In Agricultural Trade Talks, First Do No Harm

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

The vagueness of the call for "more flexible treatment" reflects continued disagreement among the United States and other high-income countries over whether such products will be exempt from any further liberalization during this round of trade negotiations or will merely benefit from smaller tariff cuts or quota increases. This question and the criteria for designating special products form the crux of current negotiations that affect subsistence farming.

U.S. and other negotiators at the WTO should acknowledge the pivotal role of farming as a major source of employment in developing countries when they negotiate the criteria and treatment for "special products." This employment intensity of agriculture distinguishes the situation of developing countries from that of the developed world, where only a miniscule share of the workforce is engaged in agriculture.

Developing countries should be allowed to designate as "special products" all crops that are cultivated by their smallscale farmers. These products should be exempted from any further reductions in tariffs or increases in import quotas. It is important that all crops cultivated by such farmers be covered by this special treatment, because the farmers' livelihoods usually depend on a balance and interchangeability among different crops, depending on climatic and market conditions. There should be no numerical limit on the number of products that can be designated, provided that they are cultivated by small-scale farmers and farm workers.

Such an agreement would allow developing countries with large numbers of small farmers and farm workers to retain the policy flexibility necessary to avoid the displacement of agricultural livelihoods before there are alternative economic opportunities to absorb those who are displaced. This does not imply that they will necessarily use this flexibility with respect to all subsistence crops. It is entirely possible that governments might choose to apply lower tariffs or higher quotas in practice, as harvests vary, world prices change, and farmers gradually migrate out of agriculture. However, these determinations must be left to national policymakers, who are both familiar with the specific circumstances in their countrysides and democratically accountable to their own populations.

The main source of opposition to excluding subsistence farming from new liberalization measures comes from global actors who would benefit from increased access to developing countries' markets for the products now grown there by small farmers. The self-interest of grain-trading firms, commercial farm sectors, and the governments that depend politically on the support of these corporations and sectors drives the opposition at the negotiating table.

In addition, some economists argue against continued protection for subsistence agriculture. The most common economic argument is built on three related propositions: global agricultural prices are held down by overproduction by subsidized farmers in wealthy countries; if these subsidies are eliminated, global agricultural prices will rise; and rising prices for agricultural crops will benefit small farmers. On examination, each of these propositions has limitations. Large subsidies by countries with substantial production capacity undoubtedly influence global agricultural prices. But prices are set by the combination of global supply and demand. Factors other than subsidies, including climate, also have profound and sometimes volatile effects on global supply. Global demand is also in flux. For example, the Asian financial crisis reduced demand and sent global prices down. Recent rapid growth in China has stimulated demand for some crops, such as soybeans, driving prices up. Future economic cycles and shocks can be expected to influence global prices separately from subsidies. If wealthy country farm subsidies are reduced, farmers in other countries may increase production, keeping global supply from falling. The assumption that food prices will increase and remain at higher levels is borne out neither by theory nor by the historical patterns for commodity prices, which generally have shown long-term declining trends. The proposition that the rural poor will benefit from higher world prices is also problematic. In practice, economies of scale and the role of marketing intermediaries mean that much of the benefit of any price increases that do occur will flow to large-scale farms and trading firms rather than to the rural poor.