Professional Documents
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Globalization and Developing Countries
Globalization and Developing Countries
Globalization and Developing Countries
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L i b r a r y o f C o n g r e s sC a t a l o g i n g - i n - P u b l i c a t i odna t a
Globalizationand the developingcountries: emergingstrategies for rural development
and povertyalleviation/ Editcdb1'David Bigman.
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'ln association with the InternationalServicefbr NationalAgriculturalResearch.'
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L Ruraldevelopment-Developingcountries-Casestudies.2. Economic
development-Develop ing courrtries-Casestudies.3. Agriculture-Economic
aspects-Developingcountries-Clasestudies.4. Agriculturaldevelopmentprojects-
Developingcountries-Casestudics.5. Developingcountries-Economicpolicy-
Casestudies.6. Developingcountries-social policy-Case studies.I. Bigman,David.
HN981.29 C64 2002
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Firstpublished2002
Reprinted2004
Frontcoverdesign:RichardClaase(ISNAR)
[,ayout:Van DuurenMedia.The Netherlands
UK
lndex: IndexingSpecialists,
Foreword .....................................................................................................................xi
Preface ......................................................................................................................xiii
Part III: The Changing Rules of Global Trading and the Impact on
the Agricultural Sector and Agricultural Research
7. The Implications of Global Standards for National Agricultural Research.......171
Lawrence Busch
8. Intellectual Property Rights and the Commercialization of Public
Agricultural Research in Developing Countries ................................................185
David Bigman
9. The Development of the Seed Industry Under Globalization............................201
Michael L. Morris
10. Managing Intellectual Property and Proprietary Technology in
Agricultural Research ........................................................................................219
Joel I. Cohen, Cesar Falconi, Victoria Henson-Apollonio,
John Komen, and Silvia Salazar
v
Part IV: The Role of Public Agricultural Research
11. Diversifying Agricultural Production and Exports in Africa.............................237
David Bigman
12. The Opportunities and Challenges of Globalization for Agricultural
Research in the Caucasus...................................................................................259
Larry Zuidema
13. Globalization, Internal Policy Reforms, and Public Agricultural
Research in Nigeria............................................................................................275
Foluso Okunmadewa and Joseph K. Olayemi
14. The Reorganization of Public Agricultural Research in the Caribbean
under the Pressures of Globalization and Privatization .....................................295
Compton L. Paul
15. The Impact of Globalization on the Agricultural Sector and Public
Agricultural Research in Latin America and the Caribbean..............................307
Jorge Ardila Vásquez
Acronyms .................................................................................................................325
Contributors .............................................................................................................327
Index.........................................................................................................................329
vi
List of Tables, Figures, and Boxes
Tables
Table 1.1. Demographic Characteristics of Selected Developing Countries:
1973–95 .................................................................................................................37
Table 1.2. Growth of GDP Per Capita in Selected Countries: 1960–97 ....................38
Table 1.3. Trends in GDP Per Capita in Selected Regions 1960–96
(in PPP Exchange Rates in 1985 Prices) ...............................................................40
Table 1.4. Measures of Inter-Country Income Inequality 1960–98 ...........................43
Table 1.5. Trends in World Poverty during the 1990s................................................45
Table 1.6. Growth of Food and Agricultural Production in Developing
Countries (%).........................................................................................................62
Table 1.7. The Share of Agriculture in the Economy of Selected SSA
Countries (%).........................................................................................................64
Table 2.1. Annual Growth Rates (%) of China’s Economy, 1970–97 .......................84
Table 2.2. Foreign Trade to GDP Ratios (%) in China, 1980-97...............................84
Table 2.3. China’s Nominal Rates of Protection (%), 1978–98: Selected Rates
Evaluated at the Real Exchange Rate ....................................................................88
Table 2.4. China’s Agricultural Exports by Factor Intensity, 1980–97......................90
Table 2.5. China’s Agricultural Imports by Factor Intensity, 1980–97......................90
Table 2.6. Trade Balance of Agricultural Commodities in China ($ Million),
1980–97 .................................................................................................................90
Table 2.7. Simulation Results: Impact of Trade Liberalization on Agricultural
Commodity Prices in China (in %) (Free Trade vs Baseline Scenarios) ...............91
Table 2.8. Simulation Results: Impacts of Trade Liberalization (Free Trade)
on Production, Consumption, and Trade of Grains (2000–05)..............................94
Table 2.9. Simulation Results: Impact of Trade Liberalization (Free Trade)
on Livestock Products and Fish Production, Consumption, and Trade,
2000–05. ................................................................................................................96
Table 2.10. Grain Self-Sufficiency Levels (in %) under Various Scenarios,
1995–2020. ............................................................................................................97
Table 3.1. Strategies Planned by the Government for Different Commodities........111
Table 3.2. Main Initiatives during the VIII and IX Plan Periods .............................112
Table 3.3. Relative importance of different goals in the projects considered ..........114
Table 4.1. Sectoral Share of GDP (%) at Current Market Prices.............................129
Table 5.1. Agricultural and Other Related Policy Reforms, 1993–98 .....................138
Table 5.2a: Specific Policy Changes for Various Agricultural Commodities ..........139
Table 5.2b: Policy Changes for Various Agricultural Inputs ...................................141
vii
Table 5.3. KARI Research Programs by Commodity/Activity Classification,
1997–98 ...............................................................................................................145
Table 5.4. Sources of Funding for KARI in 1997–98.............................................147
Table 5.5. Share in Initiating Research Projects ......................................................147
Table 5.6. Share of Different Sources in Funding Research Projects .....................148
Table 6.1. The Distribution of Farmer Revenues in Yemessoa, Cameroon .............159
Table 8.1. Type of Research and Collaboration with Other Research
Institutes...............................................................................................................193
Table 8.2. Principal Research Categories.................................................................195
Table 8.3. Likelihood of IPR...................................................................................195
Table 8.4. The Use of Proprietary Technologies in Research .................................195
Table 8.5. Policy Measures Relevant to the Inputs Generated in these
Research Projects.................................................................................................196
Table 9.1. Area Planted to Improve Maize and Wheat varieties, LDCs (%) ...........203
Table 9.2. Characteristics Associated with the Stages of Maize Seed
Industry Development..........................................................................................210
Table 10.1. Applications of Proprietary Technologies and Materials in
CGIAR Centers....................................................................................................222
Table 10.2. Products Expected from the Application of Proprietary Tools
in CGIAR Centers................................................................................................225
Table 10.3. Proprietary Technologies and Materials Applied in Latin
American NAROs ................................................................................................228
Table 10.4. Expectations to Protect Products...........................................................229
Table 11.1. Merchandise Trade of Africa, 1999 .....................................................242
Table 11.2. The Share of Commodities in the Total Export Earnings of
the African Countries (%)....................................................................................245
Table 11.3. Principal Research Categories...............................................................253
Table 11.4. Distribution of Research Projects across Research Areas.....................253
Table 11.5. Who Initiated the Research Project? .....................................................253
Table 11.6. Who Covered the Costs of the Research Project?................................254
Table 11.7. Was the Project Conducted in Collaboration with Other
Research Institutes? .............................................................................................255
Table 11.8. Were Farmers’ Organizations Involved in the Research Work?............255
Table 11.9. Were Extension Workers Involved in the Research Work? ...................255
Table 13.1. Selected Economic Indicators, 1992–98 ...............................................282
Table 13.2. Budget Allocation for Agricultural Research by the Federal
Government, 1990–99 .........................................................................................287
Table 15.1. Area under Cultivation by Main Crops in LAC (’000 hectares). ..........310
viii
Table 15.2. Relative Yields, Growth Rates, and Indicators of Comparative Advantage
in LAC ................................................................................................................312
Table 15.3. Differences between LAC Countries in Human-resource
Capacities for Agricultural Research...................................................................315
Figures
Figure 1.1. Average annual growth rates of GDP per capita in main regional
groups, 1960–98 ....................................................................................................41
Figure 1.2. Index of GDP per capita (PPP adjusted) by regions, 1960–96................42
Figure 1.3a. The Share of Regions in the Three Income Groups: 1960 ....................43
Figure 1.3b. The Share of Regions in the Three Income Groups: 1996 ...................43
Figure 4.1. Growth rate of real GDP in Ghana, 1994–2001 ....................................124
Figure 4.2. Inflation rate in Ghana, 1994–2001.......................................................127
Figure 4.3. Incidence of poverty in Ghana, 1991–92 and 1998–99* ........................130
Figure 6.1. GDP Trend in Cameroon in the 1990s .................................................162
Figure 9.1. Public and private maize seed sales, 1990–97.......................................206
Figure 9.2. Evolution of maize seed prices, selected countries ...............................207
Figure 9.3. Maize seed industry concentration, selected countries, 1996 ...............208
Figure 10.1. Applications of proprietary technologies in CGIAR Centers and
their means of protection (by reported number of applications) .........................223
Figure 10.3. Permission to use proprietary technologies in Latin American
NAROs (by reported number of applications) .....................................................230
Figure 10.2. Applications of proprietary technologies in Latin American
NAROs and their means of protection (by reported number of applications) .....230
Figure 11.1. Share of Africa in world merchandise trade, 1989–99
(percentage based on value data) .........................................................................242
Figure 11.2. Supply chain for agricultural commodities in a developing
country .................................................................................................................251
Figure 12.1. GNP, PPP (current international US$)................................................261
Figure 12.2. Agricultural product (% of GDP) ........................................................261
Figure 12.3. Cereal yields, 1992–97 ........................................................................263
Figure 14.1. The commodity systems approach employed by
PROCICARIBE networks....................................................................................301
Figure 15.1. Evolution of per capita food production indices in LAC ....................311
ix
Boxes
Box 1.1. Foreign Direct Investment (FDI).................................................................52
Box 1.2. The Least Developed Countries ..................................................................54
Box 11.1. Trade reforms and privatization: The case of fertilizers in Ethiopia .......241
Box 11.2. Winners and losers in the global coffee marketing chain........................249
Box 13.1. The Cocoa Research Institute of Nigeria ................................................285
x
Foreword
Globalization and trade reform are credited with improved income growth and poverty
reduction in much of the developing world. Empirical evidence points to the
growth-inducing effects of open economies, where long-term growth is like the rising
tide, lifting all the boats, including those of the poor. Reality, however, is often more
complicated. Many countries have not reaped the perceived benefits of globalization,
and in those countries that have, large segments of the population, in particular in the
rural areas, lost out or were at best unaffected. As new evidence became available, a
fierce debate emerged about how globalization actually affects the poor, and whether it
can be made to work in their favor. Others argued that globalization merely magnified
the effect of existing domestic policy failures to recognize the extent of poverty.
To lift people out of poverty and malnutrition remains the prime challenge of the
21st century. More than one fifth of the world’s population lives in conditions of
extreme poverty. Up to 1.2 billion people make a living on less than one dollar a day,
and a large part of them is food insecure and malnourished. Three out of four poor
people—some 900 million—live and work in rural areas, mostly in South Asia, but
increasingly in sub-Saharan Africa. Half of all rural poor live in less-favored lands,
low-potential areas with poor infrastructure and easily susceptible to environmental
degradation. Among the poor, women and children are often the most vulnerable
victims of poverty.
Concern for the poor in the process of globalization and trade reform seems well
justified, if only on theoretical grounds. Major sectors such as agriculture and textiles
face limited market access in the developed world and distorted world market prices as
a result of protection and subsidies. Liberalization, as many developing countries have
been urged to do, in such a second-best world does not necessarily improve welfare, as
the evidence in this publication shows. Even in an “ideal” world with the prospect of
attractive net benefits, short-term adjustment cost can be substantial and carry a heavy
political cost.
It is equally likely that in the long run, important segments of the poor will be left
behind, as infrastuctural, institutional, risk, and skill constraints make it difficult for
them to respond to new market opportunities effectively. With decreasing state
involvement and domestic reforms, it needs forceful arguing that at the same time
appropriate institutions and enabling policies need to be designed to empower the
poor. More decentralized and participative approaches, including privatization, show
that such reforms can indeed be achieved, but need political will and time.
This volume provides a timely analysis of these issues in the context of agricultural
and rural development, facilitated by ISNAR in cooperation with other Centers of the
Consultative Group for International Agricultural Research (CGIAR). It reviews the
controversies surrounding the globalization process, presents case studies of winners
and losers, introduces new issues regarding intellectual property rights and food safety
standards in the global trading system, and draws implications for the future role of
public agricultural research organizations. With funding for agriculture and rural
xi
development so long neglected, despite poverty being prevalent in those areas, this
book is a welcome addition to our understanding of the impact of globalization on the
rural poor.
Arie Kuyvenhoven
Professor of Development Economics, Wageningen University, the Netherlands
xii
Preface
An assessment of the process of globalization from the wider and more profound
perspective of a historian, while the process is still going on at a breathtaking pace,
presents a major challenge. A decade or two ago, there were high hopes that this
process would lead to greater inclusiveness and generate more rapid growth in the
developing countries; in recent years, however, it has galvanized vociferous
opposition and bitter criticism of those who feel threatened or left out by it. This fierce
criticism shifted the focus of the debate over the pros and cons of globalization from
the narrow economic dimension to the moral dilemma presented by the widening gap
between rich and poor and the responsibility of the “haves” of the world to narrow the
income and knowledge divide and enable the “have-nots” to be integrated into the
global economy.
This wider assessment and an evaluation of the promise that the globalization
process holds for poor countries and people must also come to grips with the questions,
and sometimes doubts, that are raised about the insight that can be gained from the
experience of these countries during the past decades. What, in particular, are the
lessons that can be learned from the success or failure of many past policy reforms with
respect to their effectiveness in the coming years—given the profound changes in the
social and political conditions and in the institutional settings everywhere? How
should the future reforms be structured in order to adjust them better to the new
conditions that the globalization process has introduced?
These are also the questions that attracted me to the work on a program on
globalization that I was asked to manage when I joined the International Service for
National Agricultural Research (ISNAR) in early 1999. More than three years later, I
find these questions still both attracting and far from being settled as the controversies
between “‘supporters” and “opponents” of globalization are spilling from conference
halls and meeting rooms into the streets. The main goal of this research program was to
bring in, share, and draw common lessons from the perspectives, experiences and
views of researchers from different developing countries, as well as from development
organizations and the academia, and this is also the goal of this volume.
ISNAR’s work program on globalization started already in the mid-1990s with an
extensive exchange of views and visions among leading experts in agricultural
research. Their contributions were brought together in the book The Globalization of
Science: The Place of Agricultural Research, edited by Christian Bonte-Friedheim and
Kathleen Sheridan and published in 1996.
The objective of ISNAR’s work program on globalization was to develop
guidelines for the research strategies and priorities of the national agricultural research
organizations (NAROs) in developing countries in order to enable them to deal more
effectively with the issues presented by the policy and institutional changes brought
about by globalization. The second stage of this work program started in early 1999
and evolved in three directions:
xiii
< First, research teams in some 20 developing countries were asked to review the
impact of globalization on the overall economy and on the agricultural sector in
their countries, and evaluate the measures taken by the national public research
organizations to assist farmers in making the adjustments in their farming system
that the integration into the global economy and the policy reforms in their
countries require.
< Second, 15 experts in agricultural research from public research organizations in
developing countries and from academic research institutions, along with ISNAR
researchers, participated in a workshop that was aimed at reviewing and
suggesting guidelines for ISNAR’s program on globalization. This workshop was
conducted in September 1999, and many of the participants later took an active
part in the research program itself and contributed chapters to this volume.
< Third, an extensive survey was conducted among 105 national agricultural
research institutes in 33 developing countries to evaluate the changes that these
institutes had made in their mode of operation and their research priorities in
adjusting to the changing structure of the global trade in agricultural commodities,
the rapid progress in research, and the evolving rules and institutional reforms that
guide international trade and the transfer of new technologies.
As part of this work program, the Indira Gandhi Institute of Development Research
(IGIDR) and ISNAR organized a two-day conference in India in March 2000 on “The
Changing Role of Agricultural Research in the Era of Globalization.” The discussions
in this conference focused on strategies to improve the targeting of agricultural
policies in general, and agricultural research programs in particular, on the poor. I am
greatly indebted to Dr Kirit Parikh, who, as Director of IGIDR, not only extended his
hospitality to the conference participants, but also stimulated the joint research work of
IGIDR and ISNAR.
In August 2000, another workshop was held at ISNAR to evaluate alternative
strategies aimed at expanding production and exports of non-traditional crops to assist
farmers in adjusting to cope with and take advantage of the structural changes in the
agricultural sector as their countries liberalize their trade. Another goal of this
workshop was to provide guidelines for two research projects in ISNAR’s future work:
“Improving and Expanding Processing and Exports of Non-Traditional Crops in the
Caribbean” and “Improving Fruit and Vegetables Export Chains in Sub-Saharan
Africa.”
The present volume brings together many of the country reports and expert
discussion papers that were prepared for ISNAR’s research program on globalization.
I would like to thank all the participants in this program and, in particular, the
researchers and country-teams in the developing countries who provided a wider
perspective of how their countries and their rural populations were affected by the
globalization process and the attendant policy reforms. My gratitude extends also to
the experts who contributed chapters on specific aspects of the globalization process,
including food safety standards, intellectual property rights, and the impact of
multinational corporations in research and in trade.
xiv
Many colleagues at ISNAR helped me in various stages of the research and of the
editorial work on the book. Those who read the research reports prepared by the
country teams gave very useful comments that were helpful in the revision of the
reports for the book; in particular, I would like to thank Francis Idachaba, Howard
Elliot, Han Roseboom, Joel Cohen and John Komen. Other colleagues at ISNAR lent
me their ears and their brains in helpful exchanges of views and information; in
particular, I would like to thank Victoria Henson-Apollonio, Hunt Hobbs, Doug
Horton, Willem Janssen, Michael Loevinsohn, Ajit Maru, Heike Michelsen, and Paul
Perrault. I also benefited from many stimulating discussions with my colleagues at
Wageningen University that inspired also our plans for joint research programs in the
future; my collaborative work with, and the contribution of Arie Kuyvenhoven are
particularly appreciated.
I would like to express my gratitude for the generous financial support that ISNAR
received for this research from the Department for International Development of the
UK (DFID) and the Japan International Research Center for Agricultural Sciences
(JIRCAS).
I am deeply indebted to Mina Senior-Faress, who went far beyond the call of duty
and provided invaluable assistance in the editorial work on the book. Mina not only
organized very efficiently the follow-up work on the contributions of all the research
teams, but she also did the first and very challenging editorial work on the various
chapters. Jan van Dongen, ISNAR’s dedicated Head of Publications, could always be
counted on to give a helping hand to advance this work and bring it to an end.
Finally, I would like to express my deep gratitude to my wife Petra, who not only
provided me with much needed moral support, but also took upon herself the most
difficult part of the editorial work, and never tired, no matter how demanding and at
times tedious the revision and editing was.
xv
Introduction and Overview
David Bigman
After the 1999 WTO negotiations broke down amidst rioting and tear gas in Seattle, it
has become increasingly difficult for the international economic organizations to meet
without attracting large crowds of protesters who are fiercely opposed to globalization.
Most of these protesters come from the rich industrial countries, and they represent a
wide variety of causes and organizations. They include representatives of labor
organizations worried about the loss of jobs if companies move “South of the border,”
farmers anxious to defend the generous support to agriculture in the EU and the US,
environmentalists worried about the degradation of our planet, and various groups of
radicals who object to any form of global order and vehemently oppose corporate
capitalism. Relatively few protesters claim to represent the poor of the world, and they
are mostly representatives of various nongovernmental organizations in Europe and
the US that watch with great trepidation the plight of the poor. However, they have so
far failed to present a convincing case whether and why globalization is detrimental to
the poor, and the accumulating empirical evidence suggests in fact the opposite.
This empirical evidence of developments in poverty and income inequality during
the 1990s has been evaluated most thoroughly in several World Bank studies that were
summarized in two comprehensive reports. The first is the World Bank’s 2000–2001
World Development Report, which focused on poverty, and its central finding is that
the percentage of the world population living in extreme poverty (less than US$1 a day
in 1993 ppp) declined during that decade from 29% to 24%, although there were wide
variations within and between countries as well as between country groups. A
subsequent report entitled Globalization, Growth and Poverty: Building an Inclusive
World Economy1 emphasized that, although globalization has helped reduce poverty in
a large number of developing countries by accelerating their economic growth, not all
countries and not all population groups have benefited: only 24 developing countries
with a population of some 3 billion people—including China and India2—managed to
integrate into the global markets and achieved higher growth rates, longer life
expectancy, and a sharp reduction in poverty.
But the other developing countries—particularly in sub-Saharan Africa, the
Middle East, and the former Soviet Union—were left out, and the economies of many
of them actually shrank during the 1990s. These countries, which are home to some
2 billion people, were not able to benefit from the more integrated global economy, and
many were even negatively affected by the decline in commodity prices. Most of these
countries are still predominantly agricultural and the majority of their population lives
in rural areas. Moreover, even in countries that gained from globalization, certain
1
2
segments of the population, particularly those that live in the more remote rural areas,
benefited very little, and in some areas, poverty has actually increased.
These are the countries, the geographical areas, and the population groups on
which this book is focused.
Obviously, this particular focus on the countries and regions for which
globalization did not work is not meant to provide a balanced appraisal of the overall
impact of globalization on developing countries. This focus is also not suited to
explore the question whether the successful experience of those developing countries
that gained from globalization can provide relevant lessons for the countries that have
been left behind. Instead, by focusing on the experience of those countries, regions,
and population groups that have so far not been integrated into and benefited from the
global economy, and by analyzing their difficulties in restructuring their economies
and institutions of governance, this book attempts to provide useful insights and
instructive lessons on potentially problematic effects of globalization and on the policy
reforms that may be required in order to enable these countries to join the global
economy.
The starting point of the analysis in the book is an overview of the globalization
process since the 1960s, the policy reforms that precipitated it, and the controversies
that arose. Throughout these years, and particularly during the 1990s, this process was
characterized by a rapid growth of international trade and investment, spurred by a
sharp reduction in transport costs for commodities and people, a growing influence of
regional and global institutions and agreements, and a dramatic increase in all forms of
communication that was made possible by rapid advances in information and
communication technologies. In the 1960s and the 1970s, the driving force of the
greater integration of the world markets was the deepening of economic and financial
relations among the developed countries, due, in part, to their growing cooperation on
defense and global policy matters. In the 1980s, the deepening trade relations spread
beyond the developed world and had an increasingly profound impact on the entire
global economy. The expanding trade between countries and the rising flows of
investments from the developed to the developing countries were facilitated by the
far-reaching reforms that the developing countries introduced under the guidance, and
with the support and sometimes pressure, of the international development
organizations, primarily the International Monetary Fund (IMF), the World Bank, and
the World Trade Organization (WTO). These reforms included the liberalization of
trade and foreign investment regimes, deregulation and privatization aimed at
enhancing the role of the free market, and measures to reduce the involvement of the
central government in the economy.
