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Are Global Agricultural Trade Policies Only Protecting The Developed World?
By: East Asia Forum Date: 20 September 2013 The agriculture sector is a large part of the developing world and supports the livelihoods of a significant portion of its population. But since the last WTO Doha Round, the developing world have been concerned that ambitious tariff reduction proposals will leave their domestic agriculture sector, and by extension their economies more generally, vulnerable. The Agreement on Agriculture negotiated in the Uruguay Round was expected to bring about a structural change in the global agricultural trade and lead to efficient agricultural producers. Yet despite several further rounds of negotiations there has been minimal progress on all issues related to the Agreement and agricultural trade continues to be distorted. Given the prevalence of these distortions and the importance of agriculture to developing countries, the need to create a framework to tackle agricultural trade issues is stronger than ever. Both developed and emerging economies have been accused of protectionism. Developed countries often heavily subsidise their farmers, while developing countries often impose high import restrictions that inhibit free trade. Developing countries are advocating two instruments to defend their concerns of food security, farmers’ livelihood and rural development. The first is the Special Safeguard Mechanism (SSM), allowing for the temporary raising of tariffs. The other is the concept of Special Products (SP), which proposes to create a list of products that directly impact the developmental concerns of developing countries and should not be subject to tariff reductions under the Doha talks. Paragraph 7 of the Hong Kong Ministerial Declaration states: Developing country members will also have the right to have recourse to a Special Safeguard Mechanism based on import quantity and price triggers, with precise arrangements to be further defined. Special Products and the Special Safeguard Mechanism shall be an integral part of the modalities and the outcome of negotiations in agriculture. What this means is that a WTO member country will have the right to impose SSMs if it finds that imports are increasing to the extent that local markets are being disrupted (a ‘volume’ trigger) or if there is a collapse of the international price of that commodity which undermines or threatens to undermine the otherwise viable domestic production (a ‘price’ trigger). The leading bloc arguing for SP and SSM is the G33, which comprises more than 40 developing countries, including India and China. Although all WTO members have acquiesced in principle to establishing a SSM, some developed countries, particularly the United States, and some developing countries with an export interest in agriculture (such as Thailand, Paraguay, Argentina, Uruguay) have sought to restrict the use of SSMs. They seek, in particular, to limit the number of times it can be used and the extent to which it can be used to raise tariffs. The main justification for SSM and SP is that international commodity prices remain extremely volatile. Studies show that there has been no systemic decline of volatility in the post-WTO period, and that import surges have been common in developing economies. A Food and Agriculture Organization report states that: ‘Indeed, import surges seem to be more common in product groups that are subject to high levels of subsidies in exporting countries, notably diary/livestock products (milk products, poultry parts), certain fruits and vegetable preparations and sugar’. Against this backdrop, developing countries are worried that the ambitious tariff reduction proposals being negotiated at the Doha Round will leave their domestic agriculture sector, and by extension their economies more generally, vulnerable. A SSM would provide a measure of insurance. Unlike in industrial production, the production cycle of agriculture does not allow for sudden halts and rapid restarts in production. If cheaper imports lead to a fall in domestic production and the decreased demand persists for more than a few weeks, farmers may be forced to switch to other crops. It could be difficult for them to return to the original crop even when the price of that crop becomes favourable again in the medium term. Price volatility thus makes farmers disinclined to implement long-term plans to build capacity in particular crops, which would lead to economies of scale, and exposes farmers and the nation to damaging fluctuations in income. Normal safeguards are insufficient to address this problem. When the price of industrial products declines factories can increase their inventory and save for when prices rise again. But when demand for domestic agricultural products is reduced, small farmers in developing countries find it difficult to store their product in the hope of a return to higher prices because of the lack of storage facilities and the perishability of agricultural products. What is needed is a mechanism to reduce the severity of fluctuations in prices. A SSM can do this. The agriculture sector is a large part of the developing world and thus supports the livelihoods of a significant portion of its population. The viability and dynamism of the developing world’s agriculture sector thus remains essential to secure success in the developing world’s poverty alleviation strategies. The next ministerial at Bali in December must ensure pressure remains on developed nations to meet the aspirations of developing countries with regards to the global agriculture trade. By Rohit Sinha & Geethanjali Nataraj, ORF Rohit Sinha is a research intern and Geethanjali Nataraj is Senior Fellow at the Observer Research Foundation, New Delhi. Continue reading
