The perils of free trade in agriculture
Mail & Guardian (South Africa) | 19 September 2007
The perils of free trade in agriculture
Ali Mchumo, John Kaputin, Supachai Panitchpakdi and Kemal Dervis: COMMENT
It’s the kind of unfair situation that makes poorer nations wonder where the payoff is with free trade: demand for coffee, tea, cocoa, cotton and sugar — which is what many such countries have to offer the world — has risen. Prices paid in the supermarket have risen. Yet the share paid to the farmers who grow these basic agricultural commodities has fallen.
Robusta coffee producers in Côte d’Ivoire, for example, received 18% of each consumer dollar spent on their product from 1980 to 1988, but only 7% between 1999 and 2003. For coffee growers in Indonesia, the decline was from 19% to 7%. Where is the profit accumulating and why isn’t globalisation “working” in this case to reduce poverty in poor or developing nations? Such countries are often lectured on the importance of open markets, but the process isn’t delivering as advertised. For small rural farmers in developing nations, globalisation isn’t raising all boats.
Commodities are extremely important for economies in Africa, Asia, Latin America and the Caribbean. More than two billion people make a living from agricultural commodities. That dependence is especially pronounced in the world’s 50 least developed countries. Global economic growth has largely left these nations behind and it is clear they need to expand the range of products they can offer the world. But they also have to start somewhere.
Recently — as China has grown into an economic juggernaut and other emerging economies, such as India, Brazil and Russia, have made impressive progress — demand has jumped for what farmers in developing countries are able to export and their production has climbed to match. Trade volume of rice was up 68% between 1993 and 1995 and 2003 and 2005, cotton jumped 49%, fresh and chilled vegetables by 70% and cut flowers by 73%.
Profits from these exports might help the least developed countries and other developing nations lift their citizens out of poverty and diversify their economies, but most of the profits seem to end up elsewhere. The complexities of the “value chain” between crop and supermarket shelf do not work to the advantage of low-income, smallholder farmers. The process may be global, but it’s not fair.
The higher end, where food and natural textiles are processed, packaged, branded and advertised, is where most of the money accumulates. That division of rewards goes on behind the scenes, while on the international stage agricultural commodities haven’t received much attention lately.
Now is the time to act, because commodities booms don’t last forever. The business is notoriously cyclical and the best time to jump-start poverty reduction is before the next crash comes. This grace period may continue for another five to 10 years. No one knows. But economic diversification — even if it is only within the agricultural sector — should be accomplished while it is under way for the same reason that a table standing on four legs is less vulnerable to shocks than a table that stands on three.
About 85 developing countries now depend on commodities for more than half their export earnings. For 70 of them, more than half of their exports consist of three or fewer commodities.
Part of the current problem is that developing countries are still learning the globalisation game. During the 1990s, when the international financial mantra was that governments should keep their hands off and let the free market work, many developing countries’ governments were told to stop negotiating prices and organising transport and marketing for thousands of small farmers. They did stop, but private substitutes for these services did not appear and thousands of little guys with limited access to market information, transport and credit were left to fend for themselves against large, sophisticated international buyers. And these farmers continue to compete with colleagues in developed countries who receive generous subsidies and whose home markets are protected by high tariffs.
Private investment is vital. Warehouses for groups of rural farmers, for example, can make a huge difference. If prices are low, they can store their coffee or cocoa and sell it when prices go up. Too often now they must sell when they harvest. And if the facilities could be built and the expertise acquired, the higher-end processes — grinding, grading, standardising, packaging — might happen in the country instead of far away.
The original industrial revolution was fuelled by surplus income from farming. The poorer regions of today’s world deserve the same chance Western Europe and the United States had a century and a half ago. Something is off about the prevailing situation. It must be fixed. Otherwise the looming scenario offered by a Zambian farmer-trade unionist may become a reality: “If you will not pay us reasonable prices for our exports, we will export ourselves.”
Ali Mchumo is managing director of the Common Fund for Commodities. John Kaputin is secretary general of the Africa, Caribbean and Pacific group of states. Supachai Panitchpakdi is secretary general of the United Nations Conference on Trade and Development. Kemal Dervis is administrator at the United Nations Development Programme
