Many less-developed countries (LDCs) are finding it increasingly difficult to obtain the foreign exchange to pay for growing imports of basic food staples as well as the capital goods and raw materials necessary for their growth and modernization. Agricultural performance particularly is affected by a country’s capacity to import fertilizers and other agricultural inputs. Traditionally agriculture for developing countries and is a logical place to turn for increased earnings. The extent to which agricultural exports can be increased affects the patterns of output growth as well as the allocations of resources to crop-specific research and other inputs. In addition, increasing agricultural exports can lead to an increase in the level of income and employment among low-income families in LDCs. This study examines the effect a reduction in agricultural trade restrictions of selected OECD countries would have on the export earning and import expenditures of developing countries. It indicates the minimum effect a 50 percent reduction in the trade barriers of 99 commodities would have on export revenues and import expenditures as well as how agricultural production in the LDCs would be generally affected. This is not the first trade-oriented study undertaken by IFPRI. Although the bulk if IFPRI’s research focuses on areas of study related to improved domestic policy in the LDCs, occasionally background information is needed on developed country-policies that so strongly affect those of LDCs. IFPRI has commissioned studies on the effects of developed-country policies on the food security of LDCs and on the future course of grain imports by the Soviet Union in an effort to accumulate such information. These studies interacted with IFPRI’s work on production trade-offs between food crops for domestic consumption and export. Other international organizations share IFPRI’s concern with these important issues. In July 1978 the FOOD and Agriculture Organization of the United Nations asked IFPRI to further develop its earlier model for trade analysis and to provide estimates of the effect of OECD trade reductions for its Agriculture Towards 2000 study. This report is an expansion and refinement of that effort. The findings of the Valdes and Zietz research are clear. A major reduction in trade restrictions on agricultural commodities by the OCED countries would provide substantial additional foreign exchange earnings to less-developed countries; in fact, earning that are slightly larger than current foreign aid flow to agricultural development. In addition, the resulting expansion of production in LDCs would raise the level of income and employment in agriculture in developing countries. Although reduction of trade barriers by the Soviet bloc was not analyzed, undoubtedly it would add to the benefits. The policy implications or this research are complex at best. Although developing countries would realize substantial benefits, an amount equivalent to two thirds of all the developing-country increment in export revenues is concentrated in three developed countries: the United States, Canada, and Australia. Theses positions change substantially if a few temperate-latitude comities are removed from the list of selected goods, but that would affect the benefits to the developing countries as well. Furthermore, the bulk of the import adjustment falls on four development countries. Three are members of the European Community, with a major share of this adjustment arising from trade within the community. In view of the research results, future IFPRI research will emphasize potential for selective reduction in trade restrictions by OECD countries and the rapidly rising potential for intra-Third World Trade. It is notable that while such trade has in the past accounted for only one quarter of total developing-country trade, today it is growing, dynamic, and has great potential. IFPRI is commencing its research on this issue with in-depth analyses of selected cases and will carry it out to implications for the agricultural production patterns and resource allocations of the less-developed countries. A final note. The developing countries’ share a world trade is declining in some agricultural commodities. This suggests that they are problems of trade restrictions. Some of these result from the increase in domestic demand that accompanies economic growth. Some are due to difficult production and trade policy problems. Future IFPRI research is expected to shed light on these complex policy issues.


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