Will the WTO be able to protect the poorest from a looming global food crisis?

The agricultural debate will take center stage at the World Trade Organization’s (WTO) June Ministerial conference (MC12), and its dynamics will be shaped, in form but above all in substance, by the war in Ukraine.

Since the WTO operates by consensus, few trade experts and WTO watchers here expect that the body will be able to take any strong action given the depth of the rift within the international community.

However, with a looming global food crisis, there is an urgent need to find an agreement and a clear danger in not doing so. Negotiators here say that pressure on the conference will be high: On trial during MC12 is the organization’s ability to reach an agreement despite the profound tensions created by the war and Russia’s new status as a pariah state.

According to the latest WTO prediction, the conflict has not only created a humanitarian crisis of immense proportions but has also dealt a severe blow to the global economy.

“The brunt of the suffering and destruction are being felt by the people of Ukraine themselves, but the costs in terms of reduced trade and output are likely to be felt by people around the world through higher food and energy prices and reduced availability of goods exported by Russia and Ukraine,” according to a Secretariat note.

“Poorer countries are at high risk from the war, since they tend to spend a larger fraction of their incomes on food compared to richer countries,” it continues. “This could impact political stability.”

While Russia and Ukraine represent a relatively small share of overall world trade and output, in a technical note published in April, the WTO indicates that the two countries are “important suppliers of essential products, notably food and energy. […] Both countries supplied around 25 per cent of wheat, 15 per cent of barley and 45 per cent of sunflower product exports in 2019.”

Reduced shipments of grains and other foodstuffs will increase global prices of agricultural goods, a situation that will have negative consequences for food security in poorer regions. According to the WTO, Africa and the Middle East are the most vulnerable regions, as they import over 50 per cent of their cereal needs from Ukraine and Russia. In total, 35 countries in Africa import food and 22 import fertilizer from Ukraine, Russia, or both.

Some countries in Sub-Saharan Africa are facing the possibility of price hikes of up to 50–85% for wheat as a result of the war’s impact on grain shipments from the region. “The current crisis is likely to exacerbate international food insecurity at a time when food prices are already historically high due to the COVID-19 pandemic and other factors,” the WTO’s Secretariat warns.

The Ukrainian crisis is giving another dimension to a long-running debate on agricultural subsidies, also scheduled to be debated in June. One of the main concerns now revolves around public stockholding of food. The war in Ukraine has demonstrated how fast the food situation can deteriorate, and in the last few months, countries like India and Indonesia have advocated that MC12 should authorize governments to enlarge stockpiled supplies beyond the limits set in previous agreements. New Delhi also insists that a compromise on this matter should be reached before any other chapter of the agriculture trade negotiations is opened.

But for South America, New Zealand, Canada, and other major agricultural powers, this could lead to an unacceptable increase in subsidies, which would, in the end, further impact food prices.

With the risk of a global shortage looming, the debate has taken on a new urgency, but it has also hardened the positions of some countries. India and Indonesia, for example, claim that increasing food stocks would reduce the risk of famine in the event of war.

Opponents of the proposal reject the argument. It is not market distortion or state interference that will prevent famine, but open markets, claim the representatives of Latin American countries. In a clear split within the BRICS, India is accused of dangerous hypocrisy: it claims to act in defense of the poor, but the country maintains high tariff barriers for the import of agricultural products, harming African exports of grain that could be decisive for the continent's economies.

In a joint statement last week, the European Union, the United States, and two dozen other countries vowed to shore up global food security. They stressed “the urgency and importance of maintaining open and predictable agricultural markets and trade.” That, they say, would “ensure the continued flow of food, as well as products, services and inputs essential for agricultural and food production and supply chains.”

But these countries also “recognize the importance of exercising restraint in excessive stockpiling and hoarding of agricultural products affected by this crisis that are traditionally exported.”

One way out might be a commitment during the June Ministerial Conference to keep food and agriculture markets “open, predictable and transparent by not imposing unjustified trade restrictive measures on agricultural and agri-food products or key agricultural production inputs.” Furthermore, MC12 could insist that, contrary to the situation today, no export bans or restrictions should be applied on food purchased by the UN’s World Food Program for humanitarian purposes.

Brazil is also proposing what would amount to the creation of emergency corridors for food and fertilizers to countries most affected by the food crisis, particularly least developed countries (LDCs).

“MC12 should dedicate special attention to this issue and Brazil would like to propose a specific initiative to guarantee access to fertilizers,” the delegation stated. Fertilizer prices have reached all-time highs because of the war, threatening future harvests, a massive problem for Brazil. Russia has further jolted the markets, threatening to cut exports of fertilizers.

Meanwhile, the WTO projects that the crisis could reduce global GDP growth by 0.7–1.3 percentage points, bringing growth to somewhere between 3.1% and 3.7% for 2022. Global trade growth this year could also be cut almost in half from the 4.7% forecast by the WTO last October to between 2.4% and 3%.

- JC, with PHM