1. Introduction

2As trade diplomats come back to the negotiating table to tackle unfinished business, however, recent changes in global commodity prices may significantly affect the dynamics of on-going negotiations in this area and therefore of progress towards SDG 2. Over the last five years, the prices of several agricultural commodities have experienced a continuous decline from their 2011 peak. As these prices reach their lowest levels since 2006, domestic pressures facing policymakers worldwide are likely to evolve, ultimately affecting the prospects for international cooperative action.

4In times of low prices, domestic pressures are more likely to come from producers concerned about remunerative prices and the need to maintain farm income. In the 1980s and 1990s, for example, long-term declining prices pushed governments, mainly in OECD countries, to support domestic prices and farm income through various forms of agricultural subsidies and border protection. As noted elsewhere:

• 3 A considerable literature explores the political economy of agricultural trade negotiations and agr (...)

While these measures achieved their stated objectives at the domestic level … [they] exerted further downward pressure on international prices and made them more volatile. They also induced surpluses that had to be disposed of in international markets, often with the help of export subsidies… In developing countries, low and volatile prices provided disincentives to invest in agriculture, often resulting in lower domestic food production, while shifting consumption patterns towards less expensive, subsidised imported foods.3 (ICTSD, 2014, 3)

5With food prices reaching their lowest levels since 2006, new isolating trade policies return and significantly affect the political feasibility of future agricultural reforms. This article reviews the implications of the recent downward trend in agricultural prices for future trade talks. Firstly, it reviews price evolution and future projections, looking at the main factors behind such trends and associated changes in global trade flows. Secondly, based on a review of recent trade protectionist measures and changes in agricultural policies observed between 2006 and 2015, it assesses possible policy implications of this new price environment for future trade reforms and on-going trade negotiations. Finally, the article looks at possible avenues at the domestic, regional and multilateral levels to address these challenges and overcome the current deadlock in negotiations. In doing so it will review not only the prospects for unilateral reforms but also the role of regional trade agreements (including the so-called mega-regional agreements) and WTO negotiations.

2. Recent Trends in Prices and Trade Flows

6Markets for food and agriculture have been particularly volatile over the past decade, with a number of significant peaks and troughs characterising price trends for the basket of core food commodities that is tracked by the UN’s Food and Agriculture Organization (FAO). After an extended period in which real food prices mostly exhibited a downward trend, prices rose sharply upwards in 2006/07 and again in 2010/11 (Figure 2). With the financial crisis in 2008/09, in contrast, food prices dropped dramatically at the same time as output slowed in several major economies. Since 2011, prices again tended to move downwards until very recently. While these aggregate food price trends disguise distinctive patterns across different product groups, prices have nonetheless fallen significantly across the board (Table 1).

Table 1: Prices for key commodities have dropped significantly from recent peaks

Food price indices	Date of peak value	Peak value	July 2016	Percentage change from peak value
FAO Food Price Index	Feb 2011	240	162	-33%
Cereals	Jun 2008	268	148	-45%
Oils	Feb 2011	287	157	-45%
Sugar	Jan 2011	420	279	-34%
Meat	Aug 2014	212	160	-25%
Dairy	Feb 2014	275	142	-48%

Source: Authors’ elaboration based on FAO data retrieved at http://www.fao.org/​worldfoodsituation/​foodpricesindex/​en/​ (accessed on 4 August 2016).

7A number of factors can be identified as lying behind the fall in prices. These include a robust supply response to earlier food price spikes, weaker demand growth and in particular slower economic growth rates in China, and increasingly abundant stocks (OECD/FAO, 2016). Agricultural commodity prices have also tended to correlate with trends in energy markets, with oil prices exhibiting unusually marked upswings and downturns during recent years. While farm inputs, production, storage and transport all have long been influenced by energy prices, the rapid growth of the biofuel sector has created new types of relationships between agricultural and energy markets (De Gorter et al., 2015).

