TOWARDS FAIRER FOOD
AND AGRICULTURAL MARKETS

How can the WTO help fight poverty and hunger?

Is this going to make a difference in the outcome of policies?

Session 2: Market share concentration in the food chain and consumer interests

Steve Suppan (Institute for Agriculture and Trade Policy) explained that the purpose of this panel is to talk about the structural issues in market concentration. The panelists were asked to answer the following questions: What are the major trends in agribusiness and food retail market concentration during the past ten years? How has the food supply chain been affected locally, regionally and globally by these trends? How have consumers been affected by the changes in market share concentration and the food supply chain, including the advantages and disadvantages for consumers in various countries and regions? How should consumers and consumer organizations respond to or organize demand to respond to supply chain changes? What can customer organizations do so that producers, as well as consumers, get a fair deal from the supply chain?

Mary Hendrickson (University of Missouri) focused on the trends in agribusiness and the food industry in the U.S. There are three major forces at work. First is horizontal integration, where we see that concentration - if viewed as the percent of market share of the top 4 firms in each commodity - is increasing in most areas. Second we see vertical integration - or how firms are creating relationships and alliances among themselves. Lastly, there are emerging global forces that are driving the restructuring of the agrifood system.

Currently the balance of power in the system has shifted to retailers. Food manufacturers and processors are forced to meet the retailers' prices, which puts a squeeze on farmers. This also has the effect of excluding small entities in the food system. Right now food supply chains are clustered together and boards of directors and the management of major companies are making supply decisions. This means that consumer needs are virtually abandoned in this system, with decision makers worrying primarily about investors.

Loek Boonekamp (OECD Agriculture Directorate food chain expert) examined the economic impacts on market concentrations of products on consumers, processors and suppliers. Recently there has been a major change in business practices with the growing use of contracts and standards on farmers and consumers. Over the past ten years the market shares of the largest retailers in the EU has increased. Protocol has grown for organizations and standards that work to reduce the transaction costs along the supply chain. The current trend in food economy is globalization, with fewer and fewer multinational companies in control.

Possible policy questions arise from this, such as does buyer size mean lower buyer prices? Are these low prices transmitted to consumers? And how does this change farm structures? This also presents questions about implications of changing food chain governance for access. Furthermore, there are questions concerning the access of consumers to food outlets and to variety, the access of farmers to the value chain, and implications for price determination and margin behavior. Right now the share of farmers is declining, while at the same time there is growing value added to the food chain.

Claudio Lara (Consumers International Latin America Office) said that the expansion of supermarkets in Latin America is a significant development in the agrifood system. In its effort to increase efficiency through adjustment of costs and margins, it imposes on other actors processes of change along the chain of value, from production and processing to final presentation for sale. This has become a decisive factor in demand and is determinant in new habits of food consumption. Expansion has caused a rise in concentration (increased entry barriers), and internationalization. Oligopolization is seen in food chains, which increases conflict, and this conflict affects small producers. This has also led to anticompetitive and abusive practices by supermarkets in Chile. A tribunal finally was forced to set up guidelines to end the abusive and anticompetitive practices by supermarket chains in October 2004.

As of June 2004, 99% of families in Santiago bought their food from supermarkets. Supermarkets have also led to new consumption patterns among higher-income segments of the population, while lower-income segments consume lower-quality food, eat less, or are excluded from the market altogether. Though consumers value supermarkets for their quality of service, they reject the low quality of the products. Sanitary violations have also been a recurring problem in Chilean supermarkets.

The discussion raised some questions for the panel.

There was a question concerning Mary's description about the increasing power of food retailers. Specifically, shouldn't you distinguish between conventional supermarkets and Wal-Mart?

Do we need to internationalize our rule-making process?

Session 3: Developments in EU and U.S. Agricultural Policy

Jill Johnstone (National Consumers Council) explained that this panel will discuss recent developments in EU and U.S. agricultural policy. The panel will focus on the following questions. What have been the major policy changes in EU and U.S. agricultural policy since the founding of the WTO? To what extent have these policy changes been the result of the result of the WTO Agreement on Agriculture, and to what extent are they the result of domestic policy concerns? What was the consultation process for drafting the reform of the EU Common Agricultural Policy (CAP)? What was the process for the 2002 U.S. Farm Bill? To what extent were consumer organizations involved in either of these processes? What are the major challenges to implementing the reformed CAP, and what is the timeline? What are the major challenges for implementing the 2002 Farm Bill, and how is it likely to be reformed in 2006-2007?

