Speech

Opening Remarks for a Press Conference on Trade, By Kenneth Rogoff, Economic Counselor and Director, Research Department, IMF

September 27, 2002

Opening Remarks for a Press Conference on Trade
By Kenneth Rogoff
Economic Counselor and Director, Research Department
International Monetary Fund
Washington D.C., September 27, 2002

How Do Industrial Country Agricultural Policies Affect Developing Countries?

The enormous subsidies paid to farmers in many rich countries are under intense scrutiny. Rich-country farm subsidies often mean lower prices for poor-country farmers, and yet higher prices for rich-country consumers, not to mention higher taxes. The essay "How Do Industrial Country Agricultural Policies Affect Developing Countries" in the September 2002 World Economic Outlook (whose theme is Trade and Finance) discusses these issues in detail, and I will restate some of the main themes here today.

The sheer magnitude of the support given to farmers in rich countries is stunning—over 30 percent of farmers' income. Support is highest in countries that import food, such as Japan, Korea, and Switzerland, and lowest in food exporters, especially Australia and New Zealand, with the U.S. and the EU between these extremes. Over the last 15 years, the situation has improved modestly, with support falling somewhat and becoming somewhat less distorting.

Removing distortionary forms of farm support in industrial countries would provide at least $100 billion a year in benefits in the short run, and over time the gains would be even larger. While most of the gains accrue to industrial countries themselves, through more efficient production and lower food prices for many consumers, benefits to developing countries are also substantial. These gains are particularly large for food exporting regions, including sub-Saharan Africa, where many of the worlds' poorest live.

Yet developing countries would gain even more by eliminating their own impediments to agricultural trade—as often is the case, the largest gains from trade liberalization accrue to the liberalizers themselves.

The most beneficial way to remove agricultural support is to do it multilaterally. Multilateral liberalization will secure the greatest benefits to all and help to neutralize the influence of special interests. If progress is not made multilaterally, however, unilateral liberalization can also provide significant benefits. More generally, industrial countries are best placed to take the lead in promoting such liberalization given their wealth and the small size of their agricultural sectors, as liberalization involves difficult political decisions and probably some transitional compensation to the losers.

A few poor countries that are significant food importers may be harmed by liberalization. These losses, as well as losses to a small number of richer countries, are dwarfed by the benefits to the finances of industrial countries. As was recognized in the context of the last trade round, it will be important to consider providing assistance to poor countries that may lose, possibly through building on initiatives to increase and better target aid at the recent summit in Monterrey.

Trade and financial liberalization are complementary. Indeed, both are needed to reap the full benefits of globalization—the sum is greater than the parts. Broad-based agriculture liberalization is an example where globalization can be deepened and broadened in very positive way, leading to a more prosperous and interlinked world for all.