The Forum on the Impact of Trade Liberalization and Globalization on Poor Rural Producers was organized by the Third World Network on 17 February 2004 as a side event to IFAD's 27th Governing Council. The purpose of the Forum was to discuss the effects of globalization and liberalization on the livelihoods, incomes and opportunities of poor rural producers. The Forum's six panel members, many of whom have been involved in the current WTO negotiations on agriculture, explored the implications of the ongoing trade negotiations for rural development, poverty reduction and food security in developing countries. They also presented proposals on the way forward. The six panel members were:

• Mr Bhagirath Lal Das, international trade expert, former Ambassador of India to the General Agreement on Tariffs and Trade and former Director of International Trade Programmes, UNCTAD
• Ambassador Luiz Felipe de Sexias Correa, Permanent Representative of Brazil to the WTO and the United Nations, Geneva
• Dr Harmon Thomas, Commodities and Trade Division, FAO
• Dr Kaman Nainggolan, Director of Planning Bureau, Department of Agriculture , Indonesia .
• Mr Tim Rice, Senior Policy Analyst, Action Aid, United Kingdom
• Ms Meenakshi Raman, Friends of the Earth Malaysia

The Forum was chaired by Mr Martin Kohr of the Third World Network Secretariat. The President of IFAD, Mr Lennart Bage, opened the Forum. The key themes that emerged during the Forum are presented below.

Domestic Subsidies

Although the framework for international trade does not guide the work of poverty reduction, it can provide opportunities or put a brake on its efforts, depending on how it is applied. The current framework is inequitable for developing countries and for small farmers. Essentially, the framework was created by the US and the EU, and developing countries accepted it for many reasons. A number of significant problems emerged when the framework was implemented, among them domestic support through the issue of subsidies, which governments of developing countries provide when they can afford to. The vast part of these subsidies goes to big farmers, who are prominent in international competition. The small farmers from developing countries are not able to compete in the international market with this type of competition. Moreover, the subsidies are immune from any reduction. In fact, they have increased over the past ten years. Obligations of subsidy reduction in agriculture have been implemented in letter but fully violated in spirit, because the subsidies are increased through other means. These subsidies protect the farmer and provide an incentive to the farmer to continue with unviable farming and production.

Mexico is one of the most well known cases in which the impact of NAFTA has been increasingly evident. An analysis by an NGO called IHCP showed in 2001 that corn cost an average of US$ 3.41 a bushel to produce in the US and sold on the world market at US$ 2.28 a bushel. Mexican farmers are not able to compete with grain sold at less than US production costs. They lack the credit, the economies of scale and the other crucial government support that was removed because of IMF prescriptions.

For many developing countries, investment in agriculture has been declining since the Eighties. External assistance to agriculture has also been declining, as have government expenditures in developing countries. However, the reverse is true for OECD countries, which has spent US$ 6.5 trillion on agriculture since 1980. This huge excess has created the off-loading of surplus products on the world market and the consequent decline in international prices for most agricultural products since the Sixties. At the same time, since the Seventies, the least developed countries have switched from being net exporters to net importers of agricultural products.

This serious point of imbalance must be addressed. The prevailing high levels of domestic support must be removed. This can be done in part through solidarity and mobilization of the international civil society, which has become all too aware of the negative impact of agricultural subsidies on developing country farmers. In addition, the G-20 has a role to play, particularly since it is a central player in agriculture negotiations as well as a microcosm of developing country membership. Although there are some divergent interests within the G-20, members are unanimous in recognizing that the most undesirable outcome is one in which developing countries can be required to open their markets while developed countries retain their subsidies.

Under pressure from the IMF, the Honduran government abolished the system of import controls and threw the rice market wide open. At the time, Honduras was meeting 100 percent of its local needs for rice and even had surpluses for export. However, because of libera lization and the opening up of the market, local rice production was faced with unfair competition from heavily subsidized US rice imports, which enjoy subsidies work 65% of the production cost of rice in the Honduras .

Export Subsidies

If subsidies were given for domestic consumption and the subsistence of farmers in developed countries, they could be tolerated. However, about US$ 6 to 7 billion are used as export subsidies, and most of this is given to one economic group - the EU. These export subsidies not only enable the large farmers to remain in agriculture, they also enable them to “attack” the agricultural production of small farmers in developing countries. This is uneconomical and highly unethical.

Farmers in Ghana produce tomatoes, which are then processed into tomato paste. However, the government-supported tomato canneries had to be closed down as a result of structural adjustment reforms. The closure of the canneries created a surge in imports of subsidized Italian tomato paste. Many tomato growers are now constrained to dispose of their tomatoes on the roadside, selling them at whatever price they can get.

Instead of cutting subsidies, both the EU and US are merely shifting subsidies into categories of subsidies - "boxes" - that are not subject to WTO reduction commitments. These include blue-box subsidies, which are only permitted under schemes that attempt to limit production and are considered partially trade distorting; and green-box subsidies, which are deemed not to distort trade or at most cause minimal distortion. The common parlance is that these are decoupled subsidies. After the CAP final agreement of 2003, the EU will further shift subsidies from the blue box to the green box. NGOs do not accept the EU's arguments that such reforms will reduce the CAP's negative impact on developing countries, since post-reform payments will still be partially coupled to present or future production. Moreover, payments which are partially decoupled in this way will lead to increased production, even according to the EC's own estimates. Besides, CAP reform in the European Union came late. It was incomplete. For example, some very important sectors for developing countries - for example, sugar, tobacco, cotton and olive oil - were omitted. The reform is also extremely confusing, and the consequences of its implementation are not understood.

