Trade, Agriculture And Development

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Foreword – 3

FOREWORD The OECD Global Forum on Agriculture is a regular event, bringing together OECD countries and non-member economies to share experiences on how policies can more effectively achieve stated government objectives. Recent themes for the Global Forum on Agriculture have revolved around the linkages between domestic policy reform, trade liberalisation, economic growth and poverty reduction but the focus has been on agricultural policy. The focus was broadened for this year’s Forum to include development aid under the theme “Policy Coherence for Development” and provided a good opportunity for policy dialogue between the agricultural and development communities, government and the private sector; and developed and developing countries. These proceedings bring together papers and presentations from the 30 November – 1 December 2005 OECD Global Forum on Agriculture, introduced by a brief summary of the main issues and policy messages. Participation in the Forum was widespread in terms of geographical coverage and diversity of stakeholders. In addition to the OECD countries, there was representation from 17 non-member economies, some 15 intergovernmental organisations and international NGOs and from multinational agribusiness and academia. The main objective of this forum was to arrive at a better understanding of the kinds of policy reforms required in both developed and developing countries to enhance global agricultural trade and to reduce poverty and alleviate hunger. This focus on trade and poverty/hunger goals is particularly appropriate as both OECD and developing countries struggle to achieve the stated commitments of the Doha development round of multilateral trade negotiations (DDA) and the Millennium Development Goals (MDGs). As the DDA negotiations continue to unfold post Hong Kong, the onus will be on the negotiators to come through in realising the promises of a truly development agenda. Agriculture continues to be the focal point of worldwide expectations – a kind of litmus test of credibility. Policy coherence for development features prominently as a central goal of international millennium undertakings at the highest level. Contributing to development is a key objective of the OECD. As an intergovernmental agency bringing together nearly all areas of policy-making, the OECD is ideally placed to provide analysis and promote dialogue that can motivate governments to align policies in support of the development objectives to which they have all agreed. Recognising this, the OECD Ministerial Council of 2002 mandated the Organisation specifically “to enhance the understanding of the development dimensions of member country policies and their impacts on developing countries”. The Council stipulated that “Analysis should consider trade-offs and potential synergies across such areas as trade, investment, agriculture, health, education, the environment and development goals”. In taking on this mandate, the OECD has gone beyond the basic notion of “do no harm” in terms of avoiding counterproductive or contradictory policies. It has adopted, in addition, the broader definition of policy coherence used by the Development Assistance Committee, known as the DAC. The DAC definition of coherence calls for the systematic promotion of mutually supportive policies across government to help achieve mutually TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

4 – Foreword agreed international goals. This has been the point of departure for OECD policy coherence work, using a four-pronged approach: institutional, sectoral, regional/country case studies and assessing progress. Bringing together policy makers from various government policy-making sectors to focus on coherence issues at the OECD implies that they will also do so at the national and regional levels. In this respect, it was particularly encouraging to see the decision taken by the European Council in November 2005 on policy coherence at the level of the European Union in many different areas - a decision closely followed by concrete action in the sensitive and difficult area of sugar policy. A number of OECD countries are providing examples of what can be achieved with adequate political will backed by analytical capacity. The work at OECD will continue to contribute to examples of action on policy coherence while the policy dialogue at Forums such as this can bring forward concrete recommendations to reform government policies in a constructive manner to achieve internationally agreed development objectives.

TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

Avant-Propos – 5

AVANT-PROPOS Organisé régulièrement par l’OCDE, le Forum mondial sur l’agriculture fournit aux pays membres de l’Organisation et à des économies non membres l’occasion d’échanger des informations sur les expériences qu’ils mènent dans l’optique d’atteindre plus efficacement leurs objectifs. Les thèmes abordés récemment dans ce cadre tournaient autour des liens entre la réforme des politiques internes, la libéralisation des échanges, la croissance économique et la réduction de la pauvreté, mais la politique agricole est toujours au centre des débats. Pour l’édition de cette année, la thématique a été étendue à l’aide au développement, comme en témoigne l’intitulé « cohérence des politiques au service du développement », et a permis de faire dialoguer des représentants des agriculteurs, des acteurs du développement, du secteur public, du secteur privé, des pays développés et des pays en développement. Ces actes rassemblent les articles et communications présentés au Forum mondial sur l’agriculture des 30 novembre et 1er décembre 2005, précédés d’une brève synthèse des principaux thèmes abordés et des enseignements à retenir. Venus d’horizons géographiques très divers, les participants représentaient des intérêts variés. Outre les pays de l’OCDE, étaient représentés 17 économies non membres, une quinzaine d’organisations intergouvernementales et d’ONG internationales, ainsi que des multinationales de l’agroalimentaire et le monde universitaire. Le principal objectif de ce forum était de mieux cerner les réformes nécessaires, aussi bien dans les pays développés que dans les pays en développement, pour stimuler les échanges agricoles mondiaux et réduire la pauvreté et la faim. La thématique des échanges et de la pauvreté/faim se justifie en particulier par le fait que les membres de l’OCDE et les pays en développement s’efforcent de respecter les engagements pris dans le cadre du cycle de négociations commerciales multilatérales de Doha (Programme de Doha pour le développement), ainsi que les Objectifs du millénaire pour le développement (OMD). Les négociations sur le Programme de Doha se poursuivront après le sommet de Hong Kong et ce sera aux négociateurs qu’il incombera de faire le nécessaire pour que soient tenues les promesses d’un véritable programme de développement. L’agriculture reste au centre des attentes dans le monde entier – une sorte de test de crédibilité décisif. La cohérence des politiques au service du développement figure au premier plan des initiatives internationales prises au plus haut niveau dans le cadre des objectifs du millénaire. Contribuer au développement est l’un des buts essentiels de l’OCDE. Celle-ci, en tant qu’organisation intergouvernementale s’intéressant à presque tous les domaines de l’action publique, est idéalement placée pour procéder à des analyses et stimuler un dialogue susceptibles d’encourager les gouvernements à adhérer à des politiques favorables à la réalisation des objectifs de développement auxquels ils ont tous souscrits. C’est pourquoi le Conseil de l’OCDE au niveau des ministres de 2002 a chargé l’Organisation de « mieux mettre en évidence la dimension développement des politiques des pays Membres, et leurs retombées pour les pays en développement ». Il stipulait en outre : « Il conviendrait d’analyser les arbitrages à opérer et les synergies possibles entre des domaines tels que les échanges, l’investissement, l’agriculture, la santé, l’éducation, l’environnement et les objectifs de développement ». TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

6 – Avant-Propos Dans les travaux qu’elle a engagés à ce sujet, l’OCDE ne s’est pas contentée d’étudier les actions qui « ne nuisent pas », autrement dit les mesures contreproductives ou contradictoires : elle a fondé sa réflexion sur une définition plus large, employée par le Comité d’aide au développement (CAD), selon laquelle la cohérence des politiques consiste à promouvoir systématiquement l’adoption, par tous les services et instances de l’administration, de politiques dont les effets se renforcent mutuellement au service de la réalisation de nos objectifs internationaux. Tel a été le point de départ des activités de l’OCDE sur la cohérence des politiques, qui comprennent quatre volets : études de cas institutionnelles, sectorielles et régionales/nationales, et évaluation des progrès. Réunir les responsables de différents domaines de l’action publique pour évoquer les questions de cohérence à l’OCDE suppose qu’ils fassent de même aux niveaux national et régional. A cet égard, il a été particulièrement encourageant d’apprendre la décision prise par le Conseil européen de novembre 2005 concernant la cohérence des politiques au niveau de l’Union européenne dans de nombreux domaines différents (décision rapidement suivie d’une action concrète dans le domaine sensible et délicat de la politique sucrière). Plusieurs pays membres de l’OCDE fournissent des illustrations de ce qu’il est possible de faire moyennant une volonté politique appropriée, assortie d’une capacité d’analyse adéquate. Les travaux conduits à l’OCDE continueront de donner des exemples d’action en faveur de la cohérence des politiques, tandis que le dialogue, dans le cadre de forums comme celui-ci, peut aboutir à des recommandations concrètes sur des réformes constructives de l’action publique, dans la perspective d’atteindre les objectifs de développement définis à l’échelon international.


Acknowledgements – 7

ACKNOWLEDGEMENTS This OECD Global Forum on Agriculture, held 30 November – 1 December 2005 in Paris, was organised by Wayne Jones with the assistance of Darryl Jones in the initial stages of preparation. This Forum benefited from financial support of the World Bank which is greatly appreciated. Thanks are extended to all those who provided papers and contributed to the animated discussions, to Neil Fraser for his very able Chairmanship and to Anita Lari, Stefanie Milowski and Florence Mauclert for meeting logistics and management. These proceedings were edited by Uma Dixit. Anita Lari assembled and formatted the final publication with assistance from Michèle Patterson.


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Table of Contents – 9

Table of contents Executive Summary........................................................................................................................ 11 Résumé............................................................................................................................................. 15 Part I. Setting the Scene ................................................................................................................. 21 Chapter 1. Policy Coherence for Development: Distilling Lessons from OECD Work Alexandra Trzeciak-Duval................................................................................................................ 23 Chapter 2. Policy Coherence for Development: Issues in Agriculture Alan Matthews and Thomas Giblin .................................................................................................. 39 Chapter 3. Policy Coherence for Development: Making it Work Pertti Majanen .................................................................................................................................. 55 Chapter 4. Policy Coherence for Development: What it Means for Farmers Raul Q. Montemayor ........................................................................................................................ 69 Chapter 5. Policy Coherence for Development: What it Means to the Poor Ibrahim Assane Mayaki .................................................................................................................... 81 Part II. Enhancing Global Agricultural Trade Through a Fair and Market Orientated Trading System.............................................................................................. 89 Chapter 6. Enhancing Global Agricultural Trade: A Status Report Carmel Cahill ................................................................................................................................... 91 Chapter 7. How can Policy Coherence Enhance Global Agricultural Trade? Joachim von Braun and Tewodaj Mengistu.................................................................................... 105 Chapter 8. Policy Coherence for Development: Issues for Brazil Fabio R. Chaddad and Marcos S. Jank .......................................................................................... 129 Chapter 9. Policy Coherence for Development: Issues for China Xiaoshan Zhang .............................................................................................................................. 149


10 – Table of Contents Part III. Contributing to the Millennium Development Goal of Eradicating Extreme Poverty and Hunger................................................................................. 165 Chapter 10. Eradicating Extreme Poverty and Hunger: Towards a Coherent Policy Agenda Prabhu Pingali, Kostas Stamoulis and Randy Stringer.................................................................. 167 Chapter 11. How can Policy Coherence in Agriculture Contribute to the Eradication of Extreme Poverty and Hunger? Tom Arnold ..................................................................................................................................... 183 Chapter 12. Food Grain Surpluses, Yields and Prices in India Raghav Gaiha and Vani S. Kulkarni .............................................................................................. 201 Chapter 13. Coherence of International Trade Liberalisation Policy with the Objectives of Rural Poverty Reduction: Listening to the Views of the Rural People in Sub-Saharan Africa Mohamed Beavogui ........................................................................................................................ 221 Annex. Agenda and List of Participants..................................................................................... 241 Agenda............................................................................................................................................ 243 Liste des Participants / List of Participants..................................................................................... 248


Executive Summary – 11

EXECUTIVE SUMMARY The OECD Global Forum on Agriculture, held on 30 November – 1 December 2005, covered a wide range of issues under the theme of “Policy Coherence for Development”. This summary attempts to highlight some of the main points of the discussion, including those addressed during a final wrap-up panel discussion. A more comprehensive and representative overview of the issues covered during the two-day Forum can be obtained by reviewing the short abstracts provided for all presented papers. The slide presentations delivered at the Forum are available at: www.oecd.org/ccnm/agriculture. In his closing remarks as Chair of the Global Forum, Neil Fraser emphasised the message that policy coherence for development means much more than “do no harm” in terms of policy approaches; it means “doing the right things with the right people in the right sequence”. He stressed that trade liberalism was a key factor in agricultural development; in particular the removal of developed country trade distortions, but that it was not a “silver bullet”. There was a strong consensus that freer trade in agriculture alone cannot solve problems of poverty and hunger and may, in some cases, have to be accompanied by adjustment assistance to help overcome any negative immediate implications. Pro-poor agricultural growth strategies need a broader role in development aid combined with greater national level responsibility for such basics as macroeconomic stability, dialogue with civil society, research and development, infrastructure, etc. Several OECD countries (e.g. Finland, Ireland, The Netherlands, Sweden) have adopted this whole-of-government approach to policy coherence for development. It was clear from the many experiences discussed that solutions need to be context and country specific; that no one size fits all in terms of policy approach. The Finnish government, for example, is working closely with trade partners like Uganda and Zambia to develop a better understanding of the markets and trade environments in these countries. In terms of policy coherence for agricultural trade enhancement, the point was made that developing countries, in general, are not major players in world agricultural trade. In fact as a group, developing countries are net agriculture and food importers and this trend is increasing. However, agriculture is still very important to their economies, involves a high proportion of the labour force and accounts for most of the poverty. Equally important, agriculture is generally a sector where developing countries can cultivate a comparative advantage, particularly in labour intensive production. Clearly, a lack of market access to developed country markets is one problem, due to such OECD country agricultural policies as domestic price support, border protection and tariff escalation. These issues are the major focus of the current round of multilateral trade negotiations and there is an international commitment to reduce these distortions. But participants strongly emphasised that market access is not the only issue. For most developing countries, supply capacity is an even more serious constraint. Trade facilitation needs to be a major component of any development strategy. The constantly changing and increasingly complex food safety regulations, growing demands of private standards and evolving multinational food chains, and the inadequate infrastructure and institutional organisations were just some of the factors limiting the ability of developing countries to benefit from emerging market opportunities. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

12 – Executive Summary Turning to the goals of poverty reduction and hunger alleviation, it was pointed out that there are an estimated 850 million undernourished – an increase of 18 million over the last 5 years. Sub-Saharan Africa in particular is unlikely to achieve the Millennium Development Goals (MDGs) for 2015 related to poverty reduction and hunger alleviation. While it was noted that trade can help reduce poverty and hunger, it was stressed that increased investment is critical if agriculture is to play a greater role. Aid to agriculture has been falling in real terms since the mid 1980s with the world’s poorest – Sub-Saharan Africa and South and Central Asia bearing the brunt of the decline (OECD official development aid statistics). Conflict has interrupted the programmes to some countries while governance concerns prompted reductions in aid to others. Domestic policies that effectively tax agriculture are often more distorting than those of the international community. Development aid will not be effective if the domestic environment is not appropriate. Cotton production, involving some 16 million people in West Africa, was given as one example where aid was withdrawn or withheld because expected policy reforms in developed countries, that would open markets, failed to materialise. OECD area agricultural policies clearly limit growth opportunities and provide both good and bad examples of “policy practice” for developing countries. Major donors argue that a lack of predictability and profitability in agriculture has caused investors to turn elsewhere, but that if conditions improve funds would once again flow to agriculture. Many national governments have also reduced support for agriculture for the same reasons and the sector’s performance has declined accordingly. However, there is some room for optimism. Current donor targets, if achieved, would see an increase in ODA from USD 80 to USD 130 billion, the largest increase in history. Similarly, African governments through NEPAD have committed to increase the share of domestic budgets allocated to agriculture. The wrap-up panel at the end of the Forum essentially confirmed the messages in the earlier sessions by providing personal experiences and country specific examples. Pinit Korsieporn (Deputy Secretary-General, Ministry of Agriculture and Cooperatives, Thailand) stressed that policy coherence for development was an issue for both developing and developed countries which required strong leadership to minimise conflicts among stakeholders. The multisectoral approach initiated in Thailand was offered as a good example of policy coherence aimed at poverty reduction while developed country agricultural policies, including market access, export subsidies, domestic support, food aid and preferential treatment, were all noted as factors limiting development. Jeremy Hobbs (Executive Director, Oxfam) argued that trade liberalism is not a panacea; that it must be linked to ODA, debt relief (a third of ODA goes for debt repayment) and effective domestic policies to formulate a coherent strategy for development. Citing the success of poverty reduction in East Asia, effective domestic policies, good governance, sequencing of reforms and the role of private sector were all seen as key factors. More country case study analysis was recommended to better understand the interplay and relative importance of these factors, as was greater mutual accountability between recipients, donors and international organisations. Kevin Cleaver (Director, Agriculture and Rural Development, World Bank) underlined the importance of good infrastructure and institutions in order to attract necessary foreign direct investment (FDI) and attract donor funds as well as to better integrate poorer countries into regional and international markets. OECD countries TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

Executive Summary – 13

account for over 90% of global official development assistance (ODA) and 80% of FDI. Agriculture needs to be profitable to attract both private and public sector investment but in many cases this is not the case. Many developed country agricultural policies seriously compromise the profitability of farmers in developing countries (again cotton is an example). Low income countries will need help adjusting to take advantage of more open markets, in particular investment in infrastructure and rural development. Mohammed Karaan (Chair, National Agricultural Marketing Council, South Africa) agreed that institutional reform must precede trade integration while noting that FDI is also often constrained by political economy issues. Increased market access was identified as the main trade issue with more analysis required of winners and losers and the distributions of the benefits of trade liberalism. The importance of improving access to comprehensive social services in rural and marginal areas with the aim of improving the quality of life, coupled with the need to put in place food-based safety nets was highlighted as an integral part of a policy coherent domestic agricultural programme. Coming back to the question of sequencing, land reform and land tenure (markets) were noted as fundamental policy coherence issues in South Africa. It would be useful to share the experiences of other developing countries such as China, Brazil and India in this regard. Richard Manning (Chair, OECD Development Assistance Committee) echoed the message that the benefits of trade liberalisation should not be over sold; that there is a need for coherent aid policies to achieve development goals. A whole of government approach to PCD is needed – macroeconomic stability, land and labour market reforms, infrastructure improvements, good governance systems, active stakeholder groups. Food aid, for example, is often more expensive than commercial food imports, in some cases could be purchased locally and can negatively impact on domestic food production and local nutritional habits. Market reforms undertaken by many Sub-Saharan African countries during the 1980s to reduce government intervention and to promote the private sector did not have the desired effects because of institutional deficiencies. A forthcoming DAC policy document on enabling pro-poor growth through agriculture is intended to provide a framework for donors and domestic governments alike. The importance of enhancing co-operation between multilateral and bilateral donors was underlined as was the need for greater accountability and co-ordination between donor-countries, recipient countries, and international organisations. In this regard, as part of OECD’s evolving partnership with Africa, the Mutual Review of Development Effectiveness which studies a range of themes of mutual accountability between African and OECD countries including policy coherence was highlighted. Jack Wilkinson (President, International Federation of Agricultural Producers) stressed the need for increasing international assistance and questioned the current decline in aid for agriculture. Key issues are the on-going structural changes around the reorganisation of supply chains, increasing downstream concentration, new scientific breakthroughs, etc., and how smaller farms will be able to cope. He supported a business approach to agriculture based more closely on actual farmer’s needs, with direct farmer input in developing sector business plans and programme design. In most cases, the farming community was not adequately represented in the decision-making process. He also encouraged more impact analysis of current policies on both intended beneficiaries and third parties, for example, the actual benefit for West African farmers of lifting subsidies on cotton. Tariff escalation, and its dehabilitating impact on the development of a value-added sector in developing countries, was of particular concern.


14 – Executive Summary Willem-Jan Laan (Unilever and Vice Chair, Sub-committee on Food and Agriculture, Business and Industry Advisory Committee to OECD) added that the creation of agribusiness opportunities had a follow-on effect of creating further economic stimuli for local rural communities. Trade and value-added processing can foster such opportunities in developing countries but development aid is also required. Micro-credit and other forms of financing are often absent from development strategies and a major limitation to poverty reduction. Capacity building is essential to help the poor help themselves and the private sector has a stake and important role in ensuring the resulting economic growth is sustainable. Once trade reforms have taken effect, some developing countries may need additional help to integrate into global markets. One area where assistance is already required is in adjusting to the higher costs and greater complexity associated with international Sanitary and Phyto-Sanitary (SPS) Standards. Stefan Tangermann (Director, Agriculture, Food and Fisheries Directorate, OECD) agreed with the need for rigorous impact analysis of agricultural and trade policies, including the identification of winners and losers from reform at the national, regional and household level. The OECD has developed a very strong set of instruments for the evaluation of subsidies and monitors, on an annual basis, policy developments and levels of support for all OECD countries and a growing number of non-member economies. More emphasis needs to be placed on the implications of OECD agricultural policies for developing countries, with a suggestion that perhaps the annual monitoring exercise should explicitly evaluate the “policy coherence for development” aspect of all new OECD agricultural policy developments. He pointed out that mechanisms should be put in place to deal with any negative effects of trade liberalisation, for example possible losses resulting from preference erosion. Also, more guidance should be made available to developing countries in the tailoring of their agricultural and trade policies to better achieve domestic policy objectives. In this context, research and development, extension services, education and training, creation of effective institutions and infrastructure, adjustment assistance are clearly more effective and efficient than traditional price support and input subsidies but there must first be the political will to reform.


Résumé – 15

RÉSUMÉ Le Forum mondial sur l’agriculture, qui s’est tenu les 30 novembre et 1er décembre 2005, a abordé toute une série de questions axées autour du thème de la « cohérence des politiques au service du développement ». Ce résumé a pour but de mettre en évidence quelques-uns des principaux points débattus, notamment lors de la séance-bilan qui a clos la rencontre. On trouvera un exposé plus complet et représentatif des problématiques traitées pendant ces deux journées de réunion du Forum dans les résumés succincts établis pour chacun des documents présentés. Les communications présentées sous forme de transparents peuvent être consultés à l’adresse : www.oecd.org/ccnm/agriculture. Dans ses remarques de clôture, Neil Fraser, Président du Forum mondial, a rappelé que la cohérence des politiques au service du développement était loin de se limiter à des stratégies « ne nuisant pas », mais qu’elle consistait « à prendre les bonnes décisions impliquant les bonnes personnes au bon moment ». Si la libéralisation des échanges, en particulier la suppression des distorsions générées par les pays développés, est un facteur essentiel au développement de l’agriculture, elle ne constitue en aucun cas la solution miracle. Les participants se sont très largement accordés à penser que la libéralisation des échanges agricoles ne saurait à elle seule résoudre les problèmes de la pauvreté et de la faim et qu’elle devrait dans certains cas s’accompagner d’une aide à l’ajustement pour en pallier les répercussions négatives immédiates. Les stratégies de croissance agricole favorables aux pauvres méritent de jouer un rôle plus grand dans l’aide au développement en les combinant avec un accroissement des compétences nationales dans des domaines essentiels comme la stabilité macroéconomique, le dialogue avec la société civile, la recherche-développement, les infrastructures, etc. Plusieurs pays de l’OCDE (Finlande, Irlande, Pays-Bas, Suède, entre autres) ont adopté cette approche globale de la cohérence des politiques au service du développement. Il est clairement ressorti des nombreuses expériences évoquées que les solutions sont nécessairement fonction du contexte et du pays et qu’il n’existe pas de stratégie passe-partout. En Finlande, par exemple, les pouvoirs publics travaillent en étroite relation avec des partenaires commerciaux tels que l’Ouganda et la Zambie, afin de mieux appréhender la situation des marchés et l’environnement commercial de ces pays. En ce qui concerne les échanges agricoles, il est à noter que les pays en développement ne sont généralement pas des acteurs majeurs du commerce international. En fait, ce groupe de pays est importateur net de produits agricoles et alimentaires, et cette tendance va en s’accentuant. L’agriculture demeure néanmoins un secteur primordial pour ces économies ; elle emploie une grande part de la main-d’œuvre et concentre l’essentiel de la pauvreté. Autre aspect tout aussi important : l’agriculture est en général un secteur dans lequel les pays en développement peuvent cultiver un avantage comparatif, en particulier dans les secteurs productifs à forte intensité de main-d’œuvre. Il est évident que ces pays sont notamment pénalisés par un accès insuffisant aux marchés des pays développés, qui est imputable à des politiques agricoles des pays de l’OCDE comme le soutien des prix intérieurs, la protection aux frontières et la progressivité des droits de douane.


