A truly development-friendly trade round?

The crisis spawned by the global run-up in food prices provides an opportunity for a trade round that will actually accomplish some true poverty reduction, according to Nancy Birdsall and Arvind Subramanian of the Center for Global Development.

The contours of trade policies friendly to a New Deal on hunger are clear. Industrial countries should eliminate any practices that reduce global food supply, including all forms of subsidies to biofuels that compete with food production. Developing country food producers should eschew export restrictions. And importing countries can also contribute. To reassure developing country exporters about future access should prices become volatile or even decline, they could agree now to lock in their recent liberalization -- a plus for all agricultural exporters.

We also propose that in a New Deal on Hunger, major developing country producers set aside for now their reasonable objections to traditional rich country agricultural protection -- the bone of contention in the Doha trade round -- at least in the case of food staples (if not cotton and cocoa). Rich countries would ideally reduce this protection on their own (as their taxpayers might well like in the case of domestic production subsidies). But for a hunger deal now their long-perverse agricultural protection is not a central issue -- and leaving it aside has the political virtue of greasing the wheels of a global deal on hunger.

Finally, to address the concerns of the poorest food-importing countries that have been worst hit by food shortages requires immediate action. In addition to traditional emergency food aid, all food exporting countries -- the U.S., Brazil and other big beneficiaries of the current price hikes -- could commit a small proportion of their exports as food aid (or provide the cash equivalent), with this proportion increasing in line with any increase in world prices.

Since unilateral trade policies in this area have clear negative externalities--export taxes in food exporting countries and import liberalization in food-importing countries both raise world food prices--the case for some kind of international coordination is indeed quite strong.

But the most mischievous part of the Birdsall-Subramanian proposal is that they want Bob Zoellick to head the effort. 

... Mr. Zoellick is ideally suited to the task. He should secure agreement that trade and development ministers will meet within a month to agree on the trade principles of a new hunger deal, aiming for a full-fledged agreement before the end of the year. Indeed his leadership on this issue, especially in eliminating U.S. protection of corn-based ethanol, would complete his transition from representing U.S. trade interests to the development needs of the world's poor.

A test case indeed.

Comments

[gaddeswarup]

There is also a letter to Mr. Zoellick at IRRI wesite:
http://solutions.irri.org/
It is more about prposed funding cuts by USAID for agricultural research.

[terence]

That still seems like a raw deal for developing country farmers. Wouldn't it be better to, rather than provide food aid, simply give money to developing countries to subsidise lower food prices (domestically produced food in particular where appropriate). That way: lower prices for consumers in developing countries and some income protection for developing country farmers.

[Anh Tran]

Policy suggestions for global trade deals are easy said than done. I don't think we will have any significant improvement in this regard unless there is a serious global crisis that force the elite policymakers in both the developed and developing countries into accepting deals that are beneficial to the global poor. Right now, the influence of special interest is just too strong everywhere.

I want to say one more thing related to economics in general. Economists can come up with all the welfare-enhancing and welfare-reducing analyses they want, their suggestions are meaningless in the realistic policy making arena. Economic analysis is futile without having a realistic way of dealing with politics. Can economists come up with something that can change the mind of policy makers in their favor?

[hari]

Dani -

It won't fly! The constraints to Doha Round are getting messy right now...food crisis ... and may not be feasible.

Just to advise, I noticed (yesterday) Indian Gov banned all exports of non-basmati rice, pulses, wheat and edible oil. While it ordered state trading corp to lift tariffs on imported edible oil.

The senior official dealing with Doha went on record that India had reservations on the current proposal (that's on the table).

[Remy]

I am now taking a course in int'l economic law and participating in trade negoations simulations... From my personal quasi-experience: WTO is very bad at making concrete decisions...

*****************

Remy Piwowarski
Economics International
House of Young Econ Wolves
http://economicsinternational.blogspot.com/

[Fabio]

I wonder why you see Mr. Zoellick rather as a problem than as a solution, pointing out that the desires for lower food prices and completion of the Doha round are contradictory. Arguably, they are not.

Courtesy of ICTSD:

"There is a reason for the apparent contradiction, explained Per Pinstrup-Andersen, a professor of food, nutrition, and public policy at Cornell University and the University of Copenhagen. Years of low farm prices caused by reasons external to poor farmers in developing countries - notably, rich country farm subsidies - meant there was no incentive for developing country governments or the private sector to invest in agricultural production, and to build roads and the other rural infrastructure necessary to support it. Low productivity and low farm prices meant that farmers often looked for other sources of income, and became net buyers of food. Now, with prices rising, "they get caught in the middle."

"We need to get rid of the trade-distorting subsidies in OECD [industrialised] countries," the World Food Prize laureate said, adding that the time was ripe for doing so since farmers did not need them now, and production levels were currently being determined by the high market prices. Reducing import restrictions in the EU and other developed nations would also help create clear incentives for developing country agriculture.

Since the 1980s, government spending on agricultural research in developing countries has declined. Instead of research, the bulk of public farm spending has often been used to purchase social peace or electoral support by ensuring low prices for food or agricultural inputs like seeds and fertiliser. The Economist last week cited World Bank data suggesting that over the two decades since 1980, developing country crop yields grew by steadily declining rates.

Continued high prices could help many developing country farmers who are net buyers of food to become net sellers, Pinstrup-Andersen said. They could ultimately even drive up wages for landless labour, and boost demand for rural goods and services that would generate employment. To help this happen, however, there would need to be greater investment in farmers' associations and rural infrastructure, and better price transmission mechanisms to ensure farmers actually feel the higher prices in their own pockets.

"One of my concerns is that governments are going to introduce the wrong policies" in response to high prices, he said. Price controls and export taxes, he warned, could discourage the necessary additional investment in agricultural production."

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