With almost 70 percent of the poor people in developing
countries living in rural areas, agricultural sector reforms — in
particular global trade liberalization — will be crucial in giving
them opportunities for better lives, according to a new World Bank
report released Monday.
The report, Global Agricultural Trade and Developing
Countries, edited by M. Ataman Aksoy and John C. Beghin, notes
that despite the recent framework agreement in Geneva, agricultural
protection continues to be among the most contentious issues in
global trade negotiations. High protection of agriculture in
industrial countries was the main cause of the breakdown of the
Cancún Ministerial Meetings in 2003, and remains among the key
outstanding issues in the Doha Round of global trade
negotiations.
Developing countries have increased agricultural productivity,
but these gains will not be fully translated into poverty reduction
unless industrial and some middle-income countries reduce
agricultural trade protection, the report says. In the absence of
reduced protection in these countries, increased productivity in
agriculture will instead give rise to overproduction and price
declines for many commodities, undermining competitive poor
countries' efforts to expand exports and rural incomes. It also
increases pressure for greater protection globally.
Identifying superior policy options is not difficult, the report
states, but the feasibility of reform depends on the power of
vested interests, and the ability of governments to identify
efficient tradeoffs among multiple goals —such as food security,
income transfers, and expansion of higher-value products in
agriculture.
"Manufacturing protection has declined worldwide following
substantial reforms of trade policies, especially in developing
countries. Yet many industrial and developing countries still
protect agriculture at high levels, which is hitting the world's
poor the hardest," said Fran?ois Bourguignon, the World Bank's
Senior Vice President and Chief Economist. "Growth in agriculture
has a disproportionately positive effect on poverty reduction,
because more than half the population in developing countries lives
in rural areas, and poverty is highest in rural areas. This report
clearly shows the need for coordinated, global trade reforms if we
are to help the rural poor."
Many developing countries reform, while industrial
country protections remain high
While protection remains high in industrial countries, many
developing countries have significantly liberalized their
agricultural sectors. Average agricultural tariffs, the main source
of protection in developing countries, declined from 30 percent to
18 percent during the 1990s.
In addition, many of these countries eliminated other forms of
import restrictions by devaluing exchange rates, abandoning
multiple exchange rate systems that penalized agriculture, and
eliminating almost all export taxes. However, "reactive protection"
in response to industrial-country support to agricultural producers
began to increase in many middle-income countries, especially in
food products.
The report notes that low-income countries have seen increased
agricultural trade surpluses in their trade with both middle-income
developing countries and industrial countries. But low-income
developing countries now export more to middle-income countries
than they do to the European Union, their largest export market in
the early 1980s, and the agricultural trade surpluses of
middle-income countries have diminished. Among industrial
countries, Japan has the largest agricultural trade deficit (almost
$50 billion in 2000–01); the European Union, once the largest net
buyer of agricultural commodities, has seen its deficits decline;
and NAFTA members' trade surplus with the rest of the world has
shrunk considerably.
Projections in the report indicate that without significant
reforms, the agricultural trade surpluses of industrial countries
will increase while the developing countries will face increasing
agricultural trade deficits, exacerbating rural poverty.
Potential winners and losers from agriculture trade
reforms
The report identifies both the key policy instruments that
distort competition and likely winners and losers from global
reforms, including producers, consumers, and taxpayers within and
across countries. Knowing who is likely to gain or lose from a
given reform is critical for sequencing reforms and putting in
place complementary policies, including assistance to reduce the
cost of adjustment in noncompetitive sectors.
The report concludes that reform would reduce rural poverty in
developing economies, both because, in the aggregate, they have a
strong comparative advantage in agriculture and because the
agricultural sector is important for income generation in these
countries. Also, liberalization of value-added activities is
crucial for expanding employment and income opportunities beyond
the farm gate.
Implementation of reforms is critical
How reforms occur will have important consequences for
developing countries, the report says, noting that the best
approach is coordinated global liberalization of policies. The
report illustrates the importance of a multi-commodity approach to
reform, as gains and losses do differ greatly by market. This
approach would also allow the countries to trade off gains in some
commodities against the losses in others. For example, world sugar
price increases alone would offset about half the lost quota rents,
or about $450 million, for countries with preferential access. The
analysis shows that losses in rents would be much less than is
commonly expected, as high production costs eat up much of the
potential benefit from preferential access to the high-price
markets.
Consumers in highly-protected markets will benefit greatly from
trade liberalization as domestic (tariff-inclusive) prices fall and
product choice expands. Consumers in poor, net-food-importing
countries could face higher prices if these markets were not
protected before liberalization, because of higher import unit
costs. In practice, however, such concerns have often been
exaggerated.
For example, dairy consumption in the Middle East and North
Africa would be little affected by trade liberalization because,
while world prices would rise, high import tariffs would be
removed, so that the net impact on dairy consumer prices would be
negligible. Similarly, rice prices will decline for consumers in
most rice importing developing countries in Asia and Africa.
Commodity-by-commodity analysis reveals
distortions
The report breaks new ground in providing a comprehensive
analysis of individual commodities – sugar, dairy, rice, wheat,
groundnuts, fruits and vegetables, cotton, seafood and coffee –
providing specific examples of how large trade distortions impede
trade flows, depress world prices, and discourage market entry or
delay exit by noncompetitive producers. These commodity studies
also show that reforms will lead to large gains, confirming the
results of global models.
The report finds that border barriers are high in most of the
commodity markets studied (the exceptions are cotton, coffee, and
seafood), including industrial countries and many developing
countries. For example, the global trade-weighted average tariff
for all types of rice is 43 percent and reaches 217 percent for
Japonica rice. Many Asian countries remain bastions of
protectionism in their agricultural and food markets.
Subsidies have similar effects, depressing world prices and
inhibiting entry by inducing surplus production by noncompetitive,
and often large producers. Cotton subsidies in the United States
and European Union, for example, have reached US$4.4 billion in a
US$20 billion market. In dairy and sugar markets, the effects of
export subsidies have been smaller than those of tariffs and tariff
rate quota schemes, partly because of the export subsidy
disciplines introduced in the Uruguay Round Agreement on
Agriculture.
Domestic support and protection policies have substantial
negative effects on producers in developing countries, because of
the sheer size of the subsidies relative to the size of the market.
Such large support programs shield non-competitive producers, and
penalize efficient producers, often in poor countries.
(China.org.cn January 11, 2005)