FUTURE OF AGRICULTURE UNDER WTO
By DR. AMANULLAH CHAUDHRY
Mar 21 - 27, 2005
Under the WTO, main beneficiaries are likely to be agricultural exporting countries. The countries, which will be hardest hit, will be those with small family farms. Family farms are culturally and socially valuable but economically vulnerable. Pakistan will have to adopt considerably to maintain a viable agriculture. For example fruit, vegetables and special crops may be better suited to small farms. Agricultural tourism and organic farming may be important as new sources of farm income. Amendment in Pakistan Companies Act for encouraging farmers, farm producers and marketing companies will be needed, while investment in biotechnology, integrated pest management and efficient marketing system will be necessary. Sustainable management of agricultural resources, reducing post harvest losses, use of information technology in agriculture and providing subsidies comparable with the rest of world are the important measures, which should be considered to survive under WTO regime.
In ten years, World Trade Organization has emerged as a mammoth organization of 148 countries (representing 98 percent of global trade) more than two-thirds of which are developing countries. While this is good, what is significant to note is that with growing membership, the WTO is getting increasingly fragmented into diverse interest groups. As many would say, the over-ambition of developed countries has severely dented the creditability of WTO. In many respects, the last ten years have been a tumultuous period for the WTO, sometimes challenging its existence and often, its relevance. As of now, there is little for WTO to showcase its achievements.
To prevent regionalism from completely taking over world trade, the WTO must begin to deliver results at a faster pace and improve its credibility. The challenges of consensus are growing. What is worse, the problem on account of a growing diversity of interest and the complexities of consensus is not going to go away and the members have to live with it. While consensus is the backbone of the WTO, the spirit of mutual accommodation is totally missing. If we simply take into account the wide-ranging debates within the WTO over the last decade, what needs to be addressed in the coming years is the broader issue of reforming the WTO. The good thing is that relevance of WTO is not in doubt. Its repeated failures notwithstanding faith in the WTO are abiding. What is needed is the identification of areas that need improvement for greater credibility, more confidence and large commitment for meaningful progress in trade liberalization. Under WTO, member countries can no longer protect their domestic market from cheap imported food. The members will be restricted in giving subsidies and other production support to farmers. For farming to survive, the Pakistan's farmers must become competitive in production, marketing including promotion of their local products. Here it is discussed, how Pakistan can achieve food security under free trade, and what policies and programs might help small farms become more sustainable in a future free trade environment.
Most developing countries have experienced severe food shortage in the past and well into this century. Because of this experience, the question of food security arouses very deep concern in developing countries. Pakistan imported wheat for 11 times in the last 14 years period. Bumper crop production in 1999-2000 not only enabled exports but also left the country with enough reserves for two years. Many developing countries feel that the WTO agreement will reduce the level of food security in most developing countries, rather than increase it. They fear that domestic production will be damaged by cheap imports, so that they will become dependent on imports of wheat and other staple foods, with fluctuating stocks and prices. Obviously food security is of greater concern for food importers (or potential importers), than it is to food exporters. To food exporters, a sudden fall in yield mean only lower export earnings — may not even this, if world food stocks are low and prices are high. For food importers, a shortfall may mean shortages or even hunger at home. It will be difficult for developing countries, which have worked so hard to achieve self-sufficiency in food grains, to maintain their success in the face of cheap imported food grains. Under WTO, measures to promote domestic production and protect local farmers, such as subsidies and price supports, will be substantially restricted. No one knows what level of domestic wheat production will remain viable and survive.
However, another point of view is more optimistic: it suggests that developing countries under WTO will still have stable and sufficient food supplies, even though they depend to some extent on imports. There is some evidence, from past price trends, that free trade will probably mean more stable world prices for staple foods. In the past, national governments had aims at food self-sufficiency and insulated their markets, then suddenly made large purchases when domestic production fell short. This had the effect of shunting national instability into world markets. Increased participation makes markets more stable, so if all countries participate in world markets, the level of instability should be small. Trying to maintain food self-sufficiency in Pakistan's small farms is perhaps not the best strategy as grain production is the area where small size is the greatest competitive disadvantage. Intensive farming such as fruit, vegetables and special crops is better suited to every small farms. Perhaps developing countries should try to change their objective from being self-sufficient in food grains, to being self-sufficient agricultural countries must import grain and export vegetables and other special crops. It is generally agreed that food security for all must be the basis of any world agricultural trade system. Whether the WTO agreement will raise or lower world grains stocks and prices is a pragmatic question: what will happen to world market prices will be clear to everyone. If prices and stocks of food grains do in fact become more stable, then many of the present fears about food security will be relieved, and developing countries will probably become less anxious about being self-sufficient in food grains.
