AN OVERVIEW OF THE FAO STUDIES ON INTERNATIONAL TRADE AND HOUSEHOLD FOOD SECURITY AND METHODOLOGIES

by

Ramesh Sharma
Senior Economist, Commodities and Trade Division
FAO, Economics and Social Department
Rome, Italy

1. INTRODUCTION

The interest in the impact of economic reforms, including trade liberalization, on poverty and more generally on the distribution of income and welfare within economies has been both considerable and growing rapidly. This follows from the fact that although economic reforms and market openings are widely perceived to be good for efficiency and competition and so for economic growth, there is much less consensus on the distribution side. This is clear from most reviews of the literature on studies based on field surveys, which show different outcomes (positive or negative impact on the poor) in different settings.

Globalization is a relatively recent phenomenon and involves aspects other than greater trade integration. Yet, the issues debated are the same. The main concern expressed is that this process could marginalize countries and population groups within countries, and there are numerous studies that do show that this is the case generally. Such trends were also noted in some of the FAO country case studies that assessed the experience with the implementation of the WTO Agreement on Agriculture (FAO, 2000). The way out suggested is not halting the reform process, which can not be stopped anyway, but to undertake pro-active measures supportive of the pro-poor growth. The latter include many things, the entire gamut of institutions, market structures and resource endowments that limit the ability of small farmers and other low-income groups to participate in commercial activities. Country case studies from diverse settings are essential to identify these factors because the outcomes are so much sensitive to the context.

So, all in all, there are a lot of good reasons that explain the recent surge of interest on the analysis of trade liberalization and poverty or food security. Finding innovative ways to reach the millennium development goals on poverty and other concerns faster than under the “business as usual” pace is certainly an important consideration. A number of international development agencies have launched or are undertaking studies on this topic. These include, for example, the World Bank, IFPRI, OECD and the FAO. Research on this subject is also high in the agenda of the NGOs.

As said above, analytical work of this nature has increased markedly within FAO, and it will only grow in the coming months and years. FAO is keen on this work also for the following reasons:

• Recent trends have shown that the progress in achieving the target set by the 1996 World Food Summit of (WFS) of halving the number of undernourished population in the world by 2015 has been highly inadequate. At current rates, the goal would be met only in decades after 2015. This is obviously unacceptable and so there is an urgency to find innovative approaches to maximize the contribution of inter alia trade to food security.

• As part of monitoring the progress made towards the WFS goal, FAO needs to undertake substantive assessments, in the year 2006, of various Commitments made in the WFS. The contribution of trade to food security is one of the topics (related to Commitment 4, but also Commitments 2 and 3). The FAO case studies would be substantive inputs for this work.

• FAO undertook substantive work on the Uruguay Round Agreements, in terms of analysis and technical assistance. This continues with the Doha Round negotiations. FAO needs to make contributions to the debate on trade liberalization and agricultural development and food security in developing countries, in the context of these negotiations. The question FAO finds increasingly asked is how to ensure that this Round helps, and does not hurt, the cause of agriculture, food security and the poor. This requires good studies based on field realities.

2. FAO STUDIES ON TRADE AND HOUSEHOLD FOOD SECURITY^[5]

2.1 Trade Reform and Food Security Project

Background and objectives

This, the TRFS project, being implemented by FAO’s Commodity and Trade Division, was conceived and formulated primarily in the context of the implementation of the Uruguay Round Agreements and the ongoing negotiations under the Doha Round. The key issue is the impact of trade liberalization on agriculture development and food security. Beginning in 1999, FAO undertook a series of country case studies (14 of them initially, additional 9 in 2002) to analyse the experience with the implementation of the WTO Agreement on Agriculture (AoA) (FAO, 2000). While the main objective (analysis of experiences on policies since 1995) was achieved, it was also noted that the time period (4-5 years) was too short to make meaningful assessment of the impact itself. Most developing countries have been implementing, since about 1985 under Structural Adjustment Programmes, policies similar to those called for in the AoA. In view of this, assessment of the impact of these earlier policies is also relevant for predicting the impact of the WTO Agreements.

