AGRICULTURAL TRADE TASK FORCE
This document is a compilation by the World Economic Forum of supporting notes and references to relevant publications in order to provide additional background information on the issues covered in the Agricultural Trade Task Force Communiqué.
Working towards the Alleviation of Poverty and Hunger
Goals Set for the Alleviation of Poverty and Hunger
The World Bank estimates that 1.2 billion people (22% of the world's population) currently live on less than US$1 per day.1 In the richest 20 countries of the world the average income is 37 times the average in the poorest countries and this gap has doubled in the past 40 years.2 At the UN Millennium Summit of September 2000, more than 150 world leaders were signatories to a commitment to cut in half the proportion of people living on less than US$1 a day by the year 2015.3 At the World Food Summit in 1996, representatives of 185 nations and the European Community pledged to work towards eradicating hunger, setting a first target of reducing the number of undernourished people by half by 2015.4 According to the World Bank, progress has been made in reversing the long-term trend of increased poverty in the world since 1980.5 However, Food and Agriculture Organization of the United Nations (FAO) data indicates that although the number of undernourished is falling at an average rate of 6 million each year, it is far below the 22 million per year needed from now on to reach the World Food Summit target.6
The Potential Role of Agriculture and Trade in Alleviating Poverty and Hunger
Agriculture employs over 65% of the labour force in low-income countries, compared to 28% in middle-income countries and only 5% in high-income countries.7 Between 1995 and 1998, the contribution of agriculture as a proportion of GDP was an average of 36% for the least developed countries as compared to 8% for upper middle-income countries, and only 2% for the high-income countries of the OECD.8 Seventy percent of the world's extremely poor and food insecure people live in rural areas, and 85% of their rural populations are engaged in agriculture.9 The FAO report cited agriculture as the predominant economic activity in rural areas and as being crucial in the eradication of poverty and food insecurity.
Recent studies by the World Bank and others recommend that trade negotiations ensure that the world's poorest countries and poorest people will benefit from liberalized trade, if a new wave of global prosperity is to be realized.10 11 12
A report by Oxfam agrees that trade has the potential to make a substantial contribution to poverty reduction; after all, it helped to lift more than 370 million people out of poverty in East Asia. However, Oxfam is concerned that developed nations have enjoyed a disproportionate share of the benefits of trade, while developing countries have not yet seen substantial benefits. The world's major trading powers (the USA, the EU, Japan and Canada) currently account for around 60% of world trade, whereas the 49 least-developed countries account for a tiny and declining share of less than 0.5%.13 The Coopération Internationale pour le Développement et la Solidarité (CIDSE) has called for the achievement of the 2015 poverty reduction target to be an explicit objective in the work of the WTO.14
Equitable Trade Policies
Market Distorting Trade Policies Continue to be Widespread
The OECD estimates1 that, in 2000, total support to agriculture by member countries amounted to US$ 327 billion15 (90% of it in the EU, Japan and US16). This is 1.3% of OECD member countries' total GDP. OECD defines the Total Support Estimate17 (TSE) to agriculture, which includes various direct and indirect assistance, as market price support, producer income support, general services support (education and training, inspection, infrastructure development), and consumer support. This figure of US$ 327 billion in agricultural support dwarfs the total amount of agricultural exports from developing countries, at US$ 170 billion,18 and, according to the World Bank, is more than six times all development assistance.19
The OECD's Producer Support Estimate (PSE), which measures gross transfers from consumers and taxpayers to support agricultural producers in OECD countries, was US$ 246 billion in 2000. Within this, the European Union was the biggest spender on producer support at US$ 90 billion (38% of farm receipts), followed by Japan at US$ 60 billion (64% of farm receipts) and the United States at US$ 49 billion (22% of farm receipts).
