Challenge of Globalization to Agriculture in the Asian and Pacific Region

Transcription

1 Challenge of Globalization to Agriculture in the Asian and Pacific Region Jung-Sup Choi Professor, Food Resource Economics Yeongnam University Dae-dong Gyeongsan Gyeong Sangbuk-do Korea ABSTRACT Globalization mostly implies neither borders nor nations. The concept stresses the globe or the world as a whole. In the ASPAC region, the most evident form of market openings take place as a result of multilateral and bilateral trade negotiations. The development of IT is also an additional blow to lower the national borders. Agricultural production and marketing sectors suffer direct impacts of globalization in the forms of seed purchasing and international trade of agricultural products. Consumers and manufacturers in the domestic food chain are influenced by globalization and these are transmitted to the agricultural sector. This discusses the major impacts of globalization to agriculture in the ASPAC region and its corresponding government policy implications, especially where it concerns food security and livelihood of consumers. Keywords: globalization, international trade, world trade organization Globalization defined INTRODUCTION Globalization, at current scale, is rather a recent trend in the long history of mankind, even though there are some scholars arguing that globalization started with the sailings of Christopher Colombus and Vasco da Gama in the late 15 th century 1. With the development of transportation, and followed by the explosive advancement of information and communication technologies, globalization came to be one of the most powerful trends in history. Globalization is an on-going phenomenon, leaving no single human being without being exposed directly or indirectly. Since globalization is proceeding with such a massive scale, there exists as many definitions as the number of students on globalization. In this paper, I would like to follow some economists definition of globalization, rather than adding my own to the already abundant jargon. I will use the concept of economic globalization and it means the lowering of economic borders of nations. To the sociologists, it seems that globalization is more ambiguous than to the economists 2 : Economists seem to have succeeded in reaching more or less a commonly accepted definition of globalization, namely, as international economic integration that can be pursued through policies of openness, the liberalization of trade, investment and finance, leading to an open economy. More precisely, the term globalization encompasses a wide range of phenomena, including: 1) The cross-border integration of wholesale and retail financial markets; 2) Increased global-scale market competition and wholesale and retail trade; 3) Increased foreign direct investment; 4) Increased cross-border contracting and global-scale production networks; and 5) The formation of international joint ventures and strategic alliances for R&D 3. It is worth describing the term internationalization which prevailed before 1 O Rourke, Kevin H. and Jeffrey G. Williamson, When Did Globalization Begin?, March 2000 (Mimeo). 2 Van Der Bly, Martha C. E., Globalization: A Triumph of Ambiguity, Current Sociology, November 2005, Vol. 53(6): Sturgeon, Timothy J., How Do We Define Value Chains and Production Networks? Background Paper Prepared for the Bellagio Value Chains Workshop, September 25 October 1, 2000, Rockefeller Conference 1

