Since the Second World War, and especially in the last three decades, the global trade of goods has rapidly increased. Food is no exception to this, and with over $1.1 trillion of agricultural trade today, the global food system has become highly complex and interconnected. Every country in the world is dependent, to a greater or lesser extent, on trade to fulfil its overall food needs. Examination of the networks of trade in the major commodities reveals multifaceted interdependencies, with production concentrated in a handful of countries exporting to many, some of which in turn export it onwards.
Globalization has significant benefits, both in terms of access to food that can be grown more efficiently and cheaply elsewhere, or those – especially fruit and vegetables – that may be seasonal but which we want year-round. In a stable world, it makes sense for a country to grow the few things they are best suited to produce, export what they can at a competitive advantage, and import what they cannot grow as well. This is “comparative advantage” and a central tenant of economic theory. Comparative advantage, coupled with a range of policy levers to underpin production, drive the scales and concentration of production so that some areas become “bread baskets” for the rest of the world. This in turn leads to efficiencies and price reduction. Through trade, therefore, our globalized system provides cheaper food for all. It also allows countries with a significant agricultural economy to export and benefit from this.
For 2015, resourcetrade.earth lists over 20,000 annual international agricultural trade flows. Trade, in monetary terms, is dominated by high value horticultural crops, then oilseeds and then cereals. By volume, about 5 per cent of the world’s food trade is in animal products (meat, fish, dairy, eggs, live animals, etc.) but collectively they account for just over a quarter of all value at $314 billion. Trade volumes are dominated by flows of soy from the Americas to China and in terms of calories, trade is dominated by the major commodity crops: wheat, soybean, maize, rice, oil crops, and sugar.
Growth and changes in food trade
The amount, and type, of food trade is both growing and changing every year. For example, the global demand for meat and dairy is driving a rapidly evolving growth in livestock feed which includes oilseeds like soya, fodder crops and concentrated feed. Approximately one third of the world’s calories grown are diverted to animal feed, and trade in feed was over $100 billion in 2015.
Soybean production and trade is another prime example; global soybean trade has grown almost five-fold in value since 2000 ($94 billion in 2015), and is now over 200 million tonnes – more than double its volume in 2000. It is now the most traded agricultural commodity, dominated by flows from Brazil, the US and Argentina to China. Of course, a country that imports high-protein feed permits a volume of feed supply greater than the local constraints on feed production would otherwise enable. This allows for the expansion of meat and dairy production, which then further stimulates exports in meat and dairy products.
The rapid expansion of soy production has led to widespread land conversion for those countries where there is a comparative advantage. This new land often converts forests to fields, such as has occurred in the Brazilian Amazon. This forest clearance has a variety of consequences for delivery of the range of ecosystem services that forests supply – carbon storage, production of rainfall, livelihoods for indigenous people, as well as providing a hotspot for biodiversity. Conversion of forest to agriculture is also importantly a significant contributor to the global greenhouse gas balance sheet: around 4-5 GtCO2e per year, or around 8-10 per cent of anthropogenic emissions, comes from land use conversion.1
A product embodies all the resources used to produce it: land, water, energy and so on, whether or not they contribute to the final price in the market. Comparative advantage suggests that a country’s natural endowments – such as land or water – should underpin decisions in trade. Purely in terms of resource, a country with an abundance of supplies may have a competitive production advantage over a country where that resource is scarce. MacDonald et al. (2015)2 have redrawn producer-consumer trade-relationships based around a variety of these embodied resources including the area of land needed to produce it. Their analysis has been updated and modified for this site to provide estimates of land and water volumes embodied in individual bilateral trade flows. These can be viewed for the majority of agricultural trade flows in the Chatham House Resource Trade Database.
A country’s economic strength also plays a role in trade, such that economically-strong nations can afford to import embodied-resource rich crops and so conserve their own resources for other purposes. As growing demand puts more pressure on production systems, access to the strategic resources of land and water will become more acute, perhaps exacerbated by changing dynamics of water supply through climate change.
