agricultural trade and food security

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Agricultural Tradeand Food SecurityK E V I N W A T K I N S

Oxfam United Kingdom and IrelandP H I L I P P I N E S


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Philippine copyright 1995 Oxfam UK& IISBN 971-91752-06The publisher gives perm ission for excerpts from thispublication to be photocopied or reproduced, providedthat the source is properly acknow ledged.

Cover & book design and page layoutAlan G. Alegre SIN ING LABUYO

Oxfam United Kingdom and Ireland (Philippines)95-A Malum anay Street, Teachers' Village1101 Diliman, Quezon City, Philippines

Oxfam UK and Ireland is a member of Oxfam International.Registered charity number: 202918

This book converted to digital file in 2010


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Agricultural Tradeand Food Security

Introduction FARM FAITH AND AGRICULTURALTHEOLOGY 2

Part 1: The International Food Trade System 8FOOD MOUNTAINS AND MALTHUS 8WORLD MARKET POWER IN CEREALS 1 4

Part 2. Level Playing Fields In World Agriculture 25T H E SCALE OF US AND EU DUMPING 25A L L CHANGE AND NO CHANGE WIT H T HE URUGUAY

ROUND 3O

Part 3. North-South Linkages In Food Security 38CULTIVATING FOOD DEPENDENCE IN AFRICA 39DANGERS OF FOOD DEPENDENCY IN THE PACIFIC

R IM 41IMPLICATIO N OF THE URUGUAY ROUND AGREEMENT

FOR DEVELOPING COUNTRIES 4 9

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Part 4. Food Trade and Food Security 54IMPORT SUSTAINABILITY AND SMALLHO LDER

PRODUCTION 5 5DISTRIBUTIONAL CONSIDERATIONS IN TRADE

EXPANSION 6 OTH E CASE FOR INTERVENTION 66

Part 5. Markets & Modernisation: Maize Crises InMexico & the Philippines 69MEXICO: NAFTA ROUTE TO FOOD DEPENDENCE 7 OMAIZE LIBERALISATION IN THE PHILIPPINES 7 6

Conclusion TOWARDS AN AGENDA FOR REFORM 8 2

References 86Annexes THE FARM TREADMILL 95

FARM INCOME SUPPORT IN US AND EU 98

IV


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ForewordHow does a $16,000 subsidy pe r farmer in the U.S. translate intofood insecu rity for hou seholds in Cag ayan Valley? How do es a fewpercentage point rise in grains demand in South Korea drive upmeat prices in the wet market of Valencia in Cotabato?This book takes us through the interaction of international traderealities and national policies, and how they impact on the survivalstrategies of even remote households and villages. Knowing andunderstanding such links raise larger and pressing considerationsfor developm ent wo rk in many comm unities.This is not new to ma ny com munity dev elopm ent practitioners inthe country. On the contrary, the need to unde rstand the interactionof global events and national policies on the one hand, andhousehold and com mun ity concerns on the other hand, has alwaysbeen with our development workers. If there ever was an illusiontha t we can forget abo ut the rest of the world while w e pu rsu e animproved quality of life in the communities we reach, it is beingshattered today by globalisation. Not least because national andglobal policies are redefining the terrain of d ev e lo p men tengagement with new and compell ing intensity, shaping theprospec ts of even the remotes t communit ies , and at t imesdeconstructing years of dedicated and painstaking wo rk.The need for a wider range of tools of analysis and intervention,especially in the field of econom ics and in macroeconomic policy-making, is upo n us. Throu gh this book and other publications th atwill follow, the Philippines office of Oxfam United Kingdom andIreland will attempt to contribu te to filling th at need, and hopefullycontrib ute also to efforts at bringing micro dev elopm ent concernsinto ma cro development program s and policies.

Lot FelizcoCOUNTRY REPRESENTATIVE

PHILIPP INES OFFICE - OXFAM UN ITED KINGDOM AND IRELAND


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Kevin Wat kin s is a senior policy adv iser of OXFAM-UNITEDKINGDOM AND IRELAND. H e prep ared the ear ly drafts of this paperwith the assistance of M s. Penny Fowler of the CATHOLICINSTITUTE FOR INTERNATIONAL RELATIONS (C UR ). Mr W atkins alsowrote The Oxfam Poverty Report, Oxfam, 1995; Fixing the Rules:North-South Issues in the Uruguay Round, CIIR, 1989; andChanging the Rules, GATT Briefing, Ro ngead, 1990.This paper is based on the presentation made at the South EastAsian NGO Conference on Trade Liberalisation and FoodSecurity in SoutheastAsia: Prospects and Strategies, onFebruary 13-16,1996 at Balay Internasyonal, U niversity of thePhilippine s, Diliman, Qu ezon City, Philippines.The conference w as sponsored by M anagem ent forOrganizational Development and Empowerment, Inc. (MODE),Focus on the G lobal South (FOCUS), Alterna te Forum forResearch in Mindanao (AFRIM), Isis International, Partnershipfor Agrarian Reform and Rural Development Services(PARRDS), and the Education for Life Foundation (ELF).

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Hubert Humphrey(1957)

John BlockUS AgriculturalSecretary (1986)

Koofi AwoonorGhana's Ambassador

to the UN (1991)

AgriculturalTrade andFood Security"I HAVE HE AR D...TH AT PEOPLE MAY BECOMEDEP END ENT ON US FOR FOOD. I KNOW THIS ISNOT SUPPO SED TO BE GOOD N EW S. TO METHAT WAS GOOD NEW S, BECAUSE BEFOREPEOPLE CAN DO AN YT HING THEY HAVE GOT TOEAT. A N D IF YOU ARE LOOKING FOR A WAY TOGET PEOPLE TO LEAN ON YOU AND BEDEPE NDEN T ON YOU, IN TERMS OF THEIR CO-OPERATION WITH YO U, IT SEEMS TO ME THAT

,, IFOOD DEPENDENCE WO ULD BE TER RIFIC.

" T H E PUSH BY SOME DEV ELOPING COUNTR IESTO BECOME MORE SELF -SU FF ICIE NT IN FOODMAY BE REM INISC ENT O F A BY-GONE ERA.TH ES E COUNTR IES COULD SAVE MONEY BYIMPORTING MORE FOOD FROM THE U S ." Z

"W H IL E THEY ARE TELLING US THAT INAFRICA YOU CANNOT SUB SIDISE THE FARMER,THERE IS NO COUNTRY IN TH E WES TERNWORLD THAT DOES NOT SUB SIDISEAGRICULTURE." 3


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INTRODUCTION

Farm Faith andAgricultural TheologyCom menting on farm policy debates in the US some seven yearsago JK Galbraith remarked on the pervasive influence of free-marke t th ink ing . "No one can be without sin," he wrote, "who doesnot at least daily affirm his belief in the profound beneficence of free marketforces. "4 His observation applies with equal force to the internationalstage, especially since the conclusion of the Uruguay Round. Today,no m eeting on world agriculture is complete without a free marketliturgy. The profound virtues of the price mechanism in deter-mining what is produced , where it is produced, and who p rod uc esit are extolled with a relentless enthu siasm , and no w here moreso than in matters of international food trade.The theme is familiar in much of the developing world, where tradeliberalisation and market deregulation are now the keystones ofagricultural modernisation strategies. Central to these strategies isa conviction that staple food producers should compete againstimports, while public investment resources are concentrated inareas with an export potential. Comparative advantage argumentsare widely cited as evidence of the efficiency gains which will


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FARM FAITH A ND AGRICULTURAL THEOLOGY

follow, for North and South alike, if governments place their faithin the market place, allowing their agricultural producers tocompete on a level playing field. Econometric projections by theOrganisation for Economic Co-operation and Development(OECD) and the General Agreement on Tariffs and Trade(GATT), which have anticipated ever more heroic economic growthoutcomes from liberalisation, are cited with the deepest reverenceas evidence of the need for public authorities to get out ofagriculture.As in other areas of international trade, the free market principlesespo used for agriculture are hono ured as m uch in the breachas the observation, especially by their most zealous advocates.Northern governments may preach the virtues of free trade in farmpolicy, but they regard implem entation of the deeper, sterner rulesof the market primarily as the responsibility of other people -notably those living in developing countries. Thus while ThirdWorld governments liberalise their food systems, northern agri-culture continues to develop and maintain its global marketdomination under highly protected and massively subsidisedproduction systems.Collectively, the OECD countries spend the equivalent of a round$175 bn annua lly in subsidising agricultural production and farmincomes5, sugges ting that while free trade theology may serve as aguide to conduct in the next world, free trade practice is cons-picuous by its absence in this one. To pu t this figure in context, it isequivalent to more than double the national income of thePhilippines. In contrast to the Philippines, where agricultureaccounts for almost half of overall employment, in Europe andNorth ern Am erica, less than 5 per cent of the po pu latio n areinvolved in farm production.


