Wealthy Countries' Trade Policies Sap Economies of Developing Nations; New Research Quantifies Harm of Agricultural Subsidies, Protectionism

8/26/2003

From: Janet Hodur of the International Food Policy Research Institute, 202-862-8177, e-mail: j.hodur@cgiar.org

WASHINGTON, Aug. 26 -- Protectionism and subsidies by industrialized nations cost developing countries about US$24 billion annually in lost agricultural and agro-industrial income, according to a study released today by the International Food Policy Research Institute (IFPRI). Latin America and the Caribbean lose about US$8.3 billion in annual income from agriculture, Asia loses some US$6.6 billion, and sub-Saharan Africa, close to US$2 billion.

Trade-distorting measures of industrialized nations also displace more than US$40 billion of net agricultural exports per year from developing countries. Elimination of these measures would triple developing countries' net agricultural trade.

"The trade policies of the industrialized countries cause great harm to the economies of many developing nations which depend heavily upon agriculture," said Eugenio Diaz-Bonilla, IFPRI senior research fellow. More than half of the displaced exports are caused by the policies of the European Union (EU); somewhat less than a third are due to US policies; Japan and other high-income Asian countries cause another 10 percent.

"Small-scale farmers in developing countries have a hard time competing against subsidized products that are dumped on their local markets. One more kilogram of subsidized sugar in the European Union could very well mean one less kilogram produced in Kenya or Guatemala. Another bale of subsidized cotton in the United States may mean less production in Mali. Or another ton of subsidized rice in Japan can have the same displacement effect in Vietnam," noted Diaz-Bonilla.

Because of regional trade relationships, EU policies have a greater impact on Africa. In fact, if trade-distorting policies were eliminated worldwide, the value of sub-Saharan imports would rise, but almost 70 percent of that increase would come from liberalization in the European Union.

For Latin America and the Caribbean, the greatest expansion of exports would come from changes in EU policies (more than 50 percent), followed by the United States (about 35 percent). However, for some Latin American countries, such as Colombia and Mexico, more than half of their increase in agricultural exports would be due to liberalizing US and Canadian agriculture.

For the developing countries of Asia, liberalization in Japan and Korea would represent one-third of the total value of expanded trade from the elimination of subsidies and protectionism.

"While the wealthy nations need to make the biggest changes, developing countries have to take a look at their own policies, as well. Developing countries need to reduce their protectionist measures on agriculture, as these policies increase the cost of food for poor consumers," commented David Orden, IFPRI senior research fellow.

"The best thing developing countries can do is to invest in agricultural research and development, roads and rural infrastructure, human capital of the poor, and ensure macroeconomic stability, good governance, the rule of law and peace," he continued.

"The upcoming WTO Ministerial Conference in Cancun provides an opportunity for world governments to agree on a plan to make agricultural trade more fair," said Diaz-Bonilla. "For the sake of low-income farmers and consumers across the globe, negotiators from the industrialized countries should move beyond rhetoric and gestures. It is time to remove the trade-distorting measures that hurt poor people in developing countries."

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The International Food Policy Research Institute (IFPRI) seeks sustainable solutions for ending hunger and poverty. IFPRI is one of the 16 Future Harvest Centers and receives its principal funding from 62 governments, private foundations, and international and regional organizations known as the Consultative Group on International Agricultural Research. Please visit our Web sites at http://www.ifpri.org.