The impact of agricultural reform in OECD countries on developing countries, such as those in the ACP group, is largely being ignored, according to two new reports (1, 2) published by ICTSD and ODI. In the foreword to an ICTSD report on the US Farm Bill, the ICTSD Executive Director writes ‘those close to the debate on U.S. agricultural policy in Washington D.C. have noted a near absence of discussion on WTO compliance.’ The analysis underpinning the report assesses the potential external effects of pending US commodity programmes. These support measures will affect both what is produced and how much is produced. These production decisions, influenced as they are by public spending allocations, will then indirectly impact on developing countries, both agricultural importers and exporters.
A number of ACP states are singled out as being particularly likely to be affected by policy changes, which focus on replacing direct payments to farmers (at a time of domestic austerity) with schemes that are – or can be portrayed as being – ‘safety nets’.
The attempted projections are necessarily imprecise due to uncertainty over the final provisions of the US Farm Bill and the future level of world market prices for alternative crops that US farmers can produce. The authors deal with this uncertainty by producing high- and low-impact scenarios in five crop areas: maize, soybeans, wheat, cotton and rice.
Although the outcomes vary according to scenario, they ‘show that the new programs will have the largest impact on cotton acreage’. For this reason, Mali is identified as one of the developing countries that will be most affected, together with Brazil, India and Pakistan. Under one scenario, wheat will also be affected significantly, with this potentially carrying implications for a far wider group of ACP countries.
In parallel with policy reforms in the US, further reforms of the CAP are being intensively discussed in the EU. Initial EC proposals were leaked as early as September 2011 (see Agritrade article ‘ EC proposals for the reform of the CAP leaked’, 6 October 2011), with debate around these proposals intensifying throughout 2012. Against this background, ODI has undertaken a variety of studies on the external dimension of the CAP reform process. According to a summary of these studies, there is a dearth of analysis of the potential external impacts of specific CAP reform measures and an absence of any attempts to monitor the external effects on developing countries. The latter is particularly important because, as the ODI report notes, ‘there are identifiable effects of the CAP on developing countries’, but these are ‘complex and not immediately obvious’ and moreover ‘vary over time’.
Given the importance of establishing a monitoring mechanism to see how CAP changes are affecting ACP and other developing countries, the ODI report examines four options that have been canvassed. It concludes the most practical approach is to combine two systems. One of these is an internal EU monitoring mechanism that is not linked to a set of stated ‘objectives enshrined in the legal texts’ so that it can follow ‘any unintended “side-effects” of the CAP’. The other would be an external monitoring mechanism led by the OECD.
All ACP states grow and trade food and so all are affected by changes to the agricultural policies of the world’s largest producers. But in most cases these effects are indirect and mediated by interaction with all the other factors that affect world supply, demand and, hence, prices. Within the constraints imposed by their environment (climate, soil, etc., and capital investment levels) farmers react to the market signals (the level and variability of prices) and shift production between products in the light of these signals.
While policy only intermittently changes, the factors with which policy interacts are changing all the time. So the task of forecasting the impact on the ACP of the US Farm Bill, CAP reform or any other major global policy change is not a one-off event.
Such forecasting needs to take the form of an ongoing process of monitoring the specific effects of specific policy tools on specific sub-sets of producers, if negative external effects on ACP agricultural producers are to be minimised. The challenge is to establish independent institutional mechanisms appropriate to this task. To date, it can be argued that insufficient attention has been paid to this dimension of the agricultural reform process in OECD countries.