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Policy Analysis

Global Food Crisis May Take Centre Stage at MC12 Agriculture Negotiations

The world is facing a global food security crisis as the effects of the COVID-19 pandemic and the war in Ukraine take their toll on food supplies and markets. IISD’s Facundo Calvo discusses the implications for agriculture negotiations at the World Trade Organization’s 12th Ministerial Conference and outlines where concrete outcomes could be delivered.
By Facundo Calvo on June 7, 2022

As reported in the last brief on World Trade Organization (WTO) agricultural talks at the end of 2021, reaching consensus on the seven negotiation pillars of domestic support, market access, export competition, export restrictions, cotton, public stockholding for food security purposes (PSH), and the special safeguard mechanisms is proving increasingly difficult.

Yet, the deadlock at the WTO agriculture negotiations faces one major challenge: the global food crisis. The UN Food and Agriculture Organization (FAO) recently said world hunger increased during the COVID-19 pandemic, and between 720 million and 811 million people faced hunger in 2020. Russia’s invasion of Ukraine in February has compounded the food crisis. According to the International Food Policy Research Institute, the unfolding war in Ukraine has rattled global markets, had negative consequences for grain supplies, and, by disrupting natural gas and fertilizer markets, had negative impacts for producers, pushing up already-high food prices, all of which will seriously affect low-income net food-importing countries.

The deadlock at the WTO agriculture negotiations faces one major challenge: the global food crisis.

Not surprisingly, conversations among agriculture negotiators in Geneva have also been revolving around the way WTO members can respond to the food crisis—and less on text-based discussions on the seven negotiation pillars. Even if the Russian invasion of Ukraine translates into a lower level of engagement to reach consensus on these negotiation pillars, there is still room for some outcomes: (i) a call for concrete action to counter the food crisis by a subset of WTO members, (ii) a decision not to impose export prohibitions or restrictions on foodstuffs purchased for non-commercial humanitarian purposes by the World Food Programme (WFP), (iii) some improvements in the cross-cutting issue of transparency, and (iv) work programs for the seven negotiation pillars.

A call for concrete action against the food crisis by a subset of WTO members would seek to “keep agricultural markets open” and “ensure the flow of agricultural products.” A general call of this type, coupled with a reference to the need for transparency in agricultural trade and the central role of the Agriculture Market Information System and a handful of international organizations in providing information during global food crises, could be the low-hanging fruit.

This is a message that was also heard from various experts during the WTO Seminar on Food Security, as well as at the WTO General Council in early May through a Joint Statement on Open and Predictable Trade in Agricultural and Food Products submitted by the United Kingdom on behalf of a group of 55 WTO members. While that joint statement was intended in principle to be delivered at the General Council only, some of its elements (e.g., the importance of open and transparent agricultural markets) might inspire—and be part of—broader conversations on trade in food and agriculture at the WTO’s Twelfth Ministerial Conference (MC12).

More challenging would be to agree on specific language to deal with the elephant in the room: export restrictions. While a group of WTO members would like to restrict the use of this trade policy tool, another group prefers to keep some room or policy space for the adoption of export restrictions if circumstances so require. The first group underlines that export restrictions might increase uncertainty and price volatility in global agricultural markets, if not the use of further trade-restrictive measures by other WTO members. The second group argues that export restrictions are necessary to address food security concerns. As a middle ground, a group of WTO members may agree on a general call to improve the transparency and monitoring of the implementation of these measures within the WTO Committee on Agriculture (CoA). This general call could include a reference to the need to implement targeted, proportionate, and temporary export restrictions in accordance with WTO rules, as well as to notify export restrictions to the CoA as soon as practicable.

A decision not to impose export prohibitions or restrictions on foodstuffs purchased for non-commercial humanitarian purposes by the World Food Programme—the WFP waiver—seems achievable at MC12.

Given its humanitarian nature, a decision not to impose export prohibitions or restrictions on foodstuffs purchased for non-commercial humanitarian purposes by the World Food Programme—the WFP waiver—seems achievable at MC12. Such export restrictions have reportedly affected the WFP’s food procurement efficiency, meaning longer lead times, higher transportation costs, and, in the case of export prohibitions, meal losses and higher procurement prices. As underlined by Singapore in a submission to the CoA in a special session in late 2020, the impact of export restrictions on the WFP’s work has also included the cancellation of procurement contracts to support vulnerable people.

Adding to an already grim scenario for global hunger, the ripple effect of the Ukraine conflict has the potential to increase acute food insecurity around the world. The WFP predicts that an additional 47 million people from a pre-war baseline of 276 million people who were already in the grip of acute hunger could become acutely food insecure in 2022. The conflict makes a stronger case for the WFP waiver: while higher food prices resulting from the expected shortfalls in supply reduce the WFP’s ability to procure enough food for its assistance programs, export restrictions further aggravate the problem by limiting the WFP’s capacity to buy food to provide a lifeline to the most vulnerable populations.

