1. Comments on: Globalization, the WTO and Agriculture in China 10 th Anniversary Celebration China Center for Agricultural Policy Beijing September 26, 2005 Daniel A. Sumner University of California Agricultural Issues Center and Department of Agricultural and Resource Economics, U.C. Davis

2. What have we heard Globalization is now thoroughly imbedded in the economic system almost everywhere; Prof. Unnevehr has outlined some new realities and challenges The WTO has helped trade to flow where governments once placed barriers or subsidies; Prof. Huang has shown us specific implications The WTO has a major role to play

3. Role of WTO The WTO plays two roles –Supervise implementation of agreements including settling disputes among members –Provide the framework for negotiating new agreements WTO made major agricultural dispute rulings in 2005; including US cotton subsidy dispute won by Brazil The Doha Development Agenda negotiations are at a critical juncture; agricultural is again the key

4. Is the WTO a Great Dragon?

5. This is the WTO with a Human Face

6. Policy provides large subsidies for some crops sometimes these violate WTO agreements Most of US agriculture is not subsidized and is open to trade But, US cotton subsidies were found inconsistent with WTO obligations. In March of 2005, Brazil won a major case that requires changes in US policy US faces political challenges to implement the decision or face international consequences My estimates: –US will produce 15% to 20% less cotton and world cotton prices will be 5% to 10% higher if rulings are fully implemented, implications for China Also implications for how the subsidies are viewed in the WTO generally and for Doha negotiations

7. Let us turn to another set of issues that may conflict with opening markets to trade Many countries motivate trade protection or subsidy on food security grounds

8. Turn to another set of issues that may conflict with opening markets to trade Food security has been used many places as a rationale for subsidy or protection Some see food security as a production issue related to self sufficiency WTO allows some exemptions for developing countries for “food security” However protection and farm subsidy policies may not lead to more food security

9. Chinese Policy Makers and Scholars and Others Yesterday Vice Minister Chen discussed grain subsidies, motivated in part by food security. Food security arises as motive for trade barriers and technology policy Cheng Quoqiang, “.. to achieve food security… is the pursuit of food self-sufficiency.” (2003) Li and Wang, “The key to realizing food security lies in securing production ability.” (2002) Also Indian and Korean WTO Proposals

10. Economic Viewpoint Food security is a demand side issue: – (Sen 1979, World Bank 1986, Sumner 2000, Barrett 2002). Consider what a lower grain price from less protection would mean for even for food security of grain producers in China Recent research by Chang and Sumner asks what can be done to improve the food consumption patterns of this potentially vulnerable population in China

11. We used CCAP data to examine price declines due to liberalization on grain consumption patterns for poor farmers Data from a survey in 2000 led by Linxiu Zhang (CCAP), Scott Rozelle and Loren Brandt Random grain producing households from Hebei, Shanxi, Liaoning, Zhangjiang, Sichuan, and Hubei

12. Protection, Subsidy and Food Security CCAP household survey data from Zhang Rozelle and Brandt in 2000 We simulated relationships between market price, family income and consumption of grain are key to staple grain consumption of poor farm households. Key parameters share of full income from grain production, share of income spent on grain consumptions, income elasticity of demand price elasticity of demand But, farm income effect is small…even poor farmers get most of their full income from non-grain sources. Stochastic results (variable prices) reinforce results Very few Chinese grain farmers would suffer more food insecurity if grain price falls with open borders Protection (and price support) is poor food security policy. The few vulnerable farm households may be better identified and helped directly with other programs

13. Implications Many countries have reasons for protection and policies inconsistent with more market opening US cotton subsidy is one example of policy inconsistent with negotiated WTO obligations Other policies may not violate WTO rules, but have poor domestic rationale Protection and subsidy in the name of food security is an example