Today, about one third of agricultural and food exports in the world are traded within global value chains that encompass at least three countries. At the same time, the economic, environmental and social outcomes of trade and global markets are being debated.

This brief highlights the role of agricultural and food trade in moving food globally from surplus to deficit regions, thus ensuring food security and serving a fundamental food systems function. It further addresses the interlinkages between trade and economic development, the environment and societal shifts in food consumption. Ultimately, the brief illustrates the role that trade can play in balancing different aspects of sustainability from a global perspective and points out the scope for further research and novel policy approaches.

1. Trade, food security and nutrition

Taken together, the evidence shows that trade is indispensable to ensure food security in all its dimensions. Without trade, the availability and accessibility of foods and nutrients would be more unevenly distributed, any form of domestic production disruptions would cause serious concern for food security, and diets would be less diverse.

However, increased competition through rising imports may be challenging for farmers in developing countries that are characterized by low efficiency and productivity constraints associated with poor physical infrastructure, weak institutions and low skills. For example, in a sample of 52 developing countries, food trade openness was associated with an increase in the prevalence of undernourishment. In fact, it was found that food supply increased as a result of increased trade openness, but, in net food-importing countries, the negative effect on agricultural producers and the food sector caused by import competition prevailed. This result could point to efficiency constraints in net importing countries with large agricultural sectors.

2. Trade, growth and inequality

Trade openness, either by intensifying competition or through fuelling the structural transformation process, can promote growth but can also affect income distribution and inequality.

Integrating smallholder farmers in global markets is challenging. Policies that promote trade openness often tend to underplay market failures and the need for complementary actions to address inequality are necessary.

A range of public policies and investments, such as carefully designed input subsidies targeted to smallholder farmers, skills upgrade and education, removing labour market rigidities, as well as improvements in infrastructure and regulation, can complement the market mechanism and promote a fair structural transformation.

3. Trade, environment and climate change

Depending on whether the environmental impact of agricultural production is greater or smaller in the exporting region than in alternative production sites, agricultural and food trade can therefore either increase or reduce the aggregate impact of agriculture on the environment globally.

In order to analyse the impact of trade on resource use and pollution, a growing literature expresses trade flows in terms of the resource inputs and emission content they carry (virtual resource trade, carbon/land/water footprint). The analysis of impacts of agricultural trade on the environment mainly centres on climate change and the use of water and land, covering also deforestation.

Climate change

Trade as adaptation mechanism

Under deteriorating conditions for agricultural production due to climate change, food imports by relatively more adversely affected (often developing) countries will have to come from those countries (often developed) that are relatively less adversely affected. In fact, most studies integrating biophysical and economic models project a stronger role for trade as a result of climate change at the global level.

Trade in climate change mitigation

As trade will expand to contribute to climate change adaptation, increased transport will also add to the emissions. The ultimate impact on global emissions depends on whether imports are sourced from systems that operate at lower emissions efficiency or from ones that operate at higher emissions efficiency.

Several policy incentives can help improve emissions efficiency and lower GHG emissions. For example, taxing GHG emissions is a way to ‘internalize’ their full cost to the society and can provide incentives to farmers to adopt technologies and practices that promote climate change mitigation. Alternative policy approaches to reduce GHG emissions from agriculture centre on domestic measures to incentivize climate-smart agricultural practices. These can be indirectly related to trade by altering traded volumes and market signals.

Land, water, biodiversity

Besides GHG emissions, agricultural production can affect natural resources, such as land and water, and biodiversity. Through trade, these external effects can occur in countries far away from the final point of consumption. Increasing import demand from developed countries is sometimes found to be the main driver for biodiversity loss in exporting countries. However, more systematic research is needed to provide comprehensive assessments of biodiversity footprints.

4. Globalisation of food: trade, social and health impact.

Improvements in productivity and the expansion of international trade have increased the availability of food, lowered food prices and contributed to overall declining rates of undernutrition in the world. At the same time, together with higher incomes and a more sedentary lifestyle, trade is also associated with increasing rates of overweight and obesity worldwide.

Globalization can also manifest in shifts in socio-cultural norms, which, in turn, affect consumer preferences, diets and nutritional outcomes.

Empirical evidence on the interlinkages between trade in food and agriculture and nutritional outcomes is still scarce and, so far, only a few studies have explored these linkages more systematically. As trade improves the availability and accessibility of both foods necessary for a healthy diet and foods high in fat, sugar, salt and calories, the effects on nutritional outcomes can be mixed.

5. The trade policy environment

While the strong focus on environmental and nutrition aspects in trade policy is relatively new, non-tariff measures, especially food safety standards and their international harmonization, continue to be a major point of discussion in agricultural trade.

These discussions on environmental provisions and nutritional issues in the context of trade trace the multiple trade-offs between economic, environmental and social objectives within food systems. They also highlight that, in general, the market mechanism cannot guarantee the provision of a range of social and environmental benefits that are central to sustainable development.

Within a food systems approach to trade, policy formulation based on tariffs or export restrictions to address environmental and social objectives, such as the preservation of biodiversity, better nutrition or equity, might be very costly and not sufficient to achieve all sustainability targets. These externalities or non-economic objectives are best addressed by policies that act directly on the relevant margin, as for example, by domestic policy instruments, such as taxes (e.g. sugar, fat taxes) and subsidies (e.g. for climate-smart technologies), rather than introducing trade distortions.

While open markets and free trade are conducive to global food security and promote economic growth, liberalization processes can create winners and losers and thus should be framed and supported by complementary policies that address market failures, externalities and system-inherent distortions.

Key policy issues to be considered on the Food Systems Summit agenda

• Recognize the role of trade in promoting food security, economic growth and better natural resource use and management
• Implement complementary policies to address the trade-offs between economic and social objectives in the context of open markets. In particular, social protection mechanisms and redistribution of economic gains of trade openness to vulnerable population groups can improve inclusion and reduce inequalities.
• Strengthen the role of trade in climate change adaptation and mitigation. Internalizing the cost of climate change in the food price across countries can help trade reallocate agricultural production to regions where emissions per unit of output is lowest.
• Maximize the gains from trade for all countries. Both regional agreements and multilateral mechanisms can support trade and economic growth. Multilateral mechanisms can also help guide an optimal policy mix in addressing trade-offs between economic, health and environmental objectives, such as the harmonization of food safety standards and the development of a common understanding on sustainability certification.