Look To The Fundamentals In Emerging Markets
http://www.ft.com/cms/s/0/70d9b14c-14af-11e3-b3db-00144feabdc0.html#ixzz2fQfIJxI8 By Gary Mead Being a generalist in emerging markets is to be a mindless herd member – and the herd has no mind, but is just pushed by snapping dogs. So ponder the particularities of a place, an industry, a sector: there will be fantastic opportunities once the herd stays put. What lies behind the recent rout? Quantitative easing (QE) is the monetary policy drug of choice right now, and the threat of its withdrawal has already induced an ugly international bout of cold turkey in world markets. Princeton University’s Jean-Pierre Landau, a former Bank of France deputy governor, put it more diplomatically at last month’s Jackson Hole annual summit for central bankers. Accommodative monetary policy has averted one global financial crisis, but inadvertently produced another – capital markets’ anxiety over how soon and how fast QE might be unwound. Mr Landau was pessimistic about the level of central bank co-ordination necessary to get off this drug without pain: “The most likely scenario is that of progressive fragmentation of the international financial system.” Since December 2008 the US Federal Reserve has poured easy money into the US economy and, by extension, the global system, obedient to one of its mandates, getting America back to work. It has done this partly by keeping a tight lid on US overnight interbank lending rates, maintaining them in a range of 0-0.25 per cent. On top of that it has bought almost $2tn of longer-term US Treasury bonds. This vast QE, aided and abetted by similar (if smaller) schemes in Japan and the UK, has had the inevitable consequence of dragging thousands of billions of dollars into emerging markets, in the desperate quest for yield. Those days are not quite over – but the smartest money is now trying to figure out when US interest rates will start to rise and dispel the Fed’s opiate-induced calm. For some, this is creating rising hysteria; others are exhorting us to calm down because this is just a return to the status quo ante bellum. The canniest, of course, are on the watch for fresh opportunities, and trying to ignore scaremongering headlines in normally reputable media. What are the hard facts? On May 22 the Fed’s chairman, Ben Bernanke, said he might start slowing bond purchases – so-called “tapering” – if the US economy continues to improve. Almost immediately the MSCI Asia-Pacific Excluding Japan Index slipped 14 per cent. Around $44bn has been withdrawn from emerging-market stock and bond funds globally since the end of May, according to the data provider EPFR Global. This retreat from emerging markets now appears to be a fixed trend. According to the authoritative latest (June 2013) Capital Flows to Emerging Market Economies report produced by Felix Huefner and his colleagues at the Institute of International Finance, private capital inflows to emerging markets will total $1.145tn in 2013, $36bn less than in 2012. Next year these flows will fall even further, to $1.112tn, the lowest level since 2009. But that is still a wall of money and it might be seen as a return to normality rather than outright collapse. As the west went into deep recession, cut rates and printed money, investors fled, looking for better returns wherever they could, paying scant attention to the fundamentals of the economies of several big emerging markets. Now that the west is in better health, those often weak fundamentals have reminded many investors why they had not previously entered them. India and Indonesia, the two Asian nations with the region’s biggest external funding requirements for their current-account deficits, have already stumbled. The Indian rupee fell to an all-time low in July after the country’s current account deficit widened to an unprecedented $87.8bn in the fiscal year that ended in March. Also in July, Indonesia’s current-account deficit climbed to a record, economic growth slowed and inflation geared up. Overall, more than $1tn has been wiped from equities in emerging markets in the last few weeks. The hope that a slower-growing developed world was smoothly converging with a faster-growing emerging world is, if not over, then certainly delayed. For anyone exposed to emerging markets as a