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Easing the Transition to More Open Global Markets

Proceedings of the 32nd IPC Plenary Seminar

November 12-13, 2004 Taj Palace Hotel New Delhi, India

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TABLE OF CONTENTS

Opening and Welcome.................................................................................................................. 3

Keynote Address: Shri Rajnath Singh, Minister of Agriculture and Cooperation, India........ 4

Session One - The Role of the Public Sector: Agricultural and Rural Policies ...................... 5 Chairman, RCA Jain – Secretary, Ministry of Agriculture, India .................................................. 5 Sarala Gopalan – Trustee, National Institute of Agriculture, India............................................... 5 Prem Kumar – Chairman, Food Corporation of India ................................................................. 7 Pedro de Camargo Neto – Former Secretary of Production and Trade, Brazil........................... 7 Jikun Huang – Chinese Center for Agricultural Policy................................................................. 8 Vandana Shiva – Research Foundation for Science, Technology & Ecology........................... 11 Discussion.................................................................................................................................. 12

Session Two: The Role of the Private Sector – Technology and Investment ....................... 14 Chairman – Hans Jöhr, Corporate Head of Agriculture, Nestle................................................. 14 Partha Das Gupta – Syngenta, India ......................................................................................... 14 Hardeep Singh – President, Cargill India................................................................................... 15 Raul Montemayor - Federation of Free Farmers Cooperatives, Philippines ............................. 17 K.S. Money - Agricultural and Processed Foods Export Development Authority, India............ 19 Discussion.................................................................................................................................. 19

Session Three: The Role of Trade – South-South and Global................................................ 20 Chairman - Brian Chamberlin, Former Agricultural Counselor, New Zealand........................... 20 Shishir Priyadarshi – World Trade Organization........................................................................ 20 T. Venkat Subramanium –Export-Import Bank of India ............................................................. 22 Marcelo Regunaga – Former Secretary of Agriculture, Argentina............................................. 24 Anwarul Hoda –Indian Council of Research on International Economic Relations ................... 26 Discussion.................................................................................................................................. 27

Session Four: The Role of the International Community........................................................ 29 Chairman – Robert Thompson, Chairman International Food & Agricultural Trade Policy Council ....................................................................................................................................... 29 Pedro Medrano Rojas – World Food Program, India................................................................. 30 Nestor Osorio – International Coffee Organization.................................................................... 31 Attakir Raman – International Fund for Agricultural Development ............................................ 32 Piet Bukman – Former Minister of Agriculture, Former Minister of Trade and Former Minister of Development, The Netherlands ................................................................................................. 33 Discussion.................................................................................................................................. 34

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Opening and Welcome The 32nd IPC Plenary Seminar, Easing the Transition to More Open Global Markets was opened by Devi Dayal, IPC Member and Trustee of the National Institute of Agriculture, India. Dayal acknowledged the leadership of S.M. Wahi, who was a founding member of the United Nations Food and Agriculture Organization and the International Federation of Agricultural Producers, an IPC Member Emeritus and Trustee of the World Farmers Times Foundation.

Balram Jakhar, National Institute of Agriculture, India The topic selected for the seminar is very appropriate and timely, particularly when one looks at today’s international horizon with regard to agriculture and trade. The focus of this seminar is on the impact of liberalization and ways that developing countries can take advantage of more open world agricultural trade while not only protecting, but enhancing the interests of their farmers, particularly small farmers.

More than 70% of the population of India depends on agriculture for their livelihood. Life must be made more comfortable and progressive in the village, for the village is the real India. Other countries’ technical and productive capacity is more advanced. India must now see if it can stand up to global competition. The terms of trade are not in our favor. Developed country subsidies are too high to face.

Can India compensate for the many years of oppression it experienced? Will India be an equal partner with the rest of the international community? India has a lot to face having been oppressed for many years. There are two kinds of colonialism: the first is forced, and the second is economic. India must be given a fair chance.

Bhishma Narain Singh, National Institute of Agriculture While it is accepted that international trade in agriculture and other commodities should be liberalized so production and distribution can take place efficiently, the principle that this process should benefit all participants is also widely acknowledged. Developing countries need special and differential treatment to ensure a level playing field and to take care of the livelihood and food security concerns of their vast populations. Developing countries are always apprehensive about globalization and trade liberalization. Globalization must be ushered in with a soft touch in an equitable manner.

Robert Thompson, IPC Chairman The IPC believes that despite the gaps in national proposals and the pessimism among countries, there are politically viable compromises that can move the process of agricultural trade liberalization in the Doha Round well beyond that of the Uruguay Round. While the Uruguay Round made valuable, conceptual steps forward, the final agriculture agreement was so riddled with loopholes that little real trade liberalization occurred.

Of the 1.25 billion people who live on less than a dollar a day in this world, seventy-percent of them live in rural areas and most are farmers. Trade is the most powerful engine of economic growth, but the playing field is tilted against developing countries. Furthermore, the current system of high subsidies and protectionism in developed countries impedes developing countries’ ability to take advantage of the benefits of trade liberalization. These policies depress international prices and increase their variability.

Economic theory argues that trade liberalization is good because the gains of gainers exceed the losses of the losers, and therefore, society as a whole is better off. However, if the losers are consistently those who already have the lowest income and the least capacity, it is unjust to knock them down further. There need to be interventions to compensate the losers or at least facilitate the transition. The challenge is to complement the opening of national and international agricultural markets with measures that assure that the maximum numbers of people are lifted out of poverty while there are gains in economic efficiency and environmental sustainability.

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Keynote Address: Shri Rajnath Singh, Minister of Agriculture and Cooperation, India A more open market is a big leap, not only for countries, but also for farmers. In countries like India, where subsistence agriculture still dominates the sector, this involves a two-fold transition: first, the transition from subsistence to market-oriented agriculture, then the transition from trading within the country to trading on the international market.

Multilateral rules seek to monitor the levels of government farm support and the level of tariff protection permitted. The rules do not take into consideration the differing concerns of the members of the WTO, except for additional special and differential treatment to developing countries.

The concerns of poor agrarian developing countries like India, where agriculture is the main source of employment are not similar to the concerns of the industrial countries where the proportion of people who depend on agriculture is very small. The consequences of a more open market in agricultural products pose a more serious threat to developing countries.

Farm subsidies in developed countries lead to overproduction, which depresses prices. Agriculture in developed countries can withstand the pressures of these fluctuations with government subsidization. Farmers in developing countries are particularly vulnerable to even minor price fluctuations. The decrease in prices directly affects the income of farmers and threatens their livelihoods. But, developing country governments cannot subsidize their farmers to help them survive price fluctuations.

If developed country agricultural subsidies continue at the present level, developing countries have no choice but to apply high levels of tariff protection so that their agriculture can survive the under-priced, cheap imports from developed countries. The surest way to a fair and painless transition to more open global trade would be to achieve real and substantial reductions in developed country subsidies. The Indian agricultural negotiating proposals must be seen in this context.

The responsibility for the transition to a more open global market in agricultural products does not lie on developed countries alone. Countries like India must take a number of steps to integrate agriculture into global markets. India began removing quotas on agricultural imports and exports in 1994 and completed the removal in 2001. Duties on agricultural imports in India have also seen a decline in the last decade.

These policies have led to significant distress for domestic oilseed producers, but India resisted the temptation to increase import duties on edible oils – even to the rates they are allowed under their WTO commitments. While it is important for countries like India to take these and other steps to improve the competitiveness of agriculture, the global environment of agricultural production and support must also be corrected before markets can be further integrated.

The implementation of sanitary and phyto-sanitary (SPS) measures after the Uruguay Round has been a significant impediment to exports from developing countries. SPS standards, some of which do not have a scientific basis, have created an even higher wall of protection than tariffs. To make further market opening more equitable, governments must ensure that SPS measures are not used for protectionist purposes and the capacity of developing countries to comply with SPS standards must be improved. Multilateral institutions like the WTO and the FAO must contribute to this capacity building.

Globalization in agriculture cannot be taken as a noble objective. It should lead to improvement in living conditions for the scores of farmers in developing countries. To achieve these objectives, existing distortions must first be addressed.

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Session One - The Role of the Public Sector: Agricultural and Rural Policies

Chairman, RCA Jain – Secretary, Ministry of Agriculture, India The results of the Ministerial Meeting in Cancun prove how difficult it is to establish a free, fair and equitable trade regime. The agreements signed at the end of the Uruguay Round sought to establish such a regime. However, asymmetries remain in the system. The collapse in Cancun did not bring about the end of the WTO. India is keen to see the dialogue that was interrupted by Cancun resume.

India took steps, particularly at the beginning of the 1990s, to open its agricultural sector. Today, quantitative restrictions on imports have been completely eliminated. India has complied with its WTO commitments entirely. To facilitate the easing of transition to more open economies, other WTO members must do likewise. If there is no justice and fair play in the international trading system, it is very difficult for developing countries to accept further commitments.

Sarala Gopalan – Trustee, National Institute of Agriculture, India To look at what trade would mean for the livelihoods of the more than six hundred and fifty million people who depend on agriculture and live in rural areas, some important facts about agriculture in developing countries must be acknowledged:

• Agriculture is the main source of employment in poor countries. Sixty-five percent of the Indian population is dependent on agriculture, as opposed to 30% in middle-income countries and 4% for high-income countries.

• Agriculture contributes significantly to the GDP of developing countries. For India it contributes 26%, for other low-income countries 34%, for upper-middle income countries 8% and for high-income countries 1.5%.

• Agriculture is an important source for foreign exchange and revenue.

• The share of agricultural exports to merchandise exports is more than 50% for many developing countries.

• Food expenditures average one-third of total household expenditure in developing countries and can reach levels as high at 80%; whereas food expenditures account for a small and decreasing share of household budgets in developed countries.

India has the second highest agricultural population in the world, the second largest arable land area, and the most irrigated land. However, only 28% of the crop is irrigated; the rest is rain-fed. When there is a shortage of rain, poverty levels rise significantly.

India went through a green revolution in the Indus Basin, which has helped it attain self-

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India’s Position in World Agriculture during 1999Item India World India’s Position

% Share RankArea (Million Hectares)

Arable Land 162 1381 11.7 Second

Irrigated Area 59 271 21.8 First .

Population (Million)

Total 99 5978 16.7 Second

Agriculture 553 2575 21.5 Second

Economically Active Population (Million)

Total 437 2911 15.0 Second

Agriculture 263 1317 20.0 Second 5

India’s Position in World Agriculture during 1999Item India World India’s Position

% Share RankCrop Production (Million Tonnes)

Total Cereals 230 2064 11.1 Third

Oilseeds - Groundnut 7 33 21.2 Second

Rapeseed 6 43 14.0 Third

Fruits & vegetables (Million Tonnes)

Vegetables & Melons 59 629 9.4 Second

Fruits excluding Melons 39 445 8.8 Second

Potatoes 23 294 7.8 Third

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sufficiency for food production. But, optimal production has not been reached in all parts of the country. The Indo-Gangetic and Brahmaputra valleys have not benefited from the Green Revolution for lack of investment in irrigation infrastructure and flood control measures. Ground water potential has not been fully exploited, though there are areas of excessive exploitation.

The investment required to create processing and marketing infrastructure is inadequate. Much of what is produced cannot get to market. For example, there are times when prices for tomatoes are very high in Delhi, while large quantities go to waste in rural areas for want of the infrastructure necessary to get them to market.

Import of technology and intensive research and extension to modernize agriculture is sorely needed. The government does not currently allot adequate resources to agriculture. For example, extension officers do not have an allowance to purchase gas so they are unable to travel. If extension officers cannot travel, they cannot bring information to farmers in remote areas.

India is a commodity producer and exporter. However, value-added production is almost absent. Abundant government support to increase value-added production that will benefit producers and create more employment is necessary.

India’s agricultural exports are about $58 billion USD – 14% of national exports. Agricultural imports are 5% of total national imports; half of these are edible oil. Trade liberalization in the present state of India’s agricultural development could inhibit the development of export capability in the long run.

There are several ways that the government can help the Indian farmer:

• Invest in infrastructure: irrigation, processing, storage and marketing.

