Rural development: some issues in the context of the WTO negotiations on agriculture[20]

Rural development is one of the central non-trade concerns being taken into account by WTO Members in the current negotiations on agriculture. This paper reviews some of the key issues for consideration. It notes that the major objective of rural development is the alleviation of rural poverty, highlights the role of agriculture in this respect, and examines the critical features of the WTO Agreement on Agriculture that may influence policy formulation for rural development.

1. Rural development, poverty and agriculture

Poverty is largely a rural problem. More than 75 percent of the world’s poor live in rural areas and a majority of the poor will continue to live in rural areas well into the 21^st century. Although internationally comparable statistics on rural poverty are limited, it is clear that in virtually all developing countries, the rural poor outnumber the urban poor, often by a factor of two or more (Table 1). The rural poor suffer deeper levels of poverty than their urban counterparts and have much more limited access to basic social services such as sanitation, safe water, health services and primary education; thus they suffer disproportionately from hunger, ill health and illiteracy. In many countries, furthermore, the income gap between urban and rural areas is widening. Clearly, the rural poor face overwhelming obstacles in breaking the cycle of poverty.[21]

Agriculture is the key to alleviating rural poverty. Agriculture employs more than half of the total labour force in developing countries and almost three quarters in lower-income developing countries. Most of the world’s extreme poor depend on agriculture for their livelihoods. Agriculture has strong backward and forward linkages to the rural non-farm sector, purchasing inputs such as seeds and implements, supplying raw materials for agro-based industries and generating demand for local goods and services such as housing, furniture and clothing.[22] Hence, agricultural growth can increase the income of the rural poor both directly, through increased production and additional demand for farm labour, and indirectly, through linkages with non-farm productive activities in the rural areas. An extensive body of research on economic growth and poverty alleviation in developing countries confirms that agricultural growth has stronger effects on poverty alleviation than growth in other sectors and that rural growth reduces both urban and rural poverty.[23]

Sustainable agricultural growth and rural development can be achieved. The key ingredients to this end include: (i) access or entitlement to assets (e.g. land, water, farm animals and technology); (ii) access to fair and competitive markets - both domestic and international - for farm products; and (iii) the necessary information and physical infrastructure to reach these markets.[24] Governments have an important role to play in facilitating the development of and access to national agricultural assets and in correcting market failures and distortions to domestic markets.

The international agricultural trading environment. The current international trading context for agriculture affects rural development in developing countries in various ways, in particular through market distortions arising most often from subsidized competition from developed countries and from market access barriers to the agricultural exports of the developing countries. In addition, attempts to reform international trade in agriculture by disciplining national policies may also constrain governments of developing countries in their efforts to promote agricultural growth, since they limit the types of support policies that may be implemented. The WTO negotiations on agriculture, therefore, are of crucial importance to developing countries in their pursuit of sustainable rural development.

2. Priorities for accelerating rural development

Many developing countries have considerable unfulfilled potential in agriculture. Smallholder farmers in many parts of the world reach productivity levels that are only about one third of potential yields. Most developing countries are at an early stage of agricultural technology and still have the considerable potential to increase productivity and diversify production. Furthermore, the agricultural sector in many developing countries is handicapped by the prevalence of market imperfections, poorly functioning institutions and natural monopolies. Depressed agricultural prices - resulting in part from subsidy-induced overproduction and trade barriers in developed countries - exert an important constraint on investment in the sector.[25]

Priorities for accelerating agricultural growth and rural development in most developing countries include: (i) developing the productive potential of the agricultural sector; (ii) diversifying within agriculture and into non-farm productive activities; (iii) and safeguarding rural livelihoods from unfair competition and excessive fluctuations in world and domestic markets.[26] The basic thrust of policies and strategies in the agricultural sector is on enhancing productivity through the modernization of farming practices.

Mobilizing significant new investments in rural infrastructure, agricultural research and extension services is essential to help farmers and rural agribusinesses overcome the handicaps they face and acquire the technology and skills they need to raise productivity and improve their competitiveness. As a result of constraints on public expenditure and inadequate private capital flows, developing countries have increasingly relied on foreign aid to fund investments in the agricultural sector. However, the proportion of official development assistance going to agriculture has been on the decline since the late 1980s, the annual average having fallen from 24 percent in 1981-90 to 16 percent in 1991-99. In view of the importance of agriculture for rural development and poverty reduction, initiatives to provide financial and technical assistance to improve agricultural productivity and rural infrastructure, including those in the Marrakesh Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries, should be fully followed up. In this regard, the lending practices of international financial institutions and donors should be made more compatible with WTO guidelines on support to agriculture. It is also important to recognize that public and private investments in agriculture are complementary - not competitive - activities.[27]

