International trade in food and agricultural products is vital and will become even more so in the new century. It is especially vital for those countries that depend on imports to feed their population, among them a number of developing countries, where demand for agricultural imports is projected to grow dramatically in the new century as growth of domestic food consumption outstrips their production potential. Agricultural trade is economically vital for farmers in exporting countries who look for international markets to sell their produce in order to make a reliable livelihood. Many developing countries belong to that category of agricultural export nations. Less obvious, agricultural trade is also economically vital for countries that could, in principle, produce most of the food and raw material they need, but do better by concentrating on other sectors where they have a comparative advantage, while importing products at prices below the costs if they were to produce them domestically.
While almost everyone agrees that agricultural trade is vital, the world at the dawn of the new century is still full of barriers to this trade. Indeed, contrary to enormous progress in recent decades in liberalizing manufactures trade, agricultural trade is still significantly distorted through government policies. Many countries maintain high-tariff walls in their agricultural markets, often effectively blocking imports. Some developed countries have particularly high tariffs, but a number of developing countries also make it difficult for such imports to penetrate their markets. In other cases, Governments pay large sums of taxpayer money to push their agricultural exports onto world markets through export subsidies or domestic support. This is a phenomenon prevalent in developed countries. In these cases, agricultural production in the countries concerned is maintained at an artificially high level, above what can be produced competitively.
As a result, more competitive farmers in other parts of the world are denied the opportunity to use their productive potential in full. At the other end of the spectrum, some Governments of developing countries still make it difficult, through a variety of measures, for their farmers to sell on the international market, thereby depressing domestic prices for agricultural products and reducing incentives to produce. Where this happens, the countries concerned under-utilize their resources and employment opportunities. While Governments feel they have good reason for interfering with agricultural trade in these ways, an overwhelming amount of economic analysis has clearly demonstrated that countries individually and the world on aggregate, lose economic welfare as a result of such trade barriers. Most of the policies distorting agricultural trade are motivated by social objectives, in particular concerns about income distribution.
Market protection, through tariffs and export subsidies, aims at maintaining farmers' incomes and employment in agriculture. Where government policies keep domestic prices below the international level, the objective usually is to provide cheap food to poor domestic consumers, or to raise government revenue through export taxes. Other aims are also pursued by trade policies, but in most cases they come second to such income distribution objectives, and often they are justifications, rather than the true objectives of the policy. Social objectives in food and agriculture are worthy of policy efforts. However, interference with trade is a far cry from optimal policy approach and involves a large amount of extra costs for both the domestic economy and other countries. There are other much more direct and efficient measures to deal with social objectives. For example, direct income payments can help farmers more effectively than price support and without the negative implications for trade and domestic economic w elfare. Equally, targeted assistance to poor food consumers is much more efficient than keeping food prices low and thereby reducing incentives for domestic farmers. …