2 Table 1. KOF Index of globalization, Globalization Economic Social Political Country Index Country globalization Country Globalization Country Globalization 1. Belgium Singapore Switzerland France Austria Ireland Austria Italy Netherlands Luxembourg Canada Belgium Switzerland Netherland Belgium Austria Sweden Malta Netherland Sweden Denmark Belgium Denmark Spain Canada Estonia United Kingdom Netherlands Portugal Hungary Germany Switzerland Finland Sweden Sweden Poland Hungary Austria France Canada Ireland Bahrain Portugal Portugal Czech Denmark Norway Germany Republic 13. France Czech Finland Denmark Republic 14. Luxembourg Cyprus Slovak United States Republic 15. Spain Finland Czech Egypt, Republic Arab Rep. 16. Slovak Slovak Australia Argentina Republic Republic 17. Singapore Chile Spain Greece Germany Israel Luxembourg Turkey Australia Portugal Hungary Brazil Norway Bulgaria Liechtenstein India Cyprus Latvia Singapore Romania Italy Switzerland Cyprus Hungary Poland New Zealand Ireland Australia United Slovenia Italy Finland Kingdom 25. New Zealand Spain United States Norway (Accessed March 18, 2010). globalization. Internationalization stresses closer relationship and freer trade among the nations by lowering the borders. In contrast, globalization mostly implies neither borders nor nations. The concept stresses the globe or the world as a whole. The internet, through which messages and information move freely without charge, is a wellknown example of globalization. One of the indices that measures the level of globalization is the KOF index by the Swiss Federal Institute of Technology (Table 1). The index measures economic, social and political globalization. Belgium is listed at the top of the combined globalization index followed mostly by European countries. Only two ASPAC countries, namely Singapore and New Zealand, are listed on the top 20 globalized countries. To many Asians, globalization was encountered in the form of political globalization, or in other words, imperialism, about a little more than 100 years ago. Globalization in the ASPAC region started historically in the form of expansion of the European countries followed by the Japanese influence, and the consequent spreading power of the United States. After the economic reform and market opening in 1978, China appears to be 4 Dreher, Axel (2006), Does Globalization Affect Growth? Evidence from a new Index of Globalization, Applied Economics 38, 10: Updated in Dreher, Axel, Noel Gaston and Pim Martens (2008), Measuring Globalisation Gauging its Consequences (New York: Springer). 2

3 increasing its influence in the wave of globalization in this region. According to the KOF index, the level of economic globalization in Asian countries is relatively low. The level, however, is increasing continuously since 1970 (Fig. 1). In the late 1990s, the index increased rapidly. The slowing-down of globalization in the early 2000s was followed by recent rapid increase. Fig. 1. Economic globalization of Asia by KOF index, (Accessed March 18, 2010) Fig. 2. Composition of geographical regions (WTO) (Accessed on 30 January 2010) 3

4 A Brief Review of ASPAC Region and Its Agriculture Geographically, the World Trade Organization (WTO) defines the Asia and the Pacific (ASPAC) region as the area in which China and Mongolia to the North, Pacific Island countries to the East, New Zealand and Australia to the South, and Afghanistan and Pakistan to the West (Fig. 2). The International Monetary Fund (IMF) classifies Asia into advanced and developing countries 5. Among the 182 countries that compose the world, the IMF names 33 countries as advanced economies. Five Asian countries belong to this category: Hong Kong, Japan, Korea, Singapore, and Taiwan 6. Japan belongs to the major advanced economies, so called G7, and other four countries belongs to the newly industrialized Asian economies. The Developing Asia is composed of 26 countries: Afghanistan, Republic of, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, Fiji, India, Indonesia, Kiribati, Lao People's Democratic Republic, Malaysia, Maldives, Myanmar, Nepal, Pakistan, Papua New Guinea, Philippines, Samoa, Solomon Islands, Sri Lanka, Thailand, Timor- Leste, Democratic Republic of, Tonga, Vanuatu, and Vietnam. The United Nations (UN) Economic and Social Commission for Asia and the Pacific (ESCAP) maintains a more comprehensive definition of the ASPAC region: East and North-East Asia (7 countries), South-East Asia (11 countries), South and South-West Asia (10 countries), North and Central Asia (9 countries), and the Pacific (21 countries). In total, there are 4.08 billion people living in 58 ASPAC countries in 2007, according to the ESCAP statistics (Please refer to the attached Appendix Table). The population of ASPAC region is 61% of the world population. It is no surprise since the region involves two most populous countries in the world China and India. The average per capita GDP of ASPAC regions in 2007 was US$2,603, which is about half of the world's average per capita GDP, US$5,396. % Fig. 3. Per capita GDP and the share of agriculture for the Asian and the Pacific countries, 2007 Data Source: ESCAP Statistical Yearbook for Asia and the Pacific 2008; (Accessed on 30 January 2010). 5 (accessed January 30, 2010) 6 In the ASPAC region, Australia and New Zealand are added to the list. 4