The OECD has calculated that producer support within the OECD as a whole has fallen from 39% of total farm receipts (% PSE) in 1986 to 34% in 2000, and total support (%TSE) from 2.2% to 1.3% of GDP. The difference between the TSE and the PSE is mostly due to government expenditures in research, extension, infrastructure, education and training, and other government services. However, trade measures remain the most important form of support to agriculture. According to the OECD, the prevalence of non-tariff measures, such as stringent regulations on imports regarding food safety, labelling and sustainable agricultural practices, have proved to be formidable barriers to trade. For example, 50% of exports from India to the EU in 1999 were subject to non-tariff measures, while 25% were subject to two or more measures.20
The Uruguay Round developed a broad framework for reducing trade-distorting policies in agriculture but, according to the World Bank, there were limitations on the aggregate reductions in domestic support, export subsidies and tariffs and the implementation of these reductions. For example, according to the OECD, the average global tariff on agricultural products is still 62%, compared with an average tariff on non-agricultural products of just 4%.21 The new trade round agreed at Doha will include agriculture negotiations on "improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support". At the EU's insistence, this commitment is made "without prejudice to the outcome of the negotiations".22
Benefit of Eliminating Market-Distorting Trade Policies
According to the World Bank, assuming fixed productivity, the elimination of all forms of agricultural protection globally would result in a total income gain of nearly US$ 250 billion in 2015 (the estimation does not include additional gains that would be realized through the elimination of non-trade barriers). Nearly US$ 150 billion of this gain would accrue to low- and middle-income countries.23
As an example, research conducted by the Australian Bureau of Agricultural and Resource Economics (ABARE) found that full liberalization of trade in sugar would increase the world price by 40% and that the majority of the benefits in terms of increased trade revenue would be realized by sugar-exporting developing countries. The benefits to consumers in developed markets who currently pay extremely high sugar prices would accrue as follows: US$ 3 billion in the United States, US$ 2 billion in Europe, and US$ 1 billion in Japan. 24
Experiences of Developing Countries
The World Bank has found that developing countries have generally shared in some of the benefits of trade liberalization in manufacturing, but that this is not the case overall in the agricultural sector. Developing countries accounted for 27% of world exports of manufacturing in 2000, a remarkable increase from their 17% share in 1990.25 However, between 1986 and 1997, their share of world agricultural exports decreased from 46% to 42% (excluding intra-EU trade).26 Of all the developing country regions, only East Asia and the Pacific increased their market share of world agricultural exports. Africa, in particular, decreased from 8.6% in 1961 to 3% in 1996.27
Consumers International has found that developing country national experiences of trade liberalization have been mixed. Their research shows that removing or lowering barriers to trade alone cannot alleviate poverty, and that liberalized trade has not always worked to the net benefit of consumers, particularly consumers who are poor or live in rural areas. A recent Consumers International publication utilizes several case studies to advocate policies that open developed country markets to food exports from developing countries, encourage fair competition in the global market, and make technical assistance available to developing countries.28
World Bank reports show that increased openness to international markets could result in deterioration in the incomes of the poorest 40% in society, at least in the short term, as a result of the greater vulnerability of poor people to external economic shocks.29 30 A recent Oxfam report offers a similar conclusion regarding the benefits of expanding opportunities for international agricultural trade in developing countries.31 Since the Uruguay Round Agreement on Agriculture came into force in 1995 developing countries have only slightly increased their share of agricultural exports.
Stronger Producers in Developing Countries
Investment Flows into Developing Countries
The Doha Ministerial Declaration confirms that technical cooperation and capacity building are core elements of the development dimension of the multilateral trading system.32
According to the World Bank, annual private foreign investment in developing countries has increased 10-fold in the last 20 years, to just over US$ 200 billion. Twenty years ago, capital flows from the World Bank and other multilateral institutions were about the same amount as those from companies. Today, private investments are four times as large as capital flows from multilateral institutions and increasing. However, this is equivalent to only around 0.5% of the industrialized world's equity and bond markets. Uneven distribution compounds the problem - 12 major developing countries take 75% of the capital, and 140 developing countries (including the poorest ones) share just 5%.33 In addition, according to the FAO, very little of this money has been invested in agricultural sectors. The FAO found that the level of investment from the private sector in developing countries depends substantially on the economic climate in those countries. In this regard, public investment is an indispensable pre-condition and catalyst for and complement to private investment, involving basically investment in research and infrastructure.34
The World Bank characterizes a healthy investment climate as one that has the necessary regulatory framework for starting up firms and expanding production, quality supporting infrastructure (including financial services, power, transport and communications), and overall economic governance (such as contract enforcement, fair taxation and control of corruption). Overall, the bank's report found that these factors contribute substantially to the level of foreign investment in developing economies.35
Despite a commitment made by developed nations to commit 0.7% of their GDP to development assistance,36 Official Development Assistance (ODA) for agriculture has been steadily declining since the late 1980s, amounting to only US$ 11 billion between 1995-97, compared to nearly US$ 13 billion in 1986-1988.37 Total ODA to developing countries in 2000 was US$ 53 billion,38 which is an average of 0.2% of global GDP.
