The Interdependent Nature of Global Trade in Food & Agriculture
2020 marks the 75th anniversary of the founding of Food and Agriculture Organization of the United Nations (FAO). This World Food Day recognizes over seven decades of joint international efforts to defeat hunger and actions toward a future in which we “Grow, Nourish, Sustain. Together.” To reflect on the global interdependence of food and agriculture, we asked our Advisory Board member, Christina Connelly to share some of her insights into the global agricultural trade and its impact on economic growth and development. Christina has spent over a decade working in international trade programs and currently serves as Trade Commissioner for Agri-Food at the Consulate General of Canada in Minneapolis.
I started my graduate studies at the University of Minnesota’s Humphrey School of Public Affairs in Minneapolis nearly 20 years ago, intent on earning a degree in public policy focused on international development. I’d just returned from a six-month volunteering and backpacking trip through South America during which I’d observed the impacts of poverty and political strife on the developing world—and simultaneously realized that I lacked the skills, expertise, and lived experiences that might enable me to work towards alleviating these issues.
Within the first few months of my studies, I was swept off my feet by the topic of international trade and its central impact on just about every other global policy issue in my textbooks. For the next two years, I dove deep into the world of competitive advantage, free trade agreements, foreign direct investment, and the history of the GATT system that led to the modern-day World Trade Organization (WTO). I regularly engaged in fervent, friendly debates with my fellow scholars about the merits of free trade versus more protectionist policies. My thesis centered on whether the Argentine financial crisis of 2001 had a direct impact on trade with the United States (which, as it turns out, it really didn’t – but my advisor gave me an A- for effort).
What I didn’t study as much in school but has since become the cornerstone of my career is food and agriculture. In my opinion, there isn’t another sub-sector that exemplifies the global importance of trade more than agriculture. Every human on the planet must eat, and today’s consumer demands regular access to foods that are grown, processed and/or packaged far beyond their borders.
But global trade in food and agriculture is a delicate balance. A drought in the Southern Hemisphere might mean Brazil, currently the world’s top soybean producer, won’t have a great harvest. This results in the United States, currently second in soybeans globally, likely sending more of their crop to China, the world’s primary soybean importer. Similarly, a financial crisis in Europe might lead to a disruption in global wheat trade. As the global leader in wheat, Europe’s production will impact flour processors and bread manufacturers, and ultimately consumers’ wallets for months or even years. Any disruption to the carefully orchestrated balance of trade ripples across continents and economies, often leading to short- and/or long-term changes in policies with implications for hard-won trading relationships. This is an oversimplification, but the point is the global agricultural system is inherently interdependent.
Our globally interconnected food system presents significant opportunities for developing nations—particularly via the micro-, small-, and medium-sized enterprises (MSMEs) that comprise the backbone of most developing economies. According to the World Bank, upwards of 90% of firms in sub-Saharan Africa are MSMEs; these firms represent predominantly young and female entrepreneurs with the potential to launch the African economy to the next level. Indeed, the World Bank estimates that Africa’s agribusiness sector could triple in value by 2030 – to USD $1 trillion– if the continent can expand access to capital, electricity, advanced technology and irrigated land to grow and process high-value nutritious foods.
But most MSMEs do not sell beyond their borders, and this is especially true in Africa: the United Nations Conference on Trade and Development (UNCTAD) reported in 2018 that Africa’s share of global exports is lowest among developing regions, and has been steadily falling since the middle of the last century – from 7% in 1940s to under 2% in 2016. Exports by African MSMEs in particular accounted for around 3% of their total sales. Compare this with the developed world, where MSMEs contribute to 34% of exports on average. Access to capital represents the single largest barrier to MSMEs’ export potential in Africa; the International Finance Corporation estimates that Africa’s formal MSME sector has an annual financing gap of more than $136 billion.
Africa is also highly dependent on imported food. According to UNCTAD, Africa imported 85% of its food—worth USD $35 billion—between 2016 and 2018. This figure is forecast to reach USD $110 billion by 2025. Import dependency exacerbates food insecurity and impedes development of the infrastructure and policies that support expanding businesses and export activity. Firms that export report higher productivity and create more and better paying jobs, thereby delivering long-term positive economic impacts to a country’s GDP. To be sure, buying local and supporting homegrown brands is hugely important; most companies are wise to first prove their worth at the local level before investing in expanded production and sales. But for sustained growth, getting those products beyond the border is paramount. Moreover, when a country only sells its goods at the local level, agricultural or otherwise, they not only miss out on the opportunity to capture the true value of their products, but leave the door open for a competitor to reap the benefits.
Africa’s ability to produce, process, and sell food outside the continent’s borders is critical for the survival and well-being of her own people. The African continent has more undernourished people than anyone in the world, and nearly double the global average. But Africa is also a resource- and human capital-rich region, with 60% of the world’s arable land and about 20% of the population (expected to reach 40% of the global population by 2100). Africa has the potential and capacity to contribute monumentally to global food demands; thoughtful implementation is everything. To empower smallholder farmers and food manufacturers in Africa with the tools, knowledge, and support to compete in the global marketplace is a win-win for us all.