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