Trade plays a crucial role in providing livelihoods for farmers and people employed along the food supply chain. It also contributes to reducing food insecurity across the globe and provides greater choice in consumer goods.
Trade in agro-food products has grown strongly over the last two decades, reaching almost 7% in real terms annually between 2001 and 2019. But agro-food trade isn’t just increasing, it’s becoming ‘global’. A growing share of agro-food trade is taking place in global value chains (GVCs) – agricultural and food processing value chains that are spread over several countries – linking agro-food sectors and other sectors of the economy from across the world.
The COVID-19 pandemic led to trade disruptions worldwide, but the agricultural and food sector proved to be more resilient than other sectors of the economy. During the first months of the pandemic, price hikes in staple crops were avoided thanks to transparency in market conditions and policies. Rapid responses by policymakers and the private sector managed to prevent severe disruptions in agri-food trade, including global seed markets. However, bottlenecks in transport and logistics complicated moving agricultural and food products around the world and resulted in increasing costs of shipping and transport[DAT1] . Policies that guarantee the uninterrupted production and movement of agro-food products are key to ensure a resilient supply chain.
Over the coming decades, climate change and outbreaks of animal diseases will affect the landscape of agricultural production and trade. The outbreak of African Swine Flu in China, for example, led to higher Chinese import demand, which in turn caused an increase in international pigmeat prices. Extreme weather events [DAT2] can disrupt agricultural markets and trade, but agricultural trade can, in turn, help address food supply and food security concerns in the wake of these events.
Trade and domestic support measures continue to constrain trade
While international agro-food markets have evolved, most countries continue to provide support and impose barriers through measures that distort trade and limit the benefits that international agro-food markets can deliver for consumers. These measures have significant and negative effects on the welfare, resilience and food security of consumers and producers, as well as on agricultural sustainability, and also reduce agricultural and food trade volumes.
New and closer linkages between agricultural and food sectors, and between these and other sectors of the economy, mean that the impacts of trade and domestic support measures are transmitted more widely. Globally, around 24% of agro-food export value comes from imported inputs: industrial inputs (machinery and fertiliser) and services, as well agriculture and food. Trade policies that act as barriers to imports directly reduce the competitiveness of a country’s own agro-food exports by raising input costs.
Non-tariff measures (NTMs) – i.e. measures related to laws, regulations and requirements such as sanitary and phytosanitary measures (SPS), technical barriers to trade (TBT) and customs procedures – generally raise trade costs. However, certain TBT and SPS measures can also expand trade. Furthermore, digital tools have significant potential to enhance agro-food trade. Electronic SPS certification, for example, is shown to have positive effects on trade volumes, notably for plant-based, vegetables and processed food products.
In sum, policies matters for agro-food trade
At the OECD, we analyse the impacts of trade and agricultural policies to assist countries in making informed policy decisions that will help make agro-food trade work for all. Countries’ policies that restrict trade or unnecessarily increase trade costs harm their own domestic economies as well as their trading partners, by constraining the development of the agro-food sector.
To enhance the gains from trade for agro-food sectors, countries should reduce their own distorting domestic support and their trade measures, such as tariffs. By increasing the cost of inputs, these policies reduce export competitiveness and can constrain a country’s ability to participate in agro-food GVCs.
Well-designed regulations can help build trust and support trade, so countries should also ensure that NTMs, including SPS and TBT measures, are appropriate, transparent, and well-founded in science – all ways to ensure that they do not unnecessarily restrict trade.
Finally, government policies have an important role in providing an enabling environment that can promote agricultural productivity growth and enhance the competitiveness of agro-food exports and participation in GVCs through appropriate investments in key areas such as transport infrastructure, education and research & development.