The Promise and Perils of Agricultural Trade Liberalization: Lessons from the Americas

IMGXYZ917IMGZYXOn July 24, 2008 the Washington Office on Latin America, the Global Development and Environment Institute at Tuft's University and the Carnegie Endowment co-sponsored the launch of a new report from the Working Group on Development and the Environment in the Americas. The Promise and Perils of Agricultural Trade Liberalization: Lessons from the Americas explores NAFTA’s legacy for Mexican agriculture, the impact of the South American soybean boom, and the effect of agricultural trade liberalization on small-scale farmers. Co-authors Mamerto Pérez and Timothy Wise presented the report.  Vicki Gass from the Washington Office on Latin America moderated the event and Carnegie’s Sandra Polaski offered comments.

Timothy Wise, deputy director of the Global Development and Environment Institute, opened with a description of the report’s analytical framework.  Countries in Latin America have rapidly liberalized agricultural trade in pursuit of the promised gains from trade liberalization—expanded access to foreign markets and technology, and lower food prices for consumers. The report finds that the benefits to Latin America of trade liberalization have been smaller than expected: job creation has been weak, environmental costs have been high, and in some cases governments have surrendered the policy tools necessary to harness the benefits of agricultural production for long-term development. For example, after NAFTA, a flood of cheap agricultural imports decreased the price of the country’s three principal agricultural products.  Agricultural wages and rural poverty have not improved and many farmers have migrated from rural areas.  The report suggests that Latin American countries should open agricultural markets slowly, encouraging countries to maintain and develop a strong agricultural sector while taking advantage of the benefits of agro-exports in a strategic manner.

Mamerto Pérez, an independent researcher based in La Paz, discussed the recent boom in soy prices and production and its impacts in Brazil, Argentina, and Bolivia.  He argued that the boom is an unprecedented development opportunity. Global demand and prices are steadily increasing and Latin American countries enjoy a competitive advantage in soy.  Governments in the region, however, have largely failed to invest in the infrastructure necessary to harness the boom to promote sustainable development.  Over the past decade, levels of soy production have been inversely related to the number of jobs created in the soy sector.  In addition, the agro-businesses dominating soy production in Brazil, Argentina, and Bolivia follow an extractive model of soybean production that comes at a high environmental cost.  Profits accumulate to foreign firms rather than small farmers.  In conclusion, Pérez offered some policy recommendations, including better regional coordination of agricultural trade policy, striking a balance between agricultural exports and domestic production, and regulation to ensure sustainable land use.

Discussant Sandra Polaski linked the report to the global food crisis.  High global food prices—fundamental in creating the crisis—could also be a powerful force for development.  High food prices can lift incomes of small farmers if they produce surplus to sell.  Farmers can invest that income in inputs such as seeds and fertilizer and infrastructure such as irrigation or expanded production areas.  Higher farm incomes also lead to greater demand for products made in other sectors of the economy. Their consumption stimulates domestic services and manufactured goods and can thus put the entire economy onto an upward development cycle.  The government’s responsibility is to provide the tools necessary to enable small farmers to take advantage of high global food prices to enter this virtuous cycle of development.  Governments should retain the ability to use tariffs to protect small holder agriculture when global prices fall; focus poverty alleviation programs on rural areas; accumulate food stocks to cushion citizens from price fluctuations; and act as a guaranteed buyer to small farms in acquiring these stocks.  Developing countries must navigate multilateral and bilateral trade negotiations in a way that allows them to retain the use of tariffs and safeguard measures. They have made some progress on these goals in multilateral Doha Round negotiations.  In free trade agreements, on the other hand, negotiating power is often skewed toward the wealthier country and some Latin American countries have prematurely opened agricultural markets that were not ready to compete.

In the subsequent question and answer session, a participant asked whether the report underemphasized the benefits of cheaper imports to the poor in developing countries. Wise responded that the trade-off between cheap imports and a strong domestic agricultural industry is different in each country.  However, he argued that the tendency in the past 25 years has been to overestimate the benefits to the poor of cheap imports and to underestimate the development and poverty alleviation benefits of a strong domestic agricultural sector. 

In response to another question, Pérez recognized that Brazil has benefited from indirect job creation and technological gains as a result of the soy boom.  However, these effects have come at the cost of increasingly extractive production practices that damage the environment and threaten livelihoods in the long-term.  Wise, Pérez, and Polaski also discussed the role of agricultural trade policy in the development strategies of Chile and China, the appropriate level of agricultural subsidies and tariffs, and the importance of labor-intensive employment to long-term development strategies.

The Promise and Perils of Agricultural Trade Liberalization: Lessons From Latin America and other reports from the Working Group on Development and Environment in the Americas are available in pdf format here.