16 – Résumé Toutes ces questions sont au cœur du cycle de négociations commerciales multilatérales en cours, et la communauté internationale s’est engagée à réduire les distorsions engendrées. Toutefois, les participants au Forum ont insisté sur le fait que si l’accès aux marchés constitue effectivement un obstacle à lever, la capacité de production est, pour la plupart des pays en développement, un handicap beaucoup plus lourd encore. Toute stratégie de développement doit absolument comprendre un volet « facilitation des échanges ». Au nombre des facteurs limitant la capacité des pays en développement à tirer parti des nouveaux débouchés commerciaux figurent l’évolution permanente et la complexité croissante des réglementations relatives à la sécurité des aliments, l’augmentation de la demande de normes privées et l’évolution des chaînes alimentaires multinationales, ainsi que l’inadéquation des infrastructures et des organisations institutionnelles. En ce qui concerne les objectifs de réduction de la pauvreté et de lutte contre la faim, il est rappelé qu’on estime à 850 millions les personnes souffrant de sous-nutrition – soit une augmentation de 18 millions au cours des cinq dernières années. L’Afrique subsaharienne, en particulier, n’est pas en mesure d’atteindre les Objectifs du Millénaire pour le développement (OMD) d’ici 2015 en ce qui concerne la réduction de la pauvreté et la lutte contre la faim. Certes, le commerce peut contribuer à réduire la pauvreté et la faim, mais il n’en demeure pas moins que si l’on veut accroître le rôle joué par l’agriculture, il est impératif d’augmenter les investissements dans ce secteur. L’aide à l’agriculture a chuté en termes réels depuis le milieu des années 80, et tout particulièrement dans les régions du monde les plus pauvres, en l’occurrence l’Afrique subsaharienne, l’Asie du Sud et l’Asie centrale (statistiques de l’OCDE sur l’aide publique au développement). Les programmes ont été interrompus dans le cas de plusieurs pays en raison de conflits, tandis que des problèmes de gouvernance ont amené à réduire l’aide destinée à d’autres pays. Les politiques internes taxant de facto l’agriculture ont souvent des effets de distorsions plus importants que celles adoptées par la communauté internationale. L’aide au développement ne saurait être efficace si le contexte national ne s’y prête pas. La production cotonnière, qui occupe quelque 16 millions de personnes en Afrique de l’Ouest, est citée comme exemple de retrait ou de suspension de l’aide faute de concrétisation des réformes attendues dans les pays développés, qui auraient conduit à une ouverture des marchés. Les politiques agricoles des pays de la zone de l’OCDE limitent manifestement les possibilités de croissance des pays en développement et sont pour ces derniers à la fois des exemples positifs et négatifs de « pratiques d’action ». Les grands donneurs estiment que la raison pour laquelle les investisseurs se sont détournés de l’agriculture est son manque de prévisibilité et de rentabilité, mais que, les flux de capitaux vers ce secteur reprendraient si la situation venait à s’améliorer. De nombreux gouvernements nationaux ont par ailleurs réduit le soutien accordé à l’agriculture pour ces mêmes raisons, entraînant parallèlement une baisse des performances du secteur. Cependant, l’optimisme est encore de mise. S’ils étaient atteints, les objectifs actuels des donneurs feraient passer l’APD de 80 milliards d’USD à 130 milliards d’USD, ce qui constituerait une hausse record. De même, les gouvernements des pays africains se sont engagés, dans le cadre du NEPAD, à accroître la part des budgets nationaux allouée à l’agriculture. La séance-bilan qui a clos le Forum a pour l’essentiel confirmé les conclusions des sessions précédentes et apporté des exemples d’expériences individuelles et nationales. Pinit Korsieporn, Secrétaire général adjoint, ministère de l’Agriculture et des TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

Résumé – 17

Coopératives de la Thaïlande) a fait observer que la cohérence des politiques constitue, tant pour les pays en développement que pour les pays développés, une impulsion politique forte destinée à limiter le plus possible les conflits entre parties prenantes. C’est ainsi que l’approche multisectorielle adoptée par la Thaïlande est un bon exemple d’une cohérence des politiques axée sur la lutte contre la pauvreté, tandis que les politiques agricoles des pays développés, notamment concernant l’accès aux marchés, les subventions à l’exportation, le soutien interne, l’aide alimentaire et le traitement préférentiel, sont toutes considérées comme limitant le développement du pays. Jeremy Hobbs (Directeur exécutif, Oxfam) indique pour sa part que la libéralisation des échanges n’est pas une panacée et que, si l’on veut une stratégie en faveur du développement véritablement cohérente, la libéralisation doit être conjuguée à des mesures relatives à l’APD, à la restructuration de la dette (un tiers de l’APD servant au remboursement de la dette) et à des politiques internes efficaces. Évoquant les succès remportés en Asie de l’Est en matière de lutte contre la pauvreté, il précise que l’efficacité des politiques internes passe principalement par une bonne gouvernance, une mise en œuvre séquentielle des réformes et le rôle joué par le secteur privé. Il recommande de faire davantage appel aux études de cas par pays, afin de mieux appréhender les interactions et l’importance relative de ces différents facteurs, mais aussi de renforcer les principes de responsabilité mutuelle des bénéficiaires, des donneurs et des organisations internationales. Kevin Cleaver (Directeur, Agriculture et Développement rural, Banque mondiale) souligne combien il est important de disposer d’infrastructures et d’institutions adéquates pour attirer l’investissement direct étranger nécessaire (IDE) et les ressources des bailleurs de fonds et, par ailleurs, de mieux intégrer les pays pauvres aux marchés régionaux et internationaux. Les pays de l’OCDE versent plus de 90 % de l’aide publique au développement (APD) et 80 % de l’IDE. Pour attirer les investissements, qu’ils soient publics ou privés, l’agriculture doit être rentable, ce qui n’est que rarement le cas. Nombre des politiques agricoles adoptées par les pays développés compromettent gravement la rentabilité des exploitations agricoles des pays en développement (le coton est là encore un bon exemple). Pour pouvoir tirer parti d’une plus grande ouverture des marchés, en particulier des investissements dans les infrastructures et le développement rural, les pays à bas revenu devront donc bénéficier d’une aide à l’ajustement. Mohammed Karaan (Président, National Agricultural Marketing Council, Afrique du Sud) est d’accord pour dire que la réforme des institutions doit précéder l’intégration commerciale, mais il fait observer que l’économie politique a souvent une incidence négative sur l’IDE. Selon lui, l’amélioration de l’accès aux marchés est au cœur de la problématique commerciale, et il faudrait multiplier les analyses relatives aux gagnants et perdants de la libéralisation des échanges, ainsi qu’à la répartition des avantages qu’elle procure. Si l’on veut qu’un programme agricole national soit cohérent avec les autres politiques, il faut impérativement accroître l’accès à des services sociaux complets dans les zones rurales et marginales, l’objectif étant d’améliorer la qualité de vie des populations et, simultanément, de mettre en place des filets de sécurité basés sur l’accès à la nourriture. Revenant à la question de la mise en œuvre séquentielle des réformes, il note qu’en Afrique du Sud, la réforme agraire et les marchés fonciers font partie des enjeux majeurs de la cohérence des politiques. A cet égard, il serait utile de confronter les données acquises aux expériences d’autres pays en développement tels que le Brésil, la Chine et l’Inde.


18 – Résumé Richard Manning (Président, Comité d’aide au développement, OCDE) est lui aussi d’avis qu’il ne faut pas surestimer les avantages de la libéralisation des échanges et que pour être cohérentes, les politiques d’aide doivent remplir des objectifs de développement. Il faut impérativement définir une stratégie gouvernementale globale de la cohérence des politiques au service du développement – stabilité macroéconomique, réformes du marché foncier et du marché du travail, amélioration des infrastructures, systèmes de bonne gouvernance et groupes d’acteurs actifs. A titre d’exemple, l’aide alimentaire est souvent plus coûteuse que les importations commerciales de produits alimentaires, elle pourrait dans certains cas être achetée sur les marchés locaux, et elle peut avoir un impact négatif sur la production alimentaire nationale et les habitudes nutritionnelles de la population. Les réformes engagées par de nombreux pays d’Afrique subsaharienne au cours des années 80, qui avaient pour objectif de réduire l’intervention publique et d’encourager le secteur privé, n’ont pas abouti en raison de carences institutionnelles. Un document du CAD à paraître, qui portera sur les perspectives de croissance favorable aux pauvres grâce à l’agriculture, devrait fournir un cadre pour les donneurs et les gouvernements nationaux. Richard Manning souligne l’importance de renforcer la coopération entre donneurs multilatéraux et bilatéraux, de même que la nécessité de développer la responsabilité et la coordination entre pays donneurs, pays bénéficiaires et organisations internationales. Il rappelle à cet égard que dans le cadre du partenariat qui se met en place entre l’OCDE et l’Afrique, l’Examen mutuel de l’efficacité du développement explore toute une série de thèmes concernant la responsabilité mutuelle entre pays d’Afrique et pays de l’OCDE, et notamment la cohérence des politiques. Jack Wilkinson (Président, Fédération internationale des producteurs agricoles) souligne la nécessité d’accroître l’aide internationale et s’interroge sur la baisse actuelle de l’aide dans le domaine de l’agriculture. Les principaux défis à relever sont : l’évolution structurelle en cours autour de la réorganisation des filières d’approvisionnement, la concentration croissante des secteurs d’aval, les nouvelles avancées scientifiques, etc. et les moyens dont disposent les petites exploitations pour y faire face. Jack Wilkinson est favorable à une approche économique de l’agriculture reposant plus concrètement sur les besoins réels de l’agriculteur, ce dernier participant directement à la définition des plans commerciaux sectoriels et des programmes. La plupart du temps, le monde agricole n’était pas suffisamment représenté dans le processus décisionnel. Jack Wilkinson recommande par ailleurs de réaliser davantage d’analyses de l’impact des politiques en vigueur, tant sur les bénéficiaires visés que sur les tierces parties, par exemple en ce qui concerne l’avantage réel, pour les agriculteurs de l’Afrique de l’Ouest, d’une suppression des subventions au coton. La progressivité des droits de douane est particulièrement préoccupante, notamment à cause du frein qu’elle impose au développement d’un secteur à valeur ajoutée dans les pays en développement. Willem-Jan Laan (Unilever et Vice-Président, Sous-comité sur l’alimentation et l’agriculture, Comité consultatif économique et industriel auprès de l’OCDE) ajoute que la création de débouchés agroalimentaires a eu pour conséquence d’apporter de nouvelles incitations économiques aux communautés rurales locales. Si les échanges et le secteur de la transformation peuvent effectivement encourager ces débouchés dans les pays en développement, il n’en demeure pas moins que l’aide au développement est indispensable. Le microcrédit et d’autres formes de financement sont souvent absents des stratégies de développement, ce qui restreint considérablement la lutte contre la pauvreté. Le développement des capacités est essentiel si l’on veut aider les pauvres à s’en sortir, et à cet égard, faire en sorte que la croissance économique enclenchée soit durable constitue TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

Résumé – 19

pour le secteur privé un véritable enjeu dans lequel il a un rôle important à jouer. Une fois les réformes commerciales en place, certains pays en développement risquent d’avoir besoin d’une aide supplémentaire pour s’intégrer aux marchés mondiaux. Il est cependant d’ores et déjà indispensable d’apporter une aide dans un domaine particulier, à savoir aider les pays en développement à s’adapter à l’augmentation des coûts et à la complexité croissante qu’imposent les normes sanitaires et phytosanitaires internationales. Stefan Tangermann (Directeur, Direction de l’alimentation, de l’agriculture et des pêcheries, OCDE) pense lui aussi qu’il est nécessaire de procéder à une analyse rigoureuse de l’impact des politiques agricoles et commerciales, et plus particulièrement de déterminer les gagnants et perdants de la réforme à l’échelle nationale et régionale, ainsi qu’au niveau des ménages. L’OCDE a mis au point un ensemble très robuste d’instruments d’évaluation des subventions et assure un suivi annuel de l’évolution des politiques et du niveau du soutien pour l’ensemble des pays de l’OCDE, ainsi que pour un nombre croissant d’économies non membres. Il apparaît important d’accorder davantage de place aux conséquences des politiques agricoles des pays de l’OCDE pour les pays en développement, peut-être en intégrant dans l’exercice annuel de suivi une évaluation explicite de la prise en compte de la « cohérence des politiques au service du développement » dans l’évolution des politiques agricoles de la zone de l’OCDE. Stefan Tangermann souligne qu’il conviendrait de mettre en place des mécanismes permettant de faire face aux effets négatifs de la libéralisation des échanges, par exemple aux pertes qu’est susceptible d’entraîner l’érosion des préférences. En outre, il serait judicieux de fournir davantage d’orientations aux pays en développement afin de les aider à définir des politiques agricoles et commerciales leur permettant d’atteindre les objectifs qu’ils se sont fixés au plan interne. Dans ce contexte, la recherche-développement, les services de vulgarisation, l’éducation et la formation, la création d’institutions et d’infrastructures efficaces, et l’aide à l’ajustement sont à l’évidence plus efficaces et efficients que les traditionnels soutien des prix et subventions aux intrants, mais il faut avant tout qu’il existe une volonté politique de réforme.



Part I. Setting the Scene – 21

PART I. SETTING THE SCENE




Chapter 1. POLICY COHERENCE FOR DEVELOPMENT: DISTILLING LESSONS FROM OECD WORK1 Alexandra Trzeciak-Duval Policy Co-ordination Division, Development Co-operation Directorate, OECD and Horizontal Project on Policy Coherence for Development Abstract This paper introduces the rationale, definition and approach for work on policy coherence in support of development at the OECD. The paper is organised according to the four main avenues through which coherence issues have been examined, i.e. through institutional, sectoral, regional and country based approaches. The main parts of the paper sketch the key policy-relevant issues and lessons that can be gleaned from an examination of these approaches. It discusses the need for more systematic monitoring and evaluation of progress on policy coherence for development, suggests future areas of work, and highlights the challenges which need to be addressed moving forward. . The forthcoming WTO ministerial meeting in Hong Kong provides the next headline opportunity for OECD countries to show that policy coherence for development (PCD) is more than a rhetorical formulation.

Mandate, meaning and method Why the OECD? Contributing to development is a key objective of the OECD. As an intergovernmental agency tying together nearly all areas of policy-making, what better forum to provide the analysis and promote the dialogue to motivate governments to coordinate policies in order to support development? With policy coherence for development (PCD) featuring prominently as a goal of international millennium undertakings at the highest level (Box 1), the OECD Ministerial Council of 2002 mandated the OECD specifically “to enhance the understanding of the development dimensions of member country policies and their impacts on developing countries. Analysis should consider trade-offs and potential synergies across areas such as trade, investment, agriculture, health, education, the environment and development cooperation, to encourage greater policy coherence in support of internationally agreed development goals” (OECD, 2002). An operational definition: Achieving policy coherence for development means ensuring that the objectives and results of an OECD member government’s development are not undermined by other policies of the same government that impact on developing countries. At a minimum, this implies the Hippocratic commitment to do no harm. The OECD’s Development Assistance Committee (DAC) has adopted a more ambitious, synergistic interpretation: policy coherence for development calls for the systematic 1.

This paper serves a background for the introductory comments of Deputy Secretary-General Kiyo Akasaka who will present an overview of OECD’s work on policy coherence for development to introduce the Global Forum on Agriculture.


24 – Part I. Setting the Scene promotion of mutually supportive policies across government to help achieve mutually agreed international goals (OECD, 2001). Box 1. International commitments to PCD • • • • • •

Millennium Declaration (September 2000) Millennium Development Goal 8: Develop a Global Partnership for Development Doha Development Round (2001) Monterrey Consensus (March 2002) Addressing systemic issues: enhancing the coherence and consistency of the international monetary, financing and trading systems in support of development OECD Ministerial Meeting (May 2002) OECD Action for a Shared Development Agenda UN Summit: 2005 accountability checkpoint EU Treaty and EU Council decision of 22 November 2005

Due to the wide range and the complexity of policy areas which need to be considered, the experience of OECD countries suggests a need to define the different systemic levels at which governments and institutions can seek greater policy coherence. A useful PCD typology that breaks down the notion of coherence into four types, illustrated by examples of harmful policies, is presented in Box 2. Box 2. PCD typology and illustrative examples of incoherent policies Type 1. Internal coherence: the consistency between goals and objectives, modalities and protocols of a government’s development policy (e.g between state-to-state bilateral aid, bilateral aid channelled through NGOs or the private sector, and multilateral aid). Examples of internal incoherence: • Reduced value of aid through tying = USD 2-7 billion in 2002 • Tied in kind food aid carries substantial efficiency costs, estimated at least at 30% over less restrictive procurement methods. Type 2. Intra-country coherence: the consistency among aid and non-aid policies of an OECD government in terms of their contribution to development. Examples of intra-country incoherence: • Total support to agriculture = circa 5 x aid • Military expenditure = circa 20 x aid and rising • Fishing subsidies USD 15-20 billion per year • More Malawian doctors in one of Europe’s cities than in all of AIDS-ravaged Malawi • National or regional regulatory standards more stringent than the international standards of Codex Type 3. Inter-donor coherence: the consistency of aid and non-aid policies across OECD countries in terms of their contribution to development. Examples of inter-donor incoherence: • Of 200 average yearly missions to 14 survey countries in 2003, fewer than 10% were joint • Low or no representation of countries with 85% of world population in international financial bodies Type 4. Donor-recipient coherence: the consistency of policies adopted by rich and poor countries to achieve shared development objectives. Example of donor-recipient incoherence: • Aid is rarely aligned with recipient countries’ budget cycles Source: Picciotto, 2005a; OECD, 2003; OECD, 2005a; OECD, forthcoming a.

How to approach PCD? The OECD’s horizontal programme is guided by the DAC definition and takes a four-pronged approach. This overview paper is structured along the same lines. •

Institutional approach: No single analytical approach can address all aspects of the complex process of government policy-making that seeks to meet multiple and often TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


competing objectives. For this reason, it was essential to address the institutional aspects of PCD. This has been done by analysing and drawing lessons from the good practices of OECD members, which have been distilled into a framework that is consistently applied to DAC peer reviews and could be used more widely. •

Sectoral approaches: In parallel, different parts of the OECD Secretariat have addressed inter-linkages between development and a range of sectoral policies, including agricultural, trade, migration, health, fisheries, environmental, macroeconomic and security policies. The relevant OECD Committees or their subsidiary bodies have been associated with this work to varying degrees – from taking note of the issues, to full endorsement and active participation. The Global Forum on Agriculture is a major opportunity to take the sectoral approach forward in examining the linkages between OECD country agricultural policy impacts and the development commitments they have taken.

•

Regional and country-based approaches: In order to test the analytical validity of the sectoral work and make it more context specific, the OECD has also applied regional (East Asia, Sub-Saharan Africa) and country-specific case study approaches. They examine the impacts of OECD country policies and pairs of policies on individual or groups of countries. A special effort to understand and improve policy coherence for development in fragile states is part of that approach.

•

Assessing progress: A fourth dimension of OECD work on PCD seeks to increase the monitoring of OECD country efforts to take developmental impacts into account in their policy making through peer review and mutual review. Some quantification of policy impacts is being attempted and a few proxy indicators to support PCD work exist already. More needs to be done to assess progress and measure results.

Institutional approaches to PCD The political economy of PCD: Given the general acceptance of PCD as a critical factor in attaining internationally agreed development objectives, why is it so hard to achieve? The OECD has initiated some reflection on the reasons. The analysis has found relatively strong support for the hypothesis that those countries tending to give more foreign assistance as a share of GNI and to demonstrate a relatively strong commitment to promoting PCD are countries with high levels of income distribution. It also unearthed some inconsistencies between professed support for the PCD agenda and actual behaviour on aid and trade (Kapstein, 2005). The work has highlighted the need better to understand and take into account special interest groups that interfere in domestic political-economic policy making in order to preserve rent-seeking benefits that are a cost to the society at large. In the case of agriculture, particularly, even though most agricultural policies fail to meet their stated objectives efficiently, reform has been modest. There must therefore, be a gap between officially articulated policy objectives and implicit ones (OECD, 2005a). The political economy approach highlights the central role of politics, politicians and special interests, which may have received too little attention to date in efforts to understand and change policies that impact developing countries negatively. Lessons of good practice: Joining up policies across government is a complex process, but there is a useful body of recent institutional experience which can be drawn upon. Much of this experience has been reviewed as part of the DAC peer reviews and brought together for discussion at a series of workshops in 2003 and 2004 (OECD, 2005b). It shows the value of carefully prepared policy frameworks based on wideTRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

26 – Part I. Setting the Scene ranging consultative processes and careful dissemination strategies. The list of countries adopting such public policy statements on PCD is growing. DAC member experience offers a variety of instruments which can ensure political commitment and accountability. Cabinet rank for the development portfolio manager and engagement with national legislatures appear to be of the highest importance. Sweden is the first country in the world whose Parliament has ratified a Government Bill on a coherent, whole-of government development policy, while The Netherlands have used joint ministerial protocols addressed to their Parliament. What works in one national context is not necessarily transferable to others, but certain basic elements related to politics, capacity, institutional structures, and results assessment are indispensable, as captured in ‘shorthand’ in Box 3. Box 3. Indispensable institutional “C”s of coherence • • • •

Clout: Political will to adopt coherent policies that are supportive of development. Capacity & Co-ordination: Good analytic capacity and co-ordinated policy-making to ensure coherent policies. Concreteness: Specific, concrete actions for quick results in key areas, especially trade and agriculture. Coequality: Better balance in the global governance architecture

An analytical framework: Based on specific examples and the evolving body of good practice, the OECD has developed a detailed analytical framework for institutional approaches to policy coherence for development, which helps assess the progress of DAC members, while offering recommendations for improvement (Box 4. summarises the framework). Some OECD member countries have already embraced strategic actions for institutional change by adopting this analytical framework for assessing political will and institutional capacity; by drawing lessons from recent analytical work and experiences with institutional reform, by tackling issues in specific action areas according to a firm schedule, and by monitoring results on a regular basis. The recommendation to apply the framework systematically to DAC peer reviews is already being implemented. Subsequent monitoring and possible application to other peer review processes are also recommended.



Box 4. Analytical framework: institutional mechanisms to promote policy coherence for development (1) Managing the politics and policy Political context: Does the structure, form and system of government, the interaction of its different parts and the designation of responsibilities facilitate or hinder achievement of policy coherence? Political commitment and leadership: What priority is given to development and coherence issues and raising public awareness of these issues on an ongoing basis at the highest level of government? Policy frameworks: Does the government have clear, integrated policy or legal frameworks to set out and ensure implementation of commitments to development, poverty reduction and policy coherence?

(2) Building capacity in the policy-making process Stakeholder consultation: Is the government able and willing to identify, consult and balance the interests of all possible stakeholders in a policy decision or change? Analytical capacity: What is the capacity of the government to define the development issues at stake, gather data to fill information gaps, analyse it effectively and feed results into policy processes on time? Policy co-ordination mechanisms: How effective are cross-institutional co-ordination mechanisms to consult on policy options, negotiate policy, anticipate and resolve policy conflicts or inconsistencies? Informal working practices: Does the administrative culture promote cross-sectoral co-operation and systematic information exchange between different policy communities in day-to-day working? Negotiation skills: What is the ability of the development ministry/agency to build strategic alliances, persuade and engage others and create ownership of the policy coherence for development agenda? Building capacities in developing countries: What efforts were there to build the institutional capacities of developing country actors in analysis, consultation, policy making, co-ordination and negotiation and their institutional and productive capacities in specific policy areas?

