Policies to Maximize the Gains of Trade Opportunities for the Poor, and Minimize the Risk

This important report reviewed here was prepared by the World Bank which we hope will receive the due consideration it deserves considerable attention and study in the formulation of new development strategies in the future.

Further progress in the Doha negotiations, and in particular achieving a substantive outcome on agriculture, is necessary to increase the effectiveness of trade in reducing poverty. The agriculture sector, which employs most of the poor, will continue to play a key role in lifting people out of poverty. Its role could be strengthened if more was done to remove remaining obstacles to agricultural exports. Tariffs and subsidies are particularly high in the agricultural sector and anti-competitive behaviour in some segments of the supply chain can make it particularly hard for the poor to benefit from trade participation. The increasing importance of supply chains in production has highlighted the linkages between the agriculture sector on one side and the services and manufacturing sectors on the other, showing that progress in removing obstacles to trade ideally should occur simultaneously across all sectors. In the long run, the capacity to leverage agriculture for reducing poverty will depend on achieving continuous improvements in productivity, reducing the costs to trade in agricultural goods, reducing tariffs on imports and key intermediates such as fertilizers and agricultural machinery, and improving access to a range of services that are key inputs in the production chain.

The capacity to comply with product standards has become an important factor in determining access to markets, particularly for poor producers of agricultural products. Standards are often set to achieve important and legitimate public policy objectives of the importing country.

Well-designed standards can facilitate trade by providing necessary information to producers seeking to enter new markets.

There is evidence that the standards introduced by multinationals investing in developing countries may contribute to increased trade for these countries, and have a significant impact on poverty reduction. However, compliance with standards may also result in higher production costs, and new inspection and certification requirements that undermine competitiveness. There is also a risk of setting standards too high for smallholder farmers to meet, or at a level that consumers do not really require or cannot afford. In addition standards may be manipulated to act as trade barriers.

The Standards and Trade Development Facility is an example of a program assisting developing countries to meet international standards. Trade and regulatory policies in many countries with large poor and rural populations also affect the productivity of poor farmers. In Africa in particular, these policies affect the potential for greater regional trade. Only 5 percent of Africa’s demand for food staples is met through supply from other African countries.

Barriers to imports of seeds and fertilizers can severely limit productivity increases in agriculture. Improved access to seeds and fertilizers could help produce a version of the Asian “Green Revolution” of the second half of the 20th century in West Africa, where 20 percent of the region’s food requirements are met through imports. With proper seed and fertilizer inputs, West African countries could double or triple their output of most major crops. Although governments in the region are gradually becoming more active in supporting imports, including through regional trade of these inputs, more needs to be done to analyse and address the trade-related barriers limiting farmers’ access to inputs and their ability to sell their produce.

Well-designed and implemented standards incorporate assessments of effects on the poor. While standards are often an important part of the process of production upgrading for the poor, poorly designed standards may impair the ability of the poor to trade. For example, proposed standards in the East African Community on discoloured maize could exclude all small holder produced maize, if the requirements are too stringent and alternatives for lower grades are not provided. Simply importing standards from developed countries will often not be appropriate, particularly for products not destined for export to developed countries. Even where food safety is concerned, governments should evaluate whether there are equivalent, less burdensome ways of ensuring that food is safe. For example, international standards for the consumption of fresh cold pasteurized milk require very specific procedures, processes, and equipment to limit the growth of bacteria that could cause harm to humans — requiring investments that are beyond most poor producers in East Africa. However, in many developing countries the majority
of people consume raw milk but boil it before consumption, which — if properly done — kills the bacteria. While requiring that all producers in East Africa satisfy the international standards would indeed raise the quality of milk in the domestic markets, it could compromise the supply of milk from a vast number of small producers. This highlights the importance of supporting poor producers to upgrade their capacities in meeting international standards.

Infrastructure and trade facilitation

Physical infrastructure improvements are important to lowering trade costs to support the participation of the poor in trade. Traders and producers in lower income countries often do not have effective modes of transportation infrastructure — including quality roads, railway, ports and air transportation — to allow their goods and services to reach markets in a secure and timely manner. Improved trade-related infrastructure can reduce the costs involved in connecting to markets. Poor infrastructure accounts for more than 40 percent (up to 60 percent for landlocked countries) of transportation costs.

The need for infrastructure investment in the countries where the poor are concentrated is significant. For example, recent World Bank estimates suggest that South Asia alone requires transport infrastructure investments of between $411 and $691 billion (2010 prices) through 2020.

Rural road upgrading and maintenance is of great importance for connecting the poor in remote areas. Improving port efficiency can have a large impact on reducing shipping costs. Research shows that bad ports can be equivalent to being 60 percent further away from foreign markets for the average country.

Source: Sudan Vision

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.