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Agriculture and trade theme, fourth summary from the moderator, 20th May As we approach the last week of the forum, the discussion has really taken off, with contributions from Lameen Abdul-Malik, Andy Bullock, Martin Evans, Kate Gooding, Matt Griffith, Tom Lines, Rodrigo Matabaran, Robin P Matthew and the indefatigable Peter Robbins. For those of you on the list who have yet to make a contribution, I would ask you to send in something, however short, especially on the implications of these debates for DFID (see end of this summary). Agricultural Trade, Growth and Poverty Matt Griffith's scholarly disquisition asked us to stand back and re-examine whether agricultural trade can really unlock the door to poverty reduction, especially in Africa. To do this, he looked at the behaviour of global markets and the pre-requisites for success, drawn from the history of 'now developed countries'. Global markets he finds to be locked into a boom-bust cycle, overlaid on a long-term price decline for agricultural products. The lessons he draws from the 19th century development strategies of USA, Australia and Argentina, among others, is akin to an infant industry argument for agriculture * the state must play a central role in 'manufacturing comparative advantage', by creating an efficient agricultural system, financing infrastructure and R&D and dealing with inevitable periodic crises. To succeed, they also need good luck and timing, in terms of going for this kind of agricultural take off when world markets are propitious. In more recent times, the Asian tigers got out of agriculture much earlier, while those that stayed (such as Argentina), were unable to cope with declining prices and market volatility. This leads him to two big questions: 'Are the conditions today favourable to a development strategy based on agricultural exports? And do developing countries, in particular Africa, have the pre-requisites necessary to be able to take advantage of these conditions?' On the first, he sees the current Asian boom as the only thing likely to boost prices as it is already doing for soya, for example). On the second, he is pessimistic, seeing little hope that Africa can compete with more efficient low cost producers * every rung on the development ladder appears to be already occupied. His conclusion for DFID's agriculture strategy is that much more caution is warranted on the potential developmental impact of agroexports. Look instead at supply side problems, supply management for commodities, generating increased investment and reexamine the role of the state. Matt's scepticism is shared by Rodrigo Matabaran and Martin Evans. Rodrigo accepts that liberalisation can benefit poor consumers in his native Philippines, but sees that outweighed by the negative impact of import surges on local producers. Martin sees smallholders as particularly likely to be excluded from the benefits of liberalisation. He urges DFID to avoid the standard argument of 'if all trade is liberalised, developing countries stand to gain by $XXX billion'. In reality, all liberalisation is partial, and the poverty impacts are not obvious. He cites the current EU sugar reform proposals as evidence. If Europe liberalizes, and all ACP production is transferred to a few efficient producers like Brazil, will the net poverty impact be positive or negative? Answer * needs more research! Martin concludes that some countries are neither able to achieve competitive advantage, or to diversify on the scale required by liberalisation. For them, poverty reduction requires 'pragmatic policies of domestic price support and market management, with sufficient flexibility to allow adjustment to long run shifts in domestic resource cost relativities. If this requires tariffs on agricultural imports, not set so high as to be technically inefficient (by encouraging smuggling) or to have perverse welfare transfer consequences (corrupt rent-seeking), then so be it.' Interestingly, he redefines the much vilified notion of 'protection' as a 'socio-economic compact between the producers and consumers of the products concerned, mediated by government: the country's consumers are being asked to pay more for the products than they would if more of total demand was met by (cheaper) imports, and the producers are being offered better prices than they would obtain if the domestic market were fully open to international trade. In return for this privilege, government requires producers to become more efficient, with government help, so that tariffs can be lowered over time.' Like Matt, Martin concludes that DFID should support (or at least not attempt to prevent) infant industry policies in agriculture. Tom Lines argues in similar vein that trade is not the central issue in ensuring agriculture promotes poverty reduction. Far from being a 'motor for development', agroexports face ever-dwindling prices, and displace food production. 'Every one of the 30 countries at the bottom of the UNDP Human Development Indicator list is a food-deficit country, according to the FAO, and if they try to make up for declining prices on their agricultural exports by producing more of them, that probably means less land for food production.' His conclusion? 