10Improved productivity, rather than crop area expansion, is expected to be the main way in which supply will increase in response to growing demand, the Outlook finds—with yield improvements due to account for about 80 per cent of the increase in crop production. Factors behind slowing demand growth include slower population growth, which the OECD and FAO see as the main historical driver of increasing demand, and projections that income growth in ‘emerging’ economies is expected to be weaker in the immediate future. Furthermore, demand for farm goods from the biofuels sector is expected to stagnate as oil prices remain low, the two agencies say.

11Agricultural trade will grow at about half the rate it did in the previous ten years. However, for most commodities, the share of total production that is traded on global markets will stay relatively constant. Trade will also become more important in ensuring global food security, given natural resource constraints in many countries. Farm trade is projected to remain highly concentrated, with just five main exporters accounting for as much as 70 per cent of total exports—and with trade in some commodities being dominated by an even smaller number of countries.

3. The Evolution of Agricultural Trade Policy Over Time

3.1 The Rise of Protectionist Measures in Agricultural Trade

15Figure 4 further breaks down these trade-restrictive measures by imposing country or group of countries, highlighting the top 20 countries that have applied such measures between 2012 and 2015. It illustrates not only the wide distribution of protectionist pressures in agriculture but also the preponderance of major players in the implementation of such measures.

16Overall, the post-2012 shift towards market access barriers, trade remedies and state aid points to the fact that some of these measures—including some of the short-term changes made to existing policies—have been applied as a result of declining world prices for certain commodities.

18As shown in Figure 5, these data confirm the significant growth in the use of import restrictions—mainly in the form of increased tariffs or quantitative restrictions—and the use of trade remedies after 2012. Import-restrictive measures more than tripled, from 25 in 2008‒11 to 80 after 2012. The data also show how import-liberalising measures largely surpassed import restrictions during the price spikes period between 2008 and 2011, as governments struggled to provide affordable food for their consumers by temporarily removing trade barriers. Interestingly, trade-restrictive import measures applied to cereals, oils, sugar and dairy accounted for nearly 60 per cent of total trade-restrictive measures applied to agriculture, pointing once again to a probable link with the decline in commodity prices. While trade-liberalising import measures also grew significantly post-2012, a closer look shows that the countries implementing them were not the same as those imposing trade restrictions. While the main liberalising countries included relatively competitive producers like Brazil or Mexico, or large importers and developed countries or blocs such as the EU or Korea, countries imposing restrictions were essentially large developing countries and blocs such as India, Pakistan, Turkey, SACU, Argentina, Nigeria, China or Indonesia. Arguably, this is not particularly surprising, as these countries/blocs still have significant rural populations that rely on agriculture for their livelihoods and that remain fairly vulnerable to import competition.

19Complementing these raw figures, the following sections provide a short overview of recent agricultural policy reforms in major agricultural producers, exporters and importers, and examine potential consequences for future trade talks.

3.2 Market Access: A Return to Isolating Trade Policies to Offset Low Prices?

21The decline in commodity prices observed since 2011 is unlikely to change domestic policies radically if these have been consolidated in international commitments undertaken multilaterally (e.g. China’s or Russia’s accession to the WTO) or in bilateral and regional preferential trade agreements. However, low prices might put pressure on policymakers to apply temporary protection, or to simply undo some of the unilateral reforms implemented in recent years but not consolidated in international commitments.

24At that time, the international prices of major agricultural commodities were experiencing a steep declining trend (see Figure 6), and the FAO documented an increase in the number of cases of developing countries—particularly low-income, food-deficit countries—experiencing import surges of various products, often associated with negative effects on local production and the economy (FAO, 2005). The SSM proposal soon became a central and fairly controversial aspect of the WTO agricultural talks and partly contributed to the collapse of multilateral trade negotiations in July 2008 (ICTSD, 2008). Between 2004 and 2011, the incidence of import surges declined significantly, while cases of price depression fell nearly to zero for most commodities (Morrison and Mermigkas, 2014), reducing considerably the pressure and arguably the justification for an SSM.

