Distributional effects of WTO agricultural reforms in rich and poor countries

Abstract

"Rich countries' agricultural trade policies are the battleground on which the future of the WTO's troubled Doha Round will be determined. Subject to widespread criticism, they nonetheless appear to be almost immune to serious reform, and one of their most common defences is that they protect poor farmers. Our findings reject this claim. The analysis conducted here uses detailed data on farm incomes to show that major commodity programmes are highly regressive in the US, and that the only serious losses under trade reform are among large, wealthy farmers in a few heavily protected sub-sectors. In contrast, analysis using household data from 15 developing countries indicates that reforming rich countries' agricultural trade policies would lift large numbers of developing country farm households out of poverty. In the majority of cases these gains are not outweighed by the poverty-increasing effects of higher food prices among other households. Agricultural reforms that appear feasible, even under an ambitious Doha Round, achieve only a fraction of the benefits for developing countries that full liberalization promises, but protect the wealthiest US farms from most of the rigors of adjustment. Finally, the analysis conducted here indicates that maximal trade-led poverty reductions occur when developing countries participate more fully in agricultural trade liberalization." Copyright (c) CEPR, CES, MSH, 2007.

The short- and medium- term impacts of rises in staple food prices

“…Most of these estimates are derived from aggregation of individual country simulations. More country studies tend to support these conclusions on the impact of high prices on welfare (for example Robles and Torero, 2010;Robles and Keefe, 2011;T. W. Hertel et al, 2007;Klytchnikova and Diop, 2010;Zezza et al, 2009).…”

The Poverty Impacts of Global Commodity Trade Liberalization

“…This approach has been adopted by Ivanic (2006) and by Hertel et al (2007) in their analyses of the Doha Development Agenda (DDA). These authors conclude that the set of measures envisioned under the DDA 2 are less poverty friendly than the set of policy measures not being considered.…”

“…How do they compare to poor country reforms? For this purpose, it is important to assemble a household-survey based framework that is comparable across countries, and which permits us to say something about poverty impacts across a wide range of diverse economies that are representative of the developing world.This approach has been adopted by Ivanic (2006) and by Hertel et al (2007) in their analyses of the Doha Development Agenda (DDA). These authors conclude that the set of measures envisioned under the DDA 2 are less poverty friendly than the set of policy measures not being considered.…”

“…Households with utility at or below this level are deemed to be in poverty. In this study, we follow Hertel et al (2004) and Hertel et al (2007) in using Rimmer and Powell's (1992) AIDADS demand system to represent consumer preferences. The AIDADS demand system is particularly useful for poverty analysis because it lends itself to international cross-section estimation and devotes two-thirds of its parameters to consumption behavior in the neighborhood of the poverty line (Cranfield et al 2003).…”

“…We retain the simplistic yet empirically robust assumptions of constant returns to scale and perfect competition typically featured in agricultural trade studies. 5 The remaining modifications are aimed at permitting us to shed new light on the distributional consequences of trade reforms -focusing particularly on unraveling the puzzle of why such reform is not more poverty friendly.On the demand-side of the model, we ensure consistency with the poverty analysis by modifying the GTAP model to incorporate the AIDADS demand system as discussed in Hertel et al (2007). Thus, aggregate preferences are consistent with the preferences used to evaluate the impact of price changes on households at the poverty line -although expenditure patterns differ across income levels due to the non-homotheticity of demands.…”