Many countries around the world remain vulnerable to trade shocks in the agri-food market, according to a new report from the UN’s Food and Agriculture Organization (FAO).
The ‘State of Agricultural Commodity Markets 2022’ report was released today (Tuesday, June 28), and urges countries to diversify their import sources to safeguard their food security.
As countries today have a larger number of trading partners then they had at the beginning of the 21st century, the global food and agricultural market has become denser. This has strengthened the market’s resilience to shocks in general.
However, the facts that only a few countries still account for most of the value traded, and that only some countries source a large variety of food from many different exporters, mean that the imports of most countries are concentrated on a few products from a limited number of trade partners.
This makes these countries vulnerable to shocks occurring in the exporter markets, the report found.
It notes that the global food and agricultural market has become less concentrated and more decentralized over time, despite a slow-down in globalization in 2008 due to the financial crisis.
In 1995, a few large players dominated the global market. Over time, the number of large traders increased, while their dominance weakened.
The report says that these changes reflect a “relatively even playing field” and a global food market that can be conducive to economic growth.
Despite that, the CAM argues, regional agri-food markets continue to play an important role, and the tendency for countries to trade more within a region rather than with countries outside the region has become more pronounced.
This is particularly noticeable among countries in North America, South America and the Caribbean.
The report goes on to highlight that the productivity gap in agri-food between developed and developing countries “is huge”.
On average, the top 10% of the richest countries produce 70 times as much agricultural value added per worker compared to countries in the bottom 10% of income distribution.
Many lower-income countries face significant constraints in technology adoption and modern inputs. They also lack insurance, credit and education, and farm size is smaller.
Those countries can also be negatively impacted by trade costs, which can hinder trade integration.
These costs can include insurance, trade procedures and time delays at borders. Compliance with all these significantly increases the cost of trade.
While increasing productivity, lowering tariff barriers and reducing trade costs can increase gains from agri-food trade, the report says that other policies are also needed.
The policies should be aimed at improving access to technology and modern inputs for producers in low-income countries.
The report notes that multilateral trade negotiations are in a deadlock, while extensive regional trade agreements (RTAs), which increasingly include food and agriculture, are on the rise.
The number of RTAs currently in force around the world has increased from 25 in 1990 to more than 350 in 2022.
The FAO report says that there is a concern that “discrimination” in the global market has increased and is leading toward the fragmentation of global trade in competing blocs.
Furthermore, these RTAs may exclude low-income countries. Although they may promote regional value chain development and, on average, generate gains globally, some countries may lose out, the report argues.
Particularly, low-income countries with a limited capacity to negotiate and implement complex trade provisions may be left out of the regional trade integration process.
The report asserts that multilateral trade liberalization can result in larger gains globally and “can be the most efficient way to promote market access and economic growth for all”.