While the humanitarian work of the WFP, which was awarded the 2020 Nobel Peace Prize for its efforts to combat hunger, remains unquestionable, WTO members are still discussing the scope of a WFP waiver. In principle, the language of a waiver would read as follows:

We commit to not impose export prohibitions or restrictions on foodstuffs purchased for non-commercial humanitarian purposes by the World Food Programme.

Achieving consensus at MC12 would certainly be facilitated by the fact that the WFP adopted a local and regional procurement policy in 2019. This policy is based on the “do no harm” principle when buying food to fight hunger and save lives, which takes into consideration any potential effects of these food purchases. This implies, among other things, that the WFP would seek to (i) buy food in countries with a surplus in production and (ii) avoid procuring foodstuffs where this might lead to higher food prices, eventually endangering the supplying WTO member’s food security.

A broader understanding of other aspects of the WFP’s work could also help build consensus around the waiver. For instance, the fact that WFP food purchases represent less than 1% of global food purchases. Or, not less important, that the WFP is carrying out its first impact study on local economies in 2021 to assess the effects that the full cycle of supply chain activities (from planning to procurement and transportation) has on local economies and small producers.

Despite the above, some WTO members have voiced concerns about the need for policy space—that is to say, the need not to curb their ability to impose export restrictions if the circumstances so require. The Report by the Chairperson of November 2021 (which as of last month was the latest publicly available negotiation text on the WFP waiver; discussions are continuously evolving) contains two footnotes suggested by WTO members to the proposed language of the WFP waiver to address these concerns:

  1. Recalling Article 12 of the Agreement on Agriculture and Article XI of the GATT 1994.
  2. Provided that the domestic availability of the procured foodstuffs will not be harmed by such purchases.

The first footnote refers to Article 12 of the Agreement on Agriculture, which should be read in conjunction with Article 11.2(a) of the General Agreement on Tariffs and Trade 1994 (GATT 1994). Adding this footnote was intended to emphasize that the general prohibition of quantitative restrictions under Article 11 of the GATT 1994 is not extended to export restrictions designed to prevent or relieve “critical shortages” of foodstuffs when applied under the two conditions set out in Article 12 of the Agreement on Agriculture: (i) due consideration is given to the effects of these export restrictions on importing members’ food security and (ii) a written notice is given to the CoA. The second footnote is likely to face the opposition of proponents, as it might suggest a negative impact on the food security of WTO members, which does not correspond to the “do no harm” principle and the overarching WFP mandate.

A possible way forward would be to clarify that WTO members have the right to adopt measures to ensure their food security in accordance with relevant WTO disciplines.

Against this background, a possible way forward would be to clarify that WTO members have the right to adopt measures to ensure their food security in accordance with relevant WTO disciplines. This alternative could provide enough policy space to non-proponents while preserving the main purpose of the WFP waiver, which is to deliver food where is most needed.

Beyond the nuances, the language finally agreed should aim to facilitate the work of the WFP—in addition to demonstrating that the WTO is capable of delivering a symbolically important outcome in agriculture when the text-based negotiations on pillars such as domestic support, PSH, or market access have shown little progress. To do so, the WFP waiver would need to strike a balance between being operative for the delivery of food assistance in emergencies by the WFP and giving due consideration to the food availability concerns of supplying WTO members. While there is consensus on the need to preserve the policy space of WTO members, this should be done in a way that does not hinder the main objective of negotiating a WFP waiver at the WTO. In other words, a footnote or a second paragraph that waters down the language of a first paragraph containing the WFP waiver would be a suboptimal outcome of the WTO agriculture negotiations at MC12.

The language finally agreed should aim to facilitate the work of the WFP—in addition to demonstrating that the WTO is capable of delivering a symbolically important outcome in agriculture.

Transparency is another area where WTO members can deliver an outcome at MC12. Indeed, progress was made in late March when the General Council endorsed a decision on the Bali tariff rate quota underfill mechanism to address the underfill of tariff rate quotas (TRQs) on agricultural goods. The 2013 Bali TRQ Decision deals with situations where the TRQs of a WTO member remain underfilled over a period of time. Interestingly, the decision on the Bali tariff rate quota underfill mechanism was reached at the regular session of the CoA, whose function is to monitor the implementation of WTO members’ commitments. This successful outcome demonstrates that when it comes to transparency and the operationalization of existing commitments (e.g., the 2013 Bali TRQ Decision), substantive progress can be made outside a WTO ministerial conference—for instance, through a decision of the General Council, based on previously reached consensus at a WTO regular body meeting a few times a year.

Still, some improvements in the cross-cutting transparency issue could be part of broader outcome at MC12. Some WTO members, for example, would like to see new language for document G/AG/2, which sets out notification requirements. Members may decide to revise these notification requirements where needed. A decision on transparency might also refer to the challenges that some WTO members, especially developing and least-developed, face to comply with notification requirements—as well as the need for technical assistance by the WTO Secretariat to help these members prepare their notifications. Recognition in a decision on transparency of the challenges developing and least-developed WTO members face could range from a broad reference to the role of the WTO Secretariat in providing technical assistance to a more specific requirement to simplify and provide longer notification time frames for developing and least-developed members.