• Facilitate access to technology by investing in research and extension.

• Encourage cooperative efforts among farmers, minimizing government interference and the role of middlemen.

• Support private investment using incentives for capital-intensive farming activities like replanting of tea, coffee and other long-gestation plantations either through cash subsidy, tax concessions or other instruments.

• Promote value-added industries so that India is processing products, not just exporting raw commodities.

The government has been making massive investments in rural development. Some of these investments go to rural infrastructure like link roads and minor irrigation facilities, but there needs to be a synergy between government infrastructure projects and areas of farming activities so that products can be brought to market more quickly. As a former Minister observed, India’s rural development schemes are largely expenditure-oriented; expenditure is not necessarily investment. India needs to build assets with our expenditures.

Critics have characterized India as an opponent of trade liberalization. This is not an accurate assessment. International trade negotiations should be informed by the reality that trade is a positive sum game in which everybody can win. The North and South are not adversaries, but interdependent entities.

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Agri Imports & Exports situation in IndiaImports- Of the order of Rs.120,000 million (US$ 25 billion) Half of this is edible oil imports. Agri imports only 5% of total National importsEXPORTS

Rs.2900 billion (US $ 58 billion)(Billion =100 million)This accounts for 14% of total national exportsPrincipal Exports in quantity terms (in ‘000 Mts.)Marine products 500Basmati rice 850Oil meals (cattle feed) 2,430 Tea 200Coffee 190Spices 245Cashew 80

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The Chairman’s Response Indian agriculture is the largest private sector enterprise in the world. It employs 110 million farmers. India does not have sectors that can provide an alternative to the farmer. Trade negotiators have been realistic in saying that unless developed countries are able to reduce or eliminate subsidies; developing countries like India are not in a position to make an assessment of how much market access can be given.

Extension is currently the responsibility of state governments in India. It is true that many states are not able to provide salaries and transport expenditures for staff. The national government is now experimenting with other methods of extension, such as providing extension through TV and radio. India has a massive infrastructure of low-powered TV and FM radio stations that could provide farmers with information on local weather, local prices, markets, when to sow, and how to sow.

Prem Kumar – Chairman, Food Corporation of India The Food Corporation of India (FCI) is one of the largest government enterprises in India and is a Fortune 500 company. It is the only agency of its kind in the world. The FCI was established in 1965 to ensure food security, a certain amount of price stability for the farmer and consumer and to maintain buffer stocks in case of crisis. The FCI implements a minimum price support program. When prices for food grains go below the minimum support price, the organization becomes active in procurement. Roughly forty million tons of food grains are procured annually. The FCI presence is limited to 20% of agricultural production. It is important for the government to be present in this part of the agricultural sector as a compliment to the private sector.

Five states account for more than 60% of the FCI’s procurement. The challenges are to procure food to ensure that stocks are strategically distributed throughout the country and to anticipate crises and low or high prices.

The theme of today’s seminar is ‘Easing the transition to more open global markets.’ I wish that this had been extended to ‘Easing the Transition to More Open Global Markets to Improve the Social and Economic Standards of the Farm.’ Is the objective purely to open up global markets? The ultimate mission should be to assure that the farmer gets a more than adequate return for what he produces.

India’s government support price takes the costs of factors of production into consideration so that the farmer is left with a reasonable standard of living. However, there are still marginal farmers who are left with little apart from their consumption needs. The FCI purchases at the minimum support price, but the products often go to welfare-oriented schemes.

The time has come for FCI to rethink some of its strategies. If our first commitment is to the very poor, is it fair that the best grain is exported? Studies have shown that it is cheaper to import wheat from Australia than to move it from Panjab to Kerala.

Is it necessary for India to export agricultural products come what may? What is the long-term vision for food export policy? Should there be a mechanism to harmonize the needs of the population with our standards of competition, or should there be a policy that is exclusively oriented toward building up a food security buffer?

Pedro de Camargo Neto – Former Secretary of Production and Trade, Brazil There are three essential features of strong public sector agriculture: extension, research and plant and animal health. Providing extension and education to people in rural areas is essential to increase productivity. Developing countries have not placed political priority on extension. Farmers spend a lot of time complaining about prices and market intervention in other countries, but we have not made it a priority to communicate to our governments the importance of extension.

Brazil has a long history of strong agricultural research and that has helped make Brazilian agriculture what it is today. The research into tropical agriculture by the government research

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organization, EMBRAPA, was vital. Brazil faces a future where biotechnology will be essential. The country is still struggling with how be sure that this kind of research is done in a way that considers the pressures on the environment, the health and safety of the people and the concerns of the population.

The importance of sanitary and phyto-sanitary (SPS) measures must be recognized – the health of our plants and animals is very important. Sometimes SPS measures are developed out of real health concerns, but sometimes they are created as trade barriers by developed countries. In order to face this, developing countries should invest heavily in the necessary infrastructure to comply with SPS measures.

Trade is a motor of development within countries as well as internationally. Transparency in prices is vital. Mr. Jain mentioned the role of television in communicating with farmers. In Brazil, by private initiative, every television channel has informational programming for farmers. This programming has made a tremendous improvement in price transparency in the last decade. Today there is no such thing as a farmer who does not know the exact price for the products he produces anywhere in the world.

The world was surprised to see developing countries getting together in the form of the G20. The group was so young at the WTO Ministerial in Cancun that it was the first time Ministers of Trade had met as the G20. The unity of the G20 did not develop for political or ideological reasons, but because of the clear demand from developing countries for equitable trade terms. The inequity that exists in the international trade system pushed the G20 to come together in one week’s time. The group was able to develop a very strong position that has lasted until today and will last until there is real progress that addresses overall development needs, the role of the rural populations and the role that international trade can play in encouraging or destroying development opportunities.

Chairman’s Response Transparency in prices is the most important component of the economic interests of farmers. Today in India, apart from the FCI system, the farmer does not know the prevailing price of his produce in the markets. The goal of marketing reform is to increase transparency so that the largest share of final prices goes to farmers.

Unless and until subsidies are reduced or eliminated, it is not possible to estimate the price that the small farmer should receive. One study done in the United States says that if all agricultural subsidies were removed, the international price of most commodities will rise by 13%. Subsidization that disrupts prices is a significant disincentive to a transition to global markets.

Jikun Huang – Chinese Center for Agricultural Policy In the last twenty years, China’s income has grown by about 9% per year. Even during the Asian Crisis, China’s economy was able to grow by 8%. Total agricultural GDP growth has been 3-5% annually.

An implication of this growth is an increase in farm income. Over the last twenty years Chinese farmers’ real incomes have increased by nearly four times. This increase in income has resulted in a significant decline in the number of farmers living below the poverty line. When China began reforms in the late 1970’s, there were more than two hundred fifty million farmers under the poverty line. Now it

Growth of GDP and Ag GDP (%)

0123456789

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1979- 84 1985- 95 1996- 00

GDP AgGDP

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is only about thirty million. Poverty incidence declined from more than 30% in 1978 to 3% today.

Growth is occurring in every sector – agricultural and non-agricultural. Ms. Gopalan pointed out that in India, agriculture contributes about 26% to GDP; in China it is less than 15%. That share has declined from 40% in 1970 and continues to decline. The industrial and service sectors now represent more than 85% of GDP.

Economic growth came with a tremendous increase in employment in the industrial and services sectors. In 1984, about 5% of farmers were employed full-time in non-farm sectors. After twenty years, more than 20% of farmers are employed full-time in non-farm activities. If part-time seasonal workers are included, about 45% of farmers’ time is spent in non-farm activities. This has created a huge income increase in the last twenty years. In 1978, nearly 90% of farmers’ income was from the agricultural sector. Two years ago, agricultural income was less than non-agricultural income.

Economic growth is essential for poverty reduction, but it is not sufficient for poverty alleviation. The decline of poverty in China is also a result of an anti-poverty program started in the mid-1980s. Incomes are increasing, but the gap between rich and poor is also increasing. The poor

Per capita rural real income

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1980 1985 1990 1995 2001

Number of population under poverty in China, 1978-2001

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1978 1983 1988 1993 1998

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Rural poverty incidence in China, 1978-2001(%)

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1978 1983 1988 1993 1998

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Shares of agricultural and non-agricultural GDP in China, 1970-2001

4030 27

15

0102030405060708090

1970 1980 1990 2001

Agriculture Ind/Service

Share of non-agri employment of rural labor, 1981-2000 (source: CCAP)

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0.05

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0.15

0.2

0.25

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0.35

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0.45

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1981 1986 1991 1996

Full timeFull time + seasonalFull time + seasonal + part time

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have enjoyed income growth, but at a much lower rate than the rich farmers have. If the total rural population is divided into ten groups based on income, for the bottom ten farmers’ incomes have increased about 180% in the last twenty years. But, for the top ten farmers, income has increased more than four times.

Poor farmers gained less than rich farmers because they have less opportunity for off-farm employment. The bottom ten farmers spend 70% of their time in agricultural activity, while rich farmers spend more than 90% of their time in off-farm activities. Bringing human capital – education – to the poor should be a priority in future government policies so that they have an equal opportunity to benefit.

When China started reforms in 1980s, the government began promoting “TVE,” Township Village Enterprise Development. Through this program, local governments provide credit, finance and free land for collective enterprise development using cheap labor. This is the first stage of development. These enterprises are competitive because they are competing with much less efficient state enterprises in urban areas. With increases in foreign direct investment (FDI) in China and reform in urban areas, these collective enterprises became relatively less efficient. In the early 1990’s the government began restructuring enterprises in rural areas by selling the collective enterprises to the private sector. Reforming ownership allowed the TVE enterprises to continue to grow through the 1990s.

The share of crops in agricultural output was 80% in 1978, now it is only about 50%. Demand and consumption have changed and producers have been able to respond. Ninety-percent of the income gains from the agricultural sector came from structural changes – movement from less competitive sectors to more competitive sectors. Trade helped to move China in this direction.

This change would not have been possible without changes in technology. Increased availability of grain has not come from imports – imports have declined since 1979 – but from increased total factor productivity. Marketing reform and technological change were the two main factors affecting total factor productivity.

Source (%) of farmer’s income

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Gini coefficient in rural China, 1980-2000

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0.35

1980 1985 1990 1995 2000

Per capita income in ruralBottom 10%:180%; Top 10%:407%

-500

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3500

4500

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1980 1985 1990 1995 2001

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Farmers full time farming %

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Bottom10%

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Human capital or education is key for farmers to access to non-agricultural employment

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About 80% of agricultural growth is a result of institutional reforms in the early 1990s. Farmers now have a right to use their land for thirty years. This has created a strong property rights environment for farmers and encourages long-term investment.

Before the 1980s, almost all procurement came from the government. China gradually phased out government intervention. Before 1998 the government paid much less than market prices. Today, the government pays a little more than the market price to farmers.

Last year, 85% of agricultural trade was private sector and 15% public sector. The Chinese market is highly integrated. Prices anywhere in China can impact prices anywhere else in China. This has convinced the government that the private sector can do better than the public sector. Ten years ago only 50% of the market was integrated, but now it is nearly 100%. That has reduced price fluctuation in China dramatically.

China has one of the lowest tariff levels in the world. Tariffs are now at 21% and the WTO has asked China to go from 21% to 17%. Many countries maintain 20-50% tariffs. At the beginning of China’s accession to the WTO, tariffs were at similar levels to other developing countries, but China was required to make larger cuts in tariffs than other developing countries committed to in the Uruguay Round Agreement on Agriculture.

The way that China prepared for trade liberalization is consistent with the reforms it has undertaken in the last twenty years. When China joined the WTO, many commodity prices were still higher than the world price. This had a negative impact on trade, and the government established an intervention policy in these sectors. It was also important for the United States, European Union and Japan to open their markets to China, so that it could exploit its areas of comparative advantage. However, SPS measures in these markets prevented this from taking place.

In the last twenty years, exports from land-intensive activities have been continuously decreasing while exports from labor-intensive activities have continually increased. China will continue to trade and trade will continue to help China’s agricultural sector, forcing it to become a more competitive sector.

