Media  Global Economy  2012.11.01

Regulating Food Export Restrictions - Report on the APEC CEO Summit

English translated version of "Business Prospect" on NHK Radio Channel 1 on October 2, 2012

1. You attended the APEC 2012 meetings in Vladivostok, Russia in early September. How did the meetings go?

The APEC CEO Summit was held in parallel with the APEC Economic Leaders' Meeting. Economic and political leaders from APEC member economies exchanged views and opinions during the 16 sessions of the APEC CEO Summit, each with a different agenda. I joined these sessions together with researchers and economic leaders, as well as presidents, prime ministers and ministers from APEC countries and regions.

The venue for the APEC 2012 meetings was Russky Island, off the coast of Vladivostok. I would think that the choice of Vladivostok reflects the Russian government's motive to focus more on the Asia-Pacific region than Europe, which has been struggling with its economy due to the currency crisis. The Russian government invested the equivalent of 1.7 trillion Japanese yen to host the APEC 2012 meetings. A huge 3 km bridge was newly built to connect Vladivostok with Russky Island. Beautiful buildings constructed for the conferences will be used by the university, which will be relocated from Vladivostok after the APEC event.

I felt a pro-Japan atmosphere during the summit. Volunteers who helped organize the meetings were friendly, while some of whom were university students learning Japanese. Although I left the island only once for an on-board dinner on my last night of a five-day stay in Vladivostok, I saw some Japanese restaurants in the city from the bus. I suppose that the Russian people's pro-Japan sentiment reflects the value they place on their relationship with Japan in countering a rising China.

I was invited to speak in the session to discuss world food security issues. It was attended by the Australian Minister for Trade and Competitiveness, CEO of the world's largest agricultural machinery manufacturer, and Chairman of China's largest state-owned trading company. I am a little surprised that the panelists who represented private companies shared optimistic views on the recent world food situation.

2. Was there any agreement on food security issues at the APEC meetings?

One of the four priority issues set for the APEC 2012 meetings was to strengthen food security. It is acknowledged by attendants of the meetings that agricultural production must be increased by promoting investment and technological innovation and that member economies should refrain from imposing export restrictions and other restrictive measures on food trade. In the session that I joined, the Australian Minister for Trade and Competitiveness emphasized the necessity to regulate export restrictions. This is because export restrictions on food imposed at a time when the international price of food is soaring and the poor in developing countries are having difficulty buying food may have the serious consequence of reducing the food supply and hiking food prices even higher.

3. How effective do you think the acknowledgment shared by the attendants of the APEC meetings is?

In the final phase of the GATT Uruguay Round negotiations in 1993, the Japanese government proposed prohibiting all export restrictions. From Japan's point of view, export restrictions are unfavorable for food-importing countries such as Japan. I was actually one of the members of the Japanese delegation to multilateral trade negotiations in Geneva at the time. Our proposal faced serious opposition from some developing countries. The toughest opponent was India. Although its objectives were attained to a certain extent, Japan's proposal was significantly watered down through negotiations.

It may be difficult for Japanese citizens who have an ample supply of food to imagine that it is of critical importance for developing countries to strengthen their economies to be able to buy enough food. In 2008, international grain prices tripled. At the time, India prohibited grain export. If India had left the situation as is, domestic grain would have been exported to overseas markets where prices were higher than in the domestic market, which would have decreased domestic supply and boosted domestic prices to international levels. As a result, the poor, who spend most of their income on food, would have suffered serious problems in buying enough food. Since there are so many poor people in India, the government wanted to prevent this from happening. In actuality, India's imposition of export restrictions pushed up international grain prices to a certain level, impacting the poor in food-importing countries such as the Philippines. However, international society cannot push India to continue exporting domestic grain for the simple fact that it may exacerbate hunger among the Indian people.

Now, let me ask you a question. What would happen if the United States or Australia were to impose grain export restrictions after a poor harvest? Export restrictions by such large-scale grain exporters could lead to dire consequences the world over. However, countries like the US and Australia want to export grain because they produce such a large amount and failing to export it could drive domestic prices below international prices. In other words, as long as international prices are higher than domestic prices - although domestic prices fluctuate depending on yield - they would continue to export grain to benefit from agricultural business as an export industry. Different from countries like India, rich developed countries do not need to impose export restrictions to protect poor citizens. What if domestic prices were higher than international prices due to a significant deterioration in domestic production? In such case, developed countries would import grain from the international market to reduce the financial burden of consumers in these countries. They would hand over the reins to free trade. This was the reason why there was no opposition from developed countries such as the US and Australia to Japan's proposal to regulate export restrictions.

In sum, large grain-exporting countries which influence international prices would not restrict exports while developing countries such as India, which cover a small portion of world grain trade, cannot be regulated to stop export restrictions. Potential international regulation of export restrictions is subject to this kind of functional limitation. It is meaningful that APEC member economies have taken up the issue of export restrictions. However, in order to solve the issue of international food security it will be more important to take measures to alleviate poverty and increase food production.

(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on October 2, 2012.)