ANNEX 6: Trade and food security: future scenarios

This section builds on the discussion of the current issues related to trade and food security in Annex 5 to examine future scenarios. It considers the following:

  • How world food trade is predicted to develop over the medium-term future, to 2030
  • Likely implications for food security
  • Development of export potential in developing and transition countries, and case-studies of policies
  • Sustainability considerations for world food trade

The analysis will of necessity be qualitative, since it is not possible to produce forecasts for this far into the future with a reliable level of accuracy. A qualitative analysis also allows for the grey areas to be explored further, although orders of magnitude will be included where possible.

The aim of this section is to explore how the food security situation in 2030 will be shaped by world food trade. As Section 5 has shown, food trade is an important factor in current food security considerations, and it is reasonable to expect it to play a large role in the future too. It also noted the complexities of global trade, for example, how fertilizer and other inputs are part of the food trade system, as well as capital markets and so on. This section will not look specifically into these aspects, but will instead focus on the key question of how trade in agricultural outputs may develop in the medium-term future.

Future trade – predictions and scenarios

This section will give an overview of the major studies on how world trade in food is likely to develop up to 2030. Most of the studies covered fall into two categories: food predictions that mention trade and trade predictions that mention food.

Not surprisingly, the large international organisations such as the Food and Agriculture Organisation (FAO) and the World Bank have produced the largest amount of research on future forecasts of food trade. These are generally based on the following methodology: demographic forecasts are used to estimate food demand, and in conjunction with productivity trend extrapolation, are used to estimate food output. These may be global or regional in scope, and the productivity extrapolations maybe based on econometric regressions, expert opinion, or a mixture of both. The trade predictions seem to be more qualitative in nature, either assuming ‘business as usual’ – that is, business as per the last decade or so meaning increasing liberalization under the rounds of WTO trade agreements - or a brief discussion of possible policy variations. There is also some academic literature based on either policy predictions or econometric forecasting.

Liberalisation of world trade arrangements under WTO rules has led to a number of on-going reforms to existing trade agreements and arrangements related to specific agricultural commodities, such as those for sugar, wheat and bananas, which have implications for future trends in the relative importance of exporting countries. In general, however, the general trade studies outlined here do not deal at the level of these commodity specific developments. Therefore, in considering policy options, there is a need to look at the detail of WTO rules and decisions by product and region, as there is variation on the extent and nature of trade liberalisation according to specific reforms to agreements at this level.

In the current round of WTO negotiation, the Doha Development Agenda (DDA), agriculture has become a key issue of contention specifically on the issues of improvements in market access, phasing out of export subsidies and reduction of trade-distorting support. Negotiations have focused on the United States support for its agriculture sector, and agricultural tariffs in the EU and developing countries, including the level of traded commodities defined as import sensitive and special products, and thus qualifying for lower tariff cuts or exemptions from cuts. Agreement on special products are of particular concern for developing countries as these would qualify to be free from tariff cuts and subsidy reductions on the basis of development, food security, or livelihood concerns. Moreover, the Special Safeguard Mechanism (SSM) aims to protect farmers in developing countries by permitting import tariffs on some agricultural products when there is an import surge or price fall.

The classifications used in this section, both of global regions and food categories, may not correlate closely to those used in previous sections. This is because this section is mainly based on a literature review of other studies, each of which has slightly different categories and classifications. This should be remembered when reading the section but it should not be seen as a major drawback, especially because the nature of trade forecasting means that we are operating on a very broad level where accuracy is not possible.

This section will therefore present a summary of key food trade predictions from the literature, arranged by source rather than by impact. This is because the impacts are not directly comparable as they are the result of different methodologies and assumptions. Instead, the section will present a general summary by impact at the end.

FAO (2006) World Agriculture: Towards 2030/2050

This publication builds upon the earlier document, World Agriculture: Towards 2015/2030 (FAO 2003a), and takes the same methodology but with updated data. The authors describe the methodology as positive rather than normative, that is, they seek to explain what is most likely to happen rather than most desirable. Also, the projections are not trend extrapolations but “incorporate a multitude of assumptions about the future” (FAO 2003a: 2), built upon by disaggregating the data as much as possible. Demand is projected based on population and GDP growth estimates. Experts were then consulted in several rounds of iterative adjustments by country and crop. A formal flex-price model, the FAO World Food Model (FAO, 1993), was also used in the iterative process. Overall, the process is described as “a set of projections that meet conditions of accounting consistency and to a large respect constraints and views expressed by the experts” (FAO 2003a: 378).

The assumptions and findings of the updated report (FAO, 2006) are summarised below.

Assumptions:

  • World population growth slows.
  • Oil prices are high.
  • Food productivity grows, slower than in past but quicker than population growth.
  • Biofuels: prices may rise as oil prices rise.
  • Agents act under an ‘increasingly liberal trading environment’, but alongside the continuation of existing policies related to the support and protection of agriculture.

