Infrastructure is a key to agricultural trade in developing countries
15 April 2013
An OECD review of the constraints to developing country agricultural trade, published on 31 January 2013, concludes that “a 10% improvement in the transport and trade-related infrastructure quality has the potential of increasing developing countries’ agricultural exports by 30%.” Investment in human resources is also very important, with a 10% improvement in secondary education enrolment estimated to generate a 7.2% rise in the value of agricultural trade.
Developing country policies can also inhibit trade: “product-specific effects of SPS regulations can add up to 42% on rice import prices in Kenya, or 29% on edible oil import prices in Uganda”, a scale of increase that could “affect significantly the real income of poor households and limit trade and consumption volumes.”
The paper combines a literature review, a modelling exercise and some country case-studies in two ACP countries and one other developing country. The modelling applies a cross-sectional gravity model to regress trade flows on a range of trade impediments. The country case studies, which assess the role of ‘aid for trade’ in easing the constraints, are of Indonesia, Zambia and Mozambique.
One way in which some producers seek to overcome what the OECD report calls “inefficient value chains” is to engage with fair trade. The annual monitoring report of data collected from Fairtrade-certified producer organisations in 2011 shows that “Fairtrade producers are continuing to invest significantly in improvements to their organizations and businesses.” It reports that over half of the Fairtrade premium paid to small producer organisations was invested in “processing, productivity, quality improvements, and in organizational strengthening”. However, there are problems within Fairtrade supply chains. The “high prices for coffee and for many other commodities that characterized 2011” saw “widespread side-selling of coffee outside of cooperative channels”. Significant resources, however, are being devoted to “supporting producer organizations to manage the risks of price volatility”.
The UK Department for International Development has also launched a Trade and Global Value Chains (TGVC) initiative, which aims to encourage cooperation between food and clothing retailers, local charities and governments to help farmers and workers employed by suppliers that operate in global supply chains.
Editorial comment
According to simple textbooks, Africa should benefit from high world food prices, as it has not only a relative endowment in agricultural resources, but also a vibrant rural sector. High food prices should thus be a powerful instrument for reducing poverty. Under the same logic, ambitious OECD biofuel targets requiring food crops as a feedstock should be welcomed by the rural populations in those countries with significant agricultural resources.
However, too often African (and other ACP) states are hit when world prices fall and fail to gain (or worse) when prices rise. High price volatility can thus deliver a double whammy, regardless of the direction of price movements. Part of the answer to this conundrum is that Africa’s agricultural potential is too often unrealised – and even when it is realised, weak bargaining power means that farmers fail to obtain the major gains that accrue to other parts of the value chain.
There is much that external parties can do to reduce these problems. ‘Aid for trade’-related physical and human infrastructure investment is needed on a grand scale. The OECD report cites evidence that it is not simply (or even primarily) a lack of roads that is critical, but high transportation costs linked to a wide variety of logistical factors.
Genuine fair-trade organisations can make a difference on the margins to the distribution of gains along the value chain. However, wider issues of preventing abuses of power along supply chains also arise – an area to which the EC has been paying increased policy attention. Some of this work may be relevant in certain ACP countries, in certain supply chains.
But there is a large domestic agenda as well. Alongside infrastructural inadequacies, the OECD report cites poor governance. In the poorest countries, it argues, agricultural exports could be doubled if political instability could be reduced substantially.