Even without multilateral trade liberalization, farmers can gain from their own country’s liberalization. The agricultural sector is important for farmers’ income growth, but substantial growth has come from the non-agricultural sector. FDI with trade liberalization can help to impel structural reforms and create employment for farmers.

Economic growth is good for poverty alleviation, but it is not sufficient. Income disparity must be narrowed through more pro-poor interventions. China’s economy demonstrates the path from growth to development.

Vandana Shiva – Research Foundation for Science, Technology & Ecology At the time that WTO negotiations began in Doha, from the point of view of the South, the issue that needed to be addressed was the implementation of trade liberalization. This included both an assessment of what trade liberalization had done in the period since the WTO rules came into force and what the hindrances to third-world countries were.

However, the agenda in Doha did not include the review that was mandated in the Uruguay Round Agreement on Agriculture. Further trade liberalization was the only subject to be discussed. In view of this, what happened in Cancun should not have been a surprise. The review of the Uruguay Round implementation cannot be left aside. If the Uruguay Round is not reviewed in an honest and transparent way, deadlock will be the only outcome of negotiations.

Prem Kumar said in his presentation that open markets are not an objective themselves. What is important is the welfare of the small rural producers – the majority of the world’s population. In the decade of agricultural trade liberalization in India, domestic markets have shut down in response to the rules that guide trade liberalization. There are many forms of trade liberalization, but the current set of rules is damaging.

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The largest impact has been on oilseeds, a sector in which India was once the world’s biggest producer. Trade liberalization made imports of oilseeds rise dramatically. This has led to a dramatic decline in domestic production wiping out the livelihood of many families.

Market closure is also related to falling prices. Falling prices are not connected to efficiency as was thought in the beginning of trade liberalization, but inefficiency – false international price levels linked to high levels of subsidies. Four billion dollars in subsidies for inefficient cotton production in the United States has wiped out millions of producers in Africa. This problem runs through every commodity. Dumping, which used to be defined clearly as selling below the cost of production, has jumped from 11% to 57% in commodities since WTO came into force. That indicates a lack of transparency and fairness in prices. Furthermore, it renders the instruments of public policy that are trying to give just prices domestically to their farmers ineffective, including the minimum support price.

WTO rules are being set undemocratically but are having an impact on the structure of governments. Unless the public policy role in guaranteeing quality, safety and just prices can be maintained, products will be dumped globally at low prices.

The meaning of ‘open’ must be defined. Focusing on the farmer is important, but to do that the Uruguay Round Agreement on Agriculture must be reviewed. The only way to move the Doha Round forward is to recognize that the models of agriculture, including the models of trade liberalization, must be looked at again.

Country after country in the North has reevaluated how they look at agriculture. The United Kingdom has combined agriculture with environment and consumer affairs. Germany has done the same. It is clear that public policy needs an integration of resource-use and consumer choice, quality and safety considerations.

To have a clear public policy, we must bring back regulation in seed supply. Bt cotton seeds were not required to go through the kind of review seed supply used to go through and because of this, there was a false projection of yields. We must start seeing agriculture not only as the artificially cheap commodities that are the output of agriculture, but also the environment that is the output of agriculture.

Discussion Institutional Development

A delegate from Latin America cited Mr. Kumar’s comment that it is cheaper to bring grains from Australia to Delhi than from Southern India. The institutional setup of a country – regulations, law and the application of the law must be addressed. If the goal is to be competitive and ease the transition to an open global market, but defend the local production, there cannot be cars driving on the wrong side of a two-lane highway full of policemen. Even if you build another highway – if drivers can disobey the law without consequence, it will be cheaper to import wheat from overseas than from other parts of your own country.

A Comparison of China and India One participant asked, what is the average farm size and farmer’s income, in China vs. India? What is the difference between the income of urban people vs. the rural people in each country?

Jain responded that the average farm size in India is 1.5 hectares and in China it is smaller. In China the agricultural revolution started when 1-2 hectare plots were given to farmers in the 1980’s, which gave farmers private status. In India, there is still a large landless population. If some land had been given to them it would have increased their income and enhanced their food security.

In India, an average farmer’s income is around $400. That is because the farmer takes on all of the risk. If the monsoon fails, there is no compensation, except for a small amount of money from the agricultural ministry to buy seed for the next year. Unless government focuses on investment

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in infrastructure, research and development, extension, and market infrastructure, it will not make a difference. There may be food security on a macro level, but that is of no consequence to the landless laborer. Household food security remains vulnerable.

Huang answered that the average farm size in China is 0.6 hectares – from 0.2 hectares in South China to 1.5 hectares in Northeast China. A one-hectare farm is considered large in China and these farms are mechanized. Rural income in China now averages about $300 USD per year, although it varies among regions. Urban income is about 2.7 times that of rural income.

Rural-urban income disparity is one of the biggest issues that the Chinese government is facing. Government policies are focusing on turning growth into development. The objective of these policies is threefold: 1) to narrow the urban-rural income disparity; 2) to narrow the income disparities between Eastern, Central and Northern China; and 3) to narrow the income difference between the richest and poorest within the same region.

Huang went on to say that production of Asian commodities is significantly different from other commodities. When thinking about farm size in Asia, do not consider rice; all rice farms are small. Similarly, for horticultural products, one hectare is hard for a family to manage, so small farm size is sustainable. Furthermore, horticulture is difficult to mechanize, so countries like China and India can compete well with developed countries. The problem is in commodities like wheat and maize, where farmers compete with North America and Australia.

Technology A participant asked for suggestions on alternate delivery methods to bring technology to farmers.

Jain described some of the programs that the Indian government has proposed or implemented. According to Jain, the government has discussed setting up centers to adapt agricultural research to local conditions and translate it for farmers. He indicated that the government intends to use TV and radio to transfer information to farmers. India has also begun setting up a system of agri-clinics. The agri-clinics are non-government entities staffed by agriculture graduates who charge a fee for extension services.

Pesticide, fertilizer and seed dealers and their staff often act as extension workers for farmers when no extension is available. The Indian government has started a program to give these employees extension training so that they can give well-informed extension to the farmers.

In India there are a number of corporations involved in contract farming. These companies are also involved in extension. They give seed, fertilizer, and knowledge to farmers. The combination of these programs will help the delivery of knowledge.

14

Session Two: The Role of the Private Sector – Technology and Investment

Chairman – Hans Jöhr, Corporate Head of Agriculture, Nestle If the title of this Session implies that the private sector must facilitate economic transition by providing off-farm employment and that the private sector is responsible for introducing new technologies to help farmers become more profitable, that is a big expectation from the private sector. The responsibility must be shared between the public and private sector.

It is important to look at the big picture before discussing technology and investment. No single country has solved the problem of rural poverty through agriculture alone. Solutions must come from outside of agriculture. Rural-urban migration is natural. As farm income falls below income in the rest of the economy – a normal process – farm labor tends to diminish. This is what has happened over the last twenty years in China. Rural families in developed countries typically earn most of their income from non-farm activities. With these long-term trends in mind, the different milestones in rural development can be addressed.

At the farm level increased productivity per hectare, income per hectare and diversification into other crops or animal husbandry are major milestones. After there has been progress in these areas, more resources should be invested to promote labor productivity, land efficiency and finance. Moving to part-time farming is the next step and finally exit from agriculture. This is the road map to rural development.

Partha Das Gupta – Syngenta, India The challenge to food security is real and imminent. It will be more serious in highly populated countries like India, China and Indonesia. These countries may be self-sufficient today but an immediate threat to their food security exists.

The available technologies for agriculture, such as high-yielding varieties and hybrids that use large amounts of inputs and rely on irrigation are well-suited for good land. In the previous session, Prem Kumar said that 60-70% of the Food Corporation of India’s procurement comes from Panjab and Haryana. These are highly irrigated areas. Other states do not contribute a surplus to the FCI because they are marginal areas. India has reached a saturation point with the currently available technologies.

The productivity gaps that must be met by the year 2025 are clear. The national agricultural research system and the international research system (the CGIAR institutions) – the main components of the public sector research – are in decline. During the first stage of the Green Revolution, there was a massive effort to educate farmers. In the second part of the Green Revolution, when hybrid seeds for coarse grains were introduced, the private sector began to play a larger role.

Growth in GM crop plantings in developing countries is very low, but it is in developing countries that the need for this technology is strongest. Introduction of GM crops was carried out, for the most part, by private business. The public’s interest in the technology was not made clear. The first GM crops that were introduced were either insect-tolerant or herbicide-tolerant, primarily benefiting farmers in the form of higher, more assured productivity at a lower cost. Consumers did not perceive the benefits of these traits.

China made a significant advance in not only introducing the GM crops, but also promoting large-scale production and collaborating with the private sector to distribute seed. The highest rate of increase in cultivation of GM crops has taken place in China with BT cotton, benefiting millions of small cotton growers.

There are many reasons for the slow spread of biotechnology in developing countries. While government officials recognize that GM technology is an important tool, it has not been a priority. In India agriculture is left up to the State. National agricultural policies and state agricultural policies are not always the same. When it comes to new technologies, state and national policies should be unified in their priorities. Public sector research and development is inadequate.

15

When the public sector is not seriously involved, government is less interested. Governments also do not understand the intellectual property rights issues appropriately. Regulatory processes do not aim at enabling new technologies. The most important factor in changing this is good private-public relationships.

Regulatory constraints are a significant barrier. Food and feed biosafety regulations are not developed. Detection facilities for genetically modified products are not available. The first application for approval of a GM crop was filed in 1995. Detection facilities should have been in place by 1998.

The policy for food crops is unknown. There is no secretariat for the GM regulatory system. There are offices and committees, but no permanent secretariat or regulatory staff. Decisions on biotechnology approvals are taken by majority votes, which are not necessarily based on science.

There is a lack of transparency in the regulatory process. The application process can go on for several years and many expensive tests are required. This will be a major deterrent for smaller companies and even public sector institutions. They will not be able to sustain the costs of the regulatory process. Eventually, regulations of all countries should be harmonized so that if a crop is certified in one country, it should be respected in others.

It is important to build public support for new technologies that bring higher productivity at lower cost. The reason there is no public awareness about biotechnology is because there is not much real scientific data published in the media. Scientific data is not easily translated for the public; sensational ideas are more attractive.

Biotechnology is being developed that not only has input traits, such as insect and herbicide tolerance, but output traits that will benefit the consumer, such as higher beta-carotene and high iron rice; long shelf-life bananas; and maize that has higher feed value. Further research will lead to abiotic stress-tolerant plants such as varieties that would be more successful in highly saline soil or drought-prone areas. New technologies that benefit agriculture by raising productivity and making cultivation in stressful circumstances possible can only be brought to market with good private-public partnership.

A strong private-public relationship will be for the public good. The strength and stability of partnerships depends on comparable benefits, transparency and trust. Both public and private sector have a role to play. All stakeholders – including those who are critical of the technology – must engage in debates to discuss their views and listen to why others disagree. Only then can new, efficient, highly productive technologies be implemented.

Hardeep Singh – President, Cargill India In India there is a smug complacency with the 3.2% compound annual rate of growth in agriculture. There is a feeling that policy makers are responsible for making this happen. This growth has occurred not because of government policy, but because of the ingenuity of the Indian farmer. Agriculture is possibly the most ignored sector in India. Agricultural policy is the responsibility of the states. It is not a subject for the national government in India.

In the previous session, Prem Kumar introduced the procurement system and the minimum support price. Procurement in India takes place in only three and a half states. The minimum support prices works in only two commodities – in three and a half states. On 70% of the land in India farmers have neither a support price, nor a risk management system. The only subsidy these farmers receive is for fertilizer, water and in some areas electricity. This is as pure a form of capitalism you can imagine.

In 1980 global investment in agriculture was double the value of subsidies; in 2001 subsidies were triple the value of agricultural investment. This is not because subsidies are up, but because investment is down. There is virtually no investment in agriculture in India.

