Statement by Mr. Cyril Enweze,
Fund for Agricultural Development, at the High-level Forum on Trade and Investment
of the Group of 77
(Doha, 5 December 2004)
Your Excellency Sheikh Mohamed bin Ahmed bin Jassim Al-Thani,
Minister of Economy and Trade,
Your Excellency Ambassador Nassir Abdulaziz Al-Nasser, Chairman of the G-77
Honorable Delegates and Guests,
Ladies and Gentlemen,
It is a great honour and privilege for me to address this session of the High-level Forum on Trade and Investment. I am speaking today on behalf of Lennart Bage, President of IFAD, who sends his regrets because of urgent commitments at headquarters and extends to this august assembly his warmest greetings for a successful outcome. I would like to take this opportunity to also thank the State of Qatar for hosting and organizing this important event.
IFAD is very pleased to have been invited to share its views and contribute to the general debate on these critical issues. Together with the G77, IFAD shares a common vision and a firm and shared conviction: to move forcefully and urgently in addressing the scourge of poverty as individual economies pursue efforts that put them on a path of sustainable growth and development.
As you are aware, the Group of 77 countries plays a critical role in IFAD and have let their support over the years at various International fora. The value of such partnership, I believe, is great and it is particularly important that this role be further strengthened as we address the themes that join us together here today: trade, investment and South-South Cooperation. There could be no better place than Doha to rekindle the dialogue and provide the impetus to move the Doha agenda forward.
This session is taking place at an important time. We are ten years away from the period set out to achieve the Millennium Summit commitments to reduce poverty and are currently assessing the progress made until now. Two key realizations carry special weight in the efforts to meet the Millennium Development Goals (MDGs). First, the role of trade in economic growth and development processes has long been recognized. However, more recently its contribution to poverty reduction has gained growing attention, in the context of meeting the MDG No.1 of halving the proportion of people living in hunger and extreme poverty by 2015. Along these lines, another Millennium Development Goal, No.8, on the global partnership for development calls for an open trading system that is rule-based, predictable and non-discriminatory, and that also recognizes the special needs of the least developed countries in relation to tariff and quota-free access for their exports.
Three years ago, the international community gathered in this very beautiful coastal city to rekindle trade negotiations. At that meeting, ministers stated that they would seek to place the needs and interests of developing countries at the heart of a new round of multilateral trade negotiations.
This round, the ‘Doha Development Agenda’, promised to build up a multilateral trading system that would provide developing countries with the opportunity to trade out of poverty and contribute to meeting the MDGs. The expectations from the Doha Agenda are great especially in light of the success reached in the WTO agreement on the Doha work programme this July, displaying progress to abolish all forms of agricultural export subsidies and the move to substantial reductions in trade distorting domestic support in agriculture. Still, there is a way to go to ensure a successful conclusion of the Doha Round and implementation of the decisions made.
Secondly, in light of MDG No.1 of halving the proportion of people living in hunger and extreme poverty by 2015, the importance of focusing on poverty amongst the rural poor has increasingly been recognized. Of the 1.2 billion extremely poor people in world, 3 out of 4 – some 900 million – live in rural areas, and depend primarily on agriculture and related activities for their livelihood; the most vulnerable and poorest are herders, artisans, fisher folks, pastoralists, indigenous populations and women. Many of the countries that have in fact halved poverty during the past several years have done so through a development process that started with growth in agricultural productivity, production and incomes. For these reasons, if our efforts to meeting the MDGs to be successful, we must give priority to fighting poverty in rural areas.
Agricultural trade is therefore especially important in terms of poverty reduction, yet, at the same time the international agricultural product market is perhaps the most distorted market in the international trade system. While overcoming these distortions has the potential for considerable poverty reduction, efforts to that end are being dealt with only on a commodity-by-commodity basis instead of focusing in a coherent way on the impact of present distortions and prospective liberalization on the most vulnerable segments of the world population. Moreover, protection faced by developing-country exporters of agricultural products in industrialized country markets is four-to-seven times higher than that faced by exporters of manufactured products. Commodity-specific tariffs, quotas and safeguards, as well as subsidies in industrialized-country markets, represent major barriers to access by developing-country agriculture.
