Brussels, 17/01/2005 (Agence Europe) - A World Bank Report published on 10 January, "Global Agricultural Trade and Developing Countries", explains that European, US and Japanese producers are getting paid three times more than the average on the world markets, thanks to protectionist mechanisms set up by the governments of these industrialised countries. The report criticised the fact that these countries pay their sugar producers the equivalent of that paid to all of the other developing countries put together. 80% of sugar production is subsidised.
According to the World Bank, preferential and regional access agreements often prevent low price producers entering markets covered by these agreements. The report also points out that quota systems affects too few countries, which are often some of the poorest countries. Mauritius, for example, obtained 38% of export quotas to European counties. According to the World Bank, Thailand, a very low price producer country can only export 15,000 tonnes of sugar a year to the USA, whereas the Philippines (which has quota that is ten times higher) often finds it difficult to keep to quota limits.
The World Bank considers that in order to get rid of trade distortion, they should introduce multilateral liberalisation and gradually get rid of the preferential agreements. The bank believes that they should revise the EU sugar system and get rid of the US Farm Bill by 2007 in order to implement reforms. The report criticises Japan as a "bastion of protectionism" for sugar and rice, which are subsidised to the equivalent of 700% of world prices for this staple in Asian developing countries.
Bank calls for co-ordinate liberalisation world-wide
The World Bank report underlines that agricultural reforms, particularly trade liberalisation, will play a significant role in improving the living conditions of the poor in almost 70% of rural zones in developing countries. The report stresses, however, that the best strategy would be global and co-ordinated liberalisation. The report illustrates the need to devise reforms in a multi-product perspective where winners and losers will depend to a certain extent on how the market works.
The report notes that despite the framework agreement concluded recently at the WTO, protection of agriculture remains one of the sectors most prone to litigation in world trade. The high level of protection in industrial countries was one of the main cases of the failure of the ministerial meetings at Cancun in 2003 and is still the major question pending in the Doha discussions. Developing countries improved their agricultural productivity but these gains will not fully contribute to eradicating poverty unless the industrial countries and other mid-income countries reduce protection in this sector, the report illustrates. If this is not reduced, agricultural productivity improvement will translate into lower prices for many basic products, which could compromise the efforts made by the competitive poor countries in increasing exports and rural incomes. This protectionism also exerts pressure for greater protection at a world level.
Substantial reduction in LDC import duties
Protection remains high in industrial countries but some developing countries have not significantly liberalised their agricultural sectors. The average level of customs duties in this sector (the main source of protection in developing countries) fell from 30% to 18% in the 1990s. A number of these countries got rid of other forms of import restrictions by devaluing their currencies, getting rid of their multiple exchange rates which penalised agriculture, and eliminated almost all export taxes. However, protection as a reaction to the support given to farming in industrial countries is beginning to gain ground in many mid-income countries, particularly those involving foodstuffs. The report reveals that low-income countries had obtained surpluses in their trade with mid-income developing countries rather than with the industrial countries. Low-income developing countries now export more to mid-income countries that to the European Union, their largest market at the beginning of the 1980s and surpluses in farming goods trade with mid-income countries had decreased. Japan is one of the industrial countries that has the largest trade deficits in the trade of farming products (almost USD 50 bn in 2000-01).
The EU was formerly the largest net purchaser of agricultural foodstuffs but is seeing its deficits decrease, as well as its trade deficits for members of NAFTA (North Atlantic Free Trade Agreement), with the trade deficit of rest of the world being considerably reduced too. According to World Bank forecasts, if significant reform is not undertaken, trade surpluses for the agricultural products of industrial countries will increase and developing countries will see their deficits worsen in this sector, subsequently exacerbating poverty in rural areas.
The report notes in conclusion that reforms will reduce poverty in rural areas of developing countries because these countries generally benefit from a solid comparative advantage in farming, which for them represents a significant source of income. At the same time, liberalisation of added value activities is indispensable to increasing jobs and incomes beyond the farming sector.
The World Bank report analyses the situation of different basic products: sugar, dairy products, rice, wheat, ground nuts, fruit and vegetables, cotton, sea food and coffee. It provides examples of the way in which the substantial effects of trade distortion creates obstacles to trade, brings down prices on the world markets and discourages market access or keeps non-competitive producers in the market for too long. He also demonstrated that reforms will see substantial dividends. The report explained that barriers at borders were substantial in most of the basic product markets examined (with the exception of cotton, coffee and sea food) in industrial countries and a large number of developing countries. For example, the average tariff on the world markets for rice is 43% and reaches 217% for the japonica variety of rice. Many Asian countries remain bastions of protectionism in their agro-foods markets.
Subsidies have had similar effects: they depress world prices and prevent market access by assisting over production by non-competitive operators (most often the biggest producers). Cotton subsidies in the USA and EU, for example, recently reached USD 4.4 bn on a USD 20 bn market. Subsidies for dairy products and sugar have less of an effect than custom duties and tariff quotas, partly because of rules on export subsidies introduced by the agriculture agreement in the Uruguay round. Internal support policies and protection have considerable negative effects on developing countries' producers due to scale of the subsidies in relation to the markets. Subsidy programmes of this scale protect non-competitive products and penalise the efficient producers which most often the poorest countries, affirmed the World Bank.