Trade and Markets

Writing Team: Dev Nathan (India), Erika Rosenthal (USA), Joan Kagwanja (Kenya)

The challenge of targeting market and trade policy to en­hance the  ability of agricultural and AKST  systems to strengthen food security, maximize environmental sustain-ability, and support small-scale farmers to spur poverty re­duction and drive development is immediate. Agriculture is a fundamental instrument for sustainable development; about 70% of the world's poor are rural and most are in­volved in farming. National policy needs to arrive at a bal­ance between a higher prices which can benefit producers and lead to a more vibrant rural economy, and lower prices, which, although volatile on the international market, can improve food access for poor consumers. The steep secular decline in commodity prices and terms of trade for agricul­ture-based economies has had significant negative effects on the millions of small-scale resource-poor producers [ESAP Chapter 3; Global Chapter 7]. Structural overproduction in NAE countries has contributed to these depressed world commodity prices. This is also a challenge in many devel­oping country markets where overproduction of tropical commodities, particularly through the emergence of new producers who are willing to accept lower returns than es­tablished producers, has led to price collapse.
     Under these conditions, a "business as usual" trade and market policy approach will not advance IAASTD objectives. 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 agricultural sectors with long-term negative effects for poverty, food se­curity and the environment. Reciprocity of access to mar­kets (sometimes referred to as a "level playing field") between countries at vastly different stages of agricultural development does not translate into equal opportunity [ESAP Chapter 3].
    Agricultural trade offers opportunities for developing countries to benefit from larger scale production for global markets, acquire some commodities cheaper than would be possible through domestic production, and gain access to new forms of AKST and equipment (e.g., fertilizers, high-yield seed varieties, pump sets, etc.) not produced domesti­cally. Agricultural trade, thus, 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 small-scale farmers and rural livelihoods. The poorest developing countries are net losers under most trade liberalization scenarios.


     Trade policy reform aimed at providing a fairer global trading system can make a positive contribution to the alle­viation of poverty and hunger. Approaches that are tailored to distinct national circumstances and different stages of development and target increasing the profitability of small-scale farmers are effective for reducing poverty in develop­ing countries [CWANA; ESAP; Global; LAC; SSA].
     Flexibility and differentiation in trade policy frameworks (i.e., "special and differential treatment") will enhance de­veloping countries' ability to benefit from agricultural trade; pursue food security, poverty reduction and development goals; and minimize potential dislocations associated with trade liberalization. The principle of non-reciprocal access, i.e., that the developed countries and wealthier developing countries should grant non-reciprocal access to countries less developed than themselves, has a significant history and role to play in trade relations to foster development. Preferential market access for poorer developing countries, least developed countries and small island economies will be important.

Global Challenges
For many developing countries sustainable food security depends on local food production, while for some arid and semiarid countries with limited natural resources bases in­creased food security will require increased trade. Ensuring policy space for all these countries to maintain prices for crops that are important to food security and rural liveli­hoods is essential. 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. Re­ducing industrialized countries' agricultural subsidies and other trade distorting policies is a priority, particularly for commodities such as sugar, groundnuts and cotton where developing countries compete. Commitments to reducing dumping, or the sale of commodities at below the cost of production thus undermining national food production and marketing channels are equally important.
     Agricultural trade is increasingly organized in global chains,  dominated  by  a  few large transnational  buyers (trading companies, agrifood processors and companies in­volved in production of commodities). In these globalized chains primary producers often capture only a fraction of the international price of a trade commodity, so the poverty reduction and rural development effects of integration in