Many countries, economic sectors, and population groups were able to reap large
benefits from these developments. In particular, most East Asian countries enjoyed
rapid growth as they increased their trade with and their integration into the global
markets; the structural changes that spurred this growth improved their standard of
living and elevated a large number of their people out of poverty. However, many other
Introduction and Overview 3
industrial countries and the poorest developing countries, and degrade the global
environment. On the other side of the debate are the enthusiastic supporters of
globalization who see the economic reforms and the integration into the global
economy as the key and the most effective strategy to spur economic growth and
reduce poverty.
In most developing countries that gained from globalization, particularly in East Asia,
economic growth was led by the industrial sector and benefited mostly the urban
population, whereas the rural population was often left behind, and the rapid industrial
growth thus augmented the disparities between the urban and rural populations.
Similarly, most countries for which globalization did not work remained
predominantly agricultural. Since this book focuses on countries, regions, and people
that have so far failed to gain from globalization, the analysis presented here will
center on the agricultural sector and the rural population.
The adjustments in the agricultural sector were driven initially by the policy
reforms that many developing countries implemented since the mid-1980s under the
structural adjustment programs. These reforms included trade liberalization,
privatization, removal of price and administrative controls, and the reduction or
elimination of most subsidies and price supports, particularly for agricultural products.
The resulting changes in the prices of all agricultural inputs and outputs forced many
farmers to abandon their old farming and marketing practices and to switch either to
the production of staple foods primarily for their own consumption, or to different
crops and methods of production; some farmers even would find that they had to give
up agricultural production altogether. Although the reforms were an essential part of
the adjustment program and were needed to spur growth, it has become increasingly
apparent that these adjustments are bound to take time and, in the short run, can impose
a heavy burden on large segments of the population, particularly in rural areas.
Several factors contributed during the 1990s to increase this burden:
< Producers of traditional export crops such as coffee, cocoa, and cotton suffered
considerable income losses with the removal of export or input subsidies, the
elimination of country-specific commodity agreements, and the sharp fall in
commodity prices in the world markets.
< The removal of all nontariff trade barriers and the reduction in tariffs were two of
the main pillars of the economic reforms. In the short run, however, these measures
exposed local farmers to intensive external competition of cheap imports of maize,
wheat, and other staples from developed countries where yields are much higher.
The transition of these farmers to other crops and new methods of production that
was envisioned in the reforms proved to be a lengthy and rather complex process,
particularly in areas where substitution opportunities are limited.
< At the same time, high tariffs and other support measures for agricultural products
and producers in the developed countries have so far remained largely unchanged,
and the conclusion of the “agricultural chapter” in the multinational trade
negotiations proved to be lengthy and highly contentious. As a result, many
Introduction and Overview 5
The discussion and analysis of different aspects and different perspectives of the
globalization process in this book is divided into four parts:
< Part I provides a general overview of the controversies over the pros and cons of
the globalization process and of alternative development strategies for a
developing country. This part also reviews the empirical evidence that has been
accumulated since the 1960s, but particularly during the 1990s, for different
groups of developing countries.
< Part II reviews the experience of five developing countries—China, India, Ghana,
Kenya, and Cameroon—during the 1990s and the process in which they
implemented the reforms. The two Asian countries, China in particular, are among
the big gainers from the globalization process, but the reviews highlight the fact
that even in these countries, certain regions and rural population groups trailed
behind.
< Part III provides an appraisal of the effects of key changes in the global trading
system that were driven by the multinational trade agreements and assesses their
impact on the short- and long-term prospects of agricultural production and
exports in developing countries. Included in this review are the changes in the
global trading rules regarding food safety standards and intellectual property
rights, the increasing domination of multinational corporations in international
trade and the growing share of the private sector in agricultural research.
< Part IV focuses on the impact of all these changes on the role and mode of
operation of the public agricultural research organizations in developing countries
and on the international public agricultural research centers of the CGIAR. The
regions covered in this part are sub-Saharan Africa, the Caucasus, and the
Caribbean.
In examining these questions, the chapters highlight common features and critical
factors that hampered the adjustments in countries, sectors, and regions for which
Introduction and Overview 7
globalization did not work, and the analysis of the experience in individual countries
draws attention to certain distinctive aspects that can be relevant in the design of future
reforms, particularly with respect to the role of the public sector.
The design of a development strategy for the agricultural sector presented also
difficult dilemmas regarding the role of the public sector and potential impacts on poor
farmers and the environment. Development strategies encountered additional
difficulties because the “agricultural chapter” in the Uruguay Round Agreement of the
General Agreement on Tariffs and Trade and the WTO has not yet been concluded,
and the developed countries remain exceedingly protective of their agricultural
producers, thus placing high obstacles to agricultural exports from developing
countries. Part I therefore reviews the debates over alternative development strategies
that center on the agricultural sector and over their performance in different groups of
developing countries.
Part II examines the effects of the changes in the global trading system and the impact
of internal policy reforms in selected developing countries (China, India, Ghana,
Kenya and Cameroon) on their economy and their agricultural sector. The reviews
focus on the reforms implemented by these countries under their various structural
adjustment programs and their subsequent agreements as they joined the WTO.
Two points are noted most emphatically in these reviews: First, factors that are
specific to each country ultimately determined the impact of the somewhat generic
trade liberalization and adjustment policies that these countries implemented. The
agricultural sector in particular had to face a multitude of hurdles and challenges that
were dealt with by centrally prescribed policies, even though it became obvious very
rapidly that the success of the reforms was determined primarily by how sensitive they
were to local conditions and constraints. Second, the implementation of these policies
and their adjustment to the local conditions proved to be quite complex, and the
transition period, until the policies became effective and efficient, was often much
longer and fraught with more problems than initially envisioned.
Even trade liberalization, perhaps the most cherished reform of all, proved to be far
more complex than a simple set of administrative decrees. In many developing
countries, industries and crops that had existed for decades behind walls of high
protective tariffs or administrative controls had to be scrapped almost overnight. In the
agricultural sector, this transition proved to be particularly lengthy and tumultuous for
several reasons:
< Many farmers encountered obstacles and stiff competition in the production of
traditional crops that they had grown for generations. In the past, farmers who
produced these crops, particularly field crops, were protected by high transport
costs; later on, the government protected them with high tariffs and controls. In
recent years, however, the sharp reduction in transport costs and the drop in tariffs
under the policy reforms and the trade agreements opened the gate to competing
imports from abroad.
< The majority of the farmers, particularly the small farmers, did not have immediate
and obvious substitutes to replace their traditional crops, either because the soil
and climatic conditions in their region were not favorable to other crops, or
Introduction and Overview 9
because they did not have adequate information and guidance about possible
substitutes.
< The adoption of new and particularly nontraditional crops often required more
sophisticated technologies, adequate seeds and other special inputs, and detailed
instructions how to grow these crops. The selection of substitute crops had to take
into consideration not only the agroclimatic and soil conditions, but also, and often
primarily, the profitability and marketability of the alternative crops.
< The adoption of substitute crops and their marketing for local consumption or for
exports require additional components in the trading chain, including
procurement, transport, and storage, and, if necessary, processing. All these
components are essential to secure the profitability of the new crops, but presently
the marketing system for most crops—with the exception of traditional export
crops—is very rudimentary and inadequate in most developing countries.
market signals are transmitted in discreet intervals according to the crop seasons. It
therefore takes farmers time to obtain and assimilate the information on the new prices,
it takes them time to decide whether the crops they are currently growing are still
profitable, and it takes them time to select alternative crops that would be more
profitable under the new price system and to introduce them into their farming system.
In many developing countries, the lack of effective public institutions that can help
farmers to make the proper choices and necessary changes further complicates the
transition, and farmers who already live at or below the poverty line do not have the
means and the financial reserves that are needed for making the adjustments. It may
therefore be necessary for the public sector to remain actively involved in the entire
transition process, help farmers to make the proper decisions and the necessary
adjustments, provide them with the information and the resources they need, and put in
place the system for marketing these crops so that their production can indeed be
profitable.
These short-term difficulties, however, do not reduce the need for the policy
reforms and adjustments that the entire economy, including the agricultural sector,
must make. Indeed, without such adjustments, the government will have to continue to
defend unprofitable sectors and inefficient economic activities and thus isolate the
country still further, necessitating a much more tumultuous transition later on. The
difficulties that the agricultural sector and the rural population encounter during the
transition emphasize, however, the need for careful planning at the initial stage of the
reforms. Trade liberalization reforms, for example, should include an assessment of
the sectors, regions, and population groups that are likely to be negatively affected and
a preparation of specific actions that can ameliorate these negative effects and shorten
the time that is necessary for the adjustments.
The design of these reforms must also take into account the strength and
effectiveness of the current local market system, since the key to a successful transition
of the agricultural sector is the proper response of all market agents—producers,
traders and consumers. In countries where the market system is not efficient and
competitive, the reforms may fall prey to monopolistic forces that can take control
over local trading when the central supply system is privatized, thus introducing other
distortions that will prevent effective adjustments. In many ex-centrally planned
economies, for example, the haste to privatize public enterprises did not take
adequately into account the absence of a functioning private trading system and, as a
result, large segments of the market were taken over by local oligarchs.
The reviews in Part II highlight the vastly different effects of the policy reforms on
different geographical areas and different farmer groups. In chapter 2, Jikun Huang
emphasizes the growing concerns in China over the impact of the country’s WTO
accession and of the process of trade liberalization on agricultural production, prices,
employment, and farmers’ income. China now faces critical choices: How to sustain
agricultural growth and increase farmers’ income through this process? What will be
the implications for food security? What additional policy measures might be
necessary to adjust to the economy-wide transformation? Despite substantial efforts to
liberalize agricultural prices and markets, most major agricultural commodities are
still heavily penalized by commodity-specific policies that depress agricultural
Introduction and Overview 11
production and redistribute income from farmers to urban consumers and to the
agroprocessing industries.
The analysis in this chapter indicates that with the transition to free trade, the prices
of most field crops (with the exception of rice) are likely to decline and their output is
likely to fall due to cheap imports, whereas the prices and exports of most animal and
horticultural products will rise. From the macroeconomic perspective, the resulting
patterns of China’s agricultural trade will be highly desirable since they are consistent
with the country’s domestic resource endowments, as China becomes a net exporter of
labor-intensive agricultural products, like horticulture, animal products, and processed
food, and increases its imports of land-intensive products, like grains, cotton, and
vegetable oils. However, farmers in different provinces will be affected very
differently by these changes. In many western and central provinces, farmers produce
primarily field crops, and they have very limited substitution possibilities; these
farmers may encounter considerable difficulties to compete with the cheap imports or
to avoid a decline in their income. These farmers will depend on public support during
the transition, and they will particularly need the support of the public agricultural
research system to guide them in the selection of substitute crops and help them with
the introduction of these crops into their farming systems.
The experience in India also shows that the policy reforms had vastly different
effects on different geographical areas and population groups, and, in some areas,
farmers are still struggling with the transition. In chapter 3, P.V. Srinivasan and
Shikha Jha highlight the immediate impact of the sharp reductions in direct and
indirect government subsidies in the late 1980s and early 1990s, which were part of the
effort to transform the economy from the production of import substitutes for the local
market to export-oriented production in both the industrial and the agricultural sectors.
In certain regions, primarily those close to the urban centers, farmers were able to
adjust their farming system to the demands of the domestic and foreign markets, thus
offsetting the negative effects of the removal of the subsidies and raising their income.
In many of the more remote areas, where substitution possibilities were more limited,
farmers were not able to make rapid adjustments and suffered considerable losses
when subsidies for agricultural inputs were reduced or removed; resource and
credit-constrained small farmers suffered the most since they lacked the resources
necessary to change their farming system.
In the three African countries reviewed in part II, the transition of the agricultural
sector required transforming a system characterized by the complete control of the
government over production, marketing, investment, and research, to a system in
which these controls were gradually reduced by privatizing segments of the public
marketing system, deregulating prices, and liberalizing the trade in agricultural inputs
and outputs. In chapter 5, Hezron Nyangito and Joseph Karugia review this transition
in Kenya and emphasize the slow pace and frequent reversals of the reform process
despite strong pressure from the World Bank and the IMF and the declared
commitment of the Kenyan government. However, internal political considerations
often led the government to reinstitute controls that had been canceled earlier in order
to ensure its grip over the economy or reduce the negative impact on certain privileged
groups or regions.
12
In the 1990s, the pace of the reforms seemed to accelerate with declarations of the
complete deregulation of the marketing and exports of all crops, the removal of most
price controls, and the liberalization of trade. However, the reforms remained partial,
and the on-and-off institution and canceling of controls was highly damaging to
agricultural producers. The rather abrupt trade liberalization brought in a flood of
cheap imports of foodstuffs, primarily rice, wheat, and sugar, and led to a total collapse
of the cotton industry due to the importation of cheap textiles; the hesitating response
of agricultural producers, processors and traders, and the inconsistency of government
policies deterred investments and slowed down the adjustments. As a result, the
reforms did not contribute to accelerate agricultural growth in the short run, and rural
areas experienced a considerable increase in poverty.
The reviews of the reforms in Ghana, presented in chapter 4 by Cletus Dordunoo
and Godwin Dogbey, and the experience in Cameroon, presented by Aloysius Ajab
Amin, Emmanuel Douya and Alexander Mbeaoh in chapter 6, provide a disturbingly
similar picture despite obvious differences in the underlying conditions: The policy
reforms in both countries concentrated on trade liberalization, privatization, and the
dissolution of state-owned agroindustrial corporations that had dominated agricultural
production and commerce. The removal of price controls (and, in Cameroon, the
devaluation of the CFA franc in 1994) gave a strong boost to agricultural exports in
some areas, but the removal of all subsidies for agricultural inputs and of all direct
government assistance to the rural population reduced the net earnings of many
farmers in other areas and forced them to shift from cash crops to food crops for self
consumption. The far-reaching economic reforms that were implemented
subsequently were aimed at making the final push in the transition from
state-controlled to market-oriented production and trade by giving a much greater role
to the private sector and by reducing government interventions and price controls.
However, these reforms encountered many obstacles and strong opposition due to the
weakness of the private sector and the lack of proper regulatory frameworks and viable
public institutions to monitor local traders, secure the effectiveness of the local
markets and protect against local monopolies.
Part III reviews the impact of a number of key changes in the rules, standards, and
institutions that govern the global trading system under the WTO Agreements and
their effect on the agricultural sector and on public agricultural research. The reviews
cover the changes that followed the agreements on global standards for agricultural
trade and intellectual property rights, the restructuring of the global trading system for
many agricultural products in supply chains that are often dominated by multinational
corporations, and the growing share of the private sector in agricultural research. The
contributors to this part emphasize that rules that are, in principle, highly desirable and
sensible from a global perspective, may create considerable difficulties and
complications when they are implemented in developing countries by institutions that
may bias these rules under the pressures of local needs.
Introduction and Overview 13
In chapter 7, Lawrence Busch evaluates the impact of the two agreements aimed
at standardizing international trade in agricultural commodities: the Sanitary and
Phyto-sanitary (SPS) agreement that determines food safety standards, and the
agreement on all other Technical Barriers to Trade (TBT) in food and agricultural
products. In principle, the goal of and the prospective benefits from the global
agreements on these issues are obvious since, in the past, such standards had been set
by individual countries and used as nontariff trade barriers. Under the new global
agreements, however, standards now play a far greater role in international trade in
agrifood products, including trade between developing countries, even when these
countries do not maintain the standards in their own internal trade.
Moreover, the growing share of multinational corporations in international trade
and the formation of large supply chains from producers to retailers that set their own,
more rigorous standards on the products they buy, may impose new barriers to trade.
The author emphasizes the critical role of the public sector in general, and of the
NAROs in particular, in resolving the technical and operational problems that these
standards may create for local producers, and in helping the participants in agrifood
exports, including farmers, transport and storage companies, food processors, and
wholesalers, to adjust their operations so that they can meet the standards. The author
notes, however, that many NAROs, particularly in sub-Saharan Africa and the
Caribbean, have so far failed to take the necessary measures, thus putting local
producers at a disadvantage; he also emphasizes that the NAROs should abandon
research programs that can best be managed by the private sector.
The prominent role of the private sector in agricultural research is another result of
the changes in the rules governing the global trading system under the WTO
Agreements; crucial in this context is the implementation of a global intellectual
property rights (IPR) legislation. On the one hand, private companies, motivated by
profit considerations, tend to concentrate on the more lucrative segments of the
market, cater to the demands of large-scale commercial farmers, and leave out the
small-scale farmers or farmers in remote areas. At the same time, public agricultural
research organizations may face increased budgetary constraints due to payments for
the use or acquisition of proprietary technologies. On the other hand, IPR protection
can increase private investments in agricultural research and accelerate the
development of new technologies.
While public agricultural research organizations also have the option to protect
part of their innovations by means of patents, they may be facing multiple dilemmas:
< Should the NARO continue to make technologies accessible to all—or at least to
some—at no cost?
< If not, what criteria should the NARO use to determine restrictions and/or charges
for the use of its technologies, particularly if these technologies are produced in
collaboration with private companies that demand IPR protection?
< Should the NARO concentrate on the development of new technologies that are
needed mostly by the poorer farmers, and leave the development of more
commercial technologies to the private sector?
14
< Should the NAROs use the protection of IPRs and the option to commercialize
their research results in order to recover part of their costs and thus possibly fund
additional research?
In chapter 8, David Bigman reviews the impact of IPR legislation on the NAROs in 33
developing countries, based on a survey conducted in 105 NARIs. The survey
highlights the concerns of researchers in the NAROs that pressures to commercialize
part of their research may force them to change research priorities at the expense of
projects targeted on small-scale farmers or on marginal areas that have smaller
commercial prospects. The researchers were also concerned that a rise in the price of
agricultural inputs due to patented technologies may exclude poor farmers who may
not be able to afford the higher price.
Nevertheless, the researchers and the NAROs’ managers who participated in this
survey generally believed that the benefits from the new legislation—due to its
stimulating effects on private research and the greater possibilities of collaboration
between private and public agricultural research companies—far outweigh its costs.
They also emphasized that the NAROs may have to insist on IPR protection in order to
correct the current highly asymmetric system in which access to genetic resources is
still essentially free, while the benefits from the research are not, and possibly also
demand defensive patenting in order to prevent private companies from effectively
appropriating their innovations.
In chapter 10, Joel Cohen, John Komen, Cesar Falconi, and Silvia Salazar review
the results and implications of another survey that was conducted among lead
researchers in the international agricultural research centers of the CGIAR, as well as
in the NAROs in several Latin American countries. Their first observation is the
surprisingly small number of outputs that the researchers considered suitable for IPR
protection; the authors note, however, that this could be attributed to a lack of
familiarity with the new IPR legislation and the long-standing tradition that
technologies developed in the CGIAR are made available to all at no cost as
international public goods.
One effect of the IPR legislation noted in the survey is that material transfer
agreements (MTAs) have become the most common means for acquiring technologies
by the public research organizations. This, in turn, highlights the potential benefits
from collaboration between these organizations in the acquisition of these materials.
The use of materials under these agreements also means that, as centers transform
mandate crops, develop vaccines, do diagnostic probes, or provide for marker-assisted
breeding, their dependence on licenses, MTAs, and other agreements with the private
sector increases. Indeed, in recent years, the international and national public
agricultural research organizations have markedly increased their use of proprietary
technologies and materials developed by, or under the protection of, private research
companies. On these grounds, the heads of the NAROs in Latin America who
participated in the survey expressed high expectations that they will be able to obtain
intellectual property protection for the majority of their new products, even though not
all had clear knowledge of the type of protection that each proprietary tool provides.
Introduction and Overview 15
Another aspect of the reforms was a fundamental change in the role and the relative
share of the public and the private sectors in many activities related to the production
and marketing of agricultural inputs and outputs. In chapter 9, Michael Morris
reviews the impact of the policy reforms of the 1990s that were designed to scale down
the role of the state in seed production and marketing. In many countries, these reforms
led to the withdrawal of public organizations from many seed production and
distribution activities, while the relaxation of restrictions on entry into the seed
industry and the lifting of controls on international germplasm flows opened the door
to increased private-sector participation.
The gradual privatization of many national maize seed industries has led to large
changes in the types of cultivars available in the market: Whereas the public seed
agencies used to offer a wide range of germplasm types, including both improved open
pollinated varieties and hybrids, the private seed companies sell almost exclusively
hybrids in which they effectively have a technical protection over their intellectual
property rights. In addition, economies of scale in seed research and distribution, and a
growing concentration of seed trading in large supply chains following a series of
vertical integrations, further increased the share of the large seed companies,
particularly the multinationals, and gave many of them a monopolistic power that they
use to raise seed prices; as a result, the seed-to-grain price ratios for popular maize
hybrids have more than tripled during the 1990s, and the small subsistence farmers
find it increasingly difficult to buy these seeds. In addition, the changes in the seed
markets allow the large seed companies to gain control over strategic technologies and
“lock up” these technologies by using patents and other forms of intellectual property
protection, thereby effectively denying access to seed wholesalers and retailers that
sell to the small-scale farmers in developing countries, since they have only a small
share of the market. However, the growing share of the private sector increased very
significantly investments in seed research and brought about considerable
improvements that included many genetic modifications.
In India, the opening up of the local seed market had a very different impact than
in the countries of sub-Saharan Africa, largely due to the strength of the Indian private
sector, both in trade and in research. With the liberalization of trade and the opening up
of the local seed market, the state seed corporations commercialized many of their
operations, private investments in seed production and in research rose sharply, and
the competitiveness of the private seed producers increased and improved. In the
absence of a strict enforcement of intellectual property rights, however, the research of
the local private seed companies concentrates on hybrid seeds and only few crops.
P.V. Srinivasan and Shikha Jha, who describe these developments, argue that stronger
enforcement of intellectual property rights and Plant Breeders’ Rights (PBR)
legislation could promote considerably larger investments in research by local private
companies as well as by foreign multinational companies.
*
16
Part IV focuses more specifically on the necessary changes in the role and mode of
operation of public agricultural research. All the country-review chapters in the book
include an assessment of the implications for public agricultural research, and they
highlight several common characteristics as well as significant differences between
countries. The main difference is due to large variations in the capacity of the private
sector, particularly the private seed companies, to assume some of the functions of the
semipublic marketing boards and the public agricultural research organizations. In a
country where the market system is relatively efficient and competitive, and where the
local private companies or the multinational corporations can perform at least part of
the research activities currently conducted by the public research organizations, the
NARO need not be directly involved in all research activities, although it can still
influence the research priorities through proper indirect measures. Even research that
does not have a significant commercial value and results in an output that is essentially
a public good can, in principle, be funded by the public sector, but carried out by
private research companies.