The importance of water
The embodied resource in food that has received the most attention is water, where it is sometimes termed “virtual water”. To produce a green bean requires about a gallon of water, and a kilo of beef requires about 10-11 tonnes.3 Clearly, it therefore makes an important difference whether water used to produce crops (including forage) is rain water or irrigated water extracted from rivers or wells, and whether the real cost of the water is included in the price.
The importance of “virtual water” is increasingly being highlighted by changes in water availability, driven by over-use depleting reserves and climate change. A recent study shows that about 11 per cent of food trade - mostly exports from Pakistan, the US and India - has embodied non-renewable groundwater used in irrigation, providing some long-term food security risks for those countries that rely on the trade.4 The recent growth in the export of a fodder crop, alfalfa, from the US to China is an example of where these issues have come to the fore. This trade growth is partly taking advantage of cheap transport - it is very cheap to ship from the US to China due to the imbalance of trade: the bulk of trade is going in the other direction.5 While it might make economic sense for Californian farmers to export their hay to China, the recent Californian drought brought with it restrictions on domestic water consumption, yet at the same time 100 billion gallons of embodied water used in the production of alfalfa was being exported.6
Countries with less access to water can make it go further by importing goods from countries which have greater access to water for production purposes. A good example of this occurs in the Middle East, with countries like Israel.7 Israel uses its water to produce high value crops for export, particularly fruit and vegetables, and relies to a large extent on importing rain-fed cereal crops that it is less able to produce.
Will the rise of protectionism disrupt trade relationships?
Cross-border trade is dynamic in space and time. Changes in production, such as caused by weather, geopolitics and government policies, interact with the market to change prices and availability. Sometimes this dynamic is very fast, causing the rapid evolution of policy and market responses, leading to food price spikes, and a myriad of impacts on society. Sometimes, they play out in a slower way, in response to more gradually emerging changes.
2016 saw two major political events that have the potential to reconfigure aspects of agricultural trade. These were the UK’s decision to leave the EU and the election of President Donald Trump in the US. The former will likely include a significant reconfiguration of UK trade relationships but given the UK imports $37 billion of agricultural commodities - under 1 per cent of all commodity trade - and exports about $13 billion of the same (mainly animal products), this may have limited global impact.8 Conversely, the new US administration has the potential to disrupt trade relationships around the world more severely.
During the election campaign Trump promised to impose tariffs on US imports from China, renegotiate the North American Free Trade Agreement (NAFTA), and withdraw from the Trans-Pacific Partnership.9 He even threatened to withdraw from the World Trade Organisation if its rules interfered with his “buy American and hire American” rhetoric to “make America great again”. US agricultural exports were valued at $119 billion in 2015, and imports at $93 billion. The main exports were $26.4 billion in soybean, $10.3 billion maize, $7.9 billion of nuts, $7.3 billion of fruit and berries, and $6.3 billion of wheat. For some crops - for example soy and tree nuts like almonds - the majority of production is exported. The top four export markets in descending order are China ($21.4bn), Mexico ($15.4bn), Canada ($12.9bn), and Japan ($11.5bn). The US imports significantly from Canada ($17.2bn), Mexico ($15.7bn), China ($4.6bn), Chile ($3.7bn), and Australia ($3.6bn) and the top imports were horticulture ($27.6bn, of which fruit and vegetables were $22.4bn), seafood ($6.9bn) and meat ($9.1bn, of which $6.4bn was beef).
There is a strong correlation between the countries negatively targeted by Trump’s campaign promises and the US major trading partners, especially those which the US is in trade deficit with.10 Mexico and Canada are part of NAFTA, which Trump has called “the worst trade deal ever made by anybody, ever”.11 China was frequently attacked as a hostile trading partner and threatened with sanctions.12 Japan was a signatory of the TPP, from which Trump withdrew days after his inauguration.13
Imagine a world where the US administration honours in full its campaign promises, perhaps imposing tariffs on goods from China, including on non-agricultural produce like steel; while at the same time dismantling NAFTA. The global community would potentially retaliate in kind, leading to high tariffs on US exports. Under WTO rules such tariffs can be substantial on agricultural produce. Such changes in tariff structure would undoubtedly lead to a reconfiguration of global agricultural trade.
