The Concepts of Food Security - Research Paper Example

INTERNATIONAL FINANCE MANAGEMENT Question: The Impact of International Economic Changes in International Food Security, Particularly in Developing Countries STUDENT NAME PROFESSOR’S NAME COURSE TITLE DATE Introduction One of the major challenges facing the global economic system is food security. This is because international economic changes and globalization and economic liberalization mainly affects food security. Following the Rome Declaration on World Food Security in 1996, there was a commitment made by global leaders that agricultural trade, food and the general trade policies created will be able to foster security in terms of providing a fair and a market oriented world trade system. Developing countries in the world play host to over 1.02 billion undernourished people according to Food and Agriculture Organisation (2009 estimates)1. The food crisis experienced in the year 2008 as a result of climate changes has necessitated countries to reconsider their historic practices especially in developing countries and at the same time enhance the promotion the fundamental right to food2. Economic globalization has at the same time given rise to unmet expectations, opportunities and also given rise to challenges in enabling states to fulfil their economic, social rights of the people in terms of giving them access to affordable food3. There is a distinct correlation between the dynamics of economics especially in the global market and regulations in international trade but there exists a gap between the regulations especially between developing countries and the developed countries. In some circumstances, the responses created by the states have failed to address problems of food security but rather led to the disruption of the market and the price volatility4. This research will shed light on the World Trade Organisation (WTO) agreement and its implications for the developing countries in terms of food security. It focuses on food security as a major challenge facing the global economic system and that is economic liberalisation and globalisation in regards to developing countries. It highlights the advantages and opportunities as well as risks associated with the economic transformation, the failures of developing countries in embracing development changes addressing economic reforms. It also examines the effects of the WTO agreements on international food security and the reforms that are necessary in addressing food security as a major challenge to the global economy. Concepts of Food Security The world Food Summit held in 1996 accepted the definition of food security to include: availability, access, utilisation and stability5. This is because, food security can only exist if everyone can physically of economically access sufficient, safe and nutritious food satisfying their dietary needs and their food preferences in order to ensure an active and healthy life6. Moreover, issues of food security primarily relate to the collective roles that nations play in regards to food production and ability to feed the expanding populations. Measuring food security is in two prospects that are whether there is adequate food supply available for the people and whether the people have access to the supply of food. Food security is strengthened through a stabilised domestic production and a more comprehensive import capacity. Agriculture is an important sector in ensuring that the world is secure and insulated from a food crisis, but the extent to which trade affects agriculture is quite enormous and at time difficult to separate. There are two countries that define trade in the world, the developed countries and the developing countries. Food insecurity in the third world countries is worrying, despite different measures including trade liberalisation and the agricultural market being introduced to alleviate food insecurity, developing countries are still at risk. WTO Agreements on Agriculture and Developing Countries The WTO agreements on agriculture (AoA) mainly involve the consideration of tariffs, export subsidies and market access7. The Agreement allows the developed countries to subsidise agricultural products while at the same time having foreign competition by opening up their domestic markets. The Agreements pertaining to Agriculture as agreed in the Uruguay Rounds that led to the formation of the WTO to include technical barriers to trade (TBT), Sanitary and Phytosanitary measures (SPS), trade related investment measures (TRIMS), custom valuation, anti-dumping measures, textiles and clothing, subsidies and countervailing measures, safeguards amongst other issues regarding agriculture. The impact of the WTO Agreements was to bring agricultural commodities to be subjected to multilateral trading rules8. Prior to the entry of multi-trading rules in agriculture, most developed countries had protectionist policies that protected their own domestic production and international markets something similar to the agrarian system. This meant that the protection created an internal advantage for their agricultural produce creating an edge from competitors in the developing countries.\ The AoA creates an obligation for WTO members to ensure that they liberalise agricultural trade. This implies that member states reduce the domestic subsidies that may distort trade, while at the same time a reduction of the volume of and the expenditure in subsidized products. Global Economic Transformation There is a relationship that exists in regards to trading policies and food security. This is because a change in the individuals or social group food security as a result of the actions of its government and at the same time consequences of changes effected by other states. The importance of world trade on food security is attributed to the changing market environment for doing business. The 2008 financial crisis had a negative impact on the food security level in the world. The surge in food prices started to rise as early as 2006. This was attributed to rise in oil and gas prices, the rise in worldwide meet consumption, financial speculation in the global commodity market as well as the role played by multinational food corporations in food production9. There is also Transition from an industrial economy in a purely material wealth to knowledge economy In the world’s history, the