In developing countries where the private sector still lacks this capacity, the
NARO must remain actively involved also in research and development (R&D),
although it must adjust its operations and research priorities according to the changes
spurred by the reforms and the resulting adjustments in agricultural production.
Moreover, in many countries, the weakness of the market system, the narrow base of
the private sector, and the difficulties of the adjustments may require the public sector
to assume additional roles and responsibilities that, in other countries, are taken on by
the private sector. Particularly the difficulties that farmers face as they struggle to
adjust their farming systems and adopt new crops and technologies may require the
NAROs to perform additional activities that are not strictly in the domain of R&D.
The main reason for adding other tasks to the NARO’s responsibilities is that the
adoption of new crops does not merely involve the choice of a new technology, but a
far more complex decision on the marketing and profit prospects of the alternative
crops that farmers can select. The NARO and the local extension services may be in the
best position to assist farmers in making that decision, but this will require them to
provide information to farmers not only on the technological aspects, but also on price
and marketing prospects. On the one hand, the main activities that this task requires—
namely, the development of suitable technologies that will facilitate the adoption of
new crops and the dissemination of these technologies in the rural areas— complement
the current activities of the NARO. On the other hand, the additional activities that are
required, including the development of production practices in line with market
demand and food safety standards, will contribute also to improve the NARO’s current
operations. The NARO may also have a pivotal role in strengthening the other
segments of the trading system that are necessary to enable farmers to market their
produce either to the local market or abroad.
Chapter 11 evaluates how the role and mode of operation of public agricultural
research in a group of sub-Saharan African countries is changing in response to the
adjustments in the agricultural sector. This evaluation is based, in part, on a survey
conducted among 105 NAROs in 14 sub-Saharan African countries and 19 developing
countries in other regions. (The results presented in this chapter are based on another
Introduction and Overview 17
section of the survey that is reported in chapter 6.) The survey inquired about the
changes in the research priorities of the NARIs, their cooperation with other national
and regional public research institutes as well as with private companies, and the
impact of the changing rules concerning IPRs on their mode of operations.
The NAROs have to make changes in order to better support the transition of the
agricultural sector from a supply-oriented structure of production, based on traditional
export crops and staple foods for domestic consumption produced behind high walls of
tariffs, to a demand-oriented structure, open markets, and specialization in production
in line with the country’s comparative advantage and the demand conditions in the
domestic and global markets. The new research agenda of the NARIs should enable
local producers to generate higher income from their production and to adjust their
production to the market demands and the food safety and quality standards required
for trade. Agricultural research and extension is the key to this transition, which
requires the development of suitable crop varieties and production technologies and
their dissemination in rural areas; in many countries, it may also require the
development of agroindustries in order to increase the domestic value added of food
exports, and the NARO can also play an important role in assisting these industries.
The survey indicates, however, that the majority of the NAROs in sub-Saharan
Africa have so far made very few changes in their research priorities, although they are
fully aware of the demands of the emerging global market system; moreover, deep cuts
in their research budgets restrict their capacity to develop new research areas, and the
lion’s share of their current research is still focused on staple food crops and traditional
export commodities. In the early 21st century, the continent thus remains highly
dependent on the production and export of primary commodities that lost much of their
value during the 1990s, and only few large farmers have managed to adjust their
production and diversify their exports in line with the changes in the global markets.
For Kenya, the review in chapter 5 evaluates the impact of the internal policy
reforms on the mode of operation of the Kenyan Agricultural Research Institute
(KARI). The steep price changes of all agricultural inputs and outputs that were part of
the reforms forced farmers to change the share of different crops in their farming
system and their use of inputs. Maize production declined precipitously with the fall in
maize prices, while the production of cash crops increased, although rather slowly
because farmers remained very cautious and tended to avoid large investments as long
as government policies remained precarious. At the same time, the rapid increase in the
share of private traders in the sale of seeds after the liberalization of the input markets
was often detrimental to farmers, because the absence of proper controls and
supervising institutions led to large sales of low-quality seeds; moreover, the sharp rise
in the prices of all fertilizers forced farmers to restrict or even give up the use of
fertilizers.
KARI was slow to respond to these pressures, but gradually devoted more
resources to research on integrated nutrient management strategies that farmers could
use in order to adjust their production patterns. Only toward the end of the 1990s, the
realization that the problems of the agricultural sector in Kenya are not due to any
biophysical limitations, but rather to economic constraints that were imposed by the
policy reforms, brought KARI to devote more resources to research on the impact of
18
policy and institutional changes on the agricultural sector and the necessary
adjustments in agricultural research. In the absence of viable private research
companies or significant investments of the multinational companies in local
agricultural research in Kenya, KARI must still assume the leading role not only in
conducting research, but also in initiating new research projects that can identify the
impact of policy reforms on the needs of farmers in different regions and how best to
address these needs.
For India, chapter 3 describes a very different experience that shows that the
growing significance of private companies in agricultural trade and research can give
the private sector a much greater role. The authors emphasize, however, that the public
sector must continue to assume a leading role in agricultural research in areas where
research has positive externalities and high social benefits. One example is the
development of genetic material for marginal lands and remote areas, where the profits
potential are low and the main goal is poverty reduction. Another example is the role of
public research in the development of technologies to sustain the environment,
particularly in areas where it was damaged by the crop practices of the Green
Revolution. Nevertheless, the authors stress the need to change the priorities of public
research so that it can focus on the needs of disadvantaged regions, on crops grown
primarily by small landholders, and on natural resource management; in all these
areas, the commercial prospects of research are limited and the public sector must take
measures to secure them a place on the priority list, although the research itself can be
subcontracted to private research companies.
Chapter 12 surveys the challenges facing three CIS countries in the Caucasus,
Armenia, Azerbaijan, and Georgia. Larry Zuidema emphasizes in this survey that
even today economic power in these countries is still highly centralized and their
governments exert firm control over the economy. Nevertheless, the privatization of
many state farms, the collapse of trade relations among the ex-Soviet Union countries,
the large changes in all prices with the removal of state subsidies, and the
disintegration of the traditional markets forced also far-reaching changes in the
agricultural sector. A growing share of agricultural production is now carried out in
family farms, but many of these farms lack the machinery needed for efficient
production at this small scale, and their yields are extremely low. In addition, the
production of many crops that were highly protected and highly subsidized under the
Soviet system had to be discontinued, and the markets for many agricultural
commodities that were previously imported from or exported to neighboring Soviet
countries were effectively closed.
The agricultural research systems had to undergo equally dramatic changes,
particularly since the “division of labor” between the NARIs was previously
determined according to the needs of the entire Soviet production system rather than
the needs of each individual country; as a result, the NARIs in some countries
conducted research on crops that were not even produced in that country. So far,
however, the changes in the national agricultural research systems have been
inadequate; the NAROs in the three Caucasus countries reviewed in this chapter failed
to reorganize their activities and create viable agricultural research institutes. The
NAROs continue to command considerable human and physical resources and highly
Introduction and Overview 19
qualified scientists, but their financial resources are extremely limited and most of the
research activities came to a halt. As a result, the NAROs are not able to conduct the
research and provide the extension services that are desperately needed in order to
enable the agricultural producers—at the family farms and at the remaining state
farms—to start making the necessary adjustments in their production systems.
The changes in the mode of operation of the public agricultural research systems in
the Caribbean countries were also far too slow and insufficient. In chapters 14 and
15, Compton L. Paul and Jorge Ardila Vasquez offer different perspectives of these
changes against the background of the policy reforms that these countries
implemented and the changes in their external trade relations resulting from the
evolving multilateral trade agreements. After the debt crisis of the 1980s, the
Caribbean countries gradually abandoned the strategy of import substitution and
embarked on an export-led and outward-looking growth strategy with stronger links to
the global market. The government reduced its direct involvement in the economy,
substantially diminishing the size of public enterprises and institutions, and assisted
the private sector by promoting investments and production activities in line with each
country’s comparative advantage and priorities. Trade liberalization and drastic
reductions in the level of protection on agricultural products brought in a flood of
cheap imports of rice, beans, some vegetables, wheat, and maize from the US and
Canada that forced many local farmers out of production, since they were still using
obsolete production methods and had very low yields. Trade liberalization thus
initially resulted in a sharp increase in the imports of many food products, and a sharp
reduction in farmers’ income. Gradual and very slow adjustments of local producers to
nontraditional crops eventually increased the production and exports of exotic tropical
fruits, vegetables, soybeans, meat, roots, and cut flowers, particularly for niche
markets in North America and Europe, thus allowing farmers to raise their income by
taking advantage of the trading opportunities in the local and regional markets.
Both authors emphasize that agricultural research in the Caribbean has a key role
in ensuring that farmers will be able to select the most suitable new crops and the most
suitable technologies. Toward that end, the NAROs must adapt these technologies to
the local agroclimatic and socioeconomic conditions and secure that the new crops
meet the food safety standards in the main importing countries; the local extension
services can be particularly instrumental in helping farmers, especially small-scale
farmers, to make the right choices and adopt suitable crops. The small-scale farmers
will therefore need public assistance in three directions to make the transition:
< First, many small farmers will need resources to make the initial investments when
they adopt new crops.
< Second, farmers will need the guidance of the NAROs and instructions by the
extension services which crops to select and how to grow them so that they meet
the standards.
< Third, farmers will not be able to market their products unless a functioning supply
chain from the rural areas to the markets is in place.
The pertinent government ministries and public institutions may have to provide
support or even establish this chain by helping farmers to form cooperative
20
organizations in order to collect and sell their products and by helping the local traders
to set up an effective procurement and delivery system. This support is essential since
the commercial prospects of new crops depend on whether they can reach the market,
and that, in turn, depends not only on the quality of the access road and the distance to
the urban center, but also on the organization of the entire supply chain, namely the
organization of procurement, transport, storage, processing, and delivery of the
products; yet, in many rural areas, these chains are still very rudimentary and
inadequate. The capacity of public institutions to provide this support proved
extremely limited, however, in part due to their resource constraints, but primarily due
to the lack of coordination between the institutes and the absence of clear long-term
policies to guide them.
For the countries in sub-Saharan Africa, the Caribbean and the Caucasus that did not
achieve higher growth, even though high social costs were exacted, and for the regions
and population groups that were left behind or even impoverished, globalization
turned out to be an elusive promise. The poor in these countries concentrate in rural
areas, and the crux of their poverty problem is the diminishing capacity of the
agricultural sector in its present structure to secure enough food supply and adequate
incomes. Structural adjustments are therefore necessary to increase that capacity and
provide alternative and more rewarding sources of income to the rural population.
Trade liberalization and other policy reforms aimed at opening up these countries to
trade are vital ingredients of these adjustments, and the prospects for deepening global
trade relations with a new trade agreement on agricultural commodities can further
increase that capacity of the agricultural sector and offer the rural population new
opportunities and more rewarding alternatives both in production and in consumption.
These policy reforms require, however, far-reaching changes not only in the
organization of production and trade, but also in the structure and mode of operation of
the relevant public institutions that take part in the implementation of the reforms. The
entire process, while the economy is undergoing this transition, is bound to take time,
and during that transition certain economic sectors, geographical areas, and population
groups may become considerably worse off.
The existing markets in these countries are far too fragmented, and the
organization of production and trade far too rudimentary and inefficient to be able to
restructure production and streamline markets as smoothly as envisaged by the
reforms. As a result, the set of policy reforms advanced by the “Washington
Consensus,” which were described somewhat schematically as “Liberalize as much as
you can, privatize as fast as you can, and be tough in monetary and fiscal matters,”4
failed to achieve its goals. The experience of those countries and regions that were
unable to benefit from globalization makes clear that, while free market fundamentals
and less government intervention in the economy are the basic tenets of the reforms,
the sequence and pace at which they are introduced will have to be constrained by the
4. See G. Kolodko. 1998. Transition. World Bank Development Economic Research Group newsletter.
Introduction and Overview 21
5. J. Stiglitz. 1999. The World Bank at the Millennium. Economic Journal. F577-97. See also J. Stiglitz.
1999. Whither Reforms? Ten Years of Transition. In The World Bank Annual Conference on
Development Economics, edited by Boris Plesovic and Joseph E. Stiglitz. Washington, DC: World
Bank.
6. In the context of financial deregulation, Stiglitz wrote: “…the IMF preached the gospel of rapid
deregulation around the world, to countries far less able to withstand its negative consequences.”
(Atlantic Monthly, October 2001)
22
weak private sector and embryonic market institutions and countries with a much more
developed market system and the necessary legal institutions to monitor its operations.
For this reason, the privatization of public seed companies, for example, would be
much more effective in India than in Zambia. Nevertheless, in both countries the first
wave of reforms included the privatization of the public seed companies, with the
result that in Zambia the company rapidly gained a monopolistic power that it used to
raise prices and restrict most of its sales to the larger farmers.
Measures to alleviate the social costs of the transition should include a thorough
evaluation of the impact of the reforms on the various economic sectors, geographical
regions, and population groups, and a design of specific measures to reduce the
negative effects in the most sensitive areas. Even the planning of trade liberalization
should include not only an evaluation of the longer-term effects, but also of the social
costs during the transition period. The adverse effects of the reforms may undermine
the entire adjustment process, both by prolonging the transition period and by raising
social unrest that can destabilize the adjustment process, as indeed happened in many
countries from Indonesia to Peru.
The planning of social safety nets to alleviate the costs of the transition should
begin with a careful assessment of the immediate impact of the reforms on the prices of
key agricultural inputs and outputs, and use these assessments to estimate the impact of
these price changes on the production costs of key crops and on the income of the
farmers who grow these crops. By identifying the geographical areas in which these
crops are grown and their shares in the farming systems of the main agricultural
producers, it is possible to identify the population groups that are likely to be most
adversely affected, and to estimate the likely reduction in their incomes.
The book pays special attention to the role and potential contribution of the NAROs to
facilitate the transition in the agricultural sector and assist the population groups that
are likely to be affected most adversely. In many countries and geographical areas, that
transition requires farmers to diversify their production and adopt new technologies;
these decisions depend not only on information on prices and market conditions, but
also on thorough knowledge and experience how to evaluate the different alternatives
and how to draw appropriate conclusions. In the more developed countries, market
forces take up these tasks and provide this guidance rapidly and effectively through the
price system. In developing countries, where markets are often inefficient and
dominated by monopolistic forces, most farmers, particularly the small-scale farmers,
do not have that knowledge and experience, and the NARO can step in and either
provide these services directly through its economic research units and its extension
service, or assist local private traders and marketing boards in developing that
capacity.
The selection of new crops and new technologies must be based first and foremost
on their profitability and marketability; the success of that selection must be measured
by the extent to which it raises farmers’ income. The key to that success is therefore an
appropriate selection of crops, the availability and affordability of the necessary
Introduction and Overview 23
production inputs and technologies, and access to markets. To enable farmers to make
these choices and to cope until they start to bear fruit, the NAROs will also have to put
much greater emphasis on economic considerations in selecting their own research
projects and in disseminating new technologies. In addition, if the local markets are not
sufficiently efficient, the NAROs will also have to ensure that farmers have timely
information on prices and market conditions, as well as knowledge and experience in
evaluating the profit and marketing potential of different crops.
To that end, the NAROs may have to take on additional tasks and activities beyond
those traditionally included under the generic definition of R&D, and they may also
have to adopt a different mode of operation to perform these tasks:
< First, the emphasis on the profitability and marketability of the alternative crops
require the NARO to give much greater weight to economic considerations in
selecting its own research projects and in disseminating new technologies.
< Second, the need to promote farm diversification and competitiveness, with an
emphasis on small farms, will require different research priorities and more
resources to conduct research on new and mostly nontraditional crops.
< Third, the commercial prospects of the new crops depend on the farmers’ ability to
deliver them to the market. That, in turn, depends not only on the quality of the
access road to the village and the distance to the urban center, but also on the
organization of the entire supply chain: the organization of procurement, transport,
storage, processing, and delivery of the products.
Presently, these supply chains in most developing countries are very rudimentary and
inadequate. To secure the commercial prospects of new crops, the NARO may
therefore have to take an active part in the development of these supply chains,
particularly to remote areas. These new tasks will require the NARO to change its
guiding principles, as suggested in the following table:
Although the basic policy decisions regarding the reforms will always remain with
central authorities, their implementation “on the ground” should be carried out by
those public institutions and organizations that are most directly related to the affected
populations. These institutions are best qualified to provide feedback to the central
authorities on any desirable modifications in the reforms that can facilitate their
implementation, as well as “feed forward” information to the affected sectors and
population groups that can reduce their difficulties as they implement the reforms. In
the aftermath of the policy reforms that drive the country’s structural adjustment to the
global economy and are related to the agricultural sector, farmers face considerable
24
difficulties during the transition to a new mode of operation, new technologies, and a
new market structure. They may therefore need assistance to be able to cope, and this
assistance should come not only in the form of social safety nets, but also in the form of
direct measures to guide the farmers as they make the adjustments in their farming
system and in their marketing, and the NARO is the public institution that is best
qualified to give farmers that guidance.
The actual “division of labor” between the various public and semi-public
institutions that operate in the rural areas will have to be determined by the specific
conditions in each country and the relative strength of these institutions; the tasks of
the NAROs are therefore likely to be different in different countries. Designing these
tasks so that they are built less on a generic blueprint and tailored more to the specific
needs and constraints of individual countries, sectors, and population groups, while
taking into consideration the strength of the existing social and political institutions,
should be the central task of the national and international public agricultural research
organizations in the coming decade. Performing this task competently can be pivotal in
helping the developing countries to achieve less serendipitous and more consistently
positive outcomes as they adjust to the global economy.
Chapter 1
The Pros and Cons of Globalization for
Developing Countries
A Review of the Theoretical Issues and the Empirical Debate
David Bigman*
Introduction
Despite the highly favorable views that most researchers in the academic community
and in the international development organizations hold on the globalization process
and its impact on developing countries, and notwithstanding the strong support of the
empirical evidence of the benefits that many developing countries have derived from
their integration with the global economy, the backlash against globalization continues
unabated. An online debate on “Globalization and Poverty” organized by the World
Bank Development Forum in mid-2000 echoed the loud and often very aggressive
protests against globalization that erupted in Seattle, Washington, and Prague; nearly
all the participants in the debate emphasized the very negative impact of the
globalization process on the distribution of income and wealth between and within
countries:
Many participants also noted that the market is by no means the panacea for the central
problems that the majority of the population in developing countries is facing:
“With the opening of our market, our country has become a supermarket of
foreign goods, which are cheaper, killing our local industries, rendering
27
28 Chapter 1
many more jobless. The disparity between the rich and the poor has
widened, and although some may have benefited from the effect of
liberalized economy, the majority continue to languish in poverty.”
The opposition against globalization unifies labor organizations that protest against
the flight of jobs “South of the border,” human-rights groups opposed to sweat shops
thriving on child labor, environmentalists concerned about the damage to the global
habitat, and radicals suspicious of the clout of multinational corporations that are
perceived as the all-powerful agents of capitalism. The IMF, the World Bank, and the
WTO, and, more generally, the high-income countries, are held responsible for
influencing and largely determining the course of the globalization process. They are
also seen as the driving forces behind the policy reforms that the developing countries
had to implement as part of their structural adjustment programs under the stewardship
of the IMF, the World Bank, and the WTO. However, while many passionate
opponents of globalization view these reforms as unacceptable dictates, the reforms
had actually quite positive effects on the economies of most developing countries. In
East Asia, most countries experienced unparalleled rates of economic growth during
the past two decades; as a consequence, a large portion of their poor population was
lifted out of poverty. Despite the crisis of 1997–98, which exposed serious weaknesses
in their financial, social, and political systems, as well as in their institutions of
governance, most East Asian countries embarked on a course of comprehensive
reforms to deal with the crisis, and they have entered the 21st century with renewed
drive.
In contrast, most countries of sub-Saharan Africa, and quite a few countries in
South Asia, Latin America, and the Caribbean, did not benefit from the globalization
process, and, despite a series of structural adjustments, these countries are burdened
with much the same structural problems that plagued their economies in the previous
century, but which now aggravated by heavy debts and the AIDS epidemic. It has been
generally agreed that the benefits brought about by the global trading system under
GATT and the WTO have so far been distributed very unevenly between and within
nations. The rich industrial countries have reaped large gains from increased trade and
faster growth, whereas most poor nations have actually become worse off and their
economies shrank during the past decade. As a result, the gap between the nations with
the poorest 20% of the world’s population (in terms of per capita income) and the
nations with the 20% most affluent population has nearly doubled in the past two
decades, and many developing countries have been marginalized and practically cut
off from the mainstream of the global economy.
These contrasting experiences and the growing global income inequality are
reflected in the heated debate and the diametrically opposed views on globalization.
On the one side of the debate are the various protest groups that underscore the failed
experience of many sub-Saharan African and South Asian countries and the
widespread perception that globalization is detrimental to the poor even in countries
where it has had a positive impact on the economy at large. On the opposite side of the
debate is the majority of the economists who, backed by the supporting empirical
evidence on the gains from free trade, adhere to the neoclassical maxim that highlights
The Pros and Cons of Globalization for Developing Countries 29
the potential gains from trade and trade liberalization. The theoretical tenets emphasize
that, with trade liberalization, resources are allocated more efficiently to productive
uses, and low-income countries with an abundance of unskilled labor and significantly
lower labor costs can expand output and employment in labor-intensive industries,
thus accelerating their growth.1 The poor also stand to benefit from this growth, and
trade liberalization is therefore also good for the poor. These benefits are highlighted
in several World Bank research papers that concluded that “growth is good for the
poor” (Dollar and Kraay 2000a) and that “In general, the more rapid growth that
developing countries experience as they integrate with the global economy translates
into poverty reduction” (Dollar 2001).
The positive effects of globalization on productivity are also thanks to the transfer
of advanced technologies and to the opportunities that developing countries can obtain
from the flow of FDI. Another World Bank paper that focused on the impact of the
rising tide of FDI during the 1990s concluded that the flow of FDI was central to the
more rapid growth that many developing countries achieved, and this growth also
contributed to financing many government-led distribution programs that provided
direct assistance to the poor and improved the social safety nets (Klein and
Hadjimichael 2000).
Even ardent proponents of globalization agree, however, that the benefits from
free trade and trade liberalization can be realized only after a transition period during
which the country’s institutions of governance and its legal system will have to be
restructured, many public enterprises be privatized or dismantled and the market
system be strengthened. Given the transformation that most segments of the economy
and most institution of governance will have to undergo, this transition may take much
longer than expected and the process may sometimes be reversed under political
pressures. In Indonesia and the Philippines, for example, it is not clear whether the
critical part of the transition was completed in the early 1990s with the expansion of
export-oriented production, or whether it still continues through the first decade of 21st
century, as the reforms reach the political institutions. Has China completed its
transition period with the economic reforms it implemented as it joined the WTO, or
has it just begun?
