Bank on agricultural trade: export strategy “impoverishing”

2 February 2005

The latest World Bank publication on agricultural trade finds that a “development strategy based on agricultural commodity exports is likely to be impoverishing in the current policy environment”. How this finding will be reconciled with twenty-five years of policy advice and loan conditions to the contrary is unclear.

With agriculture looking to be the key issue in the next WTO ministerial meeting at the end of the year, the Bank released Global Agricultural Trade and Developing Countries in January. The volume contains contributions from various Bank economists, and is edited by Ataman Aksoy and John Beghin with guidance from the former and current chief economists, Nicholas Stern and Francois Bourguignon, and the director of the trade department, Uri Dadush. Support for the research was given through the Knowledge for Change trust fund backed by the United Kingdom, Canada, Finland, Norway, Sweden, Switzerland, and the European Commission.

The work is divided into two parts. The first examines key policy issues while the second looks at specific commodities such as sugar, rice and groundnuts. The chapters on cross-cutting issues come to a number of conclusions:

countries risk becoming much larger importers of food

State of agricultural trade: Authors are “surprised” to find that developing countries saw little increase in their share of agricultural exports despite the introduction of “rapid trade reforms”. Protection remains high in industrial countries while developing countries have “significantly liberalised their agricultural sectors since the 1980s”.

Trade preferences: Preferential access given to certain countries for specific products have provided “limited gains at best”. Inconsistency, uncertainty and inapplicability to key products constrain the ability of developing countries to fully exploit existing schemes. Rather than working to make preferences more predictable as many developing countries suggest, the Bank argues for their elimination altogether.

Decoupling agricultural support: Industrial countries’ efforts to unlink subsidies from production levels has had a “modest” effect on stimulating developing country exports. Improperly managed – and most programmes are – decoupled support “is likely to have the same kinds of undesirable effects as other subsidy programmes.”

Food standards: Authors find that since “much of the impetus” for stricter standards is coming from consumer and commercial interests, prospects are “slim for slowing this movement or allowing poorer countries to meet lower standards”.

Welfare gains: Contradicting previous Bank cheerleading for the benefits of trade reform, real welfare gains from global agricultural reform “often amount to 1 per cent or less of base income”. This is in line with the work of economists such as Weisbrot and Baker, who argue that the enthusiasts for broader trade liberalisation have “substantially overstated” its benefits.

Furthermore, the new Bank research finds that if welfare models incorporate low agricultural productivity growth in developing countries, the countries risk becoming “much larger importers of food”. Different assumptions about productivity “could lead to different conclusions about the direction of food self-sufficiency in the aftermath of reform.”

Research caution to the wind

This note of caution about the impacts of different assumptions was nowhere to be found when Bank and Fund representatives took the floor during a November session of the WTO agriculture committee. The Bank argued that developing countries should not use the ‘special products’ category to seek exemptions from liberalisation because the negative effect of liberalisation is “minor” and offset by the benefits. “The concept of food security and special products could be re-defined to recognise that structural food security is generally reduced, not enhanced, by trade barriers to food imports” the Bank proposed. The representative of the Philippines countered that “special products are a progressive rather than regressive element.”

A coalition of NGOs sent a letter to Bank president James Wolfensohn in September last year, protesting against similar Bank interventions on trade issues which undermine developing country negotiating positions. At the time, Bank trade director Uri Dadush had rejected EU proposals to provide exemptions from liberalisation for the poorest countries (see Update 41). In the Bank reply, Gobind Nankani, vice president of the poverty reduction and economic management unit, argued that “there was no such thing as a free lunch”.