SMALL SCALE FARMS
The countries, which will be hardest hit under WTO, will be those with small farms. Traditionally, Pakistan agriculture has been based on small farms, run mainly by family labor. Small family farms are still the backbone of Pakistan's farming. Under WTO, agricultural policies in each country are becoming market-oriented. This will tend to favor large well-capitalized holdings, and will be unfavorable to family farms. It is unclear whether family farms in their present forms can survive trade liberalization. Family farms in Pakistan are felt to be part of the national history and to embody important national value.
Furthermore, small family farms tend to make intensive use of available labor. This is very useful, as industry has not developed enough to absorb any labor surplus. To the extent that surplus labor is maintained on the family farm, the farm could be seen as contributing to the whole economy.
Another view of the sustainability of small farms emphasizes that small farms necessarily mean low incomes since the farmer has only a small quantity of resources at his disposal. According to this view point, if Pakistan want to preserve small family farms, with average size of only one hectare, then either farmers must remain comparatively poor, money must be channeled to them in other ways.
For family farms to be sustainable they must be profitable, not only in absolute terms, but also in relation to other types of livelihood available to farmers. The WTO agreement, by opening Pakistan's domestic markets to cheap produce from abroad, is likely to damage farm incomes. Direct income support to farmers is allowed under WTO, although there are problems in implementing this.
Agricultural tourism and organic farming are both important as new sources of farm income. In agricultural tourism, city dwellers come and stay on farms, either in the farmhouse or purpose built accommodation nearby. Although this is done as vacation, city people often like to share in the farm work, and help with planting, harvesting etc. Both Japan and Korea are developing programs to provide low interest loans to full time farmers, to help them improve their accommodation facilities for tourists. Agricultural tourism, or green tourism, not only meets the need of city people, healthy, natural environment, but also is a way of channeling urban wealth into rural areas.
In the past, the focus was on quantity and high yields. The emphasis now must be on quality, to meet the urban demand for safe, healthy food with excellent flavor. The organic farming movement is part of this trend. The current market for organic food is estimated to be worth $26 billion, set at $102 billion by 2010. It is an inviting opportunity, especially for exports.
ECONOMIES OF SCALE
Under WTO, agricultural policies in each country are becoming market-oriented. This will tend to favor large well-capitalized land holdings, and will be unfavorable to family farms. It is unclear whether family farms in their present form can survive trade liberalization. To face this challenge farmers of South India are fast corporatising themselves by forming producer companies of their own mandated under the new amended provision of Indian Companies Act. The union agricultural ministry, last year has drafted a concept paper encouraging farmers to form companies of their own by treating land holdings as equity. This concept is similar to that prevalent in Sri Lanka. There was amendment to the Indian Companies Act to take place allowing producers cooperatives to be registered as companies. However, in field crop production, agricultural economist has shown that efficiencies of scale for major crops do not increase beyond a modest farm size of 640 acres, contrary to the conventional wisdom in the farming community and in agricultural economist classrooms at our universities.
The merging of marketing cooperatives is essential for gaining economies of scale so as to improve their efficiency. Denmark was one of the first countries in the world to develop a strong agricultural cooperative system. The last few years have seen a series of mergers in Denmark. The number of dairy cooperatives, for example, has fallen from 1400 to 14. Another way to gain economies of scale is a strategic alliance between cooperatives on the one hand, and food processors and distributors on the other. This strategy has been followed with considerable success in countries including Indonesia and Malaysia. Multinational agribusiness, armed with modern marketing skills, is gaining increasing power in the markets of developing countries.
A number of trends are apparent. One is the likely importance of biotechnology in agriculture of future. Favorable genetic change in crops is likely to become rapid, as scientist uses the new tools of biotechnology and learn more about the role of different genes. In Japan and other countries, scientist are developing linkage maps for DNA markers. These are powerful tools for the precise analysis of genotypes of plants. Plant scientists are achieving new levels of pests and disease resistance, such as the multilinear rice cultivators in Japan which are resistant to rice blast. These are being widely used by farmers, but must be renewed every year to maintain a high level of resistance. Scientist are also producing crops with new physic-chemical properties which can be processed into new and improved products, or which promote health, or have a better flavor. An example is a new soybean, which lacks lipoxygenase, the enzyme that gives soybean its "beany" flavor. Another example is a recently bred sweet potato with bright red flesh rich in anthocyanin and carotanoid.