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In the real world of agricultural trade, market survival depends lessupon comparative advantage, than upon comparative access tosubsidiesan area in which northern producers enjoy unrivaleddominance. Stated differently, the level playing field in worldagriculture runs all the way downhill from Europe and NorthAmerica into the fields and villages of sub-Saharan Africa, LatinAmerica and Asia.The Uruguay Round will no t substantially alter this position, exceptto enhance the advan tage of northern agriculture. As we show inthis paper, the subsidy systems of the major industrialised countrieswill remain intact, while developing countries will be required tofurther liberalise access to their marke ts. This imbalance is no twidely recognised in developing countries, where the U ruguayRound agreement has been welcomed as the first step tow ards amore stable food trading system. But like most acts of fraud, theUruguay Round agreement is better understood by its architects,in this case the European Union (EU) and the US, than by its victims.Viewed through the lens of history, the Uruguay Round marks thelatest phase in the evolution of a global food system structuredaround the interests of the North. Agricultural policy in the US andthe EU has created, at enormous social and environmental cost, acapacity for sustained over-production through capital intensive,industrialised farming. Ever more imaginative and costly mecha-nisms have been devised to dispose of the resulting surpluses,especially in the developing world. The use of PL 480 to undermineThird World food systems and create dependence on US exportshas been well documented.Subsidisation of commercial exports has been used for similarpurposes by both the US and the EU, destroying markets forsmallholder producers in developing countries and cultivating


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tastes for imported foodstuffs, With local staples being displacedby processed imports. The spread of wheat-based bread diets is themost visible manifestation of this process. It is true that, over thepast two years, dumping p ressures have receded in the face of asustained rise in world prices. However, the contention of this paperis that the structural over-capacity of northern farm systemsrem ains intact; and that this over-capacity will be exacerbated byresponses to current world market conditions, which have includedmeasures to remove constraints on production.Arguments that northern food systems have both an opportunityand responsibility to feed developing countries, are a source ofconcern in this context. One of the central food security challengesis to reduce the surplus dum ping activity of northern producers toenable food deficit regions to become more self-reliant. This willrequire a combination of public investment and protection fromunfair competition in local markets. Unfortunately, the UruguayRound agreement will reinforce other mechanismsincludingregional trade initiatives and structural adjustment programmeswhich hinder the capacity of governments to protect their foodsystems. The results could be especially dam aging for South-EastAsia, since countries in this region have been targeted by the US aspotentially lucrative markets for agricultural exports.This paper advances two simple propositions. The first is that

enhanced com petition between the surplus agricultural systems ofthe industrialised world and the deficit systems of the developingworld, wil l exacerbate problems of food dependency anddestroy the livelihoods of vulnerable communities. One of thecentral food security challenges is to end over-production in theNorth so that the food systems of the South can develop. Neitherthe Uruguay Round agreem ent nor the farm policy reform process


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now underway in Europe and North America will achieve thisobjective.The second proposition is that there are sound economic as well asmore pressing social reasons for protecting the food systems of theSouth. This is not to advance a case for autarchy in food production,but to suggest that in markets distorted by subsidised over-production, comparative advantage arguments must be treatedwith caution.Quite apart from imposing unacceptably high hum an welfare costsin terms of livelihoods, liberalisation in food markets characterizedby extensive du m pin g will not necessarily lead to economicallyoptimal outcomes. This is for the obvious reason that price signalswill be an imperfect gu ide to scarcity, and hence to optimal resourceallocation. In this context, any analysis of the impact of agriculturaltrade liberalisation on food security needs to proceed not byrehearsing old arguments about the relative virtues of 'the market'and 'the state' in setting prices, bu t by considering the real m arketsin which producers operate; and by balancing a wide range ofpotentially conflicting policy objectives, including economicefficiency, food security and environmental sustainability.This paper is organised as follows:Part 1 outlines the structure of international food markets and the

links between food trade and food security.Part 2 examines the extent of OECD surplus dumping and the

implications of the Uruguay Round agricultural agreem ent.Part 3explores the mechanisms through which international food

trade undermines food self-sufficiency, focusing on theexperience of sub-Saharan Africa and the threats facingSouth-East Asia.


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FARM FAITH AN D AGRICULTU RAL THEOLOGY

Part 4 critically considers the relevance of com parative advantageargum ents in debates on food security, and argues that thesefail to address the distributional issues at the heart of foodinsecurity.

Part 5provides a case study of the maize sectors of Mexico and thePhilippines, where trade liberalisation has contributed to thedestruction of smallholder livelihoods.


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The InternationalFood Trade SystemFOOD MOUNTAINS AND MALTHUS

n 1974 agricultural ministers from around the worldmet at the World Food Conference in Rome. Interna-tional prices had reached a peak, having quad rupled inless than tw o years. A flood of books and articles were w rittenwarning that the rise in prices reflected a growing divergencebetween the productive capacity of the global food system andpopulation growth. Capturing the mood, the US AgricultureSecretary and his advisors urged farmers to 'plant from hedgerow tohedgerow' to meet growing world food needs. The internationalagenda was dominated by neo-Malthusians, who warned thatrising prices were the symptom of a widening gap betweenpopu lation growth an d food production: and the Club of Rome'sinfluence was at a peak.6FROM SURPLUS. . .Three years later, world prices had fallen below the level of 1970 totheir lowest point in over twenty years.7 Within a decade, theexpression 'world food crisis' had acquired a different m ean ing. Bythe mid-1980s, farm policy debates were dom inated by a concern


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TH E INTERN ATIONA L FOOD TRADE SYSTEM

not over shortages, but over surplus disposal. Stocks of cereals anddairy products had reached historically high levels, contributingto the deepest and most protracted slump in world prices since theGreat Depression. In 1986, cereal stocks were equivalent to two-and-a-half times annual trade volumes.8Ever more imaginative solutions to the problem of surplus disposalwere sought and found. European w heat was used to fuel powerstations, milk was tipped into rivers, and Cognac grapes weretrampled into industrial alcohol. While images of the Ethiopianfamine provided a constant reminder of the scale of world hunger,policy makers in the European Comm ission actively debated therelative cost advantages of keeping cereals in disused air-forcehangers, disposing of it in the North Sea, and dum ping it in Russia.The North Sea option was rejected only on cost grounds. Mean-while, Americans were filling Rocky mountain caverns with butter,and selling wheat at less than half of its costs of production. Aneditorial in The Economist lamented the 'Alice in Wonderland'economic logic which led governments to pay their farmers three-times above world market prices for cereals, which then had to bedisposed of through tost ly export subsidies.9. . .TO SHORTAGEToday, the wheel has turned full circle. For the past three years,international grain consumption has outstripped production. Overthis period, prices have doubled to a fifteen year high and cerealsstocks have fallen to their lowest levels in over two decades.Parallels have been drawn with earlier periods of tight supplies andhigh prices, including the early 1970s. In the European Union (EU)cereals stocks have fallen by 11 million tons to 4 million tons overthe past year, generating a mild panic fueled by media accounts ofempty storage sites. Export subsidies have given way to a tax on

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wheat exports. In the US, market analysts are predicting a furtherhike in m aize prices, with stocks at their lowest levels since 1974.On the international stage, mounting concern has been expressedover the rapid depletion of grain reserves. Globally, cereals stocksare forecast to fall in 1995/1996 to 221m tons, which is their lowestlevel for two decades and, at 14 per cent of consumption, well belowthe 17 per cent level that the FAO considers the minimum necessaryto safeguard world food security. According to a recent World watchInstitute report, "the world's food economy may be shifting from a long-accustomed period of overall abundance to one of scarcity." Taking upan earlier theme, the report points to a widening gap between risingdemand in the Chinese market, fueled by population growth,urbanisation and declining farm productivity, and supply in themajor exporting countries.

