Reducing tariffs or banning exports alone cannot address the realities of the global food crisis, writes Ahmed Ghoneim* The period 2004 onwards signalled for the first time the use of trade policy as a main tool to affect import prices, not only for producers but as well for final consumers. This has been reflected in the Egyptian government's decision of imposing export taxes on cement in 2007 as a mean to stop unexplained increasing domestic prices, followed in 2008 by a ban on exporting cement for a certain period. Before that, the focus of trade policy was mainly geared towards helping producers lower input prices or helping exporters better access markets. This is not to say that trade policy from 2004 onwards ignored these objectives. On the contrary, in 2006 the Egyptian government announced an increase in the budget allocated for export subsidies through the export promotion fund, reaffirming its determination to help Egyptian exporters gain better market access abroad. The extent of the success of trade policy in reaching social goals, however, was rather modest. This is mainly a result of the inefficacy of trade policy in dealing with issues that cannot be resolved by trade policy alone. Indeed, the use of trade policy requires several preconditions to be effective. Such preconditions differ according to the market, commodity, and nature of the problem that trade policy tries to resolve. When evaluating Egypt's trade policy it can be argued that the benefits of trade policy have been largely oversold. Illustrations include the relative inability of trade policy to deal with the increasing prices of steel and cement, among other products, despite abolishing tariffs and anti- dumping duties, and the imposition of export controls in the case of cement. Trade policy was also unable to act as an efficient tool in lessening the inflationary waves faced by the Egyptian economy starting 2004, including the latest presidential decree lowering and abolishing tariffs on a number of commodities and encompassing foodstuffs in 2008. In other words, the link between trade policy and the functioning of the domestic market remained weak. The present crisis Regarding the role of trade policy in solving the current food crisis, Egypt is one of the largest net food importing countries in the world, where food accounts for more than 25 per cent of total imports. However, and despite soaring prices, Egypt's level of imports in 2007 did not change significantly from 2006 levels. Thus, Egypt's import bill will increase significantly and this will have negative repercussions on Egypt's chronic and widening food trade balance. What is cushioning Egypt in such an adverse position is the balance of payments surplus, which accounts for more than five per cent of GDP. The surplus implies that Egypt is able to maintain imports and keep food supplies stable, at least for the time being. It is worth emphasising that the extent of price increase experienced by Egypt domestically is far less than world price increases. For example, in the case of rice, world prices increased on average by 97 per cent over the period 2006 to February 2008, compared to 53 per cent in Egypt over the same period, whereas wheat prices increased by 233 per cent compared to 100 per cent in Egypt over the same period. The differential price increase in the domestic market when compared with the global market could be attributed in part to export controls and/or the subsidy scheme adopted by the Egyptian government, both which had a role in lessening the full exposure of Egypt to increasing worldwide prices. Actions taken The Egyptian government has undertaken a number of measures to deal with the food crisis, including fiscal measures (raising the level of subsidies allocated for food items among other measures), administrative measures for monitoring the process of production and the pricing of vital food products (such as bread), along with a set of trade policy measures. The set of trade policy measures adopted by the Egyptian government included a ban on the export of all types of rice from 1 April 2008 to 1 October 2008. It is worth noting in this regard that rice is the fourth product to be added to the list of banned food exports, which included wheat, maize and whole beans (none of which products receive export subsidies). In fact, the rice ban decision was preceded in 2006 and 2007 by ministerial decisions imposing export taxes that helped to reduce rice exports. Egypt was not the only country that adopted such measures. Vietnam, Thailand, India and China also restricted rice exports to avoid domestic shortages. Indeed, export bans have proliferated. China banned maize exports. India banned milk powder exports. Bolivia banned the export of soy oil to Chile, Colombia, Cuba, Ecuador, Peru and Venezuela. And Ethiopia banned exports of major cereals. According to the World Bank, however, worldwide experiences so far with such measures have not proven sufficient in shielding domestic markets from world price increases. On the other hand, the Egyptian government abolished and reduced tariffs in April 2008 on a number of food items, including soybean oil, cheese, rice, milk for babies, and milk substitutes where tariffs were completely abolished, as well as reducing tariffs to five per cent on butter and dairy products. Again Egypt is not the only country that has undertaken such measures. Such measures did not have a significant impact on prices either. In the case of rice, according to Al-Ahram newspaper, traders have decided to store rice until the export ban expires by the end of October, an example of where unilateral trade policy cannot alone resolve problems. International prices are currently almost double the domestic price. Trade policy either needs to be supported by other measures such as heavy monitoring of the market to avoid excess storing, smuggling, and other anti-competitive behaviour, or it needs coordination on the multilateral level to ensure that "beggar-thy-neighbour" policies are not adopted internationally. Moreover, the continuation of export bans can cause friction with Egypt's major trading partners. Indeed, restrictive trade policy is not likely to solve the food crisis and its repercussions, though it might seem to have played a relieving role in the short run. If trade policy can help in the short run by reducing food prices in the domestic market, such a benefit is surpassed by hidden costs that should be prudently calculated. The hidden costs include the costs of reducing incentives to produce and export food staples, decreasing export proceeds, and distorting the market. Such costs are medium to long-run costs and hence their impact is delayed, though may be pronounced later. Conclusion The unilateral trade policy actions undertaken by the Egyptian government in the current crisis have proven to be of limited value and entail severe potential costs that are not yet felt. However, the Egyptian government had few short-run alternatives that could have been adopted instead. Rather than relying only on trade policy, the food crisis suggests strongly the need for a "policy mix" where the trade policy dimension is but one aspect among many. To conclude, there are three problems that characterise the role of trade policy in its attempt to address the food crisis, namely: trade has been oversold because of a dominant world consensus that specified liberalisation and openness as objectives while the current food crisis underlined the fact that liberalisation and openness are instruments; trade is part of a complex economic chain reaction that makes it inseparable from other economic policies, whether on the national or global level; trade policies have never been seen in the era of globalisation as social safety nets, which is currently the case, and the notion has proven to have limited value. * The writer is associate professor, Faculty of Economic and Political Science, Cairo University
