Trade policy for food security: Farm policies of developed countries

1 June 2010

Farm policies in developed countries have been widely blamed for creating problems for food security in developing countries. Many of these criticisms are well-aimed, and this note will not attempt a defense against those arguments that are less than persuasive. Instead, the intention is to step back and see in which direction EU and US policies are moving and weigh the implications for a food security framework at the multilateral level.

The nature of developed country farm policies has changed dramatically in the past twenty-five years. Governments have largely given up their role as guarantors of farm prices and as buyers of last resort. They have reduced those policy prices that remain towards world market levels. They have in most cases given up the practice of subsidising exports, and even of restricting exports in times of high prices. They have, in place of price manipulation, introduced payments to farmers based on a variety of criteria only loosely tied to their output of particular products. And they have in most cases introduced environmental criteria into those programs that make such payments.

But these policies have largely been undertaken in an environment of high tariffs. This has been particularly true in cases where the product is deemed "sensitive" in domestic political terms. As a result of the significant tariffs that remain, the domestic policy changes have not reduced markedly the amount of support for developed country farmers.

So the question arises: has the process of policy reform at the national level, reinforced by the Uruguay Round Agreement on Agriculture, had any significant impact on food security for developing countries?

In general, the more prices are allowed to vary in developed countries the less the variability of world market prices. So a move to direct payments is inherently stabilizing. But a distinction can be drawn between the EU and the US in this regard. The US programmes include direct payments that are paid even in times of high prices. So a significant part of US agriculture (corn, wheat, soybeans, cotton and rice) are insulated from the full impact of world market conditions. The EU has moved almost all its farm payments to the Single Farm Payments (and Single Area Payments) scheme, which is not connected to the state of world markets.

What are the prospects for the further reform of these expensive and controversial programmes? And how will the growing fiscal stringency factor into the debate? Will we see a continuation of the trend towards the "decoupling" of support from production? Will the payments be further linked to environmental goals and desirable farming practices? Or will the pendulum swing back the other way, as fears of food price spikes lead to concerns over food security and to the encouragement of greater production of basic foodstuffs?

The next two years will see decisions taken that will effectively shape farm programmes in the EU and the US for the rest of the decade. The EU's Common Agricultural Policy (CAP) needs to be accommodated within the Union's next multi-year budget horizon, for 2014-2020. How much money the agricultural ministers will be able to spend on EU rural programmes will be a major factor in the political decisions on the budget. In the US discussion of a new Farm Bill, which will be needed by the end of 2012, has also started. Again the struggle will be about the amount of funding that will be allocated to agricultural programmes and how much to nutrition and conservation. And to complete the eternal triangle, the WTO Doha Round, which is limping toward a 2011 finishing line, would, if agreed, put additional pressure on domestic farm spending after 2012.

The Lisbon Treaty, which came into effect in December 2009, gives the European Parliament (EP) a greater say in farm policy. The agricultural committee of the EP is likely to try to slow if not reverse the reform movement and to push the CAP in the direction of market stability and protection. It will be left to other EP committees to emphasize the trade and development implications of the CAP. So the new Agricultural Commissioner will face the challenge of finding a way to steer the reform of the CAP through both the conflicting national positions of agricultural ministers and the more ideological divisions in the EP. What emerges may be less coherent than the reform path taken by his two predecessors.

There is less danger of recidivism in the US, in part because the farm policy has yet to turn the corner toward broad-based whole farm payments tied to sound environmental practices. But reform is likely to be increasingly difficult to advance in a period of budget stringency. Most of the funding for farm programmes is regarded as "entitlements" and not subject to cuts in "discretionary" spending, though Congress can always revisit the provisions of the farm legislation. The parts of the farm programme that are more vulnerable to budget cuts are those that support conservation and environmental stewardship. The task of the groups that favor reform will be even more difficult in 2012.

So the need for speedy conclusion of the Doha Round is clear. If the draft modalities from December 2008 survive the end-game, neither the US nor the EU will have room in the trade-distorting categories of domestic support to revive price-based policies after 2015. In that sense the impact on food security will be positive. But the main impact of the Round could well be to give confidence to investors that agriculture in developing countries has a more secure place in the global food system. The real problem with the farm policies of the past half-century has been that the majority of investment (including investment in research) has gone to stimulating production in developed countries. Until the balance is restored the true potential of developing countries will be underplayed.

In addition, perhaps the largest scheme for making food more affordable for the poor has also been in a developed country. The US Food Stamp program (now called the Supplemental Nutrition Assistance Program, or SNAP) spends about US$50 billion each year. It is notified to the WTO Agriculture Committee as a Green Box programme, the largest component of the Green Box in the US or any other Member. The distribution of food stamps is de facto countercyclical, as support for its financing strengthens when food prices rise. This is perhaps not totally in line with notions of global food security, though it is difficult to argue against it on these grounds.

While a global food stamp programme may be fanciful, any tentative move in that direction might help to rebalance food and farm policies. The need at times of high prices and food scarcity is to provide more purchasing power for poor consumers. Without this element the trade system tends to work to their disadvantage: richer consumers manage to keep up their food consumption. And much of the benefit would accrue to developing country farmers, as they would be in the best position to supply the food.

The trade framework for the future should therefore be built upon open markets in food and agriculture to allow developing countries to supply both northern and southern food demand; policies in developing countries that promote investment in agricultural production; the phasing out of production-enhancing policies in the north in favor of those that reflect the social cost of intensive farming in crowded areas; and demand-enhancing policies in developing countries that shelter them from price spikes. In more practical terms this implies a Doha Round cut in tariffs, by both developed and developing countries; the reinvigoration of international investment and assistance to developing country agriculture, including the unblocking of technical barriers to such investment; the elimination of export subsidies and the capping of trade distorting domestic support at a very low level in developed countries; and the development of some mechanism to transfer purchasing power to poor consumers in times of high prices.

Author: Timothy Josling is a professor, emeritus, at the (former) Food Research Institute at Stanford; an FSI senior fellow by courtesy; and a faculty member at FSI' European Forum. This article is an abridged version of an prepared for the ICTSD expert meeting,"What kind of trade policy framework is needed to support food security goals?", held on 25-26 March 2010. The original article is available at: https://ictsd.iisd.org/themes/agriculture/trade-policy-and-food-security-farm-policies-of-developed-countries-what-kind-of

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