These questions are also echoed in what has become known as the debate over the
“post-Washington consensus,” which acknowledges the fragility of prescriptive
policy packages of the form “liberalize trade and set the price right” and the likelihood
that these “prescriptions” will fail in countries that lack proper institutions of
governance and have only a rudimentary market system. In the on-line debate on
“Globalization and Poverty” quoted earlier, many participants reflected these views
when they argued that the benefits from market deregulation and trade liberalization
are not likely to trickle down to the poor because, in the words of one of the
participants, “the main cause of poverty is the market, not market failure,” since
“markets fail to address strategic interests like food security.” Other participants noted
that often their countries’ own institutions “prevent a flowering market-based
1. See, for example, the World Bank’s World Development Report 1999, p. 52, for a summary of these
benefits.
30 Chapter 1
bias of their policies in favor of consumers and against producers; another factor is the
bias in their trade policies against agriculture and in favor of industrialization. These
issues are discussed in section III, which focuses on the agricultural sector and on the
trade and development policies that affected the rural population. The section
underscores the difficulties that the rural population had to face during and as an effect
of the structural adjustment programs (SAPs) and the reforms to liberalize trade. The
chapter concludes with remarks that discuss some central considerations for the
formulation of development policies.
Africa, the pace of industrialization was too slow to absorb the flow of rural migrants,
often because production in the modern sector, especially manufacturing of import
substitutes, was highly capital intensive and did not provide enough employment.
Despite the diminishing prospects of rural migrants to find employment in urban areas,
migration from rural areas continued due to rapid population growth and dwindling
land resources, thus leading to higher poverty also in the urban areas.
Disillusion with the trickle-down effects of growth shifted the emphasis to a
strategy that deals simultaneously with economic growth and poverty. The then World
Bank’s President, Robert McNamara, expressed this shift by stating that “[g]rowth, as
such, can be considered a necessary but not sufficient target of development strategy.”
In 1974, the Bank issued a document titled Redistribution with Growth that extended
the goals of its development strategy by seeking to influence both the rate and the
patterns of growth in order to reach the poor. The document advocated “policy
packages” consisting of a wide range of measures that included promoting
employment of unskilled labor, developing new technologies to make low-income
workers more productive, targeting investments on “pockets of poverty,” allocating
more resources to the education of the poor, and providing for the basic needs of the
poor, particularly food and health care, from public sources. Redistribution with
Growth insisted that “poverty-focused planning does not imply abandonment of
growth as an objective. It implies, instead, a redistribution of the benefits of growth.”
(p. xviii). The 1980 World Development Report echoed this theme and made the case
for a more concerted effort to secure the basic needs of the poor and argued for targeted
investments in human development and technologies suitable for the poor primarily in
rural areas.
During the almost three decades since the publication of Redistribution with
Growth, these strategies continued to evolve with the accumulation of more
experience and data from a growing number of countries, and with the deepening
understanding of the economic and political processes in developing countries. The
1980s brought two diametrically opposed experiences. At the one extreme was the
failed experience of many countries in Latin America and the Caribbean and
sub-Saharan Africa with highly interventionist policies and large public spending that
led to high public debts, massive macroeconomic imbalances, stagnation, and growing
poverty. The debt crisis propelled the IMF and the World Bank to enter stage and give
rise to policy-based lending: loans disbursed in exchange for policy reforms aimed at
correcting macroeconomic imbalances and boosting productivity through structural
reforms. At the other extreme was the very successful experience of the East Asian
countries with rapid industrialization, high growth rates and a steep reduction in
poverty. The accelerated growth of their modern sector, led by labor-intensive
production for exports, brought about a gradual reduction in their unemployment and a
rise in incomes in their urban and rural areas that led, in turn, to a steep reduction in
poverty. Moreover, improving skills of the labor force enabled these newly
industrialized countries to gradually move to higher, more advanced levels of
industrial production and to products and production technologies that are more
capital- and more skilled-labor intensive. Although growth was accompanied in some
countries by rising income inequalities, it “lifted all boats” and steeply reduced
The Pros and Cons of Globalization for Developing Countries 33
poverty. The sharp differences between these experiences underscored the limitations
and potentially undesirable effects of proactive redistribution policies. Against this
background, the debate over the pros and cons of alternative growth strategies acquired
another dimension with the renewal of old debates over the proper balance between
measures to promote growth and measures to reduce income inequality and poverty,
and over the desirability of government intervention in the economy even if this meant
curtailing the free market and reducing efficiency.
During the 1980s, the reforms focused on “structural adjustment programs” under
which governments had to make firm commitments to economic restructuring that
focused on trade liberalization, tax reform, realistic exchange rates, liberalization of
capital markets and privatization in exchange for support by the World Bank and the
IMF. In the early 1990s, the East Asia “miracle” highlighted the significance of
market-oriented structural adjustments. The World Bank’s 1990 World Development
Report advocated a new strategy to combat poverty based on more effective market
incentives and better social and political institutions, infrastructure, and technology on
the one hand, and on direct measures of governments to provide social services such as
primary health care and education on the other hand. This two-pronged approach was
based on more open markets and large-scale privatization accompanied by greater
government activism in the provision of public goods in health, education and
infrastructure. The 1990 World Development Report on Poverty concluded that “[t]he
evidence in this report suggests that rapid and politically sustainable progress on
poverty has been achieved by pursuing a strategy that has two equally important
elements. The first element is to promote the productive use of the poor’s most
abundant asset—labor. It calls for policies that harness market incentives, social and
political institutions, infrastructure, and technology to that end. The second is to
provide basic social services to the poor” (p. 3). Specifically, the poverty reduction
strategy recommended in the report had three main components:
1. Promoting broad-based growth that makes intensive use of labor in order to
increase the productivity of the poor and the economic opportunities available to
them.
2. Ensuring the access of the poor to good quality basic social services in order to
enable them to take advantage of economic opportunities.
3. Providing social safety nets for the most vulnerable members of society.
The 1990 World Development Report recommended a growth strategy that includes
investments in industries and production technologies that can absorb surplus labor as
well as investments in human capital to allow the poor to take advantage and reap the
benefits of new technologies. The World Bank’s Poverty Reduction Handbook of 1993
and Adjustment in Africa of 1994 echoed the message of the 1990 World Development
Report by emphasizing the importance of an outward-oriented strategy and export-led
growth. The Handbook emphasized the need to promote trade and exploit the
comparative advantage of developing countries in products and production processes
that are labor-intensive; in contrast, tariffs and other restrictions on trade are likely to
inhibit growth and increase unemployment and poverty by giving incentives to
capital-intensive production of import substitutes. A study conducted by the World
34 Chapter 1
Bank’s Office of Executive Directors in 1995 titled The Social Impact of Adjustment
Operations emphasized that growth is the most significant process affecting poverty
and that a consistent implementation of sound macroeconomic policies is essential for
promoting sustainable growth. A subsequent study titled Social Dimension of
Adjustment, conducted by the Bank’s independent Operations Evaluation Department
in 1996, concluded that “good macro-economic policies and measures, combined with
relevant sectoral policies and appropriate public expenditure allocation, provide a
favorable environment for … sustained growth and poverty reduction.” The study
found, however, that in most countries, the actual reduction in poverty was quite small
and high levels of income inequality and poverty persisted.
Addressing the controversy over the seeming “trade-off” between growth and
equality, Bruno (1995) noted that, although direct action on health, education, and
nutrition can improve the quality of life for the poor, growth is the only strategy that
can secure a sustained reduction in poverty and provide the resources that are
necessary for any direct action to reach the poor. The 1995 World Development Report
reiterated the conclusion that “open trading relations [and] domestic policies that
promote labor-demanding growth” are central to equitable growth. The World Bank
and the IMF therefore relentlessly pushed developing countries in the direction of the
WTO “system.” However, the Bank’s 1995 report also noted that growth may augment
income inequalities and that
“[s]ome groups of relatively poor workers have experienced large gains in the past
thirty years—especially in Asia. But there is no worldwide convergence between
rich and poor workers. Indeed, there are risks that workers in poorer countries will
fall further behind, as low investment and educational attainment widen
disparities. Some workers, especially in sub-Saharan Africa, could be increasingly
marginalized. And those left out of the general prosperity in countries that are
enjoying growth could suffer permanent losses, setting in motion intergenerational
cycles of neglect” (p. 21).
These considerations led to the argument that in these countries the government must
take active measures to secure the livelihood of the poor, even if these measures may
restrict the free market and diminish the country’s growth prospects. The counter-
argument asserted that, by reducing the country’s rate of growth, the government
might in fact defeat the long-term goal of reducing poverty.
During the past decade, it has been increasingly recognized, however, that a
successful implementation of policy reforms depends on the country’s institutions of
governance, and that the weakness of the institutions in the majority of the developing
countries was the principal obstacle for the success of their structural adjustment
programs. In the East Asian countries, weak institutions contributed to the 1997–98
financial crisis; in many countries in Latin America and the Caribbean, the weakness
of institutions contributed to aggravate the impact of the global crisis on their
economies, and in nearly all the countries in sub-Saharan Africa, weak institutions
were not only the main obstacle to the implementation of the reforms, but also the main
reason for the continuous political and social unrest. It has been realized that, in all
The Pros and Cons of Globalization for Developing Countries 35
conditions, and to identify the critical areas on which its economic policy should focus.
Recommendations to “promote labor-intensive growth and open trade” (World
Development Report 1990), or to “promote opportunity, facilitate empowerment, and
enhance security” (World Development Report 2000), may fail to recognize
country-specific needs and differences in the underlying conditions.
Thus, while in most East Asian countries growth proved to be the most effective
strategy for reducing poverty, many Latin American and Caribbean countries
experienced a much smaller reduction in poverty with growth. Their greater sensitivity
to the needs of the poor made it necessary to accompany the pro-growth policies with
additional measures to ensure a more equal distribution of the growing national
income. The experience in a considerable number of sub-Saharan African countries
showed that for them, administrative restrictions on exchange and interest rates, or
even on the government budget, proved to be quite useless, since these countries lack
the necessary institutions and the rule of law to ensure the proper implementation of
these policies. In these countries, the main focus of policy reforms at the early stages of
development should therefore be on measures to strengthen the institutions of
government and the rule of law. Indeed, one lesson of the East Asian crisis is that even
in the relatively more advanced developing countries, economic policy must place
much greater emphasis on institution building, strengthening the rule of law, fighting
corruption, etc. The second lesson is that a country’s growth is function not only of its
endowments of labor, capital, and natural resources, but also of the strength of its
public and private institutions and its legal and political systems.
supplies in urban areas that reflected the large bias in government expenditures (Lipton
1977; Larson and Mundlak 1997). In many developing countries, industrial growth
remained, however, quite slow and capital intensive despite the large supply of labor,
and the bulk of new jobs in urban areas were not created in the modern sector, but in the
informal, traditional urban sector that includes basic manufacturing and small-scale
commerce and services, where production is highly labor-intensive and earnings are
low (Berry 1989).
In many East Asian and some Latin American countries, in contrast, rapid growth
of labor-intensive and export-oriented industries led to a gradual reduction in
unemployment, a rise in real wages, and a reduction in poverty in both urban and rural
areas. In Korea, Adelman and Robinson (1978) concluded “the strategy of
labor-intensive, export-led growth … produced significantly higher incomes for the
poorer half of the population and a far more equal relative distribution” (p. 127). In
Indonesia, Thailand, and Malaysia, the industrial growth led to an annual rise of over
2% in the real incomes of the rural population. Accumulation of both physical and
human capita enabled the East Asian countries to move to higher, more advanced
levels of industrial production, and to products and production technologies that are
more capital-intensive and require more skilled labor.
Table 1.2 demonstrates the large differences between the rates of growth of
different countries during the past four decades. The economies of the sub-Saharan
African countries generally stagnated; in Latin America and the Caribbean, growth
rates were higher, but they varied widely between countries. In these two groups of
countries, many of the poor remained in rural areas and did not benefit much from the
growth in the urban sector. In the East Asian countries, in contrast, the rates of growth
in labor-intensive export industries were high enough to absorb the surplus labor
38 Chapter 1
despite the continued migration to urban areas; as a result, the rate of unemployment
declined, both urban wages and rural earnings increased and poverty declined.
Table 1.2 also highlights the reasons for the criticism of the labor surplus model,
because it fails to explain why in so many labor-abundant economies growth was very
slow and industrialization faltered, while in other countries growth was very rapid and
industrialization was highly successful. There is also criticism of the model’s failure to
explain the changes in income distribution that took place during the growth process:
many countries that experienced rather similar growth rates of the average per capita
GDP had wide differences in the changes in the level of poverty. In Mexico, the
Philippines, Nigeria, and few other countries, growth was accompanied by a rise in
income inequality to the extent that poverty actually increased.
A large number of empirical studies tested Kuznets’ hypothesis either in
cross-section studies of many developing countries or in time-series analysis of
individual countries. Many of these studies, particularly the ones that conducted a
cross-section analysis (Adelman and Morris 1973; Ahluwalia 1976; Chenery and
Syrquin 1975), tended to confirm Kuznets’ hypothesis, and thus strengthened the
inclination to adopt a development strategy that puts greater emphasis on
redistribution measures. Since the initial impact of growth is to increase income
inequalities, so the argument went, and since this effect can last for quite some time,
growth must be accompanied by active redistribution measures. Chenery (1971)
asserted that “growth that does not change the resource allocation in favor of the poor
constitutes growth with little development,” and recommended proactive
redistributive measures if economic growth does not bring about a significant
reduction in poverty.
During the 1990s, with the accumulation of more data on income distribution in a
large number of developing countries over a longer time period, several studies
examined again Kuznets’ hypothesis, but this time in a time series analysis (Bruno,
The Pros and Cons of Globalization for Developing Countries 39
Ravallion, and Squire 1995; Ravallion 1995; Ravallion and Chen 1996). These studies
concluded that, while the trends in income inequality with growth differ significantly
across countries, there is no evidence that growth has any discernible systematic
impact on inequality. In a sample of household surveys from a large number of
countries, Ravallion and Chen found that in only half of the cases growth was
associated with an increase in inequality. Bruno et al. emphasized that although there
are exceptions, as a rule, sustainable economic growth benefits all layers of society
roughly in proportion to their initial standard of living.
Based on the evidence of the last decades, there seems to be no credible support for
Kuznets’ hypothesis. These studies also confirmed that positive economic growth was
significantly associated with a falling incidence of poverty, and that economic
contraction was associated with a rising incidence of poverty. Bruno et al. calculated
with data of 20 countries over the period 1984–93 that a 10% increase in mean per
capita consumption led to an average 20% decline in the proportion of the population
living on less than $1 per day. Lipton and Ravallion (1995) calculated with the data of
eight developing countries that a distribution neutral growth at an annual rate of 2% in
mean per capita consumption would lead to a decline in the poverty gap of 3 to 8%.
These findings motivated a change in the approach to development strategy in the
mid-1990s in favor of a strategy that gives much greater weight to growth and
advocates re-distributive measures only in countries where there is clear evidence that
the growth process is narrowly based and leaves out large segments of the population.
In most countries, though, this approach emphasized the potentially undesirable
effects of re-distributive measures on economic incentives and efficiency. The debate
on these issues is far from over, and the more recent chapters in this debate are
discussed later on.
countries, rather than rising inequalities within countries. These seemingly conflicting
conclusions reflect primarily differences in the sample of countries and time periods
on which they draw and the small changes—up or down—that these analyses indicate.
The question examined in this section is whether the trends in global income inequality
indicated by these global measures indeed represent a tendency of global incomes to
converge, and whether they indicate that the globalization process has therefore been
inclusive, as several recent World Bank reports maintain (see e.g., Dollar 2001).
The analysis in this section is based on household survey data from a larger sample
of countries that includes also the ex-centrally planned countries, but it focuses only on
income inequalities between countries that represent only part, though a central part, of
the global income inequality. Nevertheless, the estimates of the trends in income
inequality between countries since 1960 are in agreement with the results of most of
the studies mentioned above. According to these estimates, the three main measures of
inequality indicated that there has been a decline in global income inequality during
the past two decades after a period of relative stability during the 1960s and 1970s.
This analysis also shows, however, that the global measures of inequality do not
provide an adequate representation of the widening gap between the richest and the
poorest countries.
During 1960–96, the world’s average GDP per capita increased by nearly 80% in
real terms, but growth rates varied widely between countries and regions: In SSA, the
annual average growth rate of GDP per capita was less than 1% during the past four
decades, and it actually declined in the past two decades, whereas in East Asia, the
average GDP per capita increased since 1980 at an annual rate of over 4.5% (Table 1.3
and Figure 1.1). This rapid economic growth of one group of developing countries and
the relative stagnation in the other group had two conflicting effects on the global
income distribution: On the one hand, the “Asian miracle” and the accelerated growth
of India and some Latin American countries during the 1990s closed the income gap
between these countries and the developed countries. On the other hand, the gap
between the average GDP per capita in the least developed countries, particularly in
Table 1.3. Trends in GDP Per Capita in Selected Regions 1960–96 (in PPP
Exchange Rates in 1985 Prices)
Region Number of Population GDP per capita (in USD$) Annual growth rate
countries* 1990 1960–96 1980–96
(millions)
4 1960-1980
2 1980-1996
1997-1998
0
.
an
a
ed
a
ld
si
Pl
si
EN
LA
op
or
A
-2
t.
SS
tA
en
W
h
el
M
ut
-C
ev
Ea
So
Ex
D
-4
Figure 1.1. Average annual growth rates of GDP per capita in main regional groups,
1960–98
Source: IMF
sub-Saharan Africa, and that in the developed countries has widened significantly. As
a consequence of these conflicting trends, global income inequality changed relatively
little during most of these years (depending on the measure) and the main impact was
on the relative position of countries on the global income ladder. What conclusions can
be drawn from these changes about the convergence of the global income distribution?
In 1960, the East Asian countries were at the bottom of the global income ladder
with an average GDP per capita that was some 20% lower than that of the sub-Saharan
African and South Asian countries; in 1998, the average GDP per capita in East Asia
was more than double the average GDP in sub-Saharan Africa. As a result, most East
Asian countries climbed to much higher levels on that ladder, while the sub-Saharan
countries fell to the bottom (Figure 1.2). In 1960, over 80% of the population in the
lower one-third of the global income distribution were in the East Asian countries; in
1998, 65% of the population in the lower one-third of the global income distribution
were in South Asia and 31% in sub-Saharan Africa. In 1960, less than 15% of the
population at the higher one-third of the global income distribution were from
developing countries; by 1998, their share had risen to 40% (Figure 1.3a and 1.3b).
Table 1.4 shows the changes in global income inequality during 1960–98, as
indicated by the three most common measures of income inequality: the Gini
coefficient, Theil’s measure, and the coefficient of variations (CV). All three measures
indicate that there were only minute changes in income inequality during the 1960s
and 1970s, but since 1980 and until 1998, the decline has been more noticeable. During
the 1990s, the decline in the measures of global income inequality was primarily due to
the rapid growth in China and India and the large share of these countries in the global
population. As a result, these two countries, along with most other East Asian
countries and some countries in Latin America and the Caribbean, moved to a higher
position on the global income ladder, whereas the countries in sub-Saharan Africa
dropped to the bottom. The relatively small changes in the three global measures do
not show, however, the changes in the relative position of countries on the global
income ladder, nor do they show the growing absolute gap between the richest and the
42 Chapter 1
350
300
1985 US Dollars
250
200
150
100
50
1960 1970 1980 1990 1996
Figure 1.2. Index of GDP per capita (PPP adjusted) by regions, 1960–96
poorest countries. The two other measures in Table 1.4 indicate that the gap between
the group of high-income developed countries and the group of sub-Saharan African
countries has increased by nearly 80% during these years, and the gap between the
most affluent country (the US) and the poorest country (indicated in the table by the
Max/Min Ratio) has increased by over 60%.
Several other observations are noteworthy:
1. During the 1980s and the 1990s, the share of the sub-Saharan African countries in
the lowest quintile of the global income distribution has nearly tripled from 11.8%
to 31.5%, while the share of the East Asian countries in the lowest quintile fell
sharply from 35.1 to 7.3% despite their growing population.
2. The share of the South Asian countries in the lowest one-third of the global income
distribution increased during the 1980s and 1990s despite the relatively more rapid
growth of India, and these countries now constitute more than two-thirds of the
lowest income group.
3. In the 1960s and 1970s, the share of the East Asian countries in the lowest income
group was more than three-quarters, but by 1996 this share had dropped to nearly
zero.
4. The share of the East Asian countries in the middle-income group rose from
around 10% in the 1960s and 1970s to around three-quarters by the end of the
1990s.
5. The share of the developed countries in the highest one-third of the global income
distribution declined from 64% in 1960 to 43% in 1996, but this was due to the
decline in their share in the global population.
The Pros and Cons of Globalization for Developing Countries 43
0,9
0,8
0,7
0,6
0,5 Low
0,4
Medium
0,3
0,2 High
0,1
0
South Asia East Asia SSA MENA LAC Ex-Centrally Developed
Planned
Figure 1.3a. The Share of Regions in the Three Income Groups: 1960
0,9
0,8
0,7
0,6 Low
0,5
0,4
Medium
0,3
0,2
0,1 High
0
South Asia East Asia SSA MENA LAC Ex-Centrally Developed
Planned
Figure 1.3b. The Share of Regions in the Three Income Groups: 1996
As a result of these changes, the gap between the average GDP per capita in the
developed countries and that in the sub-Saharan African countries has increased
sharply, while the gap between the developed countries and the East Asian countries
has narrowed by over 40%. During these years, the share of South Asia and
sub-Saharan Africa in the world’s population rose from 27% to 33.4%, while the share
of the developed countries dropped from 21% to 16%. As a result of all these changes,
the gap between the average GDP in the group of developing countries and the average
in the group of developed countries has changed by only 13%, and the measures of
income inequality within the group of developing countries have actually declined.
These changes do not reflect, however, a convergence of the global income
distribution, since the gap between the richest and the poorest countries, i.e., the height
of the income ladder, has increased significantly. Clearly, for the populations in the
countries in sub-Saharan Africa, in most of South Asia, and in Latin America and the
Caribbean, globalization was not inclusive, and the gap between their standard of
living and that of the developed countries is now wider than ever. For the population in
East Asia, India, and some Latin American countries, in contrast, globalization was
indeed inclusive, and they enjoyed a rapid increase in their standard of living both in
absolute and in relative terms. An attempt to draw a general conclusion from these
opposing trends and apply it for the “average” or the “representative” people in
developed and developing countries is a rather meaningless exercise in statistics.
Instead, the sharp difference between these opposing trends makes it necessary to draw
different conclusions for the group of countries that benefited from globalization and
for the group of countries that were left behind.
