Friday, July 25, 2008

How do agricultural policies in wealthy countries affect poor farmers?

Tackling food insecurity requires an understanding of the underlying causes. One of these is agricultural polices in rich countries, which can lead to cheap food imports in poor countries.

Many factors contribute to food insecurity. Political instability and natural disasters can cause food crises on a national scale, and high numbers of dependants per income earner cause food insecurity for households.

Recent research published by the World Institute for Development Economics Research (WIDER) of the United Nations University (UNU) argues that agricultural subsidies and border restrictions in wealthy nations are a major underlying cause of food insecurity in poorer nations. Subsidies for food production in developed countries result in cheap food imports to developing countries. This can undermine long-term agricultural production in developing countries and contribute to food shortages.

Agricultural support policies in developed nations take two main forms. First, countries support producers and consumers in their own countries through subsidies. Second, they protect producers from foreign competitors through various border measures (including tariffs, import quotas and import and export rules). In 2001, the estimate of aggregate support provided in the Organisation for Economic Co-operation and Development countries was US$ 311 billion.

The research shows:

  • Agricultural subsidies in rich countries lead to lower global prices for agricultural goods. If poorer countries produce the same goods as richer ones, they must either diversify into other goods or decrease the price of their agricultural produce.
  • Poor countries often have weak productive capacities, weak financial and business-support institutions and a weak physical infrastructure. Consequently, they cannot easily diversify their production and need to find ways to further lower their product prices.
  • Poor countries that are not able to increase productivity levels need to lower wages to reduce product prices. However, this is almost impossible where wages are already at or below subsistence level.

As a result, many poor countries are squeezed out of agricultural markets in which they compete with the rich countries. Many are forced to specialise further in agricultural goods in which they are almost exclusive producers, namely tropical goods. Unfortunately many tropical products are associated with unstable prices and revenues.A narrow specialisation in such goods therefore increases a country’s exposure to economic shocks.

Richer countries do not consider the full impacts of their agricultural policies. Policies to support their own farmers affect agricultural production in poorer countries. Ending agricultural support in wealthier countries is an important precondition for the economic development of poorer countries. This should be the first step to combat poverty and increase food security.

The researcher recommends:

  • The only sustainable way to combat food insecurity is through economic growth that creates productive employment opportunities and raises household incomes.
  • Developing country agricultural sectors are restricted by agricultural policies in rich countries. Rich countries must pursue a comprehensive approach to phasing-out agricultural support measures at home.
  • Comprehensive agricultural reform in advanced countries is the best first measure to address distortions of global agricultural markets. In the absence of this, poor countries that are negatively affected by agricultural support policies elsewhere should consider using well-targeted trade barriers. This could prevent imports of subsidised food and stimulate domestic food production.

‘Food Security: Indicators, Measurement, and the Impact of Trade’, UNU-WIDER Studies in Development Economics: Oxford University Press, edited by Shabd S. Acharya, Benjamin Davis and Basudeb Guha-Khasnobis, 2007
‘Agricultural Support Measures of Advanced Countries and Food Insecurity in Developing Countries’, United Nations University and World Institute for Development Economics Research, Research Paper No.2006/141, by Michael Herrmann, November 2006 (PDF) Full document.

Funded by: UK Department for International Development; Danish Royal Ministry of Foreign Affairs; Finnish Ministry for Foreign Affairs; Norwegian Royal Ministry of Foreign Affairs; Swedish International Development Co-operation Agency

id21 Research Highlight: 12 April 2007

Further Information:
Michael Herrmann
United Nations Conference on Trade and Development
Palais des Nations
8-14, Av. de la Paix
1211 Geneva 10

Tel: +41 22 9175809
Fax: +41 22 9170051
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