Agriculture and the WTO
Duncan Green, Head of Research, Oxfam
Oliver Morrissey, Professor of Development Economics, University of Nottingham
Dirk Willem te Velde, Research Fellow, Overseas Development Institute
Morrissey continued by explaining that there were important distinctions within the WTO on liberalisation, with developed countries required to do more than developing countries and the least developed countries not required to do anything. He explained that the Doha liberalisation scenario underlying the assessment comprised of three pillars- 1) Tariff Reductions, where developed countries were expected to reduce their tariffs by 36%, developing countries by 24% and least developed countries had no reductions; 2) Reduction of export support, where developed countries were expected to eliminate all forms of export support, developing countries by 50% and least developed had no reductions (typically they have no export support); 3) Reform of trade related domestic supports where developed countries were required to reduce their trade distorting domestic support by 60%. According to Morrisey, altering the scenario would not make much difference to the main assessments - although there might be differences in magnitude, the overall patterns of liberalisation would be similar.
He argued that the overall economic impact was likely to be positive and globally significant with the main impacts of liberalisation including a reduction of distortions, facilitation of an expansion of global trade and production, and encouragement of increased efficiency in the allocation of resources to agriculture. The overall gains would include increased volumes and efficiency of production, implying higher incomes and lower consumer prices in general. But he pointed out that the important fact to be noted here was that the countries that derived the least economic benefits from liberalisation in agriculture were those where domestic agriculture had the least capacity to respond (i.e. the poorest countries). The overall social impact, he argued would be positive though mixed from place to place. As a result of liberalisation the poor in developing countries might benefit from increased incomes in agriculture, poor consumers might benefit from lower food prices and there might also occur reductions in poverty and inequality, especially rural-urban and gender inequality. Though there might be losses incurred by producers in developed countries, agriculture was a relatively low share in the economy and the countries with losses would be those that had the resources to accommodate the adjustment (e.g. the EU). In terms of the impact on the environment, he argued that the overall effect would be negative due to excessive use of agro-chemicals, increased emission of pollutants, soil degradation and deforestation. There could be benefits though from technological and resource management improvements and global shifts from less to more efficient producers.
He then looked at the impacts that might be faced by the six different groups of countries. 1) In terms of developing countries that are major exporters of agricultural products, the economic benefits were unambiguously positive, social impacts small but positive and environmental impacts would differ for different products. 2) In terms of developing countries with a relatively protected agricultural sector the net economic impact was likely to be positive, as gains to consumers and exporters offset losses to income competing producers, social impacts mixed but again positive since small scale farmers might respond to better incentives and environmental impacts would depend on the net effect on use of agro chemicals and marginal land. 3) In terms of least developed countries, those that are net food importers stood to suffer from the higher world prices. The only way in which they could benefit would be if domestic producers would respond to the high prices and increase domestic production which would ultimately lead to a fall in domestic prices implying a long run gain. Environmental impacts for such countries would be low since the use of agro chemicals would be low 4) For low income developing countries the impacts would be different from less developed countries since they would be expected to reduce their tariffs. Further they also stood to benefit from the elimination of dumping practices as a result of liberalisation. Social impacts would be positive and environmental impacts would be insignificant. 5) The EU was expected to be the largest single gainer, due to consumer gains. Though there could be areas within the EU which would suffer, the adjustment process was something they could afford. 6) For other developed countries the welfare gains and environmental impacts would be similar to that of the EU with the only difference being for countries like Australia and New Zealand where the increased production could lead to an increase in environmental stress.
After outlining these probable country scenarios, Morrisey concluded his presentation with a list of five extremely important mitigation and enhancement measures which included technical assistance to increase the environmental efficiency of agriculture, measures to address increased pollution associated with increased transport of commodities, agricultural policies in developing countries to address non-price constraints on producers, poverty reduction strategies focusing on agriculture and the rural sector and the revenue implications in developing countries.
Duncan Green opened his presentation by explaining that agricultural growth was the best way to reduce mass rural poverty since the linkages were strong. As a caveat, he mentioned that the effect of growth in different crops in different farms would be different. He then expressed a doubt whether the case studies referred to in Morissey's presentation were historical. He explained that Oxfam's study of 6 successful agricultural take off countries (Indonesia, South Korea, Malaysia, Vietnam, Chile and Botswana) showed that there was some basis for an infant industry argument in agriculture.
On the basis of work done individually by the Imperial college of Wye and by Oxfam, Green identified three different phases in the context of state intervention and withdrawal in agriculture. The first phase was the low intensity, semi subsistence phase which was the starting point. The second phase would be that of the state coming in providing facilities such as credits, inputs, irrigation and tariff protection at the national and international level. The third phase was that when the agricultural sector was generating surplus and the state had to withdraw. The crucial question according to Green was whether phase two, where the state entered, was becoming harder due to the restrictions being placed by the WTO and whether the WTO could play a role in encouraging state withdrawal in stage 3.
He continued to outline some of the other dilemmas faced by low income countries, such as the difficulties faced in entering agro export markets due to competition from Brazil and East Asia and due to the existence of large buyer driven value chains, high levels of technology and packaging standards. Given the spread of supermarkets and the terrible squeeze small farmers were facing, he asked whether there were alternate solutions such as regional markets or import substitution strategies countries could follow, although he acknowledged that supermarkets were also spreading in developing countries.
