Would freeing up world farm trade reduce or increase poverty?

[Free Trade is managed by the invisible hand.]

http://www.voxeu.org/index.php?q=node/4947

Many economists argue that removing trade barriers such as the EU’s Common Agricultural Policy will be globally welfare-improving. This column presents findings from simulations that estimate the welfare effects depending on the extent of trade reform and possible policy responses. It suggests that removing the world’s price and trade distortions would reduce the number of poor people worldwide by 3%.



Trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries. Yet global trade in farm products continues to be far more distorted than trade in nonfarm goods, and model results suggest removing the remaining distortions would put upward pressure on food prices in international markets. Economists argue that such multilateral reform is welfare-improving globally, since its market opening leads to a more efficient location of farm production. It would also improve economic welfare nationally for most countries, the exceptions being countries that have almost no distortionary policies of their own to reform and that are sufficiently dependent on imports of farm products as to suffer from a worsening in their international terms of trade.

Until recently it has also been widely argued that such an increase in farm product prices would reduce poverty in developing countries. This claim is premised on the fact that three-quarters of the world’s poor live in rural areas, with the majority of them depending directly or indirectly on agriculture for their livelihoods (World Bank 2007). However, as the international price of food rose during 2007 and spiked severely in 2008, key development-focused agencies claimed that this too would be harmful to the poor (see the many citations in Swinnen 2010).

How can both an increase and a decrease in international prices of farm products be bad for the poor? One step towards reconciling these two stances is to recall that a rise in those international prices, if associated with multilateral trade liberalisation, is a consequence of phased reductions in national import restrictions that typically reduce domestic prices over time in all but the least protective countries as protection is cut. By contrast, when prices spike as they did in 2007-8 the causes tend to be one-off exogenous shocks to output or demand during periods of low stock levels. In such situations a reasonable estimate of the poverty impact might be obtained by considering just the short-run impact of a change in international prices before farmers have time to respond. In Ivanic and Martin (2008), net buyers of food are made worse off in the short term, while any gains to net sellers of food, for example, come only after farmers have had time to respond.

Whether poverty rises or falls when trade is liberalised via unilateral or multilateral reform is clearly an empirical question. To answer it requires first being aware of the key ways in which economic welfare of an individual or household is affected by a price shock, and then undertaking quantitative analysis that captures those various mechanisms appropriately. The latter requires using economy-wide models with up-to-date price distortion data and ideally detailed household information on the earning and spending profiles of different groups of people, both rural and urban. Also, it is important to allow for supply to adjust to long-run price changes, such as those brought about by trade policy reforms. In a new CEPR Discussion Paper (Anderson, Cockburn and Martin 2010a) we outline the mechanisms at work and then summarise the results of a set of single- and multi-country simulation studies in a bid to address the question of whether agricultural trade liberalisation will increase or reduce poverty.

There is more to the article if one clicks the link.

[phk]

If the rich countries want to do something meaningful for poor countries, they should end farm subsidies.

[Free Trade is managed by the invisible hand.]

If the rich countries want to do something meaningful for poor countries, they should end farm subsidies.

enlightenment me....

[Derek]

I'm all for deregulating the farms if that's what you mean by freeing up. Allow farmers to control prices at competitive levels and not pay taxes. Look at Genesis 49 I think it is with Joseph when the pharoah would take large amounts of grain away. Joseph had a dream that the 7 ugly cows ate the 7 fat cows and sure enough, 7 years of poverty followed. When the pharoah (Obama) loosened his grip, there were 7 years of prosperity. This story is obviously allegorical but clearly an indication that capitalism is the way to go.

[Derek]

If the rich countries want to do something meaningful for poor countries, they should end farm subsidies.

enlightenment me....

NO MORE FARM SUBSIDIES!

[phk]

If the rich countries want to do something meaningful for poor countries, they should end farm subsidies.

enlightenment me....

NO MORE FARM SUBSIDIES!

Farm subsidies in the rich world push down the equilibrium price since they increase agricultural production. The price gets pushed down low enough that many farmers in poor countries cannot break even which basically means that they face (P*Q - Cost < 0) situation.

This coupled with the fact that agriculture is very very very productive in first world countries doesn't help.

[Derek]

Ending farm subsidies would allow for lower prices and more food being bought. When ppl buy more food and have surpluses, they have more to provide for victims in places like Haiti. That maybe what they mean. That's my reasoning anyways. If we subsidized everything, we'd have nothing extra to provide in foreign aid.

[Free Trade is managed by the invisible hand.]