This assessment would also be timely because the findings would be useful for negotiating the Doha Round. In particular, there is an urgency to identify trade policy instruments that would contribute to agricultural development and food security, and at the same time minimize downside risks for the small farmers and poor. This was the main background within which the TRFS project was conceived and implemented.

Funded as one of the several projects on food security under the new FAO-Netherlands Partnership Programme, the main objectives of the project are:

• To analyse the relationship between trade and food security at the national, sub-national and household levels in selected low-income food-deficit countries (LIFDCs), with the view to derive implications on the interface between domestic policies and international trading environment.

• To identify effective and WTO-compatible domestic policy measures for enhancing the food security of LIFDCs, including their effective participation in the WTO negotiations on agriculture.

• Contribute to the debate on trade liberalization and food security.

Major outputs planned include:

• Analytical and empirical studies of a global thematic nature and reflecting regional/national cases;

• Participatory workshops involving public sector policy makers and civil society organizations;

• Publications and dissemination to policy makers in case study and other countries, trade negotiators and broader audience.

The major activities envisaged include:

• Development and dissemination of conceptual, empirical and normative papers on the linkages between trade liberalization and food security at the national, sub-national and household levels;

• Detailed country case studies in about 15 countries; and

• Capacity-building and sensitization activities through participatory workshops and other communication means in the selected countries.

Project implementation/analytical activities

Prior to launching the country case studies, a major activity undertaken was to organize an informal expert consultation, held in Rome on 11-12 July 2002. The purpose was to review issues relating to, and the analytical framework for, this programme. The consultation also took stock of works already completed, on-going and planned research in this area. The meeting was attended by about 20 experts in the field - researchers who had done field work and made contributions to analysing trade and food security. Two publications were prepared following this consultation. The first one; Analytical Issues and Framework on Trade Food Security Linkage (FAO, 2002b) - covers some major areas of debate on the subject and topics that describe the linkages between trade and food security. The other; Handbook on Trade and Food Security (FAO, 2002c), was designed for the use of researchers in this field, notably those who would undertake country case studies.

The case study countries number 18: nine from Africa (Cameroon, Kenya, Ghana, Malawi, Nigeria, Senegal, Tanzania, and Uganda - possibly also Morocco); four in Asia (China, India, Nepal and Thailand); five in Latin America and the Caribbean (Chile, Peru, Guyana, Guatemala and Jamaica). The African Economic Research Consortium (AERC) is coordinating the conduct of seven of the nine African country studies, with the Consortium itself financing three studies (Cameroon, Nigeria and Tanzania).

A team leaders’ expert consultation was held in Rome during 5-6 December 2002. One purpose of the meeting was to review preliminary analyses of the process of trade reforms in these countries, agricultural performance and food security status. But the main purpose was to discuss alternative methodological approaches and data sources to carry out the country case studies. The team leaders were encouraged to identify appropriate analytical approach and methodology, within a general, common framework, for their countries. Thus, the methods used could vary somewhat by countries.

The work plan for the coming months is as follows:

• Submission of the first draft of country studies by 01 March 2003.

• National seminar/workshops to review the country study in the first half of March 2003.

• Submission of a revised draft by 15 March 2003.

• An international meeting/workshop to be organized by FAO in April/May 2003 to present the results of the country case studies.

