OECD Policies, Poverty and Agricultural Development in SSA: OECD Policies, Poverty and Agricultural Development in SSA Presented at EGDI Roundtable Policy, Poverty and Agricultural Development in SSA 8-9 March 2006 in Stockholm, Sweden By Alexander Werth/Consultant Kampala, Uganda


Outline of this Presentation: Outline of this Presentation Introduction Brief Typology of OECD Policies Subsidies Market Access Policy Space Aid Summing Up and Way Forward


Introduction: Introduction SSA way behind schedule in meeting MDG targets; also compared to other regions in the world Agriculture likely to remain a key driver of development and poverty reduction Accounting for 30-40% of SSA GDP, 60% of export earnings, and provides for 80-90% of livelihoods Ag has strong linkages to MDGs (poverty in general; as well as hunger, health, child mortality, environmental sustainability etc.)


Introduction – Cont’d: Introduction – Cont’d In MDG 8 OECD countries commit to contribute to the global development agenda through achieving policy coherence by: Abolishing unfair trade rules and policies; Recognising the specific needs of particularly poor and marginalised countries; Provision of more (and better?!) aid. But OECD countries massively distort trade through the provision of subsidies (USD 350 billion in 2005) and barring their markets through tariffs and non-tariff barriers (e.g. SPS, TBT, RoO)


Introduction – Cont’d: Introduction – Cont’d ODA earmarked for Ag in SSA fell by 60% from USD 1.3 billion (1990) to USD 524 million (2001) These (and other) OECD policies impact on the availability of policy options SSA countries have to devise and implement food and agriculture policies


Brief Typology of OECD Policies: Brief Typology of OECD Policies OECD trade-related measures affecting SSA countries’ agricultural suppliers at home and in third country markets Policies attributable to OECD countries undermining SSA efforts to enter OECD agricultural markets OECD efforts to influence trade and macro-economic policies at the domestic (SSA) level OECD efforts with regard to supporting SSA agricultural growth and economic development through ODA, and lack thereof


Subsidies: Subsidies OECD subsidises farm sector in tune of USD 350 billion (Producer support: USD 250 million & general services provided to Ag: USD 50 billion; price support: USD 160 million & direct producer support: USD 100 billion) Quad (EU, US, Japan & Canada) account for 90% of all OECD subsidies Overall OECD countries’ support levels have remained relatively stable within the last 20 years, despite their commitment which they made in Marrakech in 1994 "to provide for substantial progressive reductions in agricultural support“


Agricultural (Producer) Support in OECD Countries : Agricultural (Producer) Support in OECD Countries


Subsidies - Cont’d: Subsidies - Cont’d Yet key subsidising WTO members point to major achievements, since they are increasingly moving from trade-distortive subsidies (Amber Box) to less (Blue Box) or only minimally trade distorting support (Green Box) But also ‘decoupled’ support affects a farmer's production decision, inter alia since: it is possible to cover fixed and variable costs through 'cross-subsidisation‘ direct payments have a risk reducing effect they create expectations with respect to future assistance based on past government actions


Subsidies - Cont’d: Subsidies - Cont’d Effects of subsidies on SSA Ag production: SSA farmers hold natural competitiveness with respect to a wide range of agricultural products But they are unable to compete with subsidised and artificially cheap produce on the domestic and the international market Stagnation in the agricultural sector Displacement of SSA farmers Intensification of conditions of poverty in SSA


Subsidies - Cont’d: Subsidies - Cont’d Loss in annual agricultural and agro-industrial income in SSA estimated USD 2 billion, a displacement of production equalling about 3.4% of total income in these sectors Smaller SSA countries are most affected with income losses of 10-15% of total agricultural and agro-industrial incomes The EU is responsible for more than half of the trade displacement, the US for around a third, and Japan and Korea for another 10%


Subsidies - Cont’d: Subsidies - Cont’d Export subsidies: Among the worst of all trade policy instruments as the adverse effects of these measures are entirely passed on to third country markets They promote price volatility since they are more often applied (to bridge difference between production costs and world price) when world prices are down EU biggest culprit, being responsible for around 90% of global ES volumes totalling US 3 billion


