FAO International Technical Consultation on Low Levels of GM Crops in International

Food and Feed Trade

FAO, Rome 20 – 21 March 2014

Global market context ◦ Short term market movements

◦ Medium term projections

◦ Policy challenges

◦ Trade policy and global market impacts

Analyzing the effects of LLP/AP on trade flows ◦ Patterns of LLP/AP incidents

◦ Econometric analysis

Looking forward ◦ Further research needs

Market assessments

Market indicators

Major policy developments

http://www.amis-outlook.org/

6

0.0

50.0

100.0

150.0

200.0

250.0

FAO Food Price Index 1961-2014

Nominal

Price Index

Deflated

Price Index

• Joint OECD-FAO report

• Model based projection, not forecast

• 10 year horizon

• Major temperate commodities

• Global coverage

GDP growth ◦ Recovery at different paces

Population growth ◦ Urbanisation, changing diets

Oil prices

Exchange rates

Market and trade policy ◦ Trends, assumptions

9

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Projected change between 2010/12-2022

Egypt

South Africa

Brazil

Japan

EU

India

China

Rus. Fed.

Indonesia

Argentina

Growth in global agricultural production is slowing - projected at 1.5% annually in coming decade

Consumption increasing ◦ But response to income growth is low in many countries

Strong prices (expected to remain firm) are prompting investments into production capacity and technology (but not by all)

Constrained by structure of agriculture, high energy costs, limitation on land and water, tighter environmental regulations

Emerging economies remain agricultural growth leaders

10

0.8

1

1.2

1.4

1.6

1.8

2

Ind

ex

= 1

in

20

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W.Europe

N.America

Oceania

E.Europe&C.Asia

N.Afr&M.East

SSA

O.Asia

L.America

Index based on constant 2004-06 dollars

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

20

00

= 1

OECD

BRICS

LDC

RestofWorld

China

Index of consumption based on constant

12

1%

9% 11% 8% 6%

81%

42% 37%

2% 8% 9% 6%

15%

66%

41% 35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

OECD BRICS LDC Rest of World

Consumption change 2003-12 Income change 2003-12

Consumption change 2013-22 Income change 2013-22 13

0

100

200

300

400

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700

20

00

20

02

20

04

20

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20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

USD

/t Rice

Coarse Grains

Wheat

Oilseeds

14

-60

-40

-20

0

20

40

60

80

Bil

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Co

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4-0

6

N.America

L.America

Oceania

W.Europe

E.Europe&C.Asia

SS Africa

MENA

Other Asia

0

5000

10000

15000

20000

25000

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13e

2013/14e

USD

million

Cereal import bill – 2001/02 – 2013/14e

LDCs

NFIDCs

-10

0

10

20

30

40

50

60

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13e

2013/14e

%

Commercial cereal import and food aid volumes

(NFIDC+LDC)

Food aid (% total

imports)

Commercial

Imports (% change

over 2001/02)

Food security

– Availability, access and stability concerns. Greater focus on domestic markets in pursuit of national FS objectives

Exporters: ₋ Export restrictions to moderate domestic price increases

Importers: ₋ Tackling higher food import bills ₋ Productivity increases/food self-sufficiency more in focus ₋ Enabling higher response by smallholders more in focus ₋ Importance of stage of development now recognized

But trade policy is not just about Food Security - Minimizing rural-urban income differentials - Export led growth: getting the balance right

And trade barriers are not just tariffs − Food safety −TBT

‣ Impact on global markets determined by:

₋ Way in which increase in production handled by producing country

₋ Size of any surplus that finds its way onto the international market

₋ Characteristics of that market ...

