Conclusions of World Bank commodity studies are outlined
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CTA. 2003. Conclusions of World Bank commodity studies are outlined. Agritrade, July 2003. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/52469
In a paper submitted to the Annual Bank Conference on Development ...
In a paper submitted to the Annual Bank Conference on Development Economics in Paris in May the broad lessons and sector-specific findings of World Bank studies on agricultural trade liberalisation in five basic commodities were reviewed. The products covered included: cotton, dairy, groundnuts, rice and sugar. From an ACP perspective one of the major conclusions was identification of the 'detrimental effects of multilateral trade liberalisation for some countries via lost preferential trade agreements and higher prices for net consumers of commodities'. Most of the commodity markets analysed were characterised by small trade volumes and small numbers of players in the markets, leading to a situation of price and volatility. The studies also confirmed how large trade distortions impede trade flows, depress world prices and discourage market entry. Some sectoral points of interest were: in the rice sector, border protection for all types of rice was 43% but rose as high as 217% for Japonica rice; in the sugar sector, 'world market price signals are so distorted that virtually no country can supply on world markets without some form of subsidy'. Trade liberalisation in the sugar sector 'would result in estimated welfare gains of $4.7 billion, 38% higher world sugar prices and increased sugar trade of about 20%'. As a result of the full liberalisation of the sugar sector 'world sugar price increases alone would offset about half of the lost quota rents for countries that have preferential access'. Prospects for sugar-sector reform were seen to be favourable with international commitments already made generating a dynamic for change in both the USA and the EU; in the dairy sector, export subsidies have depressed world prices by inducing pro-cyclical surplus production by non-competitive often large producers; the paper concludes that the 'prospects for policy reform appear dim'; in the cotton sector, policies of the USA and to a lesser extent EU 'have displaced competitive suppliers in Africa and have induced rural-income losses bigger than the development assistance received by some of these countries'. Despite this it feels that the 'prospects for cotton policy reform are slim at best'. The summary paper maintains that 'agricultural trade liberalisation would induce significant price increases, from 10-20% in the cotton market, nearly 20% in groundnut markets, 20-40% in sugar and dairy and up to 90% in the medium/short grain rice market'. However mitigating these strong price tendencies is the ready availability of substitute products. It concludes that agricultural trade liberalisation would have winners and loser, 'but would mostly reduce rural poverty in developing countries because the South in aggregate has a strong comparative advantage in agriculture' and that furthermore 'agricultural trade liberalisation would induce significant rural income generation amongst least developed countries'. Comment: From an ACP perspective the income losses from preference erosion under agricultural trade liberalisation are relatively high, while the dim prospects for across the board trade liberalisation in other commodities of export interest to ACP countries such as cotton make it unlikely that the envisaged benefits will be realised. This is particularly the case when one takes into account the extent of 'dirty decoupling' that is now underway.