All inward investment has a multiplier effect on the economy as wages earned by employees from new enterprises are spent on domestic goods and services and local enterprises supply inputs. In addition, new innovations in agriculture allow local people to acquire skills that can be used to start other, similar new enterprises. According to Mellor (2006), growth in agriculture is particularly effective in reducing poverty as due to its impact on the rural, non-agricultural, small-scale sector. Farmers spend a substantial portion of incremental income on locally-produced non-farm goods and services and this wealth sharing stimulates enterprise in other non agricultural sectors.
It has proved difficult to attract foreign investment into small-scale food production in Africa but increased investment in cash-crop production should have the effect of increasing exports and benefiting the economy as a whole. the trend rate of growth of Sub-Saharan food production since 1970 has been 2.3%, and that of value added in agriculture has been 2.5%. The corresponding trend growth rate of population has been 2.7%, leading to a per capita decline in food production and agricultural production.3 Data for individual countries confirm falling per capita food production, which was aggravated by a) the economic policy regime that operated in Sub-Saharan Africa in the 1980s and 1990s and b) by globalization. (Walden Bello, 2008)
The difficulties of providing the conditions for successful commercial farming should not be under-estimated, however. Plant and machinery as well as agricultural chemicals need to be imported. Land and water supplies need to be made available and, in most cases, foreign personnel will be needed to run the farms and train local workers.
As has been said elsewhere in this report, such development is unlikely to occur without significant social implications. Large, commercial farms usually require less labor per hectare than the number of people needed to work the same area of land using traditional, small-scale methods. Furthermore, the large tracts of land needed are not likely to be available without denying the land to those already working it.
Without such a wide-ranging study it would be difficult for governments and agricultural development agencies to arrive at a set of policy decisions which will encourage commercial agricultural development at a rate which can be successfully accommodated within the economy of the country without causing serious and ultimately more expensive difficulties. The study should also enable these agencies to develop policies which strike the right balance between encouraging commercial farm development and encouraging collective farming activities among traditional small-scale producers.
Agriculture is the engine of most African economies and in recent years governments have become convinced that, by liberalising their economies, agriculture would prosper and provide the necessary growth to provide investment to improve the country’s infrastructure, to form the foundation for industrialisation and to improve public services. In the 1980s some African countries began to reform their economic policies. Internal conflict, however, has delayed reform in many E.A countries and they have only recently begun to liberalise their internal economies. Over the last twenty years there has also been an accelerating trend to liberalise trade on a global scale.
The success of these global reforms and internal liberalisation measures (for those countries that have adopted them) has been patchy. Most African countries have found it difficult to compete with more efficient foreign agricultural producers and are suffering surges in imported products which compete with domestic production. At the same time, the expected improvement in exports of these products has not materialised. This may be due, in part, to the difficulties of complying with the high quality standards required by many importing countries. The international market prices of almost all agricultural commodities have fallen to their lowest levels (in real terms) in living memory. This is due to over-production encouraged by the export-orientated economic policies of competing producing countries. The cut in agricultural subsidies in the developed world has reduced surplus stocks of food which has had the effect of reducing supplies available for food aid.
2.1.0 The advantages
Just as globalization affects different countries in different ways, it has also produced winners and losers in different parts of the agricultural sectors within individual countries.
The exposure of agricultural production to foreign competition has forced some producers to become more efficient. The dismantling of government-controlled marketing boards has stimulated the evolution of the private sector trading networks needed in a modern economy. It is likely that, in the long-term, these changes will encourage inward investment to improve the agricultural infrastructure and to increase production of added value goods.
In the past, price-distorting policies havegradually changed from disfavouring to favouring agriculture relative to other tradable sectors as per capita incomes grow (Anderson 2009); globally, productivity growth has been faster in the farm sector than in other sectors (Martin & Mitra 2001). A further influence on agricultural trade has been the acceleration of globalization over the past quartercentury. That has been characterized by a rapid decline in the costs of cross-border trade in farm and other products, driven by declines in the costs of transporting bulky and perishable products long distances, the information and communication technology (ICT) revolution and major reductions in governmental distortions to agricultural trade. Together, these developments have boosted economic growth and reduced extreme poverty globally, and in the process altered global agricultural production, consumption and hence trade patterns.
