Agricultural Trade, Rural Agricultural Trade, Rural Development, and Policy Development, and Policy
Coherence Coherence
Association for International Agriculture and Rural Development
June 7, 2004
John Nash
The World Bank
Agriculture is Important Agriculture is Important for Developing Countriesfor Developing Countries
63 percent of population live in rural areas
73 percent of poor live in rural areas
Agriculture and agro-processing account for 30-60 percent of GDP in developing countries, and an even larger share of employment
Even with rapid urbanization, more than 50% of the poor will be in rural areas by 2035
Most of the rural poor are not in countries that receive significant trade preferences
Rural-Urban Poverty GapRural-Urban Poverty Gap
Country
Burkina-FasoMauritania
MozambiqueTanzaniaBolivia
HondurasNicaragua
Source: PRSP documents.
Different incidence of rural and urban poverty (Rural%-Urban%)
35% 41% 9% 16% 42% 23% 38%
Increased Trade is the Best Increased Trade is the Best Lever for Enhancing Lever for Enhancing Agricultural GrowthAgricultural Growth
Sustained trade reforms doubled growth in agricultural sector (Michaely, Choksi, Papageorgiou)
Agricultural trade liberalization gives much higher ag growth rate – 5.7% vs. 1.1% (Valdes)
SSA – countries with large improvement in macro/ trade policies had higher ag growth rate -- 3.5% vs. 0.3% for those with deterioration (World Bank)
Doha Development AgendaDoha Development Agenda
Intended to have central focus on poverty reduction in developing countries
Key role of agriculture – developing countries’ main concern
But – major case of “policy incoherence” by developed countries (interference of government policy in one sphere with achievement of objectives in another)
Many developing countries have Many developing countries have undertaken structural reform undertaken structural reform
programs since 1980s, including programs since 1980s, including trade policies, but now face very trade policies, but now face very
low world prices for their products low world prices for their products and access barriers to and access barriers to
industrialized country markets …industrialized country markets …
Agricultural Protection is Still High Agricultural Protection is Still High
and Mostly at the Borderand Mostly at the Border
0
20
40
60
80
100
120
140
160
US
OE
CD
OE
CD
deve
lopi
ng EU
Japa
n
QU
AD
Man
ufac
turin
g
Pro
tect
ion
Rat
e (%
)
SubsidiesBorder Protection
Average Agricultural Tariffs are Average Agricultural Tariffs are Much Much
Higher Than ManufacturingHigher Than Manufacturing
Agriculture Manufacturing
Percentage of lines covered in
AgricultureQUAD Countries 10.7 4.0 86.7 Japan 10.3 3.7 85.5 US 9.5 4.6 99.3 EU 19.0 4.2 85.9Large Middle Income Countriesa 26.6 13.1 91.3Other Middle Income Countriesb 35.4 12.7 97.7Lower Income Countriesc 16.6 13.2 99.8
a. Brazil(2001), China(2001), India(2000), Korea(2001), Mexico(2001), Russian Federation(2001), South Africa(2001), and Turkey(2001).b. Bulgaria(2001), Costa Rica(2001), Hungary(2001), Jordan(2000), Malaysia(2001), Morocco(1997), Philippines(2001), and Romania(1999).c. Bangladesh(1999), Indonesia(1999), Kenya(2001), Malawi(2000), Togo(2001), Uganda(2001), Guatemala(1999) and Zimbabwe(2001)
Tariff Peaks in AgricultureTariff Peaks in Agriculture
Average Tariff
Maximum Tariff
St. DeviationPercentage
of lines covered
Canada 3.8 238.0 12.9 76.0Japan 10.3 50.0 10.0 85.5US 9.5 350.0 26.2 99.3EU 19.0 506.3 27.3 85.9Korea 42.2 917.0 119.2 98.0Brazil 12.4 55.0 5.9 100.0Costa Rica 13.2 154.0 17.4 100.0Morocco 63.9 376.5 68.2 100.0Indonesia 8.5 170.0 24.1 100.0Malawi 15.3 25.0 9.1 100.0Togo 14.7 20.0 6.5 99.9Uganda 12.9 15.0 3.7 100.0
Tariffs Escalate in Final ProductsTariffs Escalate in Final ProductsTariff rates by stage of processing (percent)Tariff rates by stage of processing (percent)
0
10
20
30
40
50
QUAD Japan US EU LargeMiddleIncome
Countries*
OtherMiddleIncome
Countries*
LowerIncome
Countries*
RawIntermediate
Final
Source: WTO IDB (MFN Applied Duties)
Specific Duties Mask High Specific Duties Mask High ProtectionProtection
Average Ad Valorem Duties vs. Ad Valorem Equivalents in AgricultureAverage Ad Valorem Duties vs. Ad Valorem Equivalents in Agriculture
1.25.0
8.111.7 10.6
35.2
21.6
58.0
0
10
20
30
40
50
60
Du
ty R
ate
(%
)
Australia US EU Jordan
Average Ad Valorem Tariff Average Ad Valorem Tariff Equivalent
Source: WTO IDB (MFN Applied Duties)
Many Products are Protected by Many Products are Protected by QuotasQuotas