After the Uruguay Round's Agreement on Agriculture, a new process for coordinating support for developing countries, called the Integrated Framework, was developed. The WTO, UNCTAD and ITC Secretariats, in collaboration with the staff of the IMF, the World Bank and the UNDP, agreed to use the Integrated Framework for the provision of trade-related technical assistance, including human and institutional capacity-building, for supporting trade and trade-related activities of the least-developed countries. The framework also strives to enhance the programmes and finances for these countries by applying them on a case-by-case basis in order to meet the needs identified by individual least-developed countries in the area of trade.39 The Doha Ministerial Declaration endorses the Integrated Framework as a viable model for LDC's trade development.40
Investment Needs of Developing Countries
The FAO estimates that it would cost US$ 180 billion annually for the period up to 2015 to provide the total gross annual agricultural investment needed to achieve the 1996 World Food Summit target of halving the number of undernourished people in the world by 2015.41 Substantial investments are needed in rural communication infrastructure, irrigation improvements and modernization, better exploitation of rainfall by simple and improved water capture and use, land management and improvements, environmental conservation, education extension and research, and the provision of health services.42
Projections using the International Food Policy Research Institute's IMPACT global food supply, demand and trade model show that the number of malnourished children is expected to decline by only 21% from 166 million in 1997 to 132 million in 2020 under the baseline scenario that captures best estimates of future policies and investments. The required public investments in irrigation, rural roads, education, clean water provision and agricultural research under the baseline are estimated to be a total of US$ 579 billion, 1997-2020, equal to annual investments of US$ 25 billion (private investment in agriculture, which is included in the FAO estimate, is not included in these estimates). However, an alternative scenario shows that the number of malnourished children can be reduced to 94 million in 2020, which is a reduction of 43% compared to 1997, by increasing the total investments for 1997-2020 to US$ 802 billion, or US$ 35 billion annually. The IMPACT model also estimates that under full agricultural trade liberalization, including removal of all agricultural subsidies and trade barriers, the world as a whole will gain US$ 36 billion annually by 2020, of which the developing countries' share is 60%.43
Research conducted on behalf of the FAO found that education, as one of the main pillars of human development and a major factor in agricultural development, is an area in need of substantial investment. The research shows that primary education attainments and literacy, training in basic skills and extension services have an immediate and positive impact on farmers' productivity. A farmer with four years of elementary education is, on average, 8.7% more productive than one with no education. Moreover, the better he/she is educated, the more he/she stands to gain in income from the use of new technologies and the more rapidly he/she adjusts to technological changes.44
Recent International Food Policy Research Institute (IFPRI) studies about the impact of different types of government investment on rural poverty alleviation and agricultural growth in China and India show that investing in roads, R&D and education generate the largest positive outcomes. For instance, in India 30,000 dollars of additional investments in each of these three areas will permanently lift about 250 people above the poverty line.45
The World Bank has given institution building, especially with respect to meeting food safety requirements, a high priority. A recent report encouraged developing countries to make investments in food safety institutions and their capacity because they can play an important role in improving living standards through advances in domestic public health, agricultural production and export markets. In most developing countries, less than 20% of the agricultural output undergoes industrial processing compared with 80% or more in developed countries.46 The report also stated that investment is needed to establish regulatory systems and technology, build institutions and train staff in food safety as well as in international negotiations. The World Bank called for approaches that facilitate the activity of the private sector and consider regional cooperation to combine resources.47
According to the FAO, country experiences show that for agricultural growth to occur, a number of factors need to be in place which address the "handicap" of the rural sector in terms of infrastructure, social services, technology, marketing infrastructure and seasonal credit availability, along with the building of an appropriate institutional environment. There is no unique policy prescription that fits the diversity of the agricultural sector in the least developed countries. Therefore, while enhancing productivity is a common essential requirement, the nature of the increase in productivity envisaged will determine the appropriate policy mix.48
The recent World Bank Global Economic Prospects report cited a framework for developing countries' local policies. Some of the recommendations in the report are as follows:
• Adopt companion policies to cushion any impact on the poor of adjustment to new trade incentives, and ensure investment responses;