(3) Overcoming institutional challenges in different policy areas Context: What are the major national and international forums for discussion? Do these adequately represent development perspectives? Efforts: What studies, consultation and negotiation took place during the policy process? Actions: What were the policy changes or coherence initiatives in specific areas?

(4) Assessing the results of policy coherence efforts Monitoring and evaluation mechanisms: Are there policy monitoring mechanisms or specific studies in different policy areas that analyse impacts on development? How are coherence efforts evaluated? Results: How did the policy changes affect developing countries? Source: OECD, 2005b.

Sectoral approaches to examining PCD Given the numerous forms of assistance to partner countries, the diverse government ministries responsible for various aspects of development assistance, the sheer number of actors at the supra-national level and the multiplicity of decision-making forums, the need for co-ordination and coherence in policy making is easily recognised - but still difficult to implement. The 2001 DAC Guidelines on Poverty Reduction introduced overall coherence between the different policies of OECD governments as a key factor influencing the effectiveness of development co-operation policies on poverty reduction, with a specific checklist against which to gauge performance. The checklist illustrates the significant number of policy areas that affect development. Thus, to help policy makers achieve PCD, a better understanding of sectoral issues and the development of analytical frameworks are needed to complement the institutional mechanisms. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

28 – Part I. Setting the Scene This paper touches upon a number of sectoral work-streams at various stages of completion within the OECD, including the agricultural sectoral work that is the focus of the Global Forum discussions. It is meant to illustrate key issues, as well as summarise the state of play as of November 2005. Tied aid: The tying status of aid has long been considered a key test of donors’ commitment to coherent policies and effective aid delivery (type 1. internal coherence). Partners have consistently identified tying as one of the principal procedures that undermine aid effectiveness. It raises the cost of many goods, services and projects by 15 to 30% on average and 40% or more for food aid (see below). Even by conservative estimates that ignore indirect costs, tied aid reduced the value of total bilateral aid by USD 5 billion to USD 7 billion in 2002. Tied aid often results in higher transaction costs for recipients and is a serious barrier to harmonising donor procedures (OECD, 2005c). Many donors have increased the share of untied aid in their bilateral programmes. A few have untied all or large parts of their programmes, to improve aid effectiveness and strengthen local ownership of the development process. The share of untied aid in total bilateral aid increased from 40% in 1984 to 55% in 1994 with some intermittent fluctuations, but since 1997 it has stabilised at around 40 to 45%. The DAC continues to keep this issue on its agenda and to seek progress in untying. Building on its 2001 Recommendation to untie aid to the least developed countries, the DAC, meeting at senior level in December 2005, will consider removing the size thresholds below which aid did not have to be untied. If agreed, this will add an additional USD 300 million in untied aid. It will also seek to strengthen efforts to support local and regional procurement of aid funded activities, to the benefit of developing country suppliers. Beyond that, the DAC has agreed to explore further possibilities to untie more aid, including untying to a wider range of countries and activities than are presently covered by the Recommendation. Tied food aid: A recent OECD study has helped to quantify the costs of tied food aid. The study shows that, in most circumstances, financial aid is the preferable option. Food aid in-kind is overwhelmingly tied. This makes it at least 30% more expensive than financing commercial imports and, on average, 50% more expensive than local food purchases. The relative efficiency of local and third country purchasing also suggests that untying food aid and opening it up to much broader sourcing would clearly benefit agricultural development in many low-income developing countries (OECD, forthcoming c). Aid effectiveness: The DAC is actively engaging the international community of donors and partners on several additional fronts related to both inter-donor (type 3.) and donor-recipient (type 4.) coherence. Commitments were taken in Rome (2003), Marrakech (2004) and Paris (2005) to align development assistance with partner-country strategies, to harmonise donor policies and procedures, to implement principles of good practice in development co-operation, and to track progress and assess outcomes by relying on partner countries' monitoring and evaluation systems. Progress has been made on both harmonisation (e.g. simplified procedures and practices, joint analytical work, delegated co-operation, common procurement and financial management procedures, and common arrangements for sector wide approaches and budget support) and alignment behind country strategies and more joint support of these strategies. The Paris Declaration on Aid Effectiveness, a landmark agreement signed by nearly 100 countries in March 2005, featured prominently in the conclusions of the UN Summit of September 2005. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


Agriculture: The work of the OECD’s Directorate for Food, Agriculture and Fisheries has been groundbreaking in terms of quantifying member country and, increasingly, nonOECD country agricultural support. This public good has been effectively and creatively mined to argue against OECD member country agricultural support policies and their trade-distorting effects. Yet, this compelling information has not dissuaded policy makers from continuing to provide high levels of support. The political economy reasons for this have already been evoked. In order to take the work a step further, as part of its horizontal PCD programme, the OECD commissioned an analysis by Professor Alan Matthews (OECD, 2005a). The study has been discussed by the Committee on Agriculture and in various seminars and workshops, including those held at ministerial levels. This 2005 Global Forum on Agriculture, meeting back-to-back with the OECD Committee on Agriculture and with policy coherence for development as its central theme, is a timely opportunity to discuss analytical findings and subsequent work. It is important here to underscore the useful contribution of this work to the PCD agenda in several respects. Its starting point is the achievement of the Millennium Development Goals (especially the elimination of extreme poverty and hunger), to which all OECD members have subscribed. It provides an analytical tool to enable the policy maker to approach each type of agricultural policy and policy instrument with a development perspective. This perspective has not been offered before in a systematic way to agricultural policy makers. The study also recalls the gains, as quantified by a number of analysts, from removing agricultural protection. The timeliness of the study – and the Global Forum discussions of the issues it raises – as the WTO Ministerial meeting approaches, should be highlighted. Box 5. The impact of OECD agricultural policies on poverty reduction in East Asia The case of Vietnam East Asia has been studied as a special regional case in OECD work on policy coherence for development. This regional case study is discussed in Section III of this paper. Given that East Asia, over the past two decades, holds the best record of all regions in reducing poverty, it is of special interest to examine the impacts of OECD agricultural policies on poverty alleviation there. The study recalls that OECD country domestic support, export subsidy or inhibited market access policies have the most distorting effects if the developing exporting country has world market power in a given commodity, if the policy or policy combination will shift aggregate excess demand or excess supply and affect world market prices and if the developing country’s agricultural sector is linked to those world market prices. On this basis, the study finds that Vietnam is likely to be affected, as it has commodity overlaps with OECD countries mainly in rice and sugar. Thus, world price effects on Vietnam’s domestic prices are likely. The effects of these prices on rural wage rates are likely to be pronounced in Vietnam due to the low degree of integration between industrial and agricultural labour markets. Based on this observation, OECD country policies in rice and sugar are likely to have negative effects on Vietnamese poverty reduction, including poverty of the lowest income rural poor. Source: Barichello, 2005.

Trade: OECD work has been focusing on the gains from tariff liberalisation, liberalising non-tariff measures, trade facilitation, and liberalising trade in services. It underscores the importance of developing country access to developed-country markets, recalling that one of the many benefits of market access is the anticipated positive impact on domestic and foreign investment. Under a number of scenarios for multilateral tariff cuts, the findings uniformly point to the fact that half or more of the potential welfare TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

30 – Part I. Setting the Scene gains originate from increased developing-country exports to the OECD area (OECD, 2005c). OECD estimates of global annual welfare gains from tariff liberalisation range between USD 117 billion under a proportional tariff reduction of 50% to USD 174 billion under a scenario with full tariff removal. Close to half of these gains accrue to developing countries. Most of them arise from liberalisation of market access in manufacturing. Developing countries as a whole reap welfare gains of around USD 50 billion from tariff reductions on manufactures and USD 19 billion from agricultural tariff reductions. This suggests that tariff reductions for both manufactures and agricultural products can contribute to enhancing welfare in developing countries. Developing countries benefit when the liberalisation focuses primarily on the developed countries, but they benefit even more when they cut their own tariffs too. Roughly two-thirds of these gains come from the removal of tariff-related distortions in just three sectors, namely motor vehicles and parts, textiles and clothing, and processed agricultural products. In South-North trade, studies suggest that customs and administrative procedures and behind-the-border sanitary and phytosanitary (SPS) and technical barriers to trade (TBTs) particularly concern developing countries. In SouthSouth trade, cumbersome or otherwise difficult customs and administrative procedures, including problems with import licensing, also rank very high among the market-access concerns reported by developing countries. They may be more pervasive than in SouthNorth trade. There are also many complaints about fees and charges on imports and other para-tariff measures, which appear to have become more frequent as countries have lowered their import tariffs. A combination of examples, case studies and empirical studies indicate that developing countries often have special difficulties and higher costs in showing compliance with technical regulation and these can adversely affect firms’ propensities to export in developing countries. Lengthy inspection and testing procedures especially have been shown to reduce developing-country export shares by four per cent and nine per cent respectively. Efforts to rationalise these non-tariff policies further and to help exporting countries build up the infrastructure and capacity needed to show compliance with foreign regulatory requirements could significantly enhance developing country exports and welfare. Studies further suggest that the transaction costs generated by inefficient procedures at the border may range from one to fifteen per cent of the traded goods’ value, depending on the countries, types of goods and types of traders. The same studies note that a mere 1.5% uniform reduction in these costs could result in global welfare gains of USD 72 billion. The OECD has estimated that 65% of these worldwide income gains would accrue to non-OECD countries, whatever the assumption on the extent of trade facilitation. To illustrate, the welfare gains as a percentage of GDP in Sub-Saharan Africa are more than twelve times the OECD average in relative terms. These benefits would accrue primarily to countries that actively engage in trade facilitation, while those who do not would lose out through trade diversion. The OECD’s work in estimating the welfare effects of services trade liberalisation suggest that under certain assumptions, projected gains from unilateral services trade reform can significantly exceed those from unilateral reform in agriculture or manufacturing. Aid for trade: Much of OECD’s coherence work has focussed on sectors outside of development co-operation. Yet, the results have put the spotlight back on the “two-way street” aspect of coherence, namely that development co-operation policies need to TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


integrate issues, lessons and techniques that arise through linkages with other government policy sectors. One of the policy areas brought out in the sectoral PCD work on agriculture, as well as in several other sectors, revolves around the coherence of development co-operation policies in relation to the specific sector under review. For this reason, in the trade area, the priority of using aid for trade is rising in international discussions. Enabling partners to benefit from open markets goes beyond market access itself and beyond building expertise in trade negotiating techniques. It encompasses help to secure a wide range of capacities and infrastructure needs, including reliable roads and energy supply, technical improvements, training for managerial and technical skills. Migration: Many coherence issues arise in relation to migration, notably in relation to OECD policies that target skilled workers to leave their countries to come and fill gaps in critical sectors, especially in the health area. This contributes to brain drain, but under the right policy environments possibly to brain circulation and brain gain. As for unskilled workers, it is the restrictions on their entry into OECD countries that raise issues of policy coherence for development. A central theme linking most issues of migration is related to the growing transfers of resources through remittances and the links between migrants, remittances and the economic development of sending countries. The OECD has a long experience of migration issues, including the role that remittances have played in the development of sending countries, such as Italy, Portugal, Greece, Spain and more recently Turkey and Mexico. It has analysed the current magnitude of remittances, the characteristics of the migrants in question and the transmission channels used to send their savings back to their countries of origin. Due to the substantial impacts of remittances in supporting living standards and economic development in the countries of origin, OECD work has focused on measures that help reduce transaction costs associated with transfers and enhance transparency. There are numerous examples of how greater competition between banking and other money-transfer-saving intermediaries, combined with the use of information and communication technologies (ICT), have contributed to reducing formal fees and to quickening the process of remittance. This is less apparent with respect to transparency, as it is often unclear which exchange rates are used for the transactions. It is important to continue to share OECD member country experiences with non-member economies, to optimise the use of money transferred by emigrants, to explore ways of increasing the use of new technologies in order to reduce further costs of transfers and help to modernise the formal fund transfer system (OECD, 2005d). Health: The MDGs explicitly include providing access to affordable essential drugs and making available the benefits of new technologies. Rapid advances in science and technology open new opportunities for fighting poverty. Greater synergies between development policies and science and technology for sustainable development, access to medicines, and eradication of “neglected diseases” are critical to efforts to reduce poverty. The issue of availability, accessibility and affordability of medicines for emerging and neglected diseases (including but not limited to HIV/AIDS) is a thorny topic that is a source of friction between the developed and developing world. Disease burden is undeniably a major stumbling block to economic and social progress in many developing countries, notably in Africa. The OECD is seeking to address in a more concerted fashion how member countries might encourage innovation that meets the health needs of developing countries. This will include availability, affordability and access to medicines as well as the need to address more explicitly the threat posed by emerging and neglected TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

32 – Part I. Setting the Scene diseases. The latter is a serious economic issue. Several developing countries have seen decades of slow, painstaking improvement in standards of living wiped out in just a few years by the ravages of disease. Fisheries: Policy coherence for development in the fisheries sector has implications for the livelihoods and poverty status, economic performance, social conditions, and food supply and nutrition of millions of people throughout the world. An analytical study on fisheries coherence issues concludes that policy coherence work in general, including the work on fisheries, has tended to focus on qualitative and descriptive aspects and needs to be deepened through analysis of political, economic and social issues. In the fisheries sector, issues of coherence arise in relation to five major domains: environment, technology, economic, social and governance. These are developed into a typology for policy analysts and decision makers and illustrated by a series of case studies (OECD, forthcoming c). This analytical study has been discussed several times by the OECD Committee for Fisheries with significant elements integrated into the Committees future work. A meeting planned between development and fisheries experts in April 2006 will take up issues such as access agreements, trade, income effects and development co-operation policies in the fisheries sector. Environment: An OECD project, begun in 2002, has been examining ways of mainstreaming climate change policy objectives into the development assistance efforts of OECD donors, as well as into the national planning activities of developing countries. National level case studies in six developing countries (Bangladesh, Egypt, Fiji, Nepal, Tanzania and Uruguay) have been completed. The main emphasis is on delivering costeffective adaptation to climate change in developing countries, using sectoral and aid policies as vectors for doing so. Policy guidance to aid agencies is currently in preparation (OECD, forthcoming d); the work is also examining ways of mainstreaming climate policy objectives into specific development instruments, such as the Poverty Reduction Strategy Papers (PRSPs). The work has contributed significantly to the World Bank-led Multi-agency Report on Poverty and Climate Change (2003), endorsed by the heads of participating development agencies, including the OECD. The current phase of this work focuses on intensive preparations for the first ever Ministerial level meeting of the Development Assistance and Environment Committees of the OECD. It is expected that these two policy communities will adopt a common plan of action that envisages joint work to help developing countries.

Security: The OECD DAC Guidance on Security System Reform (SSR) and Governance (OECD, 2005e) has been influential as a catalyst for policy discussions within aid agencies on the role of security and SSR in creating the necessary environment for sustainable development to take place. A December 2005 SSR practitioners workshop is a major initiative that brings together relevant actors from both partner and OECD member countries. It is a whole-of-government event, with practitioners from the military, intelligence, police, customs, immigration, justice and prison sectors represented. This broad-ranging participation will help ensure a cross-cutting approach to OECD’s SSR work. Most of the practitioners have worked or are working on SSR within field missions and bring to the table SSR experience from Latin America, Asia, the Balkans, Central Asia and Africa. The workshop aims to bring together SSR practitioners to: (i) examine and identify concrete examples of sector-specific (e.g. police, judiciary, military) approaches by TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


practitioners and experts; and (ii) begin the process of developing a system-wide implementation framework based upon shared knowledge, hands-on experience, emerging best practices and lessons learned. The goal of this work is to develop an Implementation Framework on Security System Reform (IF-SSR) to help guide, co-ordinate, align, monitor and evaluate SSR activities in the field. This will in turn help strengthen the coherence of donor government and multilateral organisation practice by facilitating the formulation of a joined-up plan for their own individual engagement.

Regional and country case-based approaches A regional case study of East Asia’s development examined a range of OECD policy vectors - trade, investment, migration, aid and others - and their impacts on Asian economies. The central findings of this study show that policy coherence in OECD countries can bear fruit only when partner economies have the capacity to respond: coherent policies are necessary, but not sufficient. As previously discussed, the regional and country-specific work is important not only in its own right but also to test the validity of findings under the sectoral approaches of the PCD work. The East Asia regional case has indeed confirmed the validity of the sectoral priorities that have been singled out for OECD work and the findings of the sectoral work. The study suggested policy lessons in a number of areas, but the central, generalised challenges highlighted for OECD countries are considered to be: •

To ensure the fundamental enabling conditions of security and political stability.

•

To pay greater attention to the impacts of macroeconomic policies on developing country growth.

•

To increase both market access and capacity building for developing economies.

•

To assure government structures that help maintain financial stability.

•

To improve aid effectiveness and its complementarity with host country strategies and policies (Fukasaku et al., 2005). A series of regional studies of coherence are underway to focus on the impacts of OECD policies on Sub-Saharan Africa, Latin America and Asia and are being informed by country-specific cases. As part of the OECD’s evolving partnership with Africa, the Mutual Review of Development Effectiveness takes up a range of themes of mutual accountability between African and OECD countries, including policy coherence (ECA, OECD, 2005).


34 – Part I. Setting the Scene Box 6. The impacts of OECD cotton support policies on West Africa and Central Asia The horizontal PCD programme has stimulated a work-stream on cotton in the Sahel and West Africa Club (SWAC) of the OECD. Up to 3 million families in the region are estimated to produce cotton in West Africa and up to 16 million people are involved in some way in cotton production, processing and trade. The SWAC proceeded with an analysis of cotton production in the context of dynamic change in West African agriculture supplemented by extensive consultations with the economic agents involved. The results focus on the strategic importance of this sector in production and trade in West Africa and to the role of cotton in livelihoods and access to services. Despite the numerous consultations and international meetings since 2004 to help resolve the distortions created by high export and production subsidies to producers in OECD countries, the issue remains unresolved in the run-up to the WTO Hong Kong Ministerial. Consultations with a range of West African actors from producers, NGOs, governments, private sector representatives, and regional organisations showed strong consensus around the need for greater public awareness in wealthier nations of the importance of policy coherence in order to support development and poverty reduction efforts. They suggested that targeted protection and support may be needed for strategic commodities or sub-sectors such as cotton in order to support the development of West African agriculture and identify areas of comparative advantage in increasingly competitive markets. The use of WTO provisions for special and differential treatment may need to be applied in this situation. The development of regional markets and processing capacities is considered an important way forward (Sahel and West Africa Club Secretariat, 2005). In reviewing the impact and coherence of OECD country policies on Asian developing countries and the lessons for central Asia in particular, cotton stands out as the main channel through which OECD country policies have an economic impact on that region. The analysis finds OECD textile trade and farm support policies extremely harmful and considers that they significantly outweigh any developmental benefits from aid or other channels (Pomfret, 2005).

Monitoring and evaluation Through DAC peer reviews and the Mutual Review of Aid Effectiveness in the context of NEPAD, monitoring elements are in place for policy coherence. However, a more systematic monitoring system across countries, as well as an evaluation of efforts to date to improve PCD are warranted. A framework for such evaluation already exists (Picciotto, 2005b) and should be put into operation. In addition, the development of indicators and other quantitative tools would also be important and could raise the profile and impact of the work.

Concluding remarks: future challenges Much information is coming out of PCD work in the OECD and elsewhere. This initial analytical phase of work has been necessary and is already the basis for joint meetings of several policy communities. The policy lessons need to be synthesised from various streams of work and presented to policy makers in a concise, digestible fashion. This step will have the added advantage of helping think through the priorities for the next stages of work. Policy coherence in OECD countries can bear fruit only when developing countries have the capacity to respond. Regional and sectoral work-streams have repeatedly brought out this issue. Therefore, the scaling up of aid over the coming decade provides an opportunity to include capacity development as a central focus of coherence. The case for supporting aid for trade is being made in a forceful way and is likely to feature prominently at the WTO Ministerial meeting in Hong Kong. This is only one, albeit a most critical, area that needs long-term consistent focus on capacity development.



Coherence is most effective when it is practiced by both developing and developed countries in tandem. This has been brought out on numerous occasions by the developing country partners themselves. Any and all support from OECD countries and the OECD itself to achieve that will be a sound investment. As for new areas of work, the pressure must remain on trade and agriculture reforms by OECD member countries. Much remains to be done with respect to policy coherence issues related to several dimensions of migration. In the realm of anti-corruption, there are OECD country supply-side issues on which greater attention should be focused. With globalisation, there will continue to be increasing linkages and inter-linkages that will keep the coherence of policies between the wealthier and poorer countries in the spotlight.


36 – Part I. Setting the Scene

REFERENCES Barichello, R. (2005), “Economic Development and Poverty Reduction in East Asia: The Impact of OECD Country Policies”, in Fukasaku K., M. Kawai, M. G. Plummer and A. TrzeciakDuval (eds.) (2005), Policy Coherence Towards East Asia: Development Challenges for OECD Countries, Development Centre Studies, OECD Development Centre, Paris. ECA, OECD (2005), Development Effectiveness in Africa – Promise and Performance: Applying Mutual Accountability in Practice, A joint report by the ECA and the OECD at the request of the NEPAD Heads of State and Government Implementation Committee, Addis Ababa. Fukasaku, K., M. Kawai, M. G. Plummer and A. Trzeciak-Duval (2005), Policy Coherence Towards East Asia: Development Challenges for OECD Countries, Policy Brief No. 26, OECD Development Centre, Paris. Fukasaku K., M. Kawai, M. G. Plummer and A. Trzeciak-Duval (eds.) (2005), Policy Coherence Towards East Asia: Development Challenges for OECD Countries, Development Centre Studies, OECD Development Centre, Paris. Kapstein, E. (2005), “The Politics of Policy Coherence”, in OECD Fostering Development in a Global Economy: A Whole of Government Perspective, The Development Dimension series, OECD, Paris. OECD (2001), Poverty Reduction, The DAC Guidelines, OECD, Paris. OECD (2002), OECD Action for a Shared Development Agenda, Council Meeting at Ministerial Level, www.oecd.org/development/policycoherence. OECD (2003), Policy Coherence: Vital for Global Development, Policy Brief, July 2003, OECD, Paris. OECD (2004), Survey on Harmonisation www.oecd.org/dataoecd/31/37/33981948.pdf.

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OECD (2005a), Agriculture and Development: The Case for Policy Coherence, The Development Dimension series, OECD, Paris. OECD (2005b), Policy Coherence for Development: Promoting Institutional Good Practice, The Development Dimension series, OECD, Paris. OECD (2005c), Making Poverty Reduction Work: OECD’s Role in Development Partnership, OECD, Paris. OECD (2005d), Migration, Remittances and Economic Development, The Development Dimension series, OECD, Paris. OECD (2005e), Security System Reform and Governance, DAC Guidelines and Reference Series, OECD, Paris. OECD (forthcoming a), The Development Effectiveness of Food Aid: Does Tying Matter?, The Development Dimension series, OECD, Paris. OECD (forthcoming b), Miracle, Crisis and Beyond, A Synthesis of Policy Coherence Towards East Asia, The Development Dimension series, OECD, Paris. OECD (forthcoming c), Policy Coherence for Development in Fisheries, The Development Dimension series, OECD, Paris. OECD (forthcoming d), Bridge over Troubled Waters, Linking Climate Change and Development, OECD, Paris. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


Picciotto, R. (2005a), “Key Concepts, Central Issues”, in OECD (2005a), Fostering Development in a Global Economy: A Whole of Government Perspective, The Development Dimension series, OECD, Paris. Picciotto, R. (2005b), “Policy Coherence and Development Evaluation”, in OECD (2005a), Fostering Development in a Global Economy: A Whole of Government Perspective, The Development Dimension series, OECD, Paris. Pomfret, R. (2005), “The Impact and Coherence of OECD-Country Policies on Asian Developing Economies: Development Lessons for Central Asia”, in OECD (2005), Fukasaku, K., K. Kawai, M. Plummer and A. Trzeciak-Duval (eds.), Policy Coherence Towards East Asia: Development Challenges for OECD Countries, Development Centre Studies, OECD, Paris. Sahel and West Africa Club Secretariat (2005), “Economic and Social Importance of Cotton in West Africa: Role of Cotton in Regional Development, Trade and Livelihoods”, OECD, Paris.




