Food prices trump trade talks
-
15/04/2008
-
Daily News (Sri Lanka)
The Doha round of global trade negotiations has been stalled since 2001 because developing nations have refused to lower import tariffs that protect their farmers and rich countries won't give up farm-price supports. Now, import duties are being slashed from Brazil to Burkina Faso in response to prices that the World Bank says have risen 83 per cent the past three years; subsidies in the US and Europe are falling. "Food prices have done for import liberalisation what Doha wouldn't have been able to achieve for a very long time,' says Arvind Subramanian, a trade expert at the Peterson Institute for International Economics in Washington. Since early 2007, when cereal prices began rising, developing nations have taken a raft of measures to increase imports. India removed a 36 per cent import tariff on wheat flour, and Indonesia eliminated duties on wheat and soybeans. Peru jettisoned tariffs on wheat and corn. Turkey cut import taxes on wheat to 8 per cent from 130 per cent and on barley to zero from 100 per cent. Mongolia scrapped its value-added tax on imported wheat and flour. Burkina Faso suspended import taxes on four food staples in February after riots in the West African nation over price increases. And Brazil may remove its 10 per cent tax on wheat imports. In all, at least 24 nations have reduced duties and value-added taxes, according to an April 9 World Bank report. In the US, farm subsidies are expected to fall below US$8 billion this year, down from US$13 billion in 2005, says David Orden, a senior research fellow at the International Food Policy Research Institute. European Union support of farmers fell by 10 billion euros (US$15.7 billion) from 2004 to 2006, according to the Organization for Economic Cooperation and Development in Paris. "The prospect that food prices will remain relatively high in the future helps the US accept lower levels of subsidies,' says Carlos Marcio Cozendey, economic department chief at Brazil's foreign affairs office in Brasilia. Brazil has led a group of nations holding up the Doha round because of US and European farm subsidies. The current round of World Trade Organization talks was launched in Doha, Qatar, in 2001. The talks among the 151 WTO members have already collapsed twice, in large part over differences on how to cut farm subsidies and tariffs. Trade negotiators are preparing to try again for a broad agreement in Geneva in the next month or two. A deal might add US$100 billion a year to a weakening global economy by spurring trade and growth, according to the World Bank. "We are once again trying to take a run at getting this elusive breakthrough,' US Trade Representative Susan Schwab told a congressional committee on April 9. High food prices may help, says Gawain Kripke, a senior policy adviser at Oxfam America. "It is having obvious benefits in terms of subsidy payments and import tariffs,' says Kripke, who tracks agriculture and trade issues for the anti-poverty organization. After years of protecting domestic production of food staples by penalising imports, places like Indonesia and the Philippines, the world's largest rice importer, are suddenly welcoming American rice, says Song Seng-Wun, an economist at CIMB-GK Research in Singapore. In the US and EU, subsidies are automatically coming down because farm supports are based on world prices. US food prices have increased 6.5 per cent this year, with dairy products gaining the most; in February, eggs were up more than 25 per cent from a year earlier. While food inflation may increase the chances for a new global agreement, it is still a long-shot, trade analysts say. And the effects of higher food prices aren't all positive from a free-trade perspective: To husband their resources, many nations are restricting exports. In March, Cambodian Prime Minister Hun Sen ordered a two-month ban on rice exports. Egypt prohibited overseas rice shipments, while China imposed export taxes on the food product in January. Pakistan put a 35 per cent duty on wheat exports. Russia quadrupled wheat-export taxes to 40 per cent. Argentina raised soybean and sunflower export taxes to as much as 44 per cent from 35 per cent, prompting three weeks of farmer protests last month that led to food shortages. Other governments are hoarding or rationing. In January, Malaysia announced it will create a new agency to stock up on oil, rice and other items. Singapore and Sri Lanka are stockpiling rice. The Government of the Philippines asked fast- food chains including McDonalds to serve half-portions of rice. The surge in food prices includes everything from cereals like wheat, which is up 181 per cent over the past 36 months, and rice, which is double its year-ago price, to corn, soybeans, sugar and food oils. The increases are the result of growing demand in nations such as China and India. Another factor may be the diversion of crops to biofuels, though the effects of using foods like corn to produce ethanol are disputed. High energy prices, which encourage biofuel production, also raise the cost of fertilisers and food transportation. Bad weather, including a drought in Australia, has contributed. According to research by Merrill Lynch, global food production grew at a slower pace than the world population in 2006, the first time that has happened in at least 15 years. Already, rising prices have spurred unrest in Burkina Faso, Cameroon, Egypt, Indonesia, Cote d'Ivoire, Mauritania, Mozambique and Senegal, according to the United Nations. In Pakistan, Government troops were deployed in February to guard flour mills. Four persons were killed during food riots in the southern Haitian city of Les Cayes. WTO negotiators ought to keep all that in mind when they gather to try again in Geneva, and should take advantage of the lowered import restrictions to lock in new trade rules, says Joe Glauber, the chief US agricultural negotiator. "We need to look at what's happening in the real world,' Glauber said in an interview.