The critical question in this connection is whether the differences between these
two groups of countries reflect also the differences in their development strategies. In
other words, were the countries that reformed their economies able to gain from
globalization and managed to achieve unparalleled rates of economic growth and a
sharp reduction in poverty, and were the countries that failed to restructure their
economies unable to integrate themselves into the mainstream of the global economy
and, as a consequence, did they see their economies shrink and their number of poor
increase? A complete answer to this question would require a more thorough analysis,
but the reviews of the country experiences in this volume suggest that there is no such
clear correspondence. Quite a few countries, including several countries in
sub-Saharan Africa, made considerable efforts to reform their economies but were
unable to integrate into the global economy due to a host of other reasons.
Table 1.5 summarizes the trends in poverty in the main groups of developing
countries and in the world during the 1990s. These trends in the incidence of poverty
were reflected also in the changes in the rates of child mortality during the 1990s.
Whereas in most East Asian and South Asian countries there was a reduction in the rate
of child mortality during these years, in most sub-Saharan African countries this rate
increased. In nearly all Asian countries (Cambodia is one exception), child mortality
declined during the 1990. The steepest decline was in the East Asian countries: in
Indonesia the rate declined from 97 to 52, and in the Philippines it dropped from 68 to
47. In sub-Saharan Africa, in contrast, child mortality increased in most countries.
The Pros and Cons of Globalization for Developing Countries 45
The large differences between the patterns and rates of growth of different groups
of developing countries underscore the fact that lumping all the developing countries
together and conducting the analysis in terms of North vs South, or developed vs
developing countries is becoming increasingly misleading.
conditions for two reasons. First, the high mobility of capital has led to major changes
in factor endowments across countries, thereby continuously changing their
comparative advantage. Second, since there is little difference between primary
products and simple manufactured products in the intensity of “‘unskilled labor” in
their production, the only factors that distinguish the modern sector from the
traditional one are land and skilled labor. On these grounds, they concluded that
“[c]ountries that have a lot of land and low levels of education should concentrate on
opportunities for progress within the narrow primary category” (p. 1468). This,
however, is a static strategy that ignores the dynamic aspects of comparative advantage
and the potential to raise the levels of education and thereby acquire new technologies
and change the country’s specialization.
The more recent writings on the dynamic nature of a country’s comparative
advantage highlighted the following additional factors:
< The effects of investment in R&D that can change a developing country’s
comparative advantage by allowing it to produce and export high quality products.
(Okamoto and Woodland 1998);
< The impact of change in a country’s technological capabilities, and thus also in its
comparative advantage, due to higher skills of its labor force with better education
and training. (Pietrobelli 1997);
< The impact of demand shifts in the more affluent North to higher-quality products
as an effect of the rise in income that shifts the production in the North to
higher-quality products, while production of an increasing number of relatively
lower quality products is shifted to the South, where labor costs are lower (Flam
and Helpman 1987).
In addition to these “traditional” gains from trade through the more efficient allocation
of resources that is achieved with trade, there will be the following additional gains
when the domestic market can be made more competitive and production better
organized:
1. Pro-competitive gains. These are the effects of increased imports on the
competitive behavior of firms in the domestic market by disciplining the
monopolistic or oligopolistic behavior of firms, forcing them to behave in more
competitive ways.
2. Gains from economies of scale. As the quantity produced by one firm increases,
its average cost decreases. This may be the result of economies of specialization
(firms operating on a larger scale can match inputs more closely to tasks), of
indivisibilities in production, or of the greater efficiency of large machines
compared to small ones. The decline in average costs leads, in turn, to lower prices.
3. Gains from the rationalization of production. Competitive imports force local
producers to increase efficiency or to exit the market. As a result, the number of
domestic firms declines and the level of production of each remaining firm
increases. Tthe remaining domestic firms are necessarily more efficient and can
reap the benefits of economies of scale.
48 Chapter 1
4. Gains from the increase in variety. The larger variety of products that become
available as the country opens up to trade give consumers higher levels of
satisfaction.
of labor and capital. Other factors are also pivotal in determining the costs of
production and the country’s comparative advantage. They include:
< Access to markets. In this context, access refers not only to the geographical
distance, but to all the components that determine transport costs, including inland
and sea transport costs and the costs of insurance and financial services for trade.
Although the African countries are closer to the European markets than are the
East Asian countries, high inland costs due to the distance to the port and poor road
infrastructure considerably reduce their access to these markets. Access to markets
is also determined by tariff and/or quota protection and by other barriers to trade,
including those established by bilateral or regional trade agreements. In the global
economy, accessibility is also determined by access to supply chains that control
the trade and marketing of many commodities at the wholesale and retail levels.
< Access to advanced technologies. Low labor productivity, due to high levels of
illiteracy, prevents many developing countries from taking full advantage of their
labor abundance and low labor costs. In the agricultural sector, the use of
traditional technologies, traditional crop varieties, and low yielding crop
management practices in the indigenous agricultural systems constrain farmers to
producing only self-consumption or for the local market and prevent the
development of agricultural exports. The transfer of advanced production
technologies and methods from developed countries can accelerate growth and
raise labor productivity in the developing countries. The key question is, however,
what barriers prevent or slow down the transfer of these technologies and what
policy measures can accelerate their diffusion. On the one hand, access to
advanced technologies is limited by the lack of necessary skills, by low investment
in R&D, and, increasingly, by the costs and restrictions on the transfer of
technologies due to IPR and patent issues. On the other hand, modern information
and communication technologies, including the Internet, reduce communication
costs and break down geographical borders, thus speeding up the diffusion of
knowledge and advanced technologies.
< Economic and political stability. These are essential non-tangible conditions that
determine investment risks and costs. Until the 1998 crisis, investors in Asian
countries enjoyed very stable political conditions. This stability was often assured
by authoritarian rule, but opposition was significantly mitigated by the success in
raising the standard of living. When these standards fell sharply during the crisis,
political stability was severely shaken in many, if not most, of these countries. In
most sub-Saharan Africa, political stability is all but lacking. Continued wars,
frequent changes in policies and in the regimes themselves, weak institutions of
law enforcement, and widespread corruption significantly raise business risks,
discourage investment, increase insurance costs, and are highly detrimental to both
internal and external trade.
< (Relatively) stable labor market. The Asian countries—each according to its
level of development—adopted elements of the Japanese system of lifelong
employment, seniority-based wages, and enterprise labor unions that secured
workers’ loyalty to their employers. Government welfare programs are
rudimentary even in South Korea and Taiwan, and labor unions focus their
50 Chapter 1
demands mainly on job protection. In Latin America, labor unions are national and
they are very active in their country’s politics. The pressures exerted by the unions
and their political power triggered government intervention through minimum-
wage legislation and relatively high wages in the public sector. These interventions
distorted the price of labor and inhibited the absorption of surplus labor.
< Functioning markets. The economies of many developing countries were, and
still are, plagued by massive price distortions and a host of restrictions that prevent
the development of functioning markets. The removal of these distortions and
restrictions is necessary not only to attract foreign investors, but also to create
profit incentives for domestic private enterprises, and thereby boost production
and streamline labor allocation. In sub-Saharan Africa, the haphazard and
incomplete market reforms were noted as one of the central reasons for slow
growth (World Bank 1994). However, even among the most successful East Asian
and Latin American countries, market reforms were limited in two ways. First, the
governments in these countries maintained and even expanded some price
distortions that were designed to support local enterprises and encourage industrial
production. Second, the removal of distortions and the development of functioning
markets were often confined to producer services and to what Radelet and Sachs
(1997) termed the export platform.
< Government interventions. In all Asian countries, government investments in
infrastructure, health, and education, as well as direct investments in enterprises
were pivotal at the early stages of the industrialization process. These, together
with large-scale interventions in many other forms, gave strong incentives to
foreign and domestic entrepreneurs to invest in local industries. Indeed, even the
World Bank (1993) survey of the “Asian miracle”’ provided details on more
proactive tactics of direct intervention that the Asian government often adopted at
the early stages of their development. The report acknowledged that the
neo-classical, “getting the basics right” policies do not tell the entire story. In each
of these economies the government also intervened to foster development, often
systematically and through multiple channels. Policy interventions took many
forms: targeted and subsidized credit to selected industries, low deposit rates, and
ceilings on borrowing rates to increase profits and retain earnings, protection of
domestic import substitutes, subsidies to declining industries, the establishment
and financial support of government banks, public investment in applied research,
firm- and industry-specific export targets, development of export marketing
institutions, and wide sharing of information between public and private sectors.
Two additional factors that, from the public welfare point of view, must be considered
negative have an impact on the comparative advantage of a country:
< Absence of labor laws. In addition to minimum wages, companies in the
developed countries must provide high social benefits that include pension
contributions, vacation, paid sick leave, social security, and health benefits, etc.
They are also bound by occupational safety and health rules. In many developing
countries, there are no such laws, not even with respect to child labor.
The Pros and Cons of Globalization for Developing Countries 51
< Low environmental standards. Against the high and rising standards of
environmental protection and pollution control in the US and Western Europe, the
very low standards and lax enforcement in most developing countries give them an
“advantage” in highly polluting production processes (Bhagwati 1997).
productivity, raise the marginal product of labor, and reduce the marginal product of
capital, thereby promoting economic growth and exports and raising incomes and
wages. There are also indirect effects (or externalities) of FDI that are due to the
impact of foreign multinational corporations on their host economies. These effects
may vary, however, between industries and countries, depending on the
characteristics of the host country and the policy environment.
The large flows of FDI to the EA countries and the growing integration and
globalization of the capital markets increased their capacity (that came to be
perceived as good risks) to access these markets directly in order to secure funding
for projects that in the past could only be financed through the World Bank.
< What was the rise in total factor productivity in these countries, and what was its
contribution to their economic growth relative to the contribution of the large
resource mobilization? How effective was export promotion industrialization vs.
import substitution?
To answer these questions, this section surveys the discussions in the economic
literature and reviews the experience of selected countries.
In their highly influential research on trade and industrialization, Little, Scitovsky,
and Scott (1970) provided a thorough account of the connection between an
export-oriented growth strategy and the rate of economic growth. They emphasized
the effects of competitive conditions in the world markets on exporting enterprises that
force countries to eliminate distortions, thus leading to better macroeconomic
performance and more rapid growth. In contrast, efficiency considerations are
secondary behind the walls of protection, and (infant) industries (even construction)
have little incentive to select the more cost-effective and labor-intensive technologies.
The World Bank’s World Development Report of 1987 and 1990 noted that the high
walls of protection often reduced the use of labor in the formal sector, whereas more
open and outward-oriented trade regimes tend to support more labor-intensive patterns
of industrial expansion in both import-competing and export industries. Bhagwati
(1982) highlighted another distortion of an inward-oriented trade regime that is a result
of its heavy reliance on market restrictions and state intervention and is therefore more
likely to create an environment that is more congenial to directly unproductive profit
seeking. With open, outward-oriented strategies, in contrast, the state is less involved,
and profit seeking is more likely to be productive. Bhagwati noted the wide consensus
among economists that an outward-oriented trade strategy helps the process of
industrialization and economic growth. In his words: “The question of the wisdom of
an outward-oriented (export-promotion) strategy may be considered to have been
settled” (1987, p. 257).
There is, however, no conclusive empirical evidence that in all countries an
inward-oriented development strategy based on import substitution would indeed
reduce longer-term growth rates. In a comprehensive cross-country study, Chenery,
Robinson, and Syrquin (1986) showed that the average yearly GDP growth rate in
54 Chapter 1
countries, which tend to be primary product exporters, since the production of primary
products is rarely characterized by large economies of scale.
The success of East Asian countries in achieving high rates of economic growth
made export promotion, spurred by open trade and market liberalization, the strategy
of choice. The World Bank study titled The East Asian Miracle (1993) emphasized the
prominent role of export-oriented policies in the economic “miracle” of the East Asian
countries. The report paid close attention to the process of industrialization in these
countries that initially took advantage of the abundance of cheap labor by building up
industries with highly labor-intensive production that required mostly unskilled labor.
Perhaps the most obvious example is the clothing industry, which is highly labor-
intensive and in which developing countries have a clear comparative advantage.
Although higher productivity in the developed countries could offset part of their
higher labor costs, the very low labor costs in Indonesia, China, and Pakistan, which
were only 5 to 10% of those in the US, allowed these countries to produce much
cheaper clothing despite their less productive technologies. In East Asia, the clothing
industry was the quintessential foundation on which the industrial base was gradually
built as these countries accumulated more know-how, developed a better-skilled labor
force, and opened their economies to foreign investment. In other developing
countries, the agricultural sector can play this role, as we see in Part III.
The World Bank account of the East Asian “miracle” emphasized the importance
of market-oriented incentives that led to large gains in efficiency and factor
productivity. These incentives were created by setting the correct price signals through
the unification of the exchange rate, the measured devaluation, and the removal of
various distortions on the one hand, and the disciplining force of open trade and
export-promotion strategies on the other. The pressures of international competition
and the greater role of the market seem to have mitigated the worst kind of rent-seeking
behavior observed in those countries that rely on industrialization through
import-substitution. Other studies on the experience of East Asia gave, however, equal
weight to the influence of government intervention through subsidies, trade
restrictions, administrative guidance, and credit allocations (Rodrik 1992 and 1995;
Amsden 1990; Wade 1990). In their view, this government intervention was necessary
at the early stages in order to facilitate the transition from the production of primary
products for the domestic market to the production of manufacturing goods for the
home market and exports, and in order to make investments in the non-traditional
sector sufficiently attractive. The weakness of the market system in these countries at
the early stages of development, and the absence of the necessary financial and
economic institutions, made the state the only entity that could offer these incentives
and provide a measure of security. Rodrik argued that the main push for the economic
take-off in South Korea and Taiwan did not come from the increase in exports, but
from the sharp rise in investments that was largely engineered by the government
through direct credit at low or even negative interest rates, and through investment
subsidies, direct administrative subsidies, and the use of public enterprises. In both
countries, investments rose from 10% of GDP in the late 1950s to 20% in the
mid-1960s and 30% in the early 1970s. This large increase in investments was
matched by a roughly equivalent increase in savings that prevented inflationary
56 Chapter 1
export-led growth that are due to scale economies in production can also be reaped in
the production of import substitution if their domestic market is large enough. In small
countries, the industrial strategy must be based on specialization and “niche-oriented”
industries (Chenery et al. 1986). Brazil and Korea are good examples of these two
extremes: in Brazil, the share of commodity exports in the mid-1980s was less than
10%, whereas in Korea, the share was close to 40%. Brazil relied on the growth of its
domestic demand to generate scale economies and technical change, whereas Korea
pursued more aggressively outward-oriented policies aimed at transforming the
domestic industries from producing predominantly for the highly protected local
market to producing industrial goods for exports (Taylor 1989). Korea is poor in
natural resources and the shares of its industry in both exports and GDP are therefore
much higher than in resource-rich Brazil.
A series of country studies organized by the World Institute for Development
Economics Research in 1987 and 1988 demonstrated that Korea, Taiwan, Turkey, and
other countries where economic progress was led by the rapid growth of export
industries had an initial stage of industrialization based on import substitution. In
Turkey, for example, the export-led growth during the first part of the 1980s was built
on an industrial base that had been created at an earlier stage of import-substitution
industrialization as well as on heavy export subsidies and various administrative
measures to promote exports. The success of the export-oriented strategy in these
countries was attributed, in part, to the “crowd in” effect of public investments that
gave incentives to private investments via complementarities and allowed a greater
diversification of the industrial sector. On these grounds, Shapiro and Taylor (1990)
argued the following:
“There is no reason why production for appropriate niches should not initially be
supported by import barriers and export subsidies; indeed, the ‘opportunity costs’
of not trading have to be ignored until learning and scale effects take hold. The
point is that full industrialization only occurs after infant firms grow up, and can
compete more or less effectively on international terms.” (p. 873).
In Korea, infant industries were protected by high tariffs during the early stages of
industrialization alongside the export drive, and while exports were liberalized, the
domestic market remained protected. The monopolistic or oligopolistic conglomerates
that dominated many Korean industries were able to practice price discrimination that
was considerably augmented by export subsidies. Infant industries matured by
acquiring more advanced technologies, and gradually the effective protection rates
were reduced. These industries turned to international trade not due to market forces,
but largely because they were driven by government regulations to export their
products (Lee 1997). However, the concentration of manufacturing production in
Korea and in most other East Asian countries (except Taiwan) in large conglomerates,
together with the power exercised by transnational corporations over exports created
their own distortions, substantially reducing the efficiency gains of the export-led
growth and its advantage over industrialization via import substitution (Helleiner
1990).
58 Chapter 1
What are the prerequisites for and the impediments against the adoption of a
similar growth strategy in sub-Saharan Africa? What should the components of this
strategy be? The East Asian Miracle drew two main lessons from the strategy of East
Asian countries. First, the prerequisites for a successful growth policy are suitable
social and political environments. Appropriate infrastructure—from electricity and
highways to schools and health clinics—must be in place, and the government must
have a central role in building this infrastructure. Second, the price system must
provide proper incentives, and the institutions and mechanisms for competition must
be sufficiently robust to secure the efficient working of the market. The World Bank
report titled A Continent in Transition: Sub-Saharan Africa in the Mid-1990s (1995),
which focused on the lessons for sub-Saharan Africa, emphasized the need for more
market-oriented policies, more openness to trade, and sound macroeconomic policies.
Alesina (1997) emphasized the importance of institutions for growth and noted the
need for the protection of property rights and relative political stability. All these
components determined the comparative advantage of East Asia as much as, or even
more than, their factor endowments and relative costs in production. The role of
institutions and the idiosyncratic structure of institutions in the “‘Asian model” are
discussed in more detail in the next section.
Asian traditions than the Western model of free market capitalism. The crisis exposed
fundamental weaknesses of this model, which were also the main reasons for the crisis
itself. The organization of production for exports at the early stages of development
allowed Asian countries to make the transition despite the lack of an industrial base.
Radelet and Sachs (1997) noted that a unique and essential feature of the Asian model
was the creation of an export platform—an enclave economy, hospitable to foreign
investors and integrated into the global economy, unfettered by problems of
infrastructure, security, rule of law, and trade policies that plagued the rest of the
economy. On this platform, Asian countries were able to concentrate their investment
and move up in technological development. Moreover, in the authors’ view, the
platform not only allowed these countries to move up on the production ladder—from
primary products to textiles to electronics and machinery—but also created a much
broader modernization of the political and economic institutions.
The principal reason for the greater complexity and the inherent weakness of the
Asian economic model is that the export platform was not really an autonomous
economic enclave. Rather, it remained connected in some essential functions to the
rest of the economy. Plagued by problems of infrastructure, security, and the rule of
law, these countries had to find a strategy that would allow an efficient and unimpaired
management of production and the conduct of other business affairs on the export
platform, despite these connections. Asian countries found a strategy that proved
workable and effective for nearly three decades and was instrumental in promoting
their rapid growth. The most important channel through which the export platform was
connected to the rest of the economy was the financial sector. Since foreigners were
not allowed to own banks, corporations that produced for exports had to rely on and
adjust to the country’s financial institutions. The financial system was plagued,
however, by sloppy banking practices and ineffective and often corrupt supervision,
which allowed the provision of loans on the instruction of, or as a favor to, influential
politicians or cronies. Another channel was the work force and the increasingly
militant labor unions. With the rise in living conditions and the expansion of the
industrial sector, workers began to organize and demand wage increases and improved
working conditions. The third channel was the system of government, which was
highly centralized, highly authoritarian, and actively involved in all aspects of the
economy.
These channels exposed the export platform to the weaknesses of the local
economic, legal, and political systems and threatened to stall its take-off. To deal with
these stumbling blocks, it was necessary to have a strategy that would allow the export
platform to function despite these weaknesses. The strategies adopted by Asian
countries show remarkable similarities. In fact, these countries followed, with
surprisingly little variation, the patterns of the countries just ahead of them in the
development process, not only in their technological advancement, but also in the
evolution of their economic institutions. Indeed, the common denominator of these
patterns constitutes the “Asia model.” The principal components of this model were
the following:
60 Chapter 1
< strong and authoritarian governments, assisted by an obedient and highly efficient
bureaucracy, secured peace and stability, and enabled corporations to work
without red tape in their investments and production decisions;
< the financial system, which had very limited independence in making business
decisions and mainly functioned as a service agent to corporations;
< large corporations that organized a significant portion of production and exercised
influence over the political system and controlled the financial institutions;
< a social welfare system that was built on a social contract between the workers and
the corporations employing them. The role of the government was mainly to
support that contract by subsidizing companies in order to keep people employed.
Authoritarian governments had a clear and significant role in creating the necessary
conditions for establishing the export platform, in forging partnerships with foreign
capital (and meeting the whims of foreign investors), and in conducting conservative
fiscal and monetary policies, thus igniting the engines of growth and keeping them on
track. The management of the economy was often delegated to a team of efficient
technocrats that conducted a very responsible fiscal policy and maintained a stable
currency, helping to keep inflation low. Thus, for example, the relative peace and
social stability until the crisis, abundance of cheap labor, plentiful natural resources,
and a stable currency made Indonesia highly attractive to foreign investors. As the
economy developed, production became more sophisticated and capital intensive,
financial decisions grew more complex, and the scope for errors and corruption under
an authoritarian government rose sharply. Moreover, the Indonesian government, like
most other East Asion governments, did not permit any significant development of
institutions of governance and any significant move toward greater democracy. Hopes
and expectations that the export platform would provide an incentive to modernize the
political and economic institutions did not materialize. In the absence of these
institutions, cronyism and corruption became common. In Indonesia, the absence of
proper institutions of government was the reason why a financial crisis that initially
appeared rather benign—primarily a case of mismanagement—and seemed not too
difficult to correct, rapidly deteriorated into a complete meltdown of the currency and
a crisis of leadership.
In the 1960s and 1970s, most East Asian countries were essentially political
tyrannies, either of political parties or of individuals. In that sense, they were not much
different from the political tyrannies that ruled in most of sub-Saharan Africa. Yet in
the 1980s, East Asia grew very rapidly and succeeded in developing rather advanced
economic institutions that managed the economy very efficiently, whereas
sub-Saharan Africa failed to reform its economies and entered into a spiral of slow or
even negative growth that was accompanied in many countries with a collapse of the
institutions of governance and outright chaos. An intriguing explanation of the marked
differences between the experiences of these two groups of countries can be found in
the (last) book that Mancur Olson published in 1998, entitled Power and Prosperity:
Communist and Capitalist Dictatorships. Olson distinguished between what he terms
political tyrants and political warriors, arguing that political tyrants have a stake in the
country they are ruling over and exploiting, because the more the country prospers, the
The Pros and Cons of Globalization for Developing Countries 61
more they can extract for themselves in the form of legal or illegal taxes. The political
tyrant therefore keeps taxes relatively low and develops rather effective institutions to
manage the economy in order to assure the country’s long-term prosperity, thus
maximizing also his long-term profits. The political warrior, in contrast, does not have
the long-term perspective and seeks to maximize the profits he can extract from his
subjects as fast as possible, thus leading to the collapse of institutions and to anarchy.
