IFAP Cairo; May 2002 Keynote Speech Agricultural Trade and the Poor Sushma Ganguly Sector Manager, Rural Development Department The World Bank Group Mr. Chairman, Distinguished Guests: I am honored to represent the World Bank s President, Mr. James D. Wolfensohn, at this IFAP 35 th World Farmer s Congress. Many of you know him, and will appreciate his personal regret at not being able to be here today. As you are probably aware, seventy percent of the world s poor live in the rural areas of developing countries. Agriculture and agriculture-related activities are their primary source of income. Therefore, the World Bank is committed to developing programs and supporting national policies that will focus on the development of these rural poor. Among other things, we seek to enhance their ability to benefit from agricultural trade. The Bank is consequently becoming increasingly aware of its role as an advocate for fairer agricultural trade practices that benefit the rural poor in developing countries. My talk, therefore, will briefly present the dichotomies of agricultural trade and address three key areas: What high-income countries can do; What low-income countries can do; and What are the costs to agricultural trade of a regional versus a multilateral approach. I will, conclude by looking at the role that you, the leaders of national farmers and rural producers organizations, can play in this increasingly competitive market and the challenges that you will face. Dichotomies of Agricultural Trade Agricultural commodities represent more than half of low-income countries exports, and about 70% of least-developed countries export revenues. The world s poor face tariffs that are roughly twice as high as those imposed on non-poor. Studies have shown that agricultural exports can reduce rural poverty developing countries that had more rapid agricultural export growth also had more rapid growth of agricultural GDP
While low-income countries face increasing competition with high-income countries over market share in agricultural products, OECD countries spend billions each year in agricultural subsidies. In 2000, OECD member states total support to agriculture was estimated to be $327 billion or 1.3% of their GDP. The US farm bill, which was recently passed by Congress, will further increase subsidies to US farmers. According to the Associated Press, the Bill marks the reversal of the market-oriented policy of the 1996 Freedom to Farm law that was supposed to wean farmers from government subsidies. 1 What High-Income Countries can do One of the key factors for a successful result in the Doha Round is substantially more market access for food and agriculture around the globe. High-income countries have a central role to play in ensuring that low-income countries have improved market access to agricultural goods. The average tariff on agriculture in high-income countries is almost twice the tariff for manufactured goods. For trade practices to be fair, tariffs need to be reduced, and export subsidies and domestic support programs need to be phased out. High income countries could provide tools and resources to facilitate low-income countries to take advantage of opportunities offered by liberalized trade. The Doha mandate is to build trade capacity, assisting developing countries to expand their expertise in rules and functioning of the WTO. WTO members have pledged nearly $18 million, double the original target, for technical assistance and capacity building to help developing countries participate fully in the Doha development agenda. This is an area where individual member states as well as the Bank can have positive interventions to help you-- the leadership of farmers organizations-- develop your capacities to influence these negotiations, that are fair and just to low-income countries as well. What Low-Income Countries can do? While it is necessary to adjust the trade policies of the high-income countries, it is also important that low-income countries do the same. Low-income countries need to adopt companion policies that will cushion the impact on the poor of adjustment to new incentives and spur the development of industries essential to trade, particularly through introduction of regulatory policies that harness competition. Low-income countries must also invest in upgrading trade-related public sector institutions. In addition, these countries need to encourage domestic intellectual property through TRIPS consistent standards appropriate to developing country needs and ensure adequate macro policy framework to provide a sound investment climate. If low-income countries do not address their trade and macroeconomic policy needs, they run the risk of being left behind. They are already disadvantaged by their low level of integration in the global markets, poor infrastructure and public services, low share of value-added activities, high transaction costs, poor capacity to advocate interests, and the like. There is still lots of room for low-income countries to act. To be successful in attracting capital, they must do their part to 1 Associated Press, May 5, 2002. 2
create an environment conducive to trade and investment. Investment will be drawn to countries with low tariffs, skilled workers and stable political regimes. Regionalism vs. Multilateralism In today s global trading system, regional groups have become an important element. A majority of countries are part of some regional grouping. Regional trade often results in lower preferential tariffs among trading partners. The European Union allows us to reject the hypothesis that one act of regionalism necessarily leads to the collapse of the multilateral system. Regional integration/groupings can be useful as a way of harmonizing standards-- for example regional seed varietal registration--, supporting regional institutions, coordinating international negotiating positions as is done within the WTO, and facilitating labor and capital flows. You leaders have a role to play in promoting this regional integration. When regional integration means harmonizing trade barriers to external trade, it is unambiguously beneficial only if the new barriers are harmonized at the level of the most liberal of the previous individual trade regimes. The Bank has been strongly supporting some forms of regional integration, for example, in Central Europe -- accession to the European Union -- and some of the initiatives in Sub-Saharan Africa. The Role of National Farmers leadership and Rural Producers