Mexico is, seemingly,14 already imagining a post-NAFTA regime where imports of food, necessary for its own food security, no longer come from the US by train, but are shipped instead from Brazil, Argentina (e.g. maize and soya) and Russia (e.g. wheat).
China is currently the number one destination for US agricultural produce, with close to half of US soybean exports ending up there (primarily for animal feed and vegetable oil). If China were to introduce countermeasures in response to any US action, or if Chinese consumers were to boycott US supply, even if sold at a loss, then this could result in significant reductions in this bilateral trade flow. This has consequences that may play out in a variety of ways. First, it’s questionable whether the sustained demand from China could be met from other producing countries. If not this has implications for China’s food security and its agricultural intensification. Second, if China can maintain its volume of supply from the world market with reduced direct sourcing from the US then others, like Europe, would be likely to have to adapt to this, which may result in changes in volumes and prices to that market. Third, if demand for non-US exports among China and other importers is sustained, then there could be significant intensification of agriculture among alternate producers such as Brazil to increase supply.
The consequence of a rise in protectionist policies on a global scale is likely to manifest itself as a significant upwards driver of prices. In the short-term, in well-supplied markets, prices may fall if producers face barriers to selling their produce, but when stocks are lower and harvests poorer protectionism is likely to be a strong upwards driver of prices, as witnessed during the 2007-08 and 2010 food crises.15
In turn, these price signals are likely to translate into more intensive production. This might also change patterns of agricultural expansion, such as further expansion of the soya belt into the Amazon forest, and intensification of Russian Federation’s wheat production through increasing fertilizer usage, which would have significant environmental consequences, including on water, soil, greenhouse gases and biodiversity. Protectionism in the US could therefore be a triple setback for the potential of meeting the Paris climate agreement: with the reduction of climate change mitigation, re-intensification of fossil fuel use, and potential land use change from changing agricultural trade.
Furthermore, given the relationship between food price inflation and national food security, and the ability for these factors to interact to destabilize weak democracies, a sudden US reconfiguration of trade through an aggressive imposition of tariffs or withdrawal from NAFTA has the ability to create widespread systemic effects on the food system. As Chinese President Xi Jinping said on 19 January 2017, it is in no one’s interest to have a trade war, but increasingly protectionist policies are likely to threaten its outbreak.
Systemic risks from the food system
The growth of trade interconnectedness creates a systemic risk,16 in that events in one place (e.g. extreme weather events, biofuels policy, trade restrictions) can interact via multiple routes to drive impacts in another place. The trade networks shown above are not dissimilar to the network diagrams of banking inter-connectivity prior to the financial crisis in 2007-08, in that the food system exhibits “characteristics consistent with a fragile one that is vulnerable to self-propagating disruptions”.17
The properties of this “fragile system” create tensions between, on the one hand, the global public good that arises from a global market, competition, comparative advantage and its impact on price, and on the other hand, the risks that might arise from reliance for domestic food security on production elsewhere coupled with the potential lack of resilience of supply routes. Is there an optimal balance between these risks and rewards, and how might this change with external changes (e.g. political risk or climate risks)? This is a question that has only started to be asked18 and it requires greater consideration than is normally given from either end of the ideological spectrum: “the market will solve all issues if trade is without any barriers” versus “the answer is in self-sufficiency”.
While some people may advocate domestic economies being self-sufficient, it is difficult to imagine how this could be possible: clearly, countries do not just rely on trade in food, but also trade in the inputs underpinning agriculture – such as fertilizer, feed and seeds. How, in the modern world, could self-sufficient agricultural production occur without reliance on the market for items supporting that production? Too much self-sufficiency in agriculture perhaps loses the economic and idiosyncratic risk-mitigation benefits from global trade, while maintaining the exposure risks through reliance on trade in inputs.
As Alan Matthews says “the possibility of trade is the ultimate guarantor of food security”,19 which it is. However, it is also necessary to recognize the risks that trade brings in order to ensure that global and local food systems maintain their resilience in the face of disruptions.
