Trade and Sustainable Development Goal 2 – Policy options and their trade-offs



Ishrat Gadhok | Georgios Mermigkas | Jonathan Hepburn | Christophe Bellmann | Ekaterina Krivonos | Food and Agricultural Organization of the United Nations

With trade recognized as a means of implementation under Agenda 2030, policy-makers will need to ensure that trade, and policies affecting trade and markets, are taken into consideration as part of their efforts to achieve SDG 2.

The five targets that set out the level and ambition of SDG 2 (ending hunger; ending all forms of malnutrition; doubling the agricultural productivity and incomes of small-scale food producers; ensuring sustainable food production systems; and maintaining genetic diversity), as well as trade itself, often constitute distinct policy priorities for governments. Trade and related policy measures which may be designed to achieve one target can potentially have unintended negative consequences that undermine the achievement of other targets, both within the country where the measure is applied and in the trading partner countries.

It is therefore important that policy-makers identify and recognize areas in which difficult tradeoffs may be needed between competing policy objectives, and identify possible ways in which these can be addressed. Furthermore, while the different targets set out under SDG 2 are mutually interdependent and inter-related, it is important to address the trade policy dimension of each component individually as part of a broader plan of action.

This paper highlighted the various policy measures that can affect trade and markets. These include border measures such as tariffs, export restrictions, and non-tariff measures, each of which can have immediate effects on trade flows. At the same time, “behind-the-border” domestic support measures, such as input and output subsidies, market price support and public stockholding measures, and public investments in infrastructure and R&D, among others, can also have significant effects on trade and markets, through the impacts that such measures have on domestic production.

It is important to recognize that the same policy measure can have different implications for different SDG targets, depending on whether a country is a net exporter or importer; the size of its production, trade and consumption; and the way in which policies are designed and implemented, among other factors. The impacts may also vary in the short and long run, as the expectations of economic actors vary over time.

Reducing high import tariffs and gradually phasing out tariff-rate quotas on a given product, for instance, can contribute to addressing the priorities of SDG targets 2.1 and 2.2, by diversifying the supply of healthy food, lowering food prices, and generally, by helping to move food from regions of low production cost and ample supply to areas of high production cost and insufficient supply to meet demand, which can be particularly relevant for countries with a high dependence on imported food. At the same time, however, there may be implications for producers in importing countries, whose incomes might be undermined by import competition, thus negatively affecting the achievement of SDG target 2.3. There may also be consequences for the achievement of environmental sustainability objectives (priorities under SDG target 2.4), if the trading partners apply different environmental requirements, in which case removing tariffs can put farmers in countries with more stringent regulation at a competitive disadvantage and lead to carbon leakage.

The application of export restrictions also provides examples of the competing priorities between different policy objectives; particularly, between short- and longer-run objectives within the domestic market, as well as between the policy objectives of two trading partners. Export restrictions are often used with the objective of addressing domestic food security concerns related to rising food prices. In the immediate term, such measures may indeed boost availability and lower food prices in domestic markets, improving access to food and contributing to the achievement of SDG targets 2.1 and 2.2. However, even in the short-run, there are implications for producer incomes (SDG target 2.3) which may be significantly diminished by lower food prices. Moreover, in the medium-to-long run, the initial effects of the policy may be reversed as farmers respond to lower price incentives and policy uncertainty by decreasing area harvested for the affected product in the following cropping season. This can contribute to lower production and higher prices in the medium-to-long run, mitigating the initial positive implications of the measure for SDG targets 2.1 and 2.2. Crucially, the application of export restrictions can undermine the achievement of SDG targets 2.1 and 2.2 in importing countries by lowering food availability on world markets, and contributing to higher prices, particularly if the measures are implemented simultaneously by many exporting countries.