world has gone through different economic changes and evolution. It first started with the Agrarian Revolution, then to Industrial Revolution and the moment, a knowledge based economy. It is evident that in the current global economic platform, human knowledge is an important factor for sustainable growth. Technological advancement in the 16th and 17th Century ushered in a new age of using capital and skill in order for people to earn income. According to Robert Owen, he asserted that the mechanical invention that was evident in the cotton industry created wealth, industry and political influences. The role of the industrialisation period was to usher in people to a new economic environment where there was no need of exploitation. David Ricardo a classical economic theorist stated that there was a shift from capital that is raw materials and agriculture in a domestic industry to one of fixed capital, which is machine, structure and mines10. The industrial economy was the age in which the economic status of a country was determined by their industrial capacity to produce goods. Historically, developing countries emerged during the colonial period as consumers of imported goods while at the same time they were the producers of natural resources. However, there has been no change in terms of the roles of developing countries that is they specialise on resources and resource based products that are sold in the international market for a lower cost that are consumed by the industrial nations11. Economic theorists such as Adam Smith and Jeremy Bentham countries are likely to trade with each other depending on specialisation in the production and export of goods at a cheaper price creating a comparative advantage12. The theory of comparative advantage operates on the assumption that land and labour are the main factors of production. However, in knowledge based economy capital, entrepreneurship and technology. The free trade theory on the other hand, presupposes that the countries are free to trade without any barriers thus reducing the cost of production. However there has always been a need to protect the economy in order to protect developing countries, create employment, and maintain the balance of payment of countries and also food security13. Currently, the financial market is driven by the environment considering commercial exploitation or innovations in order to create an absolute trading environment. Innovation is part of knowledge; it changes the market and the economic environment for doing business especially for the developed countries. The knowledge revolution is an intangible asset that is the main determinant of the economy especially in regards to issues of the free market and the intervention of the state. Knowledge based economy changes economic progress from resource exploitation to innovation and human capital in changing the economic environment. Price Stability If developed countries would consider giving incentives to developing countries to increase their production, then there is a higher chance that market prices of food will be more stabilised. However there is an assumption that the prices in the world market will fluctuate this is because a fluctuation in the production generally causes price instability in the world market. In order to stabilise the prices of food commodities, developing countries need to have intervention strategies. However in many developing countries, the governments are not aiming to stabilise the food prices but live it to the private shareholders to determine the market prices of food14. In most of the developing countries, their citizens spend a lot of their income on food and a fluctuation in the food prices can destabilise the entire urban population. It also causes a detrimental impact on the livelihood, since most of the people in developing countries rely either directly or indirectly from agriculture and therefore a rise in the price of crops increases their real incomes as well as their food intake15. The other measure that the state should take into consideration is the creation of a stockpile for its staple produce that is purchase of the food in good year and selling them during bad years within a specified time period in order to maintain food prices16. Developing countries can use this to maintain domestic market prices depending on their fluctuations, infrastructure as well as location. This mode of stabilising market prices is referred to as the buffer stocks. The other avenue for maintaining food price at a stable state is using buffer funds. This is a policy option available for a government that involves a lower cost when it comes to making for shortfalls by importing using a foreign currency earned by exporting in the good years. This means that there is stability using the buffer funds to stabilise the food prices at a lower cost that marinating a physical stock of food17. Risks Deflation refers to the decline in the prices of commodities persistently18. The state of the world economy has not been consistent since the 2008 economic crisis and there is always a risk of negative shock affecting the market environment. Most of the developing countries face structural imbalances as a result of their external accounts and their balance of payments. The response by the developing countries is to access international borrowing from developed countries and investors leading to either a deflation in their local currency translating into bias against the food producing and agricultural sectors of that particular country. At the same time, the lack of good economic and financial policies within a developing country is likely to lead to economic shocks that disrupt trading patterns. This leads to economic disequilibria since there is unfavourable environment for international trade19. Depression and deflation are clear indications of monetary failure. This may arise as a result of exchange rate risks, caused by the multiple currencies used by different countries. Exchange rate risks affect the domestic and local prices of food commodities. At the same time, the interest rates of agricultural product pricing come into force when there is an abundant supply and therefore may lead to inflation of the foreign economic market. Price Volatility The effects of price volatility in the world market are more likely to affect the vulnerable due to their inability to deal