Subsidies - Cont’d: Subsidies - Cont’d Export credits Can provide the equivalent of subsidies, partly through reducing the cost of credit, and partly through reducing risk for traders through the provision of government guarantees and credit insurance US main user, spending around USD 5.5 billion under the current 2002 Farm Bill Note: WTO members agreed at Hong Kong Ministerial Conference (December 2006) that all export subsidies and export measures with equivalent effect (including the subsidy elements of export credits) be eliminated by 2013


Subsidies - Cont’d: Subsidies - Cont’d Impact of Subsidy Removal on SSA food security: Wheat: 12.2% increase in world price; maize: 12.8% SSA countries imported between 2001 and 2003 staple food crops such as wheat, maize and rice worth around USD 2.5 billion An ambitious outcome of the current Doha 'Development' Round could thus pose significant adjustment challenges on some African food-importing countries (e.g. in Kenya or Botswana)  Implications for adjustment strategy


Market Access: Market Access Various OECD members shield certain 'sensitive' - and often also less competitive - segments of their agricultural markets against imports from more competitive producer countries Analysis suggests that improved market access will have a greater impact on trade flows than any other element in the current Ag negotiations Removal of all OECD market distortions could increase SSA incomes by full 57 percent (subsidies only mere 5%); and full market liberalisation in EU/US result in 5.7% increase in African GDP


Market Access – Cont’d: Market Access – Cont’d Tariff protection: Average EU/US tariffs in Ag (22%/14%) around 3-4 times higher than their average industrial tariffs Many OECD countries have tariff peaks (tariffs > 15%) - going up to 500%!! – applied on commodities such as beef, dairy, vegetables, fresh fruits, cereals, sugar, prepared fruits and vegetables, wine, spirits and tobacco Tariff escalation (applying increasing import tariffs according to the degree of processing of the product ): e.g. on coffee


Market Access – Cont’d: Market Access – Cont’d Yet, most SSA countries are beneficiaries of zero-/low-duty market access under OECD preferential trading arrangements: e.g. Cotonou & EBA (EU), AGOA (US), Japanese or Canadian LDC schemes Tariffs, tariff escalation and tariff peaks are only a problem where these schemes exempt certain 'sensitive products' from their application Preference erosion: as protectionist OECD countries are under immense pressure at the WTO to substantially reduce tariff barriers in agriculture, the margins between MFN and preferential tariffs will gradually decrease as WTO members such as Japan, EU and US reduce their tariffs


Market Access – Cont’d: Market Access – Cont’d Tariff rate quotas (TRQs) i.e. applying low tariffs on certain products falling within a given quota, while posing very high – and partly prohibitive - ones on imports outside that set contingent (also less relevant under preference schemes) Special or non-ad valorem tariffs – i.e. tariffs not entirely based on the value of the imported good (e.g. EUR 100/ton): have very severe market access-limiting effects as it is difficult to determine the exact protection levels as they change over time and with the relative import price Special safeguards (SSG) : allowing most OECD members to automatically impose higher duties when the volume of an imported good reaches a certain threshold, or if prices fall below a certain level


Market Access – Cont’d: Market Access – Cont’d Non-tariff protection Widely regarded as the most distorting market access barrier for African countries are – in the area of agriculture – food and safety standards (e.g. SPS) imposed by OECD countries – predominantly by the EU As agricultural tariffs are steadily declining in most OECD countries, new and increasingly burdensome food safety standards may sometimes be the result of effective agribusiness's lobby work aimed at keeping out imports Other NTBs include e.g. TBT and RoO


Market Access – Cont’d: Market Access – Cont’d WTO SPS Agreement promotes the use of internationally agreed and harmonised standards; but some OECD countries (mostly EU) - are using their own, stricter standards (which is allowed as long as these stricter measures are scientifically justified) Research suggests that the EU's SPS measures alone are causing between EUR 140 and 700 million of annual ongoing costs to the ACP private sector exporters, representing overheads between 2 and 10 percent of the production value (excluding incremental costs)