India is increasingly competitive in wheat, rice and, at the margin, in corn. However, India is not competitive relative to the rest of the world in each oilseed compared to the same oilseed. In fact, India is one of the most uncompetitive producers of oilseeds worldwide. In the previous session,

16

Ms. Shiva talked about vegetable oil. India has a billion people to feed. The objective should be to keep people fed rather than to make sure India still produces vegetable oil.

There is a popular idea that India is a surplus agricultural economy because we are sitting on an accumulated grain surplus of thirty million tons. The real grain surplus year-on-year is seven million tons between wheat and rice. The year on year deficit in oilseeds is five million tons. The acreage required to produce five million tons of oil is equal to the acreage that could produce thirty-two million tons of grain, based on a weighted average of oilseed crops in India. At the same time, the deficit in pulses is equivalent to seven million tons of grain – the entire surplus.

Demand in India, as in other developing countries is shifting away from cereals as the country moves up the economic ladder. People are eating more fats, more oils, and more meat. Seventy-percent of people in India are vegetarian by economic compulsion. Only 30% are vegetarian for religious purposes. If India did not have a vegetarian tendency, there would be no grain surplus; the grain would feed animals.

It is true that farm size is small in India and there are low marketable surpluses. A lot of the on-farm produce is marketed close to or at the farm because there is no government procurement. It is not that there are no surpluses. Today it is possible to buy below the support price one hundred kilometers from Delhi, because the government does not operate there. This inequity cannot be sustained over the long-term. Policymakers are coming to grips with that reality.

Trade should be the mechanism in areas of marketable surplus. The government should operate in places where there are currently no marketing mechanisms. It is in outlying areas where the government should provide security and support prices with a view to encouraging trade.

Leverage Country Competitiveness• Focus on commodities

where India has competitive advantage & import with value of surpluses generated

-0.2

-0.1

0

0.1

0.2

0.30.4

0.5

Rice Wheat Corn4.93.87.11.6Corn

3.52.52.42.5Wheat

6.03.76.32.9RiceChinaWorldUSIndiaYield/HA

Competitiveness of Indian Crops

Source : NCAER

- 1 . 4- 1 . 2

- 1- 0 . 8- 0 . 6- 0 . 4- 0 . 2

0

G n u t O i l S o y b e a n O i lS u n O i l M u s t a r d O i l

Indian Vegoil Competitiveness

Even Worse Off Relative to Palm Oil EquivalenceSource : NCAER

Shifting Demand away from cereals …

1.8

2

2.9

3

3.2

3.3

3.8

0 1 2 3 4

Rice

Wheat

Fruits

Pulses

Vegetables

Milk

Meat

Projected Growth Rates of All India Demand between 2000-02

17

The government has developed a large system of warehouses called the grain handling system. These warehouses are at origins and ports. This is like building a large parking lot without a road. You cannot have large silos in the middle of nowhere with no corresponding network. Grain handling must be privatized. Private sector investment across the value chain will follow.

There is an overcapitalization on the farm in India. Farms are very small and each farmer owns his own equipment. There is a scope for optimization and there is a scope for non-agricultural activity on the farm.

There is no land lease law in India. In a country short of agricultural produce, good land lies fallow. If land is leased, an owner cannot be sure to get it back.

There is over-capacity in the largest segments of food processing in India built on the back of concessions, taxes and other distortions. This has an impact on value added processing and distorts trade.

Policy makers must create a middle ground that straddles social goals and economic drivers. There is a vicious cycle of ‘freebies,’ such as free electricity. The moment a freebie is handed out, it has distortive effects across the value chain. Large areas of land in Northern India are being destroyed largely because of free access to power and water.

To be competitive, India needs a consistent policy environment that will spur infrastructure development and add transparency. There is a large amount of money waiting to be invested in the food chain by private investors at the micro and macro level, not only at the corporate level. This investment does not take place because of distortions in the economy. The distortion that FCI brings in the few states where it operates distorts the market in the other states.

The government must stop incentivising distortions. Subsidies should be direct, not indirect such as subsidized fertilizer. The Indian Government admits that industry or other hands eat up 90% of subsidies.

To go forward successfully, India needs to immediately implement a serious new study on comparative advantage. Get the best brains domestically and internationally to develop a plan for Indian agriculture that is politically sustainable and socially equitable. The plan should clean up unnecessary legislation and controls and eliminate all indirect subsidies. There should be a transition mechanism to this new plan and it should be monitored and executed by the best talent available.

Raul Montemayor - Federation of Free Farmers Cooperatives, Philippines In most of the developing world, the agricultural sector is the source of livelihood and sustenance for a vast majority of the population. Many farmers have to make do with small farm sizes even

Overcapacity in basic processing

• Wheat Milling• Rice Milling• Oilseed Crushing• Sugarcane Crushing• Cotton ginning… and textiles

Large Scale capacity redundancy impacts sector attractiveness and Trade Practices… knock on effect on value added processing.

Freebies… The Vicious Cycle

Free Power

More powerneeded

Lowering ofWater table

Other exploitation of ground water

Encourages water intensive crops

Adverse Impact on state finances

More capitalinvestment

SEB’s gobankrupt

18

as they contend with natural calamities, erratic prices, imperfect markets, expensive credit, high cost inputs and weak government support.

It is therefore not surprising that the signs of chronic under-development such as poverty, malnutrition and low productivity abound in rural areas. In turn, the entire economy is weak because the large mass of small farmers is economically, socially and politically weak. Unless the problems that hound these farmers are addressed, no amount of investment and employment generation can be sustained.

History shows that rural and agricultural progress is the key to generating local demand for products and services; the stimulus for development of industries and services. The expansion of the industrial sector will absorb excess labor from farms, even as it creates more employment, more demand for goods and services – including agricultural products – and broad based economic development.

Trade can compliment this transition by providing markets for excess local output, but it cannot be a substitute for domestic agricultural reform and development. Developing countries cannot simply export themselves out of under-development. Farmers cannot take advantage of export opportunities – even if all markets worldwide opened today – if the roads to their farms remain impassable, credit is unavailable, and inputs are prohibitively expensive.

The private sector will not make serious investment in agriculture if governments are not willing and able to take the first step. The private sector is not a social welfare agency; it invests and risks its resources primarily to generate profit. If businesses see that government is only half-hearted in its commitment to agriculture, they cannot be expected to be any more enthusiastic about investing in rural areas.

The private sector can play a crucial role in upgrading the lives of farmers and stimulating the economic transition in the agricultural sector. Small farmers need seeds, fertilizer, credit and farm equipment among other things. Incomes, costs and competitiveness of farmers in global markets can vary depending on how efficiently private business supplies these inputs and services to farmers.

Processors, traders and other market intermediaries provide invaluable services by buying farmers’ production, adding value and bringing it to consumers. The whole production and marketing chain, in turn, relies on a network of banks, truckers, shippers, and other private sector service providers who move goods and services to and from farmers.

In some cases the private sector has invested in rural infrastructure like storage, marketing facilities, and other services. Some companies have set up processing facilities and entered into contract farming arrangements with local producers. There have also been investments in technology and provision of extension services.

Most references to the private sector are references to business, but there is a large, often forgotten and underestimated player in agriculture that is also part of the private sector – small farmers. The small farmer is the most important player in the agricultural sector. He produces the products and creates the economic environment from which other players in the agricultural market derive their business. Moreover, the farmer is an investor, not so much in monetary terms, but in terms of labor and mental activity from each farmer and his family.

Perhaps more than any other business, the small farmer must be given incentives to invest and reasonable opportunities to profit from his investments. If he can make a profit, the other players will benefit. The farmer will be able to buy more seeds and fertilizer, he will be able to pay his loans on time, sell more products and improve their quality and marketability. He will be able to generate more income and savings that he will use to buy appliances, send his children to school and even watch a movie. His children will eventually find well-paying jobs in the cities as he shifts to producing higher-value food products for the domestic and export markets using modern technologies and efficient tools. This is the progression of development.

19

K.S. Money - Agricultural and Processed Foods Export Development Authority, India

APEDA believes that in the emerging environment, one has to look at agriculture from the demand side. Investment in agriculture, whether public or private, has not been at the desired levels. Public investment has been declining and has resulted in low private investment.

APEDA promotes investment in the agricultural sector by providing incentives. It provides information on market requirements – what qualities are required, what packaging is required and what quality standards must be met in different importing countries.

It is true that in certain areas of food processing there is excess capacity, but in most areas there is potential to increase processing activities. APEDA has looked at crops grown in large contiguous areas for potential expansion, enlisting cooperation from the states. Having identified certain potential areas, APEDA aims to converge extension services, financial services, marketing infrastructure and pre and post harvesting facilities. Exports in these particular commodities have shown a steady growth trend.

Discussion

A participant noted Singh’s comments that there is minimal investment in agriculture today. To invest in the technology one must be sure of making profits. Each technology should be assessed to see whether it will yield profit and contribute to macroeconomic development with minimal damage to environment.

Environmental activists are raising confused voices in the name of protecting the environment. APEDA is organizing special programs for organic farming for export. That is a market-oriented approach. The whole approach should be integrated rather than taking one technology and throwing it away after it is not useful. Can there be an integrated approach to technology assessment? Can such an approach be part of national agricultural policy development? How can it be brought to the poor farmer?

Money said that APEDA’s involvement in organic agriculture is no negation of the conventional technology that has been carried to the farmer up to now. It is only a response to demand. APEDA is not promoting organic agriculture exclusively.

The participant asked if the panelists would accept the findings of organizations that have catalogued traditional knowledge and practices that contribute to the ecological development of agriculture? Many of these practices are low cost. Such an approach could combine technology with the traditional knowledge base for a holistic approach that considers environment and economics. Das Gupta replied that there is no conflict with the traditional knowledge base and new technology. His explained that his expertise is in biotech regulation and his presentation was on that subject. He agreed that traditional knowledge could aid the improvement of agriculture.

A participant noted that panelists have said the land under cultivation cannot be increased any longer, but across the country there is a large amount of land that is not being optimally utilized. Das Gupta replied that there is a government initiative to bring ‘wasteland’ back into production, but planners have found that the scope for increasing the agricultural land substantially is very small. There is land lying vacant that could be cultivable with little additional inputs, but it is not a significant amount.

20

02468

1012

1990 1992 1994 1996 1998 2000

Share of South-South Trade in World Merchandise Trade

15

25

35

45

1990 1992 1994 1996 1998 2000

Merchandise Exports Merchandise Imports

Share of Intra-Developing Country Trade as a Percentage of Total Developing Country Trade

Session Three: The Role of Trade – South-South and Global

Chairman - Brian Chamberlin, Former Agricultural Counselor, New Zealand The title of the seminar, Easing the Transition to More Open, Global Markets, has the potential to infer that open, global markets are a bad thing. Perhaps the title should have been Embracing the Opportunities of More Open, Global Markets.

New Zealand completely deregulated the economy about thirteen years ago. That movement has been of great benefit to the agricultural sector. When deregulation began agriculture’s share of GDP was 12%. Today, it is just under 20%. In a deregulated, open economy, agriculture has increased its share of GDP. The New Zealand economy as a whole has been growing at 4% per year, but the agricultural economy has been growing at 7% per year – nearly twice the rate of growth for the rest of the economy.

Shishir Priyadarshi – World Trade Organization There is a tendency for issues at the WTO to be seen as North-South issues. Whenever agricultural negotiations are discussed, rarely is the emphasis on south-south interaction. The share of south-south merchandise trade has increased by 70% over the last twelve years. About 58% of the increase took place in the first six years. The growth in merchandise trade exceeded the growth of world trade – 5% vs. 10%.

Merchandise exports and imports from developing countries to developing countries both grew, imports more than exports. There are many barriers to trade between developing countries, but part of the reason that south-south exports stagnated is because developing countries took advantage of other export opportunities. South-south trade is becoming more and more important. If the rate of growth of trade continues, south-south trade as a percentage of developing country trade could be 50% by 2010.