The impact of the current trade regime is not, of course, restricted to access to the domestic markets of developed countries, but embraces the depressing effect of developed-country agricultural production and export subsidies on global prices and farmer returns and opportunities in developing countries, including prices for sugar, cotton, rice, wheat, maize, meat and dairy products.
This effect carries a lot of implications for the poor, as many rural economies of the developing world – particularly in the poorest countries – are based on very few commodities. Fifty-four developing countries depend on three or fewer commodities for 20% of their export earnings. Over 40 countries depend on a single agricultural commodity for more than 20% of their total export income. Of these, 12 countries earn more than 40% of their total export income from one commodity.
Food crops are poor people’s main products, principally involving staples and relatively low levels of commercialization. In addition, production of a very narrow range of exported raw materials serves major cash generation requirements. Very little income and employment is derived from local agro-processing in low-income countries. The economy of the poor – including food security and development of productive assets – rests on this narrow commodity basis. When international agricultural prices for just a few commonly traded commodities are good, the incomes of the poor rise significantly and they invest. When they are bad, incomes fall and productive investment declines sharply. This is very clear for producers of ‘traditional’ export crops. It is also true for producers of food crops, which are sold on national and regional urban markets.
From our 25 years of experience in funding developing programs in the member states of the G77, we have come to the following realization: clearly, the international trade regime – especially in agricultural products – not only affects developing countries in an aggregate, macroeconomic way but it impinges more directly on the economic lives of the rural poor. Even so, addressing the trade regime alone is not sufficient to achieve the poverty reduction goals. Other pertinent issues are involved, e.g. market access for non-agricultural products and services, trade facilitation, ICT, as well as to affordable imported medicines, et al. A critical question for all developing economies and organizations, such as IFAD, that engage in rural development is what constitutes the basis for a vibrant and expanding small holder economy within a liberalized trade regime – and how to create it.
For IFAD, this is a fundamental issue as this necessarily involves aid as well as trade but aid specifically directed to enabling the poor rural producers themselves to forge new capacities and relations to deal with new sets of economic relations.
And there definitely is an important role for the national governments to play. How much the rural poor may benefit from changes in the international trade regulations depends upon both the macroeconomic policies of national governments in the developing world and the extent to which those governments provide the institutional, policy and material framework necessary for the rural poor to utilize the opportunities that may arise. To benefit from trade opportunities, the rural poor need access to capital, relevant technology land, water, infrastructure and opportunities for organization. Without these, the direct benefits of changes in trade regulations may be modest in terms of rural poverty reduction.
Over the past years, a general consensus has formed around the vital role of rural development. The G-8 Summits in 2003 and 2004, for example, pledged to increase investment in agriculture, and individual donors have adopted policies to raise assistance to the rural sector. The Millennium Project reports also highlight the imperative need to accelerate rural development to achieve the MDGs.
This new recognition of the importance of the rural sector offers a real opportunity to reverse the trend of stagnation and decline in the smallholder economy in poor countries. But we must be careful not to repeat the mistakes made in top-down agricultural schemes of the past. We must start with the recognition that the smallholder farmer is productive and can be the key agent of change, rather than looking at the rural poor as objects of charity or welfare. Putting people at the center of development is the first step to enabling the rural poor to take their destiny into their own hands.
The recent recognition of rural development and agriculture as key sectors to achieve the MDGs places South-South cooperation and trade in center stage. The international debate around the link between trade and poverty has principally focused on relations between the developed and developing groups of countries. This is not, however, equivalent to saying that developed country markets are the ‘natural’ markets for developing countries producers, or, as I mentioned before, that changes in the trade regime will provide relief for the poverty of all or most. Given the difficulties of entering and extracting value from the changing nature of the developed country markets, perhaps the most appropriate ‘target market’ for many smallholders are the markets emerging in the developing world itself. In this regard, smallholder producers need to be capable to deal with market forces and engage in a mutually beneficial way, through their own institutions with large-scale private sector entities in marketing and processing.
