Rising Prices Reinforce Need for Food Security Policies

The new key to food security is self-sufficiency, not trade, and
policies are needed to expand local food production and invigorate the
agricultural sector particularly in developing countries Martin Khor
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free us from fossil fuels Desperate measures to cope with soaring food
prices revive debate over food security

In response to rising world food prices, some food-importing developing
countries have lowered their tariffs to mitigate the high prices of
imports. At the World Trade Organisation (WTO), agricultural exporters
are questioning the need for the instruments of special products (SP)
and special safeguard mechanism (SSM) designed to protect food security,
livelihood, and rural development against trade. But the G33 group of
developing countries and its members say that their case for SP and SSM
has grown even stronger, as the food crisis is due to inadequate
production in many developing countries, forcing them to increase their
dependence on imports that has now become so costly.

Although importing countries can cut tariffs to reduce prices now, in
the longer term their farmers will need local markets and incentives for
them to revive agriculture production.

The current crisis has also revived the debate over food security. In
recent years, international financial institutions have promoted the
view that cheaper imports make local food production no longer a matter
of necessity, and many developing countries reduced food production on
the advice of those agencies.

The rise in food prices in the past two years has increased the cost of
imports and inflated food prices in local markets. This was exacerbated
by shortages experienced in countries placing import orders, for rice,
for example, only to find supplies cut by export restrictions. The
ensuing street protests in many countries have added a considerable
sense of urgency to the worsening situation.

Suddenly, the paradigm of food security has shifted back to the
traditional concept of greater self-sufficiency instead of relying on
cheaper imports. In the immediate period, emergency food supplies have
to be shipped to affected countries, but the long-term solution must
include increased local food production.

This raises the question of barriers to local food production and how to
overcome those barriers.
Barriers to local food production for self-sufficiency

The current food crisis has been precipitated by a number of factors
including climate extremes, such as the drought that has drastically cut
wheat harvests in Australia, the rising cost of inputs, especially oil
and oil-based products (fuel, chemical fertilizers and pesticides) and
above all, the switch of land use from the production of food to bio-fuels.

However, a more important contributing factor is the decline in
agriculture in many developing countries that has been happening over
the past decades, in most cases, due to the structural adjustment
policies of the IMF and World Bank. The countries were asked or advised
to dismantle marketing boards and guaranteed prices for farmers'
products; to phase out or eliminate subsidies and support for
fertilizer, machines, agricultural infrastructure; and to reduce tariffs
of food products to very low levels.

Many countries that were net exporters or self-sufficient in numerous
food crops experienced a decline in local production and a rise in
imports that had become cheaper because of the reduced tariff. In
addition, some imports are from developed countries that heavily
subsidize their food products. Consequently, the local farmers were
subjected to unfair competition, and in many cases, failed to survive.
How Ghana's agriculture was destroyed by the World Bank and the IMF

Ghana is a case in point. From the 1960s through to the 1980s its
policies to promote self-sufficiency in food had involved the government
actively encouraging the agricultural sector through marketing, credit
and subsidies for inputs. This had facilitated an expansion of food
production for example, in rice, tomato, and poultry.

But from the mid-1980s onwards and especially in the 1990s under World
Bank and International Monetary Fund (IMF) conditionalities - programmes
for economic and political reform attached to the provision of funds -
the policies for self-sufficiency were reversed. The subsidy for
fertilizer was eliminated, and its price rose very significantly. The
marketing role of the state was phased out. The system of minimum
guaranteed prices for rice and wheat was abolished, as were many state
agricultural trading enterprises and the seed agency responsible for
producing and distributing seeds to farmers, and subsidized credit also
ended.

Simultaneously, applied tariffs for most agricultural imports were
reduced significantly to the present 20 percent. That, on top of the
dismantling of state support, left local farmers unable to compete with
imports artificially cheapened by high subsidies, especially in rice,
tomato and poultry.

Rice output in the 1970s could meet all local needs, but by 2002,
imports made up 64 percent of domestic supply. Rice output in the
Northern region fell from an annual average of 56 000 tonnes (in 1978-80
to only 27 000 tonnes for the whole country in 1983. In 2003, the US
exported 111 000 tonnes of rice to Ghana. In the same year, the US
government gave $1.3 billion in subsidies for rice. A government study
found that 57 percent of US rice farms would not have covered their cost
if they did not receive subsidies. In 2000-2003, the average costs of
production and milling of US white rice was $415 per tonne, but it was
exported for just $274 per tonne, a price 34 percent below its costs.

Tomato was a thriving sector, especially in the Upper East region. As
part of a privatization programme, tomato-canning factories were sold
off and closed, while tariffs were reduced. This enabled the heavily
subsidized EU tomato industry to penetrate Ghana, and displace the
livelihoods of tomato farmers and industry employees.

Tomato paste imported in Ghana rose from 3 200 tonnes in 1994 to 24 077
tonnes in 2002. Local tomato production has stagnated since 1995, while
tomato-based products from Europe made inroads into African markets. In
2004, EU aid for processed tomato products was 298 million euros, and
there are many more millions of euros in indirect aid (export refunds,
operational funds for producer organisations, etc).

Ghana's poultry sector started to grow in the late 1950s, reaching its
prime in the late 1980s and declined steeply in the 1990s. The decline
was due to the withdrawal of government support and the reduction of
tariffs. Poultry imports rose by 144 percent between 1993 and 2003, and
a significant share of this were heavily subsidized poultry from Europe.
In 2002, 15 European countries exported 9 010 million tonnes of poultry
meat for Euro 928 million, at an average of Euro 809 per tonne. It is
estimated that the total subsidy on exported poultry (including export
refunds, subsidies for cereals fed to the poultry, etc) was Euro 254 per
tonne.

