WTO Breakthrough on Stockpiles: Sustaining Food Security

Synopsis

The recent WTO agreement, finally concluded after the resolution of an impasse on food stockholding, has been hailed as a landmark for international trade. The deal however also holds great significance for global food security. However, some important concerns remain.

Commentary

AFTER A year of uncertainty, the WTO trade deal emanating from the Bali Ministerial Meeting in December 2013 has finally come through. The deadlock was broken after the United States and India last month agreed on public stockholding for food security purposes. The agreement is seen as a victory for everyone as much as it is for the WTO in successfully concluding its first-ever pact in its 19-year history.

For the US and other WTO member states who originally blamed India for blocking the trade facilitation agreement (TFA) as a result of the stockpiling dispute, this can be seen as the second best outcome. For India this is the best possible result. The agreement now allows them to take control of their food security concerns – as regulated by their Food Security Act 2013 to ensure food access to at least 400 million poor citizens – as well as enjoy the potential benefits of the TFA.

Stockpiling as Acceptable Practice

Some have questioned, however, whether the WTO Agreement and its Bali Packages may collapse again as the 160 member states seek a permanent solution for the issue of public stockholding for food security purposes. But the WTO decision reached on 27 November 2014 means public stockholding of food for security purposes is now an acceptable practice.

The original concern behind the stockpiling policy was grounded on the fear that national stockpiles allocated for food security could leak to both domestic and international markets; this could then lead to serious trade distortions especially if member states were to dump excess stocks and cause prices to collapse, unintentionally or otherwise.

In theory, public stockholding for food security is still a necessary policy instrument for developing countries where food production systems and supply chains are often volatile. However, there are serious potential perils (both politically and economically at the domestic level) should it be seen to have failed in fulfilling its duties. Countries with large populations and net food importing nations such as India, China, Indonesia, Philippines and Malaysia have a tendency to stockpile.

There are two main reasons for this. Firstly, policymakers in developing countries seem to have little faith in international food (particularly rice) markets, especially in times of crisis. This is largely because only a small supply of rice is traded in the international market (compared with other main foods) while past experience had shown that exporting countries could ban all exports, such as during the 2007/2008 food price crisis. Secondly, it is the natural human instinct to prefer physical stock which offers a sense of security.