The State of Agricultural Commodity Markets 2022


From globalization to regionalization?

The production of food and agricultural products depends on a multitude of agroclimatic conditions, such as climate, soil characteristics, altitude and the availability of land and water (see Part 3). Natural resource endowments are distributed unevenly across the world and, together with differences in technology shape trade flows (for a discussion on the key drivers of trade see Part 2).

Demand for food is increasing fastest in regions where population and income growth are strongest, as in emerging economies and developing countries in Africa and Asia.22 However, in many of these regions, agricultural productivity is relatively low (see Part 2) and countries may be challenged to produce sufficient food for their growing population.

Globally, trade can help balance food supply and demand by moving food from surplus to deficit areas. It also contributes to ensuring dietary diversity as foods that cannot be produced domestically can be imported from other countries, and this can help promote healthy diets.23, 24, 25, 26 The increasing risks to agricultural production from climate change reinforce the role of global trade in ensuring food security and nutrition.27 At the same time, most empirical evidence shows that those countries that are similar in terms of economic size or are located close to each other tend to trade more between them, as compared with countries of different relative sizes or countries that are geographically more remote.h

Trade costs play an important role in shaping trade flows and they depend on many factors (see Part 2). Costs incurred from transportation and logistics tend to increase with distance and this makes long-distance trade more costly, favouring trade between countries that are nearer each other. Infrastructure is linked and trade procedures are often similar among neighbouring countries, and these countries are often closer in terms of culture and preferences, which leads to more trade between them.28, 29

Trade is also proportional to the economic size of a country, reflecting production capacity, but also purchasing power and preferences associated with income levels. Richer countries can more easily leverage gains from specialization by trading with other rich countries.30, 31 Trade policies also have significant influence on trade flows. When tariffs are low and non-tariff measures harmonized, countries trade more with each other. Regional trade agreements (RTAs) that reduce tariff and non-tariff barriers generate significant trade activity, fostering economic development.32

International trade negotiations in the WTO have set the framework conditions which contributed to opening global markets and reducing barriers on food and agricultural trade globally (see Part 4). The process of globalization is evident in the acceleration of trading activity in the 2000s, the higher participation of countries in the global trade network and the increased connectivity between countries worldwide. While governments come together at the WTO to negotiate the “rules of globalization”,33 this process has been complemented and reinforced by an increasing number of RTAs.34 An important question remains related to whether the structural change of the food and agricultural trade network and the emergence of new hubs has been associated with the regionalization of trade.

Network indicators, such as the assortativity index, suggest that countries within a region tend to trade more with each other than with countries in other regions (Figure 1.9). On average, countries within the same region have relatively more trade links with each other and the intensity of trade between them is higher than with countries outside the region. Possibly reflecting regionalization tendencies fostered by RTAs worldwide, the analysis suggests that during the 1995–2019 period not only globalization, but also the tendency of countries to trade with partners within the same region increased. When globalization came to a halt after 2008, countries appeared to trade more within their regions (Figure 1.9, see also Box 1.2 for a discussion of RTAs and trade within and between regions).


SOURCE: Jafari, Y., Engemann, H. & Zimmermann, A. 2022. The evolution of the global structure of food and agricultural trade: Evidence from network analysis. Background paper for The State of Agricultural Commodity Markets 2022. Rome, FAO.
NOTE: Assortativity describes the extent to which countries in a specific group trade with each other. The assortativity index ranges from 1 showing that similar countries trade with each other (assortative network) to -1 showing the reverse (disassortative network). Measured on the basis of trade intensity. Over time and in relative terms, countries appear to have increased trade within their respective regions, but decreased trade within their income groups (thus trading relatively more with countries in other income groups).
SOURCE: Jafari, Y., Engemann, H. & Zimmermann, A. 2022. The evolution of the global structure of food and agricultural trade: Evidence from network analysis. Background paper for The State of Agricultural Commodity Markets 2022. Rome, FAO.

In general, income levels also play a role in choosing a trade partner. According to some analysts, countries with similar income per capita tend to trade more between each other because income levels can reflect similar tastes and preferences. High-income countries also tend to trade with rich partners due to a comparative advantage in the production of high-quality goods.35 In 1995, the food and agricultural trade intensity of countries within the same income group was higher than the trade intensity of countries in different income groups. However, with the increasing participation of low- and middle-income countries in global food and agricultural markets, this relationship between similar income levels and trade has weakened over time (Figure 1.9). In 2019, countries were much more likely to have a high trade intensity with countries of a different income group than in 1995.