Developing countries are very heterogeneous. Developing Asia accounts for about two-thirds of south-south trade and trades mostly within developing Asia. In 2001, developing countries in Asia accounted for 50% of total developing country GDP and two-thirds of the population. These

21

two factors alone explain why so much of the developing country share of exports takes place in Asia. There is not much intra-regional trade in the Middle East because these countries have a similar resource base – oil is dominant. Most intra-Latin American trade is intra-regional because Mercosur provides good opportunities. In Africa, the composition of south-south trade varies widely. In some countries intra-regional trade is as much as 90% of the trade and in others it represents very little.

Intra-South exports within regional trade agreements (RTAs) as a percentage of total south-south exports is about 20% and has stayed at that level for a long period of time. Intra-South RTA trade has not contributed to south-south trade as much as possible. Developing countries in Asia have only one RTA, whereas Africa has the most RTAs. The region with the fewest RTAs makes the largest contribution to south-south trade.

There are five conclusions to this picture of south-south trade:

1. South-south trade has been a dynamic component of global trade expansion over the last decade.

2. The increase in trade in developing countries, especially in manufactured products validates the idea that south-south trade can allow developing countries to escape from reliance on primary commodities.

RTA contribution to South-South trade

3.65.12311Other RTA’s

14.213.29029Asean2.41.9154Mercosur

20.120.312944Intra South RTA

100.0100.0639219South-South

exports

2001199020011990

ShareValue

Growth and share of developing countries in world agriculture exports

45%45%

36%

Growth

125125(43.3%)(43.3%)

107(41.5%)

86(40.5%)

Developing countries Agricultureexports

289258212World AgricultureExports

199919941990

Growth of Asian developing countries agriculture exports by destination

78%

28%

Growth

23.920.513.4To all other developing countries

23.122.618.0To developed countries

199919941990Exports by Asian dc’s in billion dollars

Growth of Asian developing countries agriculture exports by destination

6.06.04.23.5To developing countries outside Asia

17.7(75%)

16.1(79%)

9.7(73%)

To developing countries in Asia

199919941990Exports by Asian dc’s in billion dollars

22

3. Protection remains high among developing countries. That combined with the fact that tariffs are not bound increases uncertainly

4. RTAs have rarely contributed to increasing south-south trade.

5. Even though there is considerable scope for fostering growth for further development of south-south trade, trade liberalization in developed countries is also important.

T. Venkat Subramanium –Export-Import Bank of India At a recent lecture, the Honorable James Bolger, former Prime Minister of New Zealand, said that globalization is more important for developing countries than for developed countries. I define globalization as the growing interdependence of countries resulting from increasing integration of finance, people, and ideas in one global marketplace. The challenge of globalization is to establish an equitable distribution of economic growth.

This is important for India because, though agriculture constitutes 25% of GDP, almost 75% of the Indian labor force is involved in agriculture. Any globalization that does not benefit this large part of the population is bound to fail.

Nobody doubts that trade is an indispensable engine for economic growth. The regions that have experienced the fastest growth over the last twenty years have also had the highest growth in exports. Trade can increase productivity and exposure to new technologies. For example, almost 50% of Chinese exports are from multinational companies with operations in China. These are mostly in industry, but the same holds for agriculture. Better technology and productivity increases could be realized if trade is liberalized and countries are more open to foreign investment. To realize its full benefits, trade liberalization must be complimented by other policies like investment in physical and services infrastructure.

While RTAs can make a meaningful contribution to the global economy, there is no substitute for the multilateral system of non-discriminatory trading relations. Despite increased popularity, RTAs have not significantly contributed to the growth in inter-developing country trade in the last ten years. The share of intra-regional trade in RTA’s is estimated to have remained unchanged at about 20% of south-south trade between 1990 and 2000.

In the fifty-year period where trade in real terms grew faster than global GDP, merchandise trade increased by 6% annually vis-à-vis global output. On average, the growth rate of world trade was twice that of GDP growth. Measured in constant 1987 dollars, the ratio of global trade in goods and services to global GDP went from 8% in 1950 to almost 30% in 2000.

South-south trade rose from 28% of total exports in 1990 to 37% in 2001. The share of imports from the south in developing country imports exceeded 41% of total imports in 2001, an increase of 10% from 1990.

During the 1990’s, developing country merchandise exports increased by an annual rate of 8.5%, up from less than 2% in the 1980’s. Within a decade, export revenues in developing countries rose from less than 15% of GDP to almost 25%. The East Asian experience is a powerful example of the rapid progress that

Source: International Trade Statistics, WTO

Gro

wth

(per

cent

)

World Export and GDP Growth 1990 - 2002

23

can be achieved by accepting the basic tenets of globalization and trade liberalization. Despite the crisis there, East Asian countries have been able to bounce back and show enormous growth.

The composition of regional trade has changed with the spectacular increase in trade volumes. In the past, natural resource based commodities like agriculture, oil and gas, and minerals were driving factors in developing country export growth. Manufactured goods have driven more recent growth. Two decades ago, developing countries derived 70% of their merchandise revenue from sales of primary commodities like agriculture and energy. The situation is now completely reversed, with 80% of the revenue coming from exports of manufactures. With a rising share of manufactures exports underlying high growth rates, the manufacturing sector has an increasing impact on overall export growth. This change is a major factor underpinning growth.

The growth in the volume of imports and exports of goods and services to developing countries outpaced that of advanced nations. In fact, the growth in exports of developing countries in 2002 was almost twice that of advanced nations.

There were large variations in trade volume growth in 2002, mostly due to sluggish investment expenditure. Trade expansion – the average of exports and imports – in both North America and Western Europe lagged behind GDP growth. In Asia and the transition economies, however trade expanded at least two times faster than output, well above the global average.

The increase in the value of south-south trade between 1990 and 2001 was twice as fast as world trade growth. The share of intra-developing country trade in world merchandise exports rose from 6.5% to 10.7% during that time. The share of south-south trade in world trade almost doubled in the 1990s. Positive growth performance and further liberalization of trade and investment in developing countries played a significant role in this performance.

Much of the expansion in south-south trade took place in developing Asia. Two-thirds of developing country trade originates from and is destined for developing Asia. This primarily reflects the large size of the market.

India’s trade to GDP ratio increased from 13% in 1990-91 to over 20% in 2001-2002. Given the trends of globalization, India’s economy is expected to open further in the coming decades. India’s share in world merchandise exports has increased, by 0.6% in 1995 to

4 3 .8

5 1.4

4 2 .4

6 1.3

2 8 .7

3 6 .73 9 .2 4 1.5

4 9 .7 5 0 .4

2 3 .3 2 6 .3

3 6 .83 3 .23 1.8 3 3 .5

4 4 .6

3 5

5 2 .2

2 2 .2

0

10

20

30

40

50

60

70

1993-94 1995-96 1997-98 1999-00 2001-02

Imports Exports

US $

Indian Exports and Imports, 1993 – 2002 (USD)

Merchandise Exports, % of GDP

Source: World Bank

Source: World Bank

24

0.8% in 2002. This is very small compared to China, which almost doubled its share of world merchandise exports during this period from 2.5% to 5%. India’s share of world services trade increased from 1.3% making it the thirty-first largest exporter of commercial services in the world. This is mainly due to software services. Exports grew by 19.2% in 2002-2003 to $53 billion dollars while imports, which also grew at 19.2%, stood at $61.3 billion. India’s exports increased from less than $25 billion to $50 billion in about eight years. This is essentially the period when the reform process was implemented.

Agricultural goods are not the most important exports for India. Asia and Oceania are the destination for about 43% of India’s exports, Western Europe and North America share about 48% and the balance goes to Africa and other countries.

A study by the ExIm bank of India focusing on Africa, Latin America and China found that developing countries are a very large potential market for Indian exports. By adopting a strategic approach, India will be able to export about $24 billion to these regions by 2007, of which almost $7 billion will come from agriculture.

The agricultural export growth rate outpaced the general export growth rate in only two of the last ten years. In all other years, the agricultural export growth rate is less than the export growth rate for other commodities. By simply dismantling existing non-trade barriers, trade will grow and developing countries will gain about $101 billion. However, according to the World Bank, with dynamic liberalization – where there is a flow of investment and technologies – the benefit will be about $500 billion, almost half of which would go to developing countries.

Marcelo Regunaga – Former Secretary of Agriculture, Argentina During the sessions on the role of the public and private sector, many voices called for India to be a closed country in agriculture. Argentina has had the experience of being both a country with an open economy and a country with a closed economy. In the 1930s the economy was growing much faster than Australia or the United States. But, after the world crisis in 1930, Argentina closed its economy for decades. From 1930 to 1990 growth was much lower than the United States and Australia. In 1991 Argentina implemented economic reforms and again growth improved substantially.

In any scenario for the next fifty years, developing countries and least-developed countries will need to import food and other agricultural products.

Static Gains from Agriculture trade liberalisation

Source: World Bank

Low & middle Income Countries

High Income Countries

All Countries

Agriculture and food 80 20 101Manufacturing 33 25 58All merchandise trade 114 44 159

Agriculture and food 23 64 91Manufacturing 44 –3 41All merchandise trade 67 63 132

Agriculture and food 103 84 193Manufacturing 77 22 98All merchandise trade 181 107 291

Decomposition of static impactsLiberalizing region

Gains to low- and middle-income countries

Gains to high-income countries

Global gains

Dynamic Gains from Agriculture trade liberalisation

Source: World Bank

Low & middle Income Countries

High Income Countries

All Countries

Agriculture and food 167 75 240Manufacturing 95 9 108All merchandise trade 265 85 349

Agriculture and food 19 100 117Manufacturing 36 13 48All merchandise trade 55 115 169

Agriculture and food 185 174 358Manufacturing 131 22 156All merchandise trade 321 199 518

Gains to low- and middle-income countries

Gains to high-income countries

Global gains

Liberalizing regionDecomposition of dynamic impacts

TRADE IS A KEY ENGINE FOR GROWTHThe Argentine experience shows that GDP and per capita

income has been linked to open trade

(GDP annual growth in selected countries)

3.03.55.81991-19983.23.4-1.11981-19903.13.92.81930-19842.92.64.61900-1929

USAAustralia ArgentinaPeriod

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Some developing countries could increase production and contribute to these requirements. But, some of the opportunities for south-south trade in agricultural products are diminished by subsidized exports from developed countries. These exports enter markets at a lower cost limiting the potential for growth in countries that cannot subsidize their farmers.

What can be done at the multilateral level to increase south-south trade? In terms of market access, the proposals that were submitted at the WTO Ministerial Meeting in Cancun do not commit to substantial reductions in tariffs or increases in tariff quotas. None of the proposals comply with the Doha Declaration on market access.

There is too much flexibility in market access for developed countries. In the United States and European Union, a short list of tariff lines account for most trade. Ten percent of the tariff lines in the European Union account for 80% of imports. Using the Uruguay Round formula for an unspecified amount of tariffs will not take care of this problem. The proposals submitted in Cancun do not ask for line cuts, but average cuts. Experience from the Uruguay Round illustrates that this is a serious problem.

Most applied tariffs in Argentina and many other developing countries are below the Uruguay Round bound levels by approximately 36%. If countries are asked to reduce tariffs by another 36%, as in the Uruguay Round, it will not have an impact on market access. Furthermore, most proposals do not provide enough increases in quotas or discuss how TRQ administration would be a tool to increase market access.

Special product exemptions for developing countries is a troublesome concept. It would only apply to a few tariff lines, but these would likely be the essential lines for agricultural trade.

The special agricultural safeguard that has been proposed would give developed countries a lot of flexibility. A fair alternative to a safeguard is special and differential countervailing measures. This would differentiate subsidized exports and subsidized production coming from developed countries and not limit trade within the South.

Today’s WTO rules are for developed countries. It is very difficult for developing countries – particularly small developing countries – to implement anti-dumping or subsidies legislation. Special and differential countervailing measures would be the best way to discriminate against the discrimination coming from OECD countries.

An additional tool at the multilateral level besides the WTO is consultation in the Generalized System of Preferences. These consultations work bilaterally under UNCTAD to set up a kind of general system of preferences within developing countries. This approach deals with issues on a case-by-case basis; the best way to find solutions within the south.

What can be done at the regional level to increase south-south trade? The numbers show that most of the growth in trade has been in industrial products. This is because trade in agriculture is completely distorted. To what extent can the distortion in agriculture be reduced? It is obvious that if conditions in agriculture were similar to those in industry, agriculture would also be a strong player in international trade.

