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

1. Global Food Security: What Roles for Technology and Trade Policies? Kym Anderson Universities of Adelaide and Australian National University kym.anderson@adelaide.edu.au ICABR Conference on Political Economy of the Bio-economy, Ravello, Italy, 24-27 June 2012

2. Food security/technology/trade policies nexus • Food security is about all people always having access to enough nutritious food for a healthy life • New agric technologies can raise the quantity and quality of available foods • But trade can enable those without sufficient endowments or technologies to nonetheless be food secure • Hong Kong, Monaco, Singapore aren’t food insecure

3. Food security/technology/trade policies nexus (continued) • What affects food security is spending capacity to buy food, and its price • Hence 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

4. 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 food • Impact 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

5. Underscores value of using an empirical, economy-wide, global model, because: • Theory can’t even reveal sign of some effects, let alone magnitude • Indirect 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

6. Focus of present paper • 20th century saw real food price trend declining • 21st century (so far) has seen it rising • Most 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

7. 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

8. Roadmap • Technology policies in 20th century • Agric price and trade policies to 2010 • Draws on World Bank agric distortions project • Baseline global projections to 2030 • Builds 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?

9. Technology policies in 20th century • Unprecedented public investment in agric R&D (Alston, Pardey et al.) • Mainly in high-income countries • Plus 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 slowed • True, 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

10. Agric price and trade policies to 2010 • Agric policies of developing countries lowered their domestic food prices but raised int’l price • Agric policies of high-income countries raised their domestic food prices, lowered int’l price • Net 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) and • in HICs (where most poor are net food buyers) • Then major reforms in both country groups from mid-1980s

11. 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

12. E. Asian agric self-sufficiency, %

13. Rates of agric & nonag assistance (%) INDIA CHINA

14. Relative rate of assistance (%), HIC & DC

15. 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

16. East Asia’s RRAs, 1955-2010

17. Projecting markets to 2030, using a global economy-wide model (GTAP) • Need to make assumptions also about: • Growth in endowments • Preference changes as incomes grow • Pop’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

18. 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 sectors • Core sim. calibrated to project 10% rise in prices of primary relative to other products

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

20. Core 2030 baseline scenario: Projected shares of HICs and DCs

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

22. Implications for agric imports by Dev. Asia • Dev. Asia’s share of globalag 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?

23. 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?

24. 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 India • does 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

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

26. 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?

27. 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?

28. 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

29. 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

30. Climate change • Need 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

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

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

33. 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 equal • But presence of price-distorting policies can cause adverse second-best welfare effects from international re-location of farm production (e.g., in Japan)

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

35. 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)

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

37. Carbon taxes: a policy response to CC • Direct effect on agric would be small, exceptif biofuel policies (which link food & fossil fuel prices) continue • Indirect effect could be much larger, via altered terms of trade and hence exchange rates

38. Carbon taxes (continued) • Not a new issue • Globally, 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

39. International market for petroleum before OPEC formed (equil. at Pw and Q) Excess Demand (net importers of oil) Excess SupplyOPEC Pw Q

40. International market for petroleum after OPEC restricts supply to Q’) ES’ Pw’ ES Pw ED Q’ Q

41. International market for petroleum after OPEC restricts supply to Q’) ES’ Pw’ ES b f Pw a e g c d ED Q’ Q 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

42. International market for petroleum if instead non-OPEC countries tax cons’m ES’ Pw’ ES b f Pw a e g Pp c d ED Q’ Q abc = global welfare cost (to be compared with perceived benefit of carbon reduction) acde = welfare loss to OPEC economies aefb = welfare loss to non-OPEC consumers, offset by bcdf gain to their Treasury

43. Carbon emission taxes: summary • A tax on carbon emissions would hurt fossil fuel consumers in the taxing countries • It would also: • generate govt revenue in taxing countries, so allow their other taxes to be reduced • lower 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

44. 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

45. 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 prices • Int’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

46. 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

47. Thanks! • kym.anderson@adelaide.edu.au

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

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

50. HIC & DC shares of global ag. trade