Agriculture Intervention

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Developed Countries Intervention inAgriculture and Food: its impact on the

Developing Countries.

A REVIEW OF THE LITERATURE

BY

Saheed Adebayo Ogunbanwo AGRICULTURE AND ECOLOGY DEPARTMENT, FACULTY OF LIFE

SCIENCES, UNIVERSITY OF COPENHAGEN, DENMARK

10/23/2010



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INTRODUCTION

Agriculture being the basic occupation of humankind and major economic activity of any

nation is very essential to the development and growth of the world economy. There is a very

strong relationship between agriculture and food since there cannot be food withoutagriculture and vice – versa. Agriculture accounts for almost three-quarters of the

economically active population of the developing countries or the so-called third world

countries and less than 10 percent of the population in the developed countries engaged in it.

Thus; the history of every modern country includes an account of how agricultural change

has occurred (Anania et al., 2004; Hill, 1984; Hopkins et al., 1979).

In the world today, the development in the economic sector has decline the population of people that engages in agriculture. And this has subsequently been used as one of the

measurement of the level of development in categorising the countries of the world (Grigg,

1985). Consequently, the relationship that exists between the government and agriculture has

been the important determinants of how the food and agriculture economy are been

organised, developed, prospered and related to the other part of the economy (Halcrow et al.,

1994).

Since there is a link between agriculture, food sector and the overall economy therefore, the

production and distribution of food is one of the key elements of any sustainable development

both in social and environmental aspects (Redclift et al., 1999). However, due to the

economic development that has made the incomes of farmers to be low in relation to other

sectors of the economy, the need arise for the government intervention by introducing

varieties of policies to redistribute incomes more fairly to farmers, ensure continuous

production and development of agriculture and food (Greer, 2005; Coleman et al., 2004;

Clunies-Ross and Hildyard, 1992).

Intervention in agriculture and food started in 18th century and up to date different countries

of the world use varieties of policies to protect their domestic markets and food security. The

developed economies such as: the US and the EU have been using USDA, CAP, FAO, WFP,

GATT and WTO policies1 (Coleman et al., 2004; Redclift et al., 1999; Horwich and Lynch

1989).

1USDA: United States Department of Agriculture established in 1862, CAP: Common Agricultural Policy

established in 1962, FAO: Food and Agriculture Organisation established in 1945, WFP: World Food



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While successes have been recorded in these organisations, studies have shown that most of

these policies only allowed the rich countries of the world to exhibit their capitalist interest

under free trade. And these have in turn not only lead to giving developed nations a

comparative advantage in exporting their environmentally damaging production residuals to

the developing countries alone but has also caused a devastating effects on the development

and growth of the small- scale farmers and markets of developing economies (FAO, 2008;

ActionAid, 2005; Redclift et al., 1999; Clunies-Ross and Hildyard, 1992; Hansen and

McMillan, 1986).

Ironically, up to date these devastating impacts on the developing countries have been given a

little or no attention (Oxfam, 2009).

This article will give a brief history of developed countries‟ government intervention in

agriculture and food since inception, reasons for such intervention, methods used and extent

of the impacts of the intervention on the developing countries.

History of Intervention in Agriculture and Food in the Developed Countries

The intervention in agriculture in the world started as early as 1870s when the small and

inefficient European producers were protected against American grain that was exported toEurope in large quantities (Ingersent and Rayner, 1999; Hill, 1984).

During this period of international agricultural competition between North America and

Europe, France and Germany adopted protectionist grain policies while the UK, Denmark

and Holland maintained a laissez-faire stance (Dowling, 2010; Greer, 2005; Koester, 1991).

However, during the late eighteenth century the economies of the two continents became

increasingly intertwined allowing the British and the United States government to intervene

in price control of grains by the regulation of external trade (Ingersent and Rayner, 1999;

Johnson, 1980).

At the end of the First World War, the agriculture of many countries collapsed and the output

prices of food fell sharply causing the general economic recession of 1921 this continues until

the depression of early 1930s (Enright, 2010; Knutson et al., 1998; Hill, 1984; Redclift,

1999). Consequently, these situations led to intervention by governments of the countries that

Programme formerly established in 1963, GATT: General Agreement on Tariffs and Trade established in 1947,

WTO: World Trade Organisation established in 1995.