'rural poverty reduction should be seen as primarily a domestic concern.' Moving the Discussion Forward: Although I would dearly like to encourage everyone to respond to these views, I am conscious that we are going into the last week of the forum, and in the end, what we need is clear advice as to what DFID should do the same/differently in terms of policy and support. I would therefore urge any respondents to be brief, and focus on what these arguments mean for DFID. Commodities and Supply Management Hats off to Peter. He doesn't take 'no' or even 'maybe' for an answer! This week he had Tom Lines backing him up on the case for supply management (SM). Between them, they responded to last week's challenge to explain how attempts at SM could avoid the failures of the past, by sketching out what a new generation of International Commodity Agreements might look like. Peter believes they would have to be based on production cuts, not export limits (which beg to be circumvented), with a greater proportion of any price rise being ploughed back into vertical diversification. They would also have to involve farmers associations to a far higher degree. He believes the present climate is actually more conducive to ICAs than the 1970s, when they were set up * low prices should galvanize support in developing countries, while improved information technology makes it easier to administer production controls (presumably this could involve satellite photography, as has been done in Coca eradication programmes). Tom Lines also sees SM as the only feasible answer to long-term price decline and makes three basic points: 'One is that it can take many forms, and the right form for any market can only be discovered with reference to that market. Secondly, in designing a supply management scheme it is necessary to be clear-sighted about whether the main aim is to counter price instability or to push prices up. Thirdly, while there are serious technical challenges, the problems are just as often political and they should be addressed squarely as such.' Tom makes an interesting observation on successful SM cartels such as OPEC or the Asian tin producers * they have tended to involve countries with some degree of shared interests or history. Finally, he points out that any SM agreement will at some point face severe strain, and has to be designed from the outset with that in mind. One thought that occurred to me on this * is this somewhere where hedging or other forms of risk management might indeed play a useful role? International agreements could provide the scale and security required to make them effective customers for market-based risk management instruments such as hedging. Tom goes onto discuss some other commodity issues. On short-term price volatility, he has little time for the World Bank's work on market based risk management, seeing it as little more than a business generation exercise by traders and financial providers, of little relevance to small farmers. He also believes that they offer little solution to the medium term (2-3 year) price swings which play havoc with governments. Tom also raises the issue of increasing supply chain concentration and vertical integration, and argues that this has greatly increased buyers' ability to drive down producer prices. His answer? 'The only serious way of tackling this problem is by global competition policy - not the sort that the EU is trying to push through the WTO, but the anti-trust variety pioneered in the USA in the late 19th century, applied globally to global markets. There should be regulations to prevent such concentrations developing in the first place, and to break up companies involved if they have done (as Standard Oil was broken up long ago).' Moving the Discussion Forward: I think we're making progress here, and Peter, I may even be coming down on your side of the fence! I would be interested in further contributions along the lines of 'what would a new generation of ICAs look like and how would they differ from past attempts'. If there are any Global Value Chain aficionados out there, could you shed some light on the specific policy prescriptions which arise from a GVC analysis of market concentration, beyond Tom Lines' point on anti-trust legislation? Standards Kate Gooding sets out some useful examples of producer participation in standard setting for social and environmental standards e.g. the Rainforest Alliance banana certification programme, and sees these as possible models for improving developing country participation in more 'mainstream' standard-setting. She also draws our attention to a range of initiatives to establish the equivalence of rival national standards, to reduce the burden on producers currently forced to satisfy numerous slightly different standards, or else lose potential markets. She sees this as a further possible area for DFID support. Environment Kate Gooding also picks up on John Madeley's previous concern over the lack of an environmental focus in this theme. She raises concerns that attempts to improve productivity through intensification can carry high environmental costs, and suggests DFID carry out an immediate environmental audit of its operations and funding to ensure their sustainability. Vanilla and other boom-busts The great