Among behind-the-border domestic support measures, input and output subsidies as well as market price support measures are among the most contentious elements of governments’ agricultural policies. One of the reasons for this is that such measures can involve important choices between different policy objectives. Input subsidies for instance, can be crucial for improving agricultural productivity and lowering farmers’ production costs, with positive implications for SDG target 2.3. Market price support measures can directly aim to improve producer incomes, by providing a guaranteed outlet and more predictable prices than achievable on the open market, therefore having similar positive implications for SDG target 2.3. However, in addition to the high fiscal costs and administrative burden associated with such measures, they can also have implications for the achievement of environmental sustainability priorities (SDG target 2.4), for instance, if they provide production incentives for products with high greenhouse gas emissions. At an international level, there may be consequences of such measures for producer incomes in the trading partners (SDG target 2.3), as they can under-price competitors and undermine the opportunity for small producers in the importing country to sell their products abroad, even if they are actually more efficient and competitive. Moreover, they can result in an inefficient allocation of productive resources across regions and exacerbate environmental pressures.

A deliberate effort to ensure complementarity of trade and agricultural policies can go a long way in ensuring the effectiveness of policy measures, and potentially resolving some of the trade-offs associated with them. For instance, there are many cases in which policy makers provide farmers with incentives to produce, such as through input subsidies and market price  support measures, while at the same time applying export restrictions that have the opposite effect on producer incentives. Improving coordination across different ministries and agencies responsible for designing and implementing agricultural and trade policies can help to resolve such inconsistencies. Moreover, while trade and agricultural policies can have a direct effect on SDG 2 outcomes through their impact on production and markets for food and agriculture, policies in other areas can be important too, including in areas such as environment, energy, and health and nutrition. Government frameworks that affect how markets function in these areas can translate directly into impacts on food and nutrition security and sustainable agriculture, and must therefore be part of a holistic, complementary policy package.

It is also important to note that there are some measures that generally have positive implications for the achievement of the SDG 2 targets. These include public investments in infrastructure, such as storage facilities that can improve farmer prices (affecting SDG target 2.3), rural roads that can connect producers to markets (affecting SDG target 2.3), and efficiencies in trade and logistics that can reduce food waste and bring farm products where they are promptly needed (affecting SDG targets 2.1 and 2.2). Similarly, public investments in R&D have some of the highest rates of return among all rural development initiatives, with positive implications for agricultural productivity, nutrition and food security (affecting SDG targets 2.1 to 2.3). From a trade perspective, and in contrast with input or output subsidies, such support measures do not involve transfer to individual producers but rather to the sector as a whole and often focus on the delivery of public goods. For this reason, in the WTO they usually fall under the green box category and are not subject to any limitation. Depending on the specific circumstances, increasing public expenditure in these types of measures can offer a “win-win” solution for many countries.

Lastly, understanding and monitoring progress towards SDG 2 will be key to ensuring that the goals and targets are achieved within the time-frame that leaders have agreed. In the area of trade and markets, governments will need to go beyond a narrow focus on the elimination of agricultural export subsidies, and take a broader approach to indicators of progress that encompasses the range of measures that affect trade and markets in the global food system.

FAO Trade and Sustainable Development

Ishrat Gadhok is a Trade Policy Consultant in the Trade and Markets Division of FAO. She supports the organization’s analytical and capacity development activities on trade at the national, regional and global levels.

Georgios Mermigkas joined the FAO Trade and Markets Division in May 2016, as a member of the trade team, dealing with issues related to trade and food security and trade agreements.

Jonathan Hepburn is a Senior Policy Advisor with IISD’s Economic Law and Policy program, focusing on agriculture, trade and food security. He has two decades of experience working on economic policy, trade and development.

Christophe Bellmann is an Associate in IISD’s Energy program, a senior resident research associate at ICTSD, and a visiting fellow for the Institute for International Trade at the University of Adelaide. He has more than 25 years of experience working on trade policy and sustainable development in international negotiations.

Ekaterina Krivonos is an Economist in the Trade and Markets Division of the Food and Agriculture Organization of the United Nations (FAO) in Rome, Italy. Her work is focused on analyzing trade policy issues in relation to agricultural markets and food security, including multilateral and regional trade negotiations.

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