The International Fund for Agricultural Development (IFAD) states that appropriately designed land reform measures can significantly boost food production and rural incomes. Small farms employ more people per hectare than the larger units, often to the benefit of the landless and unemployed. And owning land means that family farmers often secure the bank credit that was previously denied them. The IFAD gives the example of El Salvador where a 10% rise in land ownership has boosted income by 4% per person, and India, where the states where poverty has fallen the fastest are those that have implemented land reforms. Most notably, land reforms in China between 1977and 1985 shifted production from large to small units, which brought about a substantial increase in farm output and lifted millions of poor rural families out of poverty.50
IFPRI argues that effective domestic policies in developing countries for growth, poverty alleviation and food security should include maintaining a stable macroeconomic framework; promoting open and competitive markets; ensuring good governance, transparency and the rule of law; implementing programmes and investments that expand opportunities for all, with special consideration for vulnerable groups; and providing adequate safety nets. Because three-quarters of the world's poor depend directly or indirectly on agriculture, rural development has to be given special attention. This requires eliminating policy biases against agriculture; increasing investments in health, education and human capital in general; improving the management of land and water resources; facilitating land ownership by small producers and landless workers; promoting improved agricultural technology, rural infrastructure and nonagricultural rural enterprises; and encouraging organizations to expand the social capital and political participation for small producers and the poor. Food security in developing countries also requires equitable economic growth and appropriate food use, which depend on the empowerment of women, health and education investments, and better governance.51
Transitional Assistance to Mitigate Food Cost Increases
According to the OECD, the elimination of US$ 327 billion in agricultural supports from member countries in 2000 would cause a 12% increase in agricultural prices.52 It will therefore be necessary to help offset increases in the food bills of poor countries due to these price rises, particularly low-income food importing countries.
The Marrakech Ministerial Decision, signed in 1994, was intended to provide mechanisms for alleviating the negative effects of price spikes caused by the Uruguay Round's Agreement on Agriculture on Least-Developed Countries (LDCs) and the Net Food-Importing Developing Countries (NFIDCs).53 To assist such countries during the transition to liberalization, the decision called for four response mechanisms: food aid, the short-term financing of normal levels of commercial food imports during price spikes, favourable terms on agricultural export credits, and technical and financial assistance to improve agricultural productivity and infrastructure.54
IFPRI research has recommended a welfare-enhancing approach of proceeding with the liberalization of markets in rich countries, along with cash grants or other financial schemes to compensate poor countries for higher prices and lost preferences.55
Consideration of Social Concerns
The Doha Ministerial Declaration reaffirmed that provisions for special and differential treatment are an integral part of the WTO agreements, and agreed that all special and differential treatment provisions shall be reviewed with a view to strengthening them and making them more precise, effective and operational.56
At the World Food Summit in 1996, the FAO defined food security as a situation where "all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life".57 According to the FAO, policies that raise incomes of the poor, accelerate agricultural productivity and food production and enhance the ability of the country to import food (by strengthening its export earning possibilities) are key for confronting food insecurity in many developing countries.58
Research by IFPRI has shown that food security has improved in general over the last four decades, but there are regions and countries at risk and some have become more food insecure. Average food availability is still low for regions such as Sub-Saharan Africa and the incidence of malnutrition is very high in Sub-Saharan Africa and South Asia. For the least developed countries, the total food bill has remained high at 20% and several developing countries with large external debts face additional constraints in financing their food imports.59 IFPRI suggests defining clear categories of food insecure countries and proposes different possible changes in the Agreement in Agriculture to take into account food security concerns for those countries.60
A proposal for a "Development Box" by South Centre and CAFOD seeks to address developing countries' concerns regarding food security and the preservation of rural livelihoods. Its objectives are:
1. To protect LI/RP farmers, who are often engaged in subsistence farming of food security
The proposal does not include support for agricultural exports.61
1 The OECD Producer Support Estimate, although the most widely used framework for calculating certain aspects of market-distorting policies, is not the only framework available. For example, the US Department of Agriculture, the World Bank and the World Trade Organization also have models for estimating the value of agricultural supports.
