Developed Countries Intervention in Agriculture and Food: its impact on the Developing Countries.

A REVIEW OF THE LITERATURE

BY

Saheed Adebayo Ogunbanwo

AGRICULTURE AND ECOLOGY DEPARTMENT, FACULTY OF LIFE SCIENCES, UNIVERSITY OF COPENHAGEN, DENMARK

10/23/2010

INTRODUCTION Agriculture being the basic occupation of humankind and major economic activity of any nation is very essential to the development and growth of the world economy. There is a very strong relationship between agriculture and food since there cannot be food without agriculture and viceversa. Agriculture accounts for almost three-quarters of the economically active population of the developing countries or the so-called third world countries and less than 10 percent of the population in the developed countries engaged in it. Thus; the history of every modern country includes an account of how agricultural change has occurred (Anania et al., 2004; Hill, 1984; Hopkins et al., 1979).

In the world today, the development in the economic sector has decline the population of people that engages in agriculture. And this has subsequently been used as one of the measurement of the level of development in categorising the countries of the world (Grigg, 1985). Consequently, the relationship that exists between the government and agriculture has been the important determinants of how the food and agriculture economy are been organised, developed, prospered and related to the other part of the economy (Halcrow et al., 1994). Since there is a link between agriculture, food sector and the overall economy therefore, the production and distribution of food is one of the key elements of any sustainable development both in social and environmental aspects (Redclift et al., 1999). However, due to the

economic development that has made the incomes of farmers to be low in relation to other sectors of the economy, the need arise for the government intervention by introducing varieties of policies to redistribute incomes more fairly to farmers, ensure continuous production and development of agriculture and food (Greer, 2005; Coleman et al., 2004; Clunies-Ross and Hildyard, 1992). Intervention in agriculture and food started in 18th century and up to date different countries of the world use varieties of policies to protect their domestic markets and food security. The developed economies such as: the US and the EU have been using USDA, CAP, FAO, WFP, GATT and WTO policies1 (Coleman et al., 2004; Redclift et al., 1999; Horwich and Lynch 1989).

USDA: United States Department of Agriculture established in 1862, CAP: Common Agricultural Policy established in 1962, FAO: Food and Agriculture Organisation established in 1945, WFP: World Food

While successes have been recorded in these organisations, studies have shown that most of these policies only allowed the rich countries of the world to exhibit their capitalist interest under free trade. And these have in turn not only lead to giving developed nations a comparative advantage in exporting their environmentally damaging production residuals to the developing countries alone but has also caused a devastating effects on the development and growth of the small- scale farmers and markets of developing economies (FAO, 2008; ActionAid, 2005; Redclift et al., 1999; Clunies-Ross and Hildyard, 1992; Hansen and McMillan, 1986). Ironically, up to date these devastating impacts on the developing countries have been given a little or no attention (Oxfam, 2009). This article will give a brief history of developed countries government intervention in agriculture and food since inception, reasons for such intervention, methods used and extent of the impacts of the intervention on the developing countries.

History of Intervention in Agriculture and Food in the Developed Countries The intervention in agriculture in the world started as early as 1870s when the small and inefficient European producers were protected against American grain that was exported to Europe in large quantities (Ingersent and Rayner, 1999; Hill, 1984). During this period of international agricultural competition between North America and Europe, France and Germany adopted protectionist grain policies while the UK, Denmark and Holland maintained a laissez-faire stance (Dowling, 2010; Greer, 2005; Koester, 1991). However, during the late eighteenth century the economies of the two continents became increasingly intertwined allowing the British and the United States government to intervene in price control of grains by the regulation of external trade (Ingersent and Rayner, 1999; Johnson, 1980). At the end of the First World War, the agriculture of many countries collapsed and the output prices of food fell sharply causing the general economic recession of 1921 this continues until the depression of early 1930s (Enright, 2010; Knutson et al., 1998; Hill, 1984; Redclift, 1999). Consequently, these situations led to intervention by governments of the countries that

Programme formerly established in 1963, GATT: General Agreement on Tariffs and Trade established in 1947, WTO: World Trade Organisation established in 1995.

were hitherto practising free trade to save their agriculture from irrational competition (Hill, 1984). However, there is policies instability as commented by Halcrow et al., (1994:7) that: since the beginning of the 1920s, price and income policy for food and agriculture has been driven by a changing set of policy circumstances, by accelerating rates of change, by the advances of new technology, and by a broadening of domestic and world markets. Knutson et al., (1998) concurred that the agricultural and food policies that exist today evolved from the problems and policies that existed in the past. They further added that this happens because problems and policies change gradually and unevenly.