Providing government support through appropriate public subsidies is a legitimate and necessary means of correcting market failures and countering unfair competition. Sustained agricultural growth has been achieved in several developing countries through a judicious combination of input subsidies (mainly in the form of fertiliser prices, credit schemes, fuel subsidies and water management), output pricing policies and border measures. Some countries have used price policies effectively to encourage adoption of new technologies or diversification into new crops. While such subsidies are less efficient than direct payments to farmers, they have an important place in a clearly defined development strategy where the policy goal extends beyond simply transferring income. Given the important multiplier effects of agricultural growth on rural development, these public subsidies not only encourage rural farmers to produce and innovate but also enhance the profitability of private rural non-farm activities and stimulate sustainable rural development.[28]

Safeguarding rural livelihoods from unfair competition and excessive fluctuations in world and domestic markets is also necessary for sustainable rural development. Given their high dependence on agriculture for incomes and the large share of food in their household budgets, rural people are vulnerable to external agricultural market instability and to import surges that could eliminate otherwise viable rural production activities. The effort to protect the livelihoods of small rural farmers may require the use of border control measures such as tariffs and safeguard measures to attenuate the adverse impact of subsidized imports and world price fluctuations.

3. Rural development and the WTO Agreement on Agriculture

While the focus of the WTO Agreement on Agriculture (AoA) is not on rural development per se the Agreement has significant implications for the livelihoods of rural people in developing countries. Rural development, like food security, has been identified as a major non-trade concern in the negotiations on agriculture. Much has been said about how the AoA can contribute to food security, especially in the developing countries, and many negotiating proposals have been tabled on this subject.[29] Without repeating those arguments, it is important to stress that many of them are fully valid for rural development.

The AoA has direct bearing on the development of agriculture and rural non-farm activities in the developing countries as well as on the ability of these countries to stabilize and sustain rural incomes. In view of the overriding role of agriculture in the predominantly rural-based developing economies, it is crucial for their rural development, and for their socio-economic development in general, to enhance their domestic capacities of agriculture, improve access to foreign markets and guard against unfair competition and excessive market fluctuations.

Domestic supports to promote rural development. The AoA commitments on domestic support were designed to solve a problem developing countries do not have; namely, that of over-production. On the contrary, the central thrust of agricultural policy in most developing countries is to boost productivity in order to harness the full potential of the agricultural sector as an engine for sustainable rural development. Although the current AoA commitments give developing countries considerable policy freedom, the basic thrust of the Agreement is toward limiting the use of production-enhancing supports. Briefly, they are granted the 10 percent de minimis exemptions for product-specific and non-product-specific supports, exemptions for support provided under the green box or Annex 2 criteria, and exemptions for support provided under special and differential treatment (SDT) for developing countries. Although these provisions, taken together, constitute a wide range of measures to address the particular nature of agriculture in developing countries, many such countries view them as falling short of what is necessary and as failing to provide the requisite policy flexibility. While most developing countries are not currently constrained by their domestic support commitments, some may find their rural development policy options limited in the future.

Most developing countries also lack the financial and administrative capacity to implement measures covered by the green box, such as income safety-net programmes, and therefore may need recourse to price-based supports. As discussed above, public support in areas such as agricultural credit, fertilisers, transport, irrigation and fuel are important aspects of the development strategies of many developing countries, and additional flexibility in their use may be needed. Furthermore, many developing countries made mistakes - of strategy or out of ignorance - in the preparation of their Uruguay Round schedules on domestic support; for example, they failed to notify subsidies under the Aggregate Measurement of Support or the amber box. Developing countries should be allowed to rectify these and similar mistakes.

Market access and safeguards. The market access provisions of the AoA influence the ability of developing countries to protect their domestic markets from excessive volatility in world market conditions or from subsidized production and exports from other countries. (Few developing countries have the administrative capacity to enforce traditional anti-dumping measures or countervailing duties). Although price instability on world markets affects all countries, the consequences can be much greater for the rural population in developing countries. Many of their farmers have difficulty in competing with cheaper imported products in their domestic market, in part because of subsidies used abroad and in part because of the underdeveloped character of local production and marketing. To counter the effects of subsidies and excessive price fluctuations, developing countries need access to a simple WTO-compatible safeguard or contingency measure.[30] A moderate level of border protection may also be desirable for countries that are attempting to develop the full capacity of their agricultural sector, including the agro-processing industry, notably for certain countries where anomalies in the tariff structure have left some basic food commodities and potentially competitive processed products with very low bound tariffs. For such countries it may be desirable to allow some “rebalancing” of their bound tariffs.

