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| | « The false promises of agricultural trade liberalization »
By Mamerto Pérez, Sergio Schlesinger and Timothy A. Wise (Tufts University)
Washington Office on Latin America 1
South America is one of the regions of the world that was heavily targeted by the structural adjustment programs implemented in the 1980s by international institutions. The agricultural sector was no exception to the rule, leading to a major increase in the trade of agricultural commodities in these regions. So much so that some of these countries have become net exporters of agricultural products. But have these policies led to homogenous, balanced and sustainable rural development?
This question was posed by the Washington Office on Latin America (WOLA) in partnership with Tufts University, and based on reports from a number of American and South American economists and researchers. The study2, coordinated by Mamerto Pérez (Bolivia), Sergio Schlesinger (Brazil) and Timothy A. Wise (USA), was published in June 2008 and presented to the WTO Public Forum on 30th September this year. It demonstrates that the alleged benefits of unregulated agricultural trade liberalization are overestimated and the risks to small farmers, very real. So much so that the conclusion is clear: it is absolutely necessary to give governments, particularly in developing countries, the right to regulate imports and exports to protect their population and resources.
We recommend that you read this report (below is an extract), because the authors highlight the mistakes and wrong beliefs that have justified and still justify agricultural trade liberalization.
PFM
Abstract from the report « The Promise and the Perils of Agricultural Trade Liberalization – Lessons from Latin America », Washington Office on Latin America
The False Promise of Export Agriculture
There are a number of reasons export agriculture holds less promise than free-trade proponents suggest. First, despite the repeated assertions that developing countries hold a comparative advantage in agriculture, it is the rich countries that dominate world agricultural markets. With the exception of tropical commodities such as coffee and bananas, they hold a large and in many cases rising share of global agricultural commodity markets. Developed countries in 2005 controlled two-thirds or more of exports of maize, wheat, barley, and cotton. Among the most traded non-tropical agricultural commodities, only rice, sugar, and oilseeds showed developing countries as a group with a majority share of export markets3. And rich countries control the entire value chain in most agricultural commodities, from patented seeds, agro-chemicals, machinery, and credit to trade itself, even in the case of many commodities exported from developing countries.
Second, not all developing countries are equal in the world of international agricultural trade. To compete in global commodities markets, countries need a relatively high level of industrial development and infrastructure. It is not surprising, then, that only a few countries have shown the ability to compete internationally. Parts of the former Soviet Union can compete in temperate grains, and China competes in global maize markets (though its own growing consumption of animal feed and its depleted environment limit its production and export potential).
But the two countries that dominate developing country agricultural trade are Brazil and Argentina. Both have vast tracts of rich land suitable for industrial agriculture. Both have achieved levels of development that give them the infrastructure and capital to compete internationally. Brazil has emerged or is poised to emerge as an export power in soybeans, sugar, coffee, oranges, meats, tobacco, and ethanol. Argentina has established a strong and growing market presence in soybean products and maize. When the World Bank and other international agencies speak of Latin America as a region showing gains from trade liberalization, they are overwhelmingly speaking of Brazil and Argentina.
As Timothy A. Wise shows in his overview for this project, if one separates out Brazil, Argentina, China, and the former Soviet Union in analyzing the developing world’s export potential in agriculture, the rest of the developing world has demonstrated little capacity to compete in major agricultural markets. While this is not necessarily the result of liberalization, Wise shows that besides these few (but important) countries or regions, from 1995-2005 developing countries gained little in the way of global market share.
Among the highest value agricultural commodities, developing countries as a group have lost market share in cotton and rice. The former Soviet Union accounts for 10 of the 13 percentage points in market share gained by the developing world in wheat, and 16 of 20 percentage points in barley. In sugar, Brazil captured 11 of the 14 percentage points gained by developing countries between 1995 and 2005. China (10) and Argentina (6) gained most of developed world’s 24 points in lost market share in maize. In oilseeds, the commodity group in which developing countries have made the strongest gains, Brazil gained 19 percentage points and Argentina four (see table). Oilseeds: Top 10 Exporting Countries by Export Share, 2005
These are important shifts in global competitiveness, but they do not suggest that the remaining developing countries are in a good position to compete internationally in the most heavily traded agricultural commodities. Now, they have to compete not only with industrialized Northern agriculture but with industrialized Southern agricultural powers.