‣ Extent to which other countries are affected by a

change in global market conditions depends on their own trade status:

₋ Food exporter ₋ country’s exporting firms may face reduced prices with

implications for the farmers from which they source

₋ Food importer ₋ fall in price may be positive development if the country is in a

structural deficit for agroclimatic reasons; ₋ but may be less positive for a country with ag potential

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Linseed Rice Rice Crackerand noodle

Maize Papaya Petfood Soybean andSoybeanProducts

Soybean Canola andoil seed

Other

Nu

mb

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Gravity-type bilateral export flow model: ◦ Assumes that bilateral trade between partner

countries increases with size (income, population) and closeness

◦ Cross-sectional data

◦ Introduce GMO regulation index and LLP threshold

lnEij = lnα + β1lnYi + β2lnYj + β3lnDij

+β4lnReg-Indexj +β5lnLLPj +ln ɛij

GMO regulation index of importing country - Reg-Indexj ◦ existence of food, feed, and environmental regulation ◦ safety risk assessment ◦ labelling requirement ◦ LLP test requirement ◦ traceability requirement ◦ socio-economic assessment ◦ existence of zero tolerance for unauthorized GM crops ◦ food, feed, and environmental safety assessments to international guidelines ◦ restrictiveness of authorization policy ◦ testing requirement form exporting country ◦ technical capacity to detect GMOs ◦ detection methods utilized

LLP threshold of the importing country - LLPj ◦ Model 3 - LLP variable takes either the value 0.1, or 10 for countries that do

not have the threshold. ◦ Model 4 - LLP threshold takes into account reported threshold levels and

combination of factors - zero tolerance and existence of GMO regulation. ◦ Model 5 - LLP variable takes the value 0.1 for the EU members, and 1 for

other countries, controlling for EU internal trade.

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GMO Regulation Index

Variable [Model 1] (GMO

regulation impact)

[Model 2] (GMO

regulation impact)

[Model 3] (LLP impact)

[Model 4] (LLP impact)

[Model 5] (LLP impact)

Constant –10.28 (–3.43***)

–10.28 (–3.43***)

–10.68 (–3.99***)

–10.73 (–3.98***)

–5.22 (–1.89*)

Ln-Yi 1.00 (10.20***)

– – – –

Ln-Yj 0.84 (9.23***)

– – – –

Ln-GDPCi –1.70 (–7.72***)

–0.69 (–3.76***)

–0.69 (–4.08***)

–0.68 (–3.94***)

–0.64 (–3.68***)

Ln-GDPCj

–0.56 (–3.43***)

0.28 (2.10**)

– – –

Ln-Pi – 1.00 (10.21***)

1.03 (10.47***)

1.01 (10.23***)

0.72 (6.62***)

Ln-Pj – 0.84 (9.23***)

0.86 (9.39***)

0.86 (9.44***)

0.81 (8.80***)

Ln-Dij –0.97 (–8.68***)

–0.97 (–8.68***)

–0.92 (–8.20***)

–0.93 (–8.35***)

–0.90 (–7.17***)

Ln-Reg-Indexj –0.49 (–1.70*)

–0.49 (–1.70*)

– – –

Ln-LLPj – –0.10 (–1.48)

–0.17 (–1.48)

–0.24 (–2.10**)

R2 0.23 0.23 0.22 0.22 0.18

F 28.21*** 28.21*** 32.63*** 33.10*** 26.03***

Schwarz B.I.C. 1468 1468 1467 1467 1481

N 582 582 582 582 582

Regulation variable is negative and significant at the 10 percent level. Implies that a more restrictive GMO regulation has a deterrent effect on maize trade flow.

Models 3 and 4 indicate that LLP does not have a significant impact on trade flows

Model 5 (lower threshold) suggests that the impact of LLP on trade flows may be significant, but not necessarily trade distorting.

The inclusion of fixed effects yielded similar results for the regulation index, but the LLP variable became positive (but significant only at the 10 percent level).

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Num

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Improved datasets required on: ◦ policies on GMOs existing between trading partners

◦ different timings for approvals etc

Further studies examining the impacts of regulations and threshold levels on global trade in the context of multiple products

When limitations of datasets overcome, impact of regulations should be analyzed in a dynamic setting