7.2.2 Policy challenges and tradeoffs

Whether and how ASKT systems are generated, delivered and used in ways that promote poverty reduction and environmental sustainability can be enhanced or limited by trade and market policies. The sub-Global IAASTD reports identify many policy challenges:

1. crafting trade rules that allow developing countries needed flexibility to pursue development, poverty reduction and food security agendas, and that address the distributional impacts of welfare benefits and loses from trade liberalization;
2. achieving remunerative prices for small-scale farmers;
3. increasing the value captured by small-scale producers in vertically integrated agrifood chains;
4. addressing the increased regulatory responsibilities required by trade agreements with limited tax revenues, which can be diminished by tariff reductions;
5. addressing the environmental externalities of agriculture; and
6. improving governance of agriculture sector policy making, including decisions about AKST research, development and delivery, and trade policy decision-making.

There are also important synergies and tradeoffs between policy options that merit special consideration. Potential liberalization of biofuels trade is a clear example, presenting tradeoffs between food security, greenhouse gas (GHG) emission reductions, and rural livelihoods which need to be carefully assessed for different technologies and regions. There are likely to be significant tradeoffs between for example policies to promote agricultural development, such as the reduction of agricultural subsidies and increased investment in roads to help rural farmers, and environmental and social impacts such as increased tropical deforestation and increased agricultural land concentration in some parts of the developing South. Forest protection policies in many of these countries may not be sufficiently strong to resist the increased economic pressure to expand the agricultural land and increase tropical deforestation. Note that these concerns also apply to other policy interventions that may work to increase agricultural rents including increased road building and other market access measures that tend to increase the pressure on forests (Angelsen and Kaimowitz, 1999).

7.2.3 Policy flexibility to pursue development, poverty reduction and food security agendas

There is broad acknowledgement that agricultural trade can offer opportunities for the poor under the right circumstances. Numerous studies show that the impact of the economic growth spurred by trade on poverty, hunger and the environment depends as much on the nature of the growth as on its scale. National agricultural trade policy to advance sustainability and development goals will depend upon the competitiveness and composition of the sector. Appropriate trade policy for the agriculture sector in developing countries will depend upon the extent to which the sector produces exportable products, import substituting basic foods, and non-tradable products (Morrison and Sarris, 2007). Advice to developing countries has tended to focus on promoting opportunities for increased exports to international

markets (traditional and nontraditional crops) rather than enhancing competitiveness or market opportunities in domestic and regional markets; greater balance among these policy approaches may be indicated.

      Market conditions and opportunities for domestically or regionally produced staples are potentially more favorable to poorer developing countries than are the opportunities for expanding exports to the global market (Diao and Hazell, 2004; Morrison and Sarris, 2007). For example, Africa imports 25% of basic grains such as maize, rice, and wheat. Domestic production could potentially replace some of these imports.

      Appropriate agricultural trade policy at early stages of development, for countries with an important agricultural sector, may include moderate levels of import protection, and in countries where applied tariffs are already low, further liberalization may not be appropriate (Morrison and Sarris, 2007). A recent FAO study concluded that, for countries at earlier stages of development, trade liberalization can be damaging to food security in the short to medium term if introduced before a package of policy measures to raise productivity and maintain employment has been put in place (FAO, 2006c). Lower tariffs will imply intensified competition from imported foods for the domestic agricultural sector. Reduced tariffs also increase vulnerability of domestic production to competition arising from import surges. A number of instances have been reported in which a developing country's agricultural production has been negatively affected by such sudden, short-run increases in food imports (FAO, 2006c).

      For many developing countries sustainable food security depends on local food production; ensuring policy space for these countries to maintain prices for crops that are important to food security and rural livelihoods is essential (FAO, 2006c). Trade policies designed to ensure sufficient levels of domestic production of food, not just sufficient currency reserves to import food, and to balance domestic production with food stocks and foreign exchange reserves, are reported as important components of food security and sovereignty in the ESAP, LAC and SSA IAASTD sub-Global reports. Agricultural policies in industrialized countries, including export subsidies, have reduced commodity prices and thus food import costs; however this has undermined the development of the agricultural sector in developing countries, and thus agriculture's significant potential growth multiplier for the whole economy (Diaz-Bonilla et al., 2003). Reducing industrialized countries' trade distorting policies including subsidies is a priority, particularly for commodities such as sugar, groundnuts and cotton where developing countries compete. Some observers point out that net agricultural importing countries (particularly net food importers in Africa) will suffer a balance of payments loss from the negative terms of trade effect as world commodity prices rise, but at the same time stress the importance of lifting subsidies to benefit the rural sectors of these countries, where poverty is concentrated, because of higher world agricultural prices (Panagariya, 2004).

      The steep secular decline in commodity prices (Figure 7-1) and terms of trade for agriculture-based economies has had significant negative effects on the millions of small-