Protection penalises poor

Protectionist trade practices penalise the poor:

Trade policy adjustments to insulate domestic markets when world food prices spike have been ineffective in dealing with food price shocks that exposed millions of people to poverty in developing countries, a World Bank researcher told a New Zealand agricultural economics conference this week.

Dr Will Martin, the manager for agriculture and rural development research in the World Bank is an Australian who has worked for the Washington-based World Bank for the past 25 years. He is also President-Elect of the International Association of Agricultural Economists. He was speaking to more than 250 international delegates attending the Australian Agricultural & Resource Economics Society’s conference in Rotorua this week.

His analysis of detailed expenditure and agricultural production data from 31 developing countries assesses the impacts of changes in global food prices on poverty in an effort to understand their impacts on the poor.

Food price increases unrelated to productivity changes in developing countries raise poverty in the short run in all but a few countries. “That’s because the poor spend large shares of their incomes– frequently about 60-70 percent–on food and many poor farmers are net buyers of food,” he says.

“However, in the longer run, if prices stay high, two other important factors come into play. Poor workers are likely to benefit from increases in wage rates for unskilled workers resulting from higher food prices, and poor farmers are likely to benefit from higher agricultural profits as they produce more food. As a result, higher food prices appear to lower global poverty in the long run.”

He says a natural and understandable policy reaction for many countries when food prices rise is to lower domestic prices through levies on exports, temporary import tariff reductions, or import subsidies. “But these are beggar-thy-neighbour policies that push up world prices,” he says. He estimates that these policies accounted for nearly half the increase in world rice prices in 2007-8. Individually, most countries took action that reduced the impact of higher world prices on the poor. But, when the contribution of these policies to the higher world prices is taken into account, they turn out to have been ineffective.

“What countries need is a collective approach that enables relatively open trade to continue in those circumstances. Clearly, this still needs to be combined with social safety nets so poor people can cope in the short term, but then realise the longer term benefits of higher prices. We need to deliver policies that actually work rather than policies that appear to work.”

Dr Martin says countries need to develop this ‘social safety net’ so the poorest can get access to what they need when they need it.

He says the World Trade Organisation (WTO) showed with the abolition of variable import levies in the Uruguay Round that it can introduce trade policies that bring about the kind of collective action needed to tame food price spikes.

“The collective agreement of the EU-US over export subsidies in the Uruguay Round also showed what can be done when there is clear recognition of the problem. It’s much more complex when many more countries are involved but we need to keep working away at the challenge if we are to make progress. Getting the confidence of policymakers to act differently will require a lot more research and policy formulation.”

Most people, rich or poor, farmers or not are net buyers of food. All will be affected by price rises and the poor, who spend a greater proportion of their income on food,  will be hardest hit.

Export bans and other protectionist measures might help the poor in the short-term but it is a temporary fix.

Policies which increase wealth rather than those which artificially keep prices low provide the best long-term solution to poverty and hunger.

The solution to poverty and food shortages isn’t restrictive trade practices, it’s liberalising trade.

The challenge is how to help the poor cope with price rises in the short-term until they benefit from improved incomes which enable them to afford more food.


13 Responses to Protection penalises poor

  1. Andrei says:

    Do you really believe this?

    In reality what happens is the wealthy countries use free trade to dump their produce (often subsidized) into countries they wish to subjugate thus ruining the local industry the assets of which then can be acquired (plundered) at fire sale prices

    This is why countries like Greece and Spain have over 50% youth unemployment and why their young have to leave their homelands to work as hotel maids and prostitutes in the financial capitals of the world

  2. Dave Kennedy says:

    Andrei, while i don’t agree that free trade was the reason for the collapse of the economies of Greece and Spain, you are correct about the reality of such agreements. The CER agreement between Australia and Nz has favoured the larger country and Australia’s FTA with the US has had a negative impact on Australia. New Zealand’s increased trade with China may have occurred anyway, according to our Reserve Bank heads, because we just had stuff they wanted and already had a history of good relations.

    There are other concerns with FTAs including the Investor-State Dispute Settlement (ISDS) process we would be bound to under most FTAs. This process favours corporate interests of the sovereign rights of governments to manage their resources and pass legislation without outside interference. There are a number of countries that are being legally required to compensate for lost potential profits when a law change has affected the profitability of an outside corporate.

    Fair trade agreements and economic cooperation agreements are a much safer way to go than an FTA. Interestingly the countries with the least protections are generally the most vulnerable to exploitation.

  3. Mr E says:

    I think a broad view Free trade should include the discouragement of trade distorting policies like subsidies. Many free trade policies require the absence of trade distorting subsidises.

  4. Andrei says:

    I think a broad view Free trade should include the discouragement of trade distorting policies like subsidies. Many free trade policies require the absence of trade distorting subsidises.

    There are many trade distorting mechanisms Mr E

    The ETS is one, we now import cement because it is cheaper to do that than make our own because of that particular stupidity

    But there are things like cheap loans to encourage growth in an industry in a particular region, tax incentives to take on more employees or even subsidies for their wages and so forth.

    I’ll tell you something else the German car industry benefited immensely from the destruction of the Yugo Car plant in 1999, that’s a free trade distorting mechanism- Yugo wasn’t on our radar but they were one of the biggest manufacturers of cars in Europe two decades ago

    German and Australian coal producers are currently benefiting from the destruction of Eastern Ukraine today another engineered free trade distorting mechanism,

    Alas it is not as simple as pithy sound bites make it seem.

    In principle I believe in free trade but not when it is used as an instrument for imperialism and binding the poor into servitude

  5. Mr E says:

    Alas it is not as simple as pithy sound bites make it seem

    End of Game.

  6. The TTPA is simply Game Over for New Zealand’s sovereignty.

  7. Bulaman says:

    ETS gave away sovereignty for our air

  8. Dave Kennedy says:

    “ETS gave away sovereignty for our air” If the Government is subsidising polluters through the ETS it isn’t really giving up sovereignty of our air, but providing Crown support for destroying it 😉

  9. Andrei says:

    “ETS gave away sovereignty for our air” If the Government is subsidising polluters through the ETS it isn’t really giving up sovereignty of our air, but providing Crown support for destroying it

    You greens are such fools. the ETS is just another scheme the ruling elites have come up with to line their own pockets at the expense of the plebeians.

    They have co-oped you as tools for their scam, which is what it is, a scam.

    Do you really think that John Key’s cronies topping up their bank accounts by trading “carbon credits”, a fictitious product with zero value, will make any difference to the sea level in 100 years.

    That is insane

  10. TraceyS says:

    It is best viewed as entertainment, Andrei. Not much different to the business of SkyCity really.

  11. JC says:

    In the last 30 odd years something like a billion and a half people have been lifted from absolute policy by the introduction of better seeds and farming practices.. not subsidies or grants or straight out give aways that inevitably end up in the pockets of the elite of the target country.

    Unfortunately half a billion people now face food poverty, starvation and death due to the ghastly triopoly of Greens, crony capitalists and governments that are busy subduing, murdering and booting indigenous farmers off their land in order to grow biofuels that are heavily subsidised. Pure forests are being razed in order to grow these crops, local populations again reduced to poverty and even slavery to grow the green answer to coal, oil and natural gas.

    Islamic State, Taleban and al Qaida can only gasp in admiration at the scale of death, planetary destruction and starvation imposed by this unholy largely Western trio who exceed Islamic tallies ten fold. They’ve introduced three of the Four Horsemen of the Apocalypse of War, Famine and Death, surely the fourth of Pestilence will follow soon enough.


  12. Biofuels – they’re destroying the planet.

    JC, you take the cake!

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