Chapter 2. POLICY COHERENCE FOR DEVELOPMENT: ISSUES IN AGRICULTURE Alan Matthews and Thomas Giblin Institute for International Integration Studies, Trinity College Dublin Abstract This paper discusses issues raised for OECD agricultural and agriculture-related policies by the policy coherence for development perspective. These issues are organised in a five-fold typology covering OECD domestic agricultural policy, agricultural trade policy, regulatory policies, development co-operation policy as well as the coherence of developing country policies. Changes in OECD agricultural policy have varying impacts on different groups of developing countries, and on different groups within developing countries. The message for policy coherence for development analysis is that specifics count, and that impacts need to be assessed on a country-specific basis. Bringing a policy coherence perspective to the debates on OECD agricultural policy reform requires a careful classification of the various channels whereby developing countries are impacted by this reform, not least so as to identify ways in which development assistance can be used in order to maximise the opportunities it creates but also to help to mitigate adverse impacts where they occur. The paper concludes with a checklist of actions which might be taken by the development policy community to improve the coherence of agricultural and development policy with development objectives.

Introduction Policy coherence for development is a process whereby a government, in pursuing its domestic policy objectives, makes an effort to design policies that, at a minimum, avoid negative spillovers which could adversely affect the development prospects of poor countries and, more positively, seek to maximise synergies. This paper takes stock of the extent to which agriculture and agriculture-related policies of OECD countries are incoherent with their stated development objectives. Policy coherence is of particular importance in the case of agriculture, given the first Millennium Development Goal target of eradicating extreme poverty and hunger, and also in light of the fact that three quarters of the world’s poor live in rural areas. OECD agricultural policies have a significant impact on the trade and development opportunities available to developing countries, and it is important to bring a development perspective to the debates on OECD agricultural policy reform. This impact is a nuanced one. Changes in OECD agricultural policy have varying impacts on different groups of developing countries, and on different groups within developing countries. Bringing a policy coherence perspective to the debates on OECD agricultural policy reform requires a careful classification of the various channels through which developing countries are impacted by such reform, not only to identify ways in which development assistance can be used so as to maximise the opportunities it creates by agricultural policy reform but also to help mitigate adverse impacts where they occur.


40 – Part I. Setting the Scene This paper builds on an earlier overview paper prepared for the OECD Horizontal Project on Policy Coherence, Policy Coherence for Development: Issues in Agriculture (OECD, 2005). We first review the typology used in that paper to discuss agriculturerelated issues and policy coherence. We then draw some lessons based on empirical and other work in the literature concerning the relationship between OECD agricultural policies and development. Based on recent work we are conducting with partners in two African least developed countries, Tanzania and Uganda, we conclude with a checklist for development agencies wishing to pursue a policy coherence agenda with respect to agricultural policy.1

What we are discussing Table 1 presents a typology of agriculture and agricultural-related policies relevant to the policy coherence debate. Five policy domains are identified. Domestic agricultural policy objectives in OECD countries include those concerned with equity or distributional issues, such as support for the incomes of farm households, and those designed to correct market failures (OECD, 2003). Support for domestic agricultural production is also justified as a way of achieving social objectives such as the protection of family farming, the maintenance of a dispersed rural population or support for preserving the cultural heritage of farming areas. Many argue that these non-food outputs reflect the multifunctional nature of agricultural production. Social and income objectives of the agricultural sector in OECD countries have been addressed largely through market price support and, to a lesser extent, through income transfers. Market price support policies require that the domestic market is insulated from the world market. A country which seeks to maintain a domestic market price above the world market price will find it necessary to impose a trade barrier, as otherwise cheaper imports would undermine the domestic policy. Thus both trade and domestic policies designed to support agricultural output and incomes in OECD countries are jointly considered under the first policy domain. Table 1. Policy coherence between agriculture and development policies – a framework Policy actor

Policy domain

OECD countries

Domestic agricultural policy

OECD countries

Agricultural trade policy

OECD countries

Regulatory policies affecting agricultural production and trade Development co-operation policy Developing country policies concerning trade and agriculture

OECD countries Developing countries

Examples of policy instruments affecting agricultural development in developing countries Market price support, direct payments, export subsidies, income support, risk management measures, investment and structural adjustment assistance Regional trade agreements, trade preferences, tariff escalation, attitudes to developing country demands in international trade negotiations, international commodity agreements Non-tariff measures addressing food safety, food quality, environmental protection and conservation, intellectual property protection, geographical indications Development aid to the agricultural sector, food aid, trade capacitybuilding, trade compensation measures Agricultural trade policies, institutional reform, exchange rate policies, investment and infrastructure policies

Source: OECD, 2005.

1.

This project, the Policy Coherence project being carried out at the Institute for International Integration Studies at Trinity College Dublin, is supported by the Advisory Board for Development Cooperation Ireland. Further details at www.tcd.ie/iiis/policycoherence. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


Agricultural trade policy is the second policy domain where policy coherence issues arise. This recognises that agricultural trade policy is not only designed to play a supporting role to domestic agricultural policy, but may also be used to pursue other objectives. Trade policy may be used to promote regional integration objectives, as a development instrument through the award of trade preferences, or to protect the domestic food processing sector through tariff escalation. Trade policy is also concerned with the international architecture of trade rules. Policy coherence questions arise in examining the stance which OECD countries take in international trade negotiations on agricultural trade issues of relevance to developing countries, or with respect to problems in international commodity markets and the difficulties these cause for commoditydependent developing countries. This is the ‘foreign policy’ aspect of agricultural trade policy, as distinct from its use as an adjunct to domestic agricultural policy which is discussed in the first domain. A characteristic of OECD country food systems is the growing importance of regulatory interventions aimed at ensuring food safety, consumer protection, environmental protection and intellectual property protection. The requirement to meet specific regulatory standards before a product can be sold on the domestic market is not usually aimed specifically at imported products. Nonetheless, even where this is not the case, standards have an indirect influence on agricultural output and trade. Policy coherence analysis must take account of the growing importance of these non-tariff measures in OECD countries and their implications for development. The fourth relevant OECD policy domain is development co-operation policy and the extent to which it is used to help minimise conflicts and maximise synergies between agricultural policy reform and development objectives. To what extent does development co-operation policy provide support for the agricultural sectors of developing countries in helping them integrate with global markets? PCD issues here include the magnitude of aid flows to promote agriculture in developing countries, aid co-ordination and the role of specific types of aid flows such as food aid and trade capacity-building. Another relevant issue in this context is potential compensation measures to address problems of preference erosion arising from agricultural policy reform. Finally, policy coherence also places an obligation on developing countries to pursue policies which take advantage of the opportunities that arise as OECD countries improve the developmental coherence of their own policies. The need to ensure adequate incentives for farm production, to provide adequate budgetary support for growthpromoting agricultural policies and rural infrastructure, to pursue consistent agricultural and agricultural trade policies, and to support institutional development and involving the private sector and civil society in decision-making are relevant issues to consider in this context.

Channels of impact Policy coherence analysis in agriculture requires an understanding of the ways in which OECD agricultural policy impacts developing countries. The primary mechanism is through the world market impacts of the policy, particularly through the level and stability of world prices. World price changes influence the terms of trade of developing countries, and will have an initial positive or negative impact depending on whether these countries are net exporters or importers of the product in question. Further indirect effects will occur as these changes in border prices are translated through national trade policies TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

42 – Part I. Setting the Scene and the domestic marketing system into changes in domestic market prices for producers and consumers. In turn, through consequential changes in factor market conditions resulting from the impact of the reforms, and by decisions made by the government on how it responds to changes in its revenue base. Households will be affected by these domestic price changes depending on whether they are net producers or net consumers of these commodities. These channels are summarised in Figure 1 and provide the framework for the analysis which follows. Figure 1. Analysing the impact of OECD agricultural policy reform on developing countries

Source: Adapted from Brooks, 2003.

The status of agricultural policy Any discussion of policy coherence for development and agricultural policy must begin from an analysis of OECD agricultural policy and how it is changing over time. OECD has developed the PSE/CSE methodology to provide a summary indicator of the magnitude of policy interventions in agriculture. Transfers to farmers since the mid-1980s have changed relatively little in absolute terms but have declined when expressed as a proportion of the value of agricultural output.



Table 2. OECD indicators of support to agriculture Indicator PSE Billion USD Percentage PSE CSE Percentage CSE NPC (producer) NAC (producer) TSE Billion USD Percentage TSE in GDP

1986-88

1993-95

2002-04

243 37

269 33

254 30

-32 1.57 1.60

-26 1.40 1.50

-21 1.29 1.44

306 2.3

364 1.7

346 1.2

Source: OECD PSE/CSE database, Paris, 2005.

Looking only at the magnitude of PSE transfers is not necessarily a good measure of their trade-distorting effect. Transfers are generated by a wide variety of policies, some of which impact trade opportunities more than others. This is recognised in the WTO Agreement on Agriculture in the distinction between amber, blue and green box policies. Market price support is generally recognised as the most trade-distorting element in the PSE. OECD countries have been gradually changing their policies in a less tradedistorting direction. Nonetheless, market price support still constitutes 60% of the total support provided to OECD farmers (Figure 2). Figure 2. Changing composition of OECD producer support

Source: OECD, PSE/CSE database, Paris, 2005.

Developing country impacts of OECD agricultural country policies It is then an empirical question to determine the impact which these domestic OECD transfers have on developing countries. There is now a wealth of empirical studies available which have tried to analyse these effects (see Charlton and Stiglitz, 2004 for studies up to 2003, and Ackerman, 2005 for a review of more recent GTAP and World Bank results) All studies agree that the removal of trade-distorting agricultural policies TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

44 – Part I. Setting the Scene would generate global welfare gains, but two conclusions can be highlighted here. First, differences in model methodologies, assumptions, parameter estimates and policy simulations mean that there is considerable variation in the estimates obtained. One exercise undertaken by the World Bank modelling team illustrates the fragility of these estimates and the difficulty which policy makers have in interpreting them. Five scenarios were run using the same database but with varying model assumptions. The initial scenario, the 2015 base case, compares the results in 2015 from a base run using the Bank’s dynamic computable general equilibrium (CGE) LINKAGE model with a scenario in which all support to agricultural production is eliminated. Because the global economy in 2015 will be approximately one-third bigger than in 2001, scaling back these effects to the impact such a scenario would have in 2001 reduces these estimates. Removing the dynamic element of the model eliminates the cumulative reinvestment from a larger economy each year and further reduces the estimated impact. Replacing the behavioural and trade elasticities used in the base case by those recommended for use in the GTAP model, a widely-used CGE model for trade policy analysis, results in a further reduction. Finally, making the assumption that all factors including land are fixed and using the GTAP elasticities produces the lowest estimate of global welfare gains, and the estimated impacts on Sub-Saharan Africa turn negative. Table 3. Effect of varying model assumptions on welfare gains from global merchandise trade liberalisation USD billion World Dev countries Sub-Saharan Africa South Africa Selected SSA countries Rest of SSA

2015 Base case

2001 Scaled dynamics

287.3 85.7 4.8 1.3 1.0 2.5

156.4 43.9 2.8 0.8 0.6 1.4

2001 Comparative static 127.4 23.7 0.7 0.7 0.3 -0.2

GTAP elasticities 88.5 10.6 0.2 0.5 0.4 -0.6

GTAP elasticities + fixed land 77.8 2.0 -0.1 0.4 0.3 -0.8

Source: Anderson, Martin and Van der Mensbrugge, 2005.

Second, more recent estimates of global gains tend to be more modest than earlier ones. For example, early World Bank numbers based on dynamic as well as static gains suggested overall gains from agricultural trade liberalisation of USD 280-630 billion of which USD 110-250 billion would accrue to developing countries (World Bank, 2003). This compares to more recent World Bank estimates of USD 182 billion of which USD 56 billion would accrue to developing countries (Anderson et al., 2005) and lower estimates from the GTAP model of USD 56 billion of which just USD 12 billion would accrue to developing countries (Hertel and Keeney, 2006). The lower estimates come about because some liberalisation occurred following the Uruguay Round Agreement on Agriculture; because studies now use applied tariff rates which are often much lower than bound tariffs; and because studies now take better account of agricultural trade under preferences. Furthermore, we should be careful to avoid the fallacy of identifying the potential gains of developing countries from agricultural trade liberalisation with the damage caused by OECD agricultural policies. All studies agree that the main beneficiaries from agricultural policy reform are the countries which undertake the reform. Developing countries provide high levels of nominal support to their agricultural sectors, and much of the estimated gain from reform comes from their own liberalisation. The direct impact of TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


OECD agricultural policy reform on these countries is more modest. In the more recent World Bank study, developing countries gain USD 26 billion from OECD agricultural policy reform alone, just half of the overall gain they would get from global agricultural trade liberalisation (Anderson et al., 2005). Hertel and Keeney (2006) using the GTAP model without dynamics find a figure of USD 9.5 billion as the damage to developing countries caused by the all OECD agricultural policies.2 These figures compare to net ODA flows of around USD 60 billion, and aid to agriculture in 2003 of USD 3.9 billion (OECD, 2005). Figure 1 highlighted that the primary way in which OECD country agricultural policies affect developing countries is through their impact on the level and stability of world agricultural prices. If developing countries with a comparative advantage in producing those products protected in OECD countries are to gain substantially, then OECD agricultural policy reform should lead to a significant increase in world market prices for agricultural products. Very few studies report directly the impact of OECD country agricultural policy reform on world prices. Examining the predicted impact of global agricultural policy reform (that is, including liberalisation by developing countries themselves) reveals large variation in projected world price changes (see Table A1-D in Morrissey et al., 2005). The results of the study by Bouet et al. (2005), albeit reporting only a partial liberalisation, suggest that the changes may not be that significant for most commodities. This is not to argue that agricultural policy reform is not worth pursuing, but it does suggest that, for developing countries in aggregate, unrealistic expectations have built up regarding the likely benefits of more open OECD agricultural markets.

Gainers and losers These aggregate results reported for developing countries as a whole conceal the fact that the impact of OECD agricultural policy reform will be felt very unevenly among these countries. The main gainers will be competitive agricultural exporters (such as Brazil, Argentina, Thailand, China) while least developed countries are likely to lose out and may be made worse off as a result of reform, for two reasons – they are largely net importers of commodities protected by OECD agricultural policy, and those countries which are exporters often benefit from preferential access to OECD country markets, the value of which will be eroded by further trade liberalisation (see Panagariya, 2005 for a trenchant critique of the argument that OECD country agricultural protectionism hurts the poorest countries most and that it is the principal barrier to the latter’s development). The importance of preferences is demonstrated in Table 4 which shows average applied bilateral tariffs between different country groups. Applied tariffs on imports from Sub-Saharan Africa (and, in the case of the EU, for imports from Mediterranean countries) are less than half those applied to imports from other countries. Preferences are often criticised as being of little use to developing countries. However, agricultural preferences are well used, and confer benefits of two kinds. One kind is a competitive advantage in OECD markets vis-à-vis other suppliers. The other – and more important – kind is the possibility of obtaining rents. This is the most important effect of quotaconstrained access where there is no possibility of additional trade creation. These rents are, in effect, a form of trade-tied aid. However, while it is wrong to overlook the gains some developing countries derive from preferences, they cannot be an alternative to a 2.

This estimate is very consistent with those from previous studies quoted in Matthews, 2005a.


46 – Part I. Setting the Scene multilateral reduction in trade barriers. They are fundamentally a short-term solution, often benefit an arbitrary group of countries and, by locking countries into uncompetitive lines of production, may have detrimental impacts on them in the long run. Preference erosion is not the only reason why some developing countries may lose from further agricultural trade liberalisation. Net food-importing countries are also vulnerable and there is a need to address their concerns. Putting teeth into the Marrakesh Decision is one possible route. Making a commitment to the world’s poorest countries that their food import needs would be met and that their import bills are kept under control would remove one real source of concern that developing countries have about embarking on further trade liberalisation. Table 4. Average applied bilateral tariffs, agricultural sector, per cent, 2001 Tariffs applied by → Applied to ↓ EU25 US Asia developed Cairns developed Mediterranean Sub-Saharan Africa Cairns developing China South Asia Rest of World Average

EU25

US

Asia developed

Cairns developed

16.2 12.5 25.9 7.3 6.7 18.3 13.5 14.4 15.1 16.7

5.8 3.7 3.4 4.0 3.0 3.8 5.1 1.8 2.1 4.7

22.2 28.9 24.9 14.1 12.0 24.0 21.7 33.7 17.4 22.5

15.7 5.1 6.2 3.7 0.7 5.9 8.7 1.8 2.6 10.8

Source: Bouet et al., 2005.

These concerns can be illustrated by examining the likely impact of OECD country liberalisation on some Sub-Saharan African countries. Six countries which are programme countries for Development Co-operation Ireland (DCI) are selected: Ethiopia, Uganda, Tanzania, Zambia, Mozambique and Lesotho (referred to as DCI programme countries in the Figures below). Figures 3 and 4 illustrate the composition of their food trade with the EU-15, which is their major market although it does not represent all their trade. Fully three-quarters of their food exports comprise tropical beverages and fish, both of which are exported free of duty to the EU with the aid of a preferential margin against third country exporters. Almost half of their imports are cereals or cereal products, whose price is projected to increase following OECD agricultural policy reform.



Figure 3. EU-15 imports from the DCI programme countries by value, 1995-2003 average

Source: Chaplin and Matthews, 2006, based on Eurostat.

Figure 4. Distribution EU-15 exports to DCI countries by product for the period 1995-2003 RESIDUES AND WASTE TOBACCO ETC 1% LIVE ANIMALS 4% MISCELLANEOUS 1% BLE PREPARATIONS COTTON 9% 1% BEVERAGES 13%

EDIBLE ANIMAL PRODUCTS 5% EDIBLE VEGETABLES 1%

CEREALS 31%

PREPARATIONS OF VEGETABLES 3% PREPARATIONS OF CEREALS 5% SUGARS AND CONFECTIONERY 2%

OIL SEEDS ETC 2%

MILLING INDUSTRY PRODUCTS 14%

ANIMAL OR VEGETABLE FATS AND OILS 6%

Source: Chaplin and Matthews, 2006, based on Eurostat.

It is thus not hard to understand that these countries have little to gain and indeed much to lose from OECD agricultural trade liberalisation. Table 5 presents the results of a specific simulation of the Harbinson proposals using the ATPSM model.3 This exempted least developed countries such as Tanzania and Uganda from making tariff reductions and thus the results represent the impact of OECD plus developing country liberalisation on these two countries. The figures suggest that, overall, partial agricultural liberalisation will have little overall impact one way or the other on these countries. Indeed, as the ATPSM model cannot take account of preferences, the outcome in practice is more likely 3.

ATPSM, the Agricultural Trade Policy Simulation Model, was jointly developed by UNCTAD and FAO. Details can be found on the UNCTAD ATPSM website http://192.91.247.38/tab/ATPSMabout.asp.


48 – Part I. Setting the Scene to be negative than positive. For the rest of Sub-Saharan Africa, the simulations are even more definite that this is the more likely outcome. Table 5. Welfare effects of the Harbinson proposal, USD million

Producer surplus Consumer surplus Government revenue Total welfare

EU -41 258 +27 834 +20 462 +7 038

US -2 293 +106 +2 050 -136

Tanzania +47 -53 0.8 -6

Uganda +42 -42 0.2 0

Rest of SSA +656 -992 -9 -345

Source: Giblin and Matthews, 2005.

Poverty impacts Just examining the aggregate welfare impacts on developing countries may underestimate the impact which OECD agricultural policy reform might have on poverty in these countries. As is clear from Table 5, aggregate impacts net out the gains to producers and losses to consumers from higher farm prices. These distributional effects of trade liberalisation are usually far greater than the aggregate impacts, whether in OECD countries or in the developing world. Where poverty is concentrated among rural food producers, as in much of Africa, it might be expected that OECD agricultural trade liberalisation will have a pro-poor effect. However, this may not be the case, if there is also preference erosion which hurts rural producers. As importers of supported products, these producers also have the option of using tariff protection to capture the benefits of cheaper food imports (to increase government revenue) while protecting the incomes of the rural poor. Also, in many least developed countries, poor market infrastructure means that border price changes never get transmitted to the rural poor in the first place. The immediate poverty impacts in middle-income countries are also ambiguous – may of the poor are urban food consumers who also may pay a higher price for their food. Agricultural structures in middle-income countries are also more differentiated, with a greater concentration of production on larger holdings. Thus, a large part of the benefits of higher world prices may go to larger landowners. The longer-term impacts will depend, in part, on how once the economy has become more buoyant, the government distributes additional resources. Empirical attempts to quantify the poverty effects of trade liberalisation are still relatively recent (see Hertel and Winters, 2005 for a comprehensive discussion and series of case studies, and Ackerman, 2005 for a critique of one of these studies). Hertel and Winters find mixed outcomes for their near term analyses, with poverty rising in some cases and falling in others. The largest poverty reductions, in both absolute and relative terms, are in countries with agricultural export potential to the markets which liberalise most (i.e. East Asia and Europe). On the other hand, they find that poverty tends to increase in countries which are net importers of agricultural products and which may presently benefit from preferential market access. The message for policy coherence analysis is that specifics count, and that impacts need to be assessed on a country-bycountry basis.

Sequencing of reform Given the potentially conflicting nature of OECD agricultural policy reform for developing countries, it is worth asking whether it is possible to identify particular policy TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


measures or particular commodities where the development pay-off is highest and to seek to accelerate these reforms. It is striking, for example, how virtually all developing countries condemn export subsidies even where, based on narrow economic analysis, subsidised exports would appear to benefit net-importing countries. On a commodity basis, it would be useful to rank commodities according to the absolute levels of damage caused by OECD agricultural policies although few studies report their results in this way. The scope for influencing the sequencing of reforms in multilateral trade negotiations where the modalities are based on formula reductions may be limited, but there are exceptions. For example, the WTO July 2004 Framework Agreement reiterates the call for ‘full implementation of the long-standing commitment to achieve the fullest liberalisation of trade in tropical agricultural products and for products of particular importance to the diversification of production from the growing of illicit narcotic crops’. Another important example is the Cotton Initiative. This follows the proposal made by four West African cotton producing countries to the WTO in May 2003 seeking a system for the reduction with a view to the elimination of cotton subsidies and compensation for LDC cotton producers while the subsidies remain in place. Among the proposals under consideration are an earlier elimination of export subsidies and reduction of domestic support in the particular case of cotton as opposed to a reduction on support for other agricultural products under the terms of any Doha Round agreement. The negotiations on this issue are being guided by the July 2004 Framework Agreement commitment that “Cotton” will be addressed ambitiously, expeditiously, and specifically, within the agriculture negotiations’.