Limited Impacts of Northern Liberalization
Another reason the promise of export agriculture is overstated for most countries is that the impacts of reforms to Northern agricultural policies are quite limited. As economic models of the Doha Round have shown, the kinds of reforms on the table in WTO negotiations are projected to generate limited production and price impacts for most commodities. One study showed price increases of more than 3.1% for only three commodities following a Doha agreement: cotton, rice, and oilseeds4. Thus developing countries are unlikely to gain higher prices for their agricultural products as a result of direct or indirect tariff or subsidy reductions in Northern countries.
Where liberalization does raise world prices, smallholders are unlikely to benefit. The World Bank’s new report, in fact, notes that the transmission of world prices to local producers is “very imperfect,” such that any benefits from higher world prices due to Northern policy reform will be limited. “So the overall effect of trade policy reform on farm incomes of staple food producers in the poorer developing countries is likely to be small.”5
Why would rich country agricultural reforms generate so little impact? As Wise shows, agricultural markets adjust to liberalization measures, be they tariff reductions in the European Union and Japan or reduced farm subsidies in the United States. Where supported production in the global North declines in response to reforms, production in other parts of the world increases. New land is brought into production. Yields continue to rise with technological advancement. And in a matter of a few short years the production and price impacts of liberalization have vanished, leaving prices back where they were before the reforms.
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The Perils of Liberalization for Family Farmers
If the promises of agricultural trade liberalization are exaggerated, the perils are very real. As case after case has shown, in a global market in which rich countries or a select few advanced developing countries dominate, liberalization leads to a flood of cheap imports, which undermine domestic producers previously protected by tariffs or other government supports. Employment in expanding sectors of the domestic economy generally does not grow fast enough to absorb new entrants into the workforce, never mind those displaced from traditional agriculture. The result is often a decline in livelihoods for the rural poor, a decrease in food security, and a rise in food dependency for the nation as a whole. Poor urban consumers may benefit from lower food prices, but it is doubtful that there is a net benefit to the nation from this trade-off.
Of course, displacing small-scale producers from the land is precisely the goal of this economic model. Smallholders are seen as hopelessly inefficient, and trade liberalization is intended to force inefficient farmers into more productive work. Often lost in the market calculations of efficiency, though, are the market failures that plague the sector. Smallholders are being asked to compete with low-priced imports from countries that not only subsidize their agricultural sectors but also offer adequate infrastructure, functioning credit markets, strong histories of research in applicable technologies, and the agricultural extension services to help farmers raise productivity. Smallholders in most of Latin America share few of these benefits. As U.N. researchers have noted, “free market rules in a context of highly concentrated property and imperfect and missing markets [lead] to the marginalization of otherwise perfectly viable enterprises”.6
Trade liberalization globalizes not only markets, it globalizes market failure. Bringing smallholders in Latin America into unmediated competition with subsidized and supported industrialized farm products from the global North places millions of productive farmers—and food-producers—at risk.
1 Le “Washington Office on Latin America” (WOLA) est une ONG nord-américaine qui cherche à promouvoir les droits de l’homme, la démocratie et la justice économique et sociale dans les pays d’Amérique latine.
2 The complete study is available at: http://ase.tufts.edu/gdae/WorkingGroupAgric.htm
3 United Nations (2007). COMTRADE, United Nations. Data in this section is based on COMTRADE.
4 Bouet, A., J.-C. Bureau, et al. (2004). Multilateral agricultural trade liberalization: the contrasting fortunes of developing countries in the Doha round, CEPII.
5 World Bank (2007). World Development Report 2008: Agriculture for Development. Washington, World Bank.
6 David, M.B., M. Dirven, et al. (2000). “The Impact of the New Economic Model on Latin America’s Agriculture.” World Development 28(9): 1673-1688. | |
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