2.2 FAO/World Bank Study on Globalization, Structural Adjustment and the Smallholders in Sub-Saharan Africa

Background and objectives

This is a collaborative FAO/World Bank activity, being implemented by FAO. The context within which the project was conceived and formulated was concerns over attaining the Millennium Development Goals of halving poverty and hunger by 2015, and the recent revision of the World Bank’s Rural Development Strategy. On the latter, the draft strategy, titled Reaching the Rural Poor, outlines an approach to rural development that targets poverty reduction and economic growth, encompassing a broad range of social and economic needs and potentials relevant to rural populations. The development of the revised Strategy occurred against the backdrop of globalization and commercialization of smallholder agriculture. A Framework Paper was developed that sketched the effects of globalization on smallholders in the context of the institutional patterns that resulted from structural adjustment. The Paper also proposed key questions to be addressed in the field investigations.

Concern over the effects of globalization on smallholders was expressed by participants in the two World Bank regional consultations held in Africa during the updating of the Rural Development Strategy during 2001. Globalization is characterized by increasing economic integration, specifically trade and capital flows, between countries. The associated liberalization of trade has enlarged and transformed the input and commodity markets faced by producers, markedly changing the terms of trade and underlining the importance of international competitiveness. Despite the general concerns expressed in many quarters, relatively little is known about the actual impacts of globalization on the livelihoods of different types of smallholders and other rural poor. The actual impacts depend on, inter alia, the degree to which international prices are transmitted through market institutions to the farm gate, smallholder responsiveness to these price signals, and second round effects arising from intersectorial linkages.

The field studies under this project cover four African countries (Ghana, Mali, Uganda and Tanzania). Smallholders as a group, including the non-poor, still dominate most farming systems in the region and account for a majority of rural employment, most food production and significant export earnings. The framework provides insight on the specific characteristics of smallholders that determine how they are impacted by globalization, through a better understanding of their particular institutional, social, political and economic environment, including the structure and location of the markets they participate in. The analyses will identify policy measures which will facilitate the participation of smallholders in globalization processes.

Project implementation/analytical activities

Besides the Framework Paper and review of literature, the core of the project is case studies in the field, and analyses based on them. The ultimate unit of the analysis is households (and villages). These were selected as follows:

• 4 countries - having good record of the implementation of economic reforms (Ghana, Mali Uganda and Tanzania)^[6]

• 3 farming dominant farming systems - representing different enterprise patterns and levels of market access.

• 1 area/village - per farming system, with moderate to good market access.

• 4-5 representative households - including small, medium and large farms as well as non-agricultural households.

The project adopts a two-stage analytical process. In stage 1, the analysis will involve detailed field surveys focused on villages and households. It will use simpler, descriptive statistical methods to gain insights on a number of aspects, e.g. farm resources and practices, analysis of the functioning of markets, and price linkages between border and local markets, different terms of trade and transaction costs and margins facing villages/households. For each farm household types, budgets for production activities and consumption expenditures will be estimated together with sub-sector linkages. The changes in the above key variables will also be assessed.

In stage 2, the data collected/used for stage 1 would be the basis for more sophisticated analytical tools. In particular, several household models and village Social Accounting Matrices (SAMs), and Computable General Equilibrium (CGE) models based on them, would be constructed for the analysis of the impact of globalization. The emphasis will be on the identification of policy measures that enhance smallholders’ participation in the globalization process. These will be complemented by cross-cutting policy analyses of selected smallholder livelihood strategies. The field survey work (stage 1) is underway currently.

2.3 Pro-Poor Livestock Policy Facility

Background and objectives

The Facility is based within FAO’s Animal Production and Health Divison (AGA).^[7] Although not exactly a project or study focused on trade liberalization and poverty/food security, as the previous two, the recently launched Pro-Poor Livestock Policy Facility (PPLPF) to develop the capacity to inform national and international decision-making in support of poor people’s livestock-related livelihoods fits very well the type of initiatives being discussed in this paper. The project was the culmination of an extensive process of consultation and dialogue with stakeholders, centers of expertise and potential funding partners. The Initiative commenced in October 2001 and will run for six years. The overall goal is to contribute to poverty reduction through equitable, safe and clean livestock farming.