F IGURE 1 . PERCENTAGECONSUMPTION

3 5 %3 0 %2 5 %2 0 %1 5 %

5 %0 %

72/73 86/87

AND OF

\

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OF CEREAL STOCKS TOFOOD AID

9.3/94

TO IMPORTS

94/95 95/96

S O U R C E : F A O A N DINTERNATIONALG R A I N S C O U N C I L

FOOD IM P O RTS /FO O D A I DC E R E A L S TO CK S TOC O N S U M P T I O N

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FOOD AVAILABILITY AND FOOD SECURITY

Few things can be predicted with any certainty in internationalagricultural trade. One of them, is that any increase in world priceswill generate apocalyptic visions of the neo-Malthusian variety.Such visions are at variance with reality. At a global level, thepredicted discrepancy between food outpu t and population growthhas not occurred. World supplies of food are 18 per cent higher percapita than they were when the World Food Conference took place.Since 1980, world cereals yields have increased by about 2.2 per centa year, compared to a population grow th rate of 1.7 per cent (whichis projected to fall to 1 per cent by 2025).Other things being equal, there is more than sufficient grainavailable - roughly 1.5 times more - to meet basic hum an energyneeds. Even assu m ing rapid popu lation g row th, past prod ucti-vity trends do not point to a widen ing gap between global foodsupply and demand. Indeed, projections by the FAO and theWorld Bank point to an increase in per capita cereals con-sumption in the developing world from 236 kg in 1989/1991 to296 kg by 2025.All of which raises the fundamental question 'does it matter'?Whether the world food system is in surplus or deficit, the hungryand the poor are, it seems, always with usand in growingnumbers. While it is an obvious truism to suggest thatfocd securityis linked to food output and availability, both nationally andglobally, the linkages are at once weaker and more complex thanis often assumed. If human welfare were determined by foodavailability, there would be no hunger in the US. Yet in the world 'smost powerful agricultural export economy an estimated 30 millionpeople suffer from inadequate diets, and the number of children

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living in poverty rose by more than 15 per cent in the 1980s. Suchfood security paradoxes reflect the fact that, throughout the globalfood system , food transactions occur primarily to enhance the dietsof already adequately nourished people, rather than to meet theneeds of the hungry. In the case of coarse grains, about 70 per centof trade is directed towards the animal feedstock sectors forconversion into meat. From a nutritional perspective, this representsa highly inefficient form of energy-protein conversion, and onewhich means that wealthier people consume larger quantities ofgrain indirectly.The same tensions are to be found within national food systems.In Egypt, the national daily protein and calorie supply is higherthan for all bu t four other middle-income countries, and for manyhigh-incom e countries. Despite this , Egyptians suffer from excep-tionally high levels of malnutrition, w ith one-quarter of all childrensuffering from moderate to severe stunting. The reason: Egyptgrow s more food for animals than for hum ans. Just under half ofEgypt's cultivated land area is now used to grow animal fodderfor the country's livestock industry. Feeding animals has requiredan enormous and costly diversion of staple food supplies fromhuman to animal consumption, with important distributionalimplications. Protein in the form of animal products costs over ten-times the price of earing it in the form of beans and lentils.The importance of income and asset distribution explain thefunctioning of food systems in a fundamental way. Internationalfood trade and market transactions are dictated by effectivedem and , or dem and backed by purchasing power. When a largenumber of people are excluded from markets by virtue of theirpoverty and social marginalisation, market mechanisms arehighly ineffective for achieving food security. This is central to

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under st andi ng w ha t the economist Armatya Sen has identifiedas the system of 'entitlements' through which individuals gainaccess to food.The problem of world hunger is a problem of inadequate access tofood stocks, even w hen these are sufficient to meet hum an needs.International trade cannot resolve this problem, but it can exa-cerbate it. As the mechanism through which the industrial farmsystems of the North interact with the smallholder systems of theSouth, international trade has an important bearing upon wherefood is produced, w ho produces it and who gains access to it. Thesurpluses generated by the food systems of the North limit theproductive capacity of deficit food systems in the South; theydestroy the capacity of smallholder producers to meet minimumnational self-sufficiency requirements; they expose vulnerablepopulations to dependence on world markets; and they destroy thelivelihoods of vulnerable rural producers by undermining localmarkets and depressing household incomes.Against this background, responses to recent developments ininternational markets represent a cause for concern. As in the early1970s, pow erful interna tional grain trad ing com panies, agro-chemical firms and big farmers are arguing for production stra-tegies geared towards world market opportunities. Alreadyinadequate supply-control measures are being withdrawn andincreasingly capital intensive production methods being encour-aged. Neo-M althusian argum ents are being recycled, not least bypo w erful ag ro -ind us tri al lob bies , to justify the expansion ofnorthern production in order to meet the growing food deficit inthe South. As we suggest below, the likely consequence will be afurther loss of self-reliance, as local food producers see their marketsdestroyed by cheap imports from the North.

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WORLD MARKET POWER IN CEREALSAny analysis of the linkage between international food trade andfood security must start from an analysis of the international marketplace. This bears little resemblance to the free m arket idyll whichdominates in current debates. Two characteristics are of specialrelevance for developing countries: namely, the concentration ofeconomic power in the northern hemisphere, and the degree ofsubsidisation by major exporters.The most important category of traded foodstuffs are wheat andcoarse grains (mainly maize).10 Exports of these products generateabout $20 bn in foreign exchange earnings annually. As indi-cated in Table 1, the US, the EU and Canada account for about 80per cent of world wheat exports, and the US alone for one-third ofthe total. In the case of maize, the US accounts for three-quarters ofworld exports, following the withdrawal of China from inter-national markets.Import demand is also highly concentrated. Just eight countriesaccounted for over half of wheat imports in 1994, with demandfocused on the major North African markets and the Pacific Rim.Out of the 95m tons imported in 1994/1995, Algeria and Egyptaccounted for llm tons and China for 12m tons, accounting foraround one quarter of the total. In the case of maize, seven importersaccount for two-thirds of market demand, and three of them (Japan,South Korea an d Taiwan) almost one-half.CONCENTRATIONS OF MARKET POWER

The structure of supply and demand in international agriculturalmarkets has important food security implications. Most obviously,the price and availability of internationally traded grains depend

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TH E INTER NATIO NAL FOOD TRADE SYSTEM

crucially upon production conditions in a few key suppliers, anddemand conditions in a handful of major markets.On the supply-side, production conditions in the US and the EUare the most important factors. In terms of overall production, a 10per cent decline in the US wheat crop would reduce world outpu tby only 1 per cent, but it would reduce w orld export supplies by 6per cent. Similarly, a 10 per cent production shortfall in Japan, Koreaand Taiwan would represent around 0.5 per cent of global pro-duction, but if compensated by imports would increase worlddemand by over 5 per cent.The US is effectively in the position of a global price setter, with itsdomestic intervention priceor Loan Ratebeing transmitted toworld m arkets through exports. The EU follows US prices, tradi-tionally with whatever subsidies are necessary to bridge thegap betw een US export and world prices and its traditionallyhigher dom estic price. Thu s the prices at which export activitytakes place are the residual outcomes of farm policies in Europeand North America. Of the many considerations which informthese policies, feeding people in developing countries does notfigure prominently.The thinness of international markets is one major factor behindtheir volatility, with only around 14 per cent of wheat andcoarse grain output traded on international markets. Another isthe weight of US and EU farm policy interventions. Changes in USstock holding policy have especially strong price transmissioneffects, as do US and EU export subsidy policies. To the extent thatnorthern agricultural policies send price signals which are unre-lated to world market conditions, they add to the adjustmentpressures faced by other producers.

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FIGURE 2: INTERNATIONAL TRADE IN WHEAT AND WHEAT FLOUR(1995-1996)

EXPORTSOthers

11%Argentina8%

Australia8%

Canada21%

Others42%

IMPORTSIndonesia

2%

Taiwan9%

Japan26%

Malaysia3%Mexico

5%S Korea13%

S O U R C E : I N T E R N A T I O N A L G R A I N S C O U N C I L(PROVISIONAL ESTIMATE)

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FIGURE 3: INTERNATIONAL TRADE IN MAIZE

EXPORTSArgentina

9%

IMPORTS

Others41%

Malaysia30^ TaiwanMexico 4%5%

Indonesia2%

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AGRICULTURAL TRADE A N D FOOD SECURITY

On the demand side, changing patterns of production and con-sumption in countries such as China, Egypt or the former USSRhave powerful effects on world prices. Indeed , most 'food crises'in recent times have not been the result of changes in overallglobal availability, but of relatively marginal changes in majormarkets. The US drought of 1988, to take one example, resulted ina 50 per cent world price rise. More recently, the sharp rise ininternational m aize prices in 1994 was the result of a marked fallin the US maize harve st and C hina's transition from a maizeexporter to a net importer. Because of the volatility in internationalmarkets, stock levels and production forecasts for the majorsuppliers and market outlets fuel intensive speculative activity,which exercises an important influence without necessarily ref-lecting market realities. One recent example of this trend wasprovided in March, 1996, when the discovery of a fungus in wheatled the USDA to suspend exports and threw markets in to chaos.11PRICE VOLATILITY, FOOD A I D A N D ACCESS TO IMPORTSThe volatility of international markets is one factor which anygovernment must consider in relying for food security on foodimports. Over the past year, international grains prices have m orethan doubled, placing a severe strain on the balance-of-paymentsof many countries. Powerful exporting nations such as South Koreaand Taiwan have the power to absorb such external shocks andmaintain access to imports whenever and in whatever quantities,they may be needed. The same does not apply to sub-SaharanAfrica and other low-income countries, which are subject to externalforces over which they exercise little control and to which they havelimited capacity to respond . This was illustrated during the early1970s, when the Sahelian famine coincided with US policies aimedat reducing food stocks, including direct production curbs which