He then went on to explain these dilemmas and difficulties faced by low income countries in the context of the WTO. His argument was that the rules of the WTO should be flexible towards countries depending on the level of agricultural development they had achieved.
After briefly speaking about the various agricultural groupings in the WTO he went on to speak about the two main debates within the WTO - market access and subsidies. He was of the opinion there was a high degree of awareness on the issues relating to preference erosion of market access in developed countries as a result of liberalisation. He suggested that negative tariffs could be an alternative for preference erosion.
He then spoke about the various proposals that would be discussed at Hong Kong. He specified that the G20 would argue for a tiered tariff reduction formula with possible caps on individual tariff lines, the EU would want loopholes on sensitive products and the G33 would want self designated special products for developing countries (products that would impact on livelihood and food security), and access to an easy to use special safeguard. He emphasised that special products were not the same as sensitive products. While special products would be those products that impacted the livelihood and food security of farmers in developing countries, the sensitive products according to him was purely a loophole devised by developed countries to protect their farm lobbies. In the case of subsidies he argued that export subsidies were falling and were becoming largely a symbolic issue. The key issue in subsidies according to him was domestic support, which would definitely have an impact on trade. With a graphical representation of the increase in "green box" subsidies, he pointed out that the US and the EU were against the proposals for the review of green box subsidies.
To emphasise his point about the trade distortioning nature of domestic support subsidies he pointed out some figures. As a result of the subsidies he argued that the European Union cow had a pay hike of $2.62 per day which was more than that earned by many poor people in the world. Further last year 25,000 US cotton farmers received $4.3bn in subsidies to produce goods worth $3.4bn in exports, which was ultimately dumped on the world market, affecting 10 million cotton farmers in West Africa. Though an apparent subsidy cut for EU was on the table in HK he argued that this wouldn't be effective since this cut was purely on the bound, not the applied, level. The impact according to him would be only when the cut affected the applied level. Further, he argued that if there was a genuine possibility of real cuts occurring, the EU would simply start 'box shifting' subsidies into categories exempt from reduction commitments. He concluded his presentation with Oxfam's topline messages on agriculture. This included a proposed 2010 end date for export subsidies, a curb on domestic subsidies, policy space for developing countries in the case of tariff formula and special products/special safeguards and market access for the poorest countries.
Before opening the floor to discussion, the chair pointed out a few directions for discussion - The effect of liberalisation under WTO and the different impacts this would have on the EU and developing countries, the differential impacts of the different pillars of agriculture market access and subsidies.
1. In the discussion that followed Morrissey was asked whether his models implied that no country stood to lose from liberalisation. To this he answered that his analysis clearly implied that not all countries stood to benefit from liberalisation in agriculture. He further argued that even if all countries stood to benefit that would not imply that everyone within these countries stood to gain. There would be winners and losers in every country. He pointed out that the difficulty in trade reform was the fact that those who were to lose would know about it and hence lobby against it while the probable winners would either not be able to identify themselves or, even in a situation in which the winners were able to know about the possibility beforehand, the chances for individual gain would not be sufficiently large for them to lobby actively.
2. Replying to a question on the efficacy of his country scenarios Morrissey argued that sensitive products were the latest result of political lobbying in developed countries to ensure that their protection remained. He also pointed out that the irony of protecting sensitive products was that it stood to deny potential gains to EU consumers.
3. A comment was made on the negative impact of the suggested negative tariffs on exporters in developing countries, as governments could not coordinate to pay such tariffs and business would seek products elsewhere. A specific question was asked to Duncan on his ideas on how to make the negotiation rounds more development friendly. On a question on whether Oxfam was for or against liberalisation Green answered that it depended on the situation and the countries in question. He further stated that he believed that anyone who either argued that liberalisation was a fully good thing or a fully bad thing was confused and hadn't looked at historical evidence. On a question on what Oxfam believed was a good deal in Hong Kong he replied that would be one which cut subsidies, provided an end date for export subsidies and provided developing countries policy space.
4. It was pointed out that prices going down as a result of agricultural liberalisation would not necessarily imply that there would be benefit for the consumers in rural areas. On an argument for corporate regulation Green suggested that the WTO was not the best forum for this discussion though the concept of corporate regulation was important.
5. One audience member asked whether a successful liberalisation would imply that agro-business in the north would simply shift production sites to the south, and therefore lead to increased poverty. Green replied that it would depend on how the liberalisation and shift occurred. Concerns were also expressed on the sustainability of the economic benefits in the long term in the context of environmental degradation.
6. A further question was asked whether there was any political will for discussing supply side constraints. To this Morrissey's response was that though there was space within the WTO for discussing such issues, the WTO was not the best forum to coherently discuss this. Related to this he also highlighted that developing countries should put more attention on their domestic production with import displacement as a possible outcome rather than import substitution as the intention being the focus.
7. On a final question on the "early harvest" concept (getting things approved before Hong Kong), Green replied that if this was meant as a down payment to get things moving then it was good concept but if this was a way to conclude the discussion on development then it was not good.
8. The chair ended the presentation and thanked the presenters and the audience. He also mentioned that there would be the last meeting in the series at SOAS on Monday 5 December.
This event highlighted the likely or potential economic, social and environmental impacts of agricultrual liberalisation on six different country types - four different categories of developing countries and two different categories of developed.