5 The average share of agriculture in total value added in the ASPAC region was 8.1% which was 3%-point higher than the world average in In the sub-regions in the ASPAC countries, the share of agriculture was the highest in the North and Central Asia (18.4%) followed by the South and South-West Asia (17.3%). The lowest agricultural share was recorded by the Pacific (3.6%), followed by the East and North-East Asia (4.9%). The relationship between per capita GDP and the share of agriculture for the ASPAC Countries in 2007 appears in Fig. 3. It shows a typical L-shape agricultural share vs. income relationship. Agriculture in the ASPAC region is characterized mostly by small-scale family farms. Rice is the major crop in many countries in the region. As the international rice market is characterized by thin market, most agricultural commodities produced in this area are consumed in the ASPAC region. Globalization at Work Globalization comes to the agricultural sector in several forms. Among them, most important are the multilateral trade negotiations through the World Trade Organization (WTO), bilateral trade negotiations through various individual Free Trade Agreement (FTA), foreign direct investments (FDIs), and the expansion of global food enterprises. In the ASPAC region, only a couple of countries are outside of the WTO membership (Fig. 4). In agricultural negotiations, basic positions of ASPAC countries are scattered to several negotiation groups such as G10 importing-country group, G33 developing-country group, and the Cairns exporting-country group. There is no coordinating position among ASPAC region countries in the WTO agricultural talks so far. Bilateral free trade and investment agreements seriously impact the lives of farmers, and consumers of food. With the WTO talks on agriculture now at a virtual standstill, bilateral and regional free trade negotiations are increasingly being used to further liberalize farming sectors, or in the hope of gaining access to new markets for agricultural exports. Not only do many FTAs include sections on agriculture, but, like the WTO, they often include provisions or chapters on sanitary and phytosanitary (SPS) standards and technical barriers to trade (TBT) which constrain the power of local communities and national governments to set their own standards in relation to biosafety, food safety and other health concerns. Meanwhile the power and control of transnational agribusiness corporations over seeds and biodiversity is advanced through WTO-plus intellectual property provisions, through investment liberalization provisions which Fig. 4. WTO member countries as of August 2009 (Accessed on 30 January 2010) 5

6 Fig. 5. Evolution of Regional Trade Agreements, (Accessed March 27, 2010) Table 2. Global FTA network of Korea as of March, 2010 Active Signed Negotiating Preparations Chile (Apr. 2004) U.S. (Jun. 2007) Canada Japan Singapore (Mar. 2006) India(Aug. 2009) Mexico China EFTA (Sep. 2006) EU (Sep. 2009) GCC MERCOSUR ASEAN Australia Turkey Commodities (Jun. 2007) New Zealand Russia Service (May 2009) Peru Colombia Investment (Sep. 2009) Israel SACU (Accessed November 27, 2009) facilitate corporate/overseas investor takeovers of land and domestic food production 7. The regional trade agreements (RTAs), or free trade agreements are on the rising trend. The active RTAs started increasing rapidly since the early 1990s. According to the WTO, there are currently over 260 active RTAs in the world (Fig. 5). Korea has been involved actively in negotiating FTAs since 1990s (please refer to Table 2). The first FTA of Korea was Korea-Chile FTA, which took effect in April Currently, Korea is implementing four FTAs, another three FTAs have completed negotiations and signed, and several other FTAs are under negotiations or being prepared. It has not been an easy process. Especially the first FTA with Chile was the most difficult. The Korean government experienced a difficult political situation when she tried to get the ratification of the national assembly. Farming groups opposed severely to the FTA with Chile. The internal negotiations might be tougher than the external negotiations. All trade negotiations aim at a freer trade. It is natural to expect that the multilateral- and bilateral-trade negotiations will open the market by tariffication which is followed by tariff-cuttings. Another important form of globalization is the expansion of global firms. In terms of agriculture and food sector, the global firms exercise their power at three stages of the food chain: seed, grain, 7 Agriculture and Food ; 6

