Agricultural Trade Reform: Opportunities and Challenges for Developing Countries

1. Agricultural Trade Reform: Opportunities and Challenges for Developing Countries Kimberly A. Elliott Center for Global Development Institute for International Economics Washington, DC September 2006

2. Trade policy changes in rich countries create opportunities for increased market access • But they do not guarantee that opportunities will be effectively exploited by developing countries, or poor farmers within them • That is why aid-for-trade is an important part of the debate

3. Agricultural liberalization in industrialized countries would tend to lower domestic prices and raise world prices. • That is good for farmers in developing countries if: • they are net sellers of food • and the price change reaches them • and they can get their goods to markets.

4. Trade liberalization could be bad for some farmers in developing countries in the short run if: • they have preferential access to markets where they can sell at above-world prices • or they are net buyers of food.

5. But, under realistic scenarios for Doha Round outcomes, these challenges unlikely to be as serious as feared: • Limited number of countries • Limited number of commodities (sugar, bananas) • Limited Doha outcome will mean small effects on ag. prices—for both good and ill

6. World price effects of moving to global free trade Source: World Bank.

7. In the longer run: • more competitive suppliers can capture additional market share; • net buyers, importers might respond to higher prices by increasing production or switching products.

10. And, the benefits can be increased by adopting complementary policies that address supply-side constraints • Zambia cotton case: • producer gains from higher export price, 1%  9% with extension services; • subsistence farm incomes increase by 1/3 from switching to cotton + above.

11. Complementary policies continued Mexico rural poverty case: Income gains in remote southern region rise from –0.1% in base Doha scenario to 0.4% if improvements in price transmission achieved, nearly 1% for rural very poor. China rural poverty case: # of poor falls 1.3% in Doha scenario, 13.4% if combined with increased resources for rural education (switching sectors).

12. Aid for Trade Needs in Agriculture • Roads, ports, and other transportation infrastructure • Telecommunications, credit markets, other backbone services (incl., liberalization by developing countries in Doha) • R&D, extension services, irrigation to raise productivity

13. Challenges and Opportunities from Standards • Public standards to protect plant, animal, and human health and safety • Private Standards • Spread of Supermarkets, even in relatively poor countries and increasingly in rural areas • Fair trade, organic, other niche markets

14. Responding to standards challenges • Challenge egregious uses of SPS for protectionist purposes in WTO • But challenges often not useful because of political sensitivities, reputational effects for suppliers • Not helpful with private standards Certification often as costly, difficult as compliance, especially for small producers