Global and EU Agricultural Trade Reform: What is in it for Tanzania, Uganda and Sub-Saharan Africa?
61 Pages Posted: 7 Aug 2006
Date Written: June 2005
Both the Doha Development Round of trade talks, and recent rulings at the WTO, have placed the EU under increasing pressure to agree to more far-reaching proposals for reform of the European Union's Common Agricultural Policy. The purpose of this paper is to examine to what extent Sub-Saharan African (SSA) economies could gain or lose from EU trade reform, whether undertaken in a unilateral or multilateral context. EU trade reform impacts on SSA countries are also set in the context of potential gains that they may obtain from trade reform by other geographic regions including the SSA countries themselves.
The primary economic argument for trade reform is that free trade can be a source of important efficiency gains if a country liberalises its own trade. Free trade is a means for a country to go beyond the constraints of its autarkic production possibilities. However, most SSA economies are classified as Least Developed Countries (LDCs), and it is not likely that they will be obliged to reduce their agricultural trade barriers in the Doha trade round. The principal likely sources of welfare changes from the Doha trade round as it impacts on agricultural trade, for SSA countries, are greater access to rich country markets and the resulting rise in world food prices. Net food exporters will benefit from positive terms of trade effects. However, some SSA exporters will face preference erosion if EU agricultural trade liberalisation causes the EU internal market price to fall and thus reduces the value of their preferential access to the EU market. Also, many SSA economies are net food importers and will face terms of trade losses if world prices rise. Non-LDC developing SSA countries will be obliged to cut their own agricultural tariffs if such cuts for developing countries are part of a Doha round agreement. These factors point to the need for a careful country by country analysis of impacts of trade reform that moves beyond the analysis of relatively heterogeneous large groups such as all LDCs or all SSA countries.
This paper aims to determine the sign and strength of the effects of agricultural trade liberalisation on welfare, production and trade of Sub-Saharan African countries. In addition, it poses some more speculative questions about the potential effects on poverty of different trade liberalisation scenarios. The paper has a particular focus on Tanzania and Uganda because of their status as priority countries for Ireland's development assistance programme.
Included are a series of partial equilibrium simulations using the UNCTAD Agricultural Trade Policy Simulation Model (ATPSM). These focus on the producer, consumer, and total welfare effects from trade liberalisation. A number of scenarios are developed. These include benchmark scenarios reflecting the potential impacts on SSA countries of unilateral agricultural trade liberalisation by the EU, by the SSA countries themselves, and by other major country groupings. In addition, results are presented of some simulated policy scenarios based on negotiating positions put forward in the Doha round negotiations to date.
The recurring pattern in these simulations is that the significant benefits for SSA producers from the higher world prices of agricultural commodities are offset, and typically more than offset, by the losses to consumers, so that total welfare changes are very small or negative. Not all countries follow this pattern however; some experience significant changes in total welfare and these 'exceptions' drive the aggregate total welfare results for the SSA region as a whole.
Suggested Citation: Suggested Citation