ifpri- food security and trade- a ganesh-kumar, igidr

Workshop on

Food Security in

India

IFPRI, New Delhi

11 March, 2014

Food Security and Trade

A. Ganesh-Kumar

Well known definition (World Food Summit, 1996)“food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life”

Reconfirmed at the World Food Summit, 2009

4-pillars of food securityo Availability, Access, Utilisation and Stability

Problem is multi-level National levelo Trade has an important role

Household levelo Income and price are the primary determinants

o Trade can play a role here too

Intra-household levelo Trade has no role here

Food security

Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014 2

Trade affects availability & domestic price Imports add to availability – reduces price

Exports reduce availability – raises price

Volatility in wold market affects domestic price Itself a reflection of world supply -demand balanceoSupply – influenced by long-run trends (technology, productivity,

cropping pattern), short-term shocks (weather, wars, …) and possible structural change (climate change)

oDemand – influenced by long-run trends (growth, tastes, …)

Other factors can also cause volatilityoPolicy shocks – imposition / relaxation of trade barriers

oVolatility in related markets – energy, commodity markets in general

o Increasing financialisation of commodity markets


Where does trade fit in?

At the national level

International trade offers income earning

potential for traders and producers

Exploiting this potential requires several complementary

conditions

But is also a source of competition

Producers need to be equipped to face import

competition

oProductivity & technology are the keys

Where is India placed on these aspects?


Where does trade fit in?

At the household level

5Workshop on Food Security in India, IFPRI, New Delhi, 11 March, 2014

National level food security

and international trade

Answer to this question depends on what we mean by FOOD?

Most assessments of food availability focus only on cereals That too only rice and wheat

Government policies and interventions are also mainly in rice & wheat Public procurement, price support, PDS

National Food security Bill

Interventions involving other food items are much smallero ICDS, Mid-day meals, etc.

But food is NOT just cereals, NOT just rice & wheat alone


What is the food availability situation in

India?


Diets are diversifying

Cereals & sugar are losing shares


Dairy, egg, meat, fish, F&V, beverages

are gaining shares


Share of pulses, edible oils, salt & spices

are fluctuating


Price rise in recent years more in the high

value products than in cereals


Price rise in recent years more in these

high value products than cereals …

Amongst major food items Net-exporter – rice, other

cereals, spices

Changing situation – wheat, sugar

Net-importer – pulses (& edible oils)

o Very high import dependency

o Persistent deficit over several decades

Amongst high value products Net-exporter – vegetables,

meat, fishery

Self-sufficient – dairy products


Domestic supply -demand conditions

Past trends in supply -demand gap likely to persist in the foreseeable future

Planning Commission 12 th Plan Working Group (2011) Surplus – cereals, sugar

Deficit – pulses, oilseeds / edible oils

No assessment in case of F&V (no supply forecast)

Ganesh-Kumar et al. (2012) Surplus in 2025 – rice & wheat

Dastagiri (2004) Surplus in 2020 – milk, mutton & goat meat, beef & buffalo meat,

chicken meat, and eggs

Link between FS & trade likely to be more via exports

Pulses and edible oils are the exceptions


Few comprehensive long-run supply -

demand gap assessments

Exchange rate risk Recent times have seen high volatility in exchange rate

Linked to global economic conditions and India’s macroeconomic fundamentals

Situation likely to persist in the foreseeable future

Commodity-level price risks Sharp downswings / sharp upswings

Impacts would depend upon net-trade position

Impacts on importers & exporters would vary

Limited policy instruments to handle volatilityo Not comprehensive – not all situations can be handled

o Nor complete – cannot offset risk totally

o Inadequate market institutions to handle risk – futures markets & agricultural insurance


But risks would persist

Net-exportables

Exports turn unattractive

Exporters would have to take a price cut

Un-exported surpluses likely

Would dampen domestic price

Farmers would suffer

Domestic consumers would benefit

No real instrument here

Net-importables

Mainly pulses, edible oils

Helps domestic consumers

But domestic producers could suffer

Tariff rate changes have been used in past to balance these concerns

Feasible due to significant tariff binding overhang


Sharp downswings in world price

Net-exportables Exports more profitableo Exporters would benefit

Export surge would reduce domestic availability

o Domestic price would rise

o Farmers would benefit

o Domestic consumers would be hurt

Export bans have been used in past Protection for consumers at

the cost of producers

Exacerbates world market imbalances

Net-importables Mainly pulses, edible oils

Imports can shrinko Domestic prices would rise

o Hurts domestic consumers

o Reduced import competition can benefit domestic producers

Tariff rate cuts can help Limited depending upon

applied rates


Sharp upswings in world price


Household level food

security and international

trade

Planning Commission poverty estimates for

2011-12

Rural poverty – 217 million persons (25.7%)

Urban poverty – 53 million persons (13.7%)

Total poverty – 270 million persons (21.9%)

All the urban poor and a good chunk of rural

poor are net-buyers of food

A majority of the rural poor are agricultural

labourers and farmers themselves


Which household?

Income level and food price level are the drivers of their food security

Income level depends upon level and dynamism of economic activity Includes agricultural performance, especially if the household is

dependent on agriculture

Trade regime & global market conditions can affect the level of economic activity

Food price depends upon national level availability situation Here trade plays an important role

But so too domestic supply chain issues

Safety nets are important


Poor net-buyers of food

Their dependence on market for food consumption could be limited

But their income levels are low and that makes them vulnerable to shocks to their farm output

Especially so for small & marginal farmers

Expanding their markets and strengthening their income earning potential is the key

Exports play a role here

Productivity improvements to strengthen their capacity to face import competition

Complementary role of domestic supply chains


Poor farm households


Complementary conditions

to reap the benefits of

international trade for food

security

Efficient domestic supply chains are essential

To maintain price stability – critical for net-food buyers

To ensure farmers reap benefit of expanding markets

including exports

Enormous scope for domestic reforms

Laws, inter-state movement barriers, tax structure,

transport & storage infrastructure, trading structures and

marketing linkages, agro-processing industry, …


Domestic supply chains

Ensuring open and stable trade policy

Export support measures (not subsidies)Meeting SPS requirements

Infrastructure development

Technological support to boost productivity & enable farmers face import competition

Market deepening including futures market and insurance for handling risks

Safety nets for consumers and producers


Government role

Significant distortions persist in international trade regime w.r.t agriculture

Legacy issues from the Uruguay Round

Slow progress in multilateral trade negotiations

RTAs an increasing challenge to multilateral rule based trade in agriculture 377 of 583 RTAs as of 31-Jan-2014 are in force

16 RTAs involving India in force

Political issues stalling / slowing cooperation in South Asia


Conducive global trade regime

WTO Bali deal is indication that there is still some will amongst nations to take forward multilateral trade talks

But the deal itself appears more like buying time to set the house in order

India’s huge public procurement will not be challenged for 4 years – what later?

Legacy issues from the Uruguay Round such as Base support calculation, export / domestic subsidies, etc., remain unresolved

Eventual outcome of the Doha Round remains unclear


Conducive global trade regime …

Approach to food security has to be broad based in terms of food items

Trade can help improve food security at the national and household levels

This requires several complementary conditions to be in place

The bigger challenge, however, is to set right the complementary conditions that can help reap the benefits


Bottom-line

ifpri- food security and trade- a ganesh-kumar, igidr

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