Global Food Security: What Roles for Technology and Trade Policies?

Kym AndersonUniversities of Adelaide and Australian National

Universitykym.anderson@adelaide.edu.au

ICABR Conference on Political Economy of the Bio-economy, Ravello, Italy, 24-27 June 2012

Food security/technology/trade policies nexus

Food security is about all people always having access to enough nutritious food for a healthy lifeNew agric technologies can raise the quantity and quality of available foodsBut trade can enable those without sufficient endowments or technologies to nonetheless be food secure

Hong Kong, Monaco, Singapore aren’t food insecure

Food security/technology/trade policies nexus (continued)

What affects food security is spending capacity to buy food, and its priceHence things that reduce global poverty or reduce int’l price of food are likely to boost global food security

Example: public investment in ag R&D that leads to adoption of better agric technologies

Food security/technology/trade policies nexus (continued)However, a nation’s trade policies can de-link its domestic price from int’l price, and can reduce national econ welfare and its growth Biofuel subsidies & mandates raise demand for and hence int’l price of foodImpact on national or global food security depends on effect on not only spending but also on earnings of households

including unskilled non-farm laborers whose wage might be affected by, eg, a change in farmgate prices

Underscores value of using an empirical, economy-wide, global model, because:

Theory can’t even reveal sign of some effects, let alone magnitudeIndirect effects of a shock within an economy may be more important than –and may even offset – the direct effects Int’l spillovers can cause food security benefits in one country group to be more or less offset by FS losses in ROW

Focus of present paper

20th century saw real food price trend declining21st century (so far) has seen it risingMost projections suggest high int’l food prices for next decade or more (eg IFPRI, OECD/FAO)due to rapid growth in natural-resource-poor emerging economies, & thus adding to climate change and energy security concerns

Focus of present paper (cont.)

What roles can technology & trade policies play in long run to improve global food security?

... leaving aside issues affecting short-run price fluctuations, even though they too can affect food security in important ways

Roadmap

Technology policies in 20th centuryAgric price and trade policies to 2010

Draws on World Bank agric distortions project

Baseline global projections to 2030Builds on our contrib’n to ADB’s 2011 flagship

Impacts of altering baseline assumptions:TFP growth (via technology policies and CC)Agric price and trade (and CC) policies

How best to deal with poverty & national food security consequences of market forces?

Technology policies in 20th centuryUnprecedented public investment in agric R&D (Alston, Pardey et al.)Mainly in high-income countriesPlus CG’s IARCs from 1960s, boosting NARS and generating Green Revolution in Asia esp.But with int’l food prices at record-low level in mid-1980s, Malthus was considered beaten and public and int’l ag R&D investment slowedTrue, private agric R&D grew from 1990s, because of biotech profit opportunities

But adoption confined to few crops in <30 countries because of anti-GMO attitudes and regulatory policies

Agric price and trade policies to 2010

Agric policies of developing countries lowered their domestic food prices but raised int’l priceAgric policies of high-income countries raised their domestic food prices, lowered int’l priceNet effect on mean int’l price by 1980s close to zero (Tyers and Anderson 1992), but policies possibly worsened food security:

in DCs (where many poor were food sellers) andin HICs (where most poor are net food buyers)

Then major reforms in both country groups from mid-1980s

Reform of Asia’s price-distorting policies supplemented Green Rev.

New agric technologies, esp. Green Revolution in Asia, often given credit for maintaining agric self-sufficiency in Asia

... especially in 1960s and 1970s

But also important from 1980s were agric price, trade & exchange rate policy reforms

E. Asian agric self-sufficiency, %1960s 1970s 1980s 1990s 2000-04

China 100 100 100 100 98

India 98 99 99 100 100

Indonesia na 105 105 103 102

Philippines 113 112 103 100 99

Thailand na 120 133 131 137

Rates of agric & nonag assistance (%)

INDIAINDIA CHINACHINA

Relative rate of assistance (%), HIC & DC

Key policy modeling questions:

What counterfactual trade policy regime to assume in projecting forward?

Status quo? Or will DCs follow HICs in providing agric protectionism growth as their incomes grow?

