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 trade 2. Agricultural policies in OECD countries 3. Impact on LDCs 4. What happens under liberalization? 5. How are LDCs affected? 6. Agricultural policies in LDCs 7. 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 )

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, ,4 World Bank, 2002, static scenario 2480,8 World Bank, 2002, dynamic scenario 5871,9 USDA/ERS, 2000, static scenario 310,1 USDA/ERS, 2000, dynamic scenario 560,2 Anderson, ,5 Francois en LEI, ,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