The importance of the livestock sector for small farmers and rural poor is well known. Livestock ownership currently supports or sustains the livelihoods of an estimated 700 million rural poor. For many of them, it provides a small but steady stream of food and income, help raise whole farm productivity and are often the only way of increasing assets and diversifying risks. In addition, livestock have an important role in improving the nutritional status of low-income households, confer status, are of cultural importance and create employment opportunities beyond the immediate household. Livestock is also one of the dynamic sectors in agriculture. Driven by rising population growth, urbanization and incomes, the demand for livestock and livestock products in developing countries is predicted to double over the next 20 years.

The issue is not one of global supply meeting global demand. Rather, it is one of the smallholders and rural poor raising their share of gains from the expanding opportunities. It is about relieving many constraints and concerns that are significant barriers to participation by small farmers. The PPLP has identified these as resulting from a combination of global, regional and national level policies, regulations, norms and values, or societal “rules of the game”. The project document groups such “rules” into three sets of constraints: entry barriers; lack of competitiveness; and risks.

Barriers exist in different forms:

• Financial and asset barriers - for example, access to credit, prevent small farmers from intensifying production and commercializing production and processing activities.

• Technical barriers - for example, infrastructure, storage facilities and sanitary requirements constrain them from efficiently supplying a safe and relatively uniform product to the market.

• Social and cultural barriers - e.g. ethnic, gender, education and property rights aspects restrict access to assets, goods and services, including the market.

Lack of competitiveness - notably from a combination of higher production and transaction costs disadvantage them in economies of scale.

• Production costs - are usually higher in small-scale production enterprises. Technologies suitable for them are often lacking, and small farmers may suffer disproportionately from domestic and border policies (e.g. cheap imports for the urban areas).

• Transaction costs - are also high for them due to inter alia small quantities produced and marketed, weak bargaining power in marketing and lack market information.

Risk - small-scale production suffers relatively from both market and production risks.

• Market risks - for example, price fluctuations, restrict the full exploitation of growth potentials.

• Production risks - for example, resource degradation and asset control, climatic uncertainties and infectious diseases, hurt small farmers disproportionately, for lack of assets and insurance schemes.

The Initiative will be implemented at two levels. First, there is the FAO headquarters-based Pro-Poor Livestock Policy Facility devoted to ensuring global coherence and co-ordination in livestock-related pro-poor public policy making. And second, there will be appropriate structures and mechanisms to inform and support regional and national pro-poor livestock policy-making that will be closely linked to specific member-state needs and decision-making processes, i.e. Regional Pro-Poor Policy Networks (e.g. the South Asia Pro-Poor Livestock Policy Network) targeted towards the specific needs and characteristics of selected country groupings.

Project implementation/analytical activities

As said above, this Initiative is not just about research/analysis on some specific topics but also several additional activities. Since it was launched only recently, not all project activities have been developed fully. But what may be said now is that given that the central concern addressed is the participation of smallholders and rural poor in expanding opportunities in the sector, the bulk of the project work is expected to be focused on the factors that limit the participation, which, as noted above, fall under the following three groups: entry barriers; lack of competitiveness; and risks. Working groups are being set up to formulate research topics and implement them in various areas.

One of the working groups that relates very much to the types of issues being discussed in this paper is policy liberalization and the impact on poor livestock producers. This group currently consists of several individuals from within various FAO Divisions/Units with interest on the topic. The group members meet periodically to identify and develop research ideas and to implement them.

The following are some of the studies/analyses identified by this group. Some of these works are already underway.

• Assessing the impact of trade liberalization on small-holder livestock producers in developing countries.

• As above, impact assessment of changing food safety standards.

• As part of the work on analytical approaches and methodologies, some case studies to assess the impact of market liberalization and other macro shocks on poor livestock producers using economy-wide modeling tools, notably SAMs and CGEs. The Nepal case study is already underway.

• Identification of pathways through which small farmers and rural poor are impacted by import surges, with country case studies of the import surge of milk powder and poultry meat.