In Agricultural Trade Talks, First Do No Harm

Issues in Science and Technology, Fall 2005 by Polaski, Sandra

Trade negotiators at the World Trade Organization (WTO) are struggling to meet a self-imposed deadline of December 2005 to agree on the broad outlines of new trade rules that would cover global commerce in agricultural products, manufactured goods, and a wide array of services. Negotiations in each of these sectors pose tough political and economic choices for the 148 countries involved, but the key bottleneck is agriculture. Developing countries threaten to block progress on trade liberalization for manufactured goods and services unless their fears and interests in the agricultural sector are addressed-and with good reason. They are home to the almost 3 billion people who live on less than $2 a day, and most of the impoverished survive on small-scale farming. Unless negotiators from the United States and other wealthy countries make special provisions in the global trade regime to deal with trade's impact on those most vulnerable farmers, the already poor will be made worse off and whole countries could slip backward economically. The United States and Europe have made vague commitments to treat these trade talks as a "development round" but have resisted translating those sentiments into practical proposals on agriculture. There is a clear solution: Treat all crops cultivated by small-scale farmers in developing countries as special products that are exempt from any further reductions in tariffs or increases in import quotas.

Developing countries' worries about the WTO agricultural negotiations are well founded. Most are home to large numbers of subsistence farmers who have few other employment prospects. Global farm trade poses risks to them in two ways. First, government subsidies paid to farmers in wealthy countries allow them to sell their products on world markets at less than the cost of production, thus driving down the prices that poor farmers receive for the same crops. Second, many subsistence farmers cannot compete with global crop prices even without the distorting effects of subsidies, because their small landholdings, dependence on rain rather than irrigation, and lower technology in inputs such as seeds and machinery raise their production costs. If their governments cut the tariffs that now shield them from cheaper imported crops, the resulting lower prices they receive would reduce poor farmers' already low incomes or drive them off the land altogether.

The greater the proportion of the workforce in agriculture, the greater is the risk of increasing poverty. In low-income countries, an average of 68% of the population makes its living through farming. Even in middle-income countries, 25% of the population is engaged in agriculture. In China, farmers make up about 50% of the total workforce; in India, about 60%. In countries with large numbers of subsistence farmers, it would be impossible for sufficient job opportunities to be created in other sectors in the short to medium term to absorb these displaced farmers.

Some developing countries' farmers are globally competitive, and they would do well in a tariff-free world if wealthy countries would reduce domestic and export subsidies. Brazilian sugar and orange producers, West African cotton farmers, and Thai rice farmers fall into this category. However, even in countries where some farmers are competitive, there are many subsistence farmers who cannot compete. Also, in terms of employment, the internationally competitive crops often are land- and capital-intensive, not laborintensive. Even if those sectors grow in response to trade liberalization, total employment in agriculture may decline if lower tariffs allow cheaper imports to displace the crops that are grown by the more numerous small farmers.

Agricultural imports have offsetting benefits if they drive down food prices for consumers. In terms of poverty, if there are more urban poor than rural subsistence farmers, overall poverty could decline because urban workers could afford to buy more. Worldwide, however, far more of the poor are in rural than in urban areas. Even in those few countries with more urban than rural poor, if displaced farmers migrate to urban areas and compete for scarce jobs there, urban wages might decline as well, again making the country, or at least the poor, worse off. It is the overall equilibrium of the diverse effects of trade liberalization that must be taken into account if poverty is to be reduced.

A long economic transition

The movement of workers from low-productivity, lowincome subsistence farming to higher-productivity agriculture or to work in sectors such as manufacturing and services is a desirable step in the process of development. However, moving large numbers of people from basic farming to higher-productivity occupations has taken most countries decades or even centuries. Under the most favorable domestic and international conditions (for example, in Japan and South Korea in the post-World War II era), this transition was accomplished in one or two generations. However in India, sub-Saharan Africa, and elsewhere, the process has moved much more slowly.