The provisions of the AoA also influence the ability of developing countries to gain secure access to the markets of other countries. The requirement of a 15 percent minimum and 36 percent average cut in the agricultural tariffs of developed countries (10 percent and 24 percent, respectively, for developing countries) left many instances of high tariff peaks and tariff escalation. Other distortions and problems in market access include: the complexity of the tariff structure, the low ceilings on TRQs and prohibitive tariffs above those ceilings, lack of transparency in the administration of the TRQs, and eroding and unstable preferential access conditions. If developing countries are to use agricultural exports as a means of supporting agricultural growth and rural development, they need transparent and reliable access to the markets of developed countries and higher-income developing countries.

Export subsidies constitute unfair competition with producers in countries that do not provide such subsidies. They depress prices in the recipient country and in world markets, and displace the produce of more efficient producers. Other forms of export competition, such as export credit subsidies and food aid abuse, can have similarly negative impacts on producers in recipient countries and other potential suppliers. All forms of export competition should be disciplined. This does not negate the important role that genuine food aid can play in recipient countries, particularly in net food-importing developing countries and least developed countries suffering from recurrent food production deficits and other emergencies.

4. Conclusions

The rural development concerns of developing countries, particularly those with large, poor rural populations should be reflected in the structure, framework and long-term objective of the WTO Agreement on Agriculture. They may require special treatment in order to achieve their agricultural, rural development and food security goals, as regards particularly domestic support, border protection, and access to foreign agricultural markets. In addition, special provisions for technical and financial assistance should be incorporated in the Agreement to help these countries build their rural capacities and thereby take full advantage of the new trading opportunities so as to ensure that the implementation of the Agreement does not adversely affect the livelihood of their rural populations.

