Comments on: Globalization, the WTO and

Agriculture in China

10th Anniversary CelebrationChina Center for Agricultural PolicyBeijing September 26, 2005

Daniel A. Sumner

University of California Agricultural Issues Center and Department of Agricultural and Resource Economics,

U.C. Davis

What have we heard

Globalization is now thoroughly imbedded in the economic system almost everywhere; Prof. Unnevehr has outlined some new realities and challenges

The WTO has helped trade to flow where governments once placed barriers or subsidies; Prof. Huang has shown us specific implications

The WTO has a major role to play

Role of WTO• The WTO plays two roles

– Supervise implementation of agreements including settling disputes among members

– Provide the framework for negotiating new agreements

• WTO made major agricultural dispute rulings in 2005; including US cotton subsidy dispute won by Brazil• The Doha Development Agenda negotiations are at a critical juncture; agricultural is again the key

Is the WTO a Great Dragon?

This is the WTO with a Human Face

Policy provides large subsidies for some crops sometimes these violate WTO agreements

Most of US agriculture is not subsidized and is open to tradeBut, US cotton subsidies were found inconsistent with WTO

obligations. In March of 2005, Brazil won a major case that requires changes in US policy

• US faces political challenges to implement the decision or face international consequences

• My estimates: – US will produce 15% to 20% less cotton and world cotton prices will

be 5% to 10% higher if rulings are fully implemented, implications for China

• Also implications for how the subsidies are viewed in the WTO generally and for Doha negotiations

Let us turn to another set of issues that may conflict with opening markets to trade

Many countries motivate trade protection or subsidy on food security grounds

Turn to another set of issues that may conflict with opening markets to trade

Food security has been used many places as a rationale for subsidy or protection

Some see food security as a production issue related to self sufficiency

• WTO allows some exemptions for developing countries for “food security”

• However protection and farm subsidy policies may not lead to more food security

Chinese Policy Makers and Scholars and Others

Yesterday Vice Minister Chen discussed grain subsidies, motivated in part by food security.

Food security arises as motive for trade barriers and technology policy

• Cheng Quoqiang, “ .. to achieve food security… is the pursuit of food self-sufficiency.” (2003)

• Li and Wang, “The key to realizing food security lies in securing production ability.” (2002)

• Also Indian and Korean WTO Proposals

Economic Viewpoint

• Food security is a demand side issue:– (Sen 1979, World Bank 1986, Sumner 2000,

Barrett 2002).

• Consider what a lower grain price from less protection would mean for even for food security of grain producers in China

• Recent research by Chang and Sumner asks what can be done to improve the food consumption patterns of this potentially vulnerable population in China

We used CCAP data to examine price declines due to liberalization on grain consumption patterns for poor farmers

• Data from a survey in 2000 led by Linxiu Zhang (CCAP), Scott Rozelle and Loren Brandt

• Random grain producing households from Hebei, Shanxi, Liaoning, Zhangjiang, Sichuan, and Hubei

Protection, Subsidy and Food Security

CCAP household survey data from Zhang Rozelle and Brandt in 2000

We simulated relationships between market price, family income and consumption of grain are key to staple grain consumption of poor farm households.

• Key parameters share of full income from grain production, share of income spent on grain consumptions, income elasticity of demand price elasticity of demand

• But, farm income effect is small…even poor farmers get most of their full income from non-grain sources.

• Stochastic results (variable prices) reinforce results• Very few Chinese grain farmers would suffer more food

insecurity if grain price falls with open borders • Protection (and price support) is poor food security policy.

The few vulnerable farm households may be better identified and helped directly with other programs

Implications

Many countries have reasons for protection and policies inconsistent with more market opening

US cotton subsidy is one example of policy inconsistent with negotiated WTO obligations

Other policies may not violate WTO rules, but have poor domestic rationale

Protection and subsidy in the name of food security is an example