WTO deal seen having little impact on food prices

from Reuters

By Jonathan Lynn and Missy Ryan - Analysis

GENEVA/WASHINGTON (Reuters) - Soaring food prices have surfaced as a big concern in the delicately poised agriculture negotiations at the World Trade Organisation (WTO).

But because any WTO deal will have an impact only in the long term, the Geneva talks will not offer a solution to the immediate crisis, diplomats and officials say.

A doubling of the prices of major cereals on international markets since mid-2007 has sharply increased the risk of hunger and poverty in developing countries where many people spend the bulk of their household income on food.

Already food riots and protests have been seen across Asia and Africa, and Haiti's government has fallen. International aid agencies are struggling to feed people in their care.

The response of some nations, to slap export duties or other restrictions on food, has raised questions at the WTO, and also in the minds of economists looking at the impact of such moves.

"There's no question the price of food ... puts pressure on the agriculture negotiations," said Marietta Bernot, global trade and customs adviser to U.S. confectioner Mars.

Bernot was representing Mars, a major buyer of sugar, on a big delegation of U.S. business lobbyists to the WTO this week.

NO QUICK FIX

WTO Director-General Pascal Lamy told the lobbyists that the WTO could tackle the systematic distortions to the international market for food arising from tariffs and subsidies, but could not do anything to fix the immediate crisis, she said.

The WTO's Doha round was launched in November 2001 to boost the world economy and help developing countries export their way out of poverty. Hopes are high a deal can be done this year.

Agriculture is the key to any deal because of its importance to developing countries, who have been urging rich importers like the European Union to cut tariffs to open their markets and rich exporters like the United States to cut subsidies that squeeze poor country producers out of the market.

The surge in prices has led some countries to slash tariffs, even if they had resisted sweeping cuts in the talks. But Gawain Kripke of Oxfam America noted a difference between autonomously cutting duties under pressure, and locking in liberalization.

Arguably the rise in food prices should make it easier to persuade exporters to dispense with subsidies as farmers don't need them and importers to lower tariffs as they want to dismantle barriers to letting in food.

"It should make a deal easier to get," said Kim Elliott of the Center for Global Development, a U.S. think-tank. "It should make a deal easier, but food prices are just historically incredibly volatile. I don't think any farmer in the U.S. is counting on them staying where they are," she said.

In fact, apart from one technical issue involving the rules for developing countries to stockpile food as long as this does not distort trade, the surge in prices has had barely any impact on the substance of the talks.

"Generally it has not changed fundamentally the discussions in there yet," said New Zealand's WTO ambassador, Crawford Falconer, who chairs the agriculture negotiations.

"The bottom line... is that it hasn't crept into the negotiations in any real sense," said Mark Manis, senior trade adviser for the U.S. Agriculture Department.

GLASS HALF EMPTY

That is because different countries may have different ways of reading the implications of the food price rise.

Some may conclude the message of the current crisis is they can no longer depend on imports and must improve food security by raising barriers to protect local farmers, Falconer said.

But whatever deal eventually emerges will not bear on the crisis in the short term because the WTO does not work that way.

Proposals now on the table would see developed countries reduce trade-distorting subsidies and tariffs over five years while developing countries would have eight years.

A deal would boost confidence that the international community could tackle problems but would have no immediate commercial impact or affect events on the ground in places like Haiti or Indonesia, Falconer said.

"I can't see how you could imagine that what we are doing would create any short-term consequences within the next 12-month period," he said.

WTO Chief Economist Patrick Low agreed that a Doha deal would only have an impact in the medium-term.

"A more open trading system tends to get food to the places where it's needed more efficiently than the segmented protected agricultural markets. So that element of the negotiations is rather important," he said.

Low said restrictions on exports of food imposed by countries such as Egypt and India would push up world prices further even if they helped consumers in the domestic market.

But such measures hurt producers, and could have social and political consequences by changing income distribution.

"I think these things would have been more prominent in the negotiations had we seen this degree of utilization of export measures earlier on," he said.

WTO agreements allow countries to restrict exports of food, but proposals now on the table would tighten these rules.

Export duties, as imposed by Argentina on soybeans, are also up for negotiation, driven primarily by long-standing concerns in EU countries with oilseed processing industries that they could not access raw materials at the same price as producers.