Higher productivity is still important in the breeding of many crops, especially feed grains. The demand for livestock products is likely to increase in future. The key for higher production of feed grains to meet future demand must be higher yields, since Pakistan cannot increase its planted area. Corn is a C4 plant with a high photosynthetic ability, and has a higher yield per hectare than either rice or wheat. There is good potential for corn in Pakistan to increase productivity dramatically, by breeding of excellent hybrids and improved cultivation methods. Gene recombination is becoming important tool in corn. It is suggested that international cooperation and networking would help scientist in Pakistan to use advanced technology of this kind. The programmed promotion of corn could contribute towards easing dependence on wheat thus reducing import bill as well as provide a substitute for wheat and rice.
One problem is the issue of proprietary rights of breeders over new varieties. The situation is less serious for rice than for most other crops, since germplasm is freely available from IRRI. However, it is worrying trend that most of the biotechnology research is being done by private commercial firms, who protect their discoveries by patent. Patent rights now even cover life forms such as existing crop varieties, based on a description of the DNA sequence.
SUSTAINABLE MANAGEMENT OF AGRICULTURAL RESOURCES
In Asia half of small holders mange farms which are less than one hectare in size. Sustainable management is a serious problem for farmers, where most soil is saline, eroded and poor in nutrients. Although concepts of nutrient recycling and organic farming are now popular, organic farming systems can only recycle the nutrients that exist in the soil. The Asian Development Bank has estimated that one-third of the agricultural land has become degraded over the past 30 years. It has also pointed out that low income rather than population growth is the major underlying cause of land degradation. In many areas farmers are mining the plant nutrient resources. Programs are needed to increase fertility of soil. Soil organic matter may be built up by the use of green manure or legumes in crop rotation. Conservation and good nutrient management help make farming sustainable. There is need for introducing soil conservation methods, which give farmers an income and protect the land.
IPM is now accepted all over the world as the best way to protect crops with reduced pesticide use. It is likely to be mainstay of pest management in future. However, in spite of its advantages, IPM can be very difficult to implement, and there are many problems still to be overcome. In developing IPM programs for future, having clear objectives and purpose in research and extension may be more important than the development of new technology. Reduced use of pesticide is generally seen as desirable. To achieve this, it helps to have an efficient monitoring system, which regularly tests food items for pesticide residues. This gives farmers an incentive to use chemical wisely. A good monitoring system also informs the government about problems with particular pesticide or crops, so that it can take remedial action. In future, we are becoming much better informed about the need to monitor pesticide and the best way to do this. Other important problems are we are only beginning to solve how to minimize pest resistance, how to assess risk to farmers from pesticides, and how to combine chemical pesticide use with the protection of natural enemies.
Unless there is an unexpected technical breakthrough, virus diseases of crops are likely to be damaging in future as they are today. They are particularly serious in perennial crops, since once a plant has virus disease it will remain infected until it dies. Integrated control measures are seen as the best way to protect perennial crops from virus diseases. Establishing a pathogen free nursery system is an indispensable first step, with constant monitoring and indexing to ensure that the mother stock remains free of disease. This has been greatly helped by the recent development of molecular diagnostic probes for detection and indexing of virus pathogens. After seedlings are planted out in the field, control measures focus on minimizing attacks by insect vectors, and early detection and eradication of infected plants needed.
REDUCING POST HARVEST LOSSES
To increase the food supply in future, reducing post harvest losses is likely to be much cheaper and easier path than trying to increase yields by the same amount. Post harvest losses in Pakistan at present are generally high. Loss assessment studies for rice show large post harvest losses of rice of up to 30-40 percent. In most countries, the postproduction system for storage, processing and distribution of crops has not kept pace with production. The main reason for this is because government carries out most agricultural research, while most post harvest operations are handled by private sector.
Post harvest losses of fruit and vegetables, can be even higher than those of grain. A number of sophisticated technologies have been developed for post harvest handling of horticultural crops, but Pakistan have been unable to use them, owing to cost or adaptability problems. Concern of consumers about the use of chemicals is also constraint. A successful program to raise the level of post harvest handling, may be an integrated approach, which included researchers, shippers, extension staff and government officials.