- 1. Smith, P., Bustamante, M., Ahammad, H., Clark, H., Dong, H., Elsiddig, E.A., Haberl, H., Harper, R., House, J., Jafari, M., Masera, O., Mbow, C., Ravindranath, N.H., Rice, C.W., Robledo Abad, C., Romanovskaya, A., Sperling, F., and Tubiello, F. (2014). Agriculture, Forestry and Other Land Use (AFOLU). In: Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Edenhofer, O. et al. (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.Back to inline
- 2. MacDonald, G., Brauman, K., Sun, S., Carlson, K., Cassidy, E., Gerber, J. and West, P. (2015). Rethinking Agricultural Trade Relationships in an Era of Globalization. BioScience, 65(3), 275-289.Back to inline
- 3. Hess, T., Lankford, B., Lillywhite, R., Cooper, R., Challinor, A., Sutton, P., Brown, C., Meacham, T., Benton, T., Noble, A. (2015). Water Use in our Food Imports. Farming and Water Report 3. Global Food Security programme.Back to inline
- 4. Dalin, C., Wada, Y., Kastner, T., and Puma, M. J. (2017). Groundwater depletion embedded in international food trade. Nature 543(7647), 700-704.Back to inline
- 5. Pierson, D. (2014). U.S. farmers making hay with alfalfa exports to China, Los Angeles Times, 8 June 2014.Back to inline
- 6. Leithead, A. (2014). California drought: Why farmers are 'exporting water' to China, BBC, 19 February 2014.Back to inline
- 7. Allan, A. ‘Virtual water’: a long term solution for water short Middle Eastern economies?Back to inline
- 8. UK agricultural trade values are from resourcetrade.earth. Defra report slightly differing but compatible values for food, including processed foods (rather than agricultural goods).Back to inline
- 9. Glauber, J. (2017). Likely effects of a trade war for U.S. agriculture? Sad!, International Food Policy Research Institute, 31 January 2017.Back to inline
- 10. BMI Research (2017). US Protectionism A Boon For Asia's Alternative Agricultural Suppliers, March 2017.Back to inline
- 11. Tankersley, J. (2016). Was NAFTA really the worst deal ever made, by anybody, ever? Washington Post, 20 October 2016.Back to inline
- 12. Time (2016). Read Donald Trump's Speech on Trade, 28 June 2016.Back to inline
- 13. Bradner, E. (2017). Trump's TPP withdrawal: 5 things to know, CNN, 23 January 2017.Back to inline
- 14. Holzer, J. (2017). Wary of Protectionism, U.S. Agriculture Wages Charm Offensive to Save Mexican Exports, Foreign Policy, 23 March 2017.Back to inline
- 15. Terazono, E. and Webber, J. (2017). Protectionist rhetoric casts shadow over agricultural markets, Financial Times, 28 March 2017.Back to inline
- 16. Puma, M. J., Bose, S., Chon, S. Y., Cook, B. I. (2015). Assessing the evolving fragility of the global food system, Environmental Research Letters, 10(2), 024007; Centeno, M., Nag, M., Patterson, T., Shaver, A., Windawi, A.J. (2015). The Emergence of Global Systemic Risk, Annual Review of Sociology, 41, 65-85.Back to inline
- 17. Puma, M. J., Bose, S., Chon, S. Y., Cook, B. I. (2015). Assessing the evolving fragility of the global food system, Environmental Research Letters, 10(2), 024007, p11.Back to inline
- 18. See, for example: Matthews, A. (2017) Appendix 1 in Buckwell, A. et al. CAP - Thinking Out of the Box: Further modernisation of the CAP – why, what and how?, RISE Foundation, Brussels; Challinor, A. et al. (2017) Chapter 7, International Dimensions of Risk in UK Climate Change Risk Assessment; Benton, T. et al. (2017) British Food Report, Morrisons.Back to inline
- 19. Matthews, A. (2017) Appendix 1 in Buckwell, A. et al. CAP - Thinking Out of the Box: Further modernisation of the CAP – why, what and how?, RISE Foundation, Brussels.Back to inline