AGRICULTURE, TRADE REFORM AND POVERTY REDUCTION: IMPLICATIONS FOR SUB-SAHARAN AFRICA
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AGRICULTURE, TRADE REFORM AND POVERTY REDUCTION: IMPLICATIONS FOR SUB-SAHARAN AFRICA

 

 CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The WTO Ministerial Declaration at Doha in November 2001 places considerable emphasis on development (WTO, 2001b), although the outcome is not guaranteed. Many developing countries – particularly in Africa – are skeptical that they will receive sufficient gains from that MTN to warrant the inevitable costs of negotiations and adjustments. These countries and some donors also still need to be convinced that such trade reform will alleviate rather than add to poverty and food insecurity in developing countries. Some are concerned about the loss of trade preferences as developed countries’ MFN tariffs are reduced. Net food-importing countries are especially worried that they will be made worse off by having to pay a higher food import bill following agricultural trade reform.

Trade policy does not deal with income distribution issues, because in virtually all countries they can be handled more efficiently by more direct policy measures (Corden, 1997, Ch. 4). Nonetheless, it is important to be aware of the distributional consequences of trade (and other) policy changes and to check that measures are in place or, are introduced to deal effectively with any vulnerable groups who may be made worse off by those trade reforms abroad and/or at home.

It is estimated that between 350 million and 1.2 billion people live on less than US$1 a day, most of whom are in rural Sub-Saharan Africa and South Asia (Sala-i-Martin, 2002; Collier and Dollar, 2002; etc). This study looks at the likely effects of the current WTO negotiations on poverty alleviation with a particular focus on agriculture and rural households in developing countries, especially those in Africa. The reason for the rural focus is not just because that is where most of the world’s poor live and work, but also because agricultural markets are the most distorted in the world and hence any across-the-board cut in trade distortions would bring down the relative price of agricultural products in international markets.

There is a large body of empirical evidence showing that trade liberalization - easing tariffs and other import restrictions as well as reducing or eliminating domestic supports and export subsidies - tends to boost economic growth, at least in the longer term, and this has helped to reduce the number of persons living in absolute poverty (Dollar and Kraay, 2000). In the longer term, and in the absence of externalities, own-country liberalization tends to increase aggregate welfare through improvements in resource allocation and employment generation but, there will always be some who lose in the absence of compensation. However, in the short-term structural adjustment costs and the immediate impact on the poor may be negative, particularly in developing countries that do not have the resources, institutions or infrastructure to facilitate the changes nor the social safety nets to cushion the negative effects. Changes in trade policies in other countries also have an impact through altering a country’s terms of trade, which again can generate winners and losers within each developing country. If the combination of the effects of reforms at home and overseas is pro poor, it will reinforce any positive growth effects of trade reform on the poor; but for countries where those changes are not likely to be pro-poor, governments may need to amend domestic policies or boost public investments to prevents  a deterioration  in  the welfare of vulnerable groups. To achieve this, the developing countries are likely to need some leeway and external support through the provision of resources to build “soft” and “hard” infrastructure.

The many African countries that are heavily dependent on exports of farm commodities can anticipate being better off following WTO-induced trade reform, particularly by the developed countries, which use an array of instruments to support their farm sectors and limit access and entry to their markets. The elimination of these trade distortions would level the playing field, and make it more feasible for African countries to contemplate undertaking their own reforms that would otherwise expose their fragile sectors to unfair competition. Those African countries whose food imports represent a large part of their foreign payments could face a higher food import bill but, if their farmers can respond to expected increases in international prices - however modest - as export subsidies are reduced by the developed countries, this could have positive effects on food security and poverty alleviation. Therefore, all African countries need to play an active role in the WTO negotiations to ensure that their particular interests are taken into account.

The quantitative analysis in this study shows that about half of the potential global economic welfare gains from trade reform would come from changes in the policies of the OECD countries in the agriculture and processed food sectors. The present analysis also confirms earlier analyses (e.g., Krueger, Schiff and Valdes, 1988) showing that some developing countries have an anti-agriculture, anti-poor bias in their own policies and so are not making the best use of their own resources – although the extent of that has been reducing over the past decade or two (see Jensen, Robinson and Tarp, 2002).

These welfare results are driven by improvements in the terms of trade (e.g. export prices rising more than import prices) and the efficiency effects of improvements in the allocation of resources between different activities. This study looks at changes in prices, outputs and trade balances by sector, which can expose potential adjustment problems and policy dilemmas for developing countries. However, it should be kept in mind from the outset that the results are based on a comparative static analysis, comparing a preand post-liberalization situation, without taking account of transition periods or adjustment costs such as the movement of resources from highly-protected industrial sectors in developing countries.1 The results are also limited in that SPS and TBT barriers and other market entry restraints that developing countries face in their major markets are not modelled, and perfect competition is assumed. The effects of trade reform on poverty are addressed at three levels: first focusing on developing countries as a group; then on different types of developing countries and finally, on different types of households within developing countries.