The lowering of tariff barriers by consuming countries has offered more opportunities to exporters in developing countries. The exposure of agricultural production to foreign competition has forced some producers to become more efficient. The dismantling of government-controlled marketing boards has stimulated the evolution of the private sector trading networks needed in a modern economy.
Removal of farm subsidies by the developed countries is written into the World Trade Organization agreements and will be negotiated over the next 10 years, (Chapter XX World Trade Organization agreement) There are also new interim trade incentives such US “African Growth Opportunities Initiative” which is opening new market opportunities for African commodities at zero tariff levels for less developed countries. AID levels for agriculture are being discussed and USAID has recently made a proposal to the Senate calling for significantly increased support to the agricultural sector in Sub-Saharan Africa. These measures are the components of a trade based approach to developing more equitable world markets.
According to studies by economists from Harvard and the World Bank, it has been shown that increased export trade and engagement in the process of market liberalisation have been the main factors in increasing wealth across the world. Over the past 40 years, the poor have benefited considerably in most countries and particularly in developing countries. Although sceptics refute this argument on the basis that regression analysis is too easily manipulated, advocates claim there is growing, irrefutable evidence to show that globalisation has had a net positive effect on the income of all, both the rich and the poor, in all of those countries that have embraced the globalised market system. Advocates further argue that there has been no other system which has achieved such rapid rates of poverty alleviation as this latest round of global market reform. Advocates concede that the notable exceptions to this rule are some of the African countries where growth is not evident and it is argued that this has been because Governments have neither embraced market reforms nor supported globalisation and their peoples have therefore been excluded from the benefits.
Communities of small-scale, isolated farmers (which make up the majority of the population in many East African countries) find it more difficult to obtain inputs and credit. Extension services have been significantly reduced and the value of their surplus production has fallen. They are especially vulnerable to changes in production systems. The trend towards larger farms and plantations in the name of efficiency has marginalised many rural groups thus adding to the problem of unemployment, urbanisation and cultural disintegration.
The effort required to address these problems and challenges will have to be made by many agencies. Trade agreement negotiators, government agencies, agricultural development and agricultural research organisations, NGOs and private-sector farmers’, traders’ and processors associations all need to be fully aware of the changing relationships between markets and all the different actors in agriculture, and shape their policies and programmes accordingly.
International donors recognised the need to inform all actors in African agricultural sectors about market conditions as these markets were liberalised. They provided the necessary resources for governments to set up centralised market information services (MIS). Over the last decade most donors have withdrawn assistance for MIS, however, as they became over-bureaucratic and failed to meet the needs of their intended beneficiaries, especially typical, small-scale producers.
This means that most farmers are unaware of prices and other market conditions even in their nearest town which puts them in an impossibly vulnerable bargaining position with traders who are able to take advantage of their ignorance. The lack of market information has the effect of draining resources out of rural areas where most poor people live. It also means that farmers are unaware of the types and quality of produce being sought by national, regional and international customers which hinders the entire nation in its efforts to earn more from exports.
The advent in recent years of mobile telephone systems and local FM radio stations now offers the opportunity to establish locally based MIS which can disseminate appropriate market information in the local language.
3.0 THE CHALLENGES
Some actors in the agricultural sector have seen little benefit from the liberalisation process, however. Communities of small-scale, isolated farmers (which make up the majority of the population in many East African countries) find it more difficult to obtain inputs and credit. Extension services have been significantly reduced and the value of their surplus production has fallen. They are especially vulnerable to changes in production systems. The trend towards larger farms and plantations in the name of efficiency has marginalised many rural groups thus adding to the problem of unemployment, urbanisation and cultural disintegration.
Whilst African farmers are being asked to open their markets to free trade, they face direct competition with subsidised exports, donated food and inputs, dumped food and inputs, monetised food aid, and yet they are also marginalised on the international market by tariffs, an increasing raft of Sanitary and Phytosanitary conditions, technical barriers to trade. Whereas, farmers in the EU and USA are enjoying the benefits of increased farm subsidies and reduced competition due to the effects of upgrading quality requirements for food products, which is preventing inflow from developing countries.
The gap in value added between African and Asian farmers as opposed to the United States and Europe is not simply a difference in economic capability and output. Rural ways of life, which have evolved over the millennia in Africa, have been finely tuned to the local environment, social consensus and political balance. The undermining of the local economies of rural communities suddenly with market shocks or gradually with worsening terms of trade, market disincentives and obstacles has already and will continue to cause adverse welfare repercussions, social upheaval and political destabilization (Havnevik et al. 2007).
