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Food Prices and the Doha Development Agenda

Posted by admin on July 29th, 2008

2001, the year the Doha Development Round negotiations began, the average prices for rice, wheat, and corn were $4.43, $2.83, and $1.89 per bushel respectively.  By May 2008, these had climbed to $11.45, $9.48, and $4.73, leading some to argue that the Doha Round is simply no longer relevant in this new environment of higher prices.  As ministers gather in Geneva for what may well be the last attempt to reach a Doha Round conclusion this year, it is an opportune moment to examine these arguments:

Q: The WTO negotiations are about yesterday’s problems, namely how to address trade-distorting policies and overproduction in developed countries.  They are irrelevant since what we need today is more, not less, production.

A:  Increased production is indeed required, but is most important in developing countries, whose agricultural sectors have suffered from chronic underinvestment.  The best way to stimulate investment and production in these countries is to remove distortions, such as high tariffs and trade-distorting support in developed counties, which disadvantage producers in developing countries.  It would be shortsighted to argue that production incentives in developed countries need to remain in place.

Q:  If the Doha Round will not lead to a decrease in prices, why should we still worry about concluding it?

A:  It is true that the Doha Round will not lower prices in the short run. But it would be erroneous to focus solely on short-term efforts that reduce prices, since higher prices send an important signal that the world needs to increase production to meet growing demand.  A non-distorted trading regime will facilitate the required supply response, which will - in the long run - allow prices to even out.

Q:  Aren’t WTO members simply haggling over things that are no longer relevant in today’s price environment?

A:  Certainly, there is some truth to this.  It should be easy for the U.S. to agree to a $13 billion ceiling for overall trade-distorting support when actual outlays only total around $7-8 billion.  Likewise, it should be easy for the G-33 to agree to more substantial cuts to bound tariffs and less market access exceptions when applied tariffs have acutally been significantly reduced as a response to high food prices.

At the same time, however, we should not dismiss the importance of reducing the caps on allowable tariffs and levels of domestic support, as they will imply significant disciplines should prices decrease in the future.  As such, they send an important signal to agricultural investors and producers.

Q:  The Doha Round is about ensuring market access.  What really matters today is adequate supply.

A:  There is indeed a need for strengthened WTO rules on export restrections, which have increased concerns about inadequate food supplies, contributed to higher food prices, and hampered the procurement of food aid for needy countries.  The Doha Round should address the present imbalance between rights of exporters and importers.

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