Mercosur is an imperfect customs union between Brazil, Argentina, Uruguay and Paraguay. The maximum external tariff is 20%, with a few exceptions at 36%. There are no tariffs among

member countries. Since it was founded eleven years ago, there has been an increase in exports and imports both within Mercosur and with other countries. In those eleven years, total intra-Mercosur trade tripled and Mercosur’s trade with the rest of the world doubled.

Foreign investment in Mercosur has increased due to the attractiveness of a larger market and countries within

REGIONAL–BILATERAL FREE TRADE AGREEMENTS AND OTHER TRADE FACILITATION INITIATIVES (sanitary, customs, etc.)

MERCOSUR EXPERIENCE

• Increase in regional and total trade (million dollars, %)

• Increase in foreign investment - Competitiveness (SSMF)117169,50078,200TOTALTrade104139,00068,000Rest of worldTrade19930,50010,200Intra MercosurTrade14366,30027,300Rest of worldImports20015,3005,100Intra MercosurImports7872,70040,800Rest of worldExports

19815,2005,100Intra MercosurExportsChange(%)20011991Flows

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Mercosur have become more competitive. This is particularly important for small firms. Trading with countries that have similar economic conditions allows them to participate in foreign trade, which is not so easy if they are competing with large multinationals.

Argentina is in the process of developing additional bilateral and regional trade initiatives with other South American countries and participates in the Free Trade Area of the Americas (FTAA) negotiations. Mercosur is negotiating a trade agreement with the European Union and is working with India and China to improve trading relations. If the WTO is not prepared to resolve the problems of the global trade system there are opportunities to improve south-south relations without undermining the WTO process.

Anwarul Hoda –Indian Council of Research on International Economic Relations If one divides agricultural trade into access to markets for tropical products and access for temperate zone products, there are significant barriers to trade in tropical products within the South and practices in the North that significantly distort trade in temperate zone products.

During the Uruguay Round, I believed that trade distortions caused by domestic support were principally caused by export subsidies, but export subsidies are only part of the story. Domestic subsidies do not only present barriers to trade in the subsidizing country; they seriously affect third country trade.

Western African countries illustrated the damage that developed country domestic subsidies to their cotton sectors at the WTO Ministerial Meeting in Cancun. The OECD has shown that per-unit export subsidies in the European Economic Community in 1995-1997 – after the Uruguay Round – were 145% for rice and 195% for sugar. Export subsidies as such are not used in the United States. In the United States, domestic support as a percentage of farm price for rice was in the range of 20-25% in 1996 and 100-120% in 2001. For cotton it rose from 10% in 1996 to about 50% in 2001. In the same period, domestic support as a percentage of the FOB price rose from 20% to 110% for rice and 10% to 40% for cotton.

In the Uruguay Round, the dividing line between domestic support and export subsidies was left vague. However, the figures above show that domestic support also has an impact on exports.

Undoubtedly, the level of explicit export subsidies has come down in the European Union. Export subsidies are intervention prices less the FOB price, therefore the need for export subsidization has been reduced with cuts in intervention prices. Export subsidies have now been exchanged for direct payments. The level of total support has not significantly decreased, but the subsidies have moved from one category of domestic support to another.

The use of food aid by the United States has a similar effect. Theoretically, food aid should increase if prices go up, but that is not the case. The amount of food aid is inversely proportional to prices. As international prices decrease, food aid also decreases. In these cases food aid is not being used for humanitarian purposes, it is a tool for surplus disposal.

Developing countries cannot match the level of subsidization given by developed countries. Farmers in these countries leave the export market and could eventually be forced to stop cultivation. This is the situation that the West-African countries dependent on cotton cultivation are faced with.

To increase south-south trade it is certainly necessary to bring down barriers in the south on an MFN basis, but it is also necessary to moderate practices in the North, which bring down international prices and displace developing country exports. That is what the Doha Round is about.

Trade negotiations cannot end by 2005 unless parties are willing to accept a less ambitious outcome. To have an ambitious reduction of barriers to trade and a moderation of levels of protection and subsidization, countries must prepare for a long haul. It is better to prepare for the long haul, than to accept minimal results. Critics have said that after Cancun, multilateralism is dead. Cancun could have been a success, but only if countries had lowered their sights significantly. If that is a measure of success, then such success is a disaster.

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Discussion Regional Trade Agreements

One participant asked why regional trade agreements are not successful in promoting south-south trade. Priyadarshi answered that the sum total contribution of RTAs to south-south trade has increased from about $44 billion in 1990 to $130 billion in 2001, but the percentage contribution has remained at 20%. If south-south trade was only dependant on RTAs there would be a need to analyze why this has happened, but the conclusion that I draw is that south-south trade would have increased even more – the dependence on the North would be less – if RTAs had contributed as much as they have the capacity to do.

Regunaga said that in the case of Argentina, regional trade has significantly increased through regional agreements. Mexico’s increased exports after NAFTA, is another case where an FTA has increased trade. Economic growth in many countries has been improving trade and RTAs can add to that.

South-South Trade and the Doha Round An attendee asked Hoda if he was suggesting that there should be no WTO agreement if ambitions must be lowered? Is there not a risk that the environment for trade reform will never improve and over time the WTO will become irrelevant? Why should the outcome not be what it was in the Uruguay Round – get what is possible and then work for future reform?

Hoda agreed that the dilemma is whether to accept what is feasible at present or to wait longer for something more ambitious. Recent events indicate that more can be accomplished by waiting. Consider the AIDS issue: it aroused people’s conscience and led to a chain of action that ended with an agreement. The cotton issue could lead to a similar change in public opinion.

Hoda cited an International Herald Tribune article that indicated a schism is appearing in the United States on whether the level of assistance to farmers should continue. When the deficit in the United States begins to bite, it may be a good time to look at what these policies do. Change may be more likely in the longer term than in the shorter term. Having seen the way trade has been distorted during the past few years – reform under the Uruguay Round notwithstanding –the balance is tilted toward waiting for the better agreement.

Another participant noted that the original discussion in the WTO on the importance of south-south trade came up during discussion on special and differential treatment. The argument was that if developing countries push too hard to include protective measures in special and differential treatment they would end up hurting each other because it would inhibit south-south trade. However, he noted that according to the speakers, south-south trade has increased despite barriers among developing countries. Furthermore, even with lower barriers as a result of regional trade agreements, there was no increase in the percentage of south-south trade.

The participant contended that there is apparently more to fostering south-south trade than just removing barriers. Playing the devil’s advocate: is this issue of south-south trade a ploy by developed countries to try to water down special and differential treatment proposals? It is true that south-south trade will increase if barriers among developing countries are lowered, but because the MFN principle requires developing countries to lower barriers to all WTO members equally, will developed countries not also benefit from these lower barriers?

Priyadarshi answered that when developing countries proposed a development box, there were two components that they gave higher priority: a special safeguard mechanism and the idea of special and strategic products. Speaking not as a representative of the WTO, but on my own accord – it was at that stage that some Northern countries did start encouraging WTO members to look at the effects of these two ideas on south-south trade. That is when developing countries proposed a countervailing duty option as an alternative to a safeguard.

Subramanian replied that it is true that the share of trade between developing countries has increased, but this increase was mostly in manufactured products, not agricultural products. Total merchandise trade expanded by 12% annually from 1990 to 2001, but agricultural trade

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expanded by only 6%. Over the last twenty years, developing countries’ share in total agricultural trade has remained constant, around 36%.

Hoda added that the stand many countries in the South have taken in saying that what they are willing to give is linked to domestic support and export subsidy elimination/reduction in developed countries has been justified to some extent. But, the situation demands that countries like India be more forthcoming on market access in WTO negotiations.

Another participant noted Hoda’s contention that domestic support plays the same role as export subsidies. The participant agreed that all support is distorting, but argued that some forms are more distorting than others. If one is interested in progress towards trade liberalization because it is an engine of economic growth, the objective should be to eliminate the most trade distorting measures. If one suggests that export subsidies and other forms of domestic support are equally distorting, there is a risk that partner countries will be less willing to compromise. Significant progress can be made on export subsidies and market access, two pillars of great interest to developing countries. Therefore, it might be wiser for developing countries to insist less on reductions in domestic support with a caveat for extreme situations.

Hoda agreed that there is a difference between export subsidies and domestic support and that the difference in the level of distortions that different forms of domestic support cause should be recognized. The question is: how big is the difference? The figures from my presentation illustrating the role that domestic support payments play in both the FOB price and the farm-gate price could lead to the conclusion that domestic support could approach the levels of distortion caused by export subsidies.

Export subsidies and domestic support are not equal. Negotiators should concentrate on export subsidies and market access, but domestic support should not be ignored altogether. Ministers agreed to substantially reduce domestic support in Doha. Perhaps letting the Peace Clause expire is one way to address this rather than insisting on substantial decreases in domestic support.

A participant agreed that domestic support must be dealt with in the WTO negotiations, but argued that it is impossible to classify which domestic support can become like an export subsidy – even Green Box support has that potential. The G20 proposal would have required countries to reduce support more for products that reach the international market instead of being classified in boxes based on their level of distortion: if a product is being exported, support has to be reduced for that product. If you give a product that is competitive 20% help, it can be an export subsidy, but for the same product and the same policy in a different country where that product is not competitive, 20% help would not help it reach the market.

The Role of Poverty

A participant pointed out that one reason that developing countries resist opening agricultural markets, particularly those in Africa and Asia, is because most of the poverty is in rural areas. Developing country policies and international lending has had an urban bias. Little money has gone to agriculture and rural development.

Priyadarshi agreed that poverty is one likely reason some developing country governments are protecting their agricultural sectors. There are three simple possibilities for tackling this issue. Governments consistently express concern about the threats of further liberalization. They must be made more aware of the opportunities. Perhaps if the information on the benefits of trade came from outside the WTO the message would be better received.

In some countries, getting huge populations – or even part of populations – to shift to other areas of comparative advantage is a very big challenge. A lot of countries are asking for a special safeguard not because they want to start using it, but because they can take it back to their political constituencies to say they have insurance. One way to address these concerns is to link the use the safeguard mechanism to tariff reduction. For example, a country that reduces its tariffs by 40% could use the safeguard up to 60%.

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Session Four: The Role of the International Community

Chairman – Robert Thompson, Chairman International Food & Agricultural Trade Policy Council

The world press has given a lot of attention to China’s economic growth, but do not ignore India when looking at the future of the global economy. India is a major player and will continue to be a major player in the future. India has a commitment to liberalization and opening its economy. India understands that the reality of having 650 million low-income farmers in a democracy presents an enormous challenge to the future of agricultural policy.

Csaba Csaki – World Bank The World Bank’s role in rural development includes three distinct components:

1. In the international policy debate: working with donors, facilitating trade negotiations, and trying to support and facilitate the movement of the international policy framework toward a more equitable and efficient framework.

2. In the development of domestic policies in client countries: helping to create an enabling environment for client countries so they can utilize the benefits or ease the problems of liberalization.

3. In providing financial resources for client countries: The World Bank is the largest provider or funds for rural development among all international agencies. The Bank provides 30%-50%of total non-private sector resources for rural development in the developing world .

In our total portfolio, funding for rural development fell significantly from the 30-40% that prevailed in the 1990s. In response, the World Bank developed a program to promote integration of activities in the rural sector. The result has been a shift in emphasis toward poverty; giving a voice to the rural poor: helping the rural population participate in national policy dialogues and helping their representatives present viable programs that promote competitiveness.

The new Rural Development Strategy includes five strategic priorities. Each element of this package is an essential part of the overall program. Agriculture cannot be properly developed without an enabling environment.

Two of the five components of the Rural Development Strategy are appropriate for the theme of this conference. One is the approach to agriculture and the other is the focus on creating an enabling policy environment.

The World Bank’s new approach to agriculture looks at the demands of the changing world. The Bank’s approach is moving from a focus on staples to high value crops and away from a focus on crop yields to a focus on market demands and farmer incomes. In the modern world, primary agriculture does not exist on its own. It is linked to the entire food chain. Therefore, the Bank’s focus must also shift from primary production to looking at the entire food chain.

