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Thursday, September 11, 2003

This Economist article gives an interesting account of the issues and status of WTO negotiations in Cancun. We have heard the talking points of the agriculture free traders but they consistently omit the complex details of world agricultural practice.

If, as promised, the EU eliminates export subsidies on products “of interest” to poor countries, the price of those products would rise on world markets. This would benefit big agricultural exporters, such as Argentina and Brazil. It is not all good news, however. Arvind Panagariya, an economist at the University of Maryland, points out that 85 out of 148 developing countries are net importers of agricultural goods. Raising the price of those goods on world markets would leave them worse off. Farm-trade reform is at the centre of the Doha round, but Mr Panagariya’s results suggest it is not at the centre of development.

This is important. Free traders use statistical magic tricks to conceal what the effects of their proposals would be. It isn't the millions of poor farmers that would benefit from trade reform, it is the more 'middle class' farmers. More than half of the poor, the poorest of the poor, would be even poorer. Those who are food insecure now would be even hungrier. And since populations are rising in LDCs this problem will get worse over time.

If farm-trade reform isn't the issue in development then what is?

Even for a country like Brazil, agricultural trade barriers pose less of an obstacle to progress than barriers to trade in manufactured goods. The World Bank calculates that import tariffs lowered returns in Brazilian farming by 5% in 1997, whereas tariffs reduced returns in capital-intensive manufacturing by a full 22%.

Most countries get rich by selling manufactured goods—first labour-intensive, then more skill-intensive—on world markets. In 1980, the World Bank reports, such goods represented just 20% of the exports of poor countries. Now they account for 80%, and many of those countries are no longer so poor.

EU/US farm subsidy programs desperately need reform. They harm the whole world, not least themselves. But, as noted in many earlier posts, farming is not like manufacturing due to its extensive nature and environmental significance. It can't be sensibly managed by the same limited models used for manufacturing and services which treat so many of the most salient aspects of agriculture as externalities. There are no market methods to properly price agricultural goods since there are no ways to measure and value many of the most important costs of production. When those costs are shared in a commons, the people of a nation who live in the same environment, then subsidies to producers paid from revenues extracted from the entire population can substitute for proper cost accounting until improved accounting becomes possible. Subsidies must be well targeted and explicitly seek to compensate for production costs not included in market prices. Governments must think hard about what they doing and why they are doing it to get the subsidies right.

DCs would be harmed and LDC development would not be well served by eliminating agricultural subsidies. There would be small gains for some LDCs and unbearable losses for others. Real development that would be four or five times as helpful and have few if any negative consequences for LDCs involve lowering trade barriers for goods and services. This will hurt developed countries, sometimes dearly, and needs to be managed to avoid disruptions that would collapse the system, but it is the true route to world development.

posted by back40 | 9/11/2003 09:26:00 AM


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