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THE INTERN ATIONAL FOOD TRADE SYSTEM

lowered the 1972 harvest by 8 million tons. Increased Russiandem and for livestock intensified market pressures, as did the stockreduction which followed a series of speculative grain dealsconcluded by US grain companies.12The Sahel's problems were too small to register on internationalgrains m arkets, not least since the region lacked effective pur-chasing power. But the surge in world prices caused by subtle shiftsin US-Russia trade relations seriously exacerbated food securityproblems. The Sahel case illustr ate s the d an ge rs of food depen-dence during periods of high prices. But low prices are no guaranteeof access to imports. During the 1980s the diversion of foreignexchange from Latin Am erica in the form of debt paym ents alliedto generalis ed econom ic collapse led to a decline in per capitafood aid availability, with changing implications for urban foodsecurity.13 For cou ntrie s in a weak financial position and depen-dent upon volatile comm odity markets, any policy decision aboutfood security must reflect the high degree of risk attached tomaintaining imports.LIMITATIONS OF FOOD AIDReliance on food aid has not provided security against marketvolatility, not least since food aid levels tend to contract duringperiods of maximum need. During the last round of world priceincreases in 1988/1989, total cereals food aid to developingcountries fell sharply. In 1988 alone, the increase in w orld marketprices added about $3bn to the cereals food import bills of fooddeficit low-income countries, causing havoc in their balance-of-payments.14This year has followed a similar pattern. In 1995/1996, a year ofexceptionally high food prices, food aid will decline to its lowest

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level since the mid-1970s. The FAO's most recent estimates suggestthat food aid shipm ents to low-income countries will cover only 9per cent of their import requirements for the current year, comparedto 18 per cent in 1990.15 This is at a time w hen price rises for foodimports will place a severe strain on the balance-of-payments of thepoorest developing countries, many of which face deterioratingprospects in commodity markets. Quite apart from the inherentproblem of food aid becoming more scarce as stocks fall, donorshave often used food aid as a weapon against recipient countries,undermining its effectiveness as an instrument for food security.16US AND EU SURPLUSESAs the above account of trade patterns suggests, for countries w hichembark upon integration into global markets the structure of EUand US subsidies is of critical importance, since it is these subsidieswhich determine market competition. This is not the place toconsider US/EU policies in any depth (for a brief account seeAnnex). Suffice it to say that the development and refinement ofprotection in various forms and guises has been their dominantthem e, with special importance attached to transferring subsidiesthrough price support for output.Unsurprisingly, output has expanded at rates significantly in ex-cess of domestic dem and growth, so that self-sufficiency levels haveincreased and export surpluses accumulated. During the 1980s,production in the EU was expanding at twice the rate of demand.17Even Britain, a major cereals importer for much of its moderneconomic history, was a net exporter by the middle of the decade.By the end of the decade, the EU was the world's second largestexporter of cereals, the largest exporter of dairy products and meat,and the largest exporter of sugar.18

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T H E INTERN ATION AL FOOD TRADE SYSTEM

The tendency of price support policies to create a situation in w hichdomestic supply is forced on to international markets is graphicallyillustrated by the case of sugar. The EU's ascendance as a majorexporter, moving from a position of self-sufficiency in the 1970s toa 40 per cent share of international trade in 1986, contributed to thecollapse of international prices. This brought social devastation tocountries such as the Philippines and the Dominican Republic,which simultaneously had to adjust to a loss of US quotas and aworld price slump.19In the United States too, income support policies had the effect, a ta much earlier stage, of creating a steadily increasing agricul-tural surplus. These surpluses were at the centre of post-wardebates over the rate of public stock holding an d price su pp ortpolicy.20 The problem for both Europe and the US hasbeen familiarto any country in which price support leads to output levels inexcess of m arke t d em an d, since gov ern m en ts face only one ofthree choices: namely, to store the resulting surpluses (which iscostly), to release them on to markets (which will depress pricesand thereby raise the costs of farm incom e support), or to disposeof them overseas.21CULTIVAT ING DEPENDENCEThe export dum ping option has been the favoured one for the USand the EU. During the 1950s and 1960s, the US systematicallycultivated overseas demand, using PL 480 as what one com-mentator has described as "the Trojan horse" for commercial sales.22The program me performed the task admirably, using concessionalsales, which accounted for about one-third of total cereals exportsin the early 1960s, to create multi-billion dollar markets in countriessuch as Colombia, the Philippines, Indonesia and South Korea. Inthe case of Colombia, the short-run foreign exchange gains from

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concessional imports was offset by longer-term losses in agri-cultural production and balance-of-payments23. From a US pers -pective, export dum ping succeeded in capturing a growing worldmarket share. From the late 1960s to the late 1970s, world importsof grains and oilseeds expanded at over 8 per cent a year, while theUS w orld market share increased from 59 per cent to 71 per cent.24Today, one cereals acre in every three in the US is used to producefor exports - and developing countries remain a crucial marketoutlet. In the case of cereals and sugar, world markets account forover one-fifth of output.The relentless pursu it of export growth in agriculture has servedwider economic and political purposes. In the early 1970s, agri-culture w as identified by a US Presidential Comm ission as one oftw o areas, the other being hi-technology, in which America retaineda competitive advantage in relation to the newly industrial-is ing countries. Expanding that advantage was seen as one elementin a wider strategy to resolve the country's recurrent balance-of-trade problems.25Today, agriculture retains a pivotal significance for the US economy,generating a significant trade surplus. In Europe, the CAP evolvedaround a more specific project aimed simultaneously at increasingefficiency, maintain ing self-sufficiency and protecting rural societyfrom the vicissitudes of agricultural markets. However, exportexpansion rapidly em erged as one of the mechanisms for securingdomestic farm income support objectives, especially in officialFrench thin kin g . This w as reflected in the concept a destined'exporteran expression which captures the conviction that thepurpose of exportation goes beyond normal arguments about thebenefits to be derived from specialisation and comparative advan-tage, and towards a larger purpose .

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T H E INTERN ATIONA L FOOD TRADE SYSTEM

INTERNATIONAL TRADE FRICT IONS

By the late 1970s, the impetus tow ards exports built into the farmpolicies of both Europe and North America were a source ofgrowing friction in international trade.26 The fact that GATT ruleshad been designed by the US to allow for import protection andexport dumpin g in agriculture, provided a framework for accom-modating the CAP. As Europe emerged as a major rival in w orldmarkets, so the US became increasingly concerned to use the GATTas a mechanism for restricting the CAP and diminishing Europe'sexport capacity. Successive rounds of GATT talks were marked bymounting friction, w ith the EU refusing to subject the CAP to thenormal disciplines of world trade.Matters came to a head in the early 1980s, as a combination of dollarover-valuation, recession in Third World markets and competitionfrom the EU led to a contraction of US agricultural exports andloss of market shares, prom pting a twin-track strategy to restoreUS domination.27 The first track was based upon domestic marketreforms, with the 2985 Farm Act introducing deep cuts in m arketprice support (in effect transferring the costs of farm income supportaway from the market and towards the taxpayer) and large-scaleexport subsidy program mes to enhance the competitiveness of USproducts overseas. Measured in budgetary terms, the costs wereenormous, with 1986 farm expenditure rising to $26bn, or six timesthe 1982 level.28 The second track involved the use of the GATT toimpose a new farm trade regime which, by promoting tradeliberalisation overseas, would expand market outlets for the USwhile curbing EU subsidy levels.29As we suggest below, the outcome of the Uruguay Round fell someway short of initial US ambitions, which sought the completeelimination of agricultural support. Nonetheless, the GATT agree-

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ment will promote US exports both by limiting the EU's subsidyoptions and opening up Third World markets.T H E COSTS TO DEV ELOP ING COUNTRIESIn common with other non-subsidising exporters, developingcountry exporters have lost markets shares and received lowerprices as a consequence of surplus dumping. During the early1980s, the EU's farm policies alone were estimated to have reducedwheat prices by between 9-17 per cent.30 As the US and the EUengaged in a protracted farm subsidy war these price effects wereintensified, with rival exporters facing significant foreign exchangeand household income losses as a result. Com paring cereals exportprices for 1987 to 1981, Argentina w as losing around $3bn in exportearnings - equiva lent to two th irds the value of imports.31But while it was the interests of non-subsidised exporters whichcame to the fore during the Uruguay Round, the less visible impactof export dum pin g on food security was equally severe. By drivingdow n the price of exports, industrial country farm policies had theeffect of undermining the competitiveness of local staples, andaccelerating the diversion of consumer demand into importedfoodstuffs. Inevitably, rural household incomes and investment inagriculture also suffered, w ith adverse consequences for food self-sufficiency and poverty reduction. We consider these issues ingreater detail below.

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Level Playing Fieldsin World AgricultureTHE SCALE OF US AND EU DUMPING

mages of a level playing field in world agriculture have: been widely used by publicists of the Uruguay Round.The inference is that world agricultural trade has movedinto a more competitive environment, in which market forces, ratherthan government subsidies, dictate competitive advantage. Unfor-tunately, reality and free market images are at considerable variancewith one another. Among the more salient features of the real worldin which agricultural production and trade occur are:32I a transfer of subsidies to the farm sectors of the OECD amount-ing to $175bn in 1994equivalent to roughly half the value ofagricultural outputI subsidy transfers per full-time farmer amounting to $16,000 in

the US and $18,000 in the EUI significant subsidy transfers on the major traded cereals,amounting to $23 bn on w heat and maize for the US and the EU.

