THE MIRAGE OF DEVELOPMENT THROUGH TRADE

By Anuradha Mittal Reprint | | Print |

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OAKLAND, Jan 3 2005 (IPS) - A new report from the UN Food and Agriculture Organisation (FAO) concludes that the last 40 years of international trade in agriculture have not benefited the developing countries, above all the Least Developed Countries (LDCs), write Frederic Mousseau, Senior Fellow at the Oakland Institute and internationally-renowned food security consultant, and Anuradha Mittal, the founder and director of the Oakland Institute. In this analysis, the authors write that according to the report, trade actually marginalises the poorest countries and their small farmers and mainly benefits large-scale producers and corporations from developed countries. In the last few decades, transnational corporations have increased control over production and trade in developing countries. While it denounces market distortions caused by developed countries, the report does not question the policies that harm agriculture in the developing countries and undermine the livelihoods of their farmers. Instead it recommends measures to make developing countries and their farmers more competitive in an open global economy, suggesting that the trade and market liberalisation are the only chances that poorest nations have to get out of poverty. The authors argue for the adoption of food sovereignty as a national policy for developing countries, including the right to protect their production and markets from an inequitable system.

A new report from the United Nations Food and Agriculture Organisation (FAO), The State of Agricultural Commodity Markets, concludes that the last forty years of international trade in agriculture have not benefited the developing countries, above all the Least Developed Countries (LDCs).

In fact, developing countries, and LDCs in particular, are dramatically losing ground in international trade. Most are dependent for their foreign exchange earnings on exports of a small number of agricultural products, the real prices of which are volatile and declining in the long run. The direct consequence is erratic income for these countries and their small producers.

This specialisation in few commodities has increased LDCs’ dependence on food imports from developed countries. While developing countries have increasingly specialised in non-food products such as coffee or cocoa, the subsidised exports from developed countries have made imported food cheaper than local products. This resulted in the transformation of what was a one-billion-dollar food trade surplus for developing countries in the 1970s into a deficit of USD11 billion in 2001.

While their export earnings are volatile and in the long term declining, developing countries also have to finance growing imports of food and manufactured goods from developed countries. This explains the disastrous deterioration of the terms of trade for the least developed countries and the “consequent transfer of income from developing to developed countries”. This has threatened food security and economic sustainability of many LDCs and increased their debt burden.

Clearly this trend is not due only to weak competitiveness or inadequate policy choices on the part of the developing countries. Rather, tariffs, subsidies, and other trade-distorting policies in developed countries have eroded developing countries’ market share and export revenues. Structural Adjustment Programmes, encouraged by developed countries, have also weakened developing countries. Indeed, the following elements make very clear the role played by developed countries in this regard:

– Subsidies to farmers in developed countries have depressed commodity prices on world markets. For instance, European sugar is exported at 75 percent below the cost of production. A direct consequence of this is the erosion of both the income and market share of producers in non-subsidising developing countries who cannot compete against cheap subsidised foods. This practice also drains the foreign exchange reserves of many countries that depend heavily on commodity exports.

– The average tariff for imported agricultural products in developed countries is 60 percent, compared with an average of 5 percent for industrial goods. These tariffs are unfair to developing countries, which are highly dependent on exports of agricultural commodities. Furthermore, by imposing tariff escalation regimes –the more processed a given product is, the higher the tariff– developed countries are discouraging developing countries from investing in agricultural processing. Yet, diversification into higher value-products would reduce developing countries’ dependence on primary export commodities, which produce less income to begin with and whose prices are falling.

– Structural Adjustments Programmes have resulted in the opening of local markets and elimination of state support for farmers and production. In the past, producers were protected from price volatility for key agricultural products by state institutions, which would stabilise prices and support farmers’ incomes. Whereas developed countries have maintained high levels of agricultural subsidies at home, in developing countries structural adjustments have shrunk public expenditures on agriculture. This has decreased their ability to support their producers and to adapt their agriculture through production support, training, and necessary investments.

While developed countries promote a vision of development through trade, the FAO report shows that trade actually marginalises the poorest countries and their small farmers and mainly benefits large-scale producers and corporations from developed countries. In the last few decades, transnational corporations have increased control over production and trade in developing countries. For instance, 40 percent of the world’s coffee is traded by just four companies, and 45 percent is processed by just three coffee roasting firms. A similar trend exists at the retail level, with supermarkets increasing their share of food retailing. “Worldwide, the top 30 supermarket chains now control almost one-third of grocery sales.” This concentration gives these large companies a dominant position in the market and significant leverage over production and prices; it also greatly favours large-scale producers, often under the control of these firms, and marginalises small farmers.

Apart from denouncing the market distortion caused by developed countries, the FAO report unfortunately does not question the policies that harm agriculture in the developing countries and undermine the livelihoods of their farmers. Instead it recommends measures to make developing countries and their farmers more competitive in an open global economy. Though it presents evidence of failed trade agreements, FAO does not question market liberalisation and instead recommends more liberalisation, advocating for removal of tariffs in developing countries in order to boost trade among them.

Overall FAO has failed to provide the right remedy to an ongoing disaster.It suggests that trade and market liberalisation are the only chances that the poorest nations have to get out of poverty. Yet, it is obvious from the findings of this report that the only way forward for the developing countries is the adoption of food sovereignty as a national policy, including the right to protect their production and markets against an inequitable system. This development model would seek well-being and food security for all people and farmers in developing countries, rather than profits for business interests in developed countries. (END/COPYRIGHT IPS)