I thought with the up-coming US Senate vote on GATT, this might be of interest.
Andrew Sessions
Department of Political Science
University of Wisconsin
Madison, WI 53703 USA
---------- Forwarded message ----------
From: ROCHER Joseph <[EMAIL PROTECTED]
Subject: Policy Options for African Nations
November 18, 1994
"Farm Policy Options for African Nations"
- Chirag Mehta, Associate, European Network on Food, Agriculture
and Development (RONGEAD)
"The main implications for the developing countries concern the
changed set of policy options that they face in the post-Uruguay
Round world... Whether the pressure comes from the new GATT
disciplines or from those deriving from structural adjustment
policies (SAPs), both point in a rather similar direction." -- FAO
Commodities and Trade Division(1)
The following chart was taken from a paper prepared for an Expert
Consultation on International Policy Change and Agricultural Trade
in Sub-Saharan Africa under the auspices of the Food and
Agriculture Organization (FAO). The chart categorizes farm policies,
their compliance with GATT Uruguay Round Agriculture Agreement
rules for developing countries, and Structural Adjustment Programs
(SAPs), administered by the International Monetary Fund (IMF)
and the World Bank(2). The results do not apply to least developed
countries -- LDCs are offered more exemptions from the Uruguay
Round agriculture rules on market access, domestic support, and
export subsidies, as long as they remain in a least developed
state(3). In this paper, therefore, we will discuss policy options as
they pertain to developing countries, assuming that as LDCs
develop, they will be bound by the same rules.
===========================================================
Agriculture Policy GATT Compliance SAP Compliance
===========================================================
Non-tariff barriers Poor: Distorts prices. Poor/Moderate:
Increases AMS. Tariffs
acceptable with limits
Output price support Poor: Subject to limits. Poor: High cost. Hard
Distorts prices. to target.
Increases AMS
Input subsidies Moderate: Exemptions Moderate: High cost
available.
Credit subsidy Moderate/Good: Less Good: Easier to target
price distortion.
Food security stocks Moderate/Good: Trans- N/A
actions can be at
administered prices.
Subsidies must be in-
cluded in AMS.
Subsidized food Good N/A
distribution
Direct-income Good: No increase Moderate: Feasible.
in AMS provided it May involve
meets critera. excessive costs
Public investment Good: In general, no Good: Minimum
distortion or increase distortion of market
in AMS.
============================================================
In sum, SAPs have gone much further in liberalizing trade and
removing government from the role of developing the agricultural
sector than the mandates set out by the Uruguay Round for
developing countries and LDCs. And by all indications, they will
continue to do so.
The Uruguay Round Agreement on Agriculture is significant
because, in general, it reinforces SAPs, and locks developing
countries into a framework of liberalization. More importantly,
according to Carol Thompson, "GATT does not address food security
and could actually undermine national sovereignty in food
production."
GATT Secretariat rhetoric regarding the Agriculture Agreement; on
the other hand, asserts that after 10 years, when the
implementation period is complete, developing countries will be
able to compete in world export markets. The exemptions set aside
for developing countries and LDCs were designed for this reason,
according to the rhetoric -- to give developing countries time to
adjust and "catch up."
The rhetoric, not suprisingly, is far from the current reality. For
most countries of West Africa, at least in the short-run, any policies
initiatives will take place within the framework of structural
adjustment programs1. The effects are two-fold. First, SAPs impede
the use of most of the useful exemptions from Uruguay Round rules
on Agriculture. Second, if SAPs continue unchanged, they will at the
veryJleast insure that any potential gains from agricultural export
markets, bolstered by the Uruguay Round, will not translate into
real gains in producer efficiency, security and living standards for
African consumers and farmers.
- Input subsidies
SAPs have generally reduced the use and scope of input subsidies
in client countries (5). Subsidies for critical inputs like fertilizers
and pesticides are almost always cut (6). In Zimbabwe, the
intention of the government is to cut all producer subsidies by the
1994-1995 budget year (7). In Zambia, elimination of producer
subsidies, in addition to price de-control for key agricultural
commodities, led to an inflationary spiral which ultimately led to
food riots in 1986 and 1990 (8). The IMF and World Bank strongly
encourage cash cropping of coffee and cocoa in Cote d'Ivoire
through higher producer prices, however, public subsidies for
modern imported inputs for these cash crops have still been cut (9).