Translated into unit/subsidy terms, this figure converts intosubsidies of $66 and $114 respectively per ton of wheat exportedfrom the US and the EU. (See Table 2)2 5


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The significance of these subsidies is not merely in their scale,im pressive as th at is. Their more important aspect is in deter-m inin g the prices at which internation al tra de occurs, an d theterms upon which producers compete with each other. In effect,world prices for w heat and maize are determined by subsidies onthe US and EU exports which dom inate international trade flows.It is these subsidies against which producers in developingcountries are competing when domestic markets are integratedthrough liberalisation measures into the global market. Asindicated in Table 1, smallholder p roducers of staple crops suchas rice, cassava and sorghum face particularly intense com petitionfrom the treasuries of Europe and North America, since theseprovide massive support for the production and export of com-petitive cereals.

T A B L E 1: 1994 PROD UCER SUBSIDY EQUIVALENTS (PSES)FORTHE US AND THE EU ($)

WheatTotal PSE ($m )Unit PSE ($t)

4,17966

9,223114

Course GrainsTotal PSE ($m)Unit PSE ($t)

5,01619

7,888111

All Products (total PSE $m) 26,227PSE per fall-time farmer

SOURCE: OECD

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L E V E L P L A Y I N G F I E L D S IN WORLD AGRICULTURE

Even during periods of relatively high world market prices, thedifferential between production costs and export prices remainsconsiderable. Figures for the US, compiled by the Institute forAgriculture and Trade Policy from official US Department ofagriculture data , show that the margin between inflation adjusted1995 costs of prod uctio n an d export prices stood at 12 per centfor corn, 14 per cent for soya and 16 per cent for w heat (see Table2).33 In other sectors, WTO rules would require that these marginsbe treated as a yardstick for measuring the extent of dumping,and for calculating a countervailing import duty. However,under the Uruguay Round agreement, the subsidies behindagricultural dumping are not treated as 'trade distorting' measuresagainst which anti-dum ping duties will be permissiblea problemto which we return below.TABLE 2: US FOOD EXPORT DUMPING 1995

CornSoybeanWheat

COSfT OFPRQ$|.UG.T}Q*I,Aoitrsieb'. .FOR'lNlr i lLATJON

(iA*sgp-T1995 $&*$-

3.387.285.43

. EXPORTPttJCE

' - & JAN-S 6P T1995 AVERAGE)

>

2.966.244.56

PERCENTAGEOF IMPORTDUMP I NG

1995

12.43%14.29%16.02%

PERCENTAGEOF EXPORT

DUMP I NG1995

16.21%9.82%

22.24%

SOURCE: INSTITUTE FO R AGRICULTURE A N D T R A D E POLICY

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AGRICULTURAL TRAD E AN D FOOD SECURITY

ECOLOGICAL DUMPING

Comparisons between export prices and costs of production capturean important dimension of surplus dum ping activity by northerngovernments. They do not, however, reflect another dimensionwhich, whilst equally important, is more difficult to measurethrough the price mechanism: nam ely, ecological dum ping. Broad-ly, this can be defined as the advantage accruing from a depletionin environmental resources not reflected in export prices. Effortshave been made to re-evaluate national income accounts bysubtracting from economic grow th the losses occurring as a resultof natural resource depletion.34 To date, however, there has beenno parallel attempt to integrate environmental considerations intomore commercial measurem ents of agricultural du mping .The extent of environmental dum ping by northern governmentsis apparent even from a cursory review of the evidence. In the US,the Conservation Reserve Programme rem ov es 11 pe r cent of th ecountry 's cropland from production because the land has becometoo erodible to sustain continuous cropping. The program me wasa response to problems of soil erosion caused by intensive culti-vation of soya and cereals crops. During the early 1980s, it wasestimated that the US was losing the equivalent of over 400,000hectares of agricultural land a year as a result of soil erosion.35 Thecosts of this lost potential for production were not reflected in USexport prices. Neither were the costs of groundwater depletionassociated with intensive agriculture. In the late 1980s, the USDepartm ent of Agriculture reported that w ater tables were fallingby between six inches and four feet a year beneath one-quarter ofirrigated land area.

36Unless farmers reduce pumping , it has beenestimated that some four million hectares of land will have to bewithdraw n from cultivation. In the San Joaquin valley of California,

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LEV EL PLAYING FIELDS IN WOR LD AGRICULTURE

one of the main irrigated farm areas, the rate of groundwaterpumpin g now exceeds replenishment by more than half-a-trilliongallons a year.37There are parallel problems in the EU, where cereals pro-du ction is even more intensive than in the US. According to theEuropean Commission, at least 25 million hectares of farm land arenow threatened by erosionan area eight times the size of theNetherlands.38 In the UK, just under half of all arable soils are atrisk of e ros ion , w ith top soil losses in excess of 20 tons per hec-tare in the most intensively farmed areas of eastern and centralEngland. Soils scientists estimate that a loss of 12 tons per hectarecan reduce crop yields by 8 per cent.39 Once again, however, theresulting economic losses are not recorded either in export pricesor national accounts.The same applies to the cost of nitrate pollution. Level of nitrogenconsumption have tripled over the past three decades in Europe,fueling an unprecedented surge in productivity. The result has beena dramatic increase in the pollution of groundw ater supplies, withnitrate levels now posing health risks in countries such as the UKand Denmark. It is a similar story in relation to pesticides. Each year,thousands of tons of fungicides, herbicides and insecticides arewashed into groundw ater supplies, rivers and coastal waters. Forthe UK alone, it has been estimated that it would cost $700m toreduce levels of pesticide residues to EU drinking water standards.None of these costs are incorporated in export prices. Neither arethe wider 'non-market' costs resulting from the loss of wildlifehabitats, such as meadow s, woods and hedgerow s.The failure of existing price mechanism s to capture environmentalcosts raises issues which are beyond the scope of this paper. Butthe subject is central to any analysis of the relationship between food

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trade and food security. In practice, environmental dumpingtranslates into world prices which do not reflect the real scarcityvalue of the resources used in production. It follows that, even onnarrow commercial grounds, anti-dumping action should beregarded as a legitimate policy response to environmental dum p-ing. This is especially true where environmental dum ping has anobvious bearing on international prices, as it does in the case of theUS and the EU.More broadly, governments must consider whether or not to ex-pose their domestic agriculture to competition from food systemsbuilt upon an unsustainable environmental base. Where pricecompetitiveness depends upon duplicating the destructive envi-ronmental policies of major exporters and discounting the costs,food security considerations suggest a strong case for protection.At present, however, the rules of the World Trade Organisationexpressly prohibit the use of tariffs and other import restric-tions on the gro un ds of concern over the produc tion and pro -cessing methods used by competi tors . They also make noprovision for agricultural protection on the grounds of foodsecurity.

ALL CHANGE AND NO CHANGEWITH THE URUGUAY ROUND

It is frequently argued that the Uruguay Round agreement anddom estic farm policy reforms in the EU and the US have sub -stantially reduced the scope for subsidisation in the industrialisedworld. A superficial reading of the Uruguay Round text itself mightreinforce this impression. Reality is less en co urag ing. There arefour core pro visions in the U rugu ay Round agricultural agree-ment. Collectively, these require the industrialised countries toimplement:40

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LEV EL PLAYING FIELDS IN WO RLD AGRICULTURE

I a 20 per cent reduction in the total value of domestic supportfor measures defined as 'trade distorting'

I a reduction in budget outlays on export subsidies by 36 percent, and a reduction in subsidised export volumes by 20 per cent

I the tariffication of all import restrictions and the reduction ofthese tariffs by 36 per cent overall and no less than 15 per centfor any particular product

I the establishment of minimum market access provisionsequivalent to 3 per cent of domestic consum ption, rising to 5 percent by 2000

Impressive as these objectives appear, the Uruguay Round text isdesigned to minimise the impact on northern subsidy systems.Indeed, the text is based upon an accomm odation between the USand the EU, w ho have re-defined the concept of a subsidy to bringworld trade rules into line with their perceived self-interest andsurplus dumping practices.Central to this accommodation are the so-called Green Box provisions,which were negotiated bilaterally between the United States andthe EU. Briefly sum marised, these allow governments to providesubsidies which are 'non-trade-distorting' in character. The specificinstruments permitted include direct payments to farmersw hich , on the definition used by the US and the EU are 'de-coupled'from production. US deficiency payments, which bridge the gapbetween the guaranteed intervention price and a politicallydetermined target price to support farm incomes, fall into thiscategory. So, too does the system of direct paym en ts introd uce dunder the 1992 CAP reform, which was itself designed to securean agreement with the US.

