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Agriculture Is Special After All

Posted by Yvonne Siu on April 3rd, 2007

IPC Member Michel Petit has submitted the following column on the special roles that agriculture plays in developed and developing countries. His piece provides a useful context for understanding the current round of WTO trade negotiations. Petit is also a professor at the Institut Agronomique Méditerranéen in Montpellier, France, and is the former director of rural development at the World Bank.

Agriculture Is Special After All

For a member of an organization promoting trade liberalization, such as IPC, it may seem paradoxical to assert in 2007 that agriculture is special. When that member is French, the assertion may even seem provocative. Yet, I believe raising the question of how agriculture is special again may be useful to understand the current crisis in international trade negotiations and to assess prospects for their future.

The Paradox

The paradox stems from the fact that the question of whether agriculture should be treated differently than other sectors in international trade negotiations, which had been debated at length, seemed to have been definitely settled by the Uruguay Round Agreement on Agriculture (URAA). The UR began to place the agricultural sector under the general disciplines of the GATT/WTO. It was generally thought that agriculture would soon be treated no differently than industrial goods.

In the late 1990s, agricultural exceptionalism was reintroduced by those arguing that the sector’s ‘multifunctionality’ justified public support. This attempt, however, failed. One stubborn fact remains: for a long time agriculture received a special treatment in GATT since, early on, the US government had asked and obtained a ‘waiver’ because it did not want its domestic agricultural policies to be subjected to common GATT rules. Subsequently, agriculture played a disproportionate role in successive multilateral Rounds, leading, for instance, to several years of paralysis during the Tokyo Round, and also during the first phase of the Uruguay Round. Moreover, the fact that there was a separate Agreement on Agriculture in the UR, which included special provisions substituting for general rules, illustrates that agriculture was in fact still being treated differently.

In the current Doha Round, the very existence of a committee devoted to Non Agricultural Market Access (NAMA), covering market access issues for everything but agriculture, is another sign of agricultural specificity. Finally, the fact that many countries have refused, even in the last few weeks, to negotiate seriously on NAMA or on services, as long as there was no breakthrough on agriculture, demonstrates that for these countries agricultural trade negotiations are special. So there should not be any doubt that agriculture has kept at least a specificity of a political nature, manifested in international negotiations and most probably reflecting the special character of domestic agricultural policies in many countries of the world.

The Multiple Roles of Agriculture

What is more problematic and probably more controversial, however, is whether or not that political specificity reflects significant economic or social specificities. In this respect, the lessons of the debate on multifunctionality are of interest. After the the ‘friends of multifunctionality’ lost their battle in the WTO, the debate moved first to the OECD and then to FAO, which organized a large work program on ‘the roles of agriculture’, since the word ‘multifunctionality’ had become taboo. As a result of these activities, the conceptual and policy issues were clarified, leading to a consensus that indeed agriculture fulfills multiple, socially useful functions in most countries.

Some goods are private and normally sold on markets. Others are public goods for which there are no markets. This can establish the legitimacy of public financial support to farmers to ‘pay’ them for fulfilling the public functions. But in order to avoid trade distortions on the markets for private goods, these payments must be completely ‘decoupled’. This leads to two political difficulties: first, total decoupling is impossible because such government payments increase farmers’ income, and as a result, their ability to bear risks and to finance investments, and thus can have an impact on their production. Secondly, in economic terms, the public and private goods produced by agriculture are joint products. It is not possible to produce goods of one category without producing goods of the other. Payments for a public good will also serve as incentives to produce more private goods; leading to distortions on private good markets.

Is this situation specific to agriculture? Probably not. Other economic sectors produce positive and negative externalities, e.g.industries that provide employment, but are harmful to the environment. Yet, it could be argued that agriculture is unique given its numerous externalities affecting the large tracts of land as farmers usually manage a high proportion of total national space. Appreciation for the role agriculture plays in creating a pleasant landscape, however, is probably most relevant in rich countries with high population densities where the total value given to enviroment and rural amenities is high.

The Special Role of Agriculture in Developing Countries

In this respect, many developing countries are faced with quite a different situation. Externalities may be as important as in developed countries but they are not valued as highly by citizens and consumers, many of whom struggle with poverty. For some poor countries, agriculture is special not because of its externalities, but because of its importance in the economy, e.g. for the Sahelian countries which launched the cotton iniative in Cancun. For them, cotton contributes a huge proportion of export earnings and total fiscal revenues and they would greatly benefit from policy reforms in rich countries, especially the USA.

Many other poor countries probably stand to gain from a large dose of trade liberalization, particularly if agriculture is not exempted from the process. But estimates of the potential gains to be expected from liberalization for developing countries, which were very high in the reports published a few years ago, have been greatly reduced in recent reports, in particular because economic models did not take the preferential market access many poor countries enjoy into consideration when calculating the benefits from a successfully concluded Doha Round. In addition, and more importantly perhaps, many poor countries can only take advantage of new market access opportunities, if they can overcome supply constraints.

In conclusion, agriculture remains a special sector for different reasons in both developed and developing countries. Obviously, these multiple specificities are not reason enough for exempting agriculture from trade liberalization, but they should be kept in mind because they explain the various positions of the main participants in the current WTO negotiations and, as such, they will greatly influence the future course of these negotiations. Looking further into the future and predicting how long the agricultural sector will or should receive a special treatment in international trade negotiations is difficult. Arguments supporting either side of the issue can be advanced. What is certain, however, is that the Uruguay Round did not for sure signal the ultimate demise of the specificty of agriculture.



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