25After 2011, however, the prices of the same major commodities returned to a downward trend (Figure 6), with all commodities experiencing a price decline of over a third. This also coincided with a renewed push by the G-33 for an effective SSM mechanism in the run-up to the WTO Nairobi Ministerial Conference (Dhar, 2016). The return to periods of declining prices will probably result in renewed political pressure to negotiate some sort of contingency tariff protection to deal with price depression. Arguably, resistance to lowering trade barriers on imports is likely to be fuelled further by the resurgence of agricultural subsidies in both developed and emerging economies, as such subsidies artificially lower world prices. This phenomenon is examined further in the section below.

3.3 Domestic Support and the Risk of Further Suppressing World Prices16

27According to Brink (2014), the reduction in domestic support observed in the EU or the US is partly explained by policy changes, but also by rising prices between 2006 and 2011. At the policy level, successive reforms in the EU progressively replaced highly trade-distorting price support with more decoupled income support payments. In the case of the US, decoupled payments replaced certain more distorting instruments in the 1996 Farm Bill; however, overall, total payments shrank as world prices went up, triggering lower levels of support under programmes such as countercyclical payments.

29Besides industrialised countries, the rise of emerging economies (particularly in Asia) has been accompanied by a rapid increase in farm support. Figure 8 looks more specifically at the case of China, and shows how producer support has increased in recent years, particularly for commodities like sugar, soybean, maize and milk. In the case of rice, policy even evolved from a situation in which farmers received negative support (i.e. were taxed) to a situation where single commodity transfers accounted for over 30 per cent of gross farm receipts.

30This increase should probably not be attributed to the recent decline in prices. It rather reflects broader long-term concerns linked to specific domestic circumstances. For example, securing the domestic supply of food while reducing income disparities between rural and urban areas has traditionally been China’s main objective, whereas India focuses more on supporting the livelihood of small farmers while ensuring access to cheap food for consumers (ICTSD, 2015a). As emerging economies have started accumulating larger resources through which to provide state aid, domestic support programmes in agriculture have grown significantly, mostly in the form of price support policies, non-product-specific input subsidies, or investment aids. These schemes are often supported by government-run stockholding programmes for food security and by public distribution systems (e.g. India, China or Pakistan).

31While the trade-distorting impact of such instruments in times of high prices only raised limited concerns, in an environment of declining prices, input subsidies or high administered prices could potentially distort production and push prices even lower. For example, the minimum support prices guaranteed by governments in countries such as China, India or Pakistan increased continuously during the 2006‒11 price spikes, partly to stay in line with international prices. However, as shown in Figure 9 for the case of wheat, when international prices started to fall, minimum guaranteed price levels continued to increase, thereby keeping domestic prices higher than world levels, with potentially important trade-distorting effects.

32The extent to which support prices will be adjusted in the future remains uncertain, but according to AMIS (2016) the new Minimum Support Prices (MSPs) for 2016/17 in India actually increased again from previous levels by 4.3 per cent for common paddy rice, 4.1 per cent for grade A paddy, 5.2 per cent for wheat, 3 per cent for maize and 6.7 per cent for soybeans.

33As negotiators resume trade talks in Geneva on agricultural reform, progress on such issues may be made more difficult as a result of the new low price environment. Contrary to a situation in which prices are high, governments may be more reluctant to undertake reforms when faced with political pressure from domestic producers to increase support in the sector and not reduce it. Exporters of agricultural products, on the other hand, will likely argue that this new price environment makes further reform all the more urgent, and insist on the need to achieve meaningful results in the negotiations.

3.4 Export Subsidies: The End of Food Dumping?

34During the 1980s and 1990s, export subsidies were widely used as a mechanism to export surplus output from jurisdictions in which policies such as market price support, in combination with tariff protection, had led to overproduction of certain agricultural goods. These surpluses were eventually reduced as domestic support policies were reformed, while in a parallel process the 1986‒94 Uruguay Round of trade negotiations established caps on trade-distorting support. These developments can be seen to have contributed to a fall in the use of export subsidies and other measures with comparable effects, with export subsidies in the EU alone falling from over EUR 10 billion per annum in the early 1990s to almost zero today, and to a decline in the volumes of in-kind food aid as donors move increasingly towards cash-based food assistance (Díaz-Bonilla and Hepburn, 2016; Clay, 2014).