Carol Goodloe (U.S. Department of Agriculture) said the main vehicle for U.S. policy formation is agriculture bills that are created every 5-6 years, the most recent being in 2002. She focused primarily on commodity and conservation programs. Half of the USDA's annual budget goes to food assistance programs. The 1996 Farm Bill decoupled payments from the price of production, moving from price support to income support.

It is important to understand how the political and economic conditions at the time affect Farm Bills. Budget surpluses and deficits affect how Farm Bills are formed. This can be seen in the differences between the 1996 and 2002 versions. Additionally, the Farm Bill in 2002 took the WTO into consideration, while the 1996 one did not.

Notis Lebessis (DG Agriculture, European Commission) highlights the increasing number of competing demands that has helped to form the CAP. Within the EU farmers, consumers, taxpayers, industry, environmental and other NGOs, and member states have presented demands. Outside the EU the WTO, OECD, net exporters, net importers, ACP, LDCs, and MERCOSUR present demands. The current CAP reflects this. This has caused an evolution of the EU's role in agricultural trade.

The objectives of the 2003 reform were to increase competition in the agricultural sector, to increase the diversity and quality of food, to increase environmentally friendly production methods, to enhance landscapes, create vibrant rural communities, and to shrink the negative impact at the world level. The dilemma for the EU is how to be competitive in world markets while simultaneously meeting the highest environmental, food quality and animal welfare standards. The CAP aims at meeting its objectives in a manner that meets citizen, taxpayer and consumer priorities in a less trade distorting manner. The measures taken were the following: adjustment of intervention level, decoupling of direct payments, cross-compliance, degressivity modulation and strengthening rural development.

Rasmus Kjeldahl (President of BEUC, European Consumers Organization) had a more cynical view than others on this panel. First off, EU agricultural policy is turning from an economic nightmare into a bureaucratic lullaby. The number of farmers in Europe has decreased dramatically (by 50%) in recent years. There is little influence of consumer organizations on agricultural policy because they are not seen as stakeholders in the process. Generally, farmers, politicians, finance ministers and agricultural ministers are the only ones seen with a stake in the process.

It is important to remember what drives agricultural reform. For example in the 1970s it was financial issues, in the 1980s budget issues, and in the 1990s it was the development of the WTO. Consumer organizations need to get their act together because food safety and quality is not linked to farm payments. Decoupled payments can act as cash injections, or as countercyclical payments that lead farmers to be more courageous.

Daryll Ray (University of Tennessee-Knoxville) stated that agricultural markets do not conform to the basic supply and demand curve because food products are inelastic. Self-correction does not occur in agriculture to the extent that it occurs in other industries. The 1996 Farm Bill did not take income inelasticity into account, which is a recurring problem. Additionally, farmers have the tendency to use all their land all the time. Farmers produce 3 things. They are carbohydrates, fat and protein. For these reasons we need to be careful about changing expectations for agriculture policy and about bypassing the WTO.

Additional comments and audience questions brought up by the discussion.

Who takes initiative on the U.S. Farm Bill?

Notis Lebessis comments that cross-compliance, which was voluntary, is now required, and will be a tremendous challenge. Additionally, though the European Commission is transparent, it is also a complex organization representing many different interests.

Daryll Ray said that since 1985 agribusiness has had as much of an impact on farm legislation as anybody. The agriculture industry has more influence in politics than anyone else.

Does nutrition play a role in agricultural policy?

Session 4: The WTO negotiations, agricultural dumping and TACD's proposals for reform

Jim Murray (BEUC, European Consumers Organization) listed the questions panelists will address. They are: What do the negotiating modalities for the Agreement on Agriculture (AoA) included in Annex A of the WTO General Council Decision of August 1 (the "July Package") offer toward realizing the Uruguay and Doha Rounds objectives of a "fair and market-oriented agricultural trading system? What was proposed in "non-papers" but excluded from those modalities that might help such a realization? Is agricultural export dumping a major distortion of trade in the multilateral system, and if so what can the WTO do about correcting these distortions? Are current TACD resolutions on agricultural export dumping adequate first steps to curbing dumping, and what technical work is needed to develop binding provisions concerning agricultural dumping? Lastly, given the current AoA negotiating modalities, what do you anticipate will be the outcome of the WTO ministerial in Hong Kong? Why should consumer organizations care about this outcome and will there be opportunities for them to have their voices heard during the preparation process?

