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EMERGING OR RECURRING POLICY ISSUES

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1.    Recurring Issues:

• Stability:  Every statement of the objectives of farm or agricultural policies mentions stability as a policy obejctive.  The conventional argument is that, because supply is variable (weather, disease, etc.) and demand is typically inelastic, prices are volatile - the change a lot (often termed unstable - which is incorrect, since the prices are not unstable in the sense that they either collapse or explode indefinitely).  It then follows that, because of this instability (better volatility) of supplies and prices, producers will not produce as much or as efficiently as they could if markets were more stable (less volatile).  Furthermore, because the agricultural sector is subject to these booms and depressions, this volatility is also transmitted to the rest of the local, regional and national economies, making them more volatile than they could(or should) be.

Furthermore, this world price volatility will rebound on domestic policy, making tax costs and revenues more volatile, which in turn will undermine the objective of making the domestic market less volatile, since government funding pressures will tend to encourage reductions in domestic support and insulation.

Since the URAA requires all countries to convert border protection measures into tariffs - the insulation between domestic and world markets should now be substantially reduced - as world prices change, so too will domestic prices if protection is by fixed rate or % tariffs.  Thus, world markets should become less volatile than previously.  However, domestic markets (such as the EU) will tend to become more volatile than before (when insulated from the world market).  Hence, especially in the EU, but also in the US and Japan, there is more concern now about stability and the appropriate policies to cope with volatility.

• Food Security:
• Food availabilities (effective supplies) are not the same thing as food entitlements (effective demands) - both need to be secured to ensure food security.
• National self-sufficiency (as Zimbabwe is in most years) is not either a necessary or sufficient condition for food security for all people. Food security can be guaranteed even in a food importing country, providing everyone has enough income (from sale of other things or other foodstuffs) to pay for their basic food requirements.
• Markets can only provide for food security so long as everyone has at least a basic level of income (that is, command over a basic level of resources from which to earn income).
• Properly functioning markets require an essential trust in the workings of the market place - a faith in their ability to provide incomes and provide necessary supplies of food when needed. If the markets are primitive, then they are likely to be subject to major imperfections (monopolies over supplies, disequilibrium conditions, volatility, chaotic information etc.) Markets will need safety nets - provided by social security systems in developed countries, or by aid packages and subsidised food in poorer countries.
• Replacement of market systems with planned and controlled systems will typically be no more efficient and effective than market systems, and frequently will be worse.
• Conversely, liberalising previously controlled markets requires that the loosers (and the generally poor) be protected or assisted, and also requires intelligence about how to liberalise controlled systems. Simply assuming that markets will grow is often not enough - they will probably grow eventually, but meantime, a lot of poor people may starve or live (exist) in conditions of near starvation. Markets have to be helped to grow.

• Development Support:  what sorts of policies are going to be allowed for developing countries faced with an apparently inevitable and irresistable political demand to support and protect its declining industry (agriculture)?  In particular, will these policies (closely limited direct income support, for instance) be both financially viable and politically acceptable?  A group of developing countries, including Kenya, Nigeria, Pakistan and Sri Lanka, have put forward a proposal for the "Development Box" to allow domestic policies which seek higher productivity, higher income levels and reduced vulnerability to price fluctuations, and are also seeking exemption from any subsidy reductions for a list of basic food security crops.  Such proposals have recieved a cool reception from the developed countries and from the developing countries within the Cairns group, so far.

This is likely to prove a major problem during the current round of Multilateral trade Negotiations (MTNs) under WTO.  It is a major concern for traditional developing countries, who (with some justification) feel that trade liberalisation is not as beneficial for them as it might be, and also feel that their own agricultural sectors need special assistance in growing and transforming from subsistence to commmercial market systems.  It is also likely to be of major importance to the Transition economies (those restructuring and developing from previous centrally planned, communist systems to market systems).  In both cases, the agricultural sectors are presently large both in terms of occupation of people and also in terms of shares of GDP, though typically the share of national income is substantially smaller than the share of total employment - people in agriculture are poor and numerous.  The development process requires that the agricultural sector becomes smaller (unless it can export more) - which implies that the market signals generated by the development process will make people in farming even poorer unless they leave the sector and do something else.  But, until the development process begins to generate other jobs, there may be no where for the hidden unemployed in the farm sector to go to.  So they stay in agriculture and remain as subsistence farmers.  Yet, in democracies, they are numerous, and relatively poor and apparently disadvantaged - so they will demand support, and probably obtain considerable sympathy from the rest of the population in these demands.  Since these countries are not yet rich, the scope for direct payments to support farmers from tax revenues is not large - and the strong temptation will be to provide support through market intervention.  Yet the international community (through the URAA and the WTO) has declared market intervention to be undesirable, if not actually illegal.  How this fundamental inconsistency will be finally resolved is difficult to see at present, other than through an extension of the special arrangements allowed for developing countries.  This compromise, however, will then lead to major arguments about which countries are to be allowed to call themselves developing, and under what conditions they will be judged to have become developed.
 

• Multifunctionality:  the notion that farming produces other things than biomass (such as landscapes, wildlife, rural environments, rural cultures, employment, food security etc., and that these additional outputs or services may not be well provided if farming is simply left to the marekt place.  Hence, a mjor reason for agricultural policies is to provide for things other than agricultural output.  Hence, for Developed countries which - politically - still need to support various agriculturally related activities or populations - how will they be allowed to do this, and to what extent?  The US and Cairns group are suspicious that this is simply a smoke-screen for preservation of trade restrictions and traditional domestic support.  There can be little doubt that at least some in and connected with farming see this argument - farming needs support because of its general contribution to the value of the countryside - as a way forward to continued public support. See here for a recent article trying to explain the logic of multifunctionality.
  

The OECD has spent a considerable amount of time and effort considering these issues, and its multifunctionality web page is worth a visit if you wish to see the nature of the debate (at least as far as the technocrats are concerned - how to identify and measure the various concepts and characteristics of multifunctional agriculture).  A lot of this debate is about the economics (technicalities) of Market Failures:  externalities and public goods - especially with respect to the environment:


• Environment:  To what extent are trade restrictions going to be allowed to encourage or even force environmental protection (and animal welfare or labour force protection as well), both at home and abroad?  The present position is that trade restrictions are typically inappropriate and potentially counter-productive in seeking to promote these objectives, even if the objectives themselves are legitimate (as opposed to serving as a smoke screen for traditional producer support and protection).  However, it is not clear that this largely economic argument is accepted by or acceptable to the general electorates.

This functional illiteracy of the electorates could be critically important - we have already seen how apparently sensible policies - e.g. to support farm prices because farmers are poor and obviously deserving - has lead to fundamentally counterproductive policies.  If you do not want to be classed as functionally illiterate, then read and understand the links provided above!  

• Quality, Health & Safety - sanitary and phyto-sanitary provisions:  under what conditions and according to what criteria can countries restrict or regulate trade to protect consumers (or assuage consumer (or political) anxiety)?  At present, the main criterion is that any restrictions be soundly based on objective scientific evidence, with the key condition that any restriction be universally applied and not simply applied to imports. Of particular concern here are such issues as GMO products, hormones in beef, etc.

• Two final issues - which underly all of the above - are:
• The nature of competition - what does it actually mean and is it necessarily a good thing?
• The nature of the development process - is there a reliable recipe for economic development and progress with which we can all be satisfied? (This link is to some notes developed for the Rural Development and Resource Management MSc - the section on multipliers is less directly relevant to this policy course)

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