Introduction
The seminar 'From Plunder to Economic Democratisation' forms part of a series of meetings organised in June 2003 by Agriterra and Agricord. These meetings aim at promoting the debate on trade, development and agriculture among farm leaders, policy-makers and other stakeholders in agriculture and development.
The meeting of June 4 consisted of two parts. It started with a Master Class on Macroeconomics for farm leaders from developing countries, introducing the eight pillars of anti-rural policies. This first part was followed by the seminar 'From Plunder to Economic Democratisation,' in which farm leaders from both developing and developed countries met with scholars, development officers and policy-makers to exchange opinions on the relevance and evidence of anti-rural policies. The seminar consisted of three introductions, followed by a plenary debate on the issues at stake.
Master Class on Macroeconomics
The Master Class 'The eight Pillars of Anti-rural Policy. Urban Bias in Economic Development?' was given by Dr. Ruerd Ruben from Wageningen University & Research Centre. It consisted of the following six parts:
· Agriculture and economic development
· The concept of urban bias
· Eight pillars of anti-rural policies
· Structural adjustment policies: empirical evidence
· Differentiated responses
· Issues for debate
Agriculture and rural development
Agriculture is important for rural development. Its main functions are: food provision, export earnings, input delivery, labour supply and savings mobilisation to invest in other sectors of the economy. Governments try to mobilise the rural surplus in order to realise a rapid structural transformation of the economy and for cheap food provision to urban areas (low food prices). Large-scale enterprises received a lot of facilities from the government, while small farmers had to confront high input prices and low food prices (the 'price-scissors').
The concept of urban bias
M. Lipton defined the urban bias as the large share of resources that in poor countries are allocated to urban areas. This is inefficient and unfair towards rural areas.
The eight pillars of anti-rural policies
Parting from the concept of urban bias eight pillars of anti-rural policies can be distinguished. Four have to do with prices: an overvalued exchange rate, rigid price controls for agricultural products, taxation of agricultural exports and protection for industry. The other four have to do with institutions: the neglect of physical infrastructure in rural areas, the neglect of social services in rural areas, high costs for rural credit and legal constraints. It is important to note that not all of these eight pillars are applied in every developing country.
In a situation of an overvalued exchange rate the supply of national currency is larger than the demand. Then imported food and agricultural inputs are relatively cheap, while exported products are relatively expensive and less competitive and producers receive less money. This leads to lower domestic prices for agricultural products, declining farm profits and revenues for the state (through indirect taxation).
Rigid prices controls refer to measures such as state control on domestic commerce (licences), pan-territorial pricing (the same price in every region), price regulation through the setting of minimum or maximum prices, the use of imports for price stabilisation and consumer subsidies.
Taxation of agricultural exports takes place through high tariffs on agricultural exports, border taxes and handling fees, consumption levies, import taxes in the EU and US, and progressive tariffs.
Protection of industry can be achieved through measures such as import levies on industrial imports, support for infant industries (in the framework of an import substitution policy), free ports and tax havens, and special labour regimes.
The neglect of physical infrastructure in rural areas refers to road construction and maintenance, water and sanitation, electricity and irrigation.
Rural social services in the field of education, health care and extension are neglected as well. The access rates are low and transaction costs high. The HDI (Human Development Index) in rural areas is 20 40 % below urban HDI.
The high costs for rural credit are reflected in a limited bank credit, high and regulated interest fees, extremely high transaction costs, imperfect information and the existence of a bi-polar financial system (formal informal).
Legal constraints in the rural areas apply to such areas as land tenancy rights (hire, lease, inheritance), collateral provisions, co-operative and association laws, and constraints in labour mobility (permits to go to the city).
Structural adjustment policies: empirical evidence
Structural adjustment policies aim at macroeconomic stability and outward-oriented growth. IMF focuses on exchange rate adjustment and debt restructuring, the World Bank takes care of budget and tax reforms, domestic market liberalisation and public decentralisation, while the WTO works on international market liberalisation.
As a result most trade distortions are eliminated. The cost/value ratio has become higher because agricultural inputs are now more expensive. However, many entry barriers to trade remain and competition has not increased. There is a stronger variability and volatility in prices. Persistent bottlenecks to rural development are still in place, especially in credit, storage and transport. The supply response reactions are mixed; there is no increase in productivity and return per hectare.