- Credit subsidies
"Subsidized credit schemes...which are designed to generate a
satisfactory level of loan recovery, and interest rate subsidies are
typical of programs which might be encouraged under SAPs."(10)
At the same time, however, credit markets and interest rates are
almost always removed from government control to help
"discipline" monetary systems -- offsetting the benefits of SAP-
endorsed credit schemes. This policy approach demands a squeeze
on credit, higher interest rates, and higher bank deposit reserve
requirements (11). In countries like Cote d'Ivoire, long-term
commercial credit at the farm level is virtually unobtainable (12).
- Food security stocks
For mostly budgetary reasons, SAPs typically mandate that
governments purchase grains for food stocks from the cheapest
source, which under many circumstances means foreign sources
instead of domestic farmers. To the contrary, Zimbabwe's maize
policy, for example, is to retain a floor price for maize, higher than
the world price, and guaranteed by the Grain Marketing Board,
which will ensure production of enough food, including a surplus
for the stockpile. Zimbabwe's history with the IMF and its SAP is a
reminder of the importance of maintaining high levels of grain
security stocks -- which the SAP has jeopardized once before (13).
Therefore, Zimbabwe has been able to deviate from orthodox SAP
policy in the case of maize. However, if the world price for maize
fails to rise in coming years, Zimbabwe will either have to drop the
floor price of maize, purchase imported maize for food stocks, or
continue to subsidize its own production of maize for food security
purposes in the face of World Bank, IMF, and GATT opposition (14).
- Subsidized food distribution
SAPs almost always eliminate consumer food subsidies. At times
they have been reinstated, or SAPs have collapsed because of the
immediate and severe social consequences. In Tanzania, and more
so in Zambia, elimination of the maize meal subsidy led to massive
social demonstrations (15).
- Direct Income Payments
Under few circumstances do SAPs allow direct income payments to
farmers. The FAO, in fact, comments in its report that direct income
payments to farmers in most developing country contexts are not
feasible despite their good compatibility with GATT rules -- mostly
because of budgetary constraints (16). A deficiency payment for
producers of tradeable commodities, similar to the U.S. or EU
mechanism, may be feasible, although more difficult to administer
and target (see paper on deficiency payment strategy). Such a
mechanism has never been tried by an African country so it is not
entirely possible to predict how the IMF and World Bank would
react to such a proposal beyond its budgetary demands.
- Public Investment
The World Bank has historically encouraged governments to borrow
and invest great amounts of resources into irrigation projects,
energy schemes like dams and nuclear power plants, new
roadways, and storage facilities.
The scope of public investment, however, is dependent on budget
constraints. In Cote d'Ivoire, public investment into rural
infrastrucuture projects like roads and irrigation have been
suspended largely because of budgetary shortfalls (17).
- SAPs: The Wrong Policy Approach for Post-Uruguay Round World
Markets
SAPs historical record shows that they have damaged the
fundamental components of domestic food markets in Africa --
consumers' purchasing power and producer efficiency -- while
aggresively exporting away valuable food and resources(18). This
ongoing process will negate the real value of any GATT-predicted
windfall for LDCs as a result of the Uruguay Round Agreement.
For consumers in developing countries, removing prices from
government control, elimination of subsidies to purchase food, and
currency devaluation have made prices for basic household
necessities, farm and manufacturing inputs, school books and
medicine in many cases unaffordable -- undermining the capacity
of the population to purchase domestically produced food (19). For
developing country producers, the same set of policies makes
imported farm inputs more expensive, credit more difficult to
obtain, and the competition with cheap imports more fierce --
offsetting potential increases in world prices(20), and making it
more difficult and less advantageous for producers to diversify
production away from traditional export crops(21) .
Moreover, if African debt does not significantly decrease, the IMF
will direct any increases in export revenue from higher commodity
prices, expected after the Uruguay Round agriculture rules take
effect, to debt payments. Debt for many SAP recipients has risen in
real terms over the last decade and debt payments are eating up
larger shares of national budgets. Ghana, which is touted as a
'model' client by the IMF, saw its annual debt payments, as a
percentage of the value of its exports of goods and services, rise
from 31% in 1981 to 35% in 1990 (22).
