Much has been written about the agricultural policies of the wealthy countries since the aborted World Trade Organization negotiations in Cancun in September. Developing countries and their allies continue to scream about the lavish agricultural subsidies and trade barriers of the United States, European countries, and Japan. There is no question that these countries are shamelessly protecting their agricultural sectors with an institutionalized welfare program for agribusiness that is designed to increase output, subsidize exports, and restrict market access. These same wealthy countries lecture the developing countries on the importance of opening up their own markets by reducing domestic agricultural supports.

But what would happen if the wealthy countries decided to reform their agricultural sectors by abolishing subsidies and liberalizing trade? Would there be the sort of miraculous economic turnaround that is predicted by some groups? Would the 828 million chronically undernourished people in the world¹ benefit from this reform? Who will win and who will lose in a world with a level agricultural playing field? Do we know enough to say?

How Level is the Playing Field?
Agricultural subsidies represent a process by which governments give large sums of money to agricultural traders and farmers to increase their overall profits. In the U.S., agricultural subsidies account for 25 percent of the total production of many farm operations.

Clearly, subsides provide farmers with a tremendous advantage over potential competitors in developing countries. For example, U.S. farmers are able to export corn at prices 33 percent below cost, wheat at 46 percent below the cost, and cotton at an outrageous 57 percent below cost of production.²

Developing countries are correct in saying that there is no way they can compete with these market distortions. Their argument is that local production is undermined and their countries become dependent on cheap imports from the rich countries.

What would happen if the wealthy countries decided to reform their agricultural sectors by abolishing subsidies and liberalizing trade? Would there be the sort of miraculous economic turnaround that is predicted by some groups?

The full responsibility for reform is not just in the hands of the wealthy countries. In writing about the failures of Cancun, the Economist³ states, “Poor countries have more to gain from lowering their own trade barriers than from persuading rich countries to lower theirs. According to the World Bank, over 70% of the benefits that poor countries might see from the Doha round would come from freeing trade with each other.”

Competitiveness of Developing Countries
Are developing countries in a position today to respond to favorable trade conditions? In many cases, particularly in Africa, they are not. Poor governance and corruption throughout many societies will prevent a number of developing countries from exploiting trade opportunities. Harassment and graft on the part of corupt officials is a problem that commonly hampers farmers who try to take their produce to market. As one veteran aid worker in Africa told me, “Anybody who has driven down rural roads in some African countries knows that the police routinely organize roadblocks for the purpose of shaking down poor people on their way to markets.”⁴

According to Vernon Topp of the Australian Bureau of Agriculture and Resource Economics, “In most developing countries, domestic policies are the key determinants of living standards in the rural sector-not trade policies.” Domestic agricultural policies all too often favor urban consumers and public officials at the expense of the rural poor. Examples of this bias abound, including exchange rate policies that overvalue national currencies and tend to favor imports (and therefore consumers), while penalizing agricultural exports (producers). Price controls on basic foodstuffs again help the urban poor, while hurting rural farmers. These highly regulated markets are organized in such a way that the financial gains from agriculture exports often go directly to regulators and intermediaries, rather than to farmers.

And then there is the problem of where poor governments invest scarce resources. Due to urban population density, infrastructure and services are more typically developed in the cities at the expense of rural populations. Small farmers, more often than not, suffer from a lack of transportation, poor access to markets and inadequate information. Will all of these problems and issues miraculously disappear when the rich countries agree to reform their unfair agricultural sectors?

Although wealthy countries must take viable steps toward agricultural reform, developing countries must be willing to reform their own agricultural sectors and become more competitive in the world market.

Who Wins? Who Loses?
The likely winners in reforming agricultural trade will ironically be the wealthy countries. They will save billions of dollars for their taxpayers by dropping or reducing subsidies and other costly controls. Agribusiness will be forced to be more competitive.

In the developing countries, the medium to large producers are more than likely to benefit over small farmers, because they will better be able to respond to market changes. And some countries, like China and India, will be more competitive because of their size and resource base than smaller, poorer countries.

Some argue that the losers of agricultural reform by the wealthy countries will be the developing countries themselves. Reform will likely result in higher prices for imports and poor countries that cannot feed themselves will have to pay more for imports. In 1999, as many as 45 of 49 least developed countries imported more food than they exported. It is unlikely these countries will become net agricultural exporters after reform.⁵

Even though numerous academics and agricultural and trade experts profess to know how the world will be impacted by agricultural reform, I do not believe we have enough information to say for certain. Yes, action should be taken on both sides and there are numerous proposals on how to phase out subsidies and open up trade that should be pursued.⁶ Nevertheless, do not expect the developing world to suddenly be transformed as proponents for these changes claim. Just as the wealthy countries must take viable steps toward agricultural reform, the developing countries must be willing to reform their own agricultural sectors and become more competitive in the world market. The small farmer in Africa will better be able to feed his family if he has access to his own domestic market, and to external markets.

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¹ Food and Agriculture Organization-United Nations
² Ray, Ugarte, Tiller, University of Tennessee, 2002
³ September 20, 2003
⁴ Kauck, CARE, 2003
⁵ Panagariya, Foreign Policy, Nov/Dec. 2003
⁶ Watkins, Oxfam UK, 2003






Contributed by Curtis Schaeffer, a free lance writer based in Atlanta, Georgia.

To read another Global Envision article about agricultural reform, see Cutting Agricultural Subsidies.