vanilla debate has one last (or not?) outing, as Robin Mathew adds to the previous discussion on Madagascar by describing India's entry into the vanilla market in the aftermath of a price boom. He sees India as becoming a major player in the world vanilla market by 2005-6, but is concerned that a cartel of traders is forcing down prices to farmers. He thinks more support needs to given to organising farmers organisations to bargain collectively over prices, as is now happening in Kerala. Rodrigo Matabaran adds another boom bust * citronella grass oil in the Philippines, where farmers in Dinagat Island piled in in 1997, when prices were high, but then faced heavy competition from Indonesian and Chinese producers who have now driven the price down to roughly half the 1997 level. What Should DFID Do? Many thanks for the increased attention this week to the implications of these various debates for DFID's work programme. Andy Bullock first asked DFID to step back and clarify an apparent contradiction between its Public Service Agreement and its Service Delivery Agreement (Whitehall jargon for different levels of departmental mission statements). 'In the PSA, DFID supports developing country efforts [to achieve pro-poor trade reform], but in the SDA, it implies that it will only do so where there are mutually beneficial opportunities.' Tom Lines set out four priority areas for DFID. Three are discussed above: measures to stimulate domestic agricultural markets at arm's length from international trade; and support for both global anti-trust policy and a serious reconsideration of supply management on commodity markets. For the fourth, he responds to my question last week to comment on DFID's current priorities * WTO, CAP, the Cotonou negotiations and the impact of northern agricultural policies on developing countries. Tom plausibly suggests no-one has so far raised these much in the eforum because there is a broad consensus on what needs to be done, and in any case we're all bored of talking about them! But he nobly goes on to do just that. Tom argues for four main steps: abolish all agricultural export subsidies; reduce developed country domestic subsidies, even those that are claimed to be 'non-trade distorting' such as decoupled payments; give developing countries more latitude to protect small farmers as part of a broader food security policy and finally consider applying special and differential treatment to health rules in the WTO. He accepts that the last suggestion 'could prove controversial'. Chris Stevens at IDS regards it as a non-starter, since we would effectively be arguing that Europeans should lower their health and quality standards in order to help developing country farmers, not something any politician is likely to support. Tom also urges DFID to look at a more rational system of preferences based on economic need (poverty, low human development or remoteness from markets), rather than historical accident. He points out that the beneficiaries of many preference agreements are often small, non low income countries, who benefit at the expense of their poorer neighbours. Finally, Lameen Abdul Malik is sceptical of the relevance of traditional ideas of comparative advantage, and feels DFID should focus its efforts on helping developing countries build their exports and cope with northern standards requirements. Moving the Discussion Forward Tempting though it is to follow Matt Griffith into the long grass of history, this is the start of the last week of the forum. I would therefore like to ask contributors to make the most of their last chance to nudge DFID into new directions on agriculture and trade. I have already set out where its current priorities lie. This week, we have seen people urge greater priority to be given to a range of other issues: supply management and competition policy to deal with the commodity crisis; support for infant industry policies in agriculture (with significant implications for UK policy in the IMF, World Bank and WTO); promoting special and differential treatment, producer involvement and equivalence in standards; reforming preference systems to make them more pro-poor; introducing environmental audits of DFID funding. In previous weeks, contributors have suggested DFID should work to a 20-30 year time horizon for all its work in agriculture. Finally, some contributors think DFID should stop worrying so much about trade, and devote more resources to helping small producers access domestic markets. DFID can't do everything, so why don't you say what its priorities should be, from the above list, or add some more. Maximum of 3-4 for any contributor. Now's your chance. The forum ends on 28 May, so you have a week to cast your vote and make your case. Sorry this summary is so long. It's your fault for being so interesting*. Best Wishes Duncan Green ________________________________________________________________________ This e-mail has been scanned for all viruses by Star Internet. The service is powered by MessageLabs. For more information on a proactive anti-virus service working around the clock, around the globe, visit: http://www.star.net.uk ________________________________________________________________________
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