Trade Liberalization

Agriculture typically constitutes a far greater percentage of GDP and employment in developing countries than in developed countries, employing over 50 percent of developing countries’ populations in comparison with 9 percent in the developed world. Developed countries also have a smaller percentage of exports as agricultural products. For all developing countries the proportion is an average of 27 percent of total exports, but for countries such as Burundi, Sudan, Ethiopia, Uganda, and Paraguay agriculture contributes over 80 percent of exports.42

Trade liberalization should therefore increase the export opportunities for developing country farmers and the prices they receive. The World Bank estimates full liberalization would on average increase the prices of international agricultural commodities (crops for human food and animal feed as well as livestock products) by over 5 percent, of cotton by over 20 percent, and of oil seeds by 15 percent. It would also increase developing countries’ share of global agricultural exports by an estimated 9 percent, with Latin America and Sub-Saharan Africa being the largest beneficiaries.43 Such increased incomes should attract further investment, driving economic growth in rural regions leading to greater opportunities for rural business (i.e., a virtuous circle). Consumers should also benefit from increased incomes through greater purchasing power as well as reductions in tariffs placed on domestic food products.44 Liberalization is also thought to stabilize food prices: between the 1980s and 2000s, rice prices experienced reduced seasonal highs and lows in Bangladesh, Nepal, and Sri Lanka, countries that had adopted liberal policies.

In practice, there are actual and potential downsides to liberalization. Using so- called computable general equilibrium (CGE) models, the USDA has estimated that of an increase in net global GDP of $31 billion per year, 92 percent will go to developed countries and a mere 8 percent to developing country producers. Only by taking into account the longer-term changes in investment and productivity that trade liberalization can bring, will developing countries significantly benefit.45

In the short term, net importing countries will be harmed as will those whose preferential access to industrialized country markets is diminished (e.g., banana and sugar exporters in the Caribbean and Africa who have guaranteed access in the EU). In some cases uneven liberalization leads led to an influx of cheap foreign imports, while export tariffs on such goods as fruits, vegetable, cocoa, and sugar remain high.46

Finally, a major concern is that liberalization will fail to help rural subsistence farmers unconnected to markets. These farmers, a large proportion of the world’s poor, are limited by a lack of an enabling environment (e.g., transportation and communication, infrastructure, credit systems, mechanization, and access to inputs) allowing them to respond to market changes, new investments, and potential productivity gains (I introduced this concept in Chapter 3 and will discuss it more fully in Chapter 8). Instead liberalization will most likely favor medium to large producers and could make some people even more food insecure.47

 
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