The increase in trade between countries with different income levels is quite important for development. Trade between countries at different stages of development promotes not only efficiency gains but also the diffusion of technology and knowledge. This results in productivity gains in agriculture, contributing to economic growth; at the same time, it can increase inequality within a country (see Box 2.5 for a discussion of trade openness impacts on growth, productivity and inequality).

Income levels, geography, differences in natural resource endowments and technology and trade policies, all influence the choice of a trade partner. Within the global food and agricultural trade network, countries are observed to form different trade clusters within which they tend to trade more. These clusters may be regional or can expand to include trade partners across regions. During the period 1995–2019 and in terms of trade intensity, the analysis suggests that countries traded within a pronounced cluster structure. Over time, some clusters became even firmer, as trade increased within them. Some other clusters remained regional and stable in terms of country participation, while others expanded across regions with a country composition that changed frequently (Figure 1.10).


SOURCE: Jafari, Y., Engemann, H. & Zimmermann, A. 2022. The evolution of the global structure of food and agricultural trade: Evidence from network analysis. Background paper for The State of Agricultural Commodity Markets 2022. Rome, FAO. Conforms to Map No. 4170 Rev. 19 United Nations (October 2020).
NOTE: Trade clusters are indicated by different colours, and countries with the same colour belong to one trade cluster. Measured on the basis of trade intensity of imports and exports.
SOURCE: Jafari, Y., Engemann, H. & Zimmermann, A. 2022. The evolution of the global structure of food and agricultural trade: Evidence from network analysis. Background paper for The State of Agricultural Commodity Markets 2022. Rome, FAO. Conforms to Map No. 4170 Rev. 19 United Nations (October 2020).

For example, a stable cluster includes the signatories of the North American Free Trade Agreement (NAFTA) and its successor the United States of America–Mexico–Canada Agreement (USMCA) and some of their trade partners across Latin America and the Caribbean. The intensity of food and agricultural trade between the three signatories of the agreement was already high in 1995 and remained significant to 2019. In 1995, this cluster already included Central American countries beyond Mexico. Over time, trade links of significant value were formed with South American countries and the cluster expanded to include Northern America and countries from Central America and South America except Argentina, Brazil, Paraguay and Uruguay, which are members of the Southern Common Market (Mercosur) and, together with countries in Eastern Asia, South-eastern Asia and Oceania, tend to trade globally rather than within the region (Figure 1.10).

Other mainly regional clusters include the European Union, where the Common Market has led to high levels of trade intensity between members and a cluster based on strong trade ties between former Soviet Union countries.

Over time these clusters expanded to other regions and, although Africa did not form a stable regional cluster during the 1995–2019 period, African countries were shown to have a high rate of entries into and exits from other clusters (Figure 1.10). In 1995, the cluster around the European Union also included many Northern African and several sub-Saharan countries. In 2007 and 2013, the food and agricultural trade links of African countries with other countries across the southern hemisphere became more evident. In 2019, countries located at the eastern parts of Northern Africa and of sub-Saharan Africa formed relatively strong trade links with the Eastern European and Central Asian cluster and countries in Western and Southern Asia.

These changes in trade cluster participation may not necessarily imply a re-orientation of food and agricultural trade of African countries. Instead, they might reflect the fact that the trade intensity of African countries is generally low, their trade relationships are often less stable, and that the trade of African countries tends to be underreported.36, 37 Although these characteristics could confound the identification of clear trade patterns, the lack of a stable regional cluster in Africa suggests that the intensity of intra-regional trade is low and that countries in the region tend to form many trade links outside Africa, despite various economic communities that have been established between countries in the region to promote integration (see also Box 4.3).

