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DEVELOPING COUNTRIES, AGRICULTURAL TRADE AND THE NEED FOR
REFORM
ARIE KUYVENHOVEN 2004
Man does not bear much reality .…
and politics is the best proof thereof.
Arthur
Miller
CONTENTS
1. LDCs: characteristics and structure of trade2. Agricultural policies in OECD countries3. Impact on LDCs4. What happens under liberalization?5. How are LDCs affected?6. Agricultural policies in LDCs7. Policy implications and misunderstandings
Agricultural support in rich countries is substantial: over $350 billion
Market access for LDCs is limited (tariff escalation, NTBs)
Export subsidies lower prices for LDCs
But: LDC policies have often neglected
agriculture
Ag Liberalization for LDCs
(Negative protection, Pa/Pna )
Ag Non-ag E M
Urban na --
Ruralnon-ag ± ±
Ruralag + + +
Estimates of global welfare gains of removing
agricultural trade distortions world wide, in billion dollars.
Study Total as % of world GDP
IMF and World Bank, 2002 128 0,4World Bank, 2002, static scenario 248 0,8World Bank, 2002, dynamic scenario 587 1,9USDA/ERS, 2000, static scenario 31 0,1USDA/ERS, 2000, dynamic scenario 56 0,2Anderson, 1999 165 0,5Francois en LEI, 2002 109 0,4
EXAMPLE 1: MILK
In 1992 Jamaica produced 38 million liters
In 2002 just over 18 million
Imports of milk powder from EU multiplied
Why? EU support is $17 billion, or over $2 per cow per day
EXAMPLE 2: COTTON
USA has 25,000 cotton farmers
Support is $3,5 billion (more than US aid to Africa)
Depresses world prices by one-quarter
Affects 10 million people in West Africa
WHY LIBERALIZE?
International trade distortions and welfare losses
Effectiveness domestic interventions questioned
Market and government failures
IMPACT STRUCTURAL ADJUSTMENT
AND TRADE LIBERALIZATION MODEST:
Supply response
Weak institutions and regulatory framework
Partial nature reforms
THE BEAT GOES ON:
Traditional trade barriers continue to fall
Other trade impediments become visible, like rocks in an ebbing tide (Tim Josling)
RISING TECHNICAL STANDARDS FOR
PRODUCTS AND PROCESSES:
Changing consumer preferences
Product differentiation
Increasing credence attributes
DIFFERENTIAL RESPONSE IN LDCs
Public sector ill-prepared Large-scale agri-business acts as standard-
setter in monopolist fashion Medium-scale firms standard-takers and
lobby for government support Smaller firms and farms risk exclusion and
continued poverty Public ag research system needs reform and
conversion
IMPLICATIONS FOR PUBLIC AG RESEARCH
National ag research and extension systems are traditionally supply-driven: higher yields, more food, better seeds and agronomic practices
Transition needed towards demand-driven with emphasis on diversification, consumer, food safety standards, niche markets
Chain reversal implications; decentralization, participation
Transition more difficult for small landholders in often less-favoured areas
CONCLUSIONS
Do not deny the freedom to set private technical standards, but
Only endorse public minimum standards in combination with labeling
Important role for joint assistance of development agencies and professional bodies to strengthen LDC institutions