Reasons for Intervention in Food and Agriculture There are varieties of reasons while governments intervened in agriculture but undoubtedly the primary motive is that agricultural markets would result in an income pattern for the rural population which was socially unacceptable (Marsh and Ritson, 1971). However, Knutson et al., (1998) pointed that the world food crises of 1970s which was characterised by low incomes and made distribution of foods, economic growth and development difficult brought about recent intervention in agriculture and food, since open trade create the channels for economic growth. Furthermore, the late 19th and early 20th century witnessed more governments intervention in the agriculture and food sectors in the developed countries. The specific reasons for government intervention in agriculture have changed as the nature of the farm problem and the overall political, social and economic environment which agriculture operates has changed (Knutson et al., 1998). In the mid 1980s there were cases of food surpluses in most of the developed countries such as the United State of America, due to the fact that supply of foods is higher than demand for it, whereas in the developing countries the situation was reversed. Therefore there is the need for balance in the world food production and distribution, these led to the creation of policies to restrain agricultural production and food trade by many countries (Ray, 2001; Halcrow et al., 1994). (Hill, 1984) identifies six reasons while government intervene in agriculture and food as: (1) Economic and/or production efficiency (2) Security of food supply (3) Equity of incomes (4) Reasonable food prices (5) political and (6) conservation.
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However, due to the multiple functions and benefits of agriculture, Colinhickey (2009) stated three benefits; (a) Food security benefits (b) Environmental protection benefits and (c) Landscape values as the reasons for state intervention in agriculture. In addition Knutson et al., (1998) point out that externalities and market failures are the two economic rationales that make government to involve in agriculture and food.

Intervention Methods in Agriculture and Food There is no specific method of intervention in agriculture and food across all the countries of the world as there is no world food and agricultural policy but policies of independent nations. Therefore, nations meet together and try to agree on policies that will improve their individual situations, and ensure mutual benefits (Burger, 1994; Halcrow et al., 1994). However, Hill, (1984) mentioned two basic methods by which intervention in agriculture and food has been achieved as: deficiency payments and supply-reducing policies. These two methods have been used to raised prices to farmers and therefore retain resources within agriculture. Consequently, two broad markets; the agricultural input markets and the agricultural products markets in which resources and commodities used in farming are made available for production. And food products are processed and marketed for consumption at home and abroad respectively were identified to have been used by different nations (Halcrow et al., 1994).

Impacts of Intervention in Agriculture and Food on the Developing Countries There are many issues on the impacts of the policies and intervention of the developed world in agriculture and food on the developing world. While, some studies have shown that investments and development occurs in the developing countries, it has been argued that such development were insignificant in magnitude, inadequate in scope and unable to address the needs of many agricultural communities in particular the rural smallholders (FAO, 2008; Giblin and Matthew, 2005). Consequently, the amount of money invested in agriculture is higher in the developed countries than the developing countries, For instance the US and the EU invested annually an average of US$17,765 and US$7.614 per farm from 1986 to 2007 respectively compared with the miniscule US$1.01(US) and US$2.46 (EU) invested in small farms in poor developing countries (Alpert et al, 2009.)

Further studies have shown that the combination of domestic support, markets protection and export subsidies by industrialized countries depressed world prices and reduced market opportunity for the developing countries (Diao et al., 2003). However, the extent to which these impacts have been felt since the Second World War is subject to debates. Therefore agriculture in the developed and the industrialised countries have been argued to have a ruinous impact on the developing countries. Clunies-Ross and Hildyard (1992:10) examined the impacts of developed countries industrialized agriculture on the developing countries and concludes that: Third World countries have suffered economic ruin and exacerbated famine as their own economies have been sucked into a world trading system which uses their land to provide food for the people and animals of .......While their farmers have to compete with surpluses dumped on the world market at subsidised prices by the North.