Between 1996 and 2002, EU frozen chicken exports to West Africa rose
eight-fold, due mainly to import liberalization, practically wiping out
the half million chicken farmers in Ghana. In 1992, domestic farmers
supplied 95 percent of Ghana's market, but this share fell to 11 percent
in 2001.

In 2003, Ghana's parliament raised the poultry tariff from 20 to 40
percent. This was still much below the bound rate (allowed by the World
Trade Organisation) of 99 percent. However, the IMF objected to this
move and the new approved tariff was not implemented. The IMF
representative in Ghana told Christian Aid that it pointed out to the
government the raising of tariff was not a good idea, and the government
reflected on it and agreed. Many farmers groups and NGOs in Ghana have
protested to the government.
WTO completes the debacle

Some developments in the trade negotiating arena are also a source of
concern. The Doha negotiations at the World Trade Organisation (WTO) are
mandated to substantially reduce domestic support in developed
countries. But to date, that has not materialised.

Another source of concern is the new US Farm Bill. According to several
analyses, including those oif the US administration, the Bill will
continue the present system of subsidies, and will even expand support
in some ways for several commodities. For example, the Bill guarantees
that 85 percent of the domestic market for sugar will be met by local
production.

The Bill also allows a farm family with an income of up to $1.5 million
to obtain subsidies, compared to the limit of $200 000 per farmer
proposed by the Bush administration. The Bill thus 'locks in' the US
system and its levels of subsidies for the next 5 years, and also
constrains what the US negotiators can offer in the WTO Doha negotiations.

A major loophole in the WTO agriculture agreement is that countries are
obliged to reduce their bound levels of domestic support that are deemed
'trade distorting' but there are no constraints on the amount of
subsidies deemed non-distorting or minimally distorting, which are
placed in the so-called Green Box.

Recent studies have shown, however, that many of the Green Box subsidies
are also trade-distorting. The Doha negotiations are unlikely to place
new effective disciplines on the Green Box. Therefore, the major
subsidizing countries can change the type of domestic subsidies they
give, while reducing the "trade-distorting subsidies" and continue to
provide similar levels of farm subsidies.

Meanwhile, the developing countries are being asked to reduce their
agricultural tariffs further. The Chair's proposal at the Doha talks is
for a maximum 36 percent tariff cut for developing countries, and 24
percent for small vulnerable economies. This is sizable, and compares
with the 24 percent cut in the previous Uruguay Round.

Most developing countries are advocating that the instruments of SP and
SSM be set up as part of the WTO talks to promote food security and
farmers' livelihoods and rural development. SP would exempt important
food products from tariff cuts or at least allow for more lenient cuts.
SSM would enable a developing country to impose an additional duty on
top of the bound rates in situations of reduced import price or
increased import volume, in order to protect the local farmers. However,
there is considerable opposition from some exporting countries to having
these instruments that can work in an effective way.
Free trade agreements reduce tariffs even further

In the bilateral or regional free trade agreements involving developed
and developing countries, the developing countries are asked to reduce
or eliminate their tariffs by even more. For example, in the Economic
Partnership Agreements between ACP countries and the EU, the ACP (group
of African, Caribbean and Pacific less developed countries) are asked to
eliminate their tariffs on 80 percent of their tariff lines over
different time periods, among which are agricultural products.
Key policies and measures for food security

The economic and trade policies followed by many developing countries,
often at the advice of international financial institutions, or as part
of multilateral and bilateral trade agreements, have contributed to the
stunting of the agriculture sector in developing countries. In order to
increase food production in developing countries for food security, a
number of policies and measures need to be implemented.

1. Developing countries must be allowed to provide adequate support
to their agriculture sector and to have a realistic tariff policy to
advance their agriculture, especially as developed countries' subsidies
are continuing at a high level. The developed countries should quickly
reduce their actual levels of subsidy.
2. The agriculture policy paradigm in developing countries must be
allowed to change. Countries should have the policy space to expand
public expenditure on agriculture. Governments in developing countries
must be allowed to provide and expand support to the agriculture sector.
3. Developing countries should place high priority on expanding local
food production. Accompanying measures and policies should thus be put
in place. The countries should be allowed to calibrate their
agricultural tariffs in such a way as to ensure that the local products
can be competitive and the farmers' livelihoods and incomes are
sustained, and national food security assured.
4. The proposals of developing countries (led by the G33) on special
products and special safeguard mechanism at the WTO should be supported.
Effective instruments that can meet the aims should be established.
5. The policies of the World Bank, IMF and regional development banks
should be reviewed and revised as soon as possible, so that they do not
continue to be barriers to food security and agricultural development in
developing countries.
6. The actual levels (and not just the bound levels) of agricultural
domestic subsidies in developed countries should be effectively and
substantially reduced. There should also be new and effective
disciplines on the Green Box subsidies to ensure that this category does
not remain an 'escape clause' that allows distorting subsidies
detrimental to developing countries.
7. There should be a review of many of the FTAs between developed and
developing countries, including the Economic Partnership Agreements
between the EU and ACP countries. In light of the food crisis and the
changing paradigm on food security, developing countries that have
signed or are in the process of negotiating FTAs should ensure that the
FTAs provide enough policy space to allow sufficiently high tariffs on
agricultural imports to safeguard the principles of food security,
farmers' livelihoods and rural development. Developed countries should
also not make demands that adversely affect food production in
developing countries.

Martin Khor is Director of the Third World Network, and this article is
a revised and edited version of part of a paper on food crisis and
climate change presented at a round-table at the FAO Summit on Food
Security in Rome on 4 June 2008. For further details see Khor M. The
impact of trade liberalization on agriculture in developing countries:
the experience of Ghana. TWN, Penang, 2008.

http://www.i-sis.org.uk/risingPricesFoodSecurity.php