Developing countries have been encouraged to increase production for export. This has resulted in over-production of many commodities and, consequently, a fall in the price of those products – in many cases, to historic lows.
Isolated, rural communities (which make up a significant proportion of the population of many developing countries) have been adversely affected by these changes. Farmers cannot rely on guaranteed, fixed prices for their goods, extension services and the supply of subsidised inputs have been curtailed, access to credit is very limited, free education and health services are no longer available and farmers find themselves in a weak bargaining position with private sector traders. In addition, the trend towards the establishment of larger, commercial farms has tended to marginalise traditional, small-scale farmers. This trend threatens the integrity of cultural life in the countryside and the rural economy.
The local markets in agricultural products are undermined by imports of cheaper imports, including heavily subsidised imports from developed countries. African small-scale peasant producers now compete with heavily subsidized large-scale often corporate, industrialized farming (Round2007).
Many countries lack the skills and resources to produce commodities with high enough quality standards to compete in the world market (Henson et al). The quality standards demanded by developed countries are high and, for some developing countries, difficult to achieve. And, what’s more, quality standards get higher as the degree of processing is increased towards a fully manufactured product produced for direct consumption. Overcoming the difficulties of producing goods which comply with the quality standards of consuming countries almost certainly represents the most important challenge for developing countries in a liberalised world. It is far more important, for instance, than comparatively minor (and falling) barriers to trade represented by import tariffs.
An import of cheaper, processed food products has reduced the possibility of manufacturing those products in the local market. Stocks of surplus food commodities in developing countries have fallen. This has had the effect of reducing supplies of food-aid to net-food-importing countries, obliging them to purchase more food imports on the open market.
The proposal also calls for an end to the ‘dumping’ of subsidised products on developing country markets. In addition, the proposal complains that there has been no political will to activate the Marrakech Decision (the decision to compensate net food-importing developing countries for increased costs of food imports caused by the reform process)
4.0 CONCLUSION
4.1 Strengthening negotiating capacity in trade talks
African countries have been disappointed by the effects of decisions made in previous WTO E.A countries are poorly represented in these and other multilateral and bilateral talks and they lack of capacity to analyse important and highly complex issues, to develop negotiating positions and to respond quickly and effectively to their various negotiating teams. Consideration should be given to establishing national and regional teams of experts with the necessary authority to analyse the interests of their stakeholder groups and to establish appropriate negotiating positions. Negotiating teams should be significantly strengthened in Brussels and Geneva especially. Resources should be made available by cutting diplomatic expenditure in other countries where necessary. The negotiators need to be directly linked the policy analysis groups and to the line Ministries of Trade, Agriculture and Finance, such that informed decisions can be made rapidly and effectively. Such reform will be particularly necessary in the forthcoming WTO trade round which will focus on greater inclusion of developing country interests and may take into account other non-trade issues proposed by developing countries.
4.2 Managing the over-supply of primary product exports
Over the last two decades the adoption of internal and international market liberalisation polices have led to a catastrophic fall in the prices of many of the agricultural products exported by East African countries. The plunge in prices has been caused by systemic over-production stimulated by components of structural adjustment programmes. Economists’ call this phenomenon, the fallacy of composition i.e., less income is earned as more commodities are produced. EA countries are highly dependent on the production of cash-crop commodities for employment, economic growth and export revenue. Countries that produce and export raw commodities such as coffee, sugar, tea, cotton etc. through small-scale production systems are unable to create new jobs or re-invest into alternative market sectors. Countries and individual farmers, who rely on cash crop production for revenue, are obliged to continue to grow and sell these commodities, no matter how low prices fall.
To address this issue, efforts should be made to find common cause with other producers of these commodities in Africa and in other continents to bring some order into these markets and to devise strategies that involve donors and support agencies such as the IMF and the World Bank to bring supply of these products in line with demand.
4.3 Enforcing existing trade protection
ECA WTO members have agreed to limit the protection given to domestic farming. Fixed import tariffs still apply in many categories, however. Greater efforts should be made to increase control of porous borders to discourage unwanted imports and to collect excise revenue. The dumping of heavily subsidised agricultural commodities from developed countries should be actively opposed where such imports disrupt local farming economies. These efforts need to be pursued within the WTO mechanism and in bilateral exchanges.