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In other words, the main mechanisms of farm income support inthe EU and the US will not count as subsidies. This helps to explainwhy the EU's direct payments to farmers increased by 25 per centin 1994, pushing the overall level of agricultural subsidisation upto $80bn,A1 and bringing the CAP to its fiscal ceiling. More generally,the shift away from direct to indirect subsidisation helps to explainwhy overall subsidy transfers, as measured by the OECD, increasedby 5 per cent during 1994, despite a rise in world prices.42T H E G R E E N B O XOther elements in the small prin t of the Green Box arrangem entshave further d iminished the real subsidy reduction obligations setout in the Uruguay Round agreement. For example the overallperiod stipulated for calculating the final level of permittedagricultural exports is 1986-1990, but individual exporters can ifthey wish adopt a base period of 1990-1992. This apparentlytechnical detail will substantially raise the base year figure for boththe US and the EU, thereby increasing the volume of permittedexport subsidies.43 The effect is to provide a reward for pastdu m pin g activity, and a guarantee that such activity will continueinto the future. Against this background it should come as nosurprise that both the EU and the US claimed to have already m ettheir Uruguay Round commitments in advance of signing the treaty.Any reduction in subsidy levels during the present year will resultfrom a decline in export subsidies, rather than from a structuralreform in northern farm policies or the Uruguay Round.T H E M YT H O F ' D EC O U PL IN G 'Contrary to the claims of the US and the EU, linkage between directpayments and production is built into the formulae used todetermine income transfers. In the EU (as in the US), these are based

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LEV EL PLAYING FIELDS IN WO RLD AGRICULTURE

on land holding size and average yields. Since land is a productiveasset, it is in practice a substitute for output-related payments; andthe inclusion of yields per acre in determining payments givesfarmers an obvious incentive to raise these to the maximum possiblelevels in order to maximise future subsidies. According to oneestimate from the authoritative Agra-Europe journal, the effect ofdirect paym ents will be to raise overall EU cereals output some 30mtons above w hat it would be in the absence of such payments.44 Thatis equivalent to around three-times the EU's 1994 exports of cereals.It is true that, und er the new regime, one of the eligibility criteriafor farmers to receive direct paym ents is the diversion of land fromproduction, or land set-aside. But, experience in the EU so farconfirms evidence from the US that this is a highly inefficient meansof restricting output. The 15 per cent set-aside introduced by theEU in 1993/1994 reduced output by only around 2 per cent,unsurprisingly since fanners tend to remove their most marginalland from cultivation. More recently, the EU has diluted its set-asidearrangem ents to remove a requirement that farmers rotate the landarea taken out of cultivationan arrangement which was intro-duced to ensure that all land, rather than just the most marginal,was removed from production over time.Another form of direct payment w hich has an important effect onthe production and marketing of cereals is the US's crop insuranceschemes, which currently run at around $2bn annually.45 Policymakers increasingly see these schemes as an alternative to pricesupport, suggesting that they will increase in importance. Inadd ition, a wide range of export credit and food aid program mes,notably the US Export Enhancement Programme, remain intactfollowing the Uruguay Round agreement.There is nothing new in multilateral trade rules being written to

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accommodate the strategic interests of the US and the EU. In fact,the entire history of agriculture in the GATT has reflected thistendency. What is important about the most recent performance ofintellectu al gym nastics is that the term "subsidy" has been rede-fined to allow for continued support to levels of productionmassively in excess of domestic dem and , and for the dum ping ofthose surpluses on world markets. Under the new regime whatwere previously counted as export subsidies will now count as'direct payments', which will not be subject to WTO disciplines. Inother words, the exports of wheat and maize that find their wayinto liberalised Third World markets will continue to carry sub-sidies on a scale which makes any concept of a competitive freemarket m eaningless.MARKET IMPLICATIONSThe outcome of the various loopholes built into the GATT agree-ment is reflected in the wide range of assessments of the U ruguayRound, which predict marginal changes in cereals prices. The FAO'seconometric modeling exercise to gauge the price effects of theUruguay Round concludes the t world cereals prices will rise by nomore than 7 per cent for wheat and 4 per cent for maize, millet andsorghum to the year 2000.46 Projections by the OECD arrive atbroadly similar conclusions. The results of the OECD's efforts toevaluate the impact of a 30 per cent reduction in subsidies, w hichis considerably more than will be implemented under the UruguayRound , pointed to a small decline in wheat prices and a 2.3 per centrise in cereal grain prices by 2002.47Against this background, Malthusian warn ings about long-termshortages deserve to be treated with caution. While price increaseswill impose severe strains on develop ing country im porters in theshort-term, the structural over-capacity of northern farm systems

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LEV EL PLAYING FIELDS IN WOR LD AGRICULTURE

remains intact. The elimination of set-aside requirements in the USand the withdrawal of the Conservation Reserve Programme,which is a major objective for US agribusin ess interests, willreinforce this over-capacity. All of w hich helps to explain why, inits most recent review of agricultural markets, the OECD concludedthat while the Uruguay Round would result in a redistribution ofworld market shares production levels would make it possible tomeet import dem ands without a sustainedrise n prices: "the supplypotential of cereals in major producing countries seems large enough tolimit any sustained increase in real prices. "48 Stated differently,producers in developing countries will continue to operate inmarkets characterised by over-supply, with attendant threats toefforts aim ed at enhancing self-sufficiency.

FIGURE 3 : OECD CEREALS EXPORTS AND MARKETPROJECTIONS FOR THE US AND EU TO 2OOO

SOURCE: OECD WHE AT CZICOURSE GRAIN

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THE FARM TREADMILL

Before concluding this section, one important point n eed s to bestressed in relation to the subsidisation of northern agriculture.Impressions of a pam pered farm sector do not accurately reflect thereal beneficiaries of present forms of subsidised intervention.Because these reward output, the hulk of financial transfers go tothe biggest farmers. Powerful agro-industrial concerns, supplyingthe capital intensive sectors of agriculture, also flourish from theartificial m arkets generated by guaranteed prices. The same cannotbe said of the vast majority of smallholder producers, w ho are beingban krup ted in record numbers across Europe and North A merica.Over a very long period of more than three decades, averageincomes in agriculture have stagnated or declined, with farm gateterms of trade deteriorating, as inpu t prices rise relative to outputprices. Thus w hile the costs of the CAP tripled in the 1980s, averagereal farm incomes remained static. Given that the size of theeconomically active population in farming fell by half betw een 1980and 1987 alone, this is a striking situation.49 The largest farms havecounteracted the resulting income pressures by raising productivityand ou tpu t volum es at a faster rate than relative prices are deter-iorating . They have been able to do so, in part, by converting accessto subsidies into more capital intensive forms of production.In EU, the largest 25 per cent of farms receive around 75 per cent ofCAP subsidies.50 But smaller farms, unable to exploit increasingeconomies of scale, have been driven out of business, with the resultthat, across Europe and North America, farms holdings havebecom e more concen trated . In the US, avera ge farm size h asincreased from 120 hectares in 1960 to over 180 hectares today - andthe trend is accelerating.51 Since price cuts have the effect ofdisplacing smallholders and leading to more concentrated patterns

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LEVEL PLAYING FIELDS IN WORLD AGRICULTURE

of landholding, the cycle of declining farm numbers and risingou tpu t becomes self-perpetuating. Another casualty of subsidisedindustrial farming is the environment, which has been ravaged inthe drive to maximise productivity and output through mono-cultural practices. These issues are considered in Annex land 2.

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North-South Linkagesin Food Security

T he relentless expansion of food exports from the ind us-trialised world has played an important role in restruc-turing Third World food systems, with imported cerealsmeeting a growing proportion of local demand for both humanfood and animal feedstuffs. Agricultural over-production and fooddum pin g, has been one factor in creating the policy environm entfor Third World food dependence. But, there has been a lethalinteraction between policies designed around the interests ofagribusiness in the North and 'cheap food' policies pursued by elitesin the South. O ver-va lued exch ange rates hav e played a centralpar t in shifting the relative prices of locally produced and impor-ted foodstuffs in favour of the latter. So, too, have wider deve-lopment strategies aimed at securing access to cheap food in orderto depress wage costs and accelerate industrialisation. By damp-ening local food prices, subsidised imports have provided govern-ments with the means to pursue an industrial bias in their domes-tic pricing policies, effectively turning the terms of trade againstthe smallholder food staple sector. Rapid urbanisation and the

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NOR TH-SOUTH LINKAG ES IN FOOD SECURITY

westernisation of diets towards wheat-based bread and processedfoodstuffs has reinforced the trend towards importation, as has theuse of advertising to effect shifts in consumption patterns.