Regulatory barriers As traditional trade barriers are reduced, regulatory barriers are on the increase and may now be more important obstacles to increased food exports from developing countries. Consumers are demanding higher food safety standards and importing countries impose detailed sanitary and phytosanitary (SPS) protection measures in order to secure human, animal and plant health. Developing countries will be expected to meet these standards like other exporters. The WTO’s Agreement on Sanitary and Phytosanitary Standards (SPS) is designed to reduce the trade-distorting effects of SPS measures, but many developing countries have concerns about the way in which the agreement has been implemented to date. Particular concerns are that developed countries take insufficient account of the needs of developing countries when setting SPS requirements, that insufficient time is allowed between the notification and implementation of SPS requirements, and that insufficient technical assistance is given to developing countries (Henson et al., 2002). Regulatory authorities should be made aware of developing country perspectives in the design of food safety, environmental protection, consumer protection and intellectual property protection measures. For example, the sheer complexity of regulations may itself be an important factor, and it may be possible to guarantee the same outcomes for human, animal and plant health with more transparent legislation. While it will be important to monitor the use or abuse of regulations for protectionist purposes, the longer term objective must be to assist developing countries in reaching a position where they can meet the requirements of ever more demanding consumers. Increasingly, food standards are set by private agents (supermarket buyers) rather than by governments. Preferred and exclusive partnerships (based on trust and audits) between supply chain partners are increasing. Chain transparency, including tracking and TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

50 – Part I. Setting the Scene tracing systems, is increasingly required both to safeguard consumer health and safety of food, as well as to use as a marketing tool to maintain consumer trust and confidence in a brand name. For developing countries, meeting these standards requires investment in education, infrastructure, and hardware. The additional costs of audit and certification can be substantial, especially if they have to be carried out by foreign experts. The move to preferred suppliers may favour those developing countries with more advanced infrastructure, making it even more difficult for new entrants and less advantaged developing countries.

Development co-operation policy Examination of trade statistics often reveals that developing countries do not appear to be taking advantage of market access opportunities which are open to them. Developing countries with preferential access to an OECD country export market often appear to lose market share to their less preferred competitors. Thus, even where poorer countries gain market access opportunities, turning these opportunities into additional trade flows will require support. Furthermore, where countries or population groups within countries may be potential losers, for example, from the unravelling of preferential access arrangements, there is a need to find ways to compensate them or to assist them to diversify. Awareness of these issues has led to a growing interest in trade-related development assistance (TRA). TRA covers four categories of actions: assistance for trade policy formulation and participation in negotiations, assistance for trade development including actions aiming at relieving supply side constraints which prevent developing countries from exploiting their international trading potential, assistance for trade adjustment, including measures to mitigate the adjustment costs of trade liberalisation, and assistance to support trade-related infrastructure. The WTO July 2004 Framework Agreement reiterated the need to further increase TRA. OECD countries have indicated their support for this objective at various opportunities, including at the G8 Summit in Gleneagles in July 2005 and at the Development Committee meeting of the IMF and World Bank in September 2005. The WTO Hong Kong Ministerial Declaration in December 2005 invited the Director-General to create a task force that shall provide recommendations on how to operationalise Aid for Trade (WTO WT/MIN(05)/W/3/Rev.2). Despite these positive signs, questions remain about the extent of the coherence between aid and trade in agriculture. The global volume of assistance to agriculture in 2002 (expressed in 2002 prices) was at its lowest level for the past thirty years even if it recovered somewhat to EUR 2.9 billion (in 2002 prices) in 2003 (Matthews, 2005). Greater priority for assistance to global public goods important for the livelihoods of poor people is warranted, such as generating productive new technologies for the sustainable management of land and water, forest and marine resources; controlling trans-boundary pests and diseases; conserving agro-biodiversity and rehabilitating degraded lands. New and more innovative ways of providing aid to agricultural sector development need to be created, including through involving the private sector and voluntary groups. Under the SPS Agreement, developed countries are to provide technical assistance to developing countries, to help them meet SPS requirements, but there is some evidence that this aid is poorly focused (Wiig and Kolstad, 2005). Assistance for trade adjustment, especially where this is due to preference erosion, is also contentious. One issue in this debate is whether the provision of compensation for TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


preference erosion is a bilateral or multilateral responsibility. Because the most important preferences originate in unilateral trade policy decisions by OECD countries, it is argued that it is up to those countries responsible for preference erosion to bear the burden of offsetting it. On the other hand, because trade liberalisation is a global public good, proposals have also been put forward for a multilateral preference erosion compensation fund. These issues have a particular resonance in the policy coherence and agriculture debate because the existence of tariff peaks makes preferences in this sector particularly valuable.

Developing country policy coherence Developing countries too have a responsibility to ensure that their domestic policies are consistent with the Millennium Development Goal objectives and to facilitate adequate supply responses. Specifically, in the case of agriculture, this requires developing countries to follow consistent and credible economic policies which encourage private investment, to adopt trade policies that are not biased against primary production and exports, and to make the public investment in infrastructure, technical development, and credit which is necessary for modernising production and improving competitiveness. Much progress has been made in reducing the negative bias against agriculture in macroeconomic and trade policies, but it still does not get the attention it deserves as the main source of livelihoods for poor people, particularly in the world’s poorest countries. Government investment in agriculture as a percentage of GDP remains very low in many developing countries.

Policy coherence analysis for agriculture Based on ongoing research to investigate the impact of EU and OECD agricultural policy reform on the six partner countries of Ireland’s aid programme in Sub-Saharan Africa, the following checklist of actions is suggested to the development policy community seeking to bring about greater policy coherence between domestic agricultural policy and development objectives. 1.

Create institutional mechanisms to ensure that the development perspective is taken into account when agricultural policy or policy reform is being formulated. As the discussion in this paper makes clear, this means more than links with agricultural Ministries, but also requires links with trade ministries and agencies concerned with setting and monitoring food safety standards, intellectual property rights issues, and environmental protection.

2.

Undertake empirical study of the impacts of higher world food prices for the developing country partners of your development assistance programme. While the more sophisticated studies now use general equilibrium modelling for this purpose, for policy purposes it may often be sufficient to adopt a more direct and transparent approach using partial equilibrium modelling or even impact analysis applying price changes derived from published studies.

3.

Trace through the likely impact of border price changes on the distribution of rents among developing country partners. Our research in Tanzania and Uganda shows that there is very limited price transmission of border prices to domestic farm gate and consumer prices within these countries, suggesting that changes in world prices are absorbed in the marketing chain. Thus the initial impacts on producer and consumer


52 – Part I. Setting the Scene surplus, as shown in Table 5, would need to be modified to take into account the way in which changes in border prices are dissipated along the marketing chain. 4.

Examine the feasibility of potential export increases in the light of known SPS barriers. For example, projected livestock or meat export increases to high-value markets may not be feasible if the country’s disease status does not allow it. This may suggest measures to relax these constraints, for example, by assisting in disease eradication, or by helping to upgrade slaughtering capacity to meet OECD country standards.

5.

Undertake a poverty profile using household budget survey data to identify the households and producers likely to be affected by the modified agricultural price changes. Commodity price changes from published studies will provide some of the required data to estimate the impacts on consumption bundles, but poverty researchers stress in addition the importance of factor market changes and changes in government revenue which will usually require output from general equilibrium models. The purpose of the poverty profile is to identify households which are specialised in producing particular crop combinations or in consuming food products likely to be affected either positively or negatively by agricultural policy reform.

6.

Trade-proofing of development assistance activities in relation to the impacts of agricultural policy reform. What investments need to be supported if the recipient country is to be helped to take advantage of new trade opportunities? Is there a need to strengthen social safety nets to prevent an increase in the number of households living in poverty? How is policy dialogue with recipient countries being used to encourage aid recipients to develop policies more coherent with the new trading environment?



REFERENCES Ackerman, F (2005), “The Shrinking Gains from Trade: A Critical Assessment of Doha Round Projections”, Global Development and Environment Institute Working Paper No. 05-01, Tufts University. Anderson, K., W. Martin and D. Van der Mensbrugge (2005), “Would Multilateral Trade Reform Benefit Sub-Saharan Africans?”, CEPR Discussion Paper No. 5049, London. Bouët, A., J.C. Bureau, Y. Decreux and S. Jean (2004), “Multilateral Agricultural Trade Liberalization: The Contrasting Fortunes of Developing Countries in the Doha Round”, CEPII Working Paper No. 2004-18, Paris. Brooks, J. (2003), “Overview Paper: Agricultural Trade Reform, Adjustment and Poverty: Mapping the Linkages”, in OECD, Agricultural Trade and Poverty: Making Policy Analysis Count, OECD, Paris. Bureau, J.C., S. Jean and A. Matthews (2005), “The Consequences of Agricultural Trade Liberalization for Developing Countries: Distinguishing Between Genuine Benefits and False Hopes”, CEPII Working Paper, No. 2005-13, forthcoming in World Trade Review. Chaplin, H. and A. Matthews (2006), “Food Trade with Ireland’s Development Assistance Priority Countries”, IIIS Discussion Paper, Trinity College Dublin. Charlton, A. and J. Stiglitz (2004), “A Development-Friendly Prioritization of Doha Round Proposals”, Working Paper, Initiative for Policy Dialogue, New York and Oxford. Giblin, T. and A. Matthews (2005), “Global and EU Agricultural Trade Reform: What is in it for Tanzania, Uganda and Sub-Saharan Africa?”, IIIS Discussion Paper No. 74, Trinity College Dublin. Henson, S.J., R.J. Loader, A. Swinbank, M. Bredahl and N. Lux (2002), Impact of Sanitary and Phytosanitary Measures on Developing Countries, Centre for Food Economics Research, University of Reading, UK. Hertel, T. and A. Winters (2005), Poverty Impacts of a WTO Agreement, World Bank, Washington, DC. Hertel, T. and R. Keeney (2006), “What Is at Stake: The Relative Importance of Import Barriers, Export Subsidies, and Domestic Support”, in Anderson, K. and W. Martin, eds., Agricultural Trade Reform and the Doha Development Agenda, Palgrave Macmillan, New York and the World Bank, Washington, DC. Matthews, A. (2005), “Development Assistance to Agriculture: Can the Decline be Reversed?”, Eurochoices, 4, 1, pp. 24-25. Morrissey, O., D. Willem te Velde, I. Gillson and S. Wiggins (2005), Sustainability Impact Assessment of Proposed WTO Negotiations, Mid-Term Report for the Agriculture Sector Study, London, Overseas Development Institute in association with the International Institute for Environment and Development and the Institute for Development Policy and Management, University of Manchester. OECD (2003), Agricultural Policies in OECD Countries: A Positive Reform Agenda, OECD, Paris. OECD (2005), Policy Coherence for Development: Issues in Agriculture: An Overview, OECD, Paris.


54 – Part I. Setting the Scene Panagariya, A. (2005), “Agricultural Liberalisation and the Least Developed Countries: Six Fallacies”, The World Economy, pp. 1277-1299. Wiig, A. and I. Kolstad (2005), “Lowering Barriers to Agricultural Exports Through Technical Assistance”, Food Policy, 30, pp. 185–204. World Bank (2003), Global Economic Prospects, World Bank, Washington, DC.



Chapter 3. POLICY COHERENCE FOR DEVELOPMENT: MAKING IT WORK Pertti Majanen Finnish Ambassador to the OECD Abstract In today’s world, people and states depend upon each other and influence each other’s well-being in many different ways. As a responsible member of the international community, Finland promotes development and a more equitable division of the benefits of globalisation. Developing countries themselves bear primary responsibility for their own development. However, developed countries have an important role to play in this regard as well. Joint commitment to poverty reduction means that that the policies of industrialised countries will have to be considered in a more comprehensive manner. The main goal of Finland’s development policy is to contribute to the eradication of extreme poverty worldwide. These activities address policy coherence in the areas of development and trade policies, development and environmental policies and development and agricultural policies. Activities that help to achieve these goals also include the promotion of equality, human rights, democracy and good governance as well as increasing worldwide security and economic interaction, which originally became part of Finland’s policy in development co-operation during the 1990s. Part of Finland’s development policy is also to strengthen the multilateral system, to increase the operational capabilities and to improve the opportunities of developing countries to have an impact. To achieve these goals, work will be required in Finland, in the partner countries and within the EU, the UN and other international forums. The Finnish Ministry for Foreign Affairs has overall responsibility for implementing the policy and for the co-ordination this necessitates. Other key parties are also involved, including various other ministries, government agencies and institutions as well as the private sector and NGOs. Continuous and comprehensive monitoring and evaluation are needed to implement the policy.

The development policy of Finland - focus on coherence Common goals for the common good In today’s world, people and states depend on each other and influence each other’s well-being in many different ways. As a responsible member of the international community, Finland promotes development and a more equitable division of the benefits of globalisation. This is our responsibility, but in this way we also construct the security, economic growth and the fundamental well-being of our own society. Since the beginning of the 1990s, the international community has been shaping a common understanding of development problems and of the means to solve them. This process culminated in the UN Millennium Summit and the resulting Millennium Declaration. The WTO’s Doha ministerial meeting, the Monterrey International Conference on Financing for Development and the Johannesburg World Summit on TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

56 – Part I. Setting the Scene Sustainable Development as well as New York World Summit 2005 further specified common goals and means and promoted the implementation of the Millennium Declaration. Developing countries themselves bear primary responsibility for their own development. The Monterrey Conference examined financing for development in a more comprehensive perspective than before. Development financing includes developing countries’ domestic financing, private sector investment, trade, the question of debt, and conventional development co-operation funding. At Monterrey, the developing countries committed themselves to economic and political reforms, and the industrialised countries, on their part, to improving access to markets for developing countries’ products, to resolving the debt problem and to increasing development aid. Joint commitment to the reduction of poverty means that the policies of the industrialised countries will have to be considered in a more comprehensive manner. New types of international indicators are being developed in order to compare different countries. This comparison is based on factors such as the level of development aid and the harmonisation of procedures, trade with developing countries, investments in developing countries, protection of the environment, immigration policy and contributions to the promotion of peace and security.

New concept of development policy Development policy refers to coherent activity in all sectors of international cooperation and national policy that have an impact on the status of developing countries, including security, human rights, trade, environment, agriculture and forestry, education, health and social, immigration, and information society policies. Development co-operation is a key instrument of development policy. It can be used to promote the strengthening of an environment conducive to development in the poorest countries in order to improve the premises for investments and trade and to achieve economic growth.

The following are the main principles of the new development policy: •

Commitment to the values and goals of the UN Millennium Declaration.

•

Broad national commitment and coherence in all policy areas.

•

Commitment to a rights based approach. This means that the realisation of the rights of the individual as defined by international human rights agreements is taken as the starting point in Finland’s development policy.

•

The principle of sustainable development.

•

The concept of comprehensive financing for development.

•

Partnerships for development. Partnerships based on participation by the public and private sectors and civil society, both at the national level and internationally, are a sine qua non for development.

•

Respect for the integrity and responsibility of the developing countries and their people. States themselves bear responsibility for their own development. Finland’s contributions are directed towards supporting each country’s own efforts.



•

Long-term commitment and transparency. Finland adopts predictable long-term solutions, and communicates all activities and plans in a transparent manner. This applies both to the financing and the contents of policy. Finland uses the instruments of development co-operation, trade and security policy, as well as other national policies in a coherent manner. The activities of the public sector alone are not sufficient; there is also a need for co-operation and partnerships with the private sector, civil society, expert organisations and interest groups. Finnish people give their strong support to improving the circumstances of people in developing countries. The best way to ensure this support also in the future is to continue to improve the quality, efficiency and effectiveness of Finnish development policy. The foremost threats to security today are armed conflicts, crises and instability with all the eventual repercussions; terrorism, the spread of weapons of mass destruction, cross border crime, drugs, HIV/AIDS, environmental destruction and uncontrolled migration. Development policy instruments can be used to help avert these threats. In line with the Government Programme, Finland seeks to take the interests of developing countries better into consideration in the WTO’s Doha round of trade negotiations, while also seeking to promote the position of developing countries with the instruments of trade policy. Trade is important for economic growth in developing countries, and thereby for the reduction of poverty. In bilateral and multilateral cooperation Finland stresses that improving the necessary conditions for trade should be one of the main components of poverty reduction strategies. All this is also in Finland’s own long-term trade interests.

Finland’s responsibility and goals The main goal of Finland’s development policy is to contribute to the eradication of extreme poverty from the world. Activities that help to achieve this goal include prevention of environmental threats; promotion of equality, human rights, democracy and good governance as well as increasing worldwide security and economic interaction, which originally became part of Finland’s policy in development co-operation in the 1990s. Finland is committed to a rights based approach and to the principles of sustainable development in its development policy. Finland bears its own share of the responsibility for creating the global partnership called for by the Millennium Declaration, in which developing countries are committed to the reduction of poverty and in which they themselves bear the main responsibility for developing their own societies, while industrialised countries are committed to supporting this process by means such as development aid, trade and private sector investment.

Thus, in practice, the Government of Finland will: •

Increase funds for development co-operation in accordance with its programme so that based on the present estimation of national income growth, they will be at the level of about 0.44% of GNI in 2007.

•

Develop the content, quality and administrative framework of development cooperation so that it will be possible to achieve a level of 0.7% of GNI by 2010.

•

Increase the efficiency, effectiveness and impact of development co-operation by concentrating activities and working for the harmonisation of donor procedures.


58 – Part I. Setting the Scene •

Encourage people in Finland to support the values and goals of the Millennium Declaration and the fulfilment of Finland’s obligations.

•

Promote economic growth in developing countries together with an equitable distribution of income.

•

Support endeavours to help the poorest developing countries gain influence in international forums, particularly emphasising co-operation with African countries.

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Work to strengthen the multilateral system and to increase the effectiveness of the UN.

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In accordance with the Government Programme, give more consideration to the interests of the developing countries in WTO trade negotiations and help to enhance the developing countries’ bargaining position by improving their trading capacity and promoting the inclusion of trade issues in their own poverty reduction strategies.

•

Support the effective implementation of debt management programmes for developing countries, with special interest in ensuring the sustainability of debt and aid received by developing countries.

•

Improve co-operation between public institutions in Finland to increase the coherence and effectiveness of Finland’s development policy.

•

Urge Finnish companies to participate in achieving the Millennium Development Goals, and encourage them to direct their interests and activities towards the poorest developing countries, and, with a view to this, promote co-operation and partnerships between the public and private sectors.

•

Promote the access of developing countries to new technologies including information technologies, and identify, together with the private sector, solutions in information and communications technologies which are appropriate for the poorest developing countries.

Finland’s strengths and the focus of activities Our own experience of the development of Finnish society in five decades from a poor country with small production capacity, and recovering from two wars, into one of the world’s most competitive welfare and information societies, also provides a firm foundation for involvement in international development policies. Finns have learned that security and stability, both inside the country and in the surrounding regions, are prerequisites for development. Respect for human rights, democracy and good governance create a social environment that enables well-balanced development. Equal participation of women and men in the functions of society are important contributors to our own success, as is care for the environment. Responsible economic growth led by the private sector in conjunction with an equitable distribution of income provides society and its members with resources for economic development. Sustained long-term investment in education, health, social services and the wellbeing of children and young people has borne fruit in our country. With regard to its own participation, Finland must consider the value that it can contribute to international development. On the one hand, this value added arises from Finland’s own cultural history and experiences as outlined above, as well as the values rooted in them, and, on the other hand, from the special strengths and skills that Finland has acquired in certain sectors. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


The cross-cutting themes in the implementation of the Finnish development policy are: •

Promotion of the rights and the status of women and girls, and promotion of gender and social equality.

•

Promotion of the rights of groups that are easily marginalised, particularly those of children, the disabled, indigenous peoples and ethnic minorities, and promotion of equal participation opportunities for them.

•

Consideration of environmental issues. Finland’s support for developing countries in implementing the Millennium Declaration in individual countries is guided by the poverty reduction strategies of the partner countries. Hence, Finland ensures that its inputs are channelled into development work that the partner countries manage themselves, and which is based on a deep understanding of each country’s situation. Implementing the goals set requires creating an environment conducive to development. Primarily, it is the developing countries themselves that are accountable to their own citizens for the socio-economic development programmes aiming at economic growth and reduction of poverty. Private-sector-driven economic growth and equality-promoting income distribution are fundamental to the reduction of poverty. Success requires true political will to create an operating environment that makes development possible. Respect for human rights, promotion of gender equality, social equality and democracy, good governance and sound economic management are essential cornerstones of development. Peace and security are prerequisites for achieving sustainable results. Eradication of poverty calls for an environment in which public resources can be put to work together with the skills and resources of the private sector and civil society. It is becoming increasingly clear that development in individual countries depends on global and regional environments. Finland contributes at all levels and in all sectors to create an environment that is favourable to development and to private sector operations. Finland particularly directs its support to strengthening democratic institutions and the civil societies in developing countries, to developing local government, and to helping combat corruption. Finland promotes co-operation between government bodies, employers and labour organisations in creating jobs and improving labour market regulations. By participating in conflict prevention, peacekeeping and civilian crisis management we take part in creating the basic necessities for the reduction of poverty.

Implementing, monitoring and evaluating development policy The goals set in this development policy are ambitious. To achieve them will require work in Finland, in the partner countries and within the EU, the UN and other international forums. The Ministry for Foreign Affairs has overall responsibility for implementing the policy and for the co-ordination this necessitates, but other key parties are also involved, including various other ministries, government agencies and institutions as well as the private sector and NGOs. Continuous and comprehensive monitoring and evaluation are needed to implement the policy. Development policy is a part of Finland’s foreign policy. The goals and implementation of the development policy are part of the strategy and operational plan of TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

60 – Part I. Setting the Scene the Ministry for Foreign Affairs, in which the main tasks of the Ministry are seen as the promotion of the security and well-being of Finnish people, the creation of a common international sense of responsibility and the reinforcement of peace, together with the responsibility for preparing and implementing Finnish foreign policy, including coordination of shaping the national principles of action. The implementation of the development policy is monitored as part of the Ministry’s overall goals using the Ministry’s internal monitoring systems. Co-operation within the Ministry for Foreign Affairs and among the authorities will be further improved to promote coherence in the development and monitoring of the policy. The Ministry’s internal systems for implementing and monitoring development policy will be consolidated. A separate action plan has been prepared, specifying the targets and areas of responsibility. The Department for Development Policy monitors the implementation of the plan to ensure that the development policy is directly linked with framework and results budgeting and appropriation decisions. The need for new strategies connected to certain sectors, themes or procedures has been considered when the implementation plan was prepared. The implementation is guided by the approved Strategy and Action Plan for Promoting Gender Equality 20032007 and the Strategy for Rural Development. In planning co-operation, more systematic use will be made of the results of independent evaluations. Exceptionally comprehensive and varied independent evaluation material that was produced by the Ministry’s own evaluation and research services and by international bodies was available for the preparation of the present resolution. Review and evaluation will be developed so that up-to-date information is always available to support policy and implementation. The Development Policy Committee assesses the implementation of the policy. Its work is directed particularly to the achievement of policy coherence. The Committee reports annually to the Government on the implementation of Finland’s development policy and the factors affecting it. The Committee’s proposals are taken into account in the annual planning of the implementation of the policy. To help it in its tasks, the Committee calls on representatives from different ministries to serve as permanent experts. The UN reviewed the implementation of the Millennium Declaration in September 2005 and Finland made its first interim review of work for the achievement of the goals. At the end of its present term of office in 2007, the Government will arrange for an independent assessment of the realisation of the aims of its development policy. In international co-operation, Finland takes an active part in developing the contents, quality and effectiveness of the development policy especially within the framework of the OECD Development Assistance Committee (DAC). Finland’s next OECD/DAC review of development co-operation is expected to take place in late 2007.

Achieving the goals of development policy by increasing coherence The development policy perspective affects many areas of policy Achieving the aims of development policy requires improved policy coherence in national policies, multilateral co-operation and EU policies. Coherence in practical implementation also needs to be increased through better co-operation among authorities.



