AFRO-NETS> Principles of food trade

[Claudio Schuftan <aviva@netnam.vn>]

Principles of food trade
------------------------
 
by George Kent
 
Historically, food and agriculture policies have centred on the 
interests of producers, especially large scale producers. How-
ever, food has consumption value as well as commodity value. The 
governance of international trade in food should give special at-
tention to the concerns of those most vulnerable to food insecu-
rity. As specified by the World Food Summit in 1996, "Food secu-
rity exists when all people, at all times, have physical and eco-
nomic access to sufficient, safe and nutritious food to meet 
their dietary needs and food preferences for an active and 
healthy life." The definition of the human right to adequate food 
is similar:
 
The right to adequate food is realized when every man, woman and 
child, alone or in community with others, has physical and eco-
nomic access at all times to adequate food or means for its pro-
curement.[1]
 
There is a need to design a new normative framework and appropri-
ate institutional arrangements, for the governance of interna-
tional food trade. The discussions now under way regarding the 
revision of the World Trade Organization's (WTO's) Agreement on 
Agriculture provide a good opportunity for reconsidering the 
principles under which international food trade is managed. This 
essay raises some key issues, not to resolve them, but to assure 
that they are on the agenda.
 
Subsidies and Dumping Many countries subsidize selected food pro-
ducers, directly or indirectly, resulting in overproduction in 
those sectors. To relieve the glut, some of these countries 
"dump" the products into poor countries. Reducing tariffs on pri-
mary commodities makes it easier for rich countries to dump their 
primary commodities into poor countries.
 
Dumping can do severe harm to food producers in the receiving 
countries. Since much of the employment in poorer countries is in 
small-scale food production, dumping can reduce the incomes of 
large parts of the population, thus reducing their food security. 
Dumping also can lead to excessive dependency of consumers on 
these under-priced products, and subject them to considerable 
harm if the flow is interrupted. For example, under the North 
American Free Trade Agreement, roughly a quarter of the corn in 
Mexico is now imported from the United States, and many Mexican 
corn producers are going out of business. If that flow of corn 
from the United States is interrupted, or if the price suddenly 
increases, consumers in Mexico will have trouble getting their 
traditional food staple.
 
Large shares of the subsidies that are provided go to larger pro-
ducers who are well off and have reasonable alternatives. They 
receive subsidies primarily as a result of their political power 
rather than their need. This "welfare for the rich" should be 
sharply reduced or eliminated.
 
However, the subsidies to poor, small-scale producers who have 
few alternative means of livelihood are a different matter. These 
producers may be inefficient by common economic criteria. How-
ever, subsidizing them may be good public policy, in that subsi-
dies to small-scale food producers are part of the social safety 
net. For this purpose, subsidies to small-scale food producers 
who produce for local consumption (not export) can be very cost 
effective. While subsidies to small-scale producers are not eco-
nomically efficient, they may be socially efficient.
 
Discriminatory Tariffs, Discriminatory Pricing Considerable at-
tention is being given to the subsidy issue in ongoing debates 
about the WTO's Agreement on Agriculture. However, many other is-
sues are being neglected, especially issues affecting poor coun-
tries.
 
There is currently a pattern of "escalating tariffs" under which 
tariffs are pushed down on primary commodities but left high on 
processed foods. Reducing tariffs on primary foods but not on 
processed food is discriminatory, preventing poor countries from 
engaging in more profitable value-added (processed) food indus-
tries. The liberalization of food trade through the reduction of 
tariffs should be accomplished in a way that does not discrimi-
nate against poor countries.
 
Even without discriminatory tariffs, the pressure on poor coun-
tries to open their domestic markets to foreign food suppliers 
can be very harmful to them. Local food producers in poor coun-
tries may not be able to compete with the imports, with the re-
sult that their incomes plummet, destroying their food security. 
The effect of cheap imports can be devastating. Until alternative 
means of livelihood can be assured, providing protection of small 
producers through tariffs against cheap food imports may be just 
as sensible as subsidizing small-scale producers. This may appear 
to be economically inefficient in some frameworks of analysis, 
but from a social perspective it may be good policy.
 
In the idealized marketplace, the prices for the same product of 
the same quality would be the same throughout the world, with 
variations only due to transportation costs. However, in the real 
world, where prices must be negotiated, producers in poor coun-
tries often get paid less, even when they produce exactly the 
same products for the world market, as do producers in richer 
countries. For example, farmers from poor countries receive much 
less in real terms for a bushel of grain than farmers of the 
richer countries, even when their products end up in the same 
markets. The United Nations Development Programme observes, 
"...rich producers are paid more than poor ones for identical 
goods."[2] Their labor is paid less as well.
 