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were hitherto practising free trade to save their agriculture from irrational competition (Hill,

1984). However, there is policies instability as commented by Halcrow et al., (1994:7) that:

‘ since the beginning of the 1920s, price and income policy for food and agriculture

has been driven by a changing set of policy circumstances, by accelerating rates of

change, by the advances of new technology, and by a broadening of domestic and

world markets’.

Knutson et al., (1998) concurred that the agricultural and food policies that exist today

evolved from the problems and policies that existed in the past. They further added that this

happens because problems and policies change gradually and unevenly.

Reasons for Intervention in Food and Agriculture

There are varieties of reasons while governments intervened in agriculture but undoubtedly

the primary motive is that agricultural markets would result in an income pattern for the rural

population which was socially unacceptable (Marsh and Ritson, 1971). However, Knutson et

al., (1998) pointed that the world food crises of 1970s which was characterised by low

incomes and made distribution of foods, economic growth and development difficult brought

about recent intervention in agriculture and food, since open trade create the channels foreconomic growth.

Furthermore, the late 19th and early 20th century witnessed more government‟s intervention

in the agriculture and food sectors in the developed countries. The specific reasons for

government intervention in agriculture have changed as the nature of the farm problem and

the overall political, social and economic environment which agriculture operates has

changed (Knutson et al., 1998). In the mid 1980s there were cases of food surpluses in most

of the developed countries such as the United State of America, due to the fact that supply of

foods is higher than demand for it, whereas in the developing countries the situation was

reversed. Therefore there is the need for balance in the world food production and

distribution, these led to the creation of policies to restrain agricultural production and food

trade by many countries (Ray, 2001; Halcrow et al., 1994).

(Hill, 1984) identifies six reasons while government intervene in agriculture and food as: (1)

Economic and/or production efficiency (2) Security of food supply (3) Equity of incomes (4)

Reasonable food prices (5) political and (6) conservation.



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However, due to the multiple functions and benefits of agriculture, Colinhickey (2009) stated

three benefits; (a) Food security benefits (b) Environmental protection benefits and (c)

Landscape values as the reasons for state intervention in agriculture. In addition Knutson et

al., (1998) point out that externalities and market failures are the two economic rationales

that make government to involve in agriculture and food.

Intervention Methods in Agriculture and Food

There is no specific method of intervention in agriculture and food across all the countries of

the world as there is no world food and agricultural policy but policies of independent

nations. Therefore, nations meet together and try to agree on policies that will improve their

individual situations, and ensure mutual benefits (Burger, 1994; Halcrow et al., 1994).

However, Hill, (1984) mentioned two basic methods by which intervention in agriculture and

food has been achieved as: deficiency payments and supply-reducing policies. These two

methods have been used to raised prices to farmers and therefore retain resources within

agriculture. Consequently, two broad markets; the agricultural input markets and the

agricultural products markets in which resources and commodities used in farming are made

available for production. And food products are processed and marketed for consumption at

home and abroad respectively were identified to have been used by different nations

(Halcrow et al., 1994).

Impacts of Intervention in Agriculture and Food on the Developing Countries

There are many issues on the impacts of the policies and intervention of the developed world

in agriculture and food on the developing world. While, some studies have shown that

investments and development occurs in the developing countries, it has been argued that such

development were insignificant in magnitude, inadequate in scope and unable to address the

needs of many agricultural communities in particular the rural smallholders (FAO, 2008;

Giblin and Matthew, 2005). Consequently, the amount of money invested in agriculture is

higher in the developed countries than the developing countries, For instance the US and the

EU invested annually an average of US$17,765 and US$7.614 per farm from 1986 to 2007

respectively compared with the miniscule US$1.01(US) and US$2.46 (EU) invested in small

farms in poor developing countries (Alpert et al, 2009.)



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Further studies have shown that the combination of domestic support, markets protection and

export subsidies by industrialized countries depressed world prices and reduced market

opportunity for the developing countries (Diao et al., 2003). However, the extent to which

these impacts have been felt since the Second World War is subject to debates. Therefore

agriculture in the developed and the industrialised countries have been argued to have a

ruinous impact on the developing countries.

Clunies-Ross and Hildyard (1992:10) examined the impacts of developed countries

industrialized agriculture on the developing countries and concludes that:

Third World countries have suffered economic ruin and exacerbated famine as their

own economies have been sucked into a world trading system which uses their land to

provide food for the people and animals of .......While their farmers have to compete

with surpluses dumped on the world market at subsidised prices by the North.

