Agricultural Trade Policy in Developing Countries During Take-Off | Agriculture | Foods

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Agricultural trade has always been one of the most sensitive international trade issues. Governments around the world have long been reluctant to abandon policy instruments that give them influence over domestic prices and allow them to raise revenues. The most commonly cited justification for government intervention in agricultural trade is food security, since if domestic prices are too high, poor consumers may not be able to buy enough food, and if they are not high enough, producers will not produce enough food. The food security argument is stronger in some countries (e.g. food insecure developing countries) than in others (e.g. largely urbanised developed countries). This study looks briefly at the agriculture and trade policies of six different developing countries, each of which has enjoyed unusually high rates of economic growth and development. They are South Korea, Malaysia, Indonesia, Vietnam, Chile and Botswana. Their experience may shed further light on the extent to which governments should retain their powers to intervene in trade as opposed to relinquishing them in favour of market liberalisation.
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  Agricultural Trade Policy in Developing Countries During Take-Off Michael Stockbridge  A report by Oxfam GB REPORT   RESEARCH OXFAM   Disclaimer Michael Stockbridge is an independent consultant in agricultural economics, rural development, and the management of natural resources. This Oxfam Research Report was written to inform policy development on trade issues and as a background paper for the Oxfam Poverty Report (forthcoming). It is published in order to share widely the results of Oxfam-commissioned research. The views expressed in the report are those of the author and do not necessarily reflect Oxfam’s views.  Agricultural Trade Policy in Developing Countries During Take-Off Oxfam GB Research Report, July 2006 2  Contents Executive summary 4 Overview 7 Introduction 7 Overview of country studies 9 Lessons for other developing countries 16 Case studies 19 Indonesia 19 South Korea 25 Malaysia 31 Viet Nam 37 Chile 42 Botswana 49 Note: All economic statistics, such as those relating to GDP, employment, and trade, and agriculture’s contribution to these, are based upon World Bank Development Indicators (World Bank 2005) unless otherwise stated. Similarly, unless otherwise stated, all agricultural production data are based on the FAOSTAT online database (http://faostat.fao.org, FAO 2004).  Agricultural Trade Policy in Developing Countries During Take-Off Oxfam GB Research Report, July 2006 3  Executive summary Agricultural trade has always been one of the most sensitive international trade issues. Governments around the world have long been reluctant to abandon policy instruments that give them influence over domestic prices and allow them to raise revenues. The most commonly cited justification for government intervention in agricultural trade is food security, since if domestic prices are too high, poor consumers may not be able to buy enough food, and if they are not high enough, producers will not produce enough food. The food security argument is stronger in some countries (e.g. food insecure developing countries) than in others (e.g. largely urbanised developed countries). This study looks briefly at the agriculture and trade policies of six different developing countries, each of which has enjoyed unusually high rates of economic growth and development. They are South Korea, Malaysia, Indonesia, Viet Nam, Chile and Botswana. Their experience may shed further light on the extent to which governments should retain their powers to intervene in trade as opposed to relinquishing them in favour of market liberalisation. Overall objectives of agriculture policy Agriculture played a very large role in the economies of all of the countries prior to take-off, as a source of both GDP and employment. The exception is Chile, which began its process of urbanisation/industrialisation much earlier than other developing countries. A common feature of agriculture in the Asian countries is the pivotal position of rice, mostly grown by relatively poor smallholders and therefore the main focus of policy-makers concerned with food security and poverty reduction. In Botswana, sorghum and maize play a similar role, and in Chile, wheat is the dominant crop. In applying trade and other price-related policies, the six governments faced a trade-off between the welfare of producers on the one hand, and of consumers on the other. The six countries have approached this dilemma in different ways. South Korea favoured consumers over producers; in Malaysia and Indonesia policies have been generally supportive of rice producers; in Viet Nam, the government belatedly benefited rice producers by lifting export restraints; economic growth in Chile coincided with the liberalisation of both internal and external trade that served to eliminate the bias against agriculture; as a net importer of food Botswana kept domestic food prices under control by operating a liberal import regime, whilst at the same time using revenues from diamond exports to finance massive farm subsidies that helped to keep producer prices above their free market level. One should not underestimate the importance of political stability in the pursuit of economic growth, nor the role of food and agricultural price stability in achieving this. Agricultural policy in many of the case study countries, especially the Asian ones, needs to be understood in this context. Key policy instruments A wide range of policy instruments have been used. In the staple food sector the Asian food-importing countries used state trading monopolies (Malaysia, Indonesia) and import licences and quotas (South Korea) – tariffs played a minimal role. In the other food-importing nations, food was either permitted to enter the country tariff-free (Botswana) or was subject to a variable levy aimed at stabilising domestic prices (Chile). Food-exporting nations (Viet Nam and Chile again) largely removed export restrictions, although both countries had placed heavy restrictions on trade prior to that. In Botswana  Agricultural Trade Policy in Developing Countries During Take-Off Oxfam GB Research Report, July 2006 4
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