EFFICIENT MARKETING SYSTEM
Marketing has been a major problem for developing countries for decades. Recently, it has become much worse under WTO, as the world moves into new era of global trade. An efficient marketing system brings enormous benefit to farmers. It cuts down on spoilage, and ensures that pricing is transparent. Now help is urgently needed. In every developing country, the market environment is changing. Consumer tastes are becoming global, as in the trade in agricultural products. There may be new shippers, packers, wholesalers and retailers. In the new marketing system, food products may be collected directly from producers and shippers and distributes to retailers without passing through conventional wholesale markets. However, if a marketing system is to benefit the majority of small-scale farmers, rather than a few large corporations, the following factors are essential:
— An effective extension system
— Government policies to promote planned production and marketing programs
— A cooperative marketing system for agricultural produce
— Accessible assembly points in main production areas
— The establishment of auction wholesale markets in urban areas
— A good market information system for farmers
— Promotion of food processing to raise demand, and therefore farm prices and farmers' incomes; and
— A sufficient supply of soft loans to small-scale farmers.
SUBSIDIES AND TAXES
Many people in developing countries feel strongly that the rules governing market liberalization are unfair. Developed countries of the WTO, which include the US, EU and Japan are providing subsidies to their respective agricultural sectors due to which prices of least developed countries of the WTO are not competitive in the international markets. Agricultural subsidies in the industrialized countries are now estimated to over $ one billion per day while 70 percent of world's poor live in rural areas and subsist on less than $one per day. This is clear injustice.
Subsidies allow farmers in industrialized countries to sell produce overseas cheaply, at the expense of local small-scale farmers who have to pay all their own costs.
For example a farm bill passed in 2002 involves a substantial increase in subsidies for US producer of corn, cotton, peanuts, wheat and many other products. European countries also pay large subsidies to farmers.
China's agricultural enters a new zero tax era as 18 of its 31 provinces, municipalities and autonomous regions has so far announced the exemption of all agricultural taxes, releasing million of peasants from their centuries-old tax burden in the world's most populous nation. Chinese government has implemented a series of policies including subsidizing grain production. Nearly 600 million peasants have benefited from direct subsidies given by local government, which totaled US$1.4 billion, and the central government has last year allocated US$4.5 billion in grain production region.
In Pakistan, the situation is quite opposite, subsidies have been withdrawn as a result the price of fertilizers, pesticide and seed increased. The situation is further compounded by extending 15 percent GST on the fertilizers and pesticides and agriculture tax has been imposed from 2002. It is said, developed countries of the WTO had agreed to reduce the agriculture sector subsidies but did not provide a timeframe.
A regime without subsidies will be an ideal one. Provided it is world over. But the situation is quite different in the present context. Developed countries, by increasing their farm subsidies by quantum jumps, are distorting global prices. The developing countries cannot race with the developed ones in rendering high levels of subsidies. The only alternative left for them is to bail out their farmers by offering meager subsidies. A more level playing field would allow developing countries to get benefit from agriculture trade.
1. There cannot be single answer to the problems raised by WTO. Each country has to seek its own solutions. Some countries will probably benefit directly from WTO. The main beneficiaries are likely to be agricultural exporters such as United States, Australia, Argentina and Chile. In Asia, Thailand and Malaysia major exporters, are expected to benefit, as are Vietnam and Cambodia recording. Other countries like Pakistan will have to adopt considerably to maintain a viable agriculture.
2. The countries, which will be hardest hit, will be those with small family farms. We must keep in mind that economies are made to serve people, not the other way around, and agricultural policy should reflect social needs. Economic models are not suited to taking into account non-economic factors. For example on family farms there are close contact between children and old people. This promotes social stability and reduces the number of broken families, and thus the rate of crime and mental illness. This saving is not taken into account in economic models, and yet is important in view of the high cost, both direct and indirect of crime and mental illness in western countries. The more stable social structures in Asia, of which family farms are part, are thus of great economic importance, but are not counted in economic statements of costs and returns.
3. Pakistan will have to adapt considerably to maintain a viable agriculture. A number of trends are apparent:
* Such as fruit, vegetables and special crops may be better suited to small farms.
* Agricultural tourism and organic farming are important new sources of farm income.
* Amendment in Pakistan Companies Act for encouraging farmers to form producers and marketing companies by treating land holdings as equity to achieve economies of scale and avoid exploitation by big business.
* The investment in biotechnology, integrated pest management, efficient marketing system, sustainable management of agricultural resources, reducing post-harvest losses and bailing out the farmers by providing subsidies comparable with farmers world over.
The author is from Department of Agronomy University of Agriculture Faisalabad. E-mail: email@example.com