Overall, clusters shaped by regional proximity and trade agreements are clearly evident (see Box 1.2 for a discussion of RTAs).i There also appears to be a trend towards a rise in regionalization with increasing trade in food and agricultural products within regions (also indicated by Figure 1.9). In fact, some country and regional groups are more intra-regionally oriented in their trade, while others tend to trade more globally (see Box 1.2).38

BOX 1.2The role of regional trade agreements

Over the last decades, most countries have concluded trade agreements both within the multilateral framework of the WTO, as well as regionally. Since 1990, and in parallel to the multilateral trade negotiations, the number of regional trade agreements (RTAs) in force grew from fewer than 25 to more than 350 in 2022 (this number includes only RTAs in force that have been notified to the WTO, not all RTAs have been notified to the WTO).67

Counting RTAs can only approximate regionalization patterns as RTAs, broadly defined as “trade agreements of a mutually preferential nature”, can include bilateral, regional and inter-regional agreements.68 Depending on the number and economic size of the signatories, RTAs can be of varying significance and their number can be biased upwards or downwards by the formation of larger integrated areas (for example, the expansion of the European Union resulted in the loss of validity of previous agreements between current European Union members) or the breakup of previously integrated areas (for example, the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and subsequent renegotiation of bilateral agreements). Also, the extent of the economic integration negotiated in each of the RTAs can vary considerably from loose declarations of intent to economic/customs unions and common markets.

Nevertheless, some broad parallels in the patterns of RTAs and those of trade can be highlighted. For example, countries with a stronger connectivity to the global trade network (Figure 1.5) also tend to be signatories to a larger number of RTAs (Figure 1.11). African countries, which tend to be weakly connected to the trade network have, so far, concluded only a few RTAs that have been notified to the WTO.

FIGURE 1.11The number of regional trade agreements by country, 2022

SOURCE: WTO Regional Trade Agreements Database. Conforms to Map No. 4170 Rev. 19 United Nations (October 2020).
SOURCE: WTO Regional Trade Agreements Database. Conforms to Map No. 4170 Rev. 19 United Nations (October 2020).

The role of RTAs in promoting regional trade integration is reflected in the fact that almost half the RTAs currently in force were concluded between countries in the same region (Figure 1.12). Most other RTAs (around 50 percent of the total) cover countries in two different regions and only 1 percent of those include countries in three or more regions. Only Africa and Oceania have relatively few RTAs covering only countries within their respective regions. Less than 3 percent of the (notified to the WTO) RTAs cover only African countries. Indeed, both regions tend to trade more globally and less within the region (Figure 1.13). African countries form varying trade clusters with countries in other southern and northern regions, while Oceanian countries trade intensively with countries in Eastern and South-eastern Asia.

FIGURE 1.12Regional trade agreements between countries by regions (percent), 2022

SOURCE: WTO Regional Trade Agreements Database.
NOTE: The figure considers only regional trade agreements that include countries in the same or two different regions. Participation of multiple countries in the same region in one trade agreement is not considered explicitly. Regional trade agreements between countries in three or more regions (not shown) make up around 1 percent of all regional trade agreements. Only regional trade agreements in force that have been notified to the WTO are considered.
SOURCE: WTO Regional Trade Agreements Database.

FIGURE 1.13Food and agricultural trade within and between regions, 1995 and 2019


In the past, RTAs were usually concluded between neighbouring countries or countries that share a common history. However, new approaches include RTAs among countries from different continents and mega RTAs with many countries accounting for large shares of world trade.69 Examples include the African Continental Free Trade Area (AfCFTA) and the Regional Comprehensive Economic Partnership (RCEP) (see Part 4 for a discussion of the potential effects of these RTAs on trade flows and economic development).

By limiting the number of countries involved and focusing on their strategic interests, RTAs can be more targeted and can be concluded more easily than multilateral negotiations.70 Therefore, and as many RTAs overlap, their proliferation is sometimes seen as “building blocks” towards multilateral trade liberalization. However, by creating new trade links among their signatories, RTAs can also divert trade away from non-signatories and thus hinder further integration.71, 72 This discussion is also relevant in the agricultural sector,73 for which also the depth of many RTAs and thus their potential to impact the trade of their signatories has been called into question.74 Part 4 of this report deepens the discussion of new trends in trade agreements and elaborates on the rationale for global versus regional trade and trade agreements in food and agriculture.

SOURCE: Adapted from FAO. 2022. Agricultural trade in the Global South: An overview of trends in performance, vulnerabilities, and policy frameworks. Rome, FAO.

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