Despite these possible outcomes at MC12, no call for concrete action to counter the food crisis, the WFP waiver, or a few improvements in transparency would suffice to blur the fact that positions in the seven negotiation areas remain far apart. If WTO members cannot find a way to bridge these gaps, a scenario where some of these negotiation areas produce work programs to guide post-MC12 agriculture talks is in the cards.

Domestic support continues to be at the centre of interest of a significant number of WTO members, both developed and developing.

Domestic support continues to be at the centre of interest of a significant number of WTO members, both developed and developing. As highlighted in a recent submission by the group of least-developed countries (LDCs), the trade-distorting effects of domestic support in agriculture continue to displace LDC producers on global markets while creating conditions of unfair competition, hampering the development and food security of LDCs. These conditions are particularly notorious in the case of domestic support to cotton, where WTO members have not managed to address this matter ambitiously, expeditiously, and specifically within the agriculture negotiations, as recalled by the Hong Kong Ministerial Declaration of 2005 and mandated by the Decision of the General Council on August 1, 2004.

A submission by Australia and New Zealand in late 2019 underlines that, since 2001, growth in trade-distorting domestic support has more than doubled— warning that, if the trend continues, trade-distorting domestic support could reach USD 2,000 billion by 2030. Despite broad agreement about the negative trade effects of domestic support, positions on how to rein in agricultural subsidies at the WTO differ significantly. While one group of WTO members would like to see a reduction target (e.g., 50%) and a timeline (e.g., by 2030) to reduce trade-distorting domestic support, others consider this is unrealistic and prefer lighter commitments (e.g., “substantial reductions” of trade-distorting domestic support).

Additionally, preserving the investment subsidies generally available to agriculture and input subsidies generally available to low-income or resource-poor producers in developing countries (Article 6.2 of the Agreement on Agriculture) continues to be a priority for many developing WTO members. Another concern raised by delegations targets the aggregate measurement of support (AMS) available to a group of WTO members beyond the de minimis entitlements available to all members.

A recent report by the International Monetary Fund, the Organisation for Economic Co-operation and Development, the World Bank, and the WTO stated that subsidies “appear to be widespread, growing, and often poorly targeted at their intended policy objectives.” This is certainly the case for agriculture. According to the OECD Agricultural Policy Monitoring and Evaluation 2021, more than 60% of the support to agricultural producers from 2018 to 2020 was provided through the potentially most distorting instruments, namely market price support and payments linked to output or the unconstrained use of inputs.

Last but not least, the reduction of domestic support entitlements is linked to important sustainability concerns, such as protection of the environment. In this regard, the recent WTO Trade and Environmental Sustainability Structured Discussions could shed light on certain forms of agricultural subsidies that are not only harmful from a trade perspective, but also for the environment (e.g., support that promotes the overuse of fertilizers or natural resources such as water, or that incentivizes monoculture).

Many see negotiations on a permanent solution for PSH programs as a Gordian knot that, if untied, could facilitate and spread outcomes on other key pillars of the agricultural talks and beyond.

PSH is another negotiation area of major importance for many developing countries, including those of the G-33, which comprises large WTO members such as China, India, and Indonesia, and the African Group. Many see negotiations on a permanent solution for PSH programs (existing and new) as a Gordian knot that, if untied, could facilitate and spread outcomes on other key pillars of the agricultural talks and beyond, such as a much-awaited deal to curb fisheries subsidies (see article on fisheries subsidies and MC12). As underscored by one of the discussants at the last WTO Seminar on Food Security, an “evidence-based negotiation on a permanent solution for PSH would give the best chance to balance all [WTO] members’ interests and ensure that the food security of other [WTO] members is not harmed.”

A report by the International Institute for Sustainable Development could shed light on possible areas where more technical discussions at the WTO would be welcome. This report examines the advantages and disadvantages of possible ways that PSH could progress, including by (i) updating the base period to calculate the AMS and (ii) revisiting the definition of eligible production. Updating the base period to calculate the AMS would help capture the degree of distortion arising from minimum support price policies. This would be done by accounting for price inflation since the late 1980s, which affects the gap between administered prices and the currently used external reference price dating back to the mid-1980s.

A second important technical aspect concerns the definition of “eligible production”—that is, the quantity of production eligible to receive the administered price. While the Appellate Body in Korea – Beef clarified that eligible production “refers to production that is fit or entitled to be purchased rather than the production that was actually purchased,” it also noted that in certain circumstances, the eligible production may be less. Given the fact that the Agreement on Agriculture does not define eligible production, revisiting this concept could provide WTO members with pathways to resolve the problems faced by developing countries that are buying food at administered prices under their public stockholding programs.

More submissions on technical aspects like these could help advance the negotiations for a permanent solution on PSH. Still, such a solution will have to address two important concerns of “no” proponents to have a fair chance of garnering consensus at MC12: (i) stocks acquired under PSH programs shall not distort trade or adversely affect the food security of other WTO members and (ii) no direct or indirect export from these stocks shall occur. The language of the most recent submissions by demandeurs (African Group, ACP and G33) and a no proponent (Brazil) show how far apart WTO members’ positions remain.

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