1.2       Statement of the Problem

There are important gains in agricultural exports as a result of the simulated elimination of all forms of trade intervention, and a decline in net food imports. However, there are important variations as between industries. There are gains in most agricultural sectors (except “other crops” in Sub-Saharan Africa when that region and South Asia are excluded from the reforms). On the positive side, there are also marked net trade gains in the energy and minerals sectors. However, “other” manufactures faces an important trade loss, especially if developing countries join in the elimination of trade measures (mainly industrial tariffs in this case), The counter to this would be corresponding net gains for developed countries but, other developing regions especially in South-East Asia may also be winners.

Does this mean that Sub-Saharan Africa should be indifferent to or should refuse to participate in the WTO negotiations? The answer is certainly not. On the contrary, they would be worse off if their governments did not participate actively in the WTO process. First, these countries would forego the opportunity to safeguard their own trade interests and to seek greater access for their exports to other markets. Second, they would forego the opportunity to obtain economic efficiency gains from reducing the policy biases against their own rural sectors, while still suffering the terms of trade loss from others’ reforms (or lack thereof), since any one of those countries is too small for its own policy choice to alter the terms of trade significantly. The fact that other countries are also undertaking reforms sometimes makes it politically easier for governments to introduce similar changes at home. Thirdly developing countries that face important structural adjustments, tariff revenue and preference losses would be able to argue a case for support for institution-building and the implementation of programmes to facilitate adjustment and to provide social safety nets and compensation from the developed countries that win from the negotiations. It may also be helpful in persuading bilateral donors and the IFIs, under the coherence mandate, to help Sub-Saharan African countries overcome serious supply constraints in the real economy, for example in infrastructure projects and overcoming technical barriers to trade.

1.3              Objectives of the Study

The study sought to know the agricultural trade reform, and poverty reduction: implications for Sub-Saharan Africa. Specifically, the study sought to;

1.   examine the relationship between trade reform and poverty reduction.

2.   determine the implications of agricultural trade reform in the Sub-Saharan in Africa.

3.   discuss the effect of trade reform and poverty reduction in other developing countries.

1.4       Research Questions

1. What is the relationship between trade reform and poverty reduction?

2. What are the Implications of agricultural trade reform in the Sub-Saharan in Africa?

3. What is the effect of trade reform and poverty reduction in other developing countries?

1.5       Research Hypotheses

Ho1: There is no relationship between trade reform and poverty reduction.

Ho2: There are no Implications of agricultural trade reform in the Sub-Saharan in Africa.

1.6       Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.7       Scope/Limitations of the Study

This study is on agriculture, trade reform and poverty reduction: Implication for Sub-Saharan in Africa.

Limitations of Study

Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8       Definition of Terms

Agriculture: Agriculture is the cultivation of land and breeding of animals and plants to provide food, fiber, medicinal plants and other products to sustain and enhance life.

Trade reform: is to help raise economic growth and employment generation by improving resource allocation and economy wide efficiency.

Poverty reduction:    Poverty reduction, or poverty alleviation, is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.

Implications: the conclusion that can be drawn from something although it is not explicitly stated.

Sub-Saharan Africa:  is, geographically, the area of the continent of Africa that lies south of the Saharan.

 

REFERENCES

Agricultural and Resource Economics 44(3): 475-94, September.

Anderson, K. (2000), ‘Agriculture’s Multifunctionality and the WTO’, Australian Journal of

Anderson, K. (2002), ‘Economy-wide Dimensions of Trade Policy Reform’, Ch. 2 in Development, Trade and the WTO: A Handbook, edited by B. Hoekman, A. Matoo and P. English, Washington, D.C.: The World Bank.

Anderson, K., B. Dimaranan, J. Francois, T. Hertel, B. Hoekman and W. Martin (2001), ‘The Cost of Rich (and Poor) Country Protection to Developing Countries’, Journal of African Economies 10(3): 227-57.

Dollar, D. and A. Kraay (2002), ‘Growth is Good for the Poor’, Journal of Economic Growth 7(3): 195-225, September.

Sala-i-Martin, X. (2002), ‘The World Distribution of Income (Estimated from Individual Country Distributions)’, NBER Working Paper 8933, Cambridge MA, May

WTO (2001a), Market Access: Unfinished Business: Post-Uruguay Round Inventory and Issues, Special Study No. 6, Geneva: World Trade Organization.

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