Table 1. Rural population in developing countries: selected indicators

Country	Total population (000s) 2000	Rural population as percent of total population 2000	Agricultural population as percent of total population 2000	Percentage of poor in rural population (latest year available) a	Rural- urban poverty ratio (latest year available)a
WTO Members
Africa
Rwanda	7 733	94	90
Burundi	6 695	91	90
Uganda	21 778	86	79	48	2.96
Malawi	10 925	85	78
Burkina Faso	11 937	82	92	51	3.21
Niger	10 730	79	88	66	1.27
Chad	7 651	76	75	67	1.06
Guinea-Bissau	1 213	76	83
Lesotho	2 153	72	38
Tanzania, United Rep. of	33 517	72	78
Dem. Rep. of Congo	51 654	70	63
Madagascar	15 942	70	74	77	1.64
Mali	11 234	70	81
Gambia	1 305	68	79
Guinea	7 430	67	84
Kenya	30 080	67	75	47	1.62
Togo	4 629	67	60
Angola	12 878	66	72
Zimbabwe	11 669	65	63	63	4.21
Swaziland	1 008	64	34
Sierra Leone	4 854	63	62
Ghana	20 212	62	56	34	1.28
Mozambique	19 680	60	76
Central African Rep.	3 615	59	73
Mauritius	1 158	59	12
Namibia	1 726	59	49
Benin	6 097	58	54
Nigeria	11 1506	56	33	68	1.18
Zambia	9 169	55	69	75	2.2
Egypt	68 470	54	37
Côte d’Ivoire	14 786	53	49
Senegal	9 481	53	74	40	2.46
Cameroon	15 085	51	53	32	0.73
Gabon	1 226	45	38
Morocco	28 351	45	37	18	2.37
Mauritania	2 670	42	53	59	3.10
Congo	2 943	37	41
Tunisia	9 586	34	25	22	2.43
Botswana	1 622	26	44
Djibouti	638	17	79
Asia and the Pacific
Papua New Guinea	4 807	83	77
Solomon Islands	444	80	73
Bangladesh	129 155	79	56	40	2.78
Thailand	61 399	78	49	16	1.52
Sri Lanka	18 827	76	46	38	1.34
India	1 013 662	72	55	34	1.23
Maldives	286	72	27
Myanmar	45 611	72	70
Pakistan	156 483	63	51	37	1.32
Indonesia	212 107	60	44	22	1.24
Fiji	817	58	40
Malaysia	22 244	43	18	19	1.35
Philippines	75 967	41	39	51	2.28
Mongolia	2 662	36	24
Brunei Darussalam	328	28	1
Jordan	4 970	26	12
Oman	2 542	16	36
Korea, Republic of	46 844	14	9
United Arab Emirates	2 441	14	5
Bahrain	617	8	1
Kuwait	1 972	2	1
Singapore	3 567	0	0
Europe and Central Asia
Albania	3 113	61	48
Kyrgyzstan	4 699	60	26
Croatia	4 473	42	8
Romania	22 327	42	16
Georgia	4 968	39	20
Poland	38 765	34	20
Bulgaria	8 225	30	8
Cyprus	786	43	9
Turkey	66 591	25	31
Latin America and the Caribbean
Saint Kitts and Nevis	38	66	24
Haiti	8 222	65	63
Antigua and Barbuda	68	63	24
Saint Lucia	154	62	23
Guyana	861	62	18
Grenada	94	62	23
Guatemala	11 385	60	50	72	2.13
Belize	241	54	31
El Salvador	6 276	53	33
Honduras	6 485	53	35	51	0.72
Barbados	270	50	4
Costa Rica	4 023	48	21
Suriname	417	48	19
Saint Vincent	114	46	24
Paraguay	5 496	44	41	45	6.04
Jamaica	2 583	44	21
Panama	2 856	42	23
Ecuador	12 646	38	28	47	1.88
Nicaragua	5 074	35	22
Bolivia	8 329	35	43	82	2.42
Dominican Rep.	8 495	35	18	30	2.73
Dominica	71	30	24
Peru	25 662	27	30	65	1.45
Trinidad and Tobago	1 295	26	9	20	0.83
Mexico	98 881	26	24
Colombia	42 321	25	21	31	3.9
Cuba	11 201	22	16
Brazil	170 115	19	17	42	3.14
Chile	15 211	15	16	15	2.63
Venezuela	24 170	13	10	73	1.6
Argentina	37 032	11	11
Uruguay	3 337	9	11
Non-WTO members
Africa
Ethiopia	62 565	82	82	46	1.19
Eritrea	3 850	81	78
Somalia	10 097	73	71
Comoros	694	67	74
Sudan	29 490	64	61
Sao Tome and Principe	147	53	64
Liberia	3 154	52	68
Equatorial Guinea	453	52	70
Seychelles	77	42	79
Algeria	31 471	41	24	30	2.06
Cape Verde	428	38	23
Saint Helena	6	33	50
Réunion	699	29	3
Libyan Arab Jam.	5 605	12	6
Western Sahara	293	4	36
Asia and the Pacific
Tokelau	2	100	50
Wallis and Futuna Is.	15	100	33
Bhutan	2 124	93	94
East Timor	885	93	82
Nepal	23 930	88	93	44	1.91
Vanuatu	190	81	37
Viet Nam	79 832	80	67	57	2.11
Afghanistan	22 720	78	67
Samoa	180	78	34
Lao PDR	5 433	77	76	53	2.21
Cambodia	11 168	77	70	40	1.90
Micronesia	119	70	27
China	1 284 958	65	67	17	4.24
Kiribati	83	63	27
Yemen	18 112	62	50	19	1.03
Guam	168	60	29
Tonga	99	54	34
Niue	2	50	50
Tuvalu	12	50	33
American Samoa	68	47	34
Syrian Arab Rep.	16 125	46	28
N Marianas	78	45	27
French Polynesia	235	43	34
Iran, Islamic Rep. of	67 702	38	27
Korea, Dem. People’s Rep. of	24 039	37	30
New Caledonia	214	36	36
Cook Islands	20	35	35
Marshall Islands	64	28	27
Palau	19	26	26
Iraq	23 115	23	10
Saudi Arabia	21 607	14	10
Lebanon	3 282	10	4
Qatar	599	8	1
Gaza Strip	1 120	5	19
Christmas Islands	1	0	0
Cocos Islands	1	0	0
Nauru	12	0	25
Norfolk Islands	2	0	0
Latin America and the Caribbean
Anguilla	8	88	25
Montserrat	11	82	27
Turks Caicos	17	59	24
US Virgin Islands	93	54	23
Br Virgin Islands	21	38	24
Aruba	103	33	23
Puerto Rico	3 869	25	3
French Guiana	181	22	18
Bahamas	307	12	4
Martinique	395	5	4
Guadeloupe	456	0	3
Bermuda	65	0	2
Cayman Islands	38	0	24
Falkland Islands (Malvinas)	2	0	0
Memo item:
Developing countries	4 748 497	60	52
Developed countries	1 306 556	26	8
World	6 055 053	52	43

^a Various years, 1979-99. Rural poverty data are not strictly comparable among countries because of methodological and definitional differences. For details see IFAD (2001).

Source: FAOSTAT, (2001). FAO, Rome; and IFAD (2001), Rural Poverty Report 2001: The Challenge of Ending Rural Poverty, Annex Table 2.1.