Julio Cesar Paz-Cafferata
According to data on the state of food insecurity across countries, nearly 800 million people living in 98 developing countries are not getting enough food to lead a normal, healthy and active life. The World Food Summit of 1996 set as a target the halving of the number of undernourished people in the world by 2015. Latest analysis of FAO indicates that if current trends at the national and international levels continue, it is unlikely that this target will be met.
Trade negotiations on market access, domestic support, export subsidies and other related issues for agricultural products at the WTO have multiple consequences on food security, especially in developing countries. The Doha Ministerial Declaration, with respect to the new round of multilateral negotiations in agriculture, stated that the special and differential treatment for developing countries shall be an integral part of the negotiations and shall be embodied in concessions and commitments as well as in the rules and disciplines to be negotiated, ‘so as to enable developing countries to effectively take account of their development needs, including food security...’
Within the context of broader economic reforms, promoted by the IMF and World Bank, many developing countries have implemented structural adjustment programs in the agricultural sector, directed at correcting a perceived bias against agriculture in these countries. The policy package included a reduction or elimination of government subsidies (to producers as well as consumers), market deregulation, sharp unilateral reductions in import tariffs, elimination of agricultural export duties, and privatization of agricultural marketing and services provision. These sectoral reforms were usually accompanied by liberalization in the foreign exchange and financial markets. These unilateral reductions in trade control measures were implemented despite distortions in the world agricultural markets due to domestic production and export subsidies utilized by the rich countries that could afford them. In many countries, agricultural policy reforms were deepened or locked in through their commitments in the WTO Agreement on Agriculture.
Although the results of the Uruguay Round have established a framework for agricultural trade reform, they have also, in effect, reinforced the distorting intervention in agricultural markets of industrialized countries governments by legalizing it. Agricultural production in developing countries is still hampered by substantial distortions in the pattern of international trade due to continuing agricultural protection and support, mainly in the industrialized countries. The products affected include not only temperate zone products but also competing tropical products (such as sugar, fruits and vegetables).
Building upon its on-going work on food security and international trade, FAO is carrying out a major study program, which include a series of case studies of actual experiences, to review the linkages between trade policy and related reforms with food security performance in selected developing countries. The purpose is to draw lessons for policy design at both the national and international levels in order to enhance the food security of low-income, food-insecure developing countries. The country case studies address the following main questions: (i) what economic and trade policy reforms have been introduced?; (ii) what has been the impact of specific reforms on production and trade?; and (iii) how has domestic food security at the national and household levels been affected by the reform process?
The studies are being carried out by research teams in 15 countries, with representation of all developing regions and of countries with different ‘food security performance’ during the last decade. In the sample of 15 countries we have 6 clear success cases in terms of improvement in their food security indicators, 4 cases of moderate impact, and 5 with unsatisfactory progress[7]. The countries selected for the case studies are: China, India, Morocco, Cameroon, Ghana, Nigeria, the United Republic of Tanzania, Uganda, Senegal, Kenya, Malawi, Chile, Peru, Guyana and Guatemala. The suggested analytical activities for undertaking the country studies could be divided in three phases, as described in the following sections.
The main objectives of these activities are: (i) to provide an initial brief documentation of the main episodes of reform undertaken by the country, (ii) to select main commodities for further investigation; and (iii) to review key indicators of aggregate agricultural performance and changes in the status of food security,
The study should provide a comprehensive overview of policy reforms implemented by their country and provide a description of reforms that have impacted on the agriculture sector since mid 1980s or earlier if is considered appropriate. The investigation should start with the situation before the reform, e.g. exchange rate controls, trade controls, pricing and marketing arrangements, and so on. Next would be the description of past episodes of reforms. Economic reforms, such as the Structural Adjustment Programs, often come in episodes, e.g. one could be in 1986, then in 1992, then in 1997 and so on. This description would be in terms of the reform objectives, instruments in each package, the intensity of the reform, implementation (there are many, many examples of reversals of reforms initiated) and evaluation of effects[8]. It should include specific information on policy changes referred to main commodities, selected by its importance in agricultural production value and in national consumption.