whole, standing in the way of the crowd heading for the exit makes little sense. Too many countries in the emerging world face serious structural problems that were, perhaps justifiably, ignored when the developed world’s economies were being put through the wringer. It is difficult to ignore incipient revolution in Egypt, appalling civil war in Syria, bitter political divisions in Turkey and rampant corruption in India when the west appears to be on the mend. But the key to all this is an individual country’s balance of payments. Trading on the basis of “is this a risk-on or a risk-off day?” is unwise. Trading on the basis of the underlying strengths or weaknesses of a nation’s economy might be duller but is more rational. It is easy to get distracted by newsflow but look out for economic fundamentals. Continue reading
Examining Thoughts On Germany’s Clean Energy Push
by Breakthrough Institute Germany’s renewable energy transition, the “Energiewende,” has long been a subject of scorn among conservatives, who have argued that it is a massive ratepayer-subsidized boondoggle that has harmed Germany’s economy and imposed significant regressive costs on poor and working class energy consumers. But the last several months have seen growing skepticism about the Energiewende from the center-left as well. Both Der Spiegel and Slate have published lengthy investigative pieces raising troubling questions about the costs and the environmental benefits of Germany’s headlong pursuit of an all-renewable energy future. Salon recently published an article criticizing Germany’s transition from nuclear to coal. Even left-leaning Dissent Magazine recently published a long expose about the failure of the Energiewende to reduce carbon emissions, concluding that Germany’s enormous investments in renewables, together with plans to phase out its nuclear fleet, would cost the nation a generation in the fight against global warming. At stake are not simply public perceptions of the Energiewende, but the future of efforts to rapidly expand deployment of wind and solar power elsewhere. Environmentalists and renewables advocates have long held up Germany’s example as one that the United States and other nations ought to emulate. To the degree to which the Energiewende is instead perceived as a cautionary tale, efforts elsewhere to expand subsidies and deployment mandates for renewable energy, and to dismantle the present day utility sector in favor of a much more decentralized electrical sector are clearly at risk. It is a measure of just how serious the new center-left criticisms of the Energiewende have been, and how threatening they are to the long-standing green climate and energy agenda, that prominent clean-tech thought leader Hal Harvey, long a powerful behind-the-scenes player in efforts to expand deployment subsidies for wind and solar power and transform the utility sector, has stepped out publicly and issued an extended defense of the Energiewende against its growing chorus of environmentally minded critics. image via Shutterstock As the head of the Energy Foundation and Climate Works and the director of the Hewlett Foundation’s climate and energy programs, Harvey aggregated and spent more money on climate and clean energy policy development and advocacy than any other philanthropic institution over the last two decades – between 2008 and 2010 alone, Climate Works and affiliated philanthropic institutions spent over a half billion dollars on climate and energy policy and advocacy according to one recent study. America’s overlapping mash of renewables subsidies, deployment mandates, and regional cap and trade programs is arguably as much Harvey’s legacy as anyone else’s. For this reason, Harvey’s defense of the Energiewende is revealing, both for what it acknowledges about the real costs and slow progress and for what it attempts to deny and downplay. Harvey acknowledges the enormous costs at which renewables innovation has been achieved in Germany, writing that escalating costs of the Energiewende “need to be controlled” and that Germany’s large direct subsidies for renewables represent only a portion of their total cost. “One still has to pay for transmission and distribution, for taxes, and for system resources to balance the variability of solar output,” he notes. And he recognizes the enormous challenges that still must be overcome in order for a transition from fossil energy to renewables to begin in earnest. “There is no doubt that the accelerated phase-out of nuclear power combined with the strong carbon targets for the utility sector make for a complex transition,” he concludes. “Germany will have to reinvent power markets, build more transmission lines, and think deeply about a new business model for its utilities.” But he also obfuscates many inconvenient facts, particularly those that suggest that current problems facing the Energiewende represent more than temporary setbacks, associated with a cold winter, rising natural gas prices, and the nation’s decision to accelerate the phase out of it’s aging nuclear