with the price shocks20. There is no doubt that it is difficult to ascertain the effects of trade liberalisation on long-term basis and at the same time on price instability of food prices. The progress taken by the countries in liberalising trade is slow, and this means that there is a likely chance that prices will increase if trade policies are not implemented quickly. Price volatility is mainly associated with inflation and economic depression in the world market. Worsening economic bilateral economic of developing countries Most of the developing countries in the world are either part of a bilateral agreement or a regional free trade agreement (FTAs) or are currently negotiating on the conclusion of a trade related agreement. In this case the FTAS under consideration is one existing between a developing country and a developed country. The negative effects of bilateral agreements on developing countries and the stability of the market is that it might likely lead to trade diversion21. This is because certain agreement might require a developing country to divert products that might be cheaper and favour its bilateral partner leading to inefficiencies. It is presumed that developed countries have a higher bargaining power in terms of negotiating trade agreements and this means the agreements do favour the developed country22. This is caused by the lack of capacity of the developing country to control their economies, a weak and ineffective political system and the inability to harness adequate negotiating resources. The WTO regime has created the special and differential treatment as basis for negotiating bilateral agreements in regards to applying the non-reciprocity and non-reciprocal outcomes. However most of the bilateral agreements the development principles advanced by the WTO are absent and hence leading to the equal treatment of the parties to the bilateral agreement when in reality they have unequal capacity and unequal results23. In essence, most developing countries have concluded different bilateral agreement with different developed states and this leads to putting pressure on the state’s finances and resources in fulfilling their obligations under the FTAs. This is because developing countries have limited resources while the proliferation of the agreements requires a lot of resources and technical expertise24. Lack of government expenditure on social benefits Developing countries are focused on political and other infrastructures that are particularly irrelevant for boosting production in the agricultural sector. The fact that the government is unwilling to spend on social benefits, that is ensuring that their people can feed themselves and access other social amenities means that the developing country cannot self-sustain itself. The government of most developing countries are keen on increasing the national debt due to external borrowings and unfair trade agreements, and this affects the factors of production within the country25. Growing protectionist economic and trade disputes against the export of developing countries Developing countries are at risk and more vulnerable to the protectionist tendencies in agricultural trade in the world. Developing countries trading environment is quite different from those of the developed countries due to the fact that unfair competition is most likely to distort the market environment26. The benefits of AoA agreement have at times been minimal with some developing countries creating measures that limit importation or trading with the developing countries. For instance, the WTO created the Special Differential Treatment (SDT) as a way of dealing with differences in trading, but this preference creates risks and is open to abuse by developed state in such a way as legitimising protectionist policies in the global market27. 2. General directions for the development policies of developing countries towards economic changes The overriding objective of the WTO regime is to ensure the smooth flow of trade, fairly, predictably and smoothly that is through administration of trade agreements, settling disputes regarding trade, the review of national trading policies and giving technical assistance to developing countries in regards to trade policy issues. The failure of economic reform in the developing countries has led to the influx and rise in the domestic food prices. This is because, domestic policies of the government fail to focus on agricultural products and the government continue to levy taxes on food and other agricultural products28. At the same time, the developing countries focus on the macro-economic at the expense of improving infrastructure. The policies of the developing countries focus more on the trade measures, safety net products that aim at easing the high price of food without focusing on improving agricultural infrastructure. For instance, some developing countries are either faced with the task of financing subsidies, fuel imports, and social protection and this leads them to domestic borrowing and depleting their foreign reserves. The focus on macro-economic leaves them exposed to inflation pressures, reallocation of resources and having a negative balance of payment leaving them in financial difficulties29. The developing countries are open unilaterally on major international economic blocs without resorting to regional bloc. Regional blocs such as Preferential Trade Areas (PTAs) that are formed by countries with similar economic backgrounds are seldom exploited by developing countries but would rather enter into bilateral agreements that would give developed countries an advantage over them. Similarly, the developing countries frequently impose caution on the market economy mainly to protect their domestic market, but this has a direct effect on the price of food. This is because it leaves them vulnerable to inflation because it can lead to the agricultural producers being unable to deal with the price risks and reduces the value of the producer’s revenue30. 