Falconer underestimates the crisis of food import surges in developing countries

Falconer Underestimates The Crisis of Food Import Surges in Developing Countries : Comment on the Ag Chair’s “2^ndInstallment” 25 May 07 Text – Section on the Special Safeguard Mechanism

In his communication to the Membership on the special safeguard Mechanism, the WTO Chair for Agriculture, NZ Ambassador Crawford Falconer seems to illustrate either an ignorance or gross insensitivity towards the crisis caused by import surges experienced by a vast number of developing country Members.

The G33 coalition of 46 developing countries have asked for a Special Safeguard Mechanism (SSM) to be applied to all products. The safeguard mechanism would kick in when import volumes increase beyond a certain trigger level, or when prices of the imports fall below a trigger level. The affected Member would then be able to impose an additional duty – the extent to be determined by the level of import surge.

The Chair’s remarks are of great concern. In particular, he dismisses the seriousness of the G33’s request for the SSM to be provided to all products. He says instead, “If this is a mechanism which would, when applied, be capable of being triggered literally hundreds of times in any given year, how is this to be reconciled with something that is ‘special’? …I would hope that we could more seriously deal with this in a spirit that aims to make this instrument workable and responsive to genuine need. I suspect that the concept to focus on is how to reasonably ensure that ‘normal’ trade is not disrupted while genuinely ‘special’ situations are able to be responded to flexibly.”

Perhaps he does not realize that import surges in fact, take place across the developing world, literally hundreds and thousands of times. It is not the case that in all instances, food import surges cause injury. However, it is too frequently the case, since there is a domestic sector put at risk- jobs are lost, sometimes by the thousands, small processing industries close down signaling deindustrialization, poverty and food insecurity increase since alternative employment is simply not available.

The Prevalence and Impact of Import Surges

An FAO 2005 study on import surge looked at 23 ‘food groups’ in 102 developing countries from 1982 – 2003. Depending on how import surge is calculated, they found an astounding rate of frequency of surges – 7,132 surges (30% deviation from a 3 year moving average) or 12,167 surges (according to the Special Safeguard volume trigger). ¹ They also found that whilst import surges were widespread, they occurred most frequently in meats (especially pig meat and poultry meat), vegetable oils (especially soy and palm oil), oil, sugar and eggs. These are clearly sectors which are important to developing countries in terms of livelihoods and employment.

What is the impact of these surges on the domestic sector? The FAO table is illustrative:

Source: FAO 2003 “Some Trade Policy Issues Relating to Trends in Agricultural Imports in the Context of Food Security”, Committee on Commodity Problems, CCP 03/10, 2003.

More recently, the FAO has also released a number of case studies available at http://www.fao.org/ES/ESC/en/41470/110301/index.html.

These are some examples:

Ghana
– Rice imports increased from 250 000 tonnes in 1998 to 415 150 tonnes in 2003. Domestic rice, which had accounted for 43 percent of the domestic market in 2000 captured only 29 percent of the domestic market in 2003. 66 percent of rice producers recorded negative returns indicating loss of employment.

Ghana
– Tomato paste from the EU increased in 1998 from 3,300 tonnes to 24 740 tonnes in 2003 – 650 percent. Farmers lost 40 percent of the share of the domestic market and prices were extremely depressed.

Cameroon
– Poultry imports increased nearly 300 percent between 1999 and 2004. 92 percent of poultry farmers dropped out of the sector. 110 000 rural jobs were lost each year from 1994 to 2003.

Cote d’Ivoire
– Poultry imports increased 650 percent between 2001 and 2003. Domestic production fell by 23 percent. Prices fell. 1 500 producers ceased production and 15 000 jobs were lost.

Mozambique
– Vegetable oil imports (palm, soy and sunflower) saw a fivefold increase between 2000 and 2004. Domestic production shrank drastically, from 21000 tonnes in 1981 to 3500 in 2002. About 108 000 small holder households growing oilseeds have been affected, not to mention another 1 million families involved in substitute products (soy and copra). Small oil processing operations have closed down, resulting in the termination of thousands of jobs.

Jamaica
– Onion imports led to the virtual collapse of the industry over the last 15 years.

Jamaica
– Dairy imports saw 50 percent of diary farmers selling their animal and going out of business since the liberalisation of the 1990s. Employment in the sector in 2004 had fallen by 2/3 that of 1990 levels.

Sri Lanka
– Dairy imports increased from 10000 tonnes in 1981 to 70 000 tonnes in 2005, consuming 70 percent of the domestic market. Domestic producers have not been able to develop and expand their market share. During this period, local production expanded by less than 15 percent.

These are only a handful of cases. There are countless others: dairy, maize and sugar in Kenya; poultry in Ghana; rice and vegetable oils in Cameroon; onions and rice in the Philippines; rice and soy in Indonesia; maize, sugar and milk in Malawi; rice, dairy and maize in Tanzania; poultry in Jamaica; oilseeds in India; onions and potatoes in Sri Lanka; tomato paste in Senegal; soy and cotton in Mexico; rice and poultry in the Gambia; rice in Haiti, and the list continues.

Recommendations

If hundreds of import surge incidents take place across each of the 23 food groups studied by FAO, this is a good indicator that import surges are extremely prevalent. It makes for a strong case for the need to allow all products to be covered by the SSM.

In addition, developing countries cannot predict market conditions in the future. When borders are liberalized, import surges are caused by multiple factors that are beyond the control of importing countries – domestic support / dumping policies of exporting countries (the products where import surges are most frequent are also the products the EU and US provide the highest subsidies in); currency fluctuations in third countries; dumping of food aid when it is not required; and other policy whims of exporting countries (eg destocking exercises leading to a surge on the world market). As policy space shrinks with liberalisation, and developing countries are unable to govern what enters their borders, developing countries are extremely vulnerable. The current Doha exercise to cut tariffs further will only exacerbate this vulnerability. As a result, countries certainly have little say over which products might come barging in!

There are also financial reasons for the need to contain food import surges – not only are countries importing unemployment, but they simply cannot afford it. Many developing countries are in fact moving from being net food exporters (in the 1960s and 1970s) to becoming net food importers. As a result of imports, food bills which the poor can hardly afford are rapidly rising. From a surplus of $7 billion in the 1960s, developing countries saw a deficit of 11 billion in 2001, and they are predicted to land up with a food import bill of $50 billion by 2030.

The SSM in fact is sorely inadequate in responding to the depth of the crisis at hand. It is implemented after the fact – after imports have already entered the country, causing injury. The ability to govern imports, not simply react to them, is critical for food security and livelihoods since governments need to provide their people with stable and fair prices, and markets where they can sell their produce! Effective import governance (which US and EU are careful to orchestrate in their own markets through tariffs and domestic supports), not indiscriminate liberalization, is required.

The G33 has been too soft on the issue of domestic supports. There must be an interlinkage between the domestic supports and market access pillars, since subsidies are a major cause of surges. As long as domestic supports (which effectively are export subsidies when subsidized products are exported) are in place, it is puzzling why developing countries even have to reduce tariffs. As US and EU use Amber, Blue and Green supports, developing countries should be allowed corresponding Amber, Blue and Green tariffs / quantitative restrictions. What is fairness, if we are not allowed an equal measure of protection and policy space?

Note(s):

1
FAO 2005 ‘FAO Import Surge Project working Paper No. 2 May The tables illustrating the countries, products and frequency is available at http://www.fao.org/ES/ESC/common/ecg/108226_en_Surge2Define.pdf