CULTIVATING FOOD DEPENDENCEIN AFRICA

TH E SAHEL

To a greater or lesser extent, the loss of self-reliance in basicfoodstuffs has been observable across the developing world,especially in sub-Saharan Africa. The Sahel had been one of themost affected regions. The coarse grain agriculture (millet, sorghumand maize) which accounts for three-quarters of the cultivated areahas been in decline since independence three decades ago.52 Overthe same period, imports of rice and wheat from Europe, Asia andNorth America have increased at rates of over 10 per cent a year.As a resu lt, consum ption per capita of coarse grains decreasedover the period 1960-1983 by 22kg, while that of rice and wheatincreased by 16kg.53 During this period, population size doubled,while the urban population more than quintupled. Meanwhile,production of coarse grains has fallen by over 1 per cent per annumin per capita terms.Relative prices for imports and locally produced cereals have beenthe most important factor behind the substitution of imports forlocal produce. Evidence for the 1970s and early 1980s is conclusivethat governments in West Africa have kept rice and wheat cheaprelative to domestically produced grains. While average world priceratios of milled rice to sorghum were roughly 3:1, typical WestAfrican ratios were between 1.3 and 2.3:1.54 Price ratios betweenwheat flour and maize meal were similarly distorted . These pricediscrepancies were the result of policies to subsidise urban

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consumption through over-valued exchange rates and northernsubsidies. While comparative data for the 1980s is lacking, the in-tense food dum ping competition of the mid-1980s almost certainlyfurther lowered the costs of imports relative to local production.Similar processes have been observed elsewhere in sub-SaharanAfrica. In the Sudan, the real price of wheat-based bread relativeto the main substitute, sorghum-based kisra, more than halvedbetween 1970 and 1985. This contributed to a tripling of wheatconsumption during the period , reinforcing import dependence inthe local food system. The US supplied over half of wheat importsun de r its PL 480 programme. By 1987, 93 per cent of marketedwheat w as imported, 85 per cent of it in the form of food aid.55 Thereis a broad consensus that w heat dependence is one of the centralsources of food insecurity in the Sudan.N IG E R IA ' S W H E A T T R AP

The interaction of domestic and international factors in erodingfood self-sufficiency is graphic ally illu str ate d in the case ofNigeria.56 Basically self sufficient until the late 1960s, after 1970wheat imports flooded into the country at a rate of increase in excessof 20 per cent per annum . By 1980, Nigeria was a major internationalimporter of wheat, purchasing around one-and-a-half million tonsannually. During this transition, production of yams, cassava, milletand guinea corn fell dramatically.The processes behind the trend towards food dependence havebeen researched in some detail, and the analysis raises policyconsiderations of far relevance to other regions. Most importantly,the massive food imports of the 1970s and 1980s are evidence notof a grow ing gap between domestic productive capacity and need,bu t of local markets being restructured in a manner which favoured

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NOR TH-SOUTH LINKAGE S IN FOOD SECURITY

imports. Rapid inflation at home had the effect both of creatingimport demand and eroding the prices received by local foodproducers. If imports had been restricted, domestic food priceswould have increased. This in turn w ould have slowed migrationto the towns and increased rural purchasing power - outcomeswhich ran contrary to the Nigerian government's industrialisationstrategy. Instead, markets were kept open, while the internationalpurchasing power of the naira, protected by petroleum exports,facilitated the importation of wheat at levels which preventeddomestic food prices from rising, trapping local producers in adownward spiral.As one study puts i t : "Nigeria is unable to feed herself not because ofthe backwardness of her producers or their lack ofcommercial orientation.Their markets have been undercut by policies which have favouredimports."57 The same s tudy goes on to document the role of com-mercial interests in the US and Nigeria in fostering market dem andfor imported wheat through the development of a processingindustry and the cultivation of new consumer tastes. Many of thesame processes have been documented for countries in LatinAmerica and Asia, where the loss of food self-sufficiency in basicstaples has also been in evidence, albeit in less extreme form thanfor sub-Saharan Africa.

i

DANGERS OF FOOD D EPEND ENC YIN THE PACIFIC RIM

Traditionally, concern about the loss of food self-sufficiency hasbeen focused upon sub-Saharan Africa. Looking to the future, otherregions are now facing acute threats which, in some cases, have yetto register politically. Those threats are especially pronounced inthe Pacific Rim region, where a combination of unilateral initiatives,comm itments under the Uruguay Round agreement, and bilateral

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trade pressure is gradually opening up markets. Particularlyimportant in the latter context, is the fact that the Pacific Rim hasbecome a focal po int of US efforts to expand export outlets.It is not difficult to see why. The region already accounts for about40 per cent of US farm exports.58 Moreover, agricultural trade is oneof the few areas in which the US retains a positive trade balance,am ounting to around $13bn annually. Even for China, which hasa massive $29bn surplus in its trade with the US, farm trade remainsmarginally positive. Given the vital importance of the agriculturalsurplus to the US economy, it would be a mistake to under-estimatethe central role of the Pacific Rim in America's strategic vision forthe future.That vision includes a massive expansion of exports to the year2000. USDA estimates suggest that two-thirds of the global increaseanticipated for farm exports will take place in the region. Translatedinto financial terms, this represents an increase in export earn ingsof some $14bn by the year 2000, when it is envisaged that the PacificRim will absorb two-thirds of all US agricultural exports.59 Of thissum, an estimated $3bn will derive from market openings resultingfrom Uruguay round agreement.60There are two overlapping elements in the strategy to achieve thistarget, namely:I increased penetration of higher-value-added meat, poultry, dairy

and processed food markets in Japan, South Korea and Taiwan.Broadly, this implies the conversion of US soya and maize intomeat protein at home, thereby maximising the retention of value-added

I the expansion of bulk markets for wheat and maize, with thePhilippines and , to a lesser extent, Indonesia and Malaysia, themajor targets.

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NORTH -SOUTH LINKAGES IN FOOD SECURITY

M A R K E T S F O R W H E A T

With regard to the second of these markets, future strategies willbe building upon past achievements. In 1989, a report on wheat bythe OECD observed of the Philippines and Indonesia that: "Giventhe low per capita incomes and the preference in urban areas for wheatover rice, there is considerable potential for increasing wheat exports tothese markets.61" Changing dietary patterns in favour of wheat-basedfast food, the expansion of modern supermarket chains linked tosuppliers in the US, rapid growth, and an increase in dem and foranimal feeds, all poin t towards an increase in cereals imports, aswitnessed by recent experience. Ignoring year-to-year variationscaused by adjustments in South Korea, some five million tons inadditional trade has been created since 1989/1990.62 The largestgain, about 2 million tons, has been for Indonesia, although wheatimports have also expanded at a prolific rate in Malaysia and thePhilippines (see Figure 4). The Philippines , it should be added, isregarded with some justification by US farm policy planners as acaptive market, since over 90 per cent of wheat imports into thecountry originate in the US. By contrast, rival exportersnotablyAustralia and Canadahave established market domination inIndonesia and Malaysia, where the US currently sup plies onlyaround 10 per cent of imports.

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US agric ultura l policy doc um ents stress the im po rtan t priceadvantages enjoyed by wheat over locally produced staples inSouth-East Asiaan advantage comm only attributed to compa-rative advantage. At risk of understatement, this assessment isdifficult to square with the facts. Even the most cursory consi-deration of the US subsidy structure considered above (andpresented below in graphic form) should be enough to disabusethe most hardened neo-classical economist that market prices in this

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FIGURE 4: WHEAT IMPORTS INTO MALAYSIA, INDONESIAAND THE PHILIPPINES

IndonesiaPhihpp ncsMalays id

SOURCE: INTER NATIO NALGR AINS COUN CIL

context reflect relative efficiency. As Figure 5illustrates, the averagesubsidy per farmer in the US amounts to over twenty-times theaverage income for the Philippines, making any pretense of a levelplaying field difficult to justify.Impressive as they are, overall subsidy levels on imports do notcapture the intensity of the competition which is developing in localfood markets. While it is true that relative prices moved sharply infavour of US wheat since the mid-1980s, this has been largely aconsequence of aggressive subsidisation. Between 1992 and 1994,the Export Enhancem ent Programm e (EEP) prov ided over $lb n forsales of wheat to Asia.64 In total, wheat accounted for over 90 percent of all EEP transfers to the region, which in turn absorbed one-half of all wheat exports carrying EEP bonuses . The two major USexport credit programmes (GSM 102, which covers credit costs forup to three years, and GSM 103, a parallel facility providing coverfor up to ten years) have also been extensively deployed.65

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NORTH-SOUTH LINKAGES IN FOOD SECURITY

FIGU RE 5: PER CAPITA FARM SUBSIDIES IN EUROPE ANDNORTH AMERICA, AND AVERAG E INCOMES (1994)FOR MALAYS IA, PHILIPPINES, INDONESIA ($000)

C R E A TI N G A FO OD D E PE N D E N C Y : TH E P H I L I P P I N E S

The experience of the Philippines illustrates the scale of exportsubsidation involved. Country analysis reports by the US Depart-ment of Agriculture have identified the previously protected staplefood sectors of the Philippines as potentially important areas ofmarket penetration. Inadequate infrastructural investment is seenas central to the competitive position of the US. To quote one recentUSDA report:

"In the absence of sustained, aggressive investment in infra-structure and increased competitiveness for corn production, thePhilippines could become a regular corn importer by the end of thedecade...Because Thailand and China's corn surpluses are likely todiminish in the 1990s, US corn may be able to capture a large shareof this growing market.66"