Differentiated responses
Empirical evidence suggests that in general the urban bias has disappeared and that there is an improvement of the agricultural terms of trade. The welfare effects of this shift depend on the import dependency of the country, the tradability of the agricultural production and the possibilities for substitution of external inputs for local inputs. But there are winners and losers. Gains have accrued mainly to countries with a low agricultural trade share, to commercial farmers in export agriculture and to land owners and wage earners.
Issues for debate
What alternatives exist? Public infrastructure investment would lead to a more pro-poor economic growth. Public spending in extension, education and research might complement programs of public infrastructure investment. Improving systems of rural finance and insurance would lead to more private investments in agricultural development. Finally, market reforms in the EU and US would give an important impulse to agriculture and rural development in developing countries.
Introductions on anti-rural policies
The seminar started with three general introductions on the theme:
· 'From Plunder to Economic Democratisation,' on market entry and political participation. By Dr. Kees Blokland, managing director of Agriterra.
· 'Should Africa Protect its Farmers to Revitalise its Economy?,' on public investment and price support. By Dr. Niek Koning, Wageningen University & Research Centre.
· 'Policy Regimes and Performance of the Agricultural Sector in Latin America,' on the appropriate combination and sequence of public support and market reform. By Dr. Max Spoor, Institute of Social Sciences, The Hague.
Kees Blokland started his presentation stating that nowadays there is no general anti-rural bias. It is more a situation of winners and losers within the agricultural sector in each country; some agricultural sub-sectors are promoted, while others are neglected in national policies.
This changing scenario has implications for farmers organisations advocacy. There is a need for new advocacy targets and concertation among farmers has become more difficult, as winners have to come to support losers. National governments should be addressed and convinced to support losing sectors.
At the international level, can the subsidised exports[1][*] from rich countries also be a new advocacy goal? Possibly, but developing countries would reap only relatively small benefits from a reform of the EU agricultural policy; for ACP countries the benefits would even be negative. In order to benefit from increased market access, farmers in developing countries would have to develop production and trade capacity. Governments of developing countries should create an enabling environment for farmers initiatives.
A second possible advocacy theme would be the imposed economic liberalisation. But IMF is a lender of last resort for governments messing up their economy. Its conditions restore sound economic policy. Farmers should be happy with IMF. And within the general conditionalities there is still a lot of room for manoeuvre for governments to protect or develop certain economic sectors. Farmers should worry about protection without development of the protected sector.
The third and according to Kees Blokland most fruitful advocacy target would be economic democratisation. This requires strong farmers organisations from the grass-roots up to the international level. Farmers organisations need to propose economic initiatives at all levels that respond to farmers interests. Farmers lobby needs to focus on the policy environment in developing countries, the development of production and trade capacity, the strengthening of farmers organisations at all levels and more research on the role of farmers organisations in economic development.
Niek Koning has done research into the causes of Africas troubles with respect to economic development. A basic problem is formed by the hard limits against increasing agricultural exports: the global overproduction and the ever higher quality standards. But most farmers anyhow do not benefit from increased export opportunities. Furthermore, liberal reforms stagnate when it comes to public sector retrenchment; governments go on trying to let farmers pay for the expenses. Liberalisation is not enough to break out of the crisis.
In historical perspective the present day situation of Africa has parallels with the situation in Europe in the 19th century. In Europe population growth raised agricultural prices, so that farmers could invest in sustainable development. However, global industrialisation has broken this relation. The recent population boom in developing countries did not raise agricultural prices. What were the responses of developing countries? Latin America witnessed a mass eviction of poor farmers. In post-colonial Asia governments turned to protection of farmers. In Africa there was no mass eviction of farmers from the countryside, as traditional land property mechanisms did not permit this to happen. Neither did governments protect farmers and agriculture in order to make it possible for farmers to invest in sustainable forms of intensified agriculture. The result is that in Africa farmers are caught into vicious spirals of poverty and soil degradation.