The Bank recognizes the heterogeneity of the farming communities in the developing world and would like to develop tailored programs and assistance

packages – one for subsistence farmers and another for those farmers who are already linked to markets and another for those involved in commercial farming.

New World Bank Approach to AgricultureFrom staples to high value cropsFrom narrow agricultural focus to broader policy context – including global impactsFrom focus on crop yields to market demands and incomesFrom primary production to entire food chainFrom agriculture to rural spaceFrom thinking of farms as homogeneous to heterogeneityFrom public to public-private partnerships, including community driven developmentFrom avoidance of issues to head on approach (biotechnology, forestry, water)

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In the 1990’s and 1980’s World Bank programs were dominated by public sector programs. The Bank is now encouraging client-countries to create more public-private collaborations, to further decentralize and have community driven development wherever possible.

It is true that OECD countries must reduce their subsidies, but there is also a need for the developing world to be part of the agenda. Developing countries must create policies that neither discriminate against agriculture nor give it special privileges. Developing country economies should be open, employment-sensitive, and oriented toward smallholders. The importance of external markets, including specialty and niche markets, should be fully recognized and exploited. Finally, foreign direct investment should be recognized as an integral part of the agricultural development process.

In the first year of the Rural Development Program’s implementation, bank lending to rural space increased by 50%. However, the lending went to everything but agriculture. This is discouraging. The current challenge is to find new modalities to increase lending to the agricultural sector. The Bank has come back to rural space, but not yet to agriculture.

Pedro Medrano Rojas – World Food Program, India The Rome Declaration on World Food Security that came out of the 1996 World Food Summit is related to food security but also to trade. The World Food Summit conferences established an agenda for development in which food security played an important role. Three of the resulting commitments are related to trade, but in comparison to the Uruguay Round commitments, the seven commitments from the World Food Summit Plan of Action are soft commitments. How can international law effectively take into account the desires and needs of developing countries?

It is often said that WTO agreements take the needs of least-developed countries into account, but most of the measures that were intended to help the agricultural sector in developing countries are not being implemented. Trade as a concept is beneficial, but there is not much interest in implementing WTO-related instruments intended to support low-income food deficit countries.

In reality, aid to the agricultural sector has declined. Subsidies and distortions remain despite all efforts to eliminate them. The OECD and World Bank estimate that there is $1 billion per day going in subsidies to agriculture. The situation has not changed.

The total number of people that make their life from agriculture in developing countries is about twenty times higher than in developed countries, but the import bill has increased. Governments may hold the World Food Summit and they may establish the Millennium Development Goals, but commitments like these are not adequately reflected in the WTO agreement and negotiations, although they run parallel to them.

Responsibilities Of Developed CountriesAgricultural trade liberalization, to the levels of tariffs and non-tariff barriers.Reduction of agricultural subsidies.

Expansion of agricultural and rural development assistance to developing countries to the levels characteristic of the early 1990s.A focus on Sub-Saharan Africa is required in international assistance.Better coordinate aid flows to developing countries.Support to the transfer of scientific findings of relevance to developing country agriculture.

Responsibilities of Developing CountriesPolicies must not discriminate against agriculture or give it special privileges.The economy should be open, employment-sensitive, and oriented toward smallholders.The importance of external markets should be recognized and exploited.Foreign direct investment should be an integral part of the agricultural development process.Land reform is essential where land is very unequally distributed.Rapid technological progress is needed - private and public sectors have roles in research, extension, and financing Rural areas need education, health, and infrastructure investment. The needs of women must be built into programs.

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It is difficult for developing countries to participate effectively in WTO negotiations. This is one area where concrete help could be given to developing countries. If countries agree that food security is a major concern, it should be reflected ipso-facto in the WTO agreement. It is true that there is a problem with physical access to food. But if dialogue continues at the WTO without including food security on its agenda, then the role that an international organization can play is limited.

The role of international organizations should be first to build national capacity – help developing countries participate in WTO negotiations. Second, they should play the networking role, which is currently done mostly by civil society advocacy groups.

More open trade has made a tremendous impact on many developing countries. But, when it comes to the agricultural sector, food security must be considered. The level of food aid is declining despite promises from rich countries. But the real problem is that the issue of food security is not addressed properly in the WTO and if it is addressed, the measures are not implemented.

Nestor Osorio – International Coffee Organization The International Coffee Organization (ICO) was established in the 1960s to help developing countries create opportunities for trade and enhance their capacity in markets so that they could move away from reliance on foreign aid. The ICO is urgently seeking ways to combine efforts and willingness to develop policies that will improve the living conditions of the world’s coffee growers, which have deteriorated severely over the last four to five years as a consequence of historically low prices. Coffee, like other commodities, is no longer in just another cyclical downturn in prices. There seems to be a chronic problem of oversupply that is generating a permanent situation of very low prices.

For decades there was a consensus between developed and developing countries on the rules aimed at equitable coffee prices with guaranteed supply for the coffee industry. That consensus was a means of reducing poverty in developing countries dependent on a handful of commodities, improving their share in world trade and ultimately at peace. In the last decade, those rules were replaced by new doctrines.

The commodity agreements were terminated in order to improve revenues, but revenues did not improve. In the case of coffee, revenue only increases in exceptional cases such as a natural disaster in a large producing country. The paradox is that while developed country policy makers were advocating the abolition of institutional support to commodities, they were strengthening the defense and support of their own agricultural sectors. This continues to be the case, and it is the center of negotiations at the WTO.

The commodity-dependence of many developing countries has been accentuated since the commodity agreements were terminated. Diversification is frustrated by difficult access to markets for other agricultural and industrial products so when diversification is presented to commodity producers as an option they question the benefit of doing so.

More than forty-five countries along the tropical belt of Africa, Asia and Latin America depend on four or five commodities – coffee, cocoa, cotton, sugar and bananas. In many cases, one of those products represents 30-50% of total export revenue.

Developing countries need to achieve market access and liberalization through the WTO more than developed countries. Every day that the situation is not corrected plays against the interests of the developing countries. The approach that developing countries took in Cancun established their position and was necessary for the purposes of negotiation. But developing countries must be careful that they do not go so far as to block a negotiation. There are many interests in favor of permanent delay that would capitalize on this situation.

It is fundamental that international agencies help commodity-dependent countries organize themselves in a coherent and coordinated manner. This includes capacity building and increased

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interaction between agencies. It is also necessary for international agencies to become more flexible in how they are willing to support developing countries.

In the situation of coffee or cocoa, one of the things that could be most useful would be to encourage consumption in countries producing these commodities and in emerging markets. Attacking the problem in this manner does not require people to stop producing coffee, but helps them create new consumers. The international lending community should not just focus on building physical infrastructure, but also on developing markets.

The Common Fund for Commodities could play an important role, but its resources are almost exhausted. Donors and the international community must provide resources to the Fund so that money can be channeled through the international commodity organizations to specific projects in particular countries, as has been done at the ICO.

In the last five years the revenues of coffee producers have been halved. Producing countries used to receive $10 billion out of a market value of $30 billion. Today the market is $80 billion and the producing countries receive $5 billion. That is equal to one week of subsidies in developed countries.

The United Nations Assembly recently asked UNCTAD to convene a group of eminent persons to develop recommendations on how to improve the situation in coffee. This was a commendable effort – the first time in the last twelve years that a serious approach had been taken. The recommendation of this group of eminent persons was:

“We therefore call for immediate and decisive emergency action. We suggest that that the International Coffee Organization consider imposing an export fee, using the proceeds from the fee to alleviate poverty arising from low prices.”

These eminent persons are asking the poor – who are more poor today – to pay an export fee in order to collect the money and return it to them again. This is a scandal and it is unacceptable. Coherence, coordination and sensible proposals are necessary.

Attakir Raman – International Fund for Agricultural Development A recent G8 declaration said, “We will promote improved access to markets for WTO members, particularly the rural poor.” If IFAD had its way, the G8 would instead declare that they would improve access to markets that leads improved livelihoods and income for the rural poor – access and a better deal are both necessary.

IFAD views the poor as the subjects of development, not objects. It is important to recognize that the rural poor are not just one entity. There are wide variations in needs and occupations across countries. In a changing world, these occupations can disappear because of competition from more developed countries.

A couple of incidents shaped IFAD’s thinking, when determining the strategy to improve the livelihoods of the rural poor in 2001 and beyond. First was an article in the International Herald Tribune that reported, ‘even African camels know why they are poor.’ The story was about an Egyptian farmer who, with German collaboration developed a camel cheese farm. The product was ready to be shipped when the farmers received word that the camel cheese could not be accepted because the European Union does not have regulations for camel cheese.

The second incident was when Clare Short presented IFAD’s poverty report. An NGO activist asked, “what you do when you take people out of food grains to move to other crops?” They cannot sell many high value crops to the European Union markets, which is the objective, because many countries have standards they cannot meet.

There have been many studies showing the need for improved infrastructure in developing countries. However, studies in Africa have shown that it can also increase inequality in rural areas. What about the farmer whose land is lost to the new road being built by the government, who is trying to improve the overall benefit of the country?

Some important questions that IFAD is considering in its rural poverty strategy are:

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1. How can the poor be given equitable access to the benefits of expanded and more liberalized trade?

2. Are there constraints emerging from distortions and how can these distortions be removed by IFAD in conjunction with other agencies? How can the rural poor be best protected from these distortions and constraints?

3. What institutions, regulations, and enabling mechanisms need to be established to help the rural poor take advantage of expanded trade?

4. How can access to market information be improved for the rural poor?

5. How can food security for the rural poor be ensured?

6. What sort of infrastructure needs to be created to ensure that the poor benefit?

7. How can the poor move from staple crops to high-value crops?

8. Where and how can IFAD work toward a better deal for the poor in collaboration with others? Where and how can these alliances be created?

International organizations must create alliances to answer these questions. Poverty cannot be seen as a snapshot, it is a liquid situation.

Piet Bukman – Former Minister of Agriculture, Former Minister of Trade and Former Minister of Development, The Netherlands

It is clear that the tendency towards more open global markets is irreversible. The countries concerned in easing the transition we are talking about have a central responsibility. The responsibility does not lie solely in the national governments of these countries, but also in local governments, the private sector and non-governmental organizations. This does not mean that the role of the international community is unimportant, but it is not a substitute for the countries themselves taking responsibility for their development needs.

Agriculture is the backbone of the economy in many developing countries. Therefore it must play an important role in discussions on easing the transition to more open markets. Many countries have additional agricultural potential, but capitalizing on this potential in the right way is difficult and is often not a high priority.

Surpluses on the world market have made it possible to meet some of the needs of the urban population in developing countries to the detriment to rural farmers, but this is changing. The European Union has reduced and is continuing to reduce its export subsidies and the surpluses have diminished.

The modernization of rural areas, is primarily the responsibility of countries themselves. Governments, the private sector and non-governmental organizations must each play their role in that process, but they have a common responsibility.

At the end of the 19th Century during the great world agricultural crisis, Dutch farmers asked the government for price supports. The government refused, realizing that market forces determine prices, but suggested that farmers strengthen their influence on the market by establishing cooperatives. In return, the government agreed to finance education, research and extension services. It was a clear distribution of tasks between government and producers and it worked well because it was based on commitments from government on one hand and the agricultural sector on the other.

Obviously, today’s developing countries are different from the Netherlands at the end of the 19th Century. But this example demonstrates that it is possible and necessary for governments to establish an integrated triangle consisting of education, research and extension with input from the agricultural sector. The market responsibility is in the hands of the agricultural sector itself.

This is not a model; it is an example from which lessons can be drawn. Governments, farmers, private business, NGOs, multilateral organizations and bilateral donors all have a role to play in

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the inevitable process of easing the transition. An absolute condition to a successful transition is the agreement and commitment of players on the national level about the targets of an adjusted agricultural policy – exports, local markets, quality, food security, etc. The commitment must cover who is responsible for what, a timeframe for transition and the financial consequences of the transition.

