Trade and Markets
Within all upstream and downstream industries to agriculture, an increasing global and national concentration is taking place in the hands of just a few companies, which dominate the market. This is exacerbated by a growing vertical integration along the value chains – chemical companies are controlling the global seed market; raw material traders are controlling transport routes, mills and refineries; supermarket chains are dominating wholesale trade; and processors are controlling their contract farmers. This process is reinforcing the economic marginalisation of small-scale and subsistence farmers which are of no interest to the global industry, neither as customers nor as suppliers. "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 global supply chains have been far less than optimal." (Synthesis, p. 65-66)Even though the percentage of agricultural production, which is traded internationally, is relatively small (around 14% in the case of cereal production), world market prices have an enormous leverage effect. They also determine domestic prices, particularly in smaller countries with unprotected markets. If local producers charge higher prices, they are immediately pushed out of urban markets.
Agricultural exports hinder the development of domestic markets
World trade has an enormous impact on agricultural policies in many developing countries."One can now speak of a 'global treadmill' that allows farmers in developed economies to export their (sometimes subsidized) products to developing countries and compete with local small-scale farmers. Value added per agricultural worker in 2003 (constant 2000 US$) in developed market economies was 23,081 with a growth over 1992-2003 of 4.4%. For sub-Saharan Africa the figures are 327 and 1.4%, respectively. As long as the global treadmill is operating, even with all OECD subsidies removed, efforts to uplift rural poverty will remain severely handicapped. (...) The rural poor are not on the global treadmill; instead the global treadmill prevents them from development. Required are institutional framework conditions that provide realistic opportunities to subsistence farmers to become small-scale commercial farmers." (Global, p. 481-482)
Rather than providing the population with food, or promoting the development of domestic markets and rural areas, governments and local elites frequently pursue the primary goal of generating foreign currency and tax revenue from agricultural exports. Although large parts of their populations are suffering from hunger, especially in rural areas, many countries still choose to supply cheap raw materials for the animal feed, fibre, (bio)fuel and luxury food industries in the North, with devastating ecological and social costs. As net-importers of food, these countries become dependent on world markets over which they have no influence. The IAASTD identifies the least developed countries and the poor in rural areas as the losers of global trade and its ongoing liberalisation.
The report warns against an opening of markets if cheap imports and exports hinder rural and agricultural development, and threaten food security and incomes of the population. The IAASTD also points to the fact that import tariffs make up one quarter of state revenues in some poor countries and are relatively easy and reliable to collect. The loss of these revenues could therefore reduce the potential of public social and structural policies, and the already weak capacity of public institutions to act. Industrialised nations themselves frequently make use of tariff escalation for imported goods, with import tariffs increasingly depending on the degree of processing that has occurred. This allows industrialised countries, in which agriculture is rarely an important economic sector, to import cheap raw materials, while setting higher tariffs for processed goods to protect their own processors. This prevents many countries in the South from developing their own processing industries and creating jobs."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." (Global, p. 453)
Fair prices for sustainable production
The IAASTD calls for a radical change of direction in current policies: Farmers, particularly those in developing countries, must be paid an adequate price for their environmental services they provide during production (such as soil and biodiversity conservation, water management and the reduction of carbon emissions). This could include climate or environmental charges, whose collection is organised by states and that are distributed purposefully and fairly from a global perspective. The IAASTD describes the EU subsidies for agri-environmental measures as a step into the right direction. In developing countries, such programmes could boost rural development and ensure that ecological sustainability can be financed. Private sector approaches could also make an important contribution."Fair Trade and environmentally linked production systems, such as organic and eco-friendly production, were introduced as alternatives to the mainstream commodity markets. While these models offer small-scale producers better terms of trade, the market share for these trading systems has been slow to grow and still only occupies a small percentage of global trade. Nevertheless, the principles were proven and a new generation of business models needs to be designed that can provide windows for the less endowed producers to enter mainstream markets through trading platforms that promote greater stability of demand." (Global, p. 460)
Fair trade initiatives and trade with organic products allow consumers in cities, both in the North and the South, to actively support sustainable forms of agriculture through informed purchasing decisions. These private sector initiatives, which were introduced as an alternative to the mainstream commodity market, have proved to be an effective way to reduce poverty. Apart from this direct economic effect, these decisions only to buy products, of which their producers can also make a living, can exert a healthy dose of pressure on the rest of the market.