7 and food market. For example, the top three seed companies handled 47% of global seed trade in 2007; Monsanto 23%, Dupont 15%, and Syngenta 9%, for example. Do the names sound familiar? Another example is that a couple of grain majors own a large portion of grain transport facilities and handles actually a major portion of world trade. For an additional example, the U.S. restaurant chains are expanding their network throughout the world. Top 10 U.S. restaurant chains can be seen in many countries in the ASPAC region even if the local rankings can be different from the U.S. rankings (Table 3). The ratio of exports and imports of goods and services to GDP in 2007 is presented in Fig. 6. According to the WTO figure, several ASPACregion countries show a very high level of trade- GDP ratio, i.e., over 100%. Some ASPAC countries in the Northern hemisphere show high trade-gdp ratio also. An FAO map representing the net food trade measured by calorie consumption during Table 3. Top 10 U.S. restaurant chains (R&I, 2009) Rank Previous Rank Chain Headquarters 2008 sales (in U.S.A.) ($ millions) 1 1 McDonald's Oak Brook, Ill. 70, KFC Louisville, Ky. 17, Burger King Miami 14, Starbucks Seattle 13, Subway Milford, Conn. 12, Pizza Hut Dallas 10, Wendy's Dublin, Ohio 9, Taco Bell Irvine, Calif. 6, Domino's Pizza Ann Arbor, Mich. 5, Dunkin' Donuts Canton, Mass. 5, (Accessed March 27, 2010) Fig. 6. Ratio of exports and imports of goods and commercial services to GDP, 2007 Note) Percentage based on current dollar values Source: (Accessed on 30 January 2010) 7

8 Fig. 7. Net Trade in Food, (Accessed November 24, 2009) Table 4. Share of agricultural products in trade in total merchandise by region, 2008 Exports Imports World North America South and Central America Europe Commonwealth of Independent States (CIS) Africa Middle East Asia Note) Import shares are derived from the WTO Secretariat's network of world merchandise trade by product and region. Source: (Accessed on January 31, 2010) Table 5. Capital inflows as share of Gross Domestic Product (GDP) in 2006 Export earnings Remittances* Foreign direct investment Sum Percent India Indonesia Pakistan Philippines Vietnam USDA ERS Food Security Assessment: , GFA-20, June

9 2002 shows that most countries in the ASPAC region maintains modest level of food selfsufficiency rate. As a matter of fact, Asia remains the least dependent of all regions on food imports. The share of agricultural products in trade in total merchandise by region in 2008 in Table 4 shows that Asia has a lower-than-average agricultural trade share. For a reference, the highest regional share in exports was shown by South and Central America, and the highest import share was recorded by Africa. As a result, the impact of globalization is relatively small than otherwise. For some ASPAC countries the level of foreign capital inflow is high (Table 5). For example, the capital inflow as share of GDP is 85% in Vietnam and 61% in the Philippines. In those countries, the impact of globalization would be large and direct. Major IMPACTS OF GLOBALIZATION ON AGRICULTURE IN THE ASPAC REGION For the ASPAC region, as with the other regions in the world, globalization comes basically in the form of lowering the national borders. The borders are lowered through the commodity and service market openings, the development of information technology (IT), emergence of super-national companies, and the financial market opening. The most evident form of market openings take place as the results of multilateral and bilateral trade negotiations. The Doha Development Agenda (DDA) under the WTO and the Free Trade Agreements (FTAs), if finished successfully, will always result in a freer trade in goods and services. As a matter of fact, a freer trade means a severer competition to the domestic producers for the benefits of consumers. For agricultural produce, it requires a structural reform under which farms with lower productivity receive more pressure to get out of the business. Sometimes, small-scale, subsistence farms survive while medium-scale farms are forced to leave the industry. The development of IT is an additional blow to lower the national borders. People living in a remote village equipped with internet, can enjoy the state-of the-art cyber technology at a real time without any delay. They identify their wishes and visions to the people in the most developed urban areas. As part of the result, food preferred mostly by young generations in Seoul, Tokyo and Taipei resemble those of same age groups in New York, Paris and Sydney. I have seen a Korean young actor s picture on the wall of a family house room in a remote village when I had a chance to visit Vietnam. Rapidly, people come to be netizens [network citizens] and westernized at the same time. The super-national companies, more advanced version of the multi-national companies, contribute to get rid of the borders, especially in the agricultural sector. Seeds, grains, and manufactured foods are examples where super-national companies show a high level of market power with great influence. Franchise stores of fast food and family restaurants are also rapidly growing areas. In addition, with the service market opening, large-scale retail chain stores have been introduced all over the Asian and Pacific regions. Globalization through market opening, IT development, super-national companies render great direct and indirect impacts on the ASPACregion agriculture. Agricultural production and marketing sectors suffer direct impacts in the forms of seed purchasing and international trade of agricultural products. Consumers and manufacturers in the domestic food chain are influenced by the globalization seriously and transmit the impacts to the agricultural sector. Since the agricultural sector in the ASPAC region is characterized mostly by self-subsistent, small-scale family farms, the direct impact of globalization can be relatively lower. Moreover, those globalization impacts appear to be very different according to the development stage as well as food-importing or food-exporting country status. As stated correctly by Robert Heilbroner and Lester Thurow, globalization changes the nature of problem itself (Heilbroner and Thurow, pp ): Today, rapid improvements in transportation and communications are effectively pushing us closer together and creating a world economy regardless of what governments might attempt to do The nature of the new problem raised by multinationals and global trade is not, at bottom, a question of a competitive struggle among national economies. The underlying issue is different. The real challenge posed by the multinationals and global trade is that the world s economic map does not neatly coincide with its political map. This raises the question of how national sovereignty will be protected or forfeited as the reach of international finance and production widens and deepens. The issue is not merely how the 9