The Asian financial “model” served the needs of the production systems in these
countries very well in the early years by raising funds, initially in the domestic market
and later also abroad, and making them available, on the instructions of government
officials and at highly subsidized rates, to “strategic” industries. The investment and
lending decisions were rather simple at that stage, since the choice of strategic
industries and the investment decisions in these industries were rather clear. Already
early on, however, banking practices were sloppy, in part due to the absence of a
proper regulatory system and lax government oversight, and in part because the
financial institutions were captive to high-level politicians, bureaucrats, and corporate
managers. Nonetheless, the banks remained profitable because they were able to raise
inexpensive funds from the public thanks to the very high saving rates and the rapid
growth in income. At a later stage, the banks were also flooded with funds as a result of
the larger inflow of foreign capital that grew six-fold between 1991 and 1996.
Unconstrained by the lax government oversight, the banks went out of their way to
give loans, in the process exposing themselves to higher risks and becoming leveraged
with short-term debts. Corporations expanded well beyond their needs, and
profitability of new investments was not the guiding principle for corporations or
banks. Deference, trust and tightly knit relationships—those Asian values that in the
early stages were instrumental in providing a substitute for the lack of practice and
experience with risk management—gradually gave rise to cronyism, nepotism,
corruption, and reckless risk-taking whenever rising profit opportunities presented
themselves. Large investments in real estate and office construction continued
unabated despite the slow-down in exports.
The Asian crisis brought the deficiencies of the Asian “model to the forefront and
revealed the weaknesses of the economic and political institutions in these countries.
When the crisis unfolded, some hastened to conclude that the model was
fundamentally flawed. The crisis should not obliterate, however, the fact that the
“Asian way” had many advantages in the early years of the region’s development. It
failed, however, to keep up with its own success by hindering the evolution of the
institutions that are essential for longer-term development. The focus on economic
growth gave precedence to the short-term. The longer-term price that Asian countries
paid for this narrow focus was not, however, confined to the lack of institutional
development and improper governance; it also included environmental degradation,
crowded cities, and the decay of the rural sector. The Asian crisis thus highlights the
need to make the development of institutions an integral part of development strategy.
The relatively rapid recovery of some of the countries in the region—particularly
South Korea, Singapore, and Malaysia—in 1999 and, even more so, in 2000, and the
slow recovery of Indonesia, Thailand, and the Philippines, also emphasize the political
dimension of the crisis and the fundamental weaknesses of the political and social
62 Chapter 1
systems that were aggravated in the crisis and slowed down the recovery. Indonesia is
clearly the most notable example of the impact of political instability on the economy.
The country experienced a 14% fall in GDP in 1998 and zero growth in 1999. The
economic decline exacerbated the political problems, and in mid-2000 the economy
entered a new slump. The Philippines were initially less affected by the regional crisis,
but the political turmoil in 2000 very markedly slowed down economic growth. The
entire region benefited from the continued rapid growth in the US and the EU during
1999 and 2000, which generated high demand for East Asian export products, most
notably electronics. However, the high share of electronics in their exports and the
high share of exports in their GNP make these countries very vulnerable to any
slowdown in the economy of developed countries, particularly the US.
sustain per capita growth rates in excess of 2% per annum without a significant
increase in yields. Despite the early hopes during the Green Revolution, growth rates
in agriculture seldom exceeded 4% per annum, and sub-Saharan Africa benefited very
little from the new crop varieties that were developed at that time. Several factors may
inhibit the growth prospects of the agricultural sector in many developing countries:
< large direct and indirect subsidies to agricultural producers in the EU and the US
and a rise in their production efficiency and yields. This led to a continuous and
often sharp decline in many commodity prices in the international markets and
reduced the capacity of farmers in the developing countries to produce these
commodities at competitive prices. In many developing countries that opened up
their economies to international trade, cheap imports of wheat, rice, corn,
soybeans, and other raw crops from the developed countries made it difficult for
local farmers to sell their products at competitive prices even in the local markets.
< constraints on the transfer of advanced technologies and crop varieties from the
developed countries due to IPR regulations and constraints on the development
and adaptation of local technologies and varieties due to shrinking budgets for
public agricultural research;
< slow diffusion of new technologies due to the ineffective and resource-stretched
extension services and slow adoption of high-yielding varieties due to the skills
required for successful adoption.
< poor infrastructure limits access to markets, both domestic and abroad, thus
preventing greater specialization and adoption of high-value crops that can
generate higher income, and forcing many farmers to grow primarily for
self-consumption;
< limited access of small landholders to credit and lack of financial institutions,
arrangements and instruments for savings and investments in rural areas;
< continuous erosion in the quality and quantity of agricultural lands;
< decline in the world prices of traditional export crops such as coffee, cocoa, and
bananas—the main cash crops in sub-Saharan Africa and in Latin America and the
Caribbean.
As a result, the growth of agricultural production was much slower in quite a few
countries, particularly in sub-Saharan Africa, and employment opportunities for the
rural population declined in practically all developing countries. In the developing
countries as a whole, the share of the agricultural sector in total employment fell from
an average of over 30% in the mid-1960s to an average of less than 20% in the
mid-1980s, primarily due to the decline in the share of agriculture in the total GDP and
the rapid urbanization. There were, however, wide variations between countries:
during 1950–90, the share of agricultural employment in total employment declined by
30% in Thailand and Indonesia, by nearly 80% in South Korea, by 50–60% in Latin
America, and by 10–25% in sub-Saharan Africa.
In sub-Saharan Africa, the growth rate of agriculture was highly correlated with
the growth rate of the other sectors, primarily because of the dominant role of the
agricultural sector in the economy, and the share of agriculture in the GDP therefore
changed relatively little (Rao and Caballero 1990). Since the growth rate of their
64 Chapter 1
industrial sector was also very slow, these countries could not rely on the industrial
sector as a source of employment, and the pace of urbanization was much slower than
in other continents. The relatively slow decline in the share of agriculture in total
employment also accentuates the low and declining productivity in agriculture that
was due, in part, to the migration to the urban areas, which left behind the very young,
the old, the handicapped, and single mothers (Table 1.7).
For countries that are predominantly rural and where industrialization is still at an
early stage, rural-based development strategies have been advocated (Mellor 1976).
The time that these countries would need to build an industrial base able to absorb the
surplus labor from rural areas is bound to be long, and a strategy based on rural
development therefore promises a faster increase in employment and reduction in
poverty. Restructuring and expansion of agricultural production can also contribute to
the development of the other sectors through forward linkages with processing
industries. A study in India, Pakistan, Malaysia, and the Philippines found that, as an
effect of this linkage, a 1% addition to the growth rate of agriculture would add 0.5% to
the growth rate of industrial output, and 0.7% to that of the national income
(Haggblade, Hazell, and Brown 1989). A rural-based strategy will also be more
effective in reaching the poor because the majority of the poor still live in rural areas,
and most of them depend on earnings from agriculture or from non-farm work that is
partly linked to agriculture (WDR 1990). Over two-thirds of the rural poor are small
farmers and landless laborers; many of them live in countries and regions where
growth in agricultural production is lagging behind the population growth, turning
many regions into “pockets of poverty.”
Even in these countries and regions, however, the potential for agricultural growth
is far from being exhausted, since their crop yields are very low and increased only
very slowly in the past decade. In many countries in sub-Saharan Afriaca and South
Asia, the single most important factor that inhibits agricultural growth and limits
farmers’ income from agriculture is the lack of passable roads to the urban center.
Mellor and Johnston (1984) estimated that this was the major reason why in India the
potential growth of the agricultural sector during 1969–84 (calculated on the basis of
the available inputs) was 50% higher than the actual growth. By realizing the potential
of their agricultural sector, these countries could increase their food supply and the
Table 1.7. The Share of Agriculture in the Economy of Selected SSA Countries (%)
earnings of the rural population. That, however, would require massive investments in
irrigation, roads, and extension services. In addition, the adoption of high yield crop
varieties and the use of fertilizers would have to be increased, and access to rural credit
would have to be improved.
Despite their potential, most developing countries refrained from building on their
traditional strength in agriculture, citing a long list of reasons for their strategy to
promote industrialization, the most common one being the following:
< The demand for primary products is both price- and income-inelastic, and
therefore cannot be a reliable base for export-led growth or a stable source of
foreign exchange.
< Export earnings from primary products are subject to wide fluctuations.
< The traditional sector is often “backward” and unresponsive to economic
incentives.
< Agricultural exports from developing countries are depressed by the high
protection rates on agricultural products in most developed countries, particularly
in the EU (Bautista and Valdez 1993).
On these grounds, many developing countries implemented policies that were highly
biased against the agricultural sector, including:
< overvalued exchange rates and/or direct export levies that reduced real returns on
agricultural exports;
< high protection rates on import-competing manufacturing goods that lowered the
relative price of agricultural goods in the domestic market;
< ill-functioning state marketing boards that used their monopoly power to raise the
margins between the border price of exports and the farm-gate price and lowered
the returns to farmers;
< suppressed prices of food produce paid to farmers in order to secure low prices to
urban consumers.
rate of increases in yields dropped to 1% in the 1990s. In all the developing countries,
there are still heavy losses of crops to pests, disease, salinity, and drought, but efforts to
compensate for these losses by increasing the area under cultivation may aggravate the
pressure on the environment and natural resources. Small-scale farmers may, however,
not be able to increase production by using modern technologies or more fertilizers and
pesticides due to their high costs. Further increases in yields at affordable costs and
without depleting the country’s nonrenewable resources or damaging the environ-
ment, therefore present a daunting challenge to agricultural research. The recent
developments in biotechnology and research in transgenic crops may offer a way to
meet this challenge. Transgenic plants with traits such as pest and herbicide resistance,
and tolerance to salinity and drought, can increase yields and reduce crop losses
without the heavy use of fertilizers and chemicals. To take advantage of this potential,
the challenge of public agricultural research is to develop or adapt suitable plant
varieties and technologies, and to expand and improve their extension services so that
they can bring these new technologies to farmers and encourage their adoption.
join the WTO were designed, in part, to help reduce these pressures by presenting the
wider benefits. An important principle governing the WTO is the nondiscriminatory
treatment of all member countries; the legal term for that principle is the “most favored
nation” (MFN) treatment. The GATT agreement states that any advantage, favor,
privilege, or immunity granted by one WTO member to another has to be granted
immediately and unconditionally to all other members. Another important principle is
the need to establish a consensus as the basis for any resolution. Decision-making by
consensus is bound to be slow and tedious in an organization of more than 140
members, but it was hoped that this would reduce conflict and secure wide acceptance
of the rules. A third important principle of the WTO is the stability, transparency, and
predictability of trading conditions, and this has been achieved by establishing upper
bounds on tariff levels and a schedule of tariff concessions, and by determining the
conditions of market access for services.
Agriculture was the most contentious area in the negotiations and, as of 2002, very
little progress has been made. The main reason was the impasse between the EU and
the US that also delayed the conclusion of the entire Uruguay Round by four years and
contributed to the failure of the 1999 Seattle meeting. Although agriculture was finally
incorporated into the GATT in 1994, the more difficult negotiations were delayed to
early 2000, but then these negotiations broke down and were delayed again.
Nevertheless, a major achievement of the 1994 agreement was the conversion of all the
nontariff barriers to trade—quantitative restrictions, import bans, etc.—into tariffs.
The Uruguay Round Agreement on Agriculture took the first step to subject
agricultural trade to the same rules that apply to merchandise trade, and to
progressively reduce interventionist policies. The agreement stipulated the elimination
of all quantitative and other nontariff restrictions, converting them into explicit tariffs,
and it determined bounds on and a gradual reduction of domestic support and export
subsidies for agriculture. Complete import bans on specific agricultural products were
also replaced by tariffs, though these tariffs were initially set at a sufficiently high level
so that they effectively prevented any imports of these products. Import quotas were
replaced by “equivalent tariffs” (tariff rate quota or TRQ) that established the same
restrictions. These tariffs brought agriculture into conformity with other trade areas,
provided a more transparent regime and facilitated any liberalization agreements in the
future through a gradual reduction of these tariffs over time. The Uruguay Round
Agreement stipulated that the developed countries had to lower the aggregate tariffs by
36% over a six-year period, and the developing countries had to lower the tariffs by
24% over a 10-year period.
In addition, the agreement imposed limits on production and export subsidies for
agricultural products by requiring that the budgetary outlays on export subsidies, the
overall volume of the subsidized exports, and the domestic subsidies be gradually
reduced by predetermined rates—in the developed countries over six years and in the
developing countries over 10 years. The LDCs (with a GNP per capita below $1000)
were not subject to these restrictions. The agreement to restrict export subsidies was a
major achievement of the Uruguay Round Agreement, since it came against the
background of the trade war in agricultural products between the US and the EU in the
1980s, when their prices faltered and the price support programs in both the US and the
68 Chapter 1
EU generated large commodity surpluses. Both the EU and the US provided massive
export subsidies to sell these surpluses in third markets. With these sales, they inflicted
considerable damage to agricultural export earnings and farmers’ incomes in many
developing countries.
With all the exemptions and concessions, however, the main accomplishment of
the Uruguay Round Agreement with respect to agriculture was primarily symbolic and
only little immediate progress was made. Nevertheless, the changes in the ground rules
in the Agreement paved the way to more substantive achievements. In particular, the
agreements on TBT and SPS measures permit governments to use technical
regulations, standards, and sanitary measures for health and safety reasons—provided
they are transparent—while the SPS measures have to be scientifically justified and
not create unnecessary obstacles to trade. These new rules and agreements reduced the
likelihood of a renewed trade war of the type that was waged between the US and the
EU in the 1980s (as the peaceful resolution of the 2001 banana war illustrates), but it
left in place many of the policies and practices that are damaging to agricultural
producers and exporters in the developing countries.
The failure in Seattle to negotiate a new trade agreement on agricultural and textile
goods delayed the removal of the walls of high tariffs that agricultural exporters from
the LDCs are facing for some of their key products. A recent World Bank study
(Hoekman, Ng, Olarreaga 2000) estimates that reducing the tariffs on imports of these
products from the LDCs will raise exports of the affected products by 30–60%; an
agreement in the next round of trade negotiations can therefore make a significant
contribution to enable LDCs to increase their exports.
Yet, whether the benefits from the new technologies will trickle down to all
segments of society, or whether the primary beneficiaries will be the more educated
and more affluent, remains open to question. In India, the main beneficiaries of the
rapid growth brought about in recent years by ICT have been the professional workers.
The majority of the Indian population, which lacks basic education and training, has
benefited very little from the “new economy,” and spillovers to other sectors have been
minimal. Moreover, the penetration of ICT into poor countries and poor regions has
been very slow. The Organization for Economic Co-operation and Development
(OECD) estimates that 95.6% of the world’s Internet hosts in 2000 were located in its
member countries. On these grounds, UNDP’s 1999 Human Development Report
warns that
The gap between the rich and the poor thus threatens to widen the knowledge gap, and
the widening gap between the “knows” and “know-nots” will further deepen the
income and wealth gap.
While the breathtaking pace of technological innovation in recent years,
particularly in ICT, may indeed threaten to increase the gap between the rich and the
poor, there is also a promising potential that technological innovation will make it
easier to fill the gap. An instructive example is the fate of the public telephone services.
In most developing countries, particularly in sub-Saharan Africa, telephone service is
dismal, due to the poor state of the local infrastructure, the inefficiency of the mostly
public telephone companies, and the very high prices, which are primarily due to the
monopolistic power of these companies. Privatization of public telephone companies
is therefore high on the agenda of most economic reforms. However, the process of
privatizing these companies is quite complex and has proceeded rather slowly even in
many of the more developed countries. In developing countries, the monopolistic
public telephone company is often replaced by a monopolistic private company that
increases profits by extorting its captive customers rather than reducing costs and
increasing efficiency. In recent years, however, with the spread of the new mobile
phone technology, customers found an effective way of bypassing the existing services
and overcoming the constraints imposed by the poor infrastructure. By doing away
with the requirement of setting up a cumbersome physical infrastructure, the new
technology facilitates the entry of new providers that compete by improving efficiency
and reducing prices. Similarly, with this technology, access to the Internet no longer
depends on an expensive desktop computer connected to a telephone line, thus making
it cheaper and easier to get “connected.” While technological innovation created the
gap between those with “connections” and those without, it is also creating
possibilities for developing countries to leapfrog outdated technologies.
70 Chapter 1
Concluding Remarks
Development strategy has two central components. The first determines the policy
guidelines for the country’s economic development: the balance between industry and
agriculture, between rural and urban development, between exports and import
substitution, etc. The second defines the role of the public sector in the implementation
of this strategy. The large differences between the experience of the East Asian
countries and most countries in sub-Saharan Africa and South Asia during the past two
decades should therefore be explained not only by the differences in the policies that
these countries implemented, but also, and perhaps much more so, by the differences
in the role and effectiveness of their public sector, i.e., their public institutions and their
systems of governance, law, and order, in the implementation of these policies. A brief
comparison of the development strategies of these two groups of countries can offer a
number of instructive lessons.
In the 1960s, the standards of living in Africa were, on average, considerably
higher than in the Far East, and the growth prospects of most African countries seemed
to be much brighter. The picture changed dramatically in the 1980s, as an increasing
number of East Asian countries embarked on an export-oriented, industry-led course
of development that ushered in a period of rapid growth and a remarkable reduction in
poverty. Sub-Saharan Africa and many countries in Latin America and the Caribbean
and South Asia entered into a deep debt crisis and saw their growth rates and growth
prospects plummeting. These sharply diverging experiences raise several questions:
< What lessons can be drawn from these experiences with respect to the structure of
and the balance between industrial, agricultural and trade policies in a developing
country?
< What economic, social, institutional, and political conditions made the “Asian
miracle,”and the subsequent Asian crisis, possible, and what lessons can their
experience offer for the design of growth strategies in the countries of sub-Saharan
Africa?
< What lessons can, for example, Bangladesh or Ghana draw from the experience of
Thailand, Malaysia, and Uganda, as they design their development and trade
strategies and structure their institutions of governance?
< What lessons can be drawn from the large differences in the pace of development
between these groups of countries with respect to the rather generic policy
prescriptions of the form “liberalize thy trade, deregulate, privatize and set thy
prices right” that were advocated by the World Bank and the IMF (and became
known as the “Washington Consensus”)?
The successful experience of the East Asian countries during most of the 1980s and
1990s underscores the merits of an outward looking development strategy and greater
integration with the world economy. Indeed, this lesson remains valid despite the
Asian crisis of 1997–98 and despite some periodic setbacks to the process of
globalization. The key to the rapid industrialization and the swift rises in income and
employment in East Asia were the effective use of the large supply of a cheap but
disciplined labor force for the development of an internationally competitive and
The Pros and Cons of Globalization for Developing Countries 71
These conflicts and their impact on the economy may not be captured, however, in
the standard analysis that focuses on technical indicators. A symptomatic illustration is
provided by Esterly (2001) in his discussion of an apparent puzzle: During 1980–98,
the growth of median per capita income in developing countries was 0.0%, compared
with 2.5% in 1960–79, even though variables that are standard in growth regressions
(policies like financial depth and real overvaluation, and initial conditions like health,
education, fertility, and infrastructure) generally improved during these years, and
theory suggests that, therefore, these countries’ growth should have increased. In most
of sub-Saharan Africa and South Asia, the puzzle is even more perplexing because
their median per capita income actually declined rather sharply during these years,
even though, in the majority of these countries, the variables that represent the
determinants of growth in the standard growth regression generally improved. Esterly
commented that this stagnation represented a disappointing outcome of the standard
menu of policy reforms of the “Washington Consensus”. In fact, the puzzle was
created by the analysts themselves as they focused exclusively on technical variables
in the standard growth equation. These variables fail to take into account other
dimensions of the growth process, particularly the rather dramatic changes in the social
and political setting that occurred in the majority of the African countries during the
past two decades. These changes had a very strong impact on the explanatory power of
the technical variables, and if they are not taken account, a puzzle is likely to emerge.
Even more important, these changes in the social and political conditions affect not
only the retroactive explanatory power of these variables, but also the power of
economic reforms that focus on the more technical rules of the economic policies that
these variables determine to generate growth. A failure to take into account the
changes in the social and political conditions and in the institutional setting in the
country may doom the reforms themselves to fail.
Consider, as an illustration, the reasons for the mixed performance of privatization,
one of the principal policy reforms that were aimed at improving the notoriously
malfunctioning public services. Among these public services, the public marketing
boards are at the top of the list in most developing countries. Their dismal
performance, particularly in the African countries, and the widespread corruption that
cripples their operation make their total elimination via privatization the only logical
solution. Privatization is expected to usher in healthy competition between the newly
privatized enterprises, and this competition, in turn, is expected to become the driving
force for the elimination of the distortions that were introduced by the heavily
regulated public agencies. In practice, however, the transition from a marketing system
based on public marketing boards to a system based on private trading companies was
by no means beneficial to all producers and consumers. In many countries, the
privatized marketing boards were essentially taken over by trading companies that
established their monopolistic power either in the country at large or in the local
market, often with a little help from the retired managers of the existing public board,
from other government officials, or from family members of the president. These
monopolistic private enterprises often created much larger distortions to the
disadvantage of larger segments of the population, particularly the politically and
economically weak. With few constraints on their monopolistic power, these trading
The Pros and Cons of Globalization for Developing Countries 73
companies were under no pressure to improve their service or reduce prices to their
customers. In developed countries, these distortions are reduced to a minimum, thanks
to the watchful eye of various public legal institutions charged with preventing such
abuses. In most developing countries, these institutions are too weak or nonexistent,
and the supervision over private companies is either highly inefficient or entirely
lacking.
Consider, for example, the potential obstacles that may hinder the process of trade
liberalization, another example of a policy reform that developing countries are often
pressured to implement. The existing tariffs and/or subsidies are clearly damaging to
the country as they distort its resource allocation and reduce economic efficiency. Prior
to the reforms, producers, consumers, and traders have to organize their entire
operations on the basis of the distorted prices. The trade liberalization reforms then
force them to make considerable changes, particularly in their production system, and
these changes may also require large investments that are bound to prolong the
transition period. During the transition period, some producers and traders will suffer
losses due to the decline in the relative price of their products, while others will gain as
the relative price of their products is rising. Even though most people will be better off
in the long run, those who suffer losses during the transition period are likely to oppose
liberalization, while those who gain already in the short run are likely to have
higher-than-normal profits until all producers and traders make the necessary
adjustments. The losses of one group of producers and traders as an effect of the
reforms, and the higher-than-normal profits of the other group are bound to sharpen the
discord and possibly lead to an open conflict that can embroil all the country’s social
and political institutions.
