Global trade in food & agricultural products more than doubles in last two decades
Trade & markets can spur sustainable development & strengthen resilience to shocks
23 September 2020, Rome – Global agri-food trade has more than doubled since 1995, amounting to $1.5 trillion in 2018, with emerging & developing countries’ exports on the rise & accounting for over one-third of the world’s total, according to a new report issued today by the Food & Agriculture Organization of the United Nations (FAO).
The State of Agricultural Commodity Markets, 2020 (SOCO 2020) argues that global trade & well-functioning markets lie at the heart of the development process as they can spur inclusive economic growth & sustainable development, & strengthen resilience to shocks.
“We need to rely on markets as an integral part of the global food system. This is all the more important in the face of major disruptions, whether they come from COVID-19, locust outbreaks or climate change,” wrote FAO Director-General QU Dongyu in his introduction to the report.
The rise of global agri-food value chains
The report estimates that about one-third of global agricultural & food exports are traded within a global value chain & cross borders at least twice.
The rise of global value chains is driven by income growth, lower trade barriers & technological advancements, which have transformed markets & trade processes, linking farmers to traders & consumers across regions & countries.
“Global value chains can make it easier for developing countries to integrate into global markets. As they link our food markets closely, they also provide a mechanism to diffuse best practices to promote sustainable development,” said the FAO Director-General.
In turn, by participating in global value chains, smallholder farmers can boost their food production & income. On average & in the short term, a 10 percent increase in agriculture’s global value chain participation can result in an increase of around 1.2 percent in labour productivity, finds the report.
Smallholder farmers, however, are often missing out on the benefits of global value chains. Furthermore, the emergence of global value chains with the stringent food quality & safety requirements could further marginalize smallholders.
“We need to redouble efforts to include smallholder farmers in modern food value chains, thus securing rural incomes & food security in both rural & urban areas,” said Qu.
To achieve this, there is a need for broad policies to create an environment that enables markets to flourish & bolsters smallholders’ participation in global value chains – for example, better rural infrastructure & services, education & productive technology.
Digital technologies can help markets to function better & can improve farmers’ access to them. Innovations, such as food e-commerce, can benefit both farmers & consumers. However, to guarantee that the dividends of digital innovation are shared with the poorest, the current digital divide in agriculture needs to be reduced.
The adoption of more inclusive business models, such as contract farming & blockchains, can also help farmers to better integrate into modern & more complex value chains.
For example, participation in contract farming can increase farm income by more than half – based on an analysis of main studies on contract farming. The report underlines, however, the overall lack of information on the different impacts of contract farming, apart from its impact on farmers’ welfare.
How can agricultural & food markets foster sustainable development?
The report makes the case for the role agri-food markets can play in fostering sustainable development.
It argues that the promotion & wider application of voluntary sustainability certification schemes & standards in agriculture, for example, can address trade‑offs between economic, environmental & social objectives.
Sustainability certification schemes can promote fair trade, inclusion, non‑discrimination, & environmentally-friendly farm practices. They also can ensure occupational safety, ban child labour, & encourage investments.
For instance, according to data from smallholder coffee farmers in Uganda, sustainability-certified families spend 146 percent more on child education & keep children at school longer than non‑certified families.
Another study on certification schemes that promote sustainable forests show that the production of forest shade-grown coffee in Ethiopia can help alleviate forest degradation.
The report also points out that whilst bananas are one of the most traded tropical commodities in the world, only an estimated 5-8 percent are covered under sustainability standards.
The evolution of trade & markets – trends & drivers
- International agri-food trade has been driven by: technological progress; urbanization; population & income growths; lower transport costs; trade policies & a decline in average import tariffs.
- Upper & lower middle‐income countries together have increased their share in global agri‐food exports from about 25 percent in 2001 to 36 percent in 2018.
- Whilst global agri-food trade has doubled since 1995 in real value, its growth rate has been slower since the 2008 financial crisis. This is expected to be further impacted by the COVID-19 pandemic.
- The 2008 financial crisis & consequent economic slowdown stalled the evolution of agri-food global value chains, & the COVID-19 pandemic could further disrupt their potential in global trade & growth.
- Digital technologies are transforming all stages of the food value chain – from farm to table. They improve efficiency, create jobs & save resources. But it is difficult to foresee all the impacts technological innovation can have on how we grow, process, trade & consume food.
- While countries in Europe & Central Asia, & East Asia & the Pacific tend to trade within the same regions, countries in South Asia, Latin America & the Caribbean, sub‑Saharan Africa, North America, & the Middle East & North Africa trade more globally. About 90percent of exports in agricultural commodities from sub-Saharan Africa, & Latin America & the Caribbean are destined for other regions.
- Trade will continue to play an important role in global food security & nutrition, by moving food from surplus to deficit regions.
- Regional trade agreements can stimulate global value chain participation & spur institutional & policy reform. However, as many vulnerable countries continue to rely on global markets, the promotion of the multilateral trading system is important.
- The larger part of agri‑food trade is made up of processed food products.
About SOCO 2020
The report covers four areas: trends in agricultural & food markets; global value chains in food & agriculture; farmers & value chains – business models more sustainable growth; digital technologies & agricultural & food markets.