Many urban consumers in Africa are abandoning traditional food items because of cheap imports arriving from developed countries. Imports of rice, wheat and milk, for example, are being purchased instead of the locally produced sorghum, millet and cassava.

Although the CAP agreement was primarily about domestic subsidies, it does have implications for export subsidies. Reforming the domestic subsidy regime will mean that there will be less use of export subsidies or export refunds in the European Union. At the same time these subsidies and refunds will still play a very important part of the subsidy regime for at least the next ten years. This has very serious implications for developing countries. Export subsidies are primarily responsible for the dumping of agricultural products in developing countries. This is a very serious consideration.

NGOs have been vociferous about some of the reforms needed. They want to phase out the amber box and immediately eliminate the blue box and all forms of export subsidies, export credit, and so forth. They believe that since the developed countries are merely shifting subsidies between boxes, a cap is needed on the green box, along with a review of the green box to tighten the criteria by which developed countries can actually use it to subsidize their own producers. In addition, dumping should be prohibited. Any sale at less than the cost of production should be prohibited.

Protection Safeguards

Provision is made that enable some countries to protect their farmers by an arrangement called a Special Agricultural Safeguard Mechanism (SSM). The mechanisms of criteria are such that they are applicable only to developed countries, leaving the small farmers in developing countries unprotected. Consequently, the farmers who receive the export subsidy are also protected domestically from the exports of others. The Special Product/Special Safeguard Mechanism (SPSSM) Group of 36 countries has issued a ministerial communiqué in Cancun that proposes flexibility for all developing countries to self-designate a number of tariff lines as a Special Product contributing to rural development, job security and poverty alleviation. The Special Product would not be subject to tariff reduction. The communiqué also proposed that no new commitment be made regarding the trade rate quote and that a mechanism should be created to protect a country from sudden surges of imports (e.g. rice in Indonesia , cotton in western Africa ). The SSM should not be limited to a Special Product but should be open to any commodity that could have a negative impact on the internal economy.

Mozambique was the first African country to produce cashews on an industrial scale. However the entire production system has come to a standstill, primarily because of the many reforms introduced, particularly the elimination of an export tax on raw cashews. A Harvard University study has shown that the collapse of this industry has resulted in 10 000 people working in the cashew industry losing their jobs and another one million nut collectors being deprived of their income.

Such proposals are meant only to defend against import surges, not to impede agricultural trading. Since many developing countries are net importing food commodities, the proposals give local producers a fair opportunity to produce food imports themselves. It is meant to help increase the standard of living and incomes of hundreds of millions of poor farmers by promoting social equity and income opportunities.

According to a report by the China State Council, the WTO commitments are likely to wipe out the livelihoods of 13 million farmers who grow wheat, rice and cotton, while creating new ones in non-grain crops for only about 1.5 million. The report states, "Some economists reckon that China will eventually need to find jobs for about 200 million farmers as its market reforms continue."

The Way Forward for IFAD

Recently the Agriculture Commissioner of the European Union said that he ruled out any opening of the CAP's position before 2013. It is likely that the European Union and the US are not going to reduce their subsidies in a meaningful way for a long time. Given this situation, developing countries and the international community must take a stronger position against import surges and dumped agricultural produce and a general rebalance in favour of developing countries. Coalitions must be formed to strengthen that position. It is a question of human rights, the United Nations Charter on human rights.

Not all developing countries have a sustainable agricultural, agro-ecological potential. Not all of them can produce from the physical-endowment point of view. Of course, there are differences in policies and policy frameworks as well. Some countries have not paid much attention to agriculture although they may have the physical endowment to have sustainable agriculture but without the necessary domestic policy to support it. There are others who have tried but have been hampered by external factors tied to globalization. Therefore, small farmers need to be provided with the right framework environment domestically in order for them to produce. That domestic framework may or may not be sustainable, depending on the international framework. The interaction between the two frameworks is very important, and IFAD needs to further explore this factor in its work.

IFAD must continue to its ground-up approach. An enabling environment on the grounds is fundamental for helping to move communities out of poverty.

Development is a secondary concern in the context of a game that is being played on a purely developed-country exchange. Organizations such as IFAD and FAO, and NGOs, must be more present at the WTO to press for change.

Food aid is sometimes being used by developed countries for export competition. Organizations such as IFAD can play a role in analyzing food aid to ensure that it is being used for emergencies and not for export competition or as a trade distorting factor.

While the multilateral system is responsible for many of the difficulties faced by small farmers, the role of the national authorities cannot be underestimated. No country with any self-pride can abdicate its own responsibility to development, particularly the development of poor people. In this regard, IFAD must continue to promote strong partnerships at the government level.

IFAD's beneficiaries - the small farmers - need to be made aware of the existing agricultural agreements. Giving small farmers this knowledge will give them a stronger voice and more incentive to speak out. They must be educated and informed, which will lead them to fulfilling one of IFAD's strategies contained in its Framework: expanding the influence of the poor over public policy.

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This document is the report of the forum. IFAD accepts no responsibility for its accuracy or for any consequences of its use.