The possibility of such a conflict inadvertently introduces social and political
dimensions to the process of implementing the reforms, no matter how “technical” or
“a-political” the reforms may appear at the outset. The possibility that the reforms will
produce rival coalitions or deepen already simmering conflicts between social or
ethnic groups must be taken into account in advance, i.e., the reforms have to be
designed with full consideration of the specific social, economic, and political
conditions in the country and with the participation of the potentially affected groups.
Trade liberalization reforms may then have to be accompanied by targeted measures
aimed at assisting those producers who may be outcompeted by a wave of cheap
imports of the products they produce. This can be achieved by offering assistance for
their transition to new products or to other sectors. Obvious examples for the failure to
avoid unintended consequences can be found in the situation resulting from the
measures that many countries implemented in order to reduce trade barriers on
agricultural products when they joined the WTO. The flood of cheap imports of maize,
wheat, and other field crops from developed countries forced many small farmers in
developing countries either to retreat into production for their own consumption or to
abandon agriculture altogether, because their own resources—financial and
otherwise—did not enable them to make the transition to other crops and a different
farming system quickly enough. Indeed, many of these farmers joined the ranks of
those who oppose globalization.
74 Chapter 1
To smooth the transition and reduce the intensity of potential conflicts, it may also
be necessary to put in place a proper legal system and establish or strengthen the
institutions that can prevent one group or sector from taking undue advantage of the
distorted prices that are likely to emerge during the transition period. In some cases, it
may also be necessary to provide some form of compensation to those who may
become worse off as an initial result of the reforms. However, the provision of
measures and mechanisms to ease the transition period takes time, and when the
institutions that are supposed to provide them do not even exist, the preparatory
process is likely to be even longer. Without careful preparation, however, the conflicts
and inequities that may emerge during the transition period can pose a risk not only to
the success of the reforms, but also to the country’s entire social infrastructure. This is
why a country’s institutional and legal systems and its specific social, economic and
political conditions are critical to the success of trade liberalization. Even when the
need for reform and the gains that it promises in the long run are obvious, the
seemingly technical reforms will still have to be implemented in a specific context, and
this is why the “Letters of Agreement” of different countries cannot be mere
duplicates.
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The Pros and Cons of Globalization for Developing Countries 79
Jikun Huang*
Introduction
Since the economic reforms of late 1978, China’s economy has grown substantially,
with annual GDP growth rates of 9% or more during most years (Table 2.1). Despite
the decline to 7.8% in 1998 and to 7.3% in 1999, China’s growth rate was still among
the highest in the world. Foreign trade expanded even more rapidly (Table 2.1) and has
played an increasingly significant role in the national economy. As a result, China’s
trade to GDP ratio increased from 13% in 1980 to 36% in 1997 (Table 2.2). During the
same period, the total value of China’s agricultural trade increased at an annual rate of
6.0% (Huang and Chen 1999b). After 14 years of negotiations, China joined the WTO
in 2001. The sheer size of China’s economy and its rapid growth will make the country
a crucial player in the future development of world markets for inputs and outputs of
food, agricultural products, agribusiness, and industry.
There are, however, growing concerns about the impact that China’s membership
of the WTO mya have on China’s domestic agricultural outputs, prices, employment,
and farmers’ income. The question of how to sustain agricultural growth, achieve food
security, and increase farmers’ income through—and in some cases despite of—the
process of trade liberalization has become the primary concern of policymakers as well
as farmers. What is the impact of trade liberalization on China’s agricultural
production? What are the implications of trade liberalization on China’s food security?
What are the policy implications for changes in the economy resulting from trade
liberalization in the future?
The answers to these questions are by no means clear. While all studies show that
both China’s economy and the world economy will benefit from China joining the
WTO, the impact on the country’s agriculture and rural population is highly debatable.
Some researchers claim that the impact on domestic agricultural production and on
world trade will be marginal (Anderson 1997). Others believe that the impact should
not be understated (Wang 1997; State Council 1998; Huang 1998; Huang and Chen
1999a, 1999b). To gain a better understanding of the questions raised above, this
chapter first examines the reform process of China’s foreign trade sector and its impact
on China’s agricultural trade in the past two decades. It will then explore the effects of
trade liberalization on China’s agriculture, using an agricultural sector-wide general
* Jikun Huang: Center for Chinese Agricultural Policy, Chinese Academy of Agricultural Sciences
83
84 Chapter 2
equilibrium model, and the final section summarizes the conclusions and policy
implications from the study.
The foreign trade contract responsibility system. This system was initiated in
1988–90 and implemented nation-wide later. It provided an incentive mechanism for
trade corporations to increase foreign-exchange earnings. Foreign-exchange controls
were relaxed, and local governments and enterprises were allowed to have their own
rights in the disposal or use of the retained foreign exchange through the foreign-
exchange swap centers that were established in 1988 in the main cities of each
province. This policy was in effect until the unification of the official and swap foreign
exchange markets in 1994.
Export tax rebate. To promote exports and to increase the competitiveness of China’s
export commodities in the international market, China began to use an export tax
rebate on an experimental basis for 17 export commodities in 1983. This policy was
extended to cover more export commodities in the mid-1980s and applied to almost all
export commodities after 1988. At present, the export tax rebate includes the product
tax, value-added tax, business tax, and special consumption tax.
Foreign exchange policies. With the unification of the two-tier foreign exchange rate
systems, the foreign exchange retention system was finally abolished in 1994, and the
RMB became convertible on the current account in 1996. Historically, the
overvaluation of the domestic currency for trade protection purposes had reduced
export incentives. Real exchange rates remained constant and even appreciated during
the 30 years prior to reforms, but depreciated rapidly after the reforms, with the
exception of several years following the high domestic price inflation of 1985. During
Trade Liberalization and China’s Food Economy in the 21st Century 87
1978–92, the real exchange rate depreciated more than 400%. Economic productivity
growth and technological innovation in agriculture, foreign trade, and industry
contributed to low inflation and the success of exchange rate adjustments. China is the
second country in Asia (after Indonesia) to have aggressively adjusted exchange rates
over the two decades prior to 1997 (real exchange rates appreciated by about 30% from
1992 to 1997). Falling exchange rates increased export competitiveness and thus
contributed to China’s phenomenal export growth record and the spectacular
economic performance of the 1980s.
Tariffs and nontariff measures. China’s average tariff was 47.2% in 1991, one of the
highest in the world (World Bank 1997). Since then, China has gradually reduced its
import tariff rates. In April 1996, rates were reduced for more than 4,900 items,
lowering the simple average tariff rate from 35.9% to 23%. In October 1997, there was
a further reduction for more than 4,800 items, bringing down the simple average tariff
rate from 23% to 17% (23.6% for agricultural products). During the 1980s, China
extensively used quotas and licensing to control its foreign trade. However, since the
early 1990s, China has progressively and drastically reduced the number of items
subject to export and import quotas and licensing administration, and by 1998, the
products subject to quota, licensing and other import control measures accounted for
only 5% of the total import tariff lines (Huang and Chen 1999a).
In sum, during nearly 20 years of reform, China’s foreign trade regime has
gradually changed from a highly centralized, planned, and import-substitution one to a
more decentralized, market-oriented, and export-promotion regime. However, while
significant progress has been made since the beginning of economic reform, China’s
foreign trade regime continues to have major inefficiencies, and international trade in
agricultural products still remains largely monopolized.
Agricultural protection. Price and market reforms are key components of China’s
development policy shift from a socialist to a market-oriented economy. The price and
88 Chapter 2
market reforms initiated in the late 1970s were aimed at raising farm-level prices and
gradually liberalizing the market. These reforms included increases in quota and
above-quota prices, reductions in quota levels, the introduction of above-quota
bonuses for cotton, tobacco, and other cash crops, negotiated procurement of surplus
production of grains, oils, and most other commodities, and flexibility in the private
marketing of surplus production of all categories of agricultural products.
Table 2.3 shows the estimates of nominal and real protection rates based on various
producer prices from 1978 to 1998 for selected agricultural commodities. Several
observations can be made. The quota prices consistently represented a negative
protection for farmers. The introduction of negotiated procurement significantly
reduced the negative protection that was due to the government procurement
operations. Not surprisingly, the most heavily taxed commodities are exportable ones,
such as rice. Wheat, an importable commodity, is more favored. Apart from the lower
quota price or the nominal protection rate (NPR) for rice, the proportion of grain
procurement at the higher negotiated price is typically higher for corn and soybean. It
is also worth noting that the nominal protection rates for wheat and maize at free
market prices have been about 20–25% since the mid-1990s.
In sum, despite substantial efforts to liberalize the price and the market structure of
the agricultural sector, most major agricultural commodities continue to be heavily
penalized by commodity-specific policies. When the impact of the overvaluation of
the domestic currency is considered, the negative agricultural incentives would even
be greater. These distortions in price incentives depress agricultural production and
redistribute income from farmers to urban consumers and to the agro-processing
sector.
Table 2.3. China’s Nominal Rates of Protection (%), 1978–98: Selected Rates
Evaluated at the Real Exchange Rate
1. Land-intensive agricultural products include cereals, vegetable oil seeds, and raw cotton.
2. Labor-intensive agricultural products include live animals, dairy products, roots and tubers, coffee,
tea, etc.
3. Labor/capital-intensive agricultural products include meat, sugar, cocoa.
90 Chapter 2
1995–97 1980–97
Baseline scenario
Income growth and population growth will remain an important determinant of food
balance in the future. Population growth peaked in China in the late 1960s and early
1970s. Since then, fertility rates and the natural rate of population growth have begun
to fall. The United Nation’s demographic estimates show that the growth rate during
1996–2000 was 1.11% per year. This rate will fall during the next five years to 0.88%,
a level that is considerably below the world’s projected growth rate of 1.70–1.80%, but
above recent projections made by China’s demographers. The share of the urban
population is expected to rise from 28% in 1994–96 to 31% in 2000, 35% in 2005, and
46% in 2020.
The baseline per capita income growth rate is estimated to average about 4% in the
rural sector and 4.5% in the urban sector. The growth rates in the late 1980s and early
1990s were substantially above this level in the urban economy (around 6–7%), and
significantly below this level in rural areas (less than 1% per year between 1985 and
1992). But in recent years the overheated urban growth has slowed, and in 1991, the
rural economy began to pull out of its recession, growing at the rate of 4% per year.
The agricultural commodity prices at the baseline are endogenously determined
and are generated from simulations, assuming that the current trade policy (tariff levels
and nontariff restrictions) remains unchanged.
Supply will mostly respond to prices, new technology, and irrigation investment.
The fertilizer price is assumed to be constant in the projection period, but the
opportunity costs of land and labor for the agricultural sector are assumed to grow at
the rate of 1% and 2% respectively during 1996–2005.
Technological change has significantly contributed to China’s agricultural growth
in the past (Huang and Rozelle 1996; Fan and Pardey 1997). However, annual
expenditures on research declined from 1985 to 1990, and irrigation expenditures
dropped from 1975 to 1985. Because of lags, these early investment dips will keep
baseline projections of investment growth below historic rates in the early projection
period. The recent recovery in research and irrigation investments, together with the
experience of other Asian countries and China’s commitment to a strong domestic
agricultural economy, lead to the expectation that China will sustain its recent upturn
in investment funding over the long run. The annual growth rates of research and
irrigation expenditure are assumed to be 4% and 3.5% respectively in the future.
Erosion and salinization are expected to continue to increase at a steady but slow pace.
Trade Liberalization and China’s Food Economy in the 21st Century 93
4. Seven grain products, including rice, wheat, maize, soybean, sweet potato, potato, and other
grains, and seven animal products, including pork, beef, mutton, poultry, egg, milk, and fish.
94 Chapter 2
Annual growth rate Annual growth rate Difference in 2005 Annual average
2000–05 (%) 2000–05 (%) (’000 tons) difference
2000–05 (’000 tons)
Rice
production 0.89 1.77 5744 2419
consumption 0.88 0.55 -1377 -248
net import -7121 -2668
Wheat
production 1.29 0.43 -5061 -2672
consumption 0.93 2.06 7281 4059
net import 12,342 6731
Maize
production 2.33 0.69 -10,416 -5375
consumption 3.35 5.91 20,207 11,389
net import 30,623 16,764
Total grains
production 1.44 1.02 -10,632 -6272
consumption 1.60 2.69 29,176 17,130
net import 39,809 23,402
Note: Consumption (or demand) includes stock changes.
Trade Liberalization and China’s Food Economy in the 21st Century 95
losses from farming activities under free trade (compared to the baseline scenario) as
most crop prices decline. By contrast, most producers of animal products (except for
beef, mutton, and milk), particularly farmers raising hog and poultry, will benefit from
trade liberalization. The prices of pork, poultry, egg and fish will be 5–15% higher than
the prices under the baseline scenario in 2005.
Baseline scenario
According to the analysis, per capita food grain consumption in China reached ts
highest level in the late 1990s and will fall during the remaining forecast period. The
average rural resident will increase food grain consumption slightly through 2005, and
food grain consumption for the urban resident will level off during the projection
period. The per capita food grain demand at the national level will ebb at a time when
neither rural nor urban food grain demands decline, due to the impact of urbanization.
In contrast, the per capita demand for red meat is forecast to rise sharply throughout the
projection period. Rural demand will grow more slowly than overall demand, but
urbanization trends will shift more people into higher-consuming urban areas5. While
starting from a lower level, the per capita demand for poultry will rise proportionately.
The projected rise in meat and poultry product demand will stimulate the aggregate
feed grain demand.
Baseline projections for the supply of grain show that although China’s total
domestic grain production will increase from 2000 to 2005 at an annual rate of 1.44%,
the production growth rate will fall below the domestic grain consumption growth rate
(1.60%), indicating a widening gap between the domestic supply of, and demand for
grains. The grain production growth rate in 2000–05 will be much lower than the
growth rates achieved in the 1980s and 1990s, which is evidence of the impact of
declining public investment intensity in agricultural R&D since the mid-1980s (Huang
et al. 1999). The net imports of grain will rise to nearly 20 mmt in 2005 (Table 2.9).
Despite the increase in grain imports during 2000–05, the grain self-sufficiency level
will remain as high as 95–96% in the early 21st century.
In the livestock and aquatic sectors, the increases in domestic production nearly
match the increases in demand.6 The annual production growth rates for various
animal products will range from 3% to 7% in the period 2000–05. The growth rates are
equivalent to the growth rates of the demands for these products during the same
period (Table 2.10). The sector will continue to be an exportable one, but the amount of
5. In the mid-1990s, an urban resident consumed about 60% more red meat than his/her rural counterpart.
6. The livestock data used in this paper are significantly different from the data published by the State
Statistical Bureau. The CAPSiM model uses a completely new set of data that corrects for
over-reporting of livestock production and under-reporting of consumption.
96 Chapter 2
Pork
production 3.39 6.33 4281 2071
consumption 3.43 2.16 -1735 -839
net import -6016 -2910
Beef
production 4.49 4.94 75 39
consumption 4.54 5.49 121 53
net import 46 14
Mutton
production 4.35 4.68 33 18
consumption 4.36 5.58 96 42
net import 63 24
Poultry
production 4.66 7.42 1088 525
consumption 4.61 3.66 -383 -187
net import -1471 -712
Egg
production 4.21 6.32 1630 799
consumption 4.21 3.89 -270 -129
net import -1900 -927
Milk
production 6.86 5.68 -476 -209
consumption 6.67 10.90 2019 910
Net import 2495 1118
Fish
production 5.89 6.72 640 307
consumption 5.73 5.37 -328 -169
net import -968 -476
Note: The production and consumption data used in CAPSiM model are significantly different from the
data published by the State Statistical Bureau. The database in CAPSiM on livestock and aquatic
production and consumption correct for the problems on over-reporting production and
under-estimating consumption of these products.
Trade Liberalization and China’s Food Economy in the 21st Century 97
Baseline:
Total grain 98 96 96 97
rice 100 99 100 101
wheat 92 92 95 100
maize 101 94 91 90
Free trade:
Total grain 98 88 90 92
rice 100 105 107 115
wheat 92 83 88 97
maize 101 76 74 72
Free trade with higher agric.
research expenditure*:
Total grain 98 88 90 97
rice 100 105 108 120
wheat 92 83 89 102
maize 101 76 75 78
* The third scenario assumes that the growth rate of agricultural research expenditure in real terms rises
from 4% (the assumption used in the other scenarios) to 6% during the entire period of the projection.
exported livestock products and fish is very small compared to the size of the total
domestic production or consumption.
Free-trade scenario
Under the free-trade scenario, domestic grain prices (except for rice) will fall. The fall
in domestic grain prices will raise grain consumption and slow down production. Our
projection shows that China’s domestic grain production will fall far behind domestic
grain consumption under the free trade scenario. Compared to the baseline scenario,
the grain deficit between domestic supply and demand will grow further. China’s net
grain imports will increase to nearly 60 mmt in 2005, about 12% of the total grain
consumption in China. Comparing with the baseline scenario, domestic grain
production will decline by 11 mmt (or 2.3%) while domestic grain consumption will
increase by 29 mmt (or 6.0%) in 2005.
The grains most seriously affected by trade liberalization will be maize, followed
by wheat and soybean. Under the free-trade scenario, China’s domestic maize
production will fall far behind maize consumption as production grows by 0.7%
annually and consumption grows by nearly 6% as an effect of the decline in local
maize prices and a surging demand to feed the expanding livestock production.
Consequently, the imports of maize will increase dramatically from less than 2 mmt in
98 Chapter 2
As has been outlined in this chapter, the highly centralized and monopolized
foreign-trade system has been gradually reformed, decentralized, and commercialized
in the past 20 years through granting trade rights to more trade corporations and
reducing direct administrative intervention by the government. The trade regime has
also gradually moved from an import-substitution system to a more export-oriented
system. The move toward a more market-oriented trade system is evidenced from
various aspects of China’s trade policies and patterns. While significant progress has
been made with the reforms, China’s foreign-trade regime still has major
inefficiencies, and international trade in agricultural products remains largely
monopolized.
With further trade liberalization and adjustments of the trade regime in compliance
with WTO membership, it is expected that China will face great challenges in the
coming years. The simulation results on trade liberalization indicate that the producers
of most crops (except rice and horticulture) will suffer income losses from farming
activities not only due to the decline in the prices that farmers will receive, but also due
to the reduction in production. Most producers of animal products (except beef,
mutton, and milk), particularly farmers who raise hog and poultry, will benefit from
trade liberalization as export demands increase.
In connection with food security and grain self-sufficiency issues, a completely
liberalized economy in the short term will challenge the current food security goal
defined by the government. China’s grain self-sufficiency rate will decline rapidly
from 98% in the mid-1990s to less than 90% in 2005 if the free trade regime is fully
implemented by 2005.
Regarding the world food situation, our results suggest that China will neither
empty the world grain markets, nor become a major grain exporter. It does seem likely,
however, that China will become a more important player in world grain markets as an
importer in the coming decades. Both potential exporters outside China and those
charged with managing China’s food needs through domestic production and imports
need to be ready. Exporting nations—especially those dealing with wheat (in the short
run) and maize (in the long run)—will undoubtedly be the beneficiaries of these trends.
If China’s policymakers deem the projected level of imports too high (either
politically or because they see some other physical or economic constraint),
investment strategies need to be revised in the near future. In the long term, the most
effective policy to improve China’s food security and raise grain self-sufficiency
levels is to increase agricultural productivity enhancement investments, particularly in
agricultural R&D. If these policies are formulated properly, China can reach its grain
self-sufficiency target in the second decade of this century, even if the grain market
will be completely liberalized by 2000–05.
China should allow a greater role for the market to determine trade patterns in
order to reap comparative advantage gains. This would probably mean increased
overall agricultural trade and a shift towards importing more land-intensive
agricultural products and exporting more labor- intensive agricultural products. Policy
steps to achieve comparative advantage gains might include removing implicit taxes
on farmers and reforming the domestic grain pricing and marketing system.
Trade Liberalization and China’s Food Economy in the 21st Century 101
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Chapter 3
Globalization and Public Agricultural
Research in India
P.V. Srinivasan and Shikha Jha*
Introduction
The globalization process that entered a new and more accelerated phase after the
Uruguay Round and the far-reaching policy reforms that the Indian government
implemented in the course of joining the WTO, have opened up new opportunities for
Indian producers, both industrial and agricultural, by giving them wider and faster
access to more advanced technologies and to larger markets both at home and abroad.
These developments were not, however, a one-way street leading to better economic
conditions from which all have benefited; indeed, in many parts of the country
agricultural producers, particularly subsistence farmers, were negatively affected by
the domestic price gyration and the greater competition that followed the reforms. The
Indian policymakers must now face the challenge of minimizing the negative fallouts
and lift the affected rural households out of their dire conditions. The objective of this
chapter is to analyze the impact of the globalization process and the attendant policy
reforms on the agricultural sector and the rural population in India and to evaluate the
options that the public sector and the Indian national agricultural research system
(NARS) now have in order to meet these challenges and assist the segments of the rural
population that were negatively affected.
Pressures to lower public spending that were an important part of the reforms
forced the Indian government to sharply cut its domestic spending, including items
such as agricultural research and extension, irrigation, and rural development. The
shrinking financial resources of the public agricultural research institutes exposed
these institutes to pressure to increase their income from other sources through
selective commercialization of their activities, such as claiming IPR, provision of
research, and other services to the private sector, charging commission for the use of
materials they owned when these materials were used for commercial purposes, and
seeking ways to collaborate with the private sector. Recent experience also suggests
that the negative impact of the diminishing public budget was partly offset by
considerable efficiency gains thanks to collaboration with domestic and multinational
private enterprises and access to more advanced technologies.
A particularly important aspect of the reform program was the removal of many
restrictions on agricultural trade and improvement in the terms of trade between the
agricultural and nonagricultural sectors that was brought about by lowering the
protection on the domestic production of many industrial products. This gave strong
* P.V. Srinivasan, Shikha Jha: Indira Gandhi Institute of Development Research, India
103
104 Chapter 3
alternative strategies and policy options for the future. It concludes with a summary of
the main findings and offers some conclusions and recommendations.
in bulk, almost all other agricultural products are now freely exported. In recent years,
the country has emerged as a leading exporter of both fresh and processed agricultural
products, including meat and meat preparations, spices, and cashew. These
commodities have made a considerable breakthrough in international markets (Paroda
1996). Among food grains, Indian rice exports were traditionally mostly of the high-
quality aromatic Basmati variety, and only after trade liberalization substantial exports
of other rice varieties became possible. Indian exports of rice peaked at 5.6 million tons
in 1995–96 and reached 4.9 million tons in 1998–99, amounting to a large share of the
total world trade in rice, which is about 20 million tons.