Even without discriminatory tariffs or discriminatory pricing, 
countries that export primary goods are likely to be disadvan-
taged by the fact that the prices they get for their primary 
goods remain essentially flat while the prices they must pay for 
their imports of processed goods rise rapidly. While it has long 
been known that the prices for primary goods exported by poorer 
countries tend to remain flat, it is now being found that this is 
also true for their exports of processed goods.
 
The benefits received from a country's exports may be greatly di-
luted by the diversion of a large share of the benefits to owners 
from outside the country. This diversion may occur through ac-
knowledged profit shares, or it may occur less visibly through 
transfer pricing. This is where prices for exchanges within 
branches of a corporation are manipulated through accounting 
practices that benefit the managers and stockholders. Multina-
tional corporations may deal with their subsidiaries in a way de-
signed to maximize the flow of benefits to headquarters, at the 
expense of the subsidiaries.
 
Richer countries promote trade liberalization in a way that sug-
gests it would be beneficial to all, but it is not equally bene-
ficial. Trade tends to provide its greatest benefits to those who 
are more powerful. It contributes to the widening of gaps between 
rich and poor.
 
Food flows mainly toward money, not need. Food trade is not about 
sending off unneeded surpluses, any more than the trade in auto-
mobiles is about getting rid of "extra" automobiles. And it is 
not about redistributing food to where it is most needed. On bal-
ance, food flows from food deficit countries to countries that 
have more than enough. The poor feed the rich.
 
In theory, the foreign exchange that compensates for the outflow 
of food could be used to meet the food needs of the poor, but of-
ten it is not. The poor are politically weak, and do not control 
how foreign exchange earnings are used. Since food in interna-
tional trade tends to flow away from needy countries, special 
measures should be taken globally to assure that needs are met in 
those countries.
 
The Priority of Human Rights
 
Under the principle of food sovereignty, under the principle of 
subsidiarity (decisions should be made at as local a level as 
possible), and in recognition of their obligations under the hu-
man right to adequate food, national governments should not give 
up control over their own food systems. They should be supported 
in exercising their own judgement as to when increasing openness 
to trade or increasing self reliance would best serve their 
needs. Forced trade is not free trade.
 
Accordingly, all countries should have the right to set their own 
criteria regarding the character of the food they import. They 
should not have to justify their judgements or doubts regarding 
food quality to anyone outside the country. For example, they 
should be free to refuse to import genetically modified foods, or 
foods whose characteristics they may question for any reason at 
all.
 
Countries should be free to refuse to accept imports based not 
only on the character of the product, but on other grounds as 
well. For example, they should be free to refuse to accept prod-
ucts that are likely to be misused because of difficult environ-
mental, sanitary, economic, or other conditions. They should be 
free to refuse to import foods that are produced through the ex-
cessive exploitation of workers or with methods that pollute or 
deplete the environment.
 
Since food is so essential to human nutrition, health, and gen-
eral well being, food trade should be managed on the basis of the 
obligation of all states and other actors to respect human 
rights, particularly the human right to adequate food. The liber-
alization of food trade through means such as the reduction of 
tariffs and other obstacles might contribute to the realization 
of the human right to adequate food under some circumstances, but 
under other circumstances it may not. The realization of the hu-
man right to adequate food should take priority over the liber-
alization of trade.
 
Under appropriate management, food trade could make a major con-
tribution toward the realization of the human right to adequate 
food for all people. For this reason, poor countries should have 
a preferential role in the design and management of a new inter-
national regime for the governance of food trade. At the very 
least, principles of democratic global governance require that 
all people are equally represented. No matter what the rationale, 
given the compelling need for decisive action to assure the re-
alization of the human right to adequate food for all people, the 
poor should be strongly represented in establishing these new ar-
rangements.
 
Food, essential to the well being of very individual, should not 
be treated as just another commodity. There is an urgent need to 
create a new international regime governing international trade 
in food, taking full consideration of the need to assure the re-
alization of the human right to adequate food for all people.
 
Prof. George Kent, University of Hawai'i
mailto:kent@hawaii.edu
 
--
References:
 
[1] United Nations. Economic and Social Council. Committee on 
Economic, Social and Cultural Rights. Substantive Issues Arising 
in the Implementation of the International Covenant on Economic, 
Social and Cultural Rights: General Comment 12 (Twentieth Ses-
sion, 1999) The Right to Adequate Food (art. 11) (Geneva: ECOSOC 
E/C.12/1999/5).
www.unhchr.ch/tbs/doc.nsf/MasterFrameView/3d02758c707031d58025677f003b73b9?Opendocument
 
[2] United Nations Development Programme, Human Development Re-
port, 1992, p. 60.
 
[Published in SCN News (United Nations System Standing Committee 
on Nutrition), No. 26 (July 2003), pp. 43-44].

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