Trade in the time of corona: food security implications

The pandemic is changing the way that we live, work and do business; the ‘Great Lockdown’ is a jarring juxtaposition against the great unlocking of global markets over the last fifty years.  However, one area where there is still unfortunately some truth to the old adage “the more things change, they more they stay the same” is trade protectionism – and agriculture and food trade are no exception.  This is disheartening, including for food security.  But the news is not all bad.

Sadly, the perennial bane of trade policy – protectionism – is still a feature of corona-world.  As readers may recall, there had already been a trend towards increasing global trade restrictions post-Global Financial Crisis, compounded (though not exclusively) by the recent trade war.  With the advent of Covid-19, there has been a surge in export bans on pandemic-fighting tools such as personal protective equipment, medical devices and medicines – even though there would seem a clear-cut case for collective action.  Many countries also continue to impose tariffs on basics such as soap and disinfectant, and on the inputs needed to manufacture medical equipment.   

Agriculture is not immune

Not surprisingly, a number of countries are contemplating similar approaches when it comes the traditional ‘poster child’ for protectionism – the farm sector.   The International Food Policy Research Institute has tracked the introduction of nearly twenty new food export restrictions since Covid-19 emerged, including export bans on staples such as wheat and rice as well as vegetables, eggs and other goods.  This is despite the fact that there are ample food supplies available globally.  The bitter lessons of 2008/09 bear recalling here, when an increase in food price volatility provoked a contagion of agriculture export restrictions, huge price rises and shortages across markets, leading to severe food insecurity for poor consumers and harsh impacts on poor farmers.   

“Being able to call on a ‘global food basket’ will become even more compelling as we start to see greater adverse impacts from climate change on food production in different markets at different times.”

In fact, trade can and should play a crucial role in matching up global supply with demand across markets, in a way that policies aimed at food self-sufficiency simply cannot.  Being able to call on a “global food basket” will become even more compelling as we start to see greater adverse impacts from climate change on food production in different markets at different times.

Trade-distorting farm subsidies are looming

We are also seeing countries flirting with new distorting farm subsidies.  The US has announced $15.5 billion for US farmers, adding to the $28 billion dished out over the last two years; similarly the EU has just confirmed a raft of measures including private storage aid (market price support), even where this has long been absent, such as for butter, cheese, sheepmeat and beef.    We might well anticipate a wave of enthusiasm for potentially trade-distorting public food stockholding too.  And across the board, countries are going to be (quite rightly) thinking about new forms of stimulus to revive shuttered economies – some of which may lead to distorting new subsidies.

Unfortunately experience suggests that subsidies may be easy enough to introduce but hard to dislodge.  The evolving situation only goes to underscore the value in the efforts by New Zealand and others, including the Cairns Group, over many years to introduce meaningful disciplines on domestic support, given the headroom in Uruguay Round commitments.  It is to be hoped that those efforts are only temporarily delayed by the cancellation of this year’s 12^th WTO Ministerial Conference.

Challenges go beyond policy settings

More broadly, however, there are a range of emerging challenges to the food value chain.  These can be found in production (restrictions on people movement and illness among workers); chokepoints and disruption in supply chains, transport/logistics and storage (including labour shortages, tightening of container flows and border and port delays) and the shut-down of ‘food service’ (such as restaurants and school meals) in many economies, disrupting traditional trade and distribution patterns, and even leading to dumping of surplus production.  We may see the ripples for some time to come.  

More worryingly, a recent assessment from the United Nations World Food Program has predicted that the poverty induced by the pandemic will likely have severe food security impacts, putting some 265 million people at acute risk by the end of this year – a doubling of last year’s figure.

What does it all mean for the New Zealand agriculture sector?

The trade statistics suggest that, for now at least, New Zealand food and agriculture trade is holding up pretty well – albeit having to deploy some rather novel (and expensive) solutions, such as a greater use of airfreight for bulky exports.   

However, predictions about the global economic and trade impacts of the pandemic are cause for real concern.  The IMF has forecast that the global economy will shrink by 3 percent this year, including a massive slow-down in Asia, normally a dynamic engine for global growth. While markets may bounce back in 2021, the nature and timing of the recovery is still uncertain, with economists speculating on an alphabet soup of different recovery curves – V-shaped, U-shaped, W-shaped … even, depressingly, “reverse J-shaped”, where global GDP will straggle along below its pre-Covid level for more than two years.   

Global trade in the doldrums

As for trade, the WTO has forecast that global merchandise (goods) trade will contract between 13 and 32 percent this year; the higher end of that range has not been seen since the Great Depression.  Goods aside, trade in services is likely to be even more significantly affected, especially transport, logistics and travel (not great news for either New Zealand’s tourism and education sectors, nor for our transport-dependent agriculture and food exports – as ever, the ‘tyranny of distance’ continues to be a major factor in the New Zealand trade story).

…but some green shoots emerging

It is not all gloom, however.  New Zealand has been an exemplar of creative thinking in this area.  In March, New Zealand developed a statement with Singapore, now joined by eight other regional economies, on the importance of keeping supply chains working, and in mid-April the two struck a more detailed agreement – with an invitation to other countries to join – to remove tariffs on pandemic-related products such as medicines and medical equipment, to keep supply chains operating effectively, and pledging not to impose new export restrictions, including on food.   

New WTO initiative

Earlier this week, there was also good news out of Geneva: an influential group of WTO members issued a new statement in support of open and predictable trade in agriculture and food.  Signatories include a range of major exporters and importers including (of course) New Zealand, but also exporters Canada, the EU, the United States, Brazil and Australia, and importers such as Japan, Korea and Switzerland: 50 WTO members in all (counting the EU member states and the EU itself.   Notable by their absence were China, Russia and India – responsible for large swathes of global rice and wheat production.

The pledge is to keep food supply chains open as far as possible, including exercising restraint in establishing domestic food stocks, not imposing agriculture export restrictions and refraining from new trade barriers.  The statement also includes the important concept that pandemic-related measures must be “targeted, proportionate, transparent and temporary, and must not create unnecessary trade barriers or disrupt global supply chains”.  These measures go further than relevant existing WTO agriculture agreement obligations – and are also a step up on other recent collaborative efforts, including by the G20 – but of course, as they say, the proof of the pudding will be in the eating.

We need more such efforts if we are to avoid compounding the misery that the coronavirus is imposing already.   Concerted international action can help to avoid adding a food trade and food security crisis to the current mix – and will demonstrate the real value of economic interdependence.

This post was prepared by Stephanie Honey, Associate Director of the NZIBF.