The equitable reform of global agricultural trade can make a substantial contribution to the alleviation of poverty in the developing world. This reform must be simultaneous with efforts to build viable and sustainable agricultural systems in developing countries. The Task Force endorses the commitment made by world leaders at the UN Millennium Summit and the 1996 World Food Summit to cut absolute poverty and hunger in half by 2015, and feels that trade reform should be explicitly linked to this goal. In 2000, total OECD countries' support to agriculture amounted to US$ 327 billion, most of which is considered to have a trade-distorting effect. The allocation of resources towards appropriate agricultural policies and investments could make a significant contribution to alleviating the plight of the 1.2 billion people in the world who live on less than US$ 1 a day. Particular attention should be paid to the following principles:
Equitable Trade Policies
Stronger Producers in Developing Countries
Consideration of Social Concerns
Trade is a means to an end, not an end in itself, and putting an end to hunger and poverty is perhaps the greatest challenge of the 21st century. A fair trading system, coherent international and national policies and targeted investment are all required if the world is to feed all its people. Trade reform which furthers this goal is both possible and of the utmost priority.
It is incumbent upon companies, donor and local governments, and non-governmental agencies alike to evaluate their own practices and engage in a constructive agricultural trade reform and capacity-building process based on partnership, shared goals and mutual respect. If we are to improve the state of the world, reducing poverty is a responsibility we all share equally.
The following organizations participated in the process of dialogue of the Agricultural Trade Task Force and/or support the communiqué of recommendations:
9 Agriculture Trade and Food Security: Issues and Options in the WTO Negotiations from the Perspective of Developing Countries, FAO, 1999, and Farming System and Poverty: Improving farmers' Livelihood in a Changing world, FAO and World Bank, 2001.
37 The Role of Agriculture in the Development of LDCs and their Integration into the World Economy, a paper prepared by FAO for the Third United Nations Conference on LDCs, Thematic Session on Enhancing Productive Capacity: The Agriculture Sector and Food Security, Brussels, May 2001.
44 The Role of Agriculture in the Development of LDCs and their Integration into the World Economy, , a paper prepared by FAO for the Third United Nations Conference on LDCs Thematic Session on Enhancing Productive Capacity: The Agriculture Sector and Food Security, Brussels, May 2001.
48 The Role of Agriculture in the Development of LDCs and their Integration into the World Economy, a paper prepared by FAO for the Third United Nations Conference on LDCs Thematic Session on Enhancing Productive Capacity: The Agriculture Sector and Food Security, Brussels, May 2001.
51 Shaping Globalization for Poverty Alleviation and Food Security, 2020 Focus 8, edited by Eugenio Diaz-Bonilla and Sherman Robinson, IFPRI, August 2001; The Road Half Travelled; Agricultural Market Reform in Sub-Saharan Africa, IFPRI Policy Report, by Mylène Kherallah, Christopher Delgado, Eleni Gabre-Madhin, Nicholas Minot, and Michael Johnson, IFPRI, 2000; Explaining Child Malnutrition in Developing Countries: A Cross-Country Analysis, by Lisa C. Smith and Lawrence Haddad, Research Report 111, IFRPI, March 2000.
53Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts, WTO, 1995.