openEconomy

Doha, development and the agriculture issue: Let’s get real!

Roger assesses the effects of agricultural subsidies and market barriers on the welfare of the world's poorest.
Charles Barclay Roger
18 March 2010

The Doha ‘Development’ Round has been stalled for years, mainly, but no means exclusively, over the use of agricultural subsidies (PDF) by the OECD countries. For the Round to be truly ‘development-friendly’, argue developing countries, these ‘distortions’ to the world’s agricultural markets must be removed. Yet, if they are really serious about development, developing countries should lower barriers to agricultural goods as well - an issue that has received far less attention than it deserves.

Of course, the developed world maintains very high agricultural tariffs and subsidies relative to barriers against trade in manufactures. And these distortions are, without doubt, especially burdensome to the poorest countries, who have a comparative advantage in labour-intensive farming, and where around two-thirds of employment is in rural areas. One study estimates that the agricultural policies of OECD countries cause about US$40 billion in annual welfare losses for developing countries.

But, sadly, almost nothing is ever said about the reform of agricultural tariffs in the developing world itself. In the media, subsidies have garnered the lion’s share of the attention (see, for instance, the highly publicized paper by Watkins, Oxfam). Slightly less emphasis has been given to the tariffs of OECD countries. And, as is, Doha requires precious little on the part of developing countries, and none from the least-developed. Yet, neglecting their own barriers to trade in agricultural goods will exclude developing countries from a major source of gains from agricultural trade liberalization -- reform of their own markets.

In view of the size of the distortions that result from tariffs, subsidies in the OECD countries are really only a small part of the picture. They account for merely 7 percent of the total distortion to world agricultural markets. The remaining 93 percent of the distortion is due to import market access barriers -- tariffs and quotas. Here, industrialized countries definitely account for the majority of the barriers to trade (66%). But developing countries play a significant role as well (27%).

The developing world is not only responsible for a significant share of market barriers to agricultural goods, their barriers have a disproportionately large affect on the welfare of the poor. Indeed, it is the removal of barriers in the developing world, which would lower prices for foodstuffs, rather than the removal of subsidies, which would raise them, that would most benefit the poor, who are net-buyers of food. One study estimates that over half of the welfare gains from agricultural trade reforms would come from liberalization by developing countries themselves.

Why, then, the emphasis on subsidies? The main reason is that their removal would primarily benefit a few powerful agricultural interests producing plantation crops such as cotton and sugar. And it is to these interests, rather than the interests of the poor majority, that the negotiators from developing countries at Doha are beholden. But liberalization of both subsidies and market barriers is needed for Doha to be ‘development friendly’. Without the corresponding liberalization of market barriers in the developing world, the poor, who benefit from the subsidized prices, would be hurt. Removing subsidies alone may actually be anti-developmental.

The developing world, therefore, needs to rethink its priorities. No doubt, the removal of agricultural subsidies by the OECD countries will be necessary for the successful completion of the Doha Round. But, let’s get real. The reduction of developing countries’ own barriers to agricultural trade will be essential for the benefits of agricultural liberalization to reach the majority of the world’s poor. Furthermore, what better way for their governments to show that they are in fact committed to development and the improvement of their own citizen’s welfare? For, so long as barriers to trade in agricultural goods remain high among developing countries, some serious doubt is cast upon their sincerity in this regard.

This article is derived from a larger paper that is being developed.

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