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Global agrifood market more balanced, but trade costs must fall: FAO

Regional integration has grown at the same time period as globalization, which was thought to be losing speed after 2008, the report said. This is because there have been more regional agreements.

In a major report released on Tuesday, the United Nations Food and Agriculture Organization (FAO) stated that lowering trade costs will contribute to sustainable development in the agrifood sector, promoting integration and transformation particularly in low-income states.

The FAO stated in its most recent State of Agricultural Commodity Markets (SOCO 2022) report that “a robust and well-integrated global agrifood system can help all countries withstand unprecedented challenges, as evidenced during the COVID-19 pandemic in early 2020, when global agrifood markets proved to be remarkably resilient.”

Today, “more countries trade with one another, and the global agrifood market is more balanced” than it was in 1995.

Regional integration has grown at the same time period as globalization, which was thought to be losing speed after 2008, the report said. This is because there have been more regional agreements.

The World Trade Organization (WTO) international trade negotiations are now moving slowly, and there are many deeper regional trade agreements that aim to achieve convergence in domestic policies and regulations in addition to market access, according to the FAO.

The UN agency claims that because regional agreements built on multilateral norms “enable for environment-related clauses which, when legally binding, can assist combat the environmental implications of trade,” they could be advantageous for economies and the environment.

However, the FAO cautioned that such a process has its own limitations.

Regionalization has benefits, but low-income nations would find it difficult to join, according to George Rapsomanikis, senior economist at the FAO and editor of SOCO 2022.

“Continuing (multilateral) negotiations is crucial since a multilateral strategy enables benefits for everyone and is more inclusive.”

While “global wealth has expanded, the share claimed by low-income nations has not changed substantially,” according to the agri-food trade map in SOCO 2022, The sub-Saharan region is one where this is particularly true.

“When comparing globalization and regional integration, we discovered that unlike other regions, Africa does not establish a trading cluster… Rapsomanikis argued that African nations prefer trading with other nations outside of their own continent.

The benefits in the (African) region are rather low, but trade costs are significant, according to our analysis of this as well as trade costs and comparative advantages, he said.

The research stated that trade costs might be substantial and that they “can add up to 400 percent to a product’s final price, substantially more than for commodities transferred between high-income countries.”

Productivity is a major problem that plagues low-income nations and hinders their progress. The report stated that one of the factors contributing to Africa’s poor intra-regional commerce is that “agricultural production differences across countries might be significant.”

According to Rapsomanikis, “Several African countries have very poor production, hence they seek out partners outside the continent among those with a greater productivity.”

This would not “create incentives to trade inside the continent” when coupled with a poor infrastructure and complicated procedures.

The African Continental Free Trade Area would be crucial in resolving this issue, according to the FAO economist.

Another important recommendation from the report is to diversify sources: governments are recommended to diversify their partners to lessen their exposure to possible shocks, especially those that are heavily reliant on food imports.

Last but not least, the FAO asserts that despite being advantageous, regionalization of the agri-food trade will not be sufficient to address major issues like climate change and greenhouse gas emissions.

“Agreements among a few countries are simpler… But only a worldwide strategy can be successful in the face of a global crisis (like climate change),” Rapsomanikis remarked.


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