General findings:

  • Trade will increasingly be between Less Developed Countries (LDCs).
  • Increase in food deficit of poorest countries: exports will rise but imports rise quicker. Conclusions on which countries would be dependent on aid to bridge the gap between food requirements and food supply (that is not met by imports and domestic production) will vary on a case by case basis. However it is realistic to assume that the poorest countries (given in the LIFDC classification in Section 5) will in general continue to be dependent on aid to bridge the gap.
  • Higher per capita food consumption overall, but with significant exceptions: there will still be 810 million people living in countries with under a daily calorie consumption of 2500 kcal per day, mainly in Sub-Saharan Africa.
  • There will be large increases in livestock production, vegetable oils and sugar in LDCs, but cereals remain the most important crop.
  • Some LDCs become net food exporters, in particular for meat, palmoil, soybeans and sugar

Cereals:

  • There will be increased deficits in sub-Saharan Africa, North Africa and the Middle East, East Asia, and South Asia. The deficit in Latin America will decrease, and there will be an increased surplus in Industrialised Countries and Transition Countries.
  • There will be large increases in non-food grain use, in particular as a feed for livestock.
  • In recent years China and India became net exporters, but predicted to become net importers again.
  • Net import requirements of the developing and industrial net food importers will increase by 155m tonnes by 2030. This will come from Transition Countries, Argentina, Thailand, Vietnam and North America, Australia and (decreasingly) the EU. Figure 1 illustrates this.

Figure 1: Importers and Exporters of Cereal. (Source: FAO, 2006).

Livestock:

  • Transition Countries will be in deficit.
  • India currently has low meat consumption. If this grew, it would significantly shift predictions. There could be a rise in poultry demand, but less probable is an increase in demand for beef or pork. Whilst mutton/goat demand may rise, supply is restricted so price rises would be expected.
  • World exports increasingly supplied by certain developing countries, (Brazil, Argentina, Uruguay, Thailand and India).
  • There could be growth in intensive livestock rearing, leading to improved feed conversion ratios of LDCs as more efficient farming methods are implemented.

Figure 2: Importers and Exporters of Meat. (Source: FAO, 2006).

Oil crops, vegetable oils and products:

  • Need to separate food and non-food uses of oil crops. Food uses will grow at a declining rate, whilst non-food uses will grow faster.
  • Major exporters are Malaysia, Argentina, Indonesia, Brazil and the Philippines; with estimated exports of 68.1 million tonnes (oil equivalent). Major importers are China, India, Mexico, Pakistan and Bangladesh.

Roots, tubers and plantains

  • Cassava, plantain, sweet potatoes and yams are the mainstay of the diet in several countries, mainly in sub-Saharan Africa. They are also important as animal feed. The EU is an important importer of cassava as feed (25 M tonnes in 1995) but this fell to 5 M tonnes by 2006 due to the EU policies on cereal prices.

World Bank (2005, 2007, 2009) Global Economic Prospects

The Global Economic Prospects series looks at how different aspects of the world economy are likely to develop in the future. From the series, a number of recent editions are relevant to this study:

The 2005 edition looks at “trade, regionalism and development”.

The 2007 edition looks at how globalisation will develop.

The 2009 edition looks at commodity trade, with particular reference to the economic slowdown.

Whilst none of these look specifically at the prospects for agricultural trade, they do all touch upon the subject.

World Bank (2005)

This report focuses on how regional trade agreements (RTAs) may affect trade in commodities. At the time of the report, more that a third of global trade takes place under some form of RTA. Whilst these promote trade within the regions, they can also lead to increased protectionism with high barriers to trade against external countries. Also, agreements involving more developed countries tend to be more restrictive in their conditions than agreements involving only less developed countries, and since much agricultural trade involves the more developed countries, this suggests that agricultural trade may become subject to more restrictive RTAs. However, agriculture has often been excluded from RTAs due in part to it being a politically sensitive sector. The report does not give predictions as to how RTAs will continue to develop, but does note that development of poorer countries will be hindered without the inclusion of agriculture in RTAs.

World Bank (2007)

This report looks at how globalisation is likely to develop in the medium-term future. In particular, it looks at three possible consequences: growing inequality, impacts on labour markets and environmental threats. The methodology used is based on projections and simulations based around a central economic growth scenario. The World Bank’s Linkage model is used, which is similar to a neoclassical growth model but covers different sectors and regions. It is useful to note that their model assumes a one percent energy efficiency improvement per year, and that international trade costs decline by one percent per year (World Bank 2007:37). The baseline assumption is also that there are no changes to current trade policies, but under a reform scenario in which all countries reduce tariffs on merchandise and domestic agricultural protection by three-quarters, developing countries’ exports rise by 18% over the baseline (p.46). There is some sensitivity analysis, with brief descriptions of lower and higher growth scenarios and a clear recognition of the risk of predictions (see for example, p.55)

The report also predicts that the importance of trade to almost every economy will rise, and that the share of agriculture in the richest countries will “shrink to boutique niches”, thus allowing developing countries’ agricultural trade to grow. However, a few regions will dominate sugar, grain and dairy production (World Bank 2007: xiv).

