Washington, January 24, 2007 - The issue of whether tariffs or similar instruments to restrict imports of staple foods can benefit poor people in developing countries is contentious, particularly given current Doha round negotiations on agriculture. Proposals are on the table that developing countries be able to designate certain “special products” that would not be subject to reduced tariff bindings in any Doha agreement.
“Potential Implications of Agricultural Special Products for Poverty in Low-Income Countries,” a draft research paper by Maros Ivanic and Will Martin investigates the potential effects for poor people in several developing countries of such flexibility for special products. The paper is a work in progress--after an initial presentation at an academic conference, the paper was revised and presented at an open seminar held at the World Bank on October 17. The draft paper has prompted letters of complaint from several NGOs, as well as a statement by the G-33.
Ivanic and Martin’s paper does not represent the official views of the Bank. Rather, it reflects preliminary work by researchers who routinely produce working papers and analytical studies. However, given the very public debate and the nature of some of the criticisms raised, I believe it is important that, as Chief Economist and head of the World Bank’s Development Economics Vice Presidency overseeing research, I clarify some of the issues surrounding the arguments made.
A number of developing countries are advocating for special products exceptions from liberalization in World Trade Organization negotiations on the grounds that protection from import competition may be needed to ensure food security and safeguard rural development. While there are differing views on which products would be considered “special”, the draft paper uses the definition offered by some NGOs which essentially consist of food staples such as rice, wheat, grain and maize.
A key message from the paper is that if food prices are supported by trade protection, net buyers of food, especially the very poor, could be hurt. Ivanic and Martin use household survey data to better understand the circumstances under which this may happen. They do not claim that the poor will always and necessarily be harmed; their aim is to highlight the circumstances under which they could be harmed and to emphasize the importance of using detailed household-level empirical analysis to inform policy decisions in this area.
The authors make the very simple general point that if tariffs on food staples increase food prices above what they would otherwise be, this could hurt poor people who are net buyers of these staples. Conversely, if poor people are net producers, or derive income from being employed in the production of the goods concerned, they may benefit. Although Ivanic and Martin stress that better ways to assist the poor could be found than trade protection (i.e. rural development, health, nutrition and other interventions), they recognize that there may well be circumstances and countries where maintaining higher trade barriers for special products will benefit the poor. For example, in Vietnam, the results suggest that higher rice prices would lower poverty in rural areas. This need not be true in other countries. In Nicaragua, for instance, higher rice prices could raise poverty significantly, because many poor households are net buyers of rice.
A key point in the draft paper is that the impact of agricultural special products must be assessed on a case-by-case basis, drawing on data at the individual household level. The authors suggest a methodology that can be used to assess these potential impacts and apply it to four different types of countries. While the results illustrate that using special products flexibility can be detrimental to poor households, who may well be the major buyers – in relation to their income – of the products being considered, the paper stresses that the actual impacts will depend on what governments choose to do.
Ivanic and Martin acknowledge the limitations of their research. For example, they explain in the paper that they omit government transfers and that their inclusion raises questions that need to be addressed carefully in a country-specific setting. The authors also agree that higher agricultural prices are likely to lead to higher agricultural employment and that labor mobility will be important in shaping the ultimate distributional outcome. In response to comments from the October 17 seminar, Ivanic and Martin will also include maize in the set of products in the next version (it had previously been excluded for technical reasons).
The paper makes no claim to comprehensiveness—it was meant as a technical and partial contribution to our understanding of the potential implications of special products. Such research, on the basis of country-specific household data, is essential to understand the potential impact of trade and other policies on poverty.
The final paper will be posted on the Bank’s research page when the research is complete and it has gone through the standard review processes for the Policy Research Working Paper series, which includes anonymous external academic review. We hope to convene a seminar or roundtable debate on the special products issue, which clearly merits further study.
Regarding the G33 reference to the recently completed external evaluation of World Bank research from 1998-2005, I would point readers to the web page where the evaluation, as well as my response to it, are posted, here.