What agric TFP growth rates to expect?Depends largely on govt’s public agric R&D investment policies

East Asia’s RRAs, 1955-2010

Projecting markets to 2030, using a global economy-wide model (GTAP)

Need to make assumptions also about:Growth in endowmentsPreference changes as incomes growPop’n and per capita income growth rates

Then TFP growth can be calculated endogenously

and we assume for baseline, as in past (Martin and Mitra, EDCC, 2001), that TFP grows faster in primary than other sectors

Model details (joint with Anna Strutt)

We use a modified version of GTAP’s global comparative static model to project world economy in 2007 to 2030

Aggregated to 35 regions and 26 sectorsCore sim. calibrated to project 10% rise in prices of primary relative to other products

Summary of GDP & endowment growth rates, 2007-2030 (% p.a.)

  High-income

Devel-oping

of which Asia

Total

GDP growth 1.6 5.1 6.2 2.5Population 0.3 1.0 0.8 0.9Unskilled labor -0.6 0.4 0.1 -0.4Skilled labor 1.4 3.2 3.0 1.8Capital 1.2 5.7 5.4 2.3Agric. land -0.3 -0.1 -0.2 -0.2Oil 2.1 1.5 0.9 1.7Gas 0.3 2.5 1.1 1.4Coal -0.3 6.0 6.3 2.9Other minerals 2.1 2.1 2.1 2.119

Core 2030 baseline scenario: Projected shares of HICs and DCs

World GDP share (%)

World population share (%)

Relative GDP per cap (% of world)

2007 2030 2007 2030 2007 2030

High-income 74 54 20 17 376 320Developing 26 46 80 83 33 56 of which Asia: 15 32 54 53 27 60

World 100 100 100 100 100 100

Structural changes: HIC & DC shares of global exports, by sector(%)

Primary goods (%)

Manuf. Goods (%)

Services (%)

2007 2030 2007 2030 2007 2030

High-income 7 9 43 25 13 8

Developing 9 12 23 38 5 8

of which Asia: 1.9 2.5 17 32 3 5

World 16 21 66 63 18 16

Implications for agric imports by Dev. Asia

Dev. Asia’s share of global ag and food imports rises from 14% in 2007 to 42% in 2030

mainly due to China (goes from 4% to 28%)

Dev. Asia’s agric self-sufficiency falls from 96% to 89%

=> Unlikely to be tolerated politically?

Implications for agric SS ratio

Developing Asia’s agric self-sufficiency falls from 96% to 89%

despite higher TFP growth in agric than manuf and services

=> Unlikely to be tolerated politically?

Alternative 2030 TFP growth scenarios

Two alternative TFP scenarios considered:1. Slower global primary sector TFP growth

causes primary product prices to rise 17% instead of 10%

2. Faster grain TFP growth in China and Indiadoes little to aggregate int’l price of agric goods, but it causes int’l grain prices to rise by 5-7 percentage points less than in core baseline

Cumulative changes in international prices of grain to 2030 (%): 3 different baselines

  2030 core

2030 slower prim TFP

2030 faster Ch/In

grain TFP

Rice 13 18 6

Wheat 12 25 7

Maize 15 32 10

All agric 10 17 9

Food self-sufficiency higher, and greater food cons’n, from faster grain TFP in Ch & In

Rice and wheat self sufficiency in Ch & India 4-7% higher in 2030 if grain TFP growth is 1 percentage point higher p.a.Household consumption of all agric products in China & India would be 2 percentage points higher in 2030 than otherwise

More food security for them; less for ROW?

Alternative scenarios in our related papers

Impacts of trade policy changes:Regional or multilateral reform, versus agric protection growth in DCs?Changes to restrictions on trade in products that may contain GMOs? (presented at an earlier ICABR conference)

Impacts of climate change, & of policy responses to it, such as carbon tax?

