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Agricultural Reforms Key to Reducing Poverty

With almost 70 percent of the poor people in developing countries living in rural areas, agricultural sector reforms -- in particular global trade liberalization -- will be crucial in giving them opportunities for better lives, according to a new World Bank report released on Tuesday.

The report, Global Agricultural Trade and Developing Countries, edited by M. Ataman Aksoy and John C. Beghin, notes that agricultural protection continues to be among the most contentious issues in global trade negotiations.

Developing countries have increased agricultural productivity, but these gains will not be fully translated into poverty reduction unless industrial and some middle-income countries reduce agricultural trade protection, the report says. Without such reductions, increased productivity will give rise to overproduction and price declines for many commodities, undermining poorer countries' efforts to expand exports and rural incomes.

"Growth in agriculture has a disproportionately positive effect on poverty reduction, because more than half the population in developing countries lives in rural areas, and poverty is highest in rural areas. This report clearly shows the need for coordinated, global trade reforms if we are to help the rural poor," said Fran├žois Bourguignon, the World Bank's senior vice president and chief economist.

While protection remains high in industrial countries, many developing countries have significantly liberalized their agricultural sectors.

Average agricultural tariffs, the main source of protection in developing countries, declined from 30 percent to 18 percent during the 1990s. Many non-tariff import restrictions were eliminated as well.

But low-income developing countries now export more to middle-income countries than they do to the EU, their largest export market in the early 1980s, and the agricultural trade surpluses of middle-income countries have diminished.

Projections in the report indicate that without significant reforms, the agricultural trade surpluses of industrial countries will increase while the developing countries will face increasing agricultural trade deficits, exacerbating rural poverty.

Reform would reduce rural poverty in developing economies because they have a strong comparative advantage in agriculture and because the agricultural sector is important for income generation. Liberalization of value-added activities is also crucial for expanding employment and income opportunities.

According to the report, the best approach to reform is a coordinated, multi-commodity, global liberalization of policies.

Consumers in highly protected markets will benefit from trade liberalization as tariff-inclusive prices fall and product choice expands. Consumers in poor, net-food-importing countries could face higher prices, but in practice such concerns have often been exaggerated, according to the report.

The report finds that border barriers are high in most of the commodity markets studied, including industrial countries and many developing countries. Many Asian countries remain bastions of protectionism in their agricultural and food markets.

Subsidies have similar effects, depressing world prices and inhibiting entry by inducing surplus production by noncompetitive, and often large producers. Cotton subsidies in the US and EU, for example, have reached US$4.4 billion in a US$20 billion market.

(China.org.cn January 11, 2005)

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