- New Institutional Trinity
Power over the developing country policymaking will likely remain
with the IMF and World Bank, even after the creation of the World
Trade Organization (WTO) -- the successor to the GATT. Colombian
Ambassador to the UN and former chairman of the Group of 77,
Luis Jaramillo remarked, "The terms of its (WTO) creation suggest
that this organization will be dominated by the industrialized
countries and that its fate will be to align itself with the World
Bank and the IMF."(23) An influential Bretton Woods commission
studying the future roles of the Bretton Woods Institutions
revealed its similar conclusions soon after the completion of the
Round. "The Commission believes that the IMF should focus on the
international monetary system and macroeconomic adjustment
issues...and the Fund should play a central role in stronger
coordination of economic policies around the world."(24)
Marginalization of the United Nations, specifically the UN
Conference on Trade and Development, in the economic policy arena
will facilitate this shift in power, believes Jaramillo. "We could
announce in advance the birth of a New Institutional Trinity which
would have as its specific function to control and dominate the
economic relations that commit the developing world. The
institutional reform of GATT is directed at bringing about, in the
area of trade, a further weakening of the UN, the only multilateral
mechanism in which the developing countries can have some
say."(25)
Footnotes:
(1) Committee on World Food Security, Food and Agriculture
Organization. "The Uruguay Round Agreement and Its Implications
for Food Security," March 1994.
(2) SAPs are packages of reform measures mandated by the IMF
and World Bank for countries drawing loans from either institution.
The reform package for LDCs and developing countries typically
includes trade and investment liberalization, liberalization of the
banking system, privatisation of state enterprises, currency
devaluation, and the withdrawal of the state from national social
programs. Thirty six of Africa's 47 countries have a SAP with the
IMF and the World Bank.
(3) 26 GATT members are LDCs. 68 are developing countries.
(4) Pearce, Richard. "The Implications of Changes in the
International Trading Environment for Production Policy in
Developing Countries," December 1992.
(5) Ibid.
(6) Public Interest Research Group. "Strucutural Adjustment: Who
Really Pays," March 1992.
(7) Kadenge, Phineas, ed. "Zimbabwe's Strucutural Adjustment
Programme: The First Year Experience," SAPES Books, 1992.
(8) Mwanza, Allast, ed. "The Strucutural Adjustment Programme in
Zambia: Lessons From Experience," SAPES Books. No date Available.
(9) Reed, David, ed. "Structural Adjustment and the Environment,"
EARTHSCAN Publications ltd., 1993.
(10) Pearce, 1992.
(11) Raghavan, Chakravarthi. "Less laissez-faire, more intervention,
says UNCTAD," THIRD WORLD ECONOMICS, Issue No. 95, August 16-
31, 1994.
(12) Reed, 1993.
(13) See Colin Stoneman's and Carol Thompson's paper for a history
of food security stocks in Zimbabwe.
(14) Stoneman, Colin and Thompson, Carol, December 1993.
(15) Bryceson, Deborah Fahy. "Liberalizing Tanzania's Food Trade,"
UNRISD, 1993.
(16) Committee on World Food Security, Food and Agriculture
Organization, March 1994.
(17) Reed, 1993.
(18) Broad, Cavanagh, and Bello. "Development: The Market is Not
Enough," FOREIGN POLICY, No. 81, Winter 1990-1991.
(19) Studies of Zimbabwe's SAP show that, contrary to what the
IMF believes, consumer price inflation is mainly caused by rising
costs of production, or "cost-push" inflation -- a product of a
combination of domestic policies like devaluation, higher import
prices, a dependency on imports, and removal of producer and
consumer subsidies. The IMF argues that inflation is a result of
growing money supplies and therefore prescribes -- higher interest
rates and cuts in budget expenditure for state enterprises, civil
service, health care, education and other social services to reduce
budget deficits.
(20) A UN study of 12 SAPs found little improvement in real export
earnings as a result of currency devaluations.
(21) Public Interest Research Group, 1992.
(22) Bello and Cunningham, "Dark Victory: The United States,
Strucutural Adjustment, and Global Poverty," Third World Network,
1994.
(23) Khor, Martin. "The South At the End of the Uruguay Round,"
THIRD WORLD RESURGENCE, No. 45, 1994.
(24) Graham, George. "Bretton Woods Twins Rethink Their Roles,"
FINANCIAL TIMES, September 30. In response to this
recommendation, IMF Managing Director Michel Camdessus
commented that he would welcome the chance to follow the
Comission's advice, however, the willingness of the leading
industrial countries to cooperate in placing themselves under more
rigorous surveillance by the Fund is still "somewhat embryonic."
(25) Khor, 1994.
----------
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for African nations in the post-Uruguay Round economic
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