Agricultural Trade Reform: Opportunities and Challenges

for Developing Countries

Kimberly A. ElliottCenter for Global Development

Institute for International EconomicsWashington, DCSeptember 2006

• 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

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.

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.

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

World price effects of moving to global free trade

Milled rice 7.7%

Wheat 9.0%

Other cereal grains 12.2%

Beef 8.4%

Dairy products 11.8%

Vegetable oils 3.4%

Source: World Bank.

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.

Shares of Middle-Income Country Exports

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Perc

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traditionaltropical

protectedtemperate

nontraditional, dynamic

bev,tob,processed food

Shares of Low-Income Country Exports

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Per

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traditionaltropicalprotectedtemperatenontraditional, dynamicbev,tob,processed food

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.

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).

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

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

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