Efforts should also be made to analyse the impact of imports of food aid and food monetisation schemes on domestic and regional farming. Such imports should be controlled with the objective of meeting relief needs whilst avoiding the undermining of local and regional production.
4 4.Stimulating production of added-value products
Most analysts believe that the prices of primary agricultural commodities will continue to fall in the foreseeable future. Unless the mix of industrial activity is changed, economic growth will not occur. The “Africa Growth Opportunity Act” and other similar market-access measures now offer African countries in the opportunity to attract investment into the region to improve the quality and range of products and, more importantly, to produce added-value products made from locally produced raw materials. Every effort should be made to capitalise on these opportunities by promoting inward investment now that many tariff barriers to added-value products have been removed in the main consuming markets. [Kenya should seriously consider applying to be re-classified as a Least Developed Country for this reason.]
Consideration should be given to strengthening the role of existing export and investment promotion organisations to include the preparation of detailed investment plans and packages in added-value products that will attract greater foreign direct investment (FDI). Tax regimes should be modified where necessary to encourage this form of investment. Vertical diversification may represent the only option for ECA countries to avoid the economic damage caused by falling raw commodity prices.
4.5 Establishing an Agricultural Market Analysis Unit
An Agricultural Market Analysis Unit should be established in the country. This unit would be concerned with co-ordinating and developing policy on the development of market-orientated strategy in agriculture and setting policy guidelines for agricultural research. The Unit should also co-ordinate its activities with relevant regional bodies. It should be staffed with appropriately qualified economists and market experts. The Unit should work closely with the private sector and, especially, with those private-sector support groups working to stimulate production for growth markets.
4.6 Establishing a National Market Education Programme
Many actors in the agricultural sectors in EA countries are still not familiar with the idea of competitive markets. A National Market Education Programme should be established targeted, primarily, at farmers, traders and agricultural product processors. Such a programme needs to be linked to the Agricultural Market Analysis Unit. Market Information Services and run in conjunction with other stakeholders including Ministries of Agriculture, Education and Trade, farmers’ and traders’ associations and other private sector actors and with extension services.
The programme needs to set targets for training farmers to understand how competitive markets work, to take advantage of market information and to inform them of the difficulties and opportunities associated with market conditions. Issues addressed need to include the stimulation of collective activity to improve economies of scale, linking supply variety and quality to market needs, negotiation of sales and inputs and the use of credit and business management.
The programme should have a limited duration and should be administered efficiently as a separate unit within a national agricultural development reform programme.
4.7 Establishing a Market Information Service
Many typical, small and medium-scale farmers, traders and processors in African countries are very poorly informed about prices and market conditions of the commodities they produce. Farmers find themselves in a weak bargaining position with traders which results in lower-than-market farm-gate prices, high transaction costs and wastage. Market Information Services need to be established at local, national and regional level to gather process and disseminate market information in the appropriate language of intended recipients. Such services need to be fully co-ordinated with each other and involve full participation of stakeholders.
The aim of these services should be to stimulate more competitive markets. They are likely to be supported by the agricultural industry itself as they are in more developed countries, once competitive markets become more established.
4.8 Strengthening agricultural research and extension and services
Research and extension services need to continue with their vital role in controlling plant and animal disease and pests, discovering and distributing new varieties, training farmers to improve their technical abilities, etc. etc. If African countries wish to compete successfully in the world economy, however, these institutions need to develop or acquire new skills and expertise in market analysis and market linkage. Producers need to ensure that there are viable markets for any existing or new products. They need to ensure that the quality and packaging of those products meet the requirements of customers both on the domestic and export market. Research and extension services have a vital role to play in this effort and must be prepared to reform quickly to meet the challenges of globalisation. In many respects national research programmes have succeeded in their goal to achieve food security, the current emphasis should now be to develop dynamic and commercially orientated research that supports improved market analysis, market access and added value processing. Extension services should now focus on assisting producers to trade more effectively within a liberalised market. Special attention should be given to aspects such as linkage of production to markets, access to credit and collective marketing which will enable the millions of atomised, small-scale farmers to gain from economies of scale in their input and output markets.
Government research services need to work closely with the private sector which is increasingly developing its’ own research capacity, particularly in regard to higher value commodities and research related to issues and problems further up the value chain.