World Bank (2009)

The Global Economic Prospect report 2009 focuses on commodities markets, with a particular focus on the recent economic slowdown. This means it has less relevance to predictions about 2030 but there are still some useful points to be taken into account. In particular, the guarded optimism of earlier reports is lacking, with a greater emphasis on short-term difficulties likely to be faced.

Food demand is predicted to slow as population growth (and wealth growth) slows. Again, demand for biofuels may change future agricultural production (and trade) significantly. The authors find that under ‘unfavourable circumstances’ of high biofuel-related demand, food crop prices could increase to 30% greater than their baseline predictions (p.9). However, in the long run, agricultural prices are likely to decline. This is because whilst productivity improvements and availability of additional land is expected to enable production to continue to rise, demand will increase at a slower rate due to population growth slowing, and as the world becomes wealthier, a smaller share of income is spent on food. The report predicts a continued decline in agricultural prices of approximately 0.7 percent a year, relative to manufacturing prices. (p. 85). However, if the productivity grown is smaller (1.2% pa rather than 2.1 % pa) then prices are likely to rise relative to manufacturing prices[1]. This is a reminder that all predictions are reliant upon uncertain estimates and must be treated with caution.

High food prices impact food security in the following way – it benefits producers and harms consumers. With an increasing proportion of the world’s population likely to be urbanised by 2030 (Schmidhuber and Shetty, 2005: 2) there is likely to be an adverse impact of food security for many people, especially the poorest. The World Bank’s simulations using a hypothetical 10% rise in food prices saw both urban and rural poverty indicators worsen, but the effect was lessened in rural areas (where increases in price can benefit rural incomes) and varied from country to country (World Bank 2009:116-120). The worst affected countries in this simulation were, not surprisingly, the net food importing countries. Of course, for food-exporting nations, there will be a benefit to higher prices. However, domestic policies, such as subsidised staple food, can shape these impacts. It is, therefore, difficult to make meaningful generalizations about impacts of food price rises on LIFDCs or elsewhere as specific impacts vary according to food products concerned, the country/region and rural/urban population. This underlines the importance of focusing on specific circumstances as illustrated in the case studies later in this section.

OECD-FAO (2009) Agricultural Outlook 2009-2018

Whilst this report does not cover the full time period of interest, it does provide interesting findings for the period up to 2018. The report assumes average weather conditions and long-term productivity trends, and is intended to be a baseline for further policy or economic studies. However, due to the volatility of the markets 2008-09, the report also presents alternative scenarios with revised GDP, and oil-price sensitivity analysis.

In the short-run, crop prices from 2009-2018 are expected to be higher than 1999-2008. Meat is likely to be cheaper (in real prices). If the downturn is prolonged, then livestock products would be the most seriously affected, with knock-on impacts for feed crops.

Figure 3: Export Growth from 2006-08 average to 2018 (%). (Source: OECD/FAO 2009). SMP: Skimmed milk powder. WMP: Whole milk powder.

Figure 3 shows how trade in various commodities is expected to change over the next decade, in the OECD and non-OECD regions. Large growth is expected in non-OECD exports of most commodities, but the OECD exports are much less vigorous, with the exception of oilseed and oilmeal. There is some discussion of how the trade environment may influence global food flows, but in general it is assumed that trade will be global and market-driven. The section on food security outlooks is more focused on productivity than distribution.

Zurek (2006) A short review of global scenarios for food systems analysis

This paper is part of the Global Environmental Change and Food Systems Project (GECAFS) and it looks specifically at how global environmental change (GEC) may impact food systems. It looks at six scenarios, but only two are directly relevant to their situation.

Table 1 summarises the studies and scenarios examined. The first column shows the different types of scenario, and the headings show the source. The IPCC-SRES are specifically climate-change impact scenarios. GEO-3 is from the Global Environmental Outlook of UNEP scenarios. These, plus the Millennium Ecosystem Assessment and Global Scenarios Group all focus on impacts from environmental change. The IFIPRI and FAO (2003) studies are food-based studies study that was a precursor to FAO (2006) discussed above). Table 2 shows how the scenario families differ from each other. Especially interesting is to see that most scenarios assume ‘globalisation’, that is, a widening and deepening of international trade. Also, note that this is a two-way classification, with no middle ground scenario, or any differentiation in types of liberalisation or protectionism. It also shows that liberalized or restricted trade scenarios fit with a wide range of other variables but in general the restricted trade is partnered with slow economic growth.