fleet, and rather are likely to represent endemic and persistent problems associated with efforts to achieve high penetrations of intermittent renewable energy sources given present day technologies in Germany and beyond. A basic reality check on Harvey’s claim follows: Harvey claims that most of the impressive sounding 24 percent share of electricity that Germany generates from renewables comes from wind and solar. But in fact only about half does. The rest comes from hydropower, biomass, and trash incinerators. As The Economist recently reported , “the largest so-called renewable fuel used in Europe is wood.” Biomass has proven to be an increasingly dubious source of carbon-free energy before even considering the broader environmental implications for forests and habitat of returning to burning wood for energy at significant scale. The situation in Germany is not as bad as in some other European nations. But like the rest of Europe, Germany has relied heavily upon burning trees and trash in order to meet its renewables targets, a fact that is rarely mentioned by Energiewende boosters. Harvey is no exception in this regard. Of Harvey’s 24 percent, wind and solar represent about 5 and 7 percentage points, respectively, leaving less popular forms of renewable power to carry fully half the lift of the Energiewende. Harvey claims repeatedly that Germany has successfully decarbonized its electricity sector through the Energiewende. In fact, the carbon intensity of Germany’s economy has seen little change since 2000, when the nation embarked on the Energiewende. More recently, emissions have been rising. As the latest numbers from Germany’s BdeW utility consortium show, Germany’s greenhouse gas emissions rose 1.6 percent in 2012, the increase mostly coming from carbon dioxide emissions by coal-burning power plants. Anthracite coal carbon emissions rose 3.4 percent, while emissions from lignite rose 5.1 percent. Emissions are projected to rise again in 2013 . Harvey claims that Germany’s nuclear phase-out has not resulted in increased coal burning, but the evidence he cites contradict the claim. To support his claim, Harvey argues that no new coal plants have been approved since Germany announced plans to accelerate its nuclear phase-out after the Fukushima accident. Harvey is correct when he states that Germany’s current coal building binge has been long planned. But so has its nuclear phase-out, which was initiated over a decade ago. One can reasonably surmise that the long planned expansion of coal facilities has been, at least in some part, in anticipation of the long planned phase-out of aging nuclear facilities. Harvey chooses not to entertain this possibility. Harvey claims that recent increases in emissions from coal plants are temporary phenomena, relying entirely on analysis lifted whole cloth from a recent blog post by Amory Lovins to suggest that rising emissions were the product of a cold winter and rising natural gas prices. In fact, they are in significant part a direct result of renewables policies. German policy mandates that the grid take renewable energy first and fossil energy second. This results in what is known as the merit order effect. As more intermittent renewable energy enters the grid, it displaces the most costly type of fossil power generation, natural gas. As a result, natural gas generation decreased last year while coal’s share of electricity rose from 43.1 percent to 44.7 percent. And lignite – the dirtiest form of coal – increased from 24.6 percent to 25.6 percent. Moreover, as the Energiewende continues, carbon emissions from coal will likely continue to rise. The confluence of a priority grid access for renewables and a low European carbon price have squeezed flexible natural gas out of the market, adding to the gains coal has taken from nuclear power. In 2012 Germany commissioned 2.9 GW of new coal-fired power capacity. According to BdeW , Germany will add another 4.6 GW of coal power in 2013. Of a planned 42.5 GW of major power plants to be built by 2020, two thirds will be new coal and gas generators. Harvey claims that Germany’s low wholesale electricity prices, due to increasing competition from renewables, cancel out much of the cost of the renewable energy surcharge that retail customers pay to underwrite Germany’s feed in tariffs. Yet his own numbers belie this claim. Harvey acknowledges that the renewable energy surcharge constitutes one sixth of the retail electricity rate, adding approximately five cents per kilowatt-hour to the price of retail electricity. He then cites German government estimates that higher renewables penetrations have driven wholesale electricity prices down one cent per kilo-watt hour, saving ratepayers about $5 billion Euro per year. At best, then, lower wholesale prices mitigate less than a quarter the cost of the renewables surcharge. While lower wholesale rates will save ratepayers about $5 billion in 2013, Financial Times reported recently that in 2013 the feed-in tariffs will cost ratepayers €20.4 billion ($27 billion). Continue reading
