Globalizing food markets: Food Security and

Environmental Effects in Latin America

Insa NiemeyerCEIGRAM, FMB Water Observatory,

May 12th 2011

Contents1. Statement of the Problem: General Trends

2. The Gains from Trade: a Theoretical Perspective

a. Effects on Food Security

b. Environmental Implications

3. Hypothesis

4. Methods: Data from 5 Latin American Countries

5. Preliminary Results

6. Next Steps

Statement of the Problem

ChallengeRapid

demographic changes

How can we feed the world in a

sustainble manner?

Impact on global food

demandUrbanization

Unevenly distributed natural

resources• land• water

Food supply

Climate change• effects on yields• higher year tor

year volatility

Bio fuel demand

Diatary changes

Statement of the Problem

virtual water trade = solution of sustainability prospects?

Altered product quality

standards

Current development on global food markets

Implications on water and land

resources

Blue water

Green water

Increasing global farm

trade

Globalising world:

• Trade liberalization by WTO

• Bilateral FTA

Supermarket buying power

global commodity chains

Impacts on food availability

(quantity) and access (prices)

LUC

Food trade = increasing or decreasing food security?

The Gains from Trade: A theoretical perspectivea) Effects of trade relevant to food security

The effects of international trade are shown as:

the difference between the domestic price of a good without trade and the world

price of a good,

the difference between total supply quantities without trade and world trade.

Theory of comparative advantages

Pa

Pw

Qdomestic

supply Qdomestic

demand

Qa

Price

supply

demand

welfare gain

Food importer

Pa

Pw

Qdomestic

demand Qdomestic

supply

Qa

Price

supply

demand

welfare gain

export volumeimport volume

Food exporter

Quantity Quantity

The Gains from Trade: A theoretical perspective a) Effects of trade relevant to food security

EXPORTERS: domestic producers win, domestic consumers lose

IMPORTERS: domestic producers lose, domestic consumers win

Trade raises the economic well-being of importing and exporting nations

Winners and losers of international trade:

Implications for food security

IMPORTER: reduced food prices > if food cheaper in real terms depends on

income change

Specialization on non-food industry > promotes economic

development > poverty reduction

EXPORTER: food prices higher > if food more expensive in real terms depends on

income change

Trade with food commodities > promotes economic development

> poverty reduction

The Gains from Trade: A theoretical perspective b) Environmental implications

Basic trade theory does not consider environmental effects:

IMPORTER: s = marginal cost curve > if no environmental externalities included

se = marginal cost curve + environmental externatlities

Production substituted by imports > reduces environmental costs

by area ABCD > additional welfare gain for importing nations!

EXPORTER: Welfare loss through environmental damage reduced by area ABCD

> still gain from trade?

Pa

Pw

Qdomestic

supply Pdomestic

demand

Qa

Price

S

B

Food importer

Pa

Pw

Qdomestic

demand Pdomestic

supply

Pa

Price

S

D

Food exporterSe

Se

D

D

C

A

A

C

B

D

The Gains from Trade: A theoretical perspective b) Environmental implications

Open trade may provoke negative and positive effects on the

environment+ PROS + - CONTRAS -

More efficient use of natural resources “Race to the bottom” > reduction of environmental standards in order to gain competitive advantage

Optimal global resource allocation Increased scale of production > increases pressure on the environment

Spread of environmentally friendly technologies

Increased value of farmland > uncompetitive small-scale farmers migrate to sensitive ecosystems

Environmental Kuznets Curve

Hypothesis

Environment

Globalising food markets adds environmental

pressure on exporting nations and releases

pressure on importing nations

Food security

Globalisation of food markets helps achieving

food security for both importing as well as

exporting nations

MethodsCountries: Argentina, Brazil, Chile, Mexico and Peru

Dynamics of trade (1996-2008, source: own elaboration, data from FAO (2011):

1. Most relevant crops > 80% imports, exports, production, area harvested

2. Trade intensity (in thousand tons and value)

3. Tradable, import-competing and non-tradable crops

Environmental effects in importing and exporting nations

1. Green, blue and grey water footprint over time

2. Yield increase vs. agricultural land expansion, rate of technology (number of tractors)

3. Specialization (water intensive/water extensive products)

Shannon-Wiener Index: Hs = magnitude of specialization in the production of certain crops

s = magnitude of different crop categories

pi = relative abundance of crop i

Food security in importing and exporting nations

1. Domestic food supply over time: (production + imports – exports)

2. Consumer prices indices / income indices

3. GINI-index

4. International food price volatility, prices transmission analysis

Access to food

Availability of food

Preliminary ResultsTrade dynamics

Total Latin American exports (left) and imports (right) of all crops (in thousand tons)

Trade dynamics of Soybean and maize exports in Brazil (in thousand tons)

Trade dynamis of Peruvian imports (left) and exports (right) (in thousand tons)

Source: own elaboration, data from FAO (2011)

Coffee: main importers constant: Europe, USA and Japan

Maize: bulk of exports:1996-2000 shift from MENA to LAC, 2000-

2008 shift to Europe

Soybeans: bulk of exports: 1996-2000 EU and Japan with a minor

role China, 2000-2008 EU and China main importers, Iran and

Thailand enter market

EXAMPLE: PERU

EXAMPLE: BRAZIL

Preliminary Results Environmental Effects

Argentine green, blue and grey virtual water imports (left) and exports (right) of all most relevant crops (in km 3)

Argentine green virtual water imports (left) and blue virtual water imports (right) (in km3)

Argentine green virtual water exports (left) and blue virtual water exports (right) (km3)

Source: own elaboration, data from Mekonnen, M.M. and Hoekstra, A.Y. (2010) The green, blue and grey water footprint of crops and derived crop products, Value of Water Research Report Series No.47, UNESCO-IHE, Delft, the Netherlands.  http://www.waterfootprint.org/Reports/Report47-WaterFootprintCrops-Vol1.pdf

EXAMPLE:

ARGENTINA

Preliminary Results Environmental Effects

Argentine’s production quantity (left) (in thousand tons), change of relative share of production (middle) (in%) and LUC (right) (in thousand ha)

Source: own elaboration, data from FAO (2011)

Dynamics of area harvested of most important crops in Argentina (left), total area harvested (middle) (in thousand ha), and change of relative share of area harvested (right) (in%)

Trend to specialize in the

production of Soybeans in

Argentina

Slight increase of agricultural area

and decrease in forest area

Preliminary Results Food Security

Argentine’s per capita GDP over time (left) (in USD), change of producer price index (right) (in %, base 2008)

Source: own elaboration, data from FAO (2011), Instituto Nacional de Estadística y Censos http://www.indec.gov.ar/principal.asp?id_tema=748 (2011)

Dynamics of domestic supply quantity in Argentina (left), food supply quantity (middle) (in thousand tons) and calory supply (kcal/cap/day)

Preliminary Results Food Security

Argentine’s GINI-Index to measure income inequality

Source:World own elaboration, data from Bank (pink sheet) http://blogs.worldbank.org/prospects/world-bank-publishes-latest-commodity-prices-october-2010 (2011), World Bank Development Indicators: http://search.worldbank.org/data?qterm=GINI%20index&language=EN&format=html

Development of world commodity prices (annual averages in nominal USD)

Next steps

Development of a more precise theoretical framework

Theory of environmental impacts of trade

Theory of impacts of trade on food security

Empirical analysis with data from 5 focal countries

select more indicators suitable to answer the questions

Statistical/econometric tests with the the data

Thank you for your attention!

Email:insa.niemeyer@upm.es