In addition, while thousands of agricultural producers across the world sell their goods on local, regional and world markets, many smallholders producers in the developing countries suffers low prices, lost market share and unfair competition (Fraser, 2009; FAO, 2008; Godfrey, 2002). Fraser, (2009: 29) declared that: for many decades, the smallscale agricultural sector has been deeply neglected across developing countries. According to a study carried out by IFPRI2 in 2003, protectionism and subsidies by developed nations have cost developing countries about US$24 billion annually in lost to agricultural and agro-industrial income. The research further revealed the impacts on agricultural and agroindustrial incomes of some regions with Latin- America and the Caribbean losing about US$8.3billion in annual income from agriculture, developing countries in Asia losing some US46.6 billion, and the Sub Sahara Africa, close to US$2 billion. Furthermore, most of the agricultural trade negotiations by WTO and others have not only created a big gap between the developed countries and the developing countries but also favoured the industrialised worlds people and influential farmers lobbies against consumer and tax payers, while neglecting and take no cognizance of hundreds of millions of smallscale farmers and poor consumers in developing countries that are struggling hard to survive
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IFPRI: International Food policy Research Institute established in 1975 is one of the 15 centres supported by the Consultative Group in International Agricultural Research and an Alliance of 64 Governments, private foundation, International and regional organisations.

on a dollar or two of income in a day (Curtis, 2009; Diao et al,2003). Consequently, the agricultural and food policies that have been put in place over the years are not the real substitute for real agricultural and food security policies as most of them lacks effective trade policies and problematic implementation thereby resulting in a lack of protection for agricultural markets (Crola, 2009; ActionAid, 2008; Bureau and Matthews, 2005).

Although, Godfrey (2002) argues that: The EU, The World Bank, WFP and FAO (both of the UN) have all played a crucial role in the past worlds largest dairy development programme which has benefitted millions of small dairy farmers in India, one of the developing countries who became the worlds largest producer of milk in 2001 with 84 million tonnes. However, while some rules and policies permit the developed and OECD3 countries to provide massive support to their agricultural sectors by making use of heavy farm subsidies, the rules and policies of the WTO, IMF4, The World Bank and the Regional development banks have majorly coerced the developing countries to either reduce or eliminate subsidies to their agricultural sectors (Curtis, 2009; Diao et al., 2003; Godfrey, 2002). In addition it has been claimed that the existence of WTO has generated some conflicts among the exporting countries, including the domestic farm subsidies, the variable levy and export subsidies of the European Union, the Japanese protection of its rice and beef markets and the Canadian protection of its dairy and poultry markets (Knutson et al, 1998). ActionAid International5 (2008) added that most decisions and policies made by some developed economies such as the CAP in the European Union and the Farm bill in the US have not been consistent in their developmental goals and have neglected the impacts of these decisions on the developing countries. Consequently, Action Aid (2005) stated: Over US$300billion is spent each year to subsidise the agricultural sectors in the developed countries this amount are six times the total amount of aids to developing countries. Barling, (2007) further argue that this money is enough to feed, clothe, educate and provide healthcare for every child on the planet.

OECD: Organisation for Economic Co-operation and Development established in 1958 formerly known as Organisation for European Co-operation and Development and it has 30 member countries. 4 IMF: International Monetary Fund established in Dec. 1945. 5 ActionAid International: Formed in 1972 as an International Non-governmental anti -poverty organisation.

Conclusion and Recommendations The intervention of the developed economies for the past years in the agricultural and food sectors though; have some positive impacts but had more negative impacts on the development of the agricultural sector, the rural development, rural environment, agricultural labours, small-scale farmers livelihood and incomes in the developing countries. While most of these interventions reap vast rewards for the minority in the developed economies they undermined the markets and opportunity for farmers in the developing countries. Similarly, despite the reforms in some policies such as the European Union CAP programme, issues of market access and export subsidies were completely ignored. Surprisingly, the development policies and investments that could target low income farmers and consumers directly in the developing countries were given little or no attention up-to-date. Therefore there is the need for urgent action on prevention of these devastating effects by restructuring and reformation of the existing policies of intervention to support the smallholder farmers, the welfare of the small scale farmers and to develop the market of the less developed countries of the world.

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