452 | IAASTD Global Report

7.2 Trade and Markets

7.2.1 Trade and markets: The enabling policy context for AKST contributions to sustainability and development goals

Market and trade policies can limit or enhance the ability of agricultural and AKST systems to drive development, strengthen food security, maximize environmental sustainability, and help make the small-scale farm sector profitable to spearhead poverty reduction. Over seventy percent of the world's poor are rural and most are involved in farming; about 2.5 billion people, or 40% of the world population, depend on agricultural activities for their livelihoods, an increase of a billion over the past half century (FAOSTAT, 2005). In the poorest countries agriculture is the engine of the rural economy (Diouf, 2007).The steep decline in commodity prices and terms of trade for agriculture-based economies has had significant negative effects on the millions of small-scale producers. Although there has been a recent upturn in commodity prices, in part due to an increase in demand compounded by a weak US dollar, market analysts do not anticipate that will continue (FAO, 2006c). Continuing overproduction in NAE countries contributes to these depressed world commodity prices.

      Supporting the rural farm sector has been and continues to be a preferred option in NAE and other countries; it offers a compelling option for reducing poverty in developing countries (Lappe et al., 1998; CA, 2007; Diouf, 2007). Agriculture provides multiple public goods, such as the conservation of ecosystem goods and services (e.g., biodiversity and watersheds), poverty reduction and food security (Inco and Nash, 2004; McCalla and Nash, 2007). How to structure trade and market policy platforms to drive development and support the multiple functions of agriculture is a highly debated issue, discussed in a large body of literature. It is generally acknowledged that analyses, projections and related policy options derived from research on trade and market policy are controversial and susceptible to different interpretations. Some studies suggest that liberalization has been associated with reduced poverty and enhanced food security, whereas others indicate the opposite (FAO, 2006c).

      The uptake of AKST by farmers does not occur in an economic vacuum. It takes place in a national market environment that is, in turn, partly determined and shaped by international trade (and its effects on national and market processes).

      Policy options are determined by distinct national circumstances and different states of development (Dorward et al., 2004; FAO, 2006c; Morrisey, 2007; Morrison and Sarris, 2007). Policy options will differ as a function of a country's stage of economic development and governance overall; the stage of development, composition and competitiveness of its agricultural sector; and its initial factor conditions and endowments.

      The IAASTD mission statement leads to an assessment of policies that pay particular attention to poorer rural sectors and poorer countries. A "business as usual" policy will not enable these countries to address development and sustainability goals. Agricultural export trade can offer opportunities for the poor, but there are major distributional


impacts among countries and within countries that in many cases have not been favorable for the small-scale farm sector and rural livelihoods. There is growing concern that developing countries have opened their agricultural sectors to international competition too extensively and too quickly, before basic institutions and infrastructure are in place, thus weakening their agricultural sectors with long-term negative effects for poverty, food security and the environment (Diouf, 2007; Morrison and Sarris, 2007). The poorest developing countries are net losers under most trade liberalization scenarios (FAO, 2006c).

     The assertion that greater openness will benefit poor developing countries irrespective of their stage of agricultural development (and the trade policies and implementation practices of their trading partners) is increasingly questioned in the literature, and by developing countries and other relevant stakeholders (African Group, 2006). This literature indicates that the investments required to allow shifts of resources out of traditional agricultural activities into higher value alternative activities (either agricultural or nonagricultural) are not likely to occur where market failures are pervasive without some form of state intervention (Morrison and Sarris, 2007). 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 implemented (FAO, 2006c).

      There is broad agreement across the IAASTD sub-Global reports and in the literature on the need to increase investment in human capital, land tenure (titling and expansion of land ownership by small producers and landless workers), water access, technology, infrastructure, nonagricultural rural enterprises, organizations of small scale farmers, and other forms of expansion of social capital and political participation for the poor and vulnerable (Díaz-Bonilla et al., 2002). A reinvigorated look at how these policy packages can be funded, given that developing country general revenues are often reduced when tariffs are reduced, and overseas development assistance (ODA) to the agricultural sector has been flagging. Developing countries must address significant local production, marketing and institutional constraints. There is wide agreement in the literature that a renewed donor effort is urgently needed if development and sustainability goals are to be advanced, and specifically to enable a supply response to any opportunities for the smallscale farm sector that may arise from future trade negotiations (Diaz-Bonilla et al., 2003; FAO, 2006c; Diouf, 2007).

      Trade policy reform aimed at providing a fairer global trading platform can make a positive contribution to the alleviation of poverty and hunger (FAO, 2006c; Diouf, 2007; Morrison and Sarris, 2007). Approaches that are tailored to distinct national circumstances and different stages of development, and that target increasing the profitability of the small-scale farm sector, are effective options to reduce poverty in developing countries. Flexibility and differentiation in trade policy frameworks will enhance the ability of developing countries to benefit from agricultural trade; pursue food security, poverty reduction and development goals; and minimize potential dislocations associated with trade liberalization.