If there is agreement on a national level, then the international community can be asked to give support in the process of implementation. If all actors have their own goals, no progress can be achieved. If a common frame of reference is available, the donor community can be asked to coordinate its efforts instead of each organization polishing its own identity.

Discussion

The Role of Multilateral Lending Organizations A participant from a developing country noted that it seems that in recent years the World Bank has not been willing to provide loans to governments to develop agricultural infrastructure, improve research and other investment to increase competitiveness in the agricultural sector and that the trend seems to be shifting away from the commodity programs that were successful in the past.

Csàki replied that many of the classical agriculture projects that were established in the 1980’s and 1990’s performed very badly – especially the extension programs. Fully public-based agriculture lending has been very much discredited.

World Bank lending is demand driven. The Bank develops a country assistance strategy with each government. Often rural people do not get their views into the country assistance strategy effectively. The Bank is happy to work on market development if that is where the demand is, but more often projects cover several sectors, agriculture being only one of them.

He said that the commodity projects have disappeared because the Bank thinks it is the responsibility of the private sector. The Bank will participate, but it has realized that it cannot compete with the private sector in research. The CGIAR research system is funded, in large part by the World Bank, but its budget is much smaller than the budget of any multinational company. The Bank is ready to provide money for public goods in agriculture, but prefers to take a public-private approach.

One participant from an Indian NGO noted that most of the lending from the World Bank and IFAD and other donors is to governments. NGO’s would like to build domestic capacity, but they do not have access to credit.

Csàki indicated that it would be hard for the World Bank to lend to NGO’s, but said that there are community-based projects where NGO’s can take over certain components if there is a partnership between the government and the NGOs. The World Bank cannot go over the head of governments. Raman added that there are increasing discussions with governments to allow NGO’s to access loans. There are some grants that can be made available to civil society.

Bukman said that there is a tendency to think of NGOs as anti-government. But that is a misperception of reality. NGOs can play an important role in implementing government policies on the grass roots level. It is necessary for the future of agriculture to have a frame of reference that is established by government, agricultural producers and NGOs together in order to prevent misuse of money and energy.

He further asserted that a poor farmer is not a sitting duck. He has the opportunity to take another poor farmer and establish a cooperative. It is important that government stimulates the establishment of farmers unions and cooperatives. That will strengthen the poor farmer in the market as well as in their relationship with government.

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Commodities A participant recalled that commodity agreements were developed because it was thought that they could contribute to reducing price instability on the world market. The ambitions are lower now.

A participant asked Osorio how he would deal with the issue of over-production and over-capacity using demand driven development.

Osorio answered that attitudes toward commodities have changed. Coffee farmers have to reinvent themselves so they can maintain sustainability at the industry level. The supply of coffee has been increasing much faster than demand because the grower continues to be resilient.

An analysis of which markets are ready to be entered should be undertaken. One available market is the domestic market of coffee-producing countries. There is no culture of drinking coffee in growing countries because coffee was the cash crop. Brazil significantly increased consumption of coffee through a quality campaign. If countries like Mexico and Indonesia developed their own markets, they would have more consumers. In Russia, consumption has been increasing by 12% per year. The ground is ready to receive a well-addressed effort.

Food Security A participant recalled Medrano Rojas’s statement that the WTO cannot deal with food security. He asked then what the WTO should do to do a better job. Raman answered that it is likely that the WTO is not expressly mandated to ensure food security for the rural poor because food security is not just about production; it is not just about trading. It is also about distribution and equity.

Bukman asked, what is more important, food security or food self-sufficiency? Self-sufficiency may be an instrument to achieve food security, but if the goal is to achieve self-sufficiency, the cost of such a policy must be considered.

Non-Farm Employment An Indian participant noted the discussions on enhancing the incomes of farmers. It is unclear what options for diversification and non-farm employment could be. As far as food-processing is concerned, small farmers do not have much capability or competence to market processed foods. Neither is there much market left for small cottage industries and handicrafts as an alternative. Small industry has died as well. What are these non-farm activities that farmers should be participating in and how are multilateral agencies going to help?

Csàki said that focusing on non-farm employment is an essential part of the World Bank’s new strategy. It is focused, not on non-farm employment, necessarily, but on small and medium enterprise (SME) development. Non-farm business activities are less developed in India than in other developing countries. India should learn from these countries.

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Closing Remarks

Anwarul Hoda There have been many presentations on how agricultural trade affects livelihoods in developing countries. Many speakers articulated that free trade is not a goal in itself; it is only a beginning. Unless trade delivers livelihood improvements to very poor people in developing countries, it has achieved nothing.

Many speakers also emphasized the importance of food security in globalization. Farmers in agricultural exporting countries might benefit from increased market access from increased prices, but not all countries are agricultural exporters. Adequate arrangements to help net food-importing developing countries ease the transition to rising prices must be made.

There is a sense that there is a need to go beyond posturing on the principles established as the basis of agricultural trade. Free trade has a lot of strings attached.

In economics one is taught that money is borderless, wherever you put it, it has an impact. The moment you subsidize, it effects the final economic outcome. How is the issue of subsidies by developed countries going to be solved? Two days of OECD subsidies – if it is one billion dollars per day – is much higher than one year of India’s agricultural protection.

In the past when a drought occurred, production declined and Indian farmers received a higher market price, thereby compensating for lower output. With the present levels of integration in the world market that is no longer the case and prices tend to stagnate. Weather cycles cannot be stabilized. There must be risk-management arrangements at the national level when integrating the domestic market in a freer manner with global markets.

There is a need for sanitary and phyto-sanitary guidelines to be codified, universal and not introduced at a moments notice. These measures sometimes seem to be irrational distortions of trade rather than conditions that are enforced for health reasons.

Perhaps multinational organizations should go beyond persuasion and bring together governments on an even platform to ensure that people mean what they say and act on it.

Csaba Csaki The conclusion on Cancun seems to be that it was a drama but not tragedy. The process will go ahead, but all parties should reassess the current realities and think about emerging conditions.

I am pleased to hear that participants see multilateral trade negotiation and trade liberalization as a means, but not the ultimate objective. The ultimate objective is development – that Indian farmers see increased income, not necessarily increased yield. If multilateral trade negotiations and liberalization serve these goals, we must support them.

There is an immense domestic policy agenda for developing countries and significant political reforms are necessary in OECD countries. Panelists rightly connected the multilateral reform agenda with some aspects of domestic policy reforms. In the short term, these two responsibilities should dominate discussions in developing countries and OECD countries alike. This is an enormous task, but it will be beneficial even if multilateral negotiations do not go quickly. It is clear that success depends on governance and institutions, private sector development, technology, and finally education, infrastructure and social services.

There is an overall positive feeling in India. This was my fifth trip to India and I can see that the country is moving forward. There are many problems and there is much frustration, but India is coming along the line of China.

Marcelo Regunaga

We have heard that the developing world is facing serious problems of family income and food security. In looking at this, the experience of China should be considered. Agriculture is not the only way to improve farm income. In regions where small farms prevail this should be considered. Income policies for farm communities should include other activities.

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It has been mentioned that food security is more important than food self-sufficiency. Food security is more complicated than just self-sufficiency. Solving the problem of a one-hectare farm through price support is not the most effective long-term solution. Infrastructure – both physical and market infrastructure – could have a strong impact. In many cases private finance for small farms is not a concrete opportunity. Public financial strategies are key

The private sector is taking the lead in improving technology. The future of biotechnology and other initiatives rests on the public and the private sector for its development. If governments intervene in markets and give the wrong message to the private sector, then that private sector investment in technology will not appear.

In many developing countries there has been a decline in public expenditure in the rural sector. The rural sector is losing power and priority. The Chinese example of using a public sector strategy in education to bring opportunities out of the farm is key to improving income.

Global trade is an engine for growth, so it should be promoted. Global food needs provide room for growth in the supply of agricultural products, but also for the growth of domestic markets. The challenge is to help developing country agriculture improve productivity, and allow this agricultural sector to participate in a more open world.

Most south-south trade has been driven by non-agricultural products. Developing countries, particularly in Asia, are dynamically increasing their market share in world trade. Developing countries’ share is increasing, but this increase takes place mostly outside of agriculture. Developed countries must convince the developing world that they want to give developing countries an opportunity to grow by reducing export subsidies and domestic support.

This agenda is challenging. There must be a more global view of the solutions for agriculture. Better integration of the public and private sector with support from international organizations.

Other Comments

IPC Member, Brian Chamberlin noted that there had been many comments to the effect that free trade has not benefited Indian farmers. However, we are not talking about free trade at this point. We are trying to develop a fair, rules-based, trade system. If people in this country have the impression that the WTO or other countries are trying to impose free trade on them, they are wrong.

Where farm advisors are employed by the government, they tend to recommend that farmers produce as much as they can. However, private sector advisors try to teach their clients how to make a profit. Increasing production often brings increased profits, but not always. If the goal is to keep farmers in business, then profit, not necessarily production, must increase.

IPC Member, Devi Dayal said that before Seattle and Cancun the development of WTO rules seemed easy, but these events have brought about a different context. Different issues are emphasized by different groups of countries that all have different approaches. However, those who influence public opinion do not have either the correct facts or correct arguments. Organizations like IPC should better inform people around the world about the realities of the situation at the WTO.

We have the impression in this world of privatization and liberalization, that the government and public sector have a small role in the development process. However, this has been negated by what we have heard. Strong government intervention will help better private participation in agriculture and rural development.

IPC Chairman, Robert Thompson stated that panelists had done a good job of looking at how to ease the transition for developing countries with a significant number of farmers on a subsistence level, but not how to ease the transition in high-income subsidizing countries.

There are two challenges to easing the transition in high-income countries: Most of the benefits of farm subsidies are capitalized in land values. If the present subsidies are removed, a decapitalization of the present generation of farmland owners will be the effect.

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Closely related are supply control programs. The value of quotas will also disappear if those markets are liberalized. Last time I looked it cost $250,000 USD to purchase the right to produce one ton of milk in Ontario per day. That is on top of the cost of the cows, the machinery and the buildings. Those mature farmers who own their land and have paid off their debts will feel poor, but they can at least survive.

The real victims in high subsidizing countries are the new entrants into agriculture – those who borrowed a lot of money to buy the over-priced farmland or quota. This will wipe out a whole generation of young farmers will inevitably go bankrupt as the value of their collateral declines below the amount of loan outstanding. We need to find out how we neutralize the political power of those who will see their capital assets eroded. In many countries these are the people that have the most political power in agriculture, otherwise they would not have the subsidies at all.

IPC Member Associate, Jake Vowles, added that consultants also teach people how to get the food they produce to the market in the best condition possible. The input industry has a lot to offer developing country farmers in equipment to produce, store, cool and deliver produce, but today there are import tariffs of up to 65% on the simplest equipment to help the individual farmer. A reduction in those tariffs could perhaps help individual farmers. The problem is not necessarily in large-scale equipment, but cream separators and hand mills, etc.

IPC Vice-Chairman Piet Bukman noted that in many of the presentations and interventions from the NGO community, it is clear that there is an overall positive attitude. It is a pity that Cancun happened, but it is not the last chapter. That positive atmosphere is influenced by openness and not only speaking, but listening to what others have to say.

There was a high degree of realism in the statements made here. Many discussions about trade liberalization are very one-sided. It is in this forum, listening to each other, that realism is generated.

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About the National Institute of Agriculture (NIA): The NIA is a non-governmental organization that carries out development and research activities in agriculture, rural development and environment. The NIA espouses the cause of farmers and rural community and promoting scientific techniques of land and water management, in association with other NGOs and government organizations.

About the International Food & Agricultural Trade Policy Council (IPC): The IPC convenes high-ranking government officials, farm leaders, agribusiness executives and agricultural trade experts from around the world and throughout the food chain to build consensus on practical solutions to food agricultural trade problems.

An independent group of leaders in food and agriculture from industrialized, developing and least developed countries, the IPC’s thirty-six members are chosen to ensure the Council’s credible and impartial approach. Members are influential leaders with extensive experience in farming, agribusiness, government and academia.