Debra Henke (U.S. Food and Agricultural Services Representative) emphasized that the Doha Round remains at the top of the U.S. agricultural trade agenda. For the Doha Round the U.S. most highly values market access, export competition and domestic support. The U.S. is most willing to accept less ambitious approaches to market access than they proposed, substantial changes to U.S. export credit guarantee programs, and real reductions in domestic support. Other objectives for the U.S. are for differentiation among developing countries, and sectoral initiatives.

There are a number of factors that will influence the outcome of the Doha Round. One factor to look forward to is the question of Brazil leading the G-20 to the Framework Agreement. There are questions over whether Brazil can do this for the final agreement because of G-20 commitments on market access and a realistic G-20 approach to domestic support. Other factors are the EU's decision to move on market access and whether developing countries realize that it is in their best interests to have a meaningful agreement. A strong outcome is especially needed on market access to gain U.S. acceptance. More generally there is the question of what will be our decision-forcing event and whether WTO members will be willing to step up again to reach a final agreement.

Jean-Marc Trarieux (Agricultural Attaché, EC Delegation in Washington) talked about the evolution of the EU in world agriculture trade. The EU agricultural trade structure is balanced. The EU exports mainly (70%) in high value added products, and price-dependent bulk commodities represent just 7% of EU exports. The EU's net export position has decreased in all sectors, which is largely due to CAP reform. Most of the gains have gone to the Southern Hemisphere where the EU is the largest market for developing countries.

The objective of the CAP reform was to shift from production support to income support. There was also a shift away from market measures to single farm payments, which are not trade-distorting. Over the next few years a CAP expenditure ceiling will be a major political issue in the EU because it gives less to newer member states. The EU has done its homework concerning CAP reform and will move on both domestic support and export subsidies. The CAP is no longer the problem on the world market.

Mark Ritchie (Institute for Agriculture and Trade Policy) talked about opportunities for consumers and how we can move closer to zero export dumping and more nutritious food. It is important to listen to what trade officials say at home and abroad to understand what is happening, and what will happen. Negotiations, process, and appeals are generally used by politicians to manipulate domestic policies that they do not like. For example, Canada is trying to get fast food restaurants to lobby the WTO and it should be expected that China will attempt to maintain its food economy.

Consumer organizations need to exert their influence during elections and crises because that is when they can have the most influence on outcomes. For example, the nominations for World Bank president and current gas prices are perfect times for consumer organizations to take advantage of because times like these already generate debate. Lastly, it is important to have a comprehensive vision of the future and look farther ahead.

Amadou Kanoute (Director of the Consumers International Africa Office) highlighted the fact that many of the rules developed by the WTO are not solely limited to trade, and many in fact, extend into domestic policy. The U.S. has a history of institutional dumping in the South. Recently, the U.S. has agreed to end its agricultural export subsidies, which would help end dumping. Unfortunately the July 2004 Package does not set a date for this to end. There is a strong feeling of dissatisfaction by developing countries on some of the agricultural decisions made by the WTO. Single farm payment subsidies, which some say are not trade-distorting, actually can be trade distorting by boosting farm revenue and keeping farms in business when they should not be.

Developing countries believe that their livelihood should not receive tariff reductions and they are concerned that import liberalization has led to displacement of domestic farm products and people. This is important because Africa has a significantly larger percentage of its population employed in agriculture than does the U.S. or the EU.

LDCs are often unable to subsidize farmers for three reasons. They do not have the resources; structural adjustment programs limit their ability; and there is a lack of good governance. Additionally, the WTO, IMF and World Bank issue incoherent and inconsistent monetary policies. Africa would like to see the following happen: inclusion in the development box, application of criteria, complete elimination of export subsidies, elimination of tariff barriers, clearly defined national policies on food, clearly defined sanitary and technical rules on trade, and capacity building for stakeholders in LDCs.

The discussion generated much debate on development issues.

There was a comment that trade policy is not the culprit for Africa's problem.

What do you mean by fair price in the marketplace?

Jim Murray - The US and EU each say the other side is worse when it comes to dumping. There is no reason why rich countries should export their products at less than the world price. TACD's central recommendation is that the export of products at below the price of production should no longer be permitted to happen.

In summing up, he challenged the governments to stop talking about trade distortions and stop allowing the export of products at less than the cost of production.

Participants List