Trade reforms

Free-trade area in Asia (ASEAN+6) would alter national ag & food self sufficiency by only 1-2 percentage points

As would global free trade, except for China where it would drop 4 percentage points

But it would boost household cons’n of agric products by 2 to 4 percent

Trade reforms (continued)

However, if the counterfactual trade policy was not status quo but rather agric protection growth in DCs, freeing trade would cause household cons’n of agric products in Developing Asia to be 3% higher than in core scenario for 2030

Climate changeNeed first to convert projected biophysical effects of CC into economic shocks (e.g., into future impacts on factor productivity)

land productivity is expected by CC scientists to:• rise in high latitudes, fall in tropics (hence mixed for

Australia), with a slight net reduction globally

[Again, let’s leave aside volatility issues, and Alan Olmstead’s point that ag. scientists will innovate and farmers will adopt and adapt]

A fall in global crop and pasture land productivity would raise farm output prices globally

Hence gross farm incomes may rise, even in regions/sectors with falling land productivity

Projected effects on land productivity of CC by 2030 (%) (Hertel, Burke and Lobell, 2010)

Wt

Wheat Coarse grains

Rice Oil-seeds

Australia 7 -5 -3 2

United States

2 3 -3 2

W. Europe 7 -5 7 7

Japan 4 0 9 9

China 2 -10 0 0

Other DCs -3 -10 -3 -3

Direct effects of CC on agric, 2030 (% deviation from baseline due to land productivity change)

Farmer price

Prod’n volum

e

Value adde

d

Value of

exports

Value of imports

Australia 0.5 0.7 -1.7 2.2 1.0USA 0.3 0.4 -1.2 2.5 -0.6W. Europe

-0.3 1.1 -0.5 3.3 -0.7

Brazil 0.5 -0.7 0.0 -1.7 0.6China 4.3 -1.8 -4.4 -21.1 6.2India 3.2 -1.7 -2.0 -6.7 12.7SSAfrica-RSA

2.5 -1.7 -1.3 -6.6 2.6

WORLD 1.2 -0.2 -1.6 0.9 1.5

Direct agricultural effects (continued)

Two other factors affect overall national economic welfare of direct agric effects:

Terms of trade change: temperate agric-exporting countries are likely to be better off, and food-importing countries to be worse off, other things equalBut presence of price-distorting policies can cause adverse second-best welfare effects from international re-location of farm production (e.g., in Japan)

Effects on annual econ welfare of crop productivity changes, by 2030 (2004 US$ bill.)

Decomposition of welfare effects, due to change in:

Product-ivity

Terms of trade

Effic-iency

TOTAL

Australia 0.0 0.3 -0.0 0.3

USA 0.0 0.9 -0.3 0.7

W. Europe

0.8 0.5 -1.6 -0.3

Japan 0.2 -0.1 -0.3 -0.2

China -7.7 -1.8 -0.2 -9.6

Other DCs

-9.9 0.2 -0.3 -10.0

WORLD -15.5 0.0 -2.7 -18.1

Indirect effects of CC on agriculture

CC has many other effects, whose impact on other sectors may indirectly (as well as directly) affect agriculture even more:

Lower labour productivity, esp. in tropics • higher temperatures, humidity; more diseases

– Economically far more damaging than yield losses?

Altered energy demand• less in temperate areas? more aircon in tropics?

Altered tourism (shift away from tropics)Sea-level rise (hurts S. & S.E. Asia, island DCs)

eg, effects on econ welfare of crop & labor productivity changes, by 2030(2004 US$ bill.)

Wt

Crop only

Crop + Labor

Australia 0.3 -1.2

USA 0.7 -0.9

W. Europe

-0.3 -3.7

Japan -0.2 -0.0

China -9.6 -46.7

Other DCs

-10.0 -10.0

WORLD -18.1 -164.2

Carbon taxes: a policy response to CC

Direct effect on agric would be small, except if biofuel policies (which link food & fossil fuel prices) continueIndirect effect could be much larger, via altered terms of trade and hence exchange rates

Carbon taxes (continued)

Not a new issueGlobally, taxing (or otherwise restricting) fossil fuel production has similar global price-raising and pollution-reducing effects to taxing consumption of carbon-emitting goods

Blunter than a more-focused carbon emission tax, but nonetheless OPEC’s decision to restrict prod’n in 1973-74 and 1979-80, which raised the int’l price of petroleum 8-fold, was the world’s first major carbon-related tax

Excess SupplyOPEC

Excess Demand (net importers of oil)

Pw

Q

International market for petroleum before OPEC formed (equil. at Pw and Q)

ES

ED

Pw

Q

International market for petroleum after OPEC restricts supply to Q’)

ES’

Pw’

Q’

ES

ED

Pw

Q

International market for petroleum after OPEC restricts supply to Q’)

ES’

Pw’