In addition, while thousands of agricultural producers across the world sell their goods on

local, regional and world markets, many smallholders producers in the developing countries

suffers low prices, lost market share and unfair competition (Fraser, 2009; FAO, 2008;

Godfrey, 2002). Fraser, (2009: 29) declared that: ‘for many decades, the small– scale

agricultural sector has been deeply neglected across developing countries’.

According to a study carried out by IFPRI2 in 2003, protectionism and subsidies by

developed nations have cost developing countries about US$24 billion annually in lost to

agricultural and agro-industrial income. The research further revealed the impacts on

agricultural and agro – industrial incomes of some regions with Latin- America and the

Caribbean losing about US$8.3billion in annual income from agriculture, developing

countries in Asia losing some US46.6 billion, and the Sub Sahara Africa, close to US$2

billion.

Furthermore, most of the agricultural trade negotiations by WTO and others have not only

created a big gap between the developed countries and the developing countries but also

favoured the industrialised world‟s people and influential farmers lobbies against consumer

and tax payers, while neglecting and take no cognizance of hundreds of millions of small-

scale farmers and poor consumers in developing countries that are struggling hard to survive

2

IFPRI: International Food policy Research Institute established in 1975 is one of the 15 centres supported bythe Consultative Group in International Agricultural Research and an Alliance of 64 Governments, private

foundation, International and regional organisations.



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on a dollar or two of income in a day (Curtis, 2009; Diao et al,2003). Consequently, the

agricultural and food policies that have been put in place over the years are not the real

substitute for real agricultural and food security policies as most of them lacks effective trade

policies and problematic implementation thereby resulting in a lack of protection for

agricultural markets (Crola, 2009; ActionAid, 2008; Bureau and Matthews, 2005).

Although, Godfrey (2002) argues that: The EU, The World Bank, WFP and FAO (both of the

UN) have all played a crucial role in the past world‟s largest dairy development programme

which has benefitted millions of small dairy farmers in India, one of the developing countries

who became the world‟s largest pr oducer of milk in 2001 with 84 million tonnes. However,

while some rules and policies permit the developed and OECD3 countries to provide massive

support to their agricultural sectors by making use of heavy farm subsidies, the rules and

policies of the WTO, IMF4, The World Bank and the Regional development banks have

majorly coerced the developing countries to either reduce or eliminate subsidies to their

agricultural sectors (Curtis, 2009; Diao et al., 2003; Godfrey, 2002).

In addition it has been claimed that the existence of WTO has generated some conflicts

among the exporting countries, including the domestic farm subsidies, the variable levy and

export subsidies of the European Union, the Japanese protection of its rice and beef marketsand the Canadian protection of its dairy and poultry markets (Knutson et al, 1998).

ActionAid International5 (2008) added that most decisions and policies made by some

developed economies such as the CAP in the European Union and the Farm bill in the US

have not been consistent in their developmental goals and have neglected the impacts of these

decisions on the developing countries. Consequently, Action Aid (2005) stated: “Over

US$300billion is spent each year to subsidise the agricultural sectors in the developed

countries” this amount are six times the total amount of aids to developing countries.

Barling, (2007) further argue that this money is enough to feed, clothe, educate and provide

healthcare for every child on the planet.

3OECD: Organisation for Economic Co-operation and Development established in 1958 formerly known as

Organisation for European Co-operation and Development and it has 30 member countries.4IMF: International Monetary Fund established in Dec. 1945.

5ActionAid International: Formed in 1972 as an International Non-governmental anti -poverty organisation.



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Conclusion and Recommendations

The intervention of the developed economies for the past years in the agricultural and food

sectors though; have some positive impacts but had more negative impacts on the

development of the agricultural sector, the rural development, rural environment, agricultural

labours, small-scale farmers livelihood and incomes in the developing countries. While most

of these interventions reap vast rewards for the minority in the developed economies they

undermined the markets and opportunity for farmers in the developing countries.

Similarly, despite the reforms in some policies such as the European Union CAP programme,

issues of market access and export subsidies were completely ignored. Surprisingly, the

development policies and investments that could target low income farmers and consumers

directly in the developing countries were given little or no attention up-to-date. Therefore

there is the need for urgent action on prevention of these devastating effects by restructuring

and reformation of the existing policies of intervention to support the smallholder farmers,

the welfare of the small scale farmers and to develop the market of the less developed

countries of the world.



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