3The effects of WTO agreement on international food security In practice the right to food is a fundamental human right in under the Universal declaration of Human Rights, the International Covenant on Economic Social and Cultural Rights, and under the United Nations Convention on the Rights of the Child. The WTO Agreements have had both negative and positive impacts on international food security especially following the financial crisis of 2008. In the periods between 2006 and 2008 the world witnessed a rise in food prices at an alarming rate and plunging over 115 million people into those considered as malnourished and at the same time it led to provoked riots in different countries31. Developing countries have sought to safeguard their domestic food production capacity since they believe that lowering their protections in the Agricultural sector means that it would have a negative impact on their rural population32. Negative impact of WTO agreement on food security In many instances, policies adopted by the developing countries create a bias against their own agricultural products and sectors and even other developing countries. For instance developing countries have historically taxed highly their own agricultural products either directly or indirectly and this has led to internal trading environment working against agricultural sector and hence keeping the prices of food a bit higher33. The use of biotechnology in the agricultural sector has ushered in a new way of producing agricultural products. However, there is a rise in the price of using biotechnology especially in regards to acquiring the technology and implementing it in the developing countries. In certain circumstances, multinational companies and developed countries take advantage of the situation in order to negotiate detrimental bilateral agreement in order to supply the technology leading to a rise in the domestic prices of food34. At the same time, some developing countries levy taxes on agricultural technology which negatively impacts on the price of the agricultural products35. Pros of WTO agreement on food security The WTO AoA has been progressive in encouraging investment on agriculture. This is due to the inclusion of the SDT and non-preferential treatment included in the agreement to liberalise the market. The SDT Agreement for instance gives preference to developing countries to have access to the developed markets economy in regards to imposition of tariffs, tariff quotas and ad volerem tariff. In essence, it ensures that during surplus periods, developing countries can export their products to developing countries without any restrictions. The developing countries and the Least Developed Countries (LDC) are likely to increase the local production and hence become self-sufficient in terms of being able to feed itself. A nation that can feed itself is able to conquer most economic problems36. This is because the world food market prices will less likely affect its domestic market and that it can supply to other countries such that it creates a comparative advantage over other countries. The AoA is important since it serves to give market access to developing countries and as a result there is available market for them to develop their agricultural production base and invest in the agricultural sector. In the past, high tariff barriers and an escalation in tariff on agricultural products are still evident in most countries despite trade agreements seeking to reduce these barriers. The URAA negations have sought to reduce agricultural tariffs, but agricultural tariffs at times are higher than industrial tariffs making it prohibitive to engage in agriculture and agricultural production. Tariffs thus harm the economies of developing countries relying on exports while at the same time protection depend on the level of processing and any value added activities especially in developed countries37. Some developed countries fail to make transparent disclosure of their tariffs which are more distortional. However in light of trade restrictions imposed under the WTO system, developing countries can increase their income if they can supply high quality food commodities to the developing markets. Is there room for reform? The AoA despite creating a way out in addressing food security in developing countries, there is also a challenge in terms of addressing poverty as well as the steps that the governments of these countries should take in addressing food security. Reforms are necessary in addressing food security issues considering the historical differences in developed and developing countries in becoming food secure. The areas that need reform in regards to WTO AoA are: a. Negotiating new AoA agreement that lowers tariff imposed on agricultural products in order to increase market access by developing country. This is to ensure that they do not impair abilities of the developing countries to use tariffs to promote food security. b. Developing countries rely on tariffs as a way of increasing their revenues, and therefore WTO AoA agreements should be flexible in such a way that it boosts both import and export of agricultural produce. Moreover, the tariffs should not thwart the ability of developing countries from protecting its domestic food production as a result of a cheaper subsidised food importation. c. In essence, the developing countries should reject FTAs and other investment contract agreements that have economic stabilisation agreements. A clause that limits the developing countries level of exports and at the time imposing environmental restrictions should be rejected. Moreover bilateral investment agreements should not give restrictions and prohibit developing countries from dealing with other countries in terms of trade. This means that WTO regime should ensure that they have policies that prevent inequalities amongst the developing countries through STD and at the same time removing protectionist barriers. Conclusion In conclusion, it is a fact the changes resulting from the WTO agreements on food and agriculture in the world and particularly in developing countries will make the economies of these countries fully benefit greatly when fully implemented. However, the changes and the dynamics experienced in the global market are most likely to affect the price of food depending on whether a country is developed or developing. The AoA imposed under the WTO regime despite states speculating its improvement in improving the prices of the developed countries are at a more advantage over developing countries especially in regards to access of foreign direct investment, protection of domestic market, better government regulation as well as subsidies for agriculture. 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