Q’

a

b

c

f

e

d

abc = global welfare cost (to be compared with perceived benefit of carbon reduction)aefb = welfare loss to non-OPEC countries (net importers of petroluem)bgef-acg = net welfare effect on OPEC economies

g

ES

ED

Pw

Q

International market for petroleum if instead non-OPEC countries tax cons’m

ES’

Pw’

Q’

a

b

c

f

e

d

abc = global welfare cost (to be compared with perceived benefit of carbon reduction)acde = welfare loss to OPEC economiesaefb = welfare loss to non-OPEC consumers, offset by bcdf gain to their Treasury

g

Pp

Carbon emission taxes: summary

A tax on carbon emissions would hurt fossil fuel consumers in the taxing countriesIt would also:

generate govt revenue in taxing countries, so allow their other taxes to be reducedlower the seller price of fossil fuels in int’l markets, and so strengthen (weaken) the terms of trade and currency for fuel-importing (-exporting) countries raise the buyer price of fossil fuels, hence also of substitutes such as biofuels, hence also food prices

But it would also induce innovation in alt. energy prod’n and cons’n technologies, including biofuels

Some take-away messages

Food self sufficiency will decline substantially in China under current policies, and is likely to be arrested only if there is much faster agric TFP growth

... adding political pressure for agric supports/higher tariffs

Trade liberalization by ASEAN+6, if done unilaterally on an MFN basis, could generate 3x the global gains of doing it only preferentially, and would provide Developing Asia with nearly half the gains they would get from full global MFN free trade

And it boosts food cons’m, hence food security in Asia

ANZ’s export focus on Developing Asia will continue to strengthen

Shares treble between 2004 and 2030

Some take-away messages

Continued rapid growth of resource-poor emerging economies could push up int’l food & fuel prices and thus threaten FS in other DCs

Made worse by HICs’ biofuel policies that link food & fuel pricesInt’l food price rise would be less if those DCs chose ag protection path, but that would ‘thin’ int’l food markets

In ROW, FS might improve in food-exporting countries and worsen in food-importing countries

But effects of h’holds differ even within countries

Some take-away messages (cont.)Actual FS effects on individual h’holds depend on impact of product and factor prices on both their earning and their spending

Very complex to model, requires detailed recent (and ideally prospective) h’hold survey data

Expanded public investment in ag R&D would help, as would GMO regulatory reform and further trade reform (WTO’s Doha Agenda)Meanwhile, ICT revolution has provided a new social protection pathway to improve FS: conditional cash transfers to worst-affected households

Thanks!

kym.anderson@adelaide.edu.au

Agric NRAs (%) of HICs and DCs approaching zero since 1980s ...

... but, in DCs, phasing out of export taxes was accompanied by rising agric import protection

HIC & DC shares of global ag. tradeWorld export

share (%)World import

share (%)

2007 2030 2007 2030

High-income 65 63 68 42Developing 35 37 32 58 of which China: 4 0 4 28 Other Asia: 11 12 10 14World 100 100 100 100

Agric self sufficiency (%)

  2007 base

2030 core

2030 slow prim TFP

growth

2030 faster Ch/In grainTFP growth

All Dev. Asia 96 89 93 90

China 97 87 92 87India 102 97 103 98

Grain self sufficiency higher with faster ACI grain TFP (%)

  Rice Wheat2030 base

2030 fast grainTFP

2030 base

2030 fast grainTFP

China 94 98 94 98India 104 109 89 96

Ag NRAs are on rising trend for DCs, but still below ag NRA for HICs

High-income countries Developing countries

Trade reform does little to ag self-suff (%)

  2030

core

ASEAN+6,

no agric

ASEAN+6, with

agric

ASEAN +6,

MFN

Global libn vs

ag prot

All Dev. Asia

87 87 87 85 85

ASEAN 85 84 87 86 86

China 83 82 82 80 79

India 100 100 102 99 100

... but it boosts household cons’m of agric products (% different from core sim in 2030)

  ASEAN+6

without agric

ASEAN+6,

with ag

ASEAN +6,

MFN

Global libn vs

ag prot

All Dev. Asia 0.0 0.7 1.6 2.7ASEAN 0.9 1.7 3.4 4.4China 0.0 0.2 0.9 2.1India -0.3 0.4 1.3 1.4