Provide a table of aggregate statistics on the evolution of agricultural production and trade performances and the status of food security during the period under investigation. Identify role/importance of agriculture at the national level. With the information collected and analysed for this first task, the country teams should adjust their original work plan. Country teams could propose alternative approaches and methods to reach the project objectives for their respective country cases.
The main objectives of these activities are to assess the impact of reform on changes in prices, production, and trade of a selected number of commodities. The starting point of the analysis is the relationship between policy reforms (and shocks) and the intermediate effects. The analysis here involves describing how the policy reforms or shocks have lead to changes in relative prices, quantities produced and consumed and other terms of trade for the household that determines the outcome.
The analysis of the impact on relative prices is the starting point because most reforms aim at ‘correcting’ prices in the first place, and relative prices invariably change after economic reforms. Getting prices right is said to be necessary because in the pre-reform situation, there are disincentives to tradables (imports and exports) while supporting non-tradables. The policy instruments used are exchange rate devaluations, which raise the relative prices of tradables, and removal of export restrictions and lowering of export taxes, which also raise domestic prices of the export products. Removing import restrictions and lowering import tariffs work the other way - they lower domestic prices of importables. Other reform measures aim at increasing the efficiency of domestic markets and raising the share of consumer price to the farmer. An example is the abolition of the monopoly right of marketing boards.
Thus, one can form expectations about the direction to which relative prices in the post-reform period would move. Beyond this, the analysis is complicated because it is very difficult to guess the magnitude of the change in ex post studies (in ex ante studies one simulates a model to determine the size of the change).[9] At times, different instruments in the reform package may impact on prices differently, one raising them and the other lowering them. It is for this reason that analysts often use a number of tools to conduct price analysis so that some sound, informed conclusions may be drawn eventually. Given space constraints, it is only possible to discuss very briefly some of the methods commonly used for the analysis of prices and markets.
Collection of price series (annual and monthly) for the main agricultural commodities selected in various distinct markets/regions at levels of border, wholesale and farm/village will allow investigation of relative changes in producer prices across different commodities and hence the relative incentive to produce the various commodities.
This price data will allow also examining changes in prices over time to assess the influence of agricultural policy reform and other factors (e.g. movement in world market price, exchange rate etc). A ‘price decomposition’ exercise should be constructed for each of the main tradable products, to estimate the relative importance of the different policy factors that explains the evolution of market prices (producer, consumer or wholesale) of tradable in the post reform period. For these purpose, it is useful to construct a timeline of product-specific policy factors (e.g. tariffs and other border measures, price support measures, non-tariff measures) affecting each of the main products and of the policy reforms/instruments that impact indirectly (e.g. exchange rate change). This information can then be used to identify factors that might explain differences across markets for a single commodity and between commodities.
A second quantitative price analysis could allow examining the extent to which border, wholesale and consumer prices are transmitted to producers and the margins obtained by producers in the production of different crops. The purpose of the ‘price transmission analysis’ is to determine the degree of integration of two or more markets, notably the world and domestic markets and spatially separated markets within a country. One of the effects of policy reforms is to increase the degree of market integration.
A third step in this second phase is to assess the relationship between the designs of policy reform, its implementation and the subsequent supply response. In the sequence of the research, the analysis of supply response comes after that of the analysis of the incentives regime. Supply response is about how producers (and consumers) respond to changes in product and factor prices, in technology and in access to other constraining factors of production. It is mostly the case that different producers (and consumers) will respond differently to similar incentives depending on other factors (constraints). Thus, this is a key building block in the study of economic reform and food security. The main purpose is to understand why or why not there was a response.
The main objective of these activities are to assess how changes in agriculture sector performance have influenced the income of selected categories of farm households including by gender, their real expenditures on food, their food security status in the context of wider economic and social change.
