Article by Lennart Båge

But trade liberalisation will not guarantee improved incomes for the majority of the world's poorest people. The real development challenge is finding ways to empower rural poor people so they can benefit from globalisation, writes IFAD's President.

The World Trade Organization's recent ruling in favour of Brazil in its case against the United States has been lauded as a victory for developing countries everywhere. Indeed, WTO's decision that US subsidies illegally depress global cotton prices is historic and could signal a boon for cotton producers around the world, particularly in Africa.

The WTO ruling may also open the door to broader debate and, hopefully, much-needed trade reform - especially in the agricultural market. Cotton is just one of many commodities that industrial countries subsidise and then "dump"; at prices far below production cost. Artificially cheap sugar, rice, wheat, maize, meat and dairy products from the United States, Europe and Japan make it exceedingly difficult for producers in developing countries to compete - even in local markets. Agricultural products from developing countries are often shut out of richer countries due to tariffs and trade barriers.

There has been a more concerted drive toward trade liberalisation since the world committed itself to the ambitious Millennium Development Goals (MDG) in 2000. In fact, one of the goals calls for an open trading system that is rule-based, predictable and non-discriminatory, and recognises the special needs of the least developed countries in relation to tariff- and quota-free access for their exports. The potential benefits of a more equitable trading system are well known. The World Bank, for instance, estimates that full trade liberalisation would expand global wealth by as much a USD 500 billion and lift about 150 million people out of poverty by 2015.

But in truth, trade reform alone will do very little to reduce poverty in the regions of the world where it is most needed: rural areas. More than 900 million of the world's 1.2 billion poorest people live in rural areas and depend on agriculture for their survival. This is not to say that rural poor people are not affected by international markets. Global pricing schemes affect local consumption in the most remote areas of the developing world. People's high reliance on food and labour markets in these parts of the world makes them all the more vulnerable to fluctuations in today's international agricultural market. The problem is that most rural poor are not able to take advantage of trade opportunities because they do not have access to efficient markets, or to land, water, capital, infrastructure and technology. Worse yet, they are virtually powerless to influence trade conditions because they lack partner-ships and political representation.

The existence of such constraints underscores one of the main obstacles to achieving our development goals: The rural sector is not an investment priority for most aid donors and many governments. The amount of official development assistance (ODA) dedicated to agriculture has fallen by half since 1988; today, about 8 per cent of ODA goes to the rural sector. This situation needs to be reversed. Throughout history, agriculture has been the engine driving economic growth. Look at Europe or the United States in the 19th century, or Japan and the Asian Tiger economies during this past century. Research shows that every dollar invested in agriculture generates another two for a developing country's national economy.

Given that rich countries spend six times more on agricultural subsidies than they on development aid, ODA cannot serve as an alternative to trade reform. Rather, both are vital to spurring growth in the developing world’s rural sector. But small rural producers will not benefit directly from changes in trade relations unless they are able to develop new capacities and forge contacts that allow them to compete in the global marketplace. This is particularly important given the association between poverty and the types of goods traditionally produced in rural areas. Most of the developing world’s economies rely on highly volatile farm crops and, often, a single export, which is unreliable for supporting growth. Aid can help people learn how to diversify their commodities and add value to their products through processing, packaging, labelling, quality control and marketing.

This is why the Doha Agenda has to be brought back on track: Doha aims not only to cut international trade barriers, but to write new rules for globalisation in important areas such as investment. There is little doubt that Doha has the potential to bring substantial economic benefits to poor countries. But the developing world must do its part. Greater attention needs to be paid to reducing barriers to internal trade and expanding national and regional markets. Tariff rates on agricultural goods are often higher in developing countries than in developed ones. In fact, about 80 per cent of the benefits reaped by poor countries, according to the World Bank, would come from reductions in the barriers between poor countries.

It is a cruel irony that the majority of the world's food producers are also the world’s poorest people with the least amount of food to eat. Imbalances of globalisation must be urgently addressed in order to restore credibility to free trade. But if the international community is going to meet its first and most primary MDG - halving the proportion of people living on less than a dollar per day by 2015 - we must focus on empowering those who live in the rural areas and enable them to create new economic opportunities for themselves.

Lennart Båge is President of the International Fund for Agriculture.

Development Today is the independent journal on Nordic and multilateral aid, published fortnightly since 1991.
June 14, 2004 - Vol XIV - No 9