10 Fig. 8. Trade and the price of rice, Cited from UN ESCAP, Sustainable Agriculture and Food Security in Asia and the Pacific, April world s markets will be divided up, but the ways in which national sovereignty itself will be expressed in the 21st century. We remember the ag-flation of The movements of international rice price depict the impacts of various government s decisions and the impact of financial crisis. Governments, as well as super-national companies decisions, have great influence on the commodity market, and, in turn, the changing market indicators impact the industry. CONCLUSION Responses and Government Policy Implications The benefits of globalization, regardless of the size, are scattered usually over time and economic entities. The costs of globalization, in contrast, usually, appear to be concentrated on certain entities-those group not ready to exploit the changing environments. It is an important role of government to even out the benefits and costs, using tax and subsidy as policy measures. Since globalization comes as such a fullscale, massive trend, it is not possible for the governments to counter the movement. Also, since income growth and urbanization take place with the wave of globalization, it is difficult to separate the net impact of globalization. Globalization, coupled with the income growth and urbanization, results in bi-polarization. In most cases, subsistent family farms and low-income urban residents compose the low-end of the polarization. The urban-rural divide tends to be larger as the impact of globalization. As the agricultural-sector responds to the market opening, Governments try to compensate the direct and indirect economic damages incurred by the freer trade and also pursue structural adjustment measures to buy-out the rights to farming. Basic role of Governments against globalization could be two-folds: 1) Trying to adjust the direction and speed of the globalization. At the DDA talks on agriculture, I, as the head of the Korean delegation, used to make the following statement at multiple occasions: We re not against free trade. We re not against the acceleration of free trade. What we demand is to adjust (slow down) the speed of acceleration, so that each Government will be able to bear with the speed of adjustment. Otherwise the scale of social displacements would be politically too much to cope with. Governments have to take measures to mitigate the adverse impacts resulting from globalization, such as the widening gap between the urban and rural areas. Contemporaneous increase in globalization and inequality requires governments 10