Once changes in relative prices and quantities of agricultural production and trade are analysed the next step is to estimate their ultimate impact on income and food security of selected farm households. Each country study should select representative households from those household groups with more incidence or risk of food insecurity, given their low assets or income level. If possible, differentiate selected households further by region. For each selected household type, characterize their income level by source: farm product sales, off-farm wages, government transfers or subsidies, remittances from abroad, and other. This will be based on existing information included in Agricultural Census, income-expenditure household surveys, and other studies available. Complementary information could be generated through small surveys and rapid appraisal methods.
The most commonly used framework comes from agricultural household models. These can be simple accounting frameworks to record all incomes and expenditures (consumption) of a household in one place in order to compute the net change or could incorporate quantity responses to price changes, in which case these could be called ‘models’. The former may be called ‘first-round impact’ (only the impact of price changes) and the latter ‘second-round (or complete) impact’. Applications based on this approach to quantify the impact of reform on poverty are numerous. The following framework is somewhat simplified, but adequate enough for most cases.
For a selected household type, and a given period, the full income and consumption expenditures are defined as in equations (1) and (2).
......................
(1)
where the first term within the bracket is value added (income) from own production (the p’s indicating prices and q’s indicating quantities, the superscript ‘o’ for output and subscript ‘j’ for commodities produced). The ‘w.L’ term is to measure labour income (wage rate times employment) and T is transfers received by the household (e.g. from government, pension, remittance etc.),
.........................
(2)
with variables as above (the superscript ‘c’ standing for consumption).
Figure 1: Causal factors, intermediate effects and food security
Estimations of impact on food security at the household level could include a review of household budget and consumption data, formal and informal wages, employment opportunities including by gender, food prices and consumer purchasing power to assess how vulnerability to food insecurity has changed for different groups. Check hypothesis with respect to relationship between changes in incomes and expenditure patterns and indicators of food security at household level.
To analyse food security at the national level, the team should use food balance sheets and other empirical evidence to show how the overall supply of food and/or import requirements has changed over time. This should be supported with information on incidence of malnutrition and related disease. Examine country export earnings to determine how the nation’s ability to import food has changed over time, including changes in public and private sector capacity.
Explain the reform context to account for counteracting and/or contributory forces influencing food security but ‘unrelated’ to agricultural sector performance which may be used to explain some of the differential impact within and between countries. Check hypothesis with respect to relationship between changes in agricultural performance and indicators of food security at national level.
Dracon, S. 2001. Economic Reform, Growth and the Poor: Evidence from Rural Ethiopia, Document WPS/2001-8, Centre for the Study of African Economies, Department of Economics and Jesus College, Oxford University.
FAO. 2002. The State of Food Insecurity in the World 2002, FAO, Rome.
FAO. 2003. Trade Reforms and Food Security: Conceptualizing the Linkages. Trade and Food Security Project, Commodities and Trade Division, FAO Rome.
Lawrence, P. & Belshaw, D. 2002. The non-recovery of agricultural tradables and its consequences for rural poverty, In Deryke Belshaw and Ian Livingstone (ed). Renewing Development in sub-Saharan Africa: Policy, Performance and Prospects. Routledge.
Sahn, D., Dorosh, P. & Younger, S. 1999. Structural Adjustment Reconsidered: Economic Policy and Poverty in Africa. Cambridge University Press.
Townsend, R. 1999. Agricultural Incentives in sub-Saharan Africa: Policy Challenges. World Bank Technical Paper No. 444, World Bank. Washington D.C.
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[6] This paper synthesizes the
conceptual framework and guidelines for the country case studies in the Trade
Reform and Food Security project. More information can be found in FAO
(2003). [7] See FAO (2002). [8] There is a very large amount of literature describing the implementation of reform measures, both official, country-specific World Bank documents and other studies (e.g. Sahn et al 1999). A selected reading of this literature is helpful as these provide insights on how best this part of the analysis is done. WTO’s Trade Policy Review report is a good source for identifying the range of trade policy instruments used in the past and currently. [9] A majority of papers on this topic start with the analysis of the evolution of commodity prices following economic reforms. Some good examples include Dracon (2001), Lawrence and Belshaw (2002) and Townsend (1999). |