Market Access – Cont’d: Market Access – Cont’d SPS measures such as minimum residue level (MRL) requirements are a major hindrance, for smallholders in particular, and have contributed to a declining role of small-scale farming in SSA agro-industry Smallholders likely to be left out as they lack the capacity to implement good practices – such as EurepGAP – which EU retailers are requiring exporters to adopt from the field to the point of embarkation E.g., the implementation of the newest EU food safety regulations (such as Traceability and Feed and Food Controls Regulations) could costs Kenya some USD 400 million of export earnings per year


Market Access – Cont’d: Market Access – Cont’d Other market entry barriers International supermarket chains increasingly determining the way how food is being produced in developing countries This has serious implications for SSA agricultural suppliers, small-scale farmers in particular, in terms of product quality, certification costs, etc. – and ultimately for participating in national, regional and international agrifood chains Supermarkets increasingly respond to consumer demands which focus on high food and health standards as well as “ideological content”


Market Access – Cont’d: Market Access – Cont’d Clearly, many small-scale producers and processors are unable to meet the various and often very complex requirements and are dropped from procurement lists Yet, supermarkets can provide income opportunities to small-scale farmers via out-growers schemes


Policy Space: Policy Space Buying policy reform: Major aid-granting OECD countries tend to limit SSA Govts’ policy space through policy conditionality attached to disbursement of ODA Does not work as reforms are donor-driven, top-down, and not owned by SSA policymakers, regulators and their constituencies SAPs didn’t work, also because SOSA Govts tended to dodge the deeper and more ‘painful’ reform steps “Partial reform syndrome” distorted policy process and Ag and food security targets were not met


Policy Space – Cont’d: Policy Space – Cont’d SSA countries need flexibility to develop their own suitable Ag and food policies free from pressure of the the WTO and IFIs Pivotal to build domestic constituencies – including smallholder farmers – and help empower them to come up with their own development agendas ‘Locking in’ reform at WTO After SAP implementation SSA had to bind and even reduce subsidy levels “Reverse S&DT” for OECD countries!


Policy Space – Cont’d: Policy Space – Cont’d Re-negotiation of WTO AoA started in 2001 with DCs re-opening the debate on S&DT through ‘Development/Food Security Box’ proposals Some of these ideas reflected in Doha mandate on Ag, recognising DCs’ “developmental needs, including food security and rural development” At WTO most of SSA retained flexibility to use high tariffs, but the 12 SSA non-LDCs now under pressure in Geneva to substantially cut bound tariffs  Seek generous application of SP concept and SSM


Policy Space – Cont’d: Policy Space – Cont’d Tackling tariffs in bilaterals (EPAs) So far most Ag trade (SSAEU) has taken place under preferential schemes such as Cotonou, EU GSP (and EBA) But ACP countries required by 2008 to reciprocate post-Lomé market access through WTO-conform free trade areas in the form of EPAs Four SSA regional groupings (East, West, Central, South) EU stresses in EPA negotiations aspect of both parties liberalising “substantially all trade” (90%), while SSA countries emphasise development-related aspects of EPAs (asymmetry, sensitive products, supply-side interventions, etc.)


Policy Space – Cont’d: Policy Space – Cont’d WTO rules on FTAs (GATT Art. XXIV) seem to provide parties with some space for determining level of reciprocity, asymmetry and product coverage Yet there is likely to be a trade-off between level of ambition on the SSA side, on the one hand, and the development aspects (supply-side support and capacity building), on the other  Once again the feeling might arise that an OECD member tries to buy and force open market reforms in SSA


Aid: Aid Even if all distortion were removed and all policy space given to SSA, Africa would need external support to be able to remove the key bottlenecks for development Commission for Africa suggests to top up aid to Africa by USD 25 billion annually, increased by at least the same amount after 3-5 years Yet ODA - to Ag in particular - has been declining, especially in SSA (by 60%)


Aid to Agriculture in Developing Countries (1975-1999): Aid to Agriculture in Developing Countries (1975-1999)


Aid – Cont’d: Aid – Cont’d Possible reasons for the incongruence between recognised role of Ag and rural development, on the one hand, and declining trend in resource flow, on the other: Global abundance of food at ever cheaper prices Focus on new technology Unclear links between Ag and other policy issues (e.g. environment)  risks/profitability Shift from productive to social sectors (PRSPs/MDGs/people-centeredness of NGOs) Ag not good for public expenditure-focused sector programmes as most of what is needed for Ag growth lies outside competence of line ministry (PS, MoT, MoFA, local Govts, etc.)