11 to intervene in order to compensate the vulnerable income classes. As stated in an ESCAP publication 8, the ultimate goal of Government policy designed to cope with globalization is to maintain food security and livelihood of consumers and producers. Policy measures, in principle, have to be chosen to maximize the goods and minimize the bads of globalization. Identifying goods from the 'bads' is not a simple task. REFERENCES Dreher, Axel (2006), Does Globalization Affect Growth? Evidence from a new Index of Globalization, Applied Economics 38, 10: Updated in Dreher, Axel, Noel Gaston and Pim Martens (2008), Measuring Globalisation Gauging its Consequences (New York: Springer). Heilbroner, Robert and Lester Thurow, Economics Explained-Everything You Meed to Know About the Economy Works and Where It s Going, Simon and Shuster, O Rourke, Kevin H. and Jeffrey G. Williamson, When Did Globalization Begin?, March 2000 (Mimeo). Sturgeon, Timothy J., How Do We Define Value Chains and Production Networks? Background Paper Prepared for the Bellagio Value Chains Workshop, September 25 October 1, 2000, Rockefeller Conference Center, Bellagio, Italy UN ESCAP, Sustainable Agriculture and Food Security in Asia and the Pacific, April Van Der Bly, Martha C. E., Globalization: A Triumph of Ambiguity, Current Sociology, November 2005, Vol. 53(6): Appendix Table 1: Basic statistics for the Asia and Pacific countries, 2007 Population Per Capita GDP % of Total Value Added Thousands 1990 Growth Agricul- Indus- Services dollars ture try East and North-East Asia , South-East Asia , South & South-West Asia North and Central Asia , Pacific , Asia and the Pacific , LLDC LDC ASEAN , ECO , SAARC Central Asia , Pac. Is. dev. econ , Low-income Middle-income , High-income , Other world regions Africa Europe , Lat. Am. & Carib , North America , Other countries/areas , World , Data Source: ESCAP Statistical Yearbook for Asia and the Pacific 2008; (Accessed on 30 January 2010). 8 Governments need to design their trade and intellectual property right policies in a manner that will support the development of sustainable, local food production and protect the rights of Asia-Pacific developing country farmers to agricultural diversity, especially seeds and a broad gene base for their food production, while respecting their traditional, local knowledge and food production methods. Strategies for self reliance in food and agriculture will, in the long run, build food security. Asia-Pacific countries need to cooperate more closely on food security related trade issues... (UN ESCAP, Sustainable Agriculture and Food Security in Asia and the Pacific, April 2009, p.105) 11

12 Appendix Table 2: Exports of agricultural products of regions by destination, 2008 Unit: Billion dollars (percentage) Export From Europe Asia North CIS Africa Middle S&C World America East Am. Europe (36.2) (2.3) (1.8) (1.6) (1.5) (1.1) (0.4) (44.9) Asia (3.0) (10.6) (2.4) (0.5) (1.0) (1.4) (0.3) (19.4) N America (1.7) (5.2) (6.3) (0.2) (0.7) (0.5) (1.2) (15.8) CIS (1.0) (0.8) (0.1) (1.1) (0.2) (0.3) (0.3) (3.6) Africa (1.3) (0.5) (0.2) (0.1) (0.6) (0.2) (0.0) (2.8) M. East (0.2) (0.1) (0.0) (0.1) (0.1) (1.2) (0.0) (1.8) S&C Am (3.7) (2.5) (1.6) (0.6) (0.7) (0.6) (2.0) (11.7) Appendix Table 3: Exports of food of regions by destination, 2008 Unit: Billion dollars (percentage) Export from Europe Asia N Am CIS Africa M East S&C Am. World Europe (37.3) (2.0) (1.9) (1.7) (1.6) (1.1) (0.4) (46.1) Asia (2.8) (9.6) (2.4) (0.5) (1.1) (1.5) (0.3) (18.4) N America (1.5) (4.6) (6.2) (0.3) (0.7) (0.6) (1.3) (15.2) S&C Am (4.0) (2.5) (1.6) (0.7) (0.8) (0.7) (2.3) (12.6) CIS (0.7) (0.4) (0.0) (1.2) (0.2) (0.3) (0.0) (2.9) Appendix Table 4. Interaction of trade and other policies that affect local prices 12