitments restrict a countries' ability to pursue national food security.