Officials at the WTO and leaders of several governments have launched what is said to be a ”last ditch effort” to save the Doha Development Round of trade negotiations from what is seen as imminent collapse. Will it collapse? And does it matter if it does? Or in other words, what is the likelihood of such a deal, and how much would it benefit developing countries?
The brief answers are: low and very little.
The finger-pointing for the failure so far has been directed either at the US (in which domestic politics suggests very little appetite for external trade negotiations) or the newly significant large emerging economies like China, Brazil and India (that are less willing to accept what are seen as unequal terms) or the overall impact of the Great Recession (which has made more countries wary of trade openness that could undermine domestic production and employment).
One aspect that is less talked about is the impact of the WTO Agreement on Agriculture on agriculture and food security in the developing world. The apathy or even downright cynicism in such quarters towards a new trade deal can be understood if we examine this. Basically, many developing countries are now more food-insecure than they ever were, and at least some part of that can be related to recent trade patterns.
Global food prices have been very volatile over the past four years. They rose rapidly from early 2007, reached a peak in June 2008, then declined only to increase again from early 2009. In December 2010 the FAO food price index crossed its previous peak. In March 2011 food prices were on average around 37 per cent higher than a year earlier, while cereal prices were 60 per cent higher. Similar patterns are evident in global fuel markets, which have been furthered roiled by the unrest in the Middle East.
It is true that this rapid increase cannot be explained entirely by real demand and supply. Speculative financial activity in commodity futures markets continues to play a role, as commodity investment seems like an attractive option in a period of low interest rates, and the moral hazard created by recent bailouts allows investors to downplay the risks. Obviously, regulating such activity is a necessary component in any international strategy to stabilise the prices of these essential items.
But that is clearly not going to be enough. The possibility of future financial regulation is small comfort to countries that are currently buffeted by these huge food price increases, which have already generated massive unrest and even contributed to unseating governments in different parts of the developing world. Countries that rely on food imports are of course hugely affected, but even economies that import relatively little food have seen their domestic food prices shoot up in response to global prices.
This relates more to food trade and production than just finance. An unfortunate legacy of the WTO regime is that many developing countries find that they are now much more exposed and vulnerable to even short-term price fluctuations that create domestic food insecurity.
This is contrary to the promise of the Uruguay Round that developing countries would increase their incomes through net agricultural exports, enabled by the reduction or elimination of subsidies and restrictions on market access in the developed countries. The reality turned out to be quite different, as developed countries used the small print in the Agreement on Agriculture to continue with high subsidies and various form of denial of market access. Meanwhile, developing countries opened up their agricultural trade, and found that their farmers had to compete with massively subsidised competition from Northern agribusinesses. Trade openness caused farmers to shifts from traditional food crops that were often better suited to ecological conditions, to cash crops that increasingly relied on purchased inputs and were subject to market volatility.
As it happens, cultivators in the developing world have found it difficult to benefit from cash crop production even in periods of rising prices. Both public provision of different inputs for cultivation and government regulation of private input provision were progressively reduced, so costs of seeds, fertilisers and pesticides increased quite sharply. Financial liberalisation made it more difficult for farmers to access institutional credit. Insufficient public investment in agricultural research and extension was associated with cultivation practices that reduce soil productivity and therefore yields.
So the facile ideas underpinning the Agreement on Agriculture – that farmers could simply shift to cash crop cultivation to increase their incomes and that developing countries could simply choose to export cash crops and import food whenever required without implications for food security – have been a recipe for disaster in many countries.
Now that global food prices are at record highs, it is not surprising that more governments are sceptical of the much-vaunted benefits of supposedly more open trade, especially when it has increased the food insecurity of their populations. They naturally want more safeguards against predatory imports and more freedom to support domestic food production. Yet the current negotiations in the Doha Roundcontain few such proposals.
Is it any wonder that so many developing countries have ceased to believe in any possibility of real gains and so are prepared to just let the Doha Round die?