There is a way out. WTO should produce an arrangement to balance international markets, control dumping and maintain international prices within an acceptable price range. At present, this is being blocked by developed countries, which are shifting from open dumping practices to more disguised dumping by direct payments and income support. The solution proposed by Niek Koning is that developing countries are allowed to protect their agricultural markets. Tariffs bring governments revenue, which can be used for public investments in productive infrastructure. Tariffs protect the domestic agricultural production and stimulate its development.
There are many objections against protection. Protection would reduce efficiency. This generally speaking might be true, but in the case of agriculture protection stimulates innovation and reduces over-exploitation of soils. Protection would breed rent-seeking pressure groups. But farmers are too far removed from political power to exploit the rest of society. Higher food prices supposedly hurt poor consumers. This objection can be countered pointing out that increased agricultural prices reduce poverty because they create employment and raise workers income. Furthermore, the revenues generated through the application of tariffs could be used for employment projects.
A final note of warning on protection. Tariffs should be applied in a sensible way: not too high, not only for small groups of large commercial farmers, and at borders of sub-regional customs unions rather than on a national base. Tariffs are no panacea for agricultural development. Public investment in research, infrastructure, secure land rights and sometimes land reform are the motor for agricultural development. Tariffs may be needed to make these measures work.
Max Spoor states that during the mid 1990s economics was about getting the prices right, through taking away subsidies and taxation. This was a sort of moral judgement to the extent that if you did not agree with the Washington Consensus of IMF and World Bank, you were not a sound economist. World market prices in that period were perhaps right, but also very volatile. In fact, prices were determined by very few players, which is not exactly a characteristic of a free market. The gap between poor and rich was not bridged at all we are moving towards a world without a middle class.
Several myths of liberalisation were brought into the world by the free market economists:
· 'The policy regime of import substitution of the 1960s and 1970s is bad for agriculture.' In fact, in Latin America agriculture did not do so bad, it showed a stable growth rate.
· 'The 1980s were a lost decade for agriculture.' In fact, in Latin America agriculture was doing much better than other economic sectors. Only in the case of products with extreme low world market prices, agriculture experienced stagnation.
· 'Agriculture should respond well to the liberalisation of the 1990s.' In this period the growth rate was actually lower than in the 1960s and 1970s.
There are different reasons why agriculture did not respond as expected. Besides anti-rural measures, many governments also take pro-rural measures, such as investments in agriculture. Furthermore, not all agricultural products are tradable. The non-tradable products are not affected by trade rules. For the tradable products, while they got an impulse from the opening of markets in the 1990s, at the same time many governments diminished investments in agriculture. In the end, it was only a number of small commercial sectors that benefited significantly from economic liberalisation.
What to do? It is important to investigate what governments should do to improve agricultural production. Protection of markets, generate off-farm employment, etc.? Governments should be pressed to do something.
Debate
The debate centred on the questions whether current policy regimes favour rural development in developing countries and what should be the role of advocacy and lobby for the development of farmer capacity and trade. Several important issues were addressed by the participants: the eight pillars of anti-rural policy, the consequences of structural adjustment, market liberalisation versus protection of agriculture, governments role in agricultural development, food and agricultural policy, the role of farmers organisations in economic democratisation, capacity building of farmers organisations, and possibilities for advocacy.
The eight pillars of anti-rural policy
Two more pillars of anti-rural policy were proposed: the agricultural policies of developed countries and the lack of empowerment of rural communities. One of the participants proposed to formulate not only the pillars of anti-rural policy, but also the pillars of pro-farmer policy. In this second set of pillars policies such as pro-farmer trade arrangements, government investments in agricultural development, opportunities with big donors for investment in agriculture and the strengthening of farmers organisations could be included.
The consequences of structural adjustment
Most participants mentioned negative effects of structural adjustment and did not think the Washington Consensus had brought benefits to their countries. Although renowned economists argue that opening up markets in developing countries brings more economic growth, empirical evidence is lacking. Countries such as China and India first built a strong agricultural sector before opening up markets and competing with other countries.
In Kenya, IMF and World Bank induced policies of privatisation of state enterprises are opening space for multinational companies. In the case of the privatisation of extension, health and education services, however, the private sector did not take up. The overall result has been more poverty and hunger.