The development policy perspective needs to be included in all the programmes and reports in which Finland’s policies in issues affecting development are defined. Together with the drafting of this policy, work was started in the Ministry for Foreign Affairs, amongst various public sector institutions, and with other stakeholders, to deal with the challenges posed by the need for coherence. This work shall be continued. Government officials are well acquainted with the Millennium Declaration, and its goals are considered important. This common commitment should lead to a systematic analysis of the challenges of coherence. The policy changes required in each area of activity are to be mapped out and specified with the aim of: •

Finding mutual interests of Finland and the developing countries and adopting effective ways to promote them, and

•

Identifying potential conflicts. Awareness of the existing contradictions in the national policy will create opportunities to deal with them and to draw up new operational guidelines. Exchange of information, co-operation and interactive mechanisms among officials must be strengthened further. There are already regular theme-based groups in which officials from different ministries work together. More and more of such arrangements will now be made to deal with development policy issues which are inter-ministerial in nature. The Ministry for Foreign Affairs shall also investigate how the overall harmonisation of development policy amongst official bodies can be achieved effectively without unnecessarily increasing the administrative burden.

Finland supports the multilateral system Part of Finland’s development policy is to strengthen the multilateral system, to increase its operational capabilities and to improve the opportunities of developing countries to have an impact. Through the multilateral system, norms and guidelines are created for international co-operation, environments conducive to development are strengthened at global and regional levels, and support is given to the efforts made by developing countries themselves. The multilateral system secures the position of small countries and improves their prospects for exerting an influence. The multilateral system provides the best forum for dealing with international development issues in a comprehensive, cross-sectoral and pluralistic way. The multilateral system has become increasingly significant through globalisation. There is a strong international consensus about the Millennium Declaration and the Millennium Development Goals. This consensus was further reinforced at the Doha ministerial conference as well as at Monterrey, Johannesburg and New York summits. Finland considers that the resources of the multilateral system should now be concentrated on activities to implement the jointly agreed goals. The credibility of the UN and of the multilateral system depends on the ability to fulfil joint commitments in practise. Naturally, responsibility for implementing decisions also lies with national actors. Finland strives to strengthen the operational capability of the multilateral system and supports the reforms set in motion by the Secretary General of the United Nations. The international financial institutions that work alongside the UN, and particularly the World Bank, also play an important part in carrying out the commitments of the Millennium TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

62 – Part I. Setting the Scene Declaration. The Asian economic crisis showed how instability in the international economic system can plunge millions of people into poverty. Thus, the International Monetary Fund has considerable direct responsibility for the reduction of poverty through the maintenance of stability in the international economic system and the prevention of crises. Finland finds it essential that the UN, the international financial institutions and the WTO work even more closely together. The chairmanship of the UN Economic and Social Council (ECOSOC) in 2004 offered Finland an excellent opportunity to address development issues in a coherent manner and to promote co-operation. Finland will also intensify its work in the OECD and its Development Assistance Committee. As a comprehensive organisation for economic co-operation and development, the OECD provides exceptional opportunities for dealing with cross-sectoral issues that promote coherence in development policy.

The Helsinki Process In today’s world, there is a clear need to facilitate and complement intergovernmental negotiations with open and equal dialogue between all stakeholders in seeking out new joint methods for managing globalisation. The Government of Finland wants to improve the conditions for managing globalisation, to extend the benefits of globalisation more equally to all, and to mitigate its negative impacts. Finland continues to co-operate with Tanzania in the Helsinki Process, promoting broad based international discussion about a more equitable management of globalisation. The Helsinki Process is a forum that brings together governments from the South and the North, international organisations, the private sector and civil society, and offers opportunities for open, unprejudiced and pluralistic dialogue. The aim is to develop concrete proposals and strategies for promoting the implementation of the UN Millennium Declaration and the results of the Doha, Monterrey and Johannesburg conferences. Finland is prepared to utilise the results of the Process in bilateral and international connections, including the EU. In the long-term, the process is to achieve a more balanced, democratic and rule-based management of globalisation within inter-governmental multilateral co-operation, particularly in international organisations. Based on the results of the second Helsinki conference organised in Finland in September 2005 the process will be carried further in the form of specific round tables supported by Finland, Tanzania and other governments. At the same time a number of governments are committed to the further implementation of some of the Helsinki Process recommendations.

The ILO World Commission on the Social Dimension of Globalisation The development perspective is one of the main features of the World Commission on the Social Dimension of Globalisation set up by the International Labour Organisation. The Commission was co-chaired by Finland’s President Halonen and Tanzania’s President Mkapa. The Commission’s point of departure is that globalisation is a process that should benefit people all over the world. The benefits and the disadvantages of globalisation should be evaluated expressly in terms of how they affect people’s daily lives.



Globalisation is a process that can be controlled and can be guided by national, regional and international measures. The measures proposed by the Commission in its report require monitoring. The Government of Finland is prepared to promote in its activities the monitoring of the World Commission’s recommendations on the social dimension of globalisation in fora appropriate for each issue. Multilateral development work is a particularly important sector of activity in this respect. The Government will assess which measures to use to bring to the fore internationally, the themes raised by the report, and to promote the implementation of the Commission’s recommendations.

Finland promotes policy coherence in the European Union Many of the decisions that determine Finland’s policy in development-related issues are made within the EU. Finland emphasises the coherence of different policy sectors in the national preparation of EU decision-making. Comprehensive preparation in Finland creates a good basis for achieving Finland’s goal of influencing and increasing the coherence among the different areas of EU policies, and especially in its external relations and development co-operation. The European Union has vastly increased the extent of Finland’s contact with the countries of the world. As a member of the EU, Finland is involved in multi-sectoral dialogue with almost all countries, including developing countries. The EU is the major development co-operation partner of the developing countries as well as a significant trade partner. The EU also has a significant role globally. Finland works increasingly through the EU, and the EU has a direct impact on our national policies. EU membership has increased Finland’s potential to influence global development; it has also increased our visibility in the international arena and has enabled us to contribute to the quality of the relations between the EU and developing countries. Within the EU, attention has been devoted to policy coherence ever since the 1960s but it still remains a greatly challenging issue. Finland promotes increased coherence in EU’s external relations, in relations with developing countries, and among different policy sectors. This requires increasingly close co-operation at the national level in order to find areas of convergence on the issues dealt within the EU, and in order to be able to include the development policy perspective in Finland’s positions on decisions affecting global development. Since Finland joined the EU, domestic preparation in EU subcommittees has served to shape a coherent national strategy. Coherence in EU activities, effectiveness of aid and improved quality are prominent features in the three-year programme for the EU presidencies, which Finland will implement during its presidency in the second half of 2006. Along with the opportunities it offers, membership of the EU also guides Finland’s scope for making independent policy decisions for the benefit of developing countries. Trade policy and agricultural policy, for example, mostly fall within the EU’s competence. This means that Finland’s influence on various matters is through the EU and that Finland respects the fact that EU positions are defined on the basis of negotiations among all the EU member countries. Finland contributes and is committed to the compromises sought between the national interests of the member countries and that of global development.


64 – Part I. Setting the Scene

Coherence between development and trade policies Finland will increasingly take into account the interests of developing countries in the WTO’s Doha round of trade negotiations. Strengthening the multilateral trading system requires the full participation of the developing countries. From the point of view of the poorest developing countries, it is important that issues such as better access to markets for developing countries’ products, impartial rules that also observe the special needs of the poorest developing countries, and the promised technical aid to strengthen their trading capacity, will also be carried out. Finland targets its support towards creating an operating environment favourable to trade and to resolving supply-side problems in developing countries. Finland will extend the range of instruments in its bilateral trade and economic relations, including the promotion of import from developing countries. The globalisation and liberalisation of markets poses great challenges for developing countries, particularly for those that are least developed. On the one hand, globalisation opens international markets, enabling a rise in the standards of living and a decrease in poverty. On the other hand, the possibilities for the poorest developing countries to keep up with international competition may deteriorate considerably unless they are able to change the basic structures and institutional capabilities of their economies and societies and develop internationally competitive products and production capacity. Integrating developing countries into the international trading system can only take place if that system supports their own development goals. Finland respects the right of developing countries to resolve trade policy issues in their own interests. In the light of its own experience, Finland considers that well-managed integration into international economy, of which foreign trade is essential and promotes economic and social development in poor countries. Finland is prepared to support, by means of trade policy and development co-operation, the opportunities of developing countries to benefit from international trade. A universal, rule-based and open multilateral trading system which takes the interests of all parties into account equally, will create the framework and conditions necessary for freeing trade and enabling all countries to benefit from its favourable impact on economic growth, employment and development. The issue of integration into the international trading system should be taken up in the national development programmes or poverty reduction strategies of the developing countries so that the integration takes place in a controlled way and its impact on the reduction of poverty is ensured. To complete successfully, the WTO Doha round of trade negotiations, which started in 2001, is one of the main goals of Finland’s trade and development policy during this Government’s term of office, particularly in terms of the consideration given to the poorest developing countries. The strengthening of the multilateral trading system also requires the wholehearted participation of the developing countries. It is essential for developing countries that, as acknowledged in the Doha Declaration, access of their products to international markets is improved, balanced rules are implemented and that technical assistance is assured as well as exploited effectively. Agricultural issues are among the most important topics of the WTO Doha round of negotiations. According to the Doha Declaration, the negotiations aim at obtaining considerable improvements in ensuring access for agricultural products to international markets, a gradual reduction of export subsidies with a view to phasing them out in all their forms, and a substantial reduction in trade-distorting domestic support. The preferential treatment of developing countries is an integral part of the negotiations. Both agricultural and so called ‘non-commercial’ concerns will be taken into account. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


In the framework of the multilateral trading system, Finland works for improved consideration of the special needs of developing countries by promoting special benefits that support their integration into the trade policy system. Finland supports and finances initiatives that further implementation of the obligation to increase trade-related technical assistance and facilities. Finland supports the work of the WTO on technology transfer which aims to increase the production capacity and export product range of developing countries. Finland works on improving the effectiveness of interactive dialogue with the developing countries about trade policy issues bilaterally, through the EU, and in multilateral contexts. Finland seeks to consider the special circumstances of developing countries in the implementation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Over the past few years, the EU has improved the access of developing countries to its markets. Products originating from the least developed countries are allowed entry into the EU area duty-free, and many other developing countries also benefit from tariff preferences. For example, over 80% of Africa’s agricultural exports come to the EU. In 2004 and 2005 the EU’s Generalised System of Preferences (GSP) for developing countries has been revised. Finland is in favour of developing the system so that its benefits accrue better to the least developed countries, and is presently investigating how benefits of the type that have been granted to countries under the Cotonou agreement could be applied to all the least developed countries. Finland is looking for ways to promote its own imports from developing countries. Finland will also make use of the opportunities offered by the unit established in the EU to facilitate imports into the EU from developing countries. While supporting development of the multilateral trading system, Finland uses development co-operation instruments to support the efforts of the developing countries to create an operating environment that promotes trade and investments. Trade that brings about an increase in sustainable economic growth, employment and productivity requires, among other things, stable and functioning basic social structures, infrastructure, a functioning financial sector and the possibility to develop production technology, product quality and marketing. These form a key field of operations for development cooperation, in which the interests of trade and development converge and development cooperation acts as a catalyst for trade. In order to increase imports and trade, Finnish business and industry are kept informed about the markets of the developing countries, production structures and rules affecting trade. Efforts are made to encourage the channelling of investment to developing countries by developing a climate and an environment favourable to investment, and, particularly through bilateral agreements, promoting and protecting foreign investment.

Coherence between development and environmental policies The prevention of international environmental threats is one of the main goals of Finland’s development policy. Finland advocates change in production and consumption patterns and supports the reduction of poverty in developing countries in such ways that help avert the most serious environmental damage caused by economic growth. By promoting the implementation of multilateral environmental agreements, Finland seeks to safeguard the state of the environment. Finland includes consideration for the environment as a cross-cutting theme in all its development co-operation. Finland supports the inclusion of the principles of environmentally sustainable development in the TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

66 – Part I. Setting the Scene poverty reduction strategies of its partner countries. Finland also supports specific environmental programmes and projects. The challenges of development and of environmental sustainability are closely linked at both national and global levels. The future of Finland’s own environment will also be decisively affected by the ways in which other countries in the world, including the developing countries, take care of the environment. By implementing multilateral environmental agreements, the state of the environment can be controlled in Finland and in developing countries. The environment is a global public good and its protection is in everybody’s interests. It is impossible to achieve sustainable well-being and reduction of poverty unless the environment is taken care of. For this reason, environmental issues are a cross-cutting theme in Finland’s development policy. Environmental issues are connected today with such issues as security, trade and finance. Co-operation among various sectors of administration is essential. Finland considers multilateral environmental agreements and the enhancement of international environmental governance a good means of ensuring that both industrialised and developing countries accept joint responsibility for the environment. Finland is party to more than a hundred multilateral environmental agreements, the aims of which include the prevention of climate change, the protection of biodiversity, combating desertification and the control of international trade in chemicals and control of transboundary movements of hazardous waste. The agreements include obligations binding on the developing countries and obligations to support the developing countries. The detrimental consequences of global climate change have the worst effects on the poorest countries and hinder their efforts to reducing poverty. The developing countries will therefore play an important part in the implementation and monitoring of the Kyoto Protocol. Finland supports the developing countries in their capacity building to enable them to implement multilateral environmental agreements. Through international and development co-operation, Finland makes available to developing countries the benefit of its own expertise in managing global environmental problems and in promoting sustainable development. Factors related to the environment are decisive in achieving many development goals, such as food safety, access to clean drinking water and progress in health care. Access to affordable energy and sustainable energy solutions are of great importance in improving the standards of living and health conditions of the poor, in creating employment opportunities, but also in regard to the sustainable exploitation of natural resources and, for example, climate change. The Johannesburg Action Plan requires all countries to draw up a strategy for sustainable development by 2005. In its development co-operation, Finland emphasises that environmental issues, and the fulfilment of the obligations set out in environmental agreements, are an integral part of poverty reduction strategies.

Coherence between development and agricultural policies In its development co-operation, Finland emphasises the importance of promoting rural development and increasing the productivity of rural livelihoods. Finland supports the possibilities of the poorest developing countries to benefit from opportunities offered by international trade in agricultural products and recognises the special needs of the most



vulnerable countries to protect and assist their farmers so that they will have sufficient time to adapt to a market-led production system. Rural living conditions in developing countries will have a crucial impact on whether the Millennium Declaration Goals are achieved, since about two thirds of the people who live in extreme poverty live in rural areas. Finland emphasises the significance of the role played by agriculture in rural areas and in society. Not only is agriculture a means of livelihood and a source of income, but it is also an essential factor in, for example, food security, regional politics and environmental issues. For almost all countries of the world agriculture is a sector of national importance, the future of which they seek to secure. The exports of many developing countries are primarily agricultural products. Hence, the entry of developing countries’ agricultural products into industrialised countries’ markets, and the subsidies of industrialised countries to agricultural production and exports, have caused disputes and disagreements between developing and industrialised countries. In this connection, the great differences among developing countries in their production and marketing capacities in agriculture and agricultural trade must also be taken into account. As a member of the EU, Finland promotes such trade policy solutions that improve the prospects of the poorest developing countries to benefit from agricultural exports and develop the competitiveness of their agriculture. The goal of greater coherence will also necessitate consideration of national perspectives on agriculture. The EU, including Finland, has long made unilateral concessions in its trade policy which have eased access for specific groups of developing countries. Finland is in favour of developing these systems further. They include, for example, the Generalised System of Preferences (GSP) and the Lomé and Cotonou agreements with the countries of Africa, the Caribbean and the Pacific. The Everything but Arms (EBA) initiative applied since 2001 has made it possible to remove duties on imports originating from almost all of the least developed countries. Duties on sugar, rice and bananas will be phased out by 2009. Since the GATT Uruguay Round, the EU has also made cuts in domestic agricultural and export subsidies; these are expected to increase the competitiveness of developing countries’ agricultural trade. Both in the EU and bilaterally, Finland promotes measures that improve the status of poor producers in the poorest countries. The prospect of poor producers to benefit from world trade can be enhanced by adjusting the rules governing international agricultural trade, but this will not resolve the whole problem. In order to improve their living conditions, Finland will increase its efforts in bilateral and multilateral development cooperation to improve the political and economic operating environment, to develop productive and income generating activities in rural areas, and to strengthen poor people’s livelihoods. Finland has many years of experience in developing rural livelihoods based on family farms and smallholdings. Finland’s own agricultural sector has also gone through great structural changes to adjust to international competition. Both in development cooperation and in other international collaboration, Finland offers to developing countries the benefit of its own experience and expertise in, for example, establishing organisations of small producers, co-operative activities and extension services. Agriculture and forestry are the key sectors in development co-operation. Individual areas of focus include support for local rural livelihood strategies, the formation of farmer associations and producer organisations, provision of staple foods, food production and diversification of income-generating activities.




Chapter 4. POLICY COHERENCE FOR DEVELOPMENT: WHAT IT MEANS FOR FARMERS Raul Q. Montemayor IFAP Asian Farmers Committee Abstract Policy coherence is important not only for developing countries who need to optimise resource-use in their agricultural sectors, but also for developed countries whose longterm growth and progress in inextricably linked to the welfare of developing countries and the world economy as a whole. Governments in developing countries need to translate words into action by giving priority to sustained and coherent policies and programmes that provide basic support and services to their large agricultural sectors. Such policies will reverse the effects of long years of neglect and will give farmers the confidence to pursue change and to participate in development efforts. These domestic initiatives should however be complemented by reforms in international trade rules that will limit, if not eliminate, the distortion effect of domestic supports and export subsidies on global markets even as developing countries undertake reforms and prepare their farmers for global competition. Farmers must be adequately compensated for their efforts if they are to continue providing safe and healthy food to consumers while simultaneously following environmentally friendly practices. Otherwise, they may be pressured to take shortcuts that will prove harmful to consumers and to the environment. In turn, appropriate policies have to be implemented to ensure that market concentration does not have undue harmful impacts on farmers, even as trade rules are crafted so that large multinational firms do not corner the benefits of freer trade to the exclusion of developing countries and small-scale producers. Development assistance must be used to complement domestic reforms and not to fix problems created by incoherent policies. They should focus on addressing agriculturerelated issues because these are often the root causes of problems in urban areas and the economy as a whole. Likewise, the role of the private sector in the development effort needs to be defined, acknowledged, and supported. Farmer organisations in particular both have a right and a responsibility to participate in, and influence the developmental process and will need to strengthen their ranks and capacities in order to effectively speak for themselves and to contribute constructively to developmental efforts.

Introduction I would first like to thank the organisers of this conference and the OECD for giving farmers an opportunity to present their views on what I consider a very timely and important theme – Policy Coherence for Development. I speak today on behalf of the International Federation of Agricultural Producers or IFAP, which is one of the largest international networks of farmer organisations in the world. IFAP presently counts 110 national farmer organisations in 75 countries among its members. It represents TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

70 – Part I. Setting the Scene practically all farmers in the industrialised countries, and almost half a billion agricultural producers in the developing world. IFAP believes that farmers can best speak for themselves, even though it is not often that they are asked to do so, and sometimes are even prevented from voicing their point of view. So, allow me to take advantage of this opportunity to present the major development issues and concerns that farmers face today as a result of policy incoherence at the national, regional and global levels. There are of course many types of farmers living under different conditions and under varying levels of development, and their positions on certain issues may not always coincide. Today, I would like to focus on the concerns of farmers in the developing countries, which I think would be of more interest to policy makers in the OECD and its member-countries. I would also like to contribute some ideas on how farmers and their organisations can help rectify policy inconsistencies and ensure that developmental programmes and policies move forward coherently.

The need for policy coherence Farmers from developing countries may sometimes wonder why more advanced countries belonging to the OECD have to worry about development in the poorer regions of the world. One probably could presume that countries, like people, tend to be more magnanimous when they become more prosperous. Charity could also be a way to assuage hidden guilt arising from the notion that in order for advanced countries to enrich themselves, many other countries had to become poor. I would however like to believe that the concern for development on the part of developed countries transcends mere altruism or remorse. I think that the rich countries know that they will never be able to truly enjoy their wealth for as long as the billions of people living around them in the developing world are hungry, poor, uneducated, malnourished, and unemployed. For one, they will find it difficult to expand their markets for their own goods and services. In other words, their own prospects for growth in the future are inextricably linked to the development and progress of the poorer countries around them and of the world as a whole. Even in the jungles, before man interfered, nature saw to it that predators always had agile and healthy prey to eat, the logic being that predators themselves would not survive if all their prey died from hunger and malnutrition. Global poverty and hunger also lead to many problems that people in developed countries are uncomfortable with and often dread – illegal immigration, HIV/Aids, pandemics, wars, and of course, terrorism. As we have seen, these problems spread quickly in an increasingly globalised environment, and it is impossible even for people in developed countries to insulate themselves from these emerging threats. In the end, helping poor countries develop and to lift their poor populations out of extreme poverty is the only effective and permanent recipe for global health, peace and progress. With all the problems besetting countries and the world as a whole, both developed and developing countries don’t have the time to waste efforts and resources on policies and programmes that end up nullifying each other. Because development itself is a multifaceted challenge, it naturally requires a comprehensive response, the components of which must be both individually effective and collectively complementary to each other. Policy coherence therefore is not merely an embellishment. It is an urgent and critical requirement for any developmental effort to succeed.



It goes without saying that policy coherence for development is as important, even if not more critical, for the poor developing countries themselves. To a large extent, their underdevelopment, arising from years of neglect of their agricultural and other critical sectors, corruption, weak governance, and policy inconsistencies, is of their own doing. They too have to set things right in their own backyard and carry out necessary reforms in a coherent and sustained manner if they hope to escape from chronic underdevelopment and to lift their masses out of poverty and hunger. Developed countries can augment their initiatives but will never be successful if the developing countries themselves do not assume the responsibility and accept the challenge for reform and change.

Coherence in domestic agricultural policies Perhaps the most obvious and chronic form of incoherence in domestic agricultural policy, especially in developing countries, is the disconnect between what politicians and government functionaries say in public and what they actually do in practice. Farmers have somehow grown accustomed to politicians promising them the moon and the stars during elections, and then disappearing after they have won or lost, only to reappear in the next elections, promising more moons and stars. I remember a story (probably true) where a local politician in my country was campaigning to get elected and ended up promising farmers in a village that he would build a bridge to help them transport their products to the market. When he was told that there was no need for a bridge because there was no river to cross in the village, he promised to build a river as well! In many developing countries, widespread hunger, unemployment and poverty is directly traceable to the absence of even the most basic infrastructure that farmers in developed countries often take for granted – roads, bridges, electricity, communication, ports, etc. These deficiencies eat into the already meagre incomes of many farmers in the countryside by making it expensive for them to buy the inputs they need and to market their goods. They also make it difficult if not impossible for farmers to react promptly to market signals and take advantage of emerging market opportunities. Opportunities for securing a higher price or a better market for their products in the city or even in another country are useless if farmers cannot even move their produce out of their village because of an impassable road or a broken bridge. I remember another story (probably also true) of farmers in a village complaining to a local trader why his buying price was so low compared to the price announced over the radio station. The trader, knowing that the farmers had nowhere else to go, merely shrugged his shoulders and challenged them to sell their products to the radio station! Compounding the situation are government policies that prioritise the supply of cheap food to urban consumers (and voters), whether through price controls, government market intervention, or trade and tariff policy favouring cheaper imports. In cases where governments use tariffs and import restrictions to protect farmers, the agricultural sector is also tacitly neglected. As a result, inherent problems remain entrenched, are aggravated over time, and are exposed only when governments are forced to open up their markets to foreign competition. This is what is happening as a result of the recent multilateral and regional trade agreements. Although it is clear that governments in developing countries often lack the resources to address all their problems, it is equally evident that the priority politicians (especially at election time) promise to give to agriculture and to the rural sector almost always disappears, when the time comes to allocate the limited budgets of government to priority TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

72 – Part I. Setting the Scene programmes. Typically, debt service and defence get the largest chunks of the limited government pie, while large populations in the rural areas end up with a disproportionately small share for basic services and programmes from the government. This is despite commonly accepted conclusions that investments in agriculture, particularly in agricultural research and basic infrastructure, have the largest economic multiplier effects on the economy, benefit the largest sectors, have the most significant impact on poverty incidence, and are keys to overall economic development. The long years of recurrent neglect of, and bias against, the agricultural sector in many developing countries has made the resultant problems larger, more complex, and much harder to solve. In many cases, addressing one problem such as the access to rural credit by providing microfinance services to farmers ends up a failure because other constraints are not addressed at the same time. For example, the absence of a proper transportation network forces farmers to sell their products at very low prices, and eventually prevents them from generating enough income to pay their loans. In turn, improved technology that is expected to increase yields and enhance the efficiency of farmers is often left unapplied because farmers have no money to buy modern seed varieties or appropriate fertilisers. In other instances, they are afraid to invest their money and time because of the fear or risk that typhoons or pests might suddenly come and wipe away their investments, or that the government might unexpectedly allow cheap imports to come in and depress local prices. Perhaps the most deep-rooted effect of decades of neglect and policy incoherence is the pervasive apathy, lack of motivation, and a sense of hopelessness on the part of farmers in many areas of the developing world. Many have grown to be suspicious of promises that things will get better, are wary of change, and are resigned to a life of poverty and desperation. When they earn some money, they rarely invest in their farms and instead use the money to send their brightest child to school, with the hope that he or she will someday earn a well-paying job in the city and will rescue them from their sordid fates on the farms. To a large extent, farmers themselves have become the largest and most difficult obstacle to change and progress and it will need a serious and sustained effort to get back their confidence and generate their support for any developmental effort. Realigning policies and programmes into a coherent strategy will be a necessary step in this direction.