4.9 Reducing imports of goods that can be competitively produced domestically
Many African countries import fruit juices, soluble coffee, cooking oils, etc. when they are rich in all the raw materials needed to make these products and have low labour costs. An effort should be made to examine import data and to analyse the prospects for developing the local manufacture of such products and to encourage investment in the production of such goods but only if this can be done profitably without resort to market protection. It should be remembered that savings on imports are as valuable as export revenue.
4.10 Strengthening the legal framework for market activity
Market manipulation and collusion among traders to the detriment of farmers, consumers and exporters are widespread practices in developing countries. In some countries, road tolls and taxes are arbitrarily applied and often restrict trade and increase transaction costs. Where necessary, governments must institute a programme to reform the legal framework within which agricultural product transactions take place, establish or reform laws of contract, outlaw restrictive practices and regulate a competitive market in agricultural goods. (Stewart and Brown 2009). In addition, governments must ensure that these laws are properly enforced.
5.0 conclusion
There is both optimism and concern and for the future of globalisation. The process is real, it is currently the most powerful force for change in this decade and those who ignore the process do so at their own peril. At present there is no global regulatory system and although potentially desirable, the will is not yet sufficient to demand such an institution. The “balance” and “rate” of globalisation is an issue which will become increasingly vocalised on the world agenda and if current rates of change are to be our yardstick, there will be increasing evidence of winners and losers as the process accelerates.
Some of the least desirable aspects of globalisation that are relevant to Africa include the massive fall in terms of trade, dependence on donors and the alternative of opting out of the globalisation process and being cut off. Friedman (2006) suggests there is evidence that those countries who are not making efforts to join the global marketplace are taking destiny into their own hands. “Globalists” will not coerce rogue states into the process, but will have economic wall built around them to effectively obscure their existence. Zimbabwe is currently being internationally walled out and the consequences of this happening rather than systems being established to support the less developed countries is a subject of concern.
The rise of the super trade blocs such as the Expanded EU and NAFTA is also a matter of concern for those countries which are not associated and have no means of presenting themselves with a common agenda. African countries, which mainly rely on agriculture, are in many respects prone to the more negative effects of these dimensions of globalisation and all efforts should be made to seek ways to avoid the possibility of these aspects becoming a reality.
REFFERENCES
1. UN General Assembly – World commodity trends and prospects – 2000
2. FAO - The Agreements on the Application of Sanitary and Phytosanitary Measures and Technical Barriers to Trade - 1999
3. World Bank – Globalisation can work for Africa – 2001
4. Badiane, O and Mukherjee, N – Global market developments and African exporters of agricultural commodities – World Bank/International Food Policy Research Institute – 1998
5. Bredahl, M, Northen, J and Boecker - Trade Impacts of Food Quality and Safety Standards -Agricultural Economics Society - 1998
6. Digges, P., Gordon, A. and Marter, A. - International Markets for African Exports: Agricultural Reform and Agricultural Exports - Natural Resources Institute - 1997
7. Finn, J. - Decision-making in the World Trade Organisation: Continuing the Reforms in Agricultural Trade - WTO Secretariat - 1998
8. Fowler, P. - The Marrakech Decision – Honouring the commitment to net-food-importing countries - Catholic Institute for International Relations - 1996
9. Henson, Dr. S and Loader, Dr R - Impact of Sanitary and Phytosanitary Standards on Developing Countries and the Role of the SPS Agreement -Centre for Food Economics Research: University of Reading – 1998
10. Konandreas, P. Sharma, R. and Greenfield, J. - The Agreement on Agriculture: Some Preliminary Assessment from the Experience So Far - Commodities and Trade Division FAO - 1999
11. Kwa, A. and Bello, W. - Guide to the Agreement on Agriculture: Technicalities and Trade Tricks Explained - Focus on the Global South – Chulalongkorn University, Thailand - 1998
12. Robbins, P. – Review of the impact of globalisation on the agricultural sectors and rural communities of ACP countries – CTA – 1999
13. Shepard, A. and Farolfi, S. - Export Crop Liberalisation in Africa – A Review - FAO - 1999
14. Straatz, John M. Et al – The role of market information systems in strengthening food security –Michigan State University – 1992
15. Noam Chomsky, “Control of Our Lives”, lecture at Albuquerque, New Mexico, February 2000.
Havnevik, K., D.F. Bryceson, L-E. Birgegård, P. Matondi and Atakilte Beyene
2007, African Agriculture and the World Bank: Development or
Impoverishment? Policy Dialogue no. 1 Uppsala, Nordic Africa Institute.