35The WTO Agreement on Agriculture, which was concluded at the end of the Uruguay Round, included disciplines on export subsidies, as well as other provisions intended to prevent these commitments from being circumvented. However, with the use of export competition instruments continuing in the 1990s, many countries wanted to establish stronger global rules to protect their farmers and agricultural exporters. While recourse to export subsidies made little sense during the price spikes period (with the exception of certain products for which expensive fuel constituted a large share of the input costs), the return to low prices could have resulted in countries reactivating their export subsidy programmes. Figure 3 tends to confirm this hypothesis with the number of export subsidy measures in agriculture roughly doubling in 2012‒15 compared to their 2007‒11 level.

36When they launched the Doha Round of trade negotiations in 2001, WTO members agreed, under pressure from agricultural exporters, to negotiate ‘reductions of, with a view to phasing out, all forms of export subsidies’ (WTO, 2001), a commitment that was followed four years later by an agreement, in the WTO’s Hong Kong ministerial declaration, to ensure the ‘parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect’ by the end of 2013 (WTO, 2005). Although some countries sought to fast track an outcome in this area in 2011 and again in 2013, the EU in particular continued to insist that any export competition outcome should be linked to progress in other areas. However, in the run-up to the 2015 ministerial conference, the bloc changed its negotiating stance, and joined forces with agricultural exporting countries such as Brazil to push for a deal on export competition at the trade body’s tenth ministerial conference in Nairobi, Kenya, in December (ICTSD, 2015b).

37The deal that was ultimately struck at that conference represented a significant milestone in WTO members’ efforts to reform the global rules that govern markets for food and agriculture. Trade ministers agreed to phase out export subsidies, and not to increase them above current levels. On export credits, export credit guarantees and insurance, although the rules that were agreed were less rigorous than those contained in previous draft negotiating texts, they established an eighteen-month maximum repayment period for developed countries, effectively ‘locking in’ existing practice in the US. New rules on international food aid were also agreed that sought to ensure it remained available in emergencies, but did not function as a disguised export subsidy. Finally, generic language on exporting state trading enterprises required countries not to use these bodies to circumvent their export subsidy commitments.

38The Nairobi package can be seen as a critical moment along a path that stretches back over many years and through successive episodes of falling and rising prices for food and farm goods. However, it is clearly the result of concerted efforts, over the long term, to address the trade-distorting effects of specific instruments associated with structural overproduction and the implications these may have for domestic markets. The breakthrough in this area, in Nairobi, may also be the result, in part, of growing anxiety among some WTO members that an increasing number of large developing countries may be adopting the types of policies that historically led to these problems in the 1980s and 1990s. While the Nairobi package provides ‘special and differential treatment’ for various types of developing countries, for example in the form of longer implementation periods for policy reforms, it nonetheless establishes deadlines for the elimination of export subsidies and similar commitments for other instruments that WTO members consider to have comparable effects. Overall, disciplines in this area might require further improvements (e.g. on food aid, export credits or state trading enterprises), but nonetheless constitute an insurance policy against the real risk that some Members might otherwise reactivate their export subsidy programmes as commodity prices fall.