Coherence in agricultural trade policy In many developing countries, the problems in the agricultural sector are often aggravated by external factors. The worldwide push towards trade liberalisation and globalisation for example has caught many developing countries unprepared if not flatfooted, even as it has forced them to abruptly expose their small-scale farmers to competition from well-equipped producers from the developed world. One may say that trade liberalisation is sometimes unfairly being blamed for a country’s agricultural woes, when in fact the core problem arises from biased and incoherent domestic agricultural policies that make local farmers uncompetitive and unprepared for competition. Still, experience has shown that adjustment measures have to be carefully planned out and implemented while trade liberalisation takes place. At the same time, trade reforms, especially in developed countries are important. Even as they are already well ahead in the development race, developed countries cannot continue insisting on having their cake and eating it too. One may understand their need TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


to protect and subsidise some of their agricultural producers, but to do so at the expense of large masses of poor and underprivileged farmers in many developing countries is simply unfair and self-serving. Nor does it make sense for developing countries to give in to demands to open up their markets even as the developed countries manipulate trade rules so that they can continue equipping their own producers with a huge arsenal of domestic supports and export subsidies which they can then use to ward off competition while penetrating foreign markets. It does not matter when, where and on whom these trade-distorting practices will have an impact. The point is that these price supports, export subsidies and other artificial benefits that many developed countries give to their farmers can and often do create surpluses that result in worldwide market distortions, affecting the livelihood and survival of farmers in other countries who do not have any access even to the most basic infrastructure like roads, much less to subsidies. They also allow less efficient farmers in the developed world, well-off as they already are, to displace other more efficient and self-reliant producers from less developed parts of the world. Many of these small-scale producers in developing countries have no government support or assistance programmes to fall back on when these trade distorting practices wreak havoc on their domestic and export markets. One cannot allow a person holding a bag of explosives to go scot free just because he has not detonated the bomb, or because there is no guarantee that the bomb will explode or hurt people, or because of a promise that he will make the bomb less and less destructive over time. And yet this is not so different from what the GATT rules have allowed developed countries to do in agricultural trade by effectively legalising the use of distorting subsidies, albeit at decreasing levels, while at the same time requiring other countries, most of which do not use such subsidies, to increasingly open up their markets to these subsidised foreign products. Somewhere, large masses of farmers are becoming hungry, unemployed, sickly, and desperate because a few rich countries want to protect their agriculture so that their farmers can maintain comfortable lifestyles and their citizens can continue to enjoy beautiful landscapes. Such subsidies literally and indiscriminately maim and kill innocent people, displace them from their farms, and shatter lives and livelihoods, much like the so-called weapons of mass destruction that rich countries spend billions of dollars to unearth and destroy. Clearly, there is a need to rationalise the negotiating positions of many developed countries in trade fora like the WTO with their publicly avowed commitments to help developing countries benefit from trade. Trade rules are supposed to remove distortions, level the playing field, and provide each country, big or small, rich or poor, a decent chance to compete and reap benefits from an enlarged and freer global market. They are not supposed to perpetuate inequities and unfair trading practices, especially those that work against the interests of developing countries. In this respect, it is unfortunate, to say that at the very least, developed countries have again used special and differential treatment or SDT as a bargaining chip or quid pro quo in the Doha Development Round negotiations to secure concessions that will allow them to retain many of their trade-distorting subsidies in the foreseeable future. Other developed countries in turn have insisted on reducing their subsidies only if developing countries open up their markets further and aggressively reduce their tariffs. Subsidies that distort are normally banned in international trade and reducing or removing them should not be treated as a concession that would require some form of compensation from TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

74 – Part I. Setting the Scene countries that are harmed by such subsidies. Clearly, a thief cannot demand that his/her erstwhile victims unlock and open their doors and windows wider at night in exchange for a promise that less and less will be stolen from their homes. This is not to downplay the political and economic risks that developed countries have to confront when they undertake reforms and attempt to phase out the distortive support and protection that they have traditionally extended to their well-organised farming sector. One also cannot deny the right even of developed countries to preserve and promote their own agricultural sectors and to ensure their own food security. Nor can one question the important cultural, historical, environmental and other contributions that agriculture provides in addition to producing food for their societies. However, it is equally important to remember that these rights and prerogatives are not absolute or exclusive. The larger number of developing countries have as much right and need to protect and promote their own agricultural sectors, and the problems and risks they face in undertaking their own set of reforms are as daunting, if not more serious, than those faced by developed countries. There is therefore simply no moral justification for developed countries to insist on one-sided rules in trade negotiations. Many studies have also shown that developed countries themselves will be the biggest gainers, at least in the short to the medium term, from a less distorted global marketplace. Clearly, it does not make any economic sense for them to subsidise producers, encourage surpluses, prop up falling prices that arise from the surpluses through additional subsidies, and then provide even more subsidies for exports to alleviate the resultant domestic glut, and finally, to top it all, end up hurting producers in poorer parts of the world elsewhere. Of course, developing countries should also do their share in making the global marketplace a fairer, freer and more progressive arena for trade. They cannot hide forever under the cloak of underdevelopment, unpreparedness and uncompetitiveness and use these as pretexts for again delaying necessary reforms in their agricultural and other domestic sectors. Protectionism breeds inefficiency and dependency, and eventually penalises consumers and farmers alike. Nor is it wise for farmers to perpetually place their future in the hands of politicians and government functionaries whose priorities and whims may change at any time. The most coherent approach to trade liberalisation is to make farmers competitive, efficient and profitable, so that they can supply food to the domestic market on an equal footing with imported products, and at the same time compete squarely in the export markets. This is a case where the best defence is a good offence.

Coherence in other trade-related policies Aside from the need to craft coherent, fair and responsive rules in international trade, clear and equitable policies and directions also have to be established by governments, the public at large, and the commercial private sector on various issues which are relevant to how farmers produce, process and sell their products in both domestic and export markets. In particular, coherence is needed in how issues on food safety and nutrition, market concentration, sustainability and environmental protection are addressed. Concerns over food safety, health and nutrition have become more pronounced as a result of the rise in food-borne diseases and illnesses and pronounced levels of both obesity and malnutrition in various parts of the world. To some degree, these have had trade-related effects on farmers. Many developing countries, for example, have TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


complained against the increasing use of food safety and related sanitary and phytosanitary regulations to act as disguised trade barriers and block legitimate imports. Clearly, it does not provide any benefit to a developing country to be given duty free access by a developed country on the one hand, and then to have its exports blocked on the other hand because these have not passed overly stringent chemical residue thresholds, have not undergone costly laboratory analyses, or do not carry the proper labels and health certifications. The poor country ends up not only with lost export sales but with boatloads of rejected cargoes in foreign ports. It is unfortunate that the Doha Development Agenda bypassed reforms in the SPS regulations despite clear indications that the Uruguay Round rules did not satisfactorily achieve the objective of harmonising global quarantine regulations to protect humans, plants and animals. On a much larger scale, the emerging food safety concerns have led to more rigid quarantine, food safety, labelling, and traceability regulations on food products which in turn have made it more expensive for farmers both in developed and developing countries to sell their products locally and in foreign markets. In many cases, these regulations have forced farmers to shift to new and more costly methods of production that influence the types of fertilisers or pesticides they use for crops, or hormones and antibiotics they apply to animals, and the equipment they utilise for producing and handling food products. Although it is important to ensure that food products are safe to consume, governments and the public at large should at the same time ensure that farmers are adequately compensated for their efforts. Pressuring farmers to produce better and healthier food and to supply this food at a lower price, may backfire on the health and welfare of consumers. Mad cow disease, for example, resulted from the attempts of cattle producers to reduce costs and sell their meat products more cheaply in response to consumer demands and stiff market competition. These led some livestock raisers to use offal and waste material from other dead animals as feed ingredients, without the knowledge that such ingredients would result in the spread of BSE years later. Governments and consumers must therefore be willing and ready to pay the price for safe, healthy and nutritious food. The current situation where the share of the farmer out of every dollar that a consumer spends has fallen to as low as five cents even as global prices for raw and semi-processed agricultural commodities have continued to decrease, is clearly unsustainable. Farmers are not miracle workers, and they will stop producing food if society does not give them the necessary financial and other rewards and incentives for their efforts. Otherwise, they will turn in desperation to production shortcuts that could be harmful to consumers in the end. The precarious situation of farmers is exacerbated by market concentration, or the emergence of large corporate entities that exert monopoly or excessive control over agricultural technology, inputs and markets. This is an established phenomenon in both developed and developing countries. While corporate size and breadth is arguably necessary for the huge investments in some agricultural ventures, there is the danger that farmers will eventually end up with little or no choice when it comes to where to buy their seeds and inputs and sell their products. In some cases, they may become virtual employees of these large corporations. In such a situation, farmers will not only lose their leverage in determining the prices of their products, they will also be powerless if the large firms on which they depend for most of their sustenance and livelihood simply decide to pass on to them most or all of the cost and burden of food safety, environmental protection, and other regulations that consumers are unwilling to absorb. Even worse, they will have little recourse if these firms abruptly decide to shift to other more pliant TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

76 – Part I. Setting the Scene suppliers or move their production and processing operations altogether to a more business friendly country or region. It appears however that governments and international institutions have no clear policies with regard to the increasing influence of these large multinational firms on both domestic and global markets. Although current international trade rules for example define the terms of engagement among countries, they have practically nothing to say about the potentially distorting or manipulative practices of large trans-national firms on trade in agricultural products, services and intellectual property. Some of these corporations may in fact be even larger and more influential than some large countries and economies. Hence, the push of some developed countries for the incorporation of competition policy in WTO rules has ironically been construed by other developing countries as a mere ploy to dilute the market leverage of local firms over their domestic markets and thus to make it easier for these large multinational companies, most of whom are based in rich countries, to penetrate their markets. The issue of market concentration brings to the fore the question as to who actually benefits from trade liberalisation. Clearly, freer and more open trade can be empirically shown to foster overall economic growth within countries and on a global scale. However, the benefits are not spread equally, and there will always be losers in the process. Concerns have been raised that trade liberalisation is being pursued for its own sake, without consideration for what countries and sectors need to, or should, benefit most from it, and without adequate concern for those who lose out in the process. Many developing countries for example will not be able to export more just because the global market has opened up and expanded. In fact, the very factors that make these countries uncompetitive in export markets – lack of roads, high power, input and financing charges, low yields, etc. – will make them vulnerable to cheaper imports. Hence, while more advanced and resourceful countries may benefit from trade liberalisation and improved market access, a vast majority of less developed countries will suffer or receive a disproportionately small share of the benefits if proper safeguards are not put in place and they are not given the time and space to undertake the necessary adjustment measures. In turn, one would wonder if it is to the immediate interest of the developed and advanced countries to wait for the less developed countries to catch up, considering that their market advantage to a large extent derives from the inability of these underdeveloped countries to produce as efficiently and competitively as they can. Nor can we expect large profit-driven multinational companies to concern themselves with how trade benefits are allocated. Their main concern is to be able to buy the raw materials from the cheapest producers and to sell their products to the most lucrative markets. One can therefore raise the question as to whether a trading environment that is arguably freer and more open, but which benefits only a few large companies while marginalising large masses of small producers is worth aiming for. In addition, some farmers from both developed and developing countries have raised the issue as to why international trade rules are being given so much importance over domestic agricultural policies, often to the disadvantage of small-scale producers, despite the fact that less than 10% of total global agricultural output is actually being traded internationally. Even within countries that have somehow been able to expand exports and achieve economic growth due to trade liberalisation, there are indications that the benefits have gone mostly to traders, processors, exporters, large farmers and corporate farms, and to a much lesser extent (if at all) to small-scale primary producers. In turn, small-scale farmers invariably bear most of the burden when cheap imports come into their domestic markets. TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


Unless these farmers are consciously allowed to benefit from free trade, trade liberalisation may ironically end up aggravating rural poverty. Concerns have also been raised as to the fate of small-scale producers in a trading environment that rewards economies of scale and places excessive emphasis on production efficiency and cost competitiveness. While large-scale producers may be able to produce food and other agricultural products more efficiently and at least cost to customers, it may in fact be more prudent to spread out production capacity to a larger base of producers than bank on a few suppliers who may suddenly decide to close or move their operations. Many policies of developed countries also run counter to publicly avowed commitments to promote sustainable development and environmental protection, issues which are critical to the long-term survival and prosperity of farmers in the developing world. While developed countries for example have pushed strongly for strict controls over gas emissions, land and air pollution, and water depletion, their trade policies often push poor farmers in other countries to adopt environmentally destructive practices like slash and burn farming and soil, water and air contamination. In several cases, these developed countries have merely exported their destructive processes and equipment to third-world countries, thereby relegating the poor countries to dumping grounds for toxic waste and pollution. As in the case with food safety regulations, farmers worldwide are also being pressured to adopt more environmentally friendly farming practices but are not being given the appropriate financial incentives to offset additional costs. Clearly, farmers can only go so far when prices are stagnant or are decreasing while costs are rising. Government should encourage and provide farmers with incentives to adopt good farming practices, instead of focusing on punitive approaches that are based on the premise that farmers abuse the environment and should therefore be controlled and disciplined.

Coherence in development aid policy Clearly, governments in developed countries first need to sort out their priorities and strategies before they start preaching and promoting development to developing countries. It would be pointless to spend time and money on development assistance only to see the gains more than offset by trade policies which have distortive impacts. Development aid must be used to promote development, and not to fix problems that result from anti-development policies and programmes. In turn, countries that receive development assistance must capitalise on such assistance to directly address their problems and deficiencies, and not use them as another pretext to retain policies biased against agriculture, scrimp on support to farmers, or postpone necessary investments and reforms in the agricultural sector. In any case, development agencies as a whole need to confront the fact that international assistance for agricultural development has consistently declined over time. Although it can be argued that it is the governments of developing countries themselves that have prioritised non-agriculture projects in requesting international aid or funding, aid agencies are also partly to blame for not clearly delineating and pursuing their programme and funding priorities. One can wonder why they often impose numerous conditions in exchange for such loans or assistance, but cannot pressure governments to give more attention to their agricultural sectors. The perception that many agricultural


78 – Part I. Setting the Scene development projects fail or give lower returns is also not a valid excuse, given that such deficiencies are usually traceable to poor project design and implementation. To a large extent, development aid in urban areas and other sectors aside from agriculture often falls short because it does not address the root of the problem. For example, many problems like squatting, traffic congestion, sanitation, and crime arise from sordid living conditions in the countryside which force rural residents to migrate to cities. Housing projects, expanded road networks, improved water supply, and other amenities in the cities will encourage even more migration and will aggravate the problem in the urban areas for as long as income and employment opportunities remain scarce in the rural areas. Channelling development assistance to rural areas is therefore, a more logical and sustainable approach to solving urban problems and promoting economic progress as a whole. Finally, development assistance agencies must increasingly recognise the important role played by the private sector. Whereas traditional ODA has been channelled through the government bureaucracy and has focussed on supporting government-initiated programmes, relatively limited effort and initiative have been allotted to building up institutions and programmes run by the private sector, including farmer organisations that can be more results-oriented, less politically vulnerable, and more attuned to the real needs of small farmers and target beneficiaries. Such private initiatives are particularly important since many rural development assistance loans and programmes often come with conditions that require governments to phase out or privatise functions that traditionally have provided marketing, credit and other basic services to farmers. While deregulation and privatisation may have their merits, they are often pursued without putting in place alternative or substitute institutions and programmes that can provide safeguards and necessary assistance to affected farmers. As a result, farmers often end up worse off than they were before.

Role of producer organisations Because farmers are often the victims of the incoherent policies of their own governments and of the governments of other countries, they have as much right as responsibility to participate in programmes that impact their welfare. However, in order to constructively and effectively influence decisions, they have to establish credible, independent and solid farmer organisations. Only as a unified force in their countries and in the international community will they have the clout to be heard and seriously listened to. Strong farmer organisations at the domestic and international levels have become more important than ever with the advent of globalisation and the need to consolidate forces not only in the formulation of trade rules but also in conducting trade. Even in developed countries, farmer co-operatives and similar business enterprises that grew rapidly in the past when food commodities were in short supply and markets were generally supply driven are now experiencing major adjustment problems. In many cases, they face stiff competition from both large multinational firms and niche players who have assumed larger control over the processing and marketing sectors of the value chain so as to cater to the requirements of an increasingly demand-driven and consumeroriented market. In most developing countries, rarely have large masses of unorganised small farmers been able to exert market power over emerging hypermarkets and



integrated agribusiness firms. This implies that they will need to act swiftly and effectively to establish an effective counterforce to industrial concentration. It is towards this objective that the International Federation of Agricultural Producers of IFAP has spent the last sixty or so years helping strengthen national farmer organisations and linking them together into a dynamic international farmers’ network. This has enabled national organisations to participate in local decision-making bodies, implement programmes for their members, and participate in the design and monitoring of developmental programmes funded by local sources and/or by development aid. Some farmer organisations have established large and profitable co-operative business operations that provide important economic services to their members and allow them to directly and more profitably participate in the domestic and global markets. At the same time, IFAP has developed close links with international agencies like the Food and Agriculture Organization (FAO), the World Bank, the International Fund for Agricultural Development (IFAD), the World Trade Organization (WTO), the Consultative Group on International Agricultural Research (CGIAR), and similar institutions to advocate in the international arena. IFAP maintains a keen and natural interest in development issues because its members, particularly the large masses of farmers in the developing world, will be the main beneficiaries of any developmental effort. Through their local and national networks, the farmer organisations under IFAP can play a constructive role in helping to design such development programmes, pinpointing inconsistencies based on the experience and feedback they gather from the field, assisting in the implementation of such programmes, and participating in monitoring exercises that will measure the success of such programmes against intended objectives. A case in point is IFAP’s recent collaboration with the Global Forum on Agricultural Research or GFAR and the FAO. Farmer organisations under IFAP are involved in the determination of agricultural research and development priorities in different parts of the world, are also involved in bodies that allocate budgets and set priorities for research activities and their role in technology dissemination and monitoring programmes. Similar linkages could easily be developed between IFAP and its member organisations and OECD countries which seek to implement development projects in selected areas. IFAP members in fact can provide such donor countries with independent feedback and proposals which could help in refining the design of development programmes and ensuring that such programmes complement other initiatives. There is therefore a clear case of allowing farmers to speak for themselves, making them active participants in the development process, and ensuring that development efforts are coherent, effective and responsive to the needs of farmers and the rural poor in general. As the IFAP stressed during a recent OECD proceeding: “Whether or not most of the millennium development goals are met depends on more effective and pro-poor producer organisations being engaged in all areas – from determining what should be done, to doing it, to monitoring progress”.




Chapter 5. POLICY COHERENCE FOR DEVELOPMENT: WHAT IT MEANS TO THE POOR1 Ibrahim Assane Mayaki Platform (Hub) on Rural Development and Food Security for West and Central Africa Abstract It is a well-established fact that improved income-generating capacity and economic growth are necessary for poverty reduction. Development policies which are incoherent reduce both growth and income prospects for Third World countries. Yet, poor countries as well as developed countries continue to implement policies which are not coherent with their objectives and with the Millennium Development Goals. As regards the poor at large, policy coherence for development means that national and global governance policies should not contradict the Millennium Declaration and its Development Goals. For instance, it is policy incoherent when developed countries increase foreign development assistance while adopting domestic and trade policies that create market distortions against strategic and important commodities vital to the development of Third World countries. A case in point that is well documented is African cotton. Policy coherence for development in favour of the poor will therefore mean that all government and bilateral and multilateral donors should work towards initiating, implementing and adjusting, at both national and global levels, policies that are not only complementary but also mutually supportive – policies that reinforce poverty reduction, hunger alleviation and food security goals. In other words, to the poor, policy coherence for development means supporting, creating and nurturing synergies for the achievement of pro-poor goals, including economic growth, even if it is not clear that economic growth can be seen as automatically contributing towards improving the lot of the poor. In view of the difficulties encountered by West and Central African States in establishing “coherent” development policies, a new form of power balance is emerging with a well-structured civil society poised to defend the interests of the poor. The new trend is an integral part of a dynamic democratisation process.

Introduction The fight against poverty has been at the centre of human activities ever since man appeared on earth. Whereas human beings have been making efforts to reduce poverty over the years, the gap between the poor and the rich continues to widen, leading to social and political unrest and even wars. The situation led the international community to commit itself, at the United Nations Millennium Summit in 2000, to a series of specific development goals and to dedicate itself to achieving them through a new global 1.

The terms “poor” and “developing countries”, as used in this paper, refer mainly to the countries and peoples of West and Central Africa.


82 – Part I. Setting the Scene partnership. In this regard, developing countries have resolved to establish sound policies, while the developed countries opted to provide additional aid and ensure that their policies worked toward supporting the development goals. These decisions were taken at the International Conference on Financing for Development held in 2002 in Monterrey, NL, Mexico. The developing countries’ commitment and the developed countries’ decision showed that the international community came to realise that policy coherence for development is a necessity, contrary to what prevailed until then. After the Monterrey meeting, the international community decided to set an agenda to promote, via policy coherence, positive changes in the conditions affecting poor countries and poor peoples in the world. With regard to the poor, policy coherence for development means that the national as well as global governance policies should not contradict the Millennium Declaration and its development goals. Policy coherence for development also implies, on the one hand, that development policies elaborated and implemented by developed countries, do not impede developing countries’ efforts to achieve the goal of reducing poverty, alleviating hunger and attaining food security. On the other hand, it means that developing countries and the poorest countries should make sure that (1) their domestic policies are consistent with the Millennium Development Goals, (2) the international aid they receive does not have a negative impact on their ability to produce domestically; (3) and the agreements they sign are not in contradiction with their own policies and strategies aimed at developing their economies and creating an enabling environment to improve living standards for their populations. That being the case, the question that arises is: “what then does policy coherence for development mean or what does it entail for the poor, i.e. poor countries, especially those of West and Central Africa and their populations? This paper will attempt to answer the question above by discussing the extent to which both developed and developing countries’ policies are coherent with, and can help them achieve the Millennium Development Goals, with particular regard to reducing poverty, alleviating hunger and attaining food security, the main concerns of the poor at large. The paper will focus on the implication of coherent development policies from the perspective of developed and developing countries and with particular regard to the cases of West and Central African countries. It will discuss the implication of the lack of coherence in governing instruments such as domestic macroeconomic policy instruments, domestic agricultural support, trade-related policy measures, non-tariff regulations, development co-operation and developing countries’ domestic policies, and their impact on the achievement of development goals aimed at accelerating growth and alleviating poverty.