Ending farm subsidies would allow for lower prices and more food being bought. When ppl buy more food and have surpluses, they have more to provide for victims in places like Haiti. That maybe what they mean. That's my reasoning anyways. If we subsidized everything, we'd have nothing extra to provide in foreign aid.

did you read the part in the article where it mentioned increasing the price of farm products?

[Derek]

Yes ic that, however, I'm completely against the notion that ppl need an overarching higher authority to set simple parts of life straight. Anything dealing with buying or selling is simply natural to the human condition and needs very little regulation.

[Free Trade is managed by the invisible hand.]

Yes ic that, however, I'm completely against the notion that ppl need an overarching higher authority to set simple parts of life straight. Anything dealing with buying or selling is simply natural to the human condition and needs very little regulation.

whatever.

[Derek]

I'll agree to disagree. It is an interesting article. I didn't click on it cuz I'm at work.

[Free Trade is managed by the invisible hand.]

I'll agree to disagree. It is an interesting article. I didn't click on it cuz I'm at work.

honestly i do not really care what you have to say because it isn't very interesting, and it kind of sounds absent of complicated thought.

[Derek]

I will admit I'm not a farmer.

[Ban my account ffs!]

End subsidies on commodity crops and provide income insurance for small farmers if their yields fall due to natural disaster.
Outlaw corporate owned and run farms (like Nebraska and South Dakota), and provide some market regulation through subsidies in years of major drought where food prices would spike and hurt the economy.  The point isn't to get farmers to produce more and more all the time.. but to produce what we need plus a bit more and be guaranteed that they won't lose the farm if the rains stop.

Ban genetic modification of crops and break up the large agribusinesses (especially Monsanto). 

Little tidbit about Monsanto:  If you are a farmer who chooses *not* to buy Monsanto genetically modified seeds and *not* to spray your crops with Monsanto created pesticides and herbicides... but your neighbor does... if some of his crop cross pollinates with your crop... your crop is now the property of Monsanto Corporation and they can sue you for growing their proprietary crop without a license.

Insane, no?  But it's happening all over and the judges are invariably siding with Monsanto.

One farmer in Saskatchewan had to destroy his entire seed crop that he had been saving year after year for a generation because his neighbor's GMO crops from MOnsanto cross pollinated with his own crop.  When Monsanto found out, they sued the farmer and won.  He had to pay Monsanto a hefty sum and destroy his entire seed crop.  It basically put the guy under.

So again.. .companies like Monsanto need to be broken up and strictly regulated.  They don't budge without a nod from their government babysitters.

[dead0man]

It will make food cheaper for everyone, but it will put a lot of small farmers in third world countries out of money.

And I'm extremely saddened to see Snowguy buys into the GM crop nonsense.

[Derek]

End subsidies on commodity crops and provide income insurance for small farmers if their yields fall due to natural disaster.
Outlaw corporate owned and run farms (like Nebraska and South Dakota), and provide some market regulation through subsidies in years of major drought where food prices would spike and hurt the economy.  The point isn't to get farmers to produce more and more all the time.. but to produce what we need plus a bit more and be guaranteed that they won't lose the farm if the rains stop.

Ban genetic modification of crops and break up the large agribusinesses (especially Monsanto). 

Little tidbit about Monsanto:  If you are a farmer who chooses *not* to buy Monsanto genetically modified seeds and *not* to spray your crops with Monsanto created pesticides and herbicides... but your neighbor does... if some of his crop cross pollinates with your crop... your crop is now the property of Monsanto Corporation and they can sue you for growing their proprietary crop without a license.

Insane, no?  But it's happening all over and the judges are invariably siding with Monsanto.

One farmer in Saskatchewan had to destroy his entire seed crop that he had been saving year after year for a generation because his neighbor's GMO crops from MOnsanto cross pollinated with his own crop.  When Monsanto found out, they sued the farmer and won.  He had to pay Monsanto a hefty sum and destroy his entire seed crop.  It basically put the guy under.

So again.. .companies like Monsanto need to be broken up and strictly regulated.  They don't budge without a nod from their government babysitters.

I'll agree on the ending corporate run farms. I'm not very much in favor of corporations. I've always taken a very anti-union stance and slightly anti-corporation. Are you in the farmer's labor party of MN?

[🐒Gods of Prosperity🔱🐲💸]

i would imagine that the rise in food prices was so harmful to the poor countries precisely because the food was not also being produced by those countries

[phk]

i would imagine that the rise in food prices was so harmful to the poor countries precisely because the food was not also being produced by those countries

Local consumers buying imported food is not a good idea since many third world countries rely on high tariffs as well, since domestic tax collection is pretty bad.