Agriculture, Latest news, Perspectives

Perspectives: A crisis and an opportunity in agricultural trade

After energy, the most exposed sector to Russia’s invasion of Ukraine is food because both countries are among the top global exporters of grains and fertiliser. While this gives further impetus to the ongoing policy debates about supply security and economic resilience in a range of countries, this crisis may turn out to be an incentive to conclude various FTAs.

Across the world, food prices are rising. The impacts of rising energy and other costs were already being felt in agricultural production even before Russia’s invasion of Ukraine. Now there are serious concerns about food supply to a number of developing countries.

By comparison, the challenges facing Europe are less severe, though inflation and shortages of some products are already being felt – particularly by the poorest. There is no serious suggestion that we will run short of food, which has not historically been the case for such crises.

But given the immediacy of the political and security crisis taking place on Europe’s doorstep, the short-term security of food supplies is perhaps only a limited relief. For, once again, the future of the world trading system is put under scrutiny, resilience and supply security are even more on top of decision-makers minds, and trade restrictions are being put into place around the world.

The COVID-19 crisis saw a surge of restrictions – in particular trade restrictions – related to medical products, now these restrictions relate to food. The natural instinct of governments in such situations indeed is to protect.

Many think that once again the European Union will look inwards, edge towards closed markets and greater self-sufficiency.  Agriculture is already the most difficult issue for trade politics. Discussions around food trade in ongoing trade agreement negotiations and among EU member states may become more complicated.

Yet there is a more intriguing possibility. Leaders may see that ‘resilience’ needs to involve partners, perhaps providing impetus for the slow-moving trade talks with other agricultural exporters such as New Zealand and Mercosur.

There may even be some convergence on regulations, when also considering a case soon to be heard by the US Supreme Court, of which more below.

Conflict and export bans

In 2019, nearly a quarter of global wheat exports came from Russia and Ukraine, with just short of that in barley and maize. For sunflower oil it was nearly two-thirds.

Those exports are seriously threatened by an invasion reducing Ukraine’s productive capacity and transportation options, and by sanctions imposed on Russia in response. Import-dependent African countries may be particularly hard hit.

Food export trade restrictions are being put in place by other countries – most notably of palm oil from Indonesia. They are exacerbating the problems. Then there are the restrictions on fertiliser exports put in place by China last year in response to rising prices.

Such actions are leading to serious concerns about prices rising further and some countries suffering. These developments are bound to have political implications, and many fear this could potentially undermine trade and development policies.

Trade resilience and trade deals

The COVID-19 crisis led to European and US demands for greater supply chain resilience over pharmaceutical products, and more recently over computer chips. We can expect similar calls on food ingredients.

There may however be a counter-intuitive outcome to such calls for national resilience. Politicians demand that the EU is self-sufficient in more and more products. The practical effect of this demand might be almost the opposite, as policy-makers realise that underlying resilience in so many areas is not possible without being open to trade with trusted partners.

Russia’s invasion appears to have strengthened the coherence of what could broadly be seen as a political and potentially economic bloc including Australia, New Zealand, Japan, South Korea, the EU, Singapore, Canada, the United Kingdom, and the United States. South and Central American countries have also strongly opposed Russia’s invasion.

This list notably includes countries with whom the EU is negotiating FTAs, in which agriculture has been one of the most problematic issues. While we can’t expect immediate change to ongoing slow-paced negotiation dynamics, at the very least there should be greater incentive to think about whether reaching these deals actually provides an opportunity to strengthen food resilience.

US Supreme Court and Australian elections may help EU policy

One of the most interesting developments in recent months with regard to food and trade policy was the news that the US Supreme Court would hear a case on whether California’s proposed law banning the sale of pork, eggs and veal bred in conditions not meeting the state’s minimum requirements is constitutional.

Lower courts have so far declared the measure constitutional, but opponents suggest the impact on producers in other states should be considered.

It would seem to be harder for the US government and farm lobbies to attack the EU’s food measures if the Californian law is enacted. Indeed, the ‘California effect’ may come into force, in which other states follow the lead of one of the most lucrative markets.

Across the Pacific Ocean another event to watch will be this month’s Australian elections. Opinion polls make the Labor Party, which is more committed to tackling climate change than the current government, a clear favourite. If a change of administration happens, there would be considerable similarities in outlook with current governments in New Zealand, Canada and the United States. This could be an opportunity to better align trade policies around a network of partnerships.

When it comes to agriculture and trade, it is wise not to get too excited about the possibility of progress in agreeing to ease trade in agriculture. Those who want will always find reasons for protectionism and politicians will often find such nativism attractive.

There is however a glimmer of an opportunity, arising from multiple crises, towards greater cooperation and openness. That must be worth exploring.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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