Share Of Agricultural Output Under Tariff Rate Quotas (percent)Share Of Agricultural Output Under Tariff Rate Quotas (percent)
28.4
39.2
26.2
13.1
50.1
0.0
49.0
13.6
0
10
20
30
40
50
60T
RQ
(%
)
OECD A
vera
ge
Europe
an Com
munit
y
United
Sta
tes
Japa
n
Easte
rn E
urop
e
Austra
lia, N
ew Zel
and
Oth
er Ind
ustri
al
Oth
er Dev
eloping
“Eastern Europe” = Czech, Hungary, Poland and Slovakia; “Other Industrial” = Norway, Switzerland and Iceland; “Other developing” = Korea, Turkey and Mexico
Source: OECD, Agriculture Market Access Database (AMAD)
DCs’ Own Policies Also Impede DCs’ Own Policies Also Impede Their Agricultural DevelopmentTheir Agricultural Development
Protection and anti-export bias Cheap food policies to keep urban consumers quiescent –
often reinforced by food aid or subsidized exports from OECD
Underinvestment in Green Box measures, such as rural infrastructure and ag research
Lack of definition or enforcement of property rights and contract sanctity
Corruption and/or macroeconomic instability
Result: Stagnating Developing Country Result: Stagnating Developing Country
Trade Share in AgricultureTrade Share in Agriculture(percent of total world exports)(percent of total world exports)
1980/81 1990/91 2000/01 Agriculture Total 35.4 32.2 36.3 To Developing 9.5 8.9 13.4 To Industrialized 25.8 23.3 22.9 Manufacturing Total 19.3 22.7 33.4 To Developing 6.6 7.5 12.3 To Industrialized 12.7 15.2 21.1 Source: COMTRADE
Way forward: Success in the Way forward: Success in the Doha RoundDoha Round
Reforms need to be global and across the board
Only way to address domestic agricultural subsidies
Large potential gains for developing countries
Global Modeling of Doha Round Global Modeling of Doha Round ResultsResults
Elimination of export subsidiesElimination of export subsidiesDecoupling of all domestic subsidiesDecoupling of all domestic subsidies
Elimination of specific tariffs, TRQs and anti-dumpingElimination of specific tariffs, TRQs and anti-dumping
Tariffs Rich DevelopingAgricultureAverage 5 10Maximum 10 15
ManufacturingAverage 1 5Maximum 5 10
Income Gains are SubstantialIncome Gains are Substantial ((Real income gains in Real income gains in 20152015 relative to the baseline, relative to the baseline, $1997$1997 billion billion))
0
50
100
150
200
250
300
High-income Low- and middle-incomeSource: World Bank model simulations.
Dynamic
Static
Driven by ExportsDriven by Exports((Change in export revenues in Change in export revenues in 20152015 relative to the baseline, relative to the baseline, $1997$1997
billionbillion))
0
50
100
150
200
Agriculture Processed foods Textile, clothingand footwear
Othermanufacturing
Developing
High income
Rural Income GainsRural Income Gains((percent change inpercent change in r rural income in ural income in 20152015 relative to the baseline relative to the baseline))
-30 -20 -10 0 10 20 30 40 50
CAZEURUSAJPNBRACHNIDN
SACVNMXEARLCXSS
Source: World Bank model simulations. Note: XSS—Sub-Saharan Africa excl. SACU, RLC—LAC excl. Brazil and Mexico, XEA—East Asia excl. China and Vietnam, VNM—Vietnam, SAC—SACU countries, IDN—Indonesia, CHN—China, BRA—Brazil, JPN—Japan, CAZ—Canada, Australia and New Zealand.
A “Development Friendly” Doha A “Development Friendly” Doha Outcome in Agriculture Would Outcome in Agriculture Would
IncludeInclude…… • Significant reductions in peak tariffs and tariff
escalation in developed and developing countries, through a binding formula mechanism
• Completion of ad valorem “tariffication”
• Special safeguard for developing countries to handle import surges/low world prices
• Expansion of within-quota imports; reduction of in-quota tariff rates to 0
• Disciplines on TRQ administration
A “Development Friendly” Doha A “Development Friendly” Doha Outcome Outcome (cont’d)(cont’d)
• Complete phase-out of export subsidies (including subsidized export credits), and disciplines on STEs and food aid
• Disciplines on use of export taxes and controls• Deep reductions in trade-distorting domestic
support payments (Amber Box), with product-specific commitments, and switch to decoupled payments
• Caps and then reductions in fixed-production subsidies (Blue Box)
• Cap on Green Box payments, and review of extent of trade distortion of mechanisms in Green Box
A “Development Friendly” Doha Outcome (cont’d)
Re-thinking S&DT: • More emphasis on development impact; • More on positive obligations of
developed countries; • Less on blanket exemptions for
developing countries, but with some differentiation.