A participant from Brazil criticised international institutions for focusing exclusively on production and competitiveness. Instead, food should be the central issue. Internationally, the concept of food sovereignty should be the guiding principle to structure world trade: every country should produce its own food and define its own food policies.
One participant issued a note of caution not to treat the debate on structural adjustment as just a debate on economics, whether the World Bank economic analysis is right. In fact, it is a political debate on whether there is the will to change things and to take up responsibility for the consequences of the policies.
Market liberalisation versus protection of agriculture
Participants from developing countries (Nicaragua, Philippines, Rwanda) felt that opening up markets is dangerous, as farmers in these countries cannot compete with p.e. China, the US and New Zealand. Small farmers and rural workers are the losers. Protection of agriculture in developing countries is necessary. This gives space for home-grown agricultural policies. But protection will not work, if it is not coupled with investment in agriculture and the transfer of knowledge to farmers. For some countries focusing more on regional markets might be a possibility.
Participants stressed the negative effect of US and EU subsidies (for example on cotton) on farmers in developing countries. Farmers in developing countries cannot compete with the subsidised products from rich countries. In other cases (Vietnam) export to developed countries is hindered by high barriers to enter their markets. Conditions in international markets should be made fair. A Dutch participant suggested to shift northern subsidies from high tech agriculture towards integrated, sustainable models of agriculture. This would lead to less dumping and do less harm to developing countries agriculture.
In some countries (India) the main problem is formed by unequal power in the internal trade. Farmers should get a stronger position vis-à-vis internal traders.
Finally, in countries such as Senegal and the Philippines there is a large subsistence farming sector. For these small-scale producers the discussion on liberalisation or protection is irrelevant, as they do not have any export potential.
Governments role in agricultural development
Many participants from developing countries argue in favour of the government investment in agriculture and other types of support (infrastructure, marketing, credit, transfer of technology, improvement of product quality, etc.). Only with this type of support can agriculture become competitive, at least with neighbouring countries.
Investment is agriculture comes before social investments. Investments in schools, health and roads vitally important, but will have no effects if prices for farmers remain so low.
Capacity building of farmers' organisations
Many participants stressed farmers' organisations need for capacity building and strengthening themselves. They need capacity building in order to lobby their own governments and WTO and IMF (Nicaragua). They also should prepare themselves for the opening up of markets and build up capacity for trade (Philippines, Vietnam). Farmers organisations in West Africa are very weak should receive support from northern NGOs (Guinea). The Indian farmers organisations asks developed countries to help to empower farmers so that they can face traders, politicians, bureaucrats and banks.
The role of farmers' organisations in economic democratisation
The big issue is how to transform farmers organisations from concentrating on political and organisational work to organisations capable of participating constructively in economic development. In the case of the Philippines for example, this implies not only pressuring the government with demonstrations and hunger strikes against liberalisation, but also assuming representational roles, for example in committees of the agricultural department, and open spaces to have a say in the domestic debate on tariffs. In Kenya, the farmers organisation might participate in the partnership of the government with non-state actors for developing agricultural policies.
But for many farmers organisations to participate in economic democratisation is not an easy task. In Uruguay they have very little room for negotiating. In Vietnam, the national farmers organisation is still organising itself from the grassroots up, in order to make the farmers voice heard. In Kenya, the farmers organisation feels it needs to develop itself institutionally before being capable of participating in government initiated partnerships.
Gerard Doornbos, president of Agriterra, Agricord and the Dutch national farmers' organisation LTO, closed the seminar. He welcomed this Agriterra initiative as an important opportunity for exchange between farm leaders from all over the world.
He warns for the dangers of talking in general of agriculture in developing countries. There is no one developing country, all have very different subsidies. In the same vein it could be argued, that for a given crop there are different production systems, different markets etc. The challenge is to determine for each concrete country and crop, which set of solutions and combination of policies we adopt.
Mr. Doornbos is convinced that trade liberalisation is necessary, although the extent of liberalisation may have to differ. Rich countries should acknowledge that the current trade rules disturb agriculture in developing countries. Especially the export subsidies of EU and US are harmful. Fair trade needs to be achieved and it is clear that this implies a much freer trade than we see today.
