Agricultural trade reform offers benefits, but the poor could
be left behind.
Only days ahead of next week’s make-or-break World Trade
Organization meeting in Hong Kong, where a final push will be made
to reach an agreement to liberalize agricultural trade, the FAO
today warned that the benefits of trade reform may not reach the
poor unless urgent complementary policies and investments are made.
The State of Food and Agriculture 2005 (SOFA
2005) examines agricultural
trade and poverty, seeking to answer the question: Can trade work
for the poor?
According to SOFA 2005, the answer is yes, but trade liberalization
alone is not enough. Policies and investments must be put in place
to allow the poor to benefit from trade opportunities and to protect
the vulnerable against trade-related shocks. “Agricultural
trade and further trade liberalization can unlock the potential
of the agriculture sector to promote pro-poor growth, but these
benefits are not guaranteed.”
Who wins and who loses in trade reform
The FAO report says that industrial countries have the most to
gain from agriculture trade liberalization, because their agriculture
sectors are the most distorted by existing policies. “Consumers
in currently protected markets and producers in countries with
low levels of domestic support would tend to gain the most.”
Developing countries as a whole would also benefit from liberalization,
but SOFA 2005 warns that some groups could be hurt in the short
run. Those groups include net food importing countries and countries
that have been given preferential access to the highly protected
markets of wealthier member countries of the Organization for Economic
Cooperation and Development (OECD).
While acknowledging that OECD subsidies help net food importing
countries keep their food import bills down, Hartwig de Haen, FAO
Assistant Director-General, Economic and Social Department, said, “OECD
subsidies to agriculture send incorrect signals to these countries
leading them to neglect their own agriculture.”
For developing countries as a whole the greatest potential gains
from agricultural liberalization will depend not on reform of the
agriculture support system in OECD countries but on reforming their
own trade policies, which would encourage greater trade between
them. Between 70 and 85 percent of the potential benefits for developing
countries would derive from their own reform policies in agriculture.
Trade liberalization can raise incomes for the poor
SOFA 2005 says that the benefits of trade liberalization go well
beyond the immediate impact on producers and consumers because
the reforms would contribute significantly to economic growth and
to raising the wages of unskilled workers in developing countries.
Trade can be a catalyst for change, promoting conditions that enable
the poor to raise their incomes and live longer, healthier and
more productive lives.
Because most of the world’s poor and food insecure people
live in rural areas and depend on agriculture for their livelihoods,
SOFA 2005 argues that a growing agricultural sector is crucial
for sustainable poverty reduction. “Trade reforms that stimulate
agricultural production often lead to a general increase in unskilled
wages.” The report calls for policies that enable the poor
to take advantage of their most valuable asset: their own labor.
But, the report warns, the poor often survive on so little that
they are particularly vulnerable during any reform process, especially
in the short term while productive sectors and labor markets are
The FAO report has a number of recommendations to ensure that
liberalization supports pro-poor outcomes.
It calls for basic market institutions and infrastructure to be
set up before opening national agricultural markets to international
competition, especially from subsidized competitors. The report
recommends consistent and sustained policies to provide “appropriate
signals for pro-poor, pro-growth outcomes” and warns that “stop-and-go
reforms” are particularly damaging.
To ensure that the poor benefit from trade, SOFA 2005 urges a
twin-track approach that would on the one hand invest in educating
people, building institutions and infrastructure and on the other
provide safety nets to protect the most vulnerable people in society
during the transition to freer trade.
Case studies cited by the FAO report show that reforms can help
reduce hunger and poverty if they are designed and implemented
within an explicit pro-poor strategy. The studies also show a clear
need to provide carefully targeted investments and transitional
compensatory measures for the poor during the early stages of trade
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