The developed countries and the development community can play a significant part in assisting the facilitation of a further increase in South-South trade, as also pointed out in one of the Background Papers for this Forum, through e.g. technology transfer and other trade-supporting infrastructure.
Before concluding, I wish to briefly turn to the areas of investments, where, as outlined in the Background Papers, a number of developments are taking place and interesting proposals are put up for discussion. On the one hand, Foreign Direct Investment flows have been stagnating since the early 2000s, on the other hand a number of developing countries have become significant sources of Foreign Direct Investment in other developing countries. A challenge for developing countries today is to identity a strategy that promotes private-sector investment and economic growth and simultaneously helps the poor overcome the obstacles that may limit their engagement with the private economy and to engage in it in a way that is to their benefit. Given the dearth of domestic savings and other resources in the poorest countries, it is abundantly clear that measures to increase the inflow of foreign direct investment are needed if we are to meet the Millennium Development Goal of halving poverty by 2015. We are therefore very much looking forward to our discussion at the Workshop on Investment tomorrow.
Let me conclude by reaffirming that issues for discussion in this august group in the coming days are extremely important for the rural poor and for poverty reduction. The question is much broader than the current discussion on the international trade regime. In principle and in practice, the reduction or elimination of agricultural protection and other production subsidies will provide opportunities for developing-country producers. It will also require a major effort to empower smallholders and the rural poor to become more competitive market actors – an effort embracing policy change, institutional and human development and major material investments, particularly in rural infrastructure.
International trade negotiations have made some progress; still there are indications that it will be crucial to take development issues fully into account in the further negotiations. Moreover, investment in the human, institutional and material capacity – as these relate to critical production and trade issues – of the rural poor in recent years has been at a low level among developing country governments and development assistance priorities. Fortunately, there have been signs over the last three years that thinking and priorities are starting to change, with growing attention being given to the centrality of rural and agricultural development for poverty reduction and the achievement of the MDGs.
In this regard a start has been made by governments and their development partners – but much more needs to be done if the rural poor are to have an effective basis for confronting the challenges of global trade changes and benefiting from them.
There are no simple answers to the issues we are discussing today. What is clear, however, is that smallholders and the rural poor in developing countries are facing a number of difficulties in engaging with market processes increasingly linked to the global economy. Support for poverty reduction through trade will not be effective if it focuses only on trade regulation reforms and only on liberalization of the trade regime. In parallel with these efforts, policies and resources will need to aim at enabling smallholder producers to deal with market forces and engage in a mutually beneficial way with larger-scale private-sector entities in marketing and processing, and new approaches will need to be further explored.
If this can done, many rural poor will indeed be able to gain a more secure and sustainable livelihood by engaging in market processes, both internal and increasingly in a rule-based open trading system.
Once again, I would like to thank the Government of the State of Qatar for making this Forum possible. I would also like to thank the G77 for organizing the event, and the UNCTAD and the South Centre for a set of highly informative papers, which they have provided for this Forum.
At IFAD, we look forward to intensifying our strategic partnership with the Group of 77 in order to contribute more effectively to the achievement of equitable sustainable human development. Together we can create the enabling environment and opportunity to unleash the potential of poor people who can then become efficient agents of change.
Collectively, we have the experience, and the world certainly has the resources, to achieve this goal. In this context, IFAD looks to the member countries of the G77 to play an important role in making the world more prosperous, equitable, just and safe, a world where human dignity rather that widespread poverty is the defining characteristic. IFAD stand ready to share its knowledge and experience to address the challenges of rural poverty and contribute to achieving the Millennium Development Goals.
I thank you for your attention.