Potential Implications of Agricultural Special Products for Poverty in Low-Income Countries

Transcription

1 Potential Implications of Agricultural Special Products for Poverty in Low-Income Countries Maros Ivanic* Will Martin* 30 October 2006 *All views expressed are those of the authors alone, not the World Bank or any other organization

2 Outline Policy proposals and debate Methodology Results

3 Goals of Special Products Food Security Livelihood Security Rural Development

4 Specified instruments & effects G-33 Proposal: Exceptions from tariff formula no reductions on 10% of tariff lines 2% cuts in 5% of tariff lines 5% cuts in 5% of tariff lines Tariff bindings will not be raised But policy effective only if applied tariffs at least sometimes higher than would otherwise be And if these tariffs raise domestic prices

5 What products are to be targeted? Staplefoods A significant proportion of household income is spent on the product, and A significant proportion of producers are low income, subsistence farmers

6 Why might applied rates be higher? Tariff formula might require a reduction in applied rate from current levels Change in circumstances might cause applied rates to rise above levels permitted by post-formula bindings ruled out by formula cuts, but permitted by exceptions. Possible causes: Volatility of protection Long-run increases in protection resulting from changes in political-economy balance

7 Volatility & trend protection: Korea Rice Barley Soybeans Beef Pork Chicken

8 Insights from Earlier Literatures Poor countries have historically had urban bias and cheap food policies Partly because poor consumers are very strongly affected by high food prices Food is a large share of income Pure subsistence farmers are unaffected by food prices The majority, and the poorest, farmers are actually net buyers of food

9 Food Security vs Self- Sufficiency Widely recognized in the literature on special products that food security is about ensuring access to food But the arguments veer back to the traditional and discredited arguments for self-sufficiency Higher food prices raise self-sufficiency But may reduce food security by raising poverty

10 Also Argued That Poor Country Farmers are Uncompetitive The technology used in poor countries is frequently inferior to that in the industrial But the important thing is how this technology compares with other sectors Subsistence-oriented farmers in many countries are effective exporters Raising productivity is vitally important But protection is not an efficient means

11 Effects of higher applied tariffs 1. Loss of national income a. Higher consumer & production costs b. Deterioration in access to developing country markets (& industrial ctries thru sensitive prods) c. Loss of potential productivity gains 2. Distributional impacts Key question: Would distributional gains warrant costs due to exceptions?

12 Note: Gains to developing ctries very susceptible to exceptions Developed Developing Agric Ag-Sens/Special Ag+Nonag

13 Criteria for Special Products Staple foods Significant share of total food expenditure Substantial share of total calorie intake Significant share of producers are lowincome, subsistence farmers Significant share of output from farms of less than average size Large number of people dependent on product

14 Other criteria allow wider choice Productivity per worker is low relative to.. the highest productivity in the world A significant proportion of farms producing the good are of less than average size

15 Concerns re Staple Food Criteria Higher applied tariffs on staple foods with large budget shares Means higher costs to consumers, especially poor consumers Small gains to poor, subsistence farmers Large share of output is not marketed in poor countries no benefit to producer households Surveys suggest that poor rural households are typically net buyers of staple foods

16 Products identified by ICTSD Rice Wheat Maize Sugar Chicken Beef Milk & dairy products Tomatoes, onions & potatoes

17 Methodology Use household data including information on purchases, sales, own-consumption of specified products Change prices of specified commodities to assess impacts on incomes and poverty Is not a prediction about policy change!! Takes into account the structural features identified by the criteria. Staple foods; Significant share of food expenditure; Significant share of producers low-income, subsistence farmers; Significant share of output from farms of less than average size; Large # of people dependent on product

18 Methodology contd. 1. Uniform price and wage shocks to net consumption/sales of households Results depend on importance of products to households below, or near, the poverty line Shows the sensitivity of poverty to prices of individual products Could guide decisions about classification of special products 2. Consider potential effect of a Doha Accord

19 Deaton Methodology: 1 st Order Effect Household i expenditure & firm profits B i = e(p,w,u i ) π(p,w,v i ) τ i where p is product price, w is wage, u is utility, v is resource Differentiate to get impacts of price changes db i = z pi dp + z wi (dw/dp) dp where z p is net consumption Take percentage changes db i /e i = S i dp/p +S wi (dw/dp) dp/p

20 Two alternative formulations Perfect price transmission/homogenous products Under this assumption, only tariffs on imported goods matter Imperfect price transmission Filter through Armington parameters to allow for the fact that tariff changes don t always result in a corresponding change in prices

21 Household Surveys for Four Low Income Countries Rural Urban Total Pakistan 99 10,254 5,909 16,163 Vietnam 98 4,269 1,730 5,999 Nicaragua 01 1,790 2,211 4,001 Zambia 98 8,385 8,161 16,546

22 50% Higher Prices than Otherwise Poverty Rate Pov Rice SugarOth meat Dairy All Rate % point change Pakistan Rural Urban Total Vietnam Rural Urban Total Nicaragua Rural Urban Total Zambia Rural Urban Total Imports w/- wage

23 50% Higher Prices than Otherwise Poverty Gap Pov Gap Rice Sugar Oth meat Dairy All w/o wage % point change Pakistan Rural Urban Total Vietnam Rural Urban Total Nicaragu Rural Urban Total Zambia Rural Urban Total

24 Potential Doha Impacts Original rate Minimal Utilization Full Utilization Perf Substitutes Imp Substitutes Perfect Substitutes % % % % % Pakistan Rural Urban Total Vietnam Rural 2.4 na na na na Urban 0.9 na na na na Total 2.0 na na na na Nicaragua Rural Urban Total Zambia Rural Urban Total Imperfect Substitutes

25 Can these 4 results be generalized? Staple foods: net sales position of poor, % Buyers Sellers Madagascar Kenya 83 8 Ethiopia Tanzania Nicaragua Guatemala El Salvador 22 8

26 Conclusions Special products create a new set of exceptions Intended to deal with food security, livelihood security, rural development Effects on poverty, and hence food and livelihood security likely to be adverse Small in the short term, but potentially cumulative Other instruments needed to lower poverty Aid-for-trade, R&D, rural infrastructure