Organizations Farming is not just about marketable goods. Farmers also contribute to improving the environment and countries cultural identity. The role of farmers goes beyond that of simply producing home-consumed and marketable goods. They also contribute to improving the environment and countries cultural identity. You, the farmers of the world, are producing the food we eat and much of the fiber we wear. You also produce the raw material needed for the agro-industries. Depending on the techniques and farm practices you use, you can contribute to the degradation or the conservation of the environment. Farmers organizations are therefore central not only to improving rural incomes but also for protecting the environment and keeping alive countries traditions and cultural heritage. The fight against poverty must focus primarily on rural areas. Because 70% of the poor live in rural areas, your organizations must take on the global poverty reduction agenda and become central to the fight against poverty. By creating their own organizations or by joining existing ones, the rural poor could embark in the development process, access the inputs or credit they need, and the knowledge, technology or markets they are looking for to increase their incomes. To encourage this process, the Bank is investing presently around US $2 billion world wide in community-driven programs under which decisions are 3
made by local communities or grass root farmers organizations. The Vila Paraná case is an excellent illustration of an effective empowerment of a farmers organization. Vila Paraná - A Community Ready to Compete in the Global Market In the late 1980s, the farmers in Vila Paraná in the northwestern part of the State of Rio Grande do Norte, in North Eastern Brazil, began to process cashew nuts using small, semiartisanal, family units developed with the help of NGOs, but they found it difficult to effectively participate in the market. In 1998 their lives changed and they found the road to the market. The farmers formed an association, put together a proposal, and went to the local Municipal Development Council for money to set up a larger cashew nut processing and marketing center (the Central) for the community. The proposal was approved and financed under the World Bank-supported Rural Poverty Alleviation Project operating in Rio Grande do Norte. Today, producers take their cashews to the Central for processing, grading and marketing. The resulting high-quality product conforms to the demands of the international market, rewarding the farmers with a higher price. Joining together to set up the Central also gave the farmers market power. The Central secured a contract with a large company in São Paulo, which now buys all Vila Paraná s cashew nut production. In January 2000 the Central went global. Dutch businessmen arranged a contract for the Central Europe. In just over a decade, with World Bank financial support for productive infrastructure, and collective action, even poor rural families in the Northeast of Brazil have been able to compete in the global market place. Macroeconomic Environment Supporting local farmers organizations is necessary but not sufficient. The policy framework and the macroeconomic environment should also be conducive to the development of sustainable rural producer organizations and enterprises in developing countries. Local empowerment is not a substitute for sectoral policy and institutional reforms in international agricultural trade, or in knowledge and technology development. Your organizations are the driving force and guarantor to address these issues. You leaders should therefore participate in national and international fora where agricultural policies are made, and defend the interests of not only your members but the rural poor. Participation of farmer organizations in policy reform process is very much the case in OECD countries, but seldom in developing countries for a number of reasons farmers and their leaders may not have the resources to attend meetings or access information, or the knowhow to effectively defend their positions in these fora. In addition, farmers representatives may not be invited because they may not be recognized as legitimate representatives by their 4
governments, their organizations being sometimes disconnected from their grass-roots membership. Building the capacity of farmers organizations to participate in these fora is an important issue that we are willing to support. The experience of OECD farmers leaders in this regard should also be built upon. The Bank s new Rural Strategy Paper gives special attention to building local capacity through producer and community organizations. It proposes, among others, that: Bank lending will strengthen the capacity of producer organizations to link to markets and access technology and provide a voice in policy formulation and governance; Trade associations for exporters, processors, seed companies, and others will be promoted and included as stakeholders in agricultural sector development and contributors to policy reforms, project designs, and sector development. Challenges Ahead for a World Farmers Organization Creating a conducive macroeconomic environment for sustainable agricultural development is a real challenge for the farming community of the world. How can producers from the South be competitive with OECD producers who receive over $300 billion a year in agricultural subsidies? The World Bank understands its key role in supporting better agricultural and trade policies through advocacy, analytical work at both the global and country level, technical assistance, and lending operations. As I close, my question to you is: Can IFAP take the lead in a global farmers alliance to address these macro economic issues and come up with pragmatic recommendations regarding the requisite actions: International agricultural trade: Should the rules of the game be different for highincome and low-income countries? The multifunctionality of agriculture: How and who should pay for non-marketable goods produced by farmers in high-income and low-income countries? Knowledge and technology development: Are the priorities the same for farmers in highincome and low-income countries? I am looking forward to the discussion of your diverse perspectives and an emergence of a strong consensus during this seminar, which will allow us to come up with some practical responses to these questions, and take forward your resolutions effectively. Thank you. 5