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Given that the Philippines government's agricultural modern-isation plans envisage a transfer of resources away from thestaple food sector, this optimistic scenario, from the USDA pers-pective, is likely to be realised. The winners will be the major grainexporting corporations, who control maize exports from the US andhave a major stake in the maize processing sector in the Philippines.This helps to explain the active role of the Cargill corporation inpressing the US government to use trade pressure as a means ofopening up the Philippines market. The losers will be the small-holder maize producers whose livelihoods will be destroyed bycheap imports.Unequal competition between farmers in the US and the Philippineshas been reinforced by export subsidisation aimed at expandingwheat consumption. In 1991, the Philippines imported 1.2m tonsof wheat from the US, almost all of it under the EEP. That wheatwas sold to the Philippines at $96/t. Meanw hile, the EEP bon usattached to these imports amounted to $40 /t, and the US farmerswho produced them received deficiency paym ents of $77/1. Stateddifferently, for every $1 worth of wheat imports purchased by thePhilippines, the US government provided subsidies equivalent toslightly under $1 A.67 Were the US electronic industry to be subjectedto similar levels of subsidised com petition, it would doubtless bedifficult for the judiciary to deal with the flood of 'anti-dumping'suits which w ould follow. But in matters of farm policy, differentrules apply. Indeed, the differences are celebrated as an ultimatetriumph of the market. To quote a 1995 Agricultural Situation reportfrom the US Embassy in Manila:

"Wheat is not an indigenous crop to the Philippines, nor is itcurrently viable as a comm ercial crop. How ever, whea t plays anincreasingly important role in the Philippines grain m arket and isgaining on rice as a staple in the urban diet...Since 1986, the EEP

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has been an important tool in maintaining this traditional marketfor US wheat against subsidised competition.68"

It appears to have escaped the notice of the report's author that theonly subsidised competition in wheat during the year in questioncame from Saudi Arabia, whichwhatever the strength of thepolitical forces that guide the Kingdom to grow wheat at ten-timesthe world market priceis unlikely to threaten the US's globalmarket dominance. Notwithstanding the obtrusive nature ofmarket realities in the Philippines, the report goes on to welcomethe steep rise in consumer demand for bread roll, pizzas, donutsand pasta facilitated by the EEP.69 The question of whether financingthe western dietary patterns of the middle-class is the mostappropriate use of the country's scarce foreign exchange, is notaddressed.Neither is the more serious question of whether the food importsnow flooding into the Philippines are dam aging food security in amore fundamental sense. According to the most recent (1993)National N utrition Survey, the average intake of gram s providedby rice has fallen by 5 per cent since 1993. At the same time, percapita production of maize and rice has stagnated or perhaps evendeclined since the mid-1980s. Structural deficits in rice amountingto 800,000 tons over the past five yearsnow appear to be a fact oflife.70 The role of food imports in generating these deficits bydepressing production and investment on the part of local pro-ducers has yet to be explored. It may well be that causal connectionswill be difficult to establish. However, there is strong prima facieevidence of a negative correlation between rising imports anddiminished self-sufficiency.In contrast to many other developing regions, the Asean countrieshave set considerable store by protecting their food self-sufficiency.

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That strategy has been justified by social as well as economicconsiderations. However, as economic growth gathers pace andmoves towards agricul tural l iberal isat ion gather impetus ,there is a grow ing danger that the region will become increasinglydependent upon imports, with potentially adverse consequencesfor rural livelihoods.While the experience of sub-Saharan Africa differs from that of theAsean countries in many obvious respects, it is worth recalling thatsome three decades ago that region too was largely self-sufficient.Moreover, many of the same forces which generated food depen-dence are in evidence in Asia today. Governments committed to'cheap food' for growing urban populations, escalating currencyvaluations w hich give a relative advantage to imports, inadequateinvestment in infrastructure for staple food production, and acommitment to priority investment in export-oriented agricultureand industry are all features of the Asean horizon. M oreover, Aseanand the Asian Pacific Economic Cooperation group are movingheadlong into increasingly radical trade liberalisation initiatives,against which even the Uruguay Round will pale into insig-nificance. Were these initiatives extended to agriculture, they wouldexacerbate the pressures on local agriculture, reinforcing the lossof self-sufficiency in some countries in the process.More immediately, the Uruguay Round agreement will contributeto wider forces integrating food staple producers in Asean andelsewhere into world markets. Minimum access provisions andtariff reductions will expand imports of rice into Indonesia andMalaysia, and of maize in the Philippines. Moreover, the US canbe expected to use the WTO as an instrum ent for prising open foodmarkets, much as it has done in financial services and hi-technologygoods. The threat of GATT-sponsored sanctions w as instrum ental

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in persuading South Korea to open its beef m arket in 1990, sincewhen the country has moved from self-sufficiency to 53 per centimport dependence. Similar actions cannot be ruled out againstgovernments, especially should they start to renege on UruguayRound commitments to reduce import barriers and withdraw pricesupport measures.

IMPLICATION OF THE URUGUAY ROUN DAGREEMENT FOR DEVELOPING COUNTRIES71

An important question for governments in south-east Asia andLatin America is whether or not the Uruguay Round will hamperefforts to increase food self-sufficiency. The answer to this questionis an unequivocal 'yes '. Indeed , from a US perspective, this is oneof the central purposes of the agreement.The GATT agreement on agriculture makes a number of specialprovisions for developing countries. Most important among theseare provisions which stipulate that:I subsidy reduction comm itments will be equivalent to two-thirds

of the level required of developed countries;I countries with subsidy equivalents of less than 10 per cent will

be exempt from reduction commitments;I least developed countries will be entitled to full exem ption,although they will be required to bind their tariffs.An obvious concern w ith these provisions is their asymm etry. Inthe industrialised countries, farm subsidies typically am oun t toover $170bn. By comparison, even those developing countrygovernm ents w hich do attempt to protect local prices do so on aninfinitely smaller scale. All of w hich raises the question as to whydeveloping countries should be required to start liberalising until

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the industrialised countries first reduce their subsidies to a com-parable level.Moreover, in contrast to northern governm ents, most developingcountries lack the resources to protect rural incomes. In the OECDcountries, primary agricultural production typically accounts forless than 5 per cent of employm ent, making direct payments fromthe budge t a viable means of income support. By contrast, in mostdeveloping countries agriculture accounts for well over half ofemploym ent (and more than three-quarters in the least developedcountries), while budgetary resources are highly restricted bypoverty. Even in Mexico, where agriculture now accounts for onlyaround 8 per cent of national income, it represents over one-quarterof employment. To suggest, as the Uruguay Round agreement does,that these governments should rely on direct payments to ruralproducers as the primary m echanism for income suppor t is to flyin the face of reality.Quite apart from these considerations, there are sound social andstrategic reasons for protecting national food systems in theinterests of creating rural employment, reducing poverty, pro-moting environmental sustainability, and ensuring a predictablesupply of food staples at afford able prices. These reasons are hardlydiminished by comparative advantage arguments which start outby ignoring the market distortions caused by northern subsidiesand by rejecting the divergent purposes and effects of differenttypes of subsidies.THE CASE FOR PROTECTIONEfforts to develop an alternative framework were initiated du ringthe Uruguay Round by the Government of Jamaica, which drew asimple but important distinction between the aims of subsidisationin the North and in the South:

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NORTH-SOUTH LINKAGES IN FOOD SECURITY

"Subsidies which distort trade need to be disciplined.. ./but/.. Anthose parts of the world where there is no production or under-production, we believe it is an obligation to encourage productionat the national level... We do not believe that this is the same thingas using subsidies which increase self-sufficiency ratios beyond thelevel which m eets domestic consumption requirements and whichare used to increase both production and exports72"

It could be argued that this approach suffers from a serious1contradiction, in that any subsidy which influences self-sufficiencyinevitably has an effect upon trade. However, while it is difficultto escape the fact that this logical tension pervades the argument,it can hardly be compared with the intellectual gymnastics per-formed by the EU and the US in contriving their definition of a 'non-dis tor ting' subsidy. The difference, of course, is that the UruguayRound agricultural agreement w as written by the US and the EU,and not by the Jamaican Government.Perhaps a more serious problem with the Uruguay Round agree-ment concerns the thorny issue of national sovereignty. Throughouttheir recent histories, both the US and the EU have refused to ex-pose their agricultural systems to unregulated market forces. Theexperience of the Dust Bowl in the US and of post-war foodshortages in Europe led to a consensus that the protection of ru rallivelihoods and food security were too important to be left to themarket. There w as also a recognition, which extended beyondagriculture, that unregu lated markets had an in-built tendency toresult in chaos, social dislocation and, equally fundamentally,economic inefficiency. Against this background there is somethingdeeply disturbing about a multilateral trading system which deniesto developing countries the right to deploy policy instruments indefense of their food security w hich, until recently, were regarded

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by the US and the EU as matters of absolute sovereignty.Whatever its shortcomings, the

agricultural trade and food security

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