Fair and free trade



It is often assumed that agricultural trade liberalization will benefit developing countries, but the regions that will benefit most, in the short term, from the GATT Agreement on Agriculture are among the richest in the world.

The present net surplus in the agricultural trade balance of developing countries is likely to decrease in the future.

Under the GATT Agreement on Agriculture, food prices will rise on the world markets. This will favour exporting countries but also offers importing countries an opportunity to reward their farmers and reduce imports.

The Uruguay Round of trade negotiations

The Uruguay Round of the General Agreement on Tariffs and Trade (GATT), concluded in December 1993, is the first to include the liberalization of agricultural trade. Its Agreement on Agriculture could cut tariffs by an average of 36 percent in developed countries and 24 percent in developing ones and reduce domestic support for producers by 20 percent and 13.3 percent respectively. Expenditure on export subsidies is to be cut by 36 percent. Developing countries have ten years in which to make the cuts, compared with six for developed countries; the least developed are not required to make any reductions at all.

Food prices will rise and this will, naturally, benefit exporters and hurt importing countries. But farmers in developing countries may also gain because subsidized exports from developed countries have undercut them, reducing production. For the same reason, the food security of developing countries should also improve. There should be some reduction in agricultural production in the developed countries and a slight rise in the developing ones, but the total world harvest will hardly be affected.

In all, the value of world agricultural trade is expected to rise by about 1 percent. Half of this will result from higher prices, half from increases in volume. The Agreement is likely to slow down the general decline in the growth rate of world trade seen since the 1980s - caused mainly by decreased imports by the main developed countries -but it seems unlikely to halt it.

In fact, the impact of the Agreement is expected to be comparatively small since it represents only partial liberalization. The cuts in support to agriculture, although impressive in absolute numbers of dollars, are relatively small and are spread over a number of years. Even after the changes have been completed, a large degree of distortion will remain in the market. The Agreement calls for the process of liberalization to continue with the long-term objective of "substantial progressive reductions in support and protection, resulting in fundamental reform " .

The regions that will benefit most from the Agreement on Agriculture are among the richest in the world, while many developing countries, particularly in Africa, are likely to lose from it.

The implications for individual countries of FAO's projections for agricultural commodity markets following the implementation of the Uruguay Round stem from changes in market prices, new opportunities for exports and the extent to which external markets may influence producers and consumers.

Exports of developed countries in the year 2000 would be some US$ 17 000 million higher as a result of the Agreement on Agriculture and those of developing countries would increase by some US$ 9 300 million. At the same time, imports of developed countries are projected to increase by about US$ 19 000 million compared with an increase of US$ 6 400 million for developing countries. The major beneficiaries are the great food exporting regions of North America, the Southwest Pacific and Latin America.

Developing countries will face considerable changes in world market conditions, and they will be hurt by a side-effect of liberalization: the erosion in the value of the preferences that industrialized countries give to produce from some developing countries. The agricultural preferences given by the European Union, Japan and the United States in 1992 were potentially worth US$ 1 900 million; this is expected to fall by nearly half (US$ 800 million) as a result of the Uruguay Round. Many of the recipients of such preferential schemes are among the poorest developing countries.

Most African countries tend to be importers of food, particularly wheat, rice and dairy products, and exporters of tropical products such as cocoa, coffee and fruit and some agricultural raw materials. Twenty-eight of them are among the least developed and 44 are among the low-income food-deficit countries. The increases in the price of food from temperate areas as a result of the Agreement are likely to cause a substantial rise in their import bills; the value of their exports would also rise but not by so much. Estimates suggest that their US$ 1 000 million export surplus in all agricultural commodities in 1987-89 will become a deficit of US$ 500 million in the year 2000, partly as a result of the Uruguay Round.

Most African countries could well have to give greater weight to a strategy that increases food production and promotes diversification in their export crops. The rise in world prices and decrease in export subsidies offers them an opportunity to reward their farmers better in order to encourage greater production.

Much of Asia is largely self-sufficient in food and its agricultural exports are expected to increase as a result of the Agreement. In Latin America and the Caribbean a rise in agricultural export earnings is expected to outweigh greatly the increase in the cost of food imports, so that the region's favourable balance of trade should rise from US$ 20 000 million in l 987-89 to US$ 32 000 million in the year 2000: US$ 2 400 million of this estimated increase is ascribed to the Uruguay Round.


Probable evolution of net agricultural trade balance


Net balance (US$ million) 1988/90

Likely changes 1988/90-2010 (percent)


Net balance (US$ million) 1988/90

Likely changes 1988/90-2010 (percent)

Coffee +7 544 +24 Pulses -194 +100 or more
Oilseeds, vegetable oils, oil-meals +3 640 +50 Cotton, excl. cotton textiles -265 increase, probably large
Sugar +3 244 decline Animal fats -689 increase
Rubber +2 924 +35 Wool, excl. wool textiles -917 increase, probably large
Cocoa +2 211 +24
Citrus +1 659 +10-20 Beverages (mostly alcoholic) -952 increase
Bananas +1 927 +33
Other fruit +1 989 +100-150 Meat, eggs -1 137 +100 or more
Vegetables +1 756 +50-70 Hides and skins, excl. leather products -1 547 increase, probably large
Tea +1 055 +20
Spices +570 modest increase Dairy products -5 348 +55
Cassava/other roots +899 -40 Cereals -15 962 +80
Vegetable fibres, excl. cotton +91 0 or decline      
Tobacco +8 0      
Other products (unspecified) +2 498        
Sub-total +32 015 Sub-total -27 011

NET BALANCE = +5 004