Developing countries are especially vulnerable to food import surges and volatility in global commodities markets for a number of structural reasons. Farmers have few sources of credit to buy tools and seeds. Levels of government support are low. Infrastructure for irrigating, processing harvests or getting food to market is inadequate or financially out of reach.

Reliance on the production of single crops enhances vulnerability to price drops, disease or bad weather. War and social strife can handicap or halt production -- in Africa, AIDS is having a similar impact. When subsidies to agriculture in the developed world are factored in alongside these challenges, it is not surprising that the developing world struggles to compete globally.

Poor countries have long insisted that they need policy mechanisms that would let them protect themselves from distortions in the world marketplace. At issue, they say, is not simply protecting a vulnerable agriculture sector from competition; protection is necessary to overcome traditional structural challenges affecting the developing world, as well as to protect large rural populations that depend on agriculture for survival.

There are defence measures in the current WTO framework designed to address price fluctuations, problems faced when opening markets, and unfair trade practices. Special agricultural safeguard provisions allow an importer to increase tariffs above agreed-upon levels in the face of sudden import surges or drops in import prices. However, these are available only to countries converting non-tariff barriers to imports (such as quotas) over to tariffs and don't apply to most developing countries. Others involve complicated appeals processes that surpass the institutional, legal and financial capacity of smaller governments, effectively removing them as an option.

"Developing countries need access to simpler-to-use safeguards," says Harmon Thomas, chief of FAO's Commodity Policy and Projections Service. "These could be enhanced further through some measures for technical, financial and legal assistance to strengthen the institutional capability of developing countries to use the more general safeguards."

Strengthening agriculture in the developing world
One way to strengthen agriculture in the developing world is for farmers there to add value to primary commodities by processing them prior to export -- for example, a cooperative in Guatemala could earn more selling roasted coffee instead of raw beans. However, the practice by some countries of tariff escalation -- establishing duties that get steeper the more an import is processed -- continues to handicap the ability of developing countries to export high-value processed products.

FAO estimates that trade in processed agricultural products totals some US$235 billion annually -- accounting for more than 60 percent of total world agriculture trade. Developing countries, however, remain largely dependent on unprocessed agricultural exports. According to Thomas, while exports of processed agricultural production grew at 6 percent annually between 1981 and 2000, the share of developing countries in this trade decreased during that same period. Coffee provides an example: the trade share of the top ten coffee-exporting developing countries in global roasted coffee fell from 7 to 2 percent over the course of the 1990s, FAO studies show.

"The existence of tariff escalation is one of the major factors that hinder export growth and diversification into the market for processed agriculture products," Thomas observes. "Another factor is the lacking market infrastructure in poor countries." According to recent FAO analysis, he adds, significant tariff escalation exists in 12 out of 17 major commodity chains, mostly at the first stage of processing.

Another hurdle to diversification of agriculture in the developing world is declining rates of investment in the sector. According to FAO figures, annual agriculture investment needs in the developing world run around US$180 billion. Yet actual investments are significantly lower. Moreover, since the 1980s development assistance to agriculture has shrunk by 50 percent in real terms.

September 2003

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