Policy coherence for development: the case of the Least Developed Countries In a dynamic and globalised world, most developing countries have been striving to improve their economies through policies that are not always coherent with their domestic objectives and those of the Millennium Development Goals. This criticism is widely shared by the civil society in the Least Developed Countries (LDCs), especially by farmer organisations and professionals of the agricultural sector whose voices are being heard in international forums across the globe. The foundations, such as healthy and well-trained people, communication infrastructures and investments that would foster steady economic growth and yield wealth to combat poverty, are lacking in most of these countries. Yet their TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


macroeconomic policies often do not seem to address these problems. For instance, in West and Central Africa where most of the countries’ economies are desperately in need of capital investments, the French-speaking countries have decided - in a deal with France - to deposit up to 60% of their export earnings in an account abroad, thereby depriving their economies of these important resources. Besides, developing countries have not laid adequate emphasis on education and training as well as investment in communication and transport infrastructures whereas their economies need qualified manpower, in order to be more productive and to participate effectively in regional and world trade. Given that their economies are usually dependent on their agricultural sectors, the West and Central African countries should: •

Promote public investment in agricultural infrastructures and ensure that credit needed to modernise production and improve the competitiveness of agricultural products are available and accessible mainly to producers.

•

Follow consistent policies to encourage private investment in order to diversify and intensify production.

•

Adopt fair trade policies when it comes to agricultural activities and agricultural exports. In this regard, developing countries should strive to increase the share of agriculture in their public expenditures so as to promote and create an environment conducive to agricultural and rural development. Unfortunately, the majority of these countries have failed to adopt and implement these policy measures. Some of them have tried but they have failed to do so consistently. The lack of such policy measures has a negative impact on growth in the agricultural sector and therefore on farm income, which is essential to increasing demand for basic non-farm products and services in the rural areas. In turn, this has the potential to create employment and therefore to contribute to poverty alleviation. Secondly, these countries’ economies often rely heavily on foreign markets and aid although empirical evidence shows that development should first depend on internal market and local resources in order to be sustainable. Besides, most of the countries are exporters of primary materials and commodities, which implies that their economies are dependent on the prices of goods which also happen to be the lowest and the most volatile in the world markets. As these countries do not process their products before exporting and selling them, they deprive their economies of the added value that could be gained if the processing was done in the producing countries. The added value is often several times greater than the prices of the raw material being exported. Furthermore, in exporting raw products, Third World countries lose all the jobs that could have been created if these goods were also processed at home. The loss of such added value, coupled with job losses, could prevent economies in developing countries from growing as fast as the economies in developed countries which enjoy the benefits of added value from processing goods at home. Thus, economic growth of developing economies could continue to lag farther behind, thereby widening the gap between these economies and those of developed countries. Thirdly, while most developing countries are signatories to Regional Trade Agreements (RTA) within the framework of regional economic integration and Economic Partnership Accords (EPA), they are also engaged in the World Trade Organisation (WTO) negotiations. They have also signed bilateral and multilateral accords which impact their development policies. However, these agreements seem


84 – Part I. Setting the Scene limited in their usefulness. It is not always obvious that these countries will gain from the accords they have signed or that they will derive tangible benefits from the outcomes of the WTO negotiations. While it is possible that the countries would benefit from a boost in trade through an integration process that could also expand the market, the fact remains that regional trade agreements implemented among LDCs during the last four decades have not lived up to expectations. In Africa, the economies of several countries involved in these trade agreements have stagnated or declined. This is a clear indication that the overall impact of the regional trade agreements and the integration processes in which these developing countries are involved are not always coherent with their development policies and strategies. During the 1980s, when African economies hit a recession, they were advised to sign a drastic Structural Adjustment Programmes (SPA) with the Bretton Woods institutions (IMF and the World Bank). As these programmes very often increased debts for developing and poor countries, most of the programmes have not yielded the expected returns. The conditions imposed by these programmes are generally incoherent with the main objectives of increasing agricultural production, generating more income in rural areas and reducing poverty. Cutting extension services and resources for research on the one hand, and taking measures which lead to an increase in the prices of inputs, on the other hand, have reduced the resources available for making improved technology packages available to farmers in countries that signed SAPs. Therefore, most agreements and accords are not coherent with the objectives of developing countries. This means that if developing countries continue to pursue their policy objectives within the framework of these accords and agreements, then they are more likely to experience relatively small or even declining growth and may therefore remain underdeveloped. The solution lies in poor countries reviewing their domestic policies as well as the agreements and accords to which they are party with bilateral and multilateral partners in order to make them coherent with their own development policies and strategic objectives. To that end, better and coherent domestic development policies should be formulated and implemented and countries should show the initiative to adjust these policies to social, natural and economic changes as they occur. This calls for good governance so that the countries can take the right decisions, set priorities, ensure better resource allocation and management, and make sure that they are on the right course to development.

Coherence of developed countries’ development policies Although in general policies followed by developed countries affect the economies of Third World countries in one way or another, agricultural policies in particular have the most significant impacts on the welfare of poor countries. In general, agricultural policies pursued by developed countries can be grouped into four categories. First, they provide domestic income and price support to their farmers, thereby providing their farmers with opportunities to manage their resources better and be more competitive. Secondly, they usually adopt regulatory measures for food safety, environmental protection, consumer safety and protection, as well as intellectual property rights that affect trade in agricultural products. Thirdly, these domestic market interventions are usually supported by trade policy measures such as border tariffs and/or export and even domestic subsidies. Finally, at the international level, they often pursue development co-operation policies, including agricultural assistance and food aid programmes, trade preference to LDCs, duty-free and quota-free access to markets and trade liberalisation. A fundamental question in this context could be: If the developed countries’ policies have the potential to influence TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


progress in the Third World countries, then in pursuing their policy objectives, are developed countries concerned about the coherence of their policies for the development of the poor countries? In this section of the paper, we will try to answer the above question and to determine the impact of coherence in developed countries’ policies or the impact of their inconsistencies on the development of poor countries. In that context, we will also assess the African countries’ chances of attaining the Millennium Development Goals. Furthermore, we will examine the coherence of agricultural policy measures (categorywise) adopted by developed countries vis-à-vis the developing countries’ objectives and the impact of these policies on both poor countries and on their rural populations in particular.

Income and price support measures These two domestic policy measures often adopted by developed countries to increase incomes for their producers are usually coupled with trade-distorting border tariffs and/or export subsidies that lower world prices and reduce both exports and welfare in developing countries. According to Mathews2, the loss in welfare incurred by developing countries is estimated between five and ten billion dollars annually. Empirical studies have shown that developing countries have the most to gain from the withdrawal of tariff barriers and that subsidies are trade-distorting, with export subsidies being the most disruptive instruments for particular commodities and in particular markets. The adverse impact of subsidies on developing countries’ cotton is a topical issue. Despite such welldocumented evidence, developed countries committed to helping the poor countries attain the Millennium Development Goals have not given up, and are not willing to abandon, at least for the time being, those policies that are not coherent with the objective of helping poor countries in their endeavours to foster living better conditions for their people. Consequently, developing countries need to negotiate with developed countries so that they progressively phase out such policy measures that are incoherent with their development objectives.

Regulatory measures Although commodity standards in general and food standards in particular are necessary and good for international trade, especially for developing countries, more and more developed countries are setting stringent standards for food and other agricultural commodities. In fact, to address their populations’ growing concern about food safety, food quality and environmental protection, developed countries, sometimes unilaterally, set new standards and adopted more regulations which the poor countries found difficult to meet. These measures have effects on the level of trade between developed and developing countries. They reduced exports and export opportunities in some cases and diverted trade from developing countries that had difficulties in meeting the required standards. In the absence of adequate infrastructures, and with their low level of resources, most developing countries find it difficult to comply with the new regulations and consequently their market shares for exports in developed countries are declining.

2.

Matthews, A. (2005), “Policy Coherence for Development: Issues in Agriculture’’, An Overview Paper prepared for the OECD Global Forum on Agriculture: Policy Coherence for Development.


86 – Part I. Setting the Scene For example, when the European Union adopted its new regulation on Maximum Residue Limits in fruits and vegetables, two African countries, Cameroon and Côte d’Ivoire, suffered a sharp decline in their export earnings from these commodities. It took the two countries a few years to recover partially from these losses, which had a negative impact on their finances and on the welfare of their producers. Sanitary and PhytoSanitary (SPS) regulations are made to protect consumers so they are important in trade. However, SPS regulations have been and are being used by developed countries to discriminate against and limit trade in some commodities, especially from Third World countries. In those cases, the process of adopting SPS regulations becomes an incoherent policy that negatively impacts on the development objectives of Third World countries in particular.

Development co-operation policies Development co-operation policies, including agricultural assistance and food aid programmes, trade preference to LDCs, duty-free and quota-free access markets and trade liberalisation have been among the policies and strategies used by developed countries in the framework of development co-operation to assist developing countries in their efforts to the Millennium Development Goals. Although these policy measures are useful for both developing and developed countries, it is however important to note that they have not always helped the Third World countries attain the expected level of development. Development assistance is consistent with developed countries’ commitment to help developing countries pull out poverty by improving their economic growth and income generating capacity. But there is no coherence for development if developed countries increase their foreign assistance to developing countries while creating trade distortions against some of the most important commodities like cotton that could foster economic growth in the poor countries. Furthermore, developed countries have not always provided sufficient assistance, either in terms of quantity or quality, on a timely basis. Therefore, foreign assistance in most cases becomes ineffective since it does not allow developing countries to rationally invest and get positive returns on their investments. In the trade sector, developed countries have offered non-reciprocal trade preferences to developing countries so as to boost their exports and contribute to their development. They have also used duty-free and quota-free measures to provide additional assistance as a means of integrating the vulnerable economies of poor countries into the global economy. Yet, in the framework of Economic Partnership they are negotiating multilateral liberalisation that will reduce the value of the preferential marginal gains enjoyed by developing countries through non-reciprocal preferences. This will reduce income prospects for developing countries and will eventually impede their development. With food aid, developed countries have provided direct help, enhanced the availability of food in markets by lowering prices and have improved sustainability of balance of payments for poor countries facing foreign exchange shortages. Empirical evidence shows, however, that direct food aid creates distortions in developing countries and regional markets, a situation that leads to dependence on food aid, negative impacts domestic food production and changes in local nutritional habits which cannot be sustained. Several studies have demonstrated that food aid for development is more expensive than commercial food imports. Therefore, providing funds to developing countries for purchasing food on commercial terms is better than direct food aid. Nevertheless, most developed countries continue to use direct food aid as a way of helping developing countries cope with their food security problems. In some sense, this TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006


strategy helps developed countries to rid themselves of their surplus even though it is not coherent with the development objectives of their partners.

Conclusion It is a well-established fact that improved income-generating capacity and economic growth are necessary for poverty reduction. Policy incoherence in development leads to actions that reduce both growth and income prospects for Third World countries. Yet, poor countries as well as developed countries continue to implement policies which are not coherent with their objectives and with the Millennium Development Goals. With respect to the poor at large, policy coherence for development means that national and global governance policies should not contradict the Millennium Declaration and its Development Goals. For instance, it is policy incoherent when developed countries increase foreign development assistance while adopting domestic and trade policies that create market distortions against strategic and important commodities vital to the development of Third World countries. A case in point is African cotton. Policy coherence for development in favour of the poor will therefore mean that all government and bilateral and multilateral donors should work towards initiating, implementing and adjusting, at both national and global levels, policies that are not only complementary but also mutually supportive – policies that reinforce poverty reduction, hunger alleviation and food security goals. In other words, where poverty allevation is concerned, policy coherence for development means supporting, creating and nurturing synergies to achieve pro-poor goals. In view of the difficulties encountered by West and Central African States in establishing “coherent” development policies, a new form of power balance is emerging with a well-structured civil society poised to defend the interests of the poor. The new trend is an integral part of a dynamic democratisation process.

REFERENCES Anderson, K. (2004), “Agricultural Trade Reform and Poverty Reduction in Developing Countries”, World Bank Policy Research Working Paper 3396, Washington, DC, World Bank. OECD (2003), “Policy Coherence: Vital for Global Development”, Policy Brief, OECD, July 2003. OECD (2004a), “Policy Coherence: Vital for Global Development”, Policy Brief, OECD, January 2004. OECD (2004b), Agriculture and Key Issues for Policy Coherence for Development, OECD, January 2004. OECD (2004c), The Impact of Coherence of OECD Country Policies on Asian Developing Economies, OECD, May 2004. OECD (2005), Making Poverty Reduction Work: OECD’s Role in Developing Partnership, OECD, September 2005.



Part II. Enhancing Global Agricultural Trade Through a Fair and Market Orientated Trading System – 89

PART II. ENHANCING GLOBAL AGRICULTURAL TRADE THROUGH A FAIR AND MARKET ORIENTATED TRADING SYSTEM




Chapter 6. ENHANCING GLOBAL AGRICULTURAL TRADE: A STATUS REPORT Carmel Cahill Directorate for Food, Agriculture and Fisheries, OECD Abstract This paper looks at recent trends in trade in agricultural and food products, focussing on some key changes in the direction of trade flows between developed and developing countries. It reviews the current situation with respect to levels of support and protection in the OECD region and in some key non-OECD countries that are major players in agriculture and in agricultural trade. Market access and export competition issues are also reviewed. Some preliminary results are given from a recent OECD study that examines the impact of across the board reform of domestic support and protection at global, national and household levels.

Broad trends in world trade in agricultural and food products Understanding the changing structure of trade flows in agriculture and food products is important in understanding the trade policy stance of different countries and groupings as reflected in the on-going Doha Development Round. It is also important in understanding the scale and incidence of the trade liberalisation impacts projected in trade modelling exercises and how and why they differ across regions, countries and commodities. An indication of market share of the OECD, the Least Developed Countries (LDCs) and the rest of the world is given in Table 1. Agricultural trade is still dominated by the countries that constitute the OECD area. These countries account for over 70% of world exports of agricultural products and about 75% of world imports. Although these shares are slightly lower in recent years than prior to the Uruguay Round Agreement on Agriculture, the change has been small, and does not challenge OECD’s dominance. Least Developed Countries on the other hand account for a tiny share of world agricultural trade. That share has been growing much faster for imports than for exports, but remains small. Other countries have maintained their share of world exports in the post URAA period, but their share of imports has increased. Table 1. Shares by regions of agricultural trade Share of exports OECD LDCs All Others

Share of imports

1990-1994

2001-2004

1990-1994

2001-2004

71.4 0.4 28.2

71.0 0.8 28.1

77.1 0.4 22.5

75.0 1.1 23.8

Source: UN Comtrade, 2005.


92 – Part II. Enhancing Global Agricultural Trade Through a Fair and Market Orientated Trading System These broad indications mask some significant changes in the composition and direction of trade flows. Trade in processed products has been growing faster than trade in commodities and trade among developing countries has been growing faster than trade between developed and developing countries [FAO (2004) The State of Agricultural Commodity Markets]. However, as seen in Table 2, with the exception of south-south trade (developing country to developing country) growth in agricultural trade flows slowed following the URAA. Table 2. Growth by region in agricultural exports* 1990-1994

1994-2004

Developed to developed

3.1

Developed to developing

8.6

4.3 5.3

Developing to developed

8.0

2.0

Developing to developing

16.3

7.5

*Average annual growth rates. Source: UN Comtrade database, September 2005.

A feature of agricultural trade developments in recent decades has been the switch in the trade status of developing countries, who as a group have become net importers. This is illustrated in Figure 1. Since the mid 1980s LDCs have consistently reported net imports of agricultural and food products, in contrast to the 1960s and 1970s when they were net exporters. Similarly for all developing countries although for this much bigger grouping, the net trade status has fluctuated between net importer and net exporter status in recent years. For this group also the contrast with the earlier period is clear. With the exception of a short period at the beginning of the 1980s, developing countries were consistently net exporters of food and agricultural products up until the early 1990s. How important are agricultural trade flows in overall economic terms for the different regions or groupings? The answer to this question helps in understanding the concerns that underpin negotiating positions. For OECD countries generally, despite overall dominance of global trade flows, agricultural imports and exports account for less than 2% of GDP. Nonetheless, agricultural exports are relatively more important for countries like Australia and New Zealand (3 and 12% of GDP respectively). In contrast agricultural trade relative to GDP is much higher for LDCs – over 4% for imports and almost 3% for exports. For remaining countries (those not belonging to OECD or to the LDCs) the share of both imports and exports is in the region of 2.5%. Among the non-OECD countries agricultural exports are particularly important in the economies of countries such as Brazil, Argentina and Chile. Table 3 summarises these indicators for the main OECD and non-OECD country groupings.



Figure 1. DCs and LDCs Importers 20

15

10

5

Developing countries, Agricultural Products

Developing countries, Food and Animals

0

LDCs Agr Products

-5 LDCs Food and Animals

-10

19 61 19 63 19 65 19 67 19 69 19 71 19 73 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03

-15

Source: FAOSTAT.

Table 3. Significance of trade and agricultural trade All exports as a share of GDP

All imports as a share of GDP

Agricultural imports as a share of GDP

Agricultural exports as a share of GDP

OECD

17.4

18.9

1.5

1.7

LDCs

12.6

20.0

4.3

2.7

All others

29.2

26.9

2.4

2.6

Source: UN Comtrade, 2005; World Bank.

No attempt is made here to analyse or explain these changing trade flows. However, the underlying economic drivers and their interpretation are likely to be very diverse. A switch to net-import status could be the reflection of an agriculture sector unable to supply adequate food for a growing population or unable to compete with subsidised exports from developed countries. But, it could also reflect a more positive evolution towards specialisation in a growing economy that is switching resources into production of non-agricultural goods and services and increasingly able to import food to meet the needs of a larger and better-off population. How a country fares as a result of trade liberalisation depends, inter alia, on the importance of the liberalising sectors in its economy, its net trade status for different products and on the changes in the terms of trade that result from the process. These TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

94 – Part II. Enhancing Global Agricultural Trade Through a Fair and Market Orientated Trading System issues will be explored further in the section presenting the results of OECD work on the impacts of agricultural and trade policy reform.

Support and protection in OECD agriculture OECD estimates levels of support in agriculture for each of its member countries and for selected major non member economies, in the form of the Producer Support Estimate. The trend in this indicator for OECD as a whole and an illustrative selection of countries is shown in Figure 2. Although declining, the percentage PSE for the OECD area as a whole has remained stubbornly high, currently in the region of 30%. The variation across countries is wide, with Japan Korea, Norway and Switzerland all reporting %PSEs in excess of 50, while the reported levels for Australia and New Zealand have been below 5% for a long period. Although it fell significantly in the decade to the mid 1990s, support to agriculture in the US has been relatively high in historical terms in most recent years. The EU supports its farmers to a greater degree than the OECD average, although the overall level has been falling slowly. Major non-OECD players in world agricultural production and trade for whom the PSE has been estimated tend to fall systematically into the lower range of support levels, as evidenced by PSEs for China of 6% (2000-2003) and Brazil for 3% (2002-2004). There are many ways in which governments can deliver support to farmers. Traditionally they have chosen to support prices above market clearing levels with the help of border measures such as tariffs and quotas. More than 90% of support to agriculture was delivered in this way or through input subsidies at the time the Uruguay Round was launched. These measures have been shown to be the most distorting in terms of generating production and trade surpluses. It is also increasingly acknowledged that such measures are seriously flawed as vehicles to deliver income support to agriculture because of leakages to unintended beneficiaries outside the sector. They also have perverse distribution impacts which result in the bulk of the support going to those who already produce the most. In recognition of these flaws, and under increasing pressure resulting from the Uruguay Round and the current DDA negotiations, some OECD governments have been making significant changes in the way they deliver support to their farmers. Most noticeable has been a shift away from price supports to direct payments that are, over time, increasingly linked to historical or other fixed parameters and which as a result as likely to be less distorting in terms of production and trade. As can be seen in Figure 3 the share of this type of measure in the overall composition of support to producers in the OECD has increased significantly. It should nonetheless be noted that the most distorting measures still dominate the overall picture.



Figure 2. How levels of support have evolved

50

40

30

EU OECD USA China South Africa Australia Brazil New Zealand

20 10

0

-10

19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 0 20 3 04 p

-20

Source: OECD PSE/CSE databases.

Figure 3. Composition of support 1986-88

2002-04

Price support

Payments based on area planted/animal numbers Payments based on historical entitlements Payments based on input use Payments based on input constraints Miscelaneous

Source: OECD PSE/CSE databases.

Governments are not able to raise farm prices above those prevailing on world markets unless border measures are in place. Since the Uruguay Round Agreement on Agriculture, only tariffs and tariff-rate-quotas have been permitted. Despite the reductions TRADE, AGRICULTURE AND DEVELOPMENT: POLICIES WORKING TOGETHER – ISBN-92-64-02200-7 © OECD 2006

96 – Part II. Enhancing Global Agricultural Trade Through a Fair and Market Orientated Trading System in tariffs agreed and since implemented, bound tariffs in agriculture remain high. Figure 4 shows their distribution for the OECD Quad countries, comprising the US, the EU, Canada and Japan. Although shown in highly aggregated form, it is clear that a significant share of tariff lines carry tariffs that are in excess of 20%, and that the incidence of bound tariffs in excess of 100% is quite significant. Although not revealed in this graph, these high tariffs often apply to sectors of agricultural production that are important and extremely sensitive in the countries concerned – rice in Japan, dairy products in Canada, beef and dairy products in the EU, sugar and dairy in the US. In order to ensure that some degree of market opening occurred as a result of the URAA, despite the persistence of very high tariffs in many sectors, a system of tariff rate quotas was instituted as part of the agreement. Under these arrangements opportunities were to be allowed for the importation of specified shares of domestic consumption of particular products – again mainly those subject to the highest tariffs. These imports were to occur at tariffs significantly lower than the bound tariffs described in Figure 4. Again, the results of this market opening device were relatively modest. Many tariff-rate quotas have not been completely filled throughout the period since URAA implementation began, and overall, utilisation of these export opportunities has tended to decline from initial levels. Whether poor and falling fill rates relate to aspects of the way in which the TRQs are administered, or are a reflection of underlying market conditions, is difficult to determine. Figure 5 provides a snapshot of levels of import protection accorded by OECD and non-OECD countries to the main product groupings, towards the end of the period of UR tariff cuts. In contrast to Figure 4, the tariff rates used here are the applied rates (not the bound or maximum legally allowed rates under the WTO) and also reflect the preferences that are granted to some countries by others under various bilateral, multilateral, reciprocal and non-reciprocal arrangements. These aggregates confirm the existence of much higher rates of protection in both primary and processed agricultural products than for textiles or manufactures generally. They also confirm that OECD countries tend to protect their primary agricultural sectors from imports to a significant degree, while both OECD and non-OECD provide relatively high levels of protection to processed agricultural goods. An interesting feature that emerges from this figure is that developing countries generally accord much higher protection against textiles and manufacturing goods than they face themselves in trying to access OECD markets, thus potentially restricting growth in trade among non-OECD countries, across the whole range of agricultural and manufactured goods.



Figure 4. MFN Bound tariff distribution-QUAD

60

50

40 US EU CANADA JAPAN

30

20

10

0 0 34% 20-34% 5-19% 2.5-4%

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