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.