Food security and trade: myths and reality by Dr Geoff Raby, Trade Negotiations Division, Department of Foreign Affairs and Trade
GroundCover™ Issue: 15
Fears of global food shortages and famine caused by an evergrowing population have been a recurring theme in history. However, over the past 50 years, the growth of global cereal production has well and truly outstripped population growth.
Despite this good news, there are widespread concerns today about the capacity of the world to feed itself. These concerns have been triggered by a surge in grain prices and a decline in world grain stocks to record low levels.
As a major agricultural producer, Australia has a particular interest and role in global efforts to ensure food security. We also have a strong interest in ensuring that there is balanced debate on the issue, and in dispelling some of the myths and misunderstanding that have sprung up around discussions of food security. What are some of these myths?
World commodity prices, especially for grains, are at record highs: it is true that in nominal terms, grain prices recently reached their highest level for many years (although they have fallen slightly again). However, in real terms (after adjustment for inflation) they are no higher than prices recorded in the mid-1980s. Real prices for grains have been steadily declining over the long term and, unfortunately for grain farmers, this trend is expected to continue in the future.
Food security and self-sufficiency are synonymous: food self-sufficiency is only sensible when a country has a comparative advantage in food production. Even then, countries like Australia still import some items while exporting others. Some of the most vocal supporters of self-sufficiency, such as Japan and Korea, do not have a comparative advantage in agriculture and pay dearly for their dogmatic adherence to such policies. For example, Japanese onsumers pay five-and-a-half times the world price for rice. Food security, on the other hand, is a much broader concept that takes into account the role of international trade in meeting the total food needs of a country's population.
Food security is all about increasing food production: in aggregate terms world food production is sufficient to meet global needs. The fact that there are an estimated 800 million undernourished people in the world indicates that problems of food security are more to do with weaknesses in the food distribution system and inadequate purchasing power (i.e. poverty) than with production shortfalls. As the FAO has stated, "the immediate attack on food security must place heavy emphasis on poverty alleviation and in the longer term on poverty elimination generating the effective demand that is the economic engine of food production growth".
Dependence on food imports is a bad thing: when countries pursue economic activity in which they have a comparative advantage, they maximise economic growth potential and the capacity to purchase food needs. The improvement in food security in several regions, including North-east, North and East Asia, has been because they relied on trade. For example, Japan and Korea have benefited from relatively cheap food imports financed by flourishing exports of non-agricultural goods. Trade has been an important driver of their economic growth. Economic growth, in turn, enhances food security by increasing individuals' control over resources and therefore their access to food as incomes increase.
Uruguay Round negotiations on agriculture will push up world commodity prices and adversely affect food importing developing countries: the International Monetary Fund has calculated that world food prices are likely to increase by a modest four per cent as a result of the Round. This will be more than offset by changes in exchange rates and other prices. Other studies, for example by the FAO, have forecast similar small increases over the longer term. On the other hand, through more efficient resource allocation, it is estimated that the Uruguay Round will provide a major boost to global agricultural trade of the order of US$25 billion by the year 2000, with over US$8 billion accruing to developing countries. This will in turn encourage economic growth and food security.
Liberalising world markets and eliminating agricultural subsidies will reduce global food security: in fact, the opposite is true. Trade liberalisation is a major contributor to economic growth and helps to provide the wherewithal to improve income levels and hence food security. Interventionist agricultural policies, particularly those of the major OECD countries, have had a depressing effect on world commodity prices and trade. For example, the export subsidy wars of the 1980s had a negative effect on food production in non-subsidising countries such as Australia and on overall levels of food security. These policies also led to more instability in commodity markets.
For Australia, it is critical that the linkage between trade liberalisation and global food security is fully understood. This is not to say other things are not important, especially the role of agricultural research — both privately and publicly funded. Nor is it to suggest that foreign aid cannot help. It is, rather, to say that all these efforts will come to little if prices and incentives to invest are disturbed by protectionist agricultural and trade policies. Further agricultural trade liberalisation will clearly benefit efficient producing countries such as Australia, and in doing so will also help to enhance world food security.