Aid – Cont’d: Aid – Cont’d Revitalising Ag through donor support Focus on programme-based approaches PBAs – as extension of SWAps (e.g. PRSPs, Ugandan PMA) Donor coordination/national procedures Different PBAs can complement each other Can address multi-sectoral concerns Co-implementation by local actors/organisations Support to both state and NSEs As PBAs are imbedded in national development strategies (e.g. PRSPs), explicit commitment required by govts


Aid – Cont’d: Aid – Cont’d Supply-side support SSA needs a concerted supply-side response tackling all major bottlenecks ranging from governance issues to macro-economic stability, infrastructure improvement, and human, private sector and institutional capacity building Substantial Ag growth in SSA requires markets – also regional ones – so regional integration and intra-African trade facilitation would be key


Aid – Cont’d: Aid – Cont’d ‘Aid for Trade’ Lastly, SSA countries need support to meet the economic and social costs of adjusting to a new global trading environment due to increasing trade integration: BOP issues Loss of tariff revenues Eroding trade preferences Temporary higher food prices Investments to diversify, shift to value addition and implement standards Dealing with social dimension of trade liberalisation


Summing Up and Way Forward: Summing Up and Way Forward First, Do No Harm… Removal of OECD subsidies key for promoting SSA Ag production and support small-scale farmers (higher prices  more production  more trade) But implication for food security Possible measures: Font-loading of export subsidy removal (as agreed in Hong Kong) on staple foods of SSA interest Decouple all farm support and reduce to 5% of Ag production (on a by product-basis) by 2015 Provide adjustment support to SSA LDCs and net-food importers affected by higher food import prices.


Summing Up…– Cont’d: Summing Up…– Cont’d Let Them Trade! Although not the main obstacles for SSA, remaining tariff barriers must be removed NTBs such as SPS measures and private standards key obstacles for SSA Ag suppliers and smallholders But: intra-African trade facilitation more important if Ag growth strategies focus on regional market Possible measures Duty- and quota-free market access in OECD Standards: help SSA to make use of trade rules Apply ‘development test’ when developing new standards


Summing Up…– Cont’d: Summing Up…– Cont’d Hold agifood retailers more responsible for standards applied in contract farming, good practices etc. (esp. regarding smallholder impacts) Fully subject TNCs to competition law Consider PPPs including key OECD and SSA actors to encourage standard compliance of SSA suppliers Ongoing dialogue between key EU and SSA actors to assure fair standard devt and implementation Support producer organisations to increase bargaining power vis-à-vis food retailers and TNCs


Summing Up…– Cont’d: Summing Up…– Cont’d Give Them Space! Provide only demand-driven ODA (especially trade –related TA/CB) Support SSA stakeholders to devise and implement their own food and Ag-related policies Doha Round: give SSA all the S&DT they require (no reduction commitments; SP; SSM; support) Consider EPAs as development tools and use all the flexibility provided by WTO rules regarding asymmetry and level of reciprocity


Summing Up…– Cont’d: Summing Up…– Cont’d …And Help Them Farm, Trade and Adjust! Bring combined agriculture aid back to 1985 levels Increase ODA to SSA by at least 100% Promote Programme-Based Approaches in agriculture and rural development (e.g. PRSPs and subordinate plans and strategies) Provide significant supply-side support to SSA, including help to build well-functioning local and regional markets, and to facilitate regional trade; Establish a Trade Adjustment Fund, supporting SSA countries to meet the economic and social costs of adjusting to an increasingly integrated trading environment


Summing Up…– Cont’d: Summing Up…– Cont’d Global Programme on Policy Transparency and Coherence: To ensure that OECD policies do not negatively impact on SSA efforts to develop and implement their own development and poverty reduction agendas E.g. under aegis of OECD Development impact assessments on current and new policy measures attributable to OECD countries Ongoing dialogue between OECD and SSA public and non-state actors


Thank You For Your Attention!: Thank You For Your Attention!