3.5 Export Restrictions: An Opportunity to Act?

4. Conclusions and Possible Ways Forward

43Uncertainties in the factors affecting global supply and demand mean that it is difficult to reach definitive conclusions about the likely evolution of price trends in the years ahead, and how these may affect producers and consumers in different parts of the world. So far, the continuous decline in food prices observed since 2011 appears to be correlated with renewed protectionist pressures in both developed and emerging economies, as these countries introduce more state aid and market protection. But the level of prices is only one factor at play. For example, the dynamics of policy cycles in the EU or the US also play a role, with agricultural policies being reviewed at fixed intervals, sometimes resulting in delays in adjusting policies to new external pressures. Policymakers are also confronted with contradicting pressures from opposing sources. In the internal EU debate on the last CAP reform, environmentalist groups campaigned relentlessly for additional environmental requirements and a shift towards less trade-distorting farm support. Despite the final scope for expanding support linked to production, the constituencies that sought to reintroduce trade-distorting support have only been partially successful—not least because of fiscal pressures on EU members in the aftermath of the 2008 economic slowdown and the crisis in the eurozone.

44Compared to the situation prevailing in earlier periods of low prices such as the 1980s and 1990s, the most striking development is probably the rise of emerging economies such as China, India and Indonesia. As these countries accumulate enough resources with which to support agriculture, they might be tempted to follow the path of OECD countries that have traditionally been the main providers of trade-distorting subsidies and border protection. In times of low prices, such policies might result in significant externalities by further depressing international prices and exporting volatility onto world markets, largely at the expense of smaller countries that cannot afford to provide such income support to their farmers in times of low prices.

45So far, however, WTO negotiations aimed at reducing trade-distorting agricultural subsidies have progressed slowly, with limited prospects of a solution in the short term. While significant progress was achieved on export subsidies at the Nairobi Ministerial conference, the deal largely consolidated past reforms and did not address domestic support, where most subsidies are concentrated. At the heart of the matter is disagreement among large industrialised countries and emerging economies over their respective levels of concessions. On the one hand, emerging economies point to the large amount of subsidy entitlements enjoyed by developed countries, and argue that further reform should first and foremost result in significant cuts in those subsidies. Developed countries, on the other hand, argue that emerging economies need to undertake commensurate cuts in their growing levels of domestic support and tariff protection as they become more competitive internationally. As a result of persistent disagreements, large, developed players seem to have largely lost interest in the WTO Doha negotiations. Since 2008 they have been exploring alternative pathways to deal with their trade issues, as illustrated by the emergence of the so-called mega-regional agreements such as the EU–Japan free trade agreement, the conclusion of the Trans-Pacific Partnership (TPP), or the EU–US Transatlantic Trade and Investment Partnership (TTIP). Such negotiations not only tend to result in more ambitious liberalisation outcomes compared to what can be achieved multilaterally, they also conveniently exclude politically sensitive issues such as domestic support in agriculture, while embracing a wider set of issues including investment or regulatory convergence. In short, with the mega-regionals large players thought that they could achieve most of their liberalisation objectives outside of the WTO, without losing any multilateral bargaining chips.

46As illustrated by growing trade scepticism in the US and in Europe, the extent to which such mega deals offer a viable alternative to multilateral negotiations is, however, increasingly questioned. At the time of writing, major uncertainties remained around the prospects for a TPP ratification by the US and political opposition to the TTIP is growing rapidly in France and Germany. In contrast, the success of the last two WTO Ministerial Conferences, in Nairobi and in Bali, led to new agreements being reached in areas such as trade facilitation and export subsidies—potentially helping to revive negotiations in the global trade body. Indeed, after Nairobi, agricultural exporters and smaller developing countries concerned about the domestic support provided by their competitors have insisted on the need to achieve some outcome on domestic support by the next Ministerial Conference in 2017.

48There is, however, no consensus among countries on the ‘value’ of a reduction in the level of water in tariffs or in domestic support. Governments tend to consider that policy space has a value and can be used as a bargaining chip. If such a move proves too difficult, it could initially be applied on a non-binding basis to build confidence progressively among members. A step in this direction could be achieved by the time of the next ministerial conference in 2017, and would lay the ground for future reforms. In a similar vein, WTO members might also find that the tendency towards falling prices makes it easier to reach agreement on new rules in other areas, such as reducing the impact of agricultural export restrictions on consumers in poor, food-importing countries. Especially if food price spikes recur in the years ahead, action in this area could help ensure that poor consumers are able to access food even if global markets become more volatile.