Integration into the global economy through the removal of trade barriers will lead
to greater commercialization of agriculture and to a shift towards high value crops. As
a result of trade liberalization, it is expected that the area under crops such as rice,
wheat, maize, sorghum, chickpea, and cotton will increase, whereas the area under
oilseed crops such as groundnut, rapeseed-mustard, and sunflower will decline (see
Gulati and Sharma 1997). Since world prices are normally more unstable than
domestic prices, and since with the integration of the Indian market into the world
market, domestic prices are directly linked to world prices, there can be greater
domestic price volatility (Nayyar and Sen 1994). This, however, need not necessarily
be the case, since the wedge created between domestic and international prices by the
existing export/import margins plus the domestic trade and transport margins are high
enough to insulate domestic prices from world price instability (Jha and Srinivasan
2000).
private-sector sales are predominantly of the hybrid variety. The increasing demand
for hybrid varieties is raising the share of the private sector in the seed market. In fact,
an increasing proportion of seeds supplied by the SSCs comes from private companies
(Shiva and Crompton 1998). Although this will not diminish the importance of the
public sector in the future, there is an increasing recognition of the need for an
interaction between the private and public sectors through innovative institutional
arrangements in order to exploit their potential complementary linkages. For instance,
the public sector can let the private sector use its large research infrastructure through
collaborative projects or the contractual sale of research services. It can also use
private-sector marketing networks in the dissemination of new technology.
1. IPR protection can be of two types: protection through patents and through a sui generis system such as
Plant Breeders’ Rights (PBR) embodied in the Union for Protection of Plant Varieties (UPOV).
Globalization and Public Agricultural Research in India 109
grown in semi-arid tropics (which are the poor regions), private research in these areas
can contribute significantly to help the poor.
In both developed and developing countries, multinational corporations engaged
in R&D for seeds, farm machinery, fertilizers and other farm chemicals, and
post-harvest technology, take a larger share in research and attract larger budgets.
There is a growing concern among public research institutes in developing countries
that the Uruguay Round agreements on trade and IPR may lead to the monopolization
of research by large corporations. Public research institutes may find it difficult to keep
pace with developments in new areas of technology such as biotechnology and genetic
engineering, where the strength of multinational private companies is greater. Debroy
(1998) allays some of the fears by pointing out that these pessimistic assessments
“underestimate Indian strengths in seed research.” He argues that with better
protection, India may be able to get better prices for its seeds sold abroad. In his view,
the other fears are also unfounded since it is not common practice in India to use
foreign hybrids and plant variety material.
Globalization implies easier access (through imports or direct foreign investments)
to the latest technologies including biotechnology. Research in biotechnology can be
extremely important in reversing the declining trend in the growth rate of yields. But
various concerns have been expressed from different quarters within India on the
possible adverse effects of biotechnology. Since most seeds in India are farmer saved
or homegrown, grains produced from seeds based on Terminator Technology, which
are devoid of regenerative/productive capacity, will make farmers completely
dependent on seed markets, for which they are financially not equipped (Mishra
1999b)2. Although transgenic varieties improve yields, they may also deprive the
society of biomass and plant genetic resources by causing harm to biodiversity. Loss of
biodiversity can result in various problems, such as the outbreak of disease and pest
attacks in agriculture. Mishra (1999a) argues that plant variety protection can promote
the conservation of biodiversity. This is because, with the establishment of “farmers’
rights,” farmers will be compensated for their contribution to the selection and
conservation of the genetic diversity of crops and livestock, which means that a plant
breeder who acquires rights over a variety developed on the basis of genetic resources
supplied or conserved by farmers is liable to compensate them.
Research priorities
The process of trade liberalization, deregulation, and, in particular, the growing
activities of private companies, including multinationals, in research and in the
distribution of seeds, fertilizers, etc. brought considerable changes in the underlying
economic conditions and led to changes in the research priorities of the NARS. ICAR
shows a change in priorities over the last three decades with a two-thirds reduction in
2. Percentage of homegrown seed used in cultivation in 1996–97: wheat (92), paddy (88), gram (97), tur
(92), groundnut (93), rapeseed/mustard (76), and soybean (91).
110 Chapter 3
educational expenditure to give way for higher spending in research and, even more so,
in extension. With trade liberalization and other policy reforms, the need to strengthen
the links between agricultural research and economic policy-making was felt. To
fulfill this objective, the National Centre for Agricultural Economics and Policy
Research (NCAP) was established in 1991. A policy shift is now beginning to take
place. Until recently, priority setting for agricultural research often depended on
subjective judgments and collective decision-making. Formal methods based on
concepts such as economic surplus are beginning to be used and institutionalized in the
NARS, and multiple criteria, such as efficiency, equity, sustainability, and export
promotion, are employed.
In the beginning of the Green Revolution, achieving national self-sufficiency in
food grains was one of the main objectives, since the country depended substantially
on imported food grains for its food security. In order to increase grain production,
priority was given to areas that had high potential for technology adoption. By the late
1980s, there was an increasing justification for public funding of research specifically
focused on the needs of the poor. Despite the overall food self-sufficiency, the high
incidence of poverty and household food insecurity that is persisting has become one
of the main concerns of public agricultural research. The impact on household-level
food security, as opposed to national food self-sufficiency, is currently an important
criterion in determining the allocation of public funds for agricultural research. Other
important considerations in the allocation of research resources include regional
imbalances in productivity growth and income, and sustainability and conservation of
natural resources. This motivation for a change in research priorities is further
reinforced by the realization that the benefits from globalization bypass subsistence
farmers and farmers with poor access to markets. The focus of public research is
primarily on regions with a difficult topography, hills, and coastal areas, and the main
effort is to address the issues of equity, human resource development, and the
environment.
Reorientation of research is also taking place to take advantage of the liberalized
export policy by strengthening research on Basmati rice, durum wheat, spices and
condiments, fruits and vegetables, meat and meat products, and fish and other marine
products. Public research efforts are therefore being directed at the development of
breeding and processing technologies for crop diversification and value-addition. A
major objective of the Draft Ninth Five-Year-Plan (1997–2002) is to enhance
productivity through the development of high-yielding hybrids and varieties, research
on quality improvement, post-harvest technology and export-oriented commodities.
Domestic socioeconomic needs and consumption patterns have been changing with
rising income levels (see, e.g., Radhakrishna 1996). Consumers’ tastes are also
influenced by the increased flow of information and the entry of multinational
corporations, which is leading to rising demands for processed foods. Table 3.1 lists
strategies that are being planned for different commodities to promote agricultural
growth, and Table 3.2 outlines the main initiatives taken by the government in recent
years.
Globalization and Public Agricultural Research in India 111
Commodities Strategies
Wheat, non-basmati rice, coarse cereals, Plan for self-sufficiency, discourage imports
maize, sugar, dairy products, milk, semen through tariffs
and vaccine
Basmati rice, fine rice, cotton, tobacco, tea, Promote exports aggressively
spices, lac, natural gum
Pulses Deficit likely to continue, long-term production
and processing strategy
Coffee, rubber, spices, condiments and Need long-term production strategy and
medicinal plants institutional support, capable to remain export
competitive
Onion, potato, mangoes, pomegranate, Need long-term production strategy and
grapes, apple, litchi, banana, other fruits, institutional support, capable to remain export
vegetables, vegetable seeds and products, competitive. Promote exports aggressively
areca nut, floriculture, live plants,
mushrooms
Chocolates, malts, biscuits, spirituous Comparative advantage exists, promote
beverages, animal feeds, etc. exports
Source: Mruthyunjaya (1999)
Private-sector participation
The reforms provided strong incentives to increase the share of private research in
India. The liberalization of the import of technologies and other inputs, the relaxation
of restrictions on foreign investments, and other reform measures have led to a
growing presence of the private sector in agricultural R&D activities. In particular, the
opening up of the seed industry led to an increase in the volume of research by foreign-
owned and local firms. Pray and Ramaswami (1999) indicate that between 1984–85
and 1994–95, real research expenditure in the private sector tripled from Rs. 42 to Rs.
155 million, compared to an increase of only 69% in public research expenditures.
Thus, the private sector shows a high sensitivity to the changing policy environment.
Currently, public funds account for 85% of the total expenditures on agricultural
research in India, and the remaining funds come from the private sector. Private
investments are focused on input-related technologies such as chemical fertilizers and
pesticides, and mechanical and biological/hybrid technologies.
Thus far, there has been no overlap in funding and execution of research by the
public and private sectors. A very small share of private funds is allocated to research
areas that are in the domain of public research and vice versa. Well-developed science
and other infrastructure facilities and rapidly expanding markets for inputs and new
technologies provide a good backdrop for active private sector participation in
agricultural research (Pal and Joshi 1999). ICAR and other public-sector institutions
have initiated reforms aimed at the private sector in an effort to respond to the “new
112 Chapter 3
Table 3.2. Main Initiatives during the VIII and IX Plan Periods
Goal Initiatives
Research- < 261 Krishi Vigyan Kendras (KVKs), 8 < Expansion of KVKs, IVLPs
extension-farmer Trainers’ Training Centres (TTCs) < Agricultural Technology Information
(REF) linkage < 42 Institute Village Linkage Program Centres (ATICs)
(IVLPs) < Agricultural Technology Management
< Front Line Demonstrations (FLDs) Agencies (ATMAs)
Partnership < Private sector, NGOs < Private sector, NGOs, MOUs with 15
countries and 16 international
organizations
Growth-oriented < Perspective plan < Project-based budgeting
governance < Participation of private sector, NGOs < Matrix mode of research management
< Setting IPR cell, NCAP < Review of AICRPs, Regional
< Resource mobilization Research Stations (RRS)
< Decentralization < Widening and deepening of award
system
< Implementation of GVK Rao
Committee Report on administrative, < O&M reforms, more than 100
financial and research reforms < Agro-ecosystem, production system
< Strengthening of monitoring and research
evaluation mechanisms < Documentation of indigenous
< Fixing cadre strength of scientists in technology knowledge (ITK)
institutions by disciplines < Production system research (PSR),
< Strengthening award system team of excellence (TOE),
competitive grant scheme (CGS) and
< Better publication system
mission mode (MM) research
< Prioritization, monitoring and
evaluation (PME)
Source: Mruthyunjaya (1999)
R&D challenges.” These efforts include the design of a new strategy for priority
setting, technology development, testing and training, and commercialization. Under
the World-Bank funded National Agricultural Technology Project (NATP), public
research and extension institutions will be geared more towards the development of
technologies with public goods’ characteristics. With the Indian Patent Act in place,
private participation is likely to rise over time.
3. The details of these institutes, such as their area of operation and the thrust areas of their research
programs, are presented in Srinivasan and Jha (2000).
114 Chapter 3
and limited to only a few crops, such as cotton, maize, sunflower, oilseeds, sorghum,
and pearl millet, in which the potential profitability is high. Pal and Joshi (1999) report
that private investments in hybrid seed research were induced by free access to public
research materials and the 1998 New Policy for Seed Development. Since the seeds of
hybrids cannot be used in the subsequent season without a significant loss in yields,
they are particularly attractive for private research companies that depend much less
on legal protection. Pray and Ramaswami (1999) demonstrate that in the semi-arid
regions, private research had a positive impact on both the area under hybrids and the
yields. Technology for new commercial inputs and machines and research for
diversification into export or other high-value crops could also be supported by the
private sector.
The opening up of the Indian seed industry has improved its competitiveness and
set in motion a trend of increased commercialization of the State Seed Corporations.
Import of commercial seeds needs to be further liberalized in order to encourage
private research. An effective quarantine system in line with the International Plant
Protection Convention (IPPC), together with a transparent germplasm collection
policy, is required to encourage imports of plants and germplasm and thus benefit from
potential complementarities between domestic and foreign research. Monopolization
of research by large companies can be tackled either through appropriate regulatory
mechanisms or through the strengthening of public research programs, so that public
research can compete with the private sector in the production of private goods.
Regulatory measures need to be responsive to the changing global scenario and should
be enforced through strong legal mechanisms. Regulation and quality control through
appropriate certification procedures are necessary to protect farmers from fraud and
poor-quality seeds. These measures are also needed to reduce the negative externalities
(such as resource degradation) that may result from the use of the newly developed or
imported seeds and plants, which the private sector disregards in its decisions.
The growing presence of the private sector does not diminish the importance of
public research in the future. There is in fact a need to exploit the potential
complementary linkages between the two sectors. For example, there can be a
contractual agreement on the public funding of private research for innovations that
will be made available as public goods. According to Mruthyunjaya (1999), the
interaction between the two sectors can take several forms:
< consultation to determine research priorities;
< collaboration in the funding and execution of applied research;
< contractual agreement on the private funding of public research programs or the
provision of public research services to the private sector on cost recovery basis;
< supervision over the private sector in order to ensure competitive and quality
services and to enforce regulations.
These developments mean that the role and modus operandi of public-sector research
will have to be redefined by reorienting its research towards specific tasks and research
areas and leaving other areas to the private sector. Public research could, for example
concentrate on cropping- systems research rather than on the development of new seed
varieties, since the private sector is less likely to enter the areas where the benefits from
Globalization and Public Agricultural Research in India 117
research are not easy to appropriate. Public-sector research also has to focus on areas
where the externalities are high and the output is a public good in nature. Examples of
such areas include natural resource management and basic research where knowledge
spillovers can be high. The technology for natural resource management will generally
not be marketable and requires public funds. The public sector may have to withdraw
from some areas where the private sector has greater strengths, and it may have to shift
its operations to address the needs of marginal areas such as the northeastern hills and
the eastern regions.
The large benefits that accrue to farmers by adopting hybrid seeds developed by
private companies imply that private research should be encouraged. Pray and
Ramaswami (1999) argue that reforms should continue to allow entry of private
domestic and foreign companies into the seed industry and the imports of germplasm
for private research, as well as to promote further collaboration between ICAR
institutes and private research institutes. Food processing, in which private research
expenditures have grown eightfold over the decade from 1984–85 to 1994–95, is
another important area for future development. There are various ways of encouraging
private efforts in agricultural R&D, the most important of which are the protection of
intellectual property and plant variety rights. Other incentives that are particularly
common in developed countries include tax breaks, direct subsidies, and grants. When
providing such incentives, it must be ensured that the benefits in terms of distributional
implications outweigh the social costs of distortions in the quantity and mix of research
(Alston et al. 1998).
The public sector should compete with the private sector on a level ground. This
means that the regulatory role of the public sector should be clearly separated from its
role as a producer. The presence of the public sector in production can also help in
keeping seed prices in check in the absence of any price regulation. Adopting a
strategy of selective commercialization, using resources optimally and following
prioritization, monitoring, evaluation, and impact assessment will increase their
resource base. To achieve all this, the public research institutes will need greater
autonomy and freedom from bureaucratic control. There is a need to make the research
system less bureaucratic and provide adequate resources to scientists in public
research institutes so that they can compete effectively with the private sector. The
active presence of the public sector is also important in keeping indigenous research
capabilities alive.4
Safety nets for rural households negatively affected by the policy reforms
To provide safety nets to the poor who might be adversely affected by the process of
globalization, there is a need to set pro-poor research priorities and to identify the
needy groups, such as landless workers, small farmers, large poor farming households,
and urban workers. Production, employment, and incomes in the agricultural sector
4. For example, Chile imported technology from California and earned foreign exchange for 15 years
from exports of fruits based on crops grown using this technology. In the meantime, their domestic
research capability deteriorated, and the country faced difficulties when post-harvest problems started
after 15 years.
118 Chapter 3
can be substantially increased through firm support for agricultural R&D, the spread of
new technologies, and the dissemination of modern inputs to less developed and
rainfed regions. In this context, it is interesting to note that, even though prices of
private hybrid seeds are 2–6 times higher than the price the output fetches in the
market, net benefits to farmers are positive as a result of much higher gains in yields. In
particular, poor farmers have benefited from the improved quality and higher yields of
hybrid seeds of coarse cereals such as sorghum, pearl millet and maize (Pray and
Ramaswami 1999, and Ramaswami et al. 1999). Research aimed at converting these
coarse grains into high-value grains, e.g., baby foods, cattle feed, can further raise the
income of these farmers.
However, private seed companies, which play a leading role in the production,
distribution, and development of improved germplasm, focus on commercial hybrids
for major production zones and leave out the development of less profitable materials
suitable for small-scale, semisubsistence farmers. Public research must focus on the
development of seed varieties that are suitable for areas with low production potential.
While the role of the public sector in seed production and distribution has been
reduced, it will have to support the private sector in basic germplasm research and in
research aimed at marginal areas and farmers. A well-organized, high-quality seed
production and distribution system with an effective delivery mechanism, correct
timing, and an affordable price can improve seed replacement rates and thereby
enhance productivity. In addition, the development of modern seed technology
including hybrid seeds, resistance to pests and soil stresses, etc., can contribute to
reducing rural unemployment and providing better safety nets for resource-poor
farmers.
There is also a need to identify the factors that constrain the adoption of new
agricultural technologies in different regions. The available empirical evidence from
India shows that apart from the crop share in each farming system and the costs of
necessary inputs, various other factors influence the adoption rate of a new technology
between regions and between farming systems. These factors include access to
extension services, irrigation facilities, credit, whether the crop is grown primarily for
self-consumption or for sale, the distance from the market for inputs and outputs, the
level of education of the farmers, institutional membership, and social participation.
Effective extension services and the suitability of seeds to a particular agroclimatic
region also determine the adoption rate of a new technology. The spread of new
technologies and the dissemination of modern inputs to less developed and rainfed
regions can be improved through education, extension and better marketing systems.
According to some writers, the time seems to have come for a second Green
Revolution, but unlike the first one, the new technology will have to be tailored to
specific locations. Land heterogeneity and the wide range of agroecological conditions
imply that the technologies required and the methods used for their dissemination need
to be designed for specific social and geographic environments. Since poor farmers
mostly live in unfavorable areas, new research should focus on developing varieties
that can overcome the specific production constraints in these areas, such as, for
example, the development of varieties that are salt and drought resistant.
Globalization and Public Agricultural Research in India 119
References
Alston, J.M., P.G. Pardey and J. Roseboom. 1998. Financing agricultural research:
International investment patterns and policy perspectives. World Development 26(6),
1057-1071.
Bhalla, G.S. and G. Singh. 1997. Recent developments in Indian agriculture: A state level
analysis. Economic and Political Weekly, March 29, A-2–A18.
Cromwell, E., S. Wiggins and S. Wentzel. 1993. Sowing beyond the state: NGOs and seed
supply in developing countries. London: Overseas Development Institute.
Debroy, B. 1998. Intellectual Property Rights. In Agenda for Reform: Action Plan for the
Economy, edited by B. Debroy and P. Shah. 50-60. New Delhi: Rajiv Gandhi Institute for
Contemporary Studies.
Globalization and Public Agricultural Research in India 121
Dev, S. Mahendra and A. Ranade. 1999. Persisting poverty and social insecurity: A selective
assessment. In India Development Report, 1999-2000, edited by K.S. Parikh. New Delhi:
Oxford University Press.
Gulati, A. and A. Sharma. 1994. Agriculture under GATT: What it holds for India. Economic
and Political Weekly, July 16, 1857-1863.
Gulati, A. and A. Sharma. 1997. Freeing trade in agriculture: Implications for resource use
efficiency and cropping pattern changes. Economic and Political Weekly, December 27,
A155-164.
ICAR. 1998. National Agricultural Technology Project (NATP): Project summary. January.
New Delhi: Krishi Bhawan.
Jha, Shikha and P.V. Srinivasan. 2000. Food inventory policies under liberalized trade.
International Journal of Production Economics, Elsevier, forthcoming.
Mishra, J.P. 1999a. Plant Variety Protection including UPOV Convention on Biodiversity: An
Indian experience. Paper presented at the International Seminar on Implications of NEW
IPR.
Mishra, J.P. 1999b. Regime under TRIPS for Developing Countries, Habitat Centre, New
Delhi, 19-21 May. Biotechnology and Intellectual Property Rights. Yojana.
Mruthyunjaya. 1999. The impact of the globalization process and the economic reforms on the
agricultural sector. Paper presented at an expert consultation meeting at ISNAR, The Hague,
The Netherlands.
Mruthyunjaya and P. Ranjitha. 1998. The Indian agricultural research system: Structure,
current policy issues and future orientation. World Development 26(6), 1089-1101.
Nayyar, D. and A. Sen. 1994. International trade and the agricultural sector in India. Economic
and Political Weekly, May 14, 1187-1203.
Pal, S. and P.K. Joshi (eds). 1999. New paradigms of agricultural research management:
Institutionalization of research prioritization, monitoring and evaluation, and partnership
with the private sector. Workshop Proceedings 6. New Delhi: National Centre for
Agricultural Economics and Policy Research.
Paroda, R.S. 1996. Farm research: New paradigms, The Survey of Indian Agriculture. Chennai,
India: The Hindu.
Pray, C.E. and B. Ramaswami. 1999. Technology, IPRs and reform options: Case study of the
seed industry with implications for other input industries. Paper presented at the
NCAER-IEG.
World Bank Conference on Reforms in Indian Agriculture for Growth, Efficiency, Equity and
Sustainability, New Delhi, April 15-16.
Radhakrishna, R. 1996. Food trends, public distribution system and food security concerns.
Indian Journal of Agricultural Economics 51 (1&2), Jan-June.
Ramaswami, B., C.E. Pray and T. Kelly. 1999. Private plant breeding and farmers’ yields in the
semi-arid tropics of India. Discussion Paper No. 99-07. New Delhi: Indian Statistical
Institute.
Rao, C.H. and A. Gulati. 1994. Indian Agriculture: Emerging perspectives and policy issues.
Economic and Political Weekly, Vol. 29, No. 16 & 17.
Shiva, V. and T. Crompton. 1998. Monopoly and Monoculture: Trends in Indian seed industry.
Economic and Political Weekly, Vol. 26, pp. A137- A151.
Srinivasan, P.V. and Shikha Jha. 2000. Impact of recent policy changes and globalization on the
agricultural sector and agricultural research in India. Proceedings/ Project Reports No. 40.
Mumbai, India: IGIDR.
122 Chapter 3
Swaminathan, M.S. 1993. Genetic diversity and the Indian seed industry. Paper No. 4. New
Delhi: Rajiv Gandhi Institute for Contemporary Studies.
Chapter 4
Globalization and Economic Reforms
in Ghana
Cletus K. Dordunoo and Godwin Y. Dogbey*
Introduction
In the 1990s, Ghana was one of Africa’s success stories. After initiating a
comprehensive program of structural adjustments in close cooperation with the World
Bank and the IMF in 1983, the Ghanaian economy reached relatively stable economic
growth with a GDP growth rate of 4–4.5% per annum in the mid-1990s (Figure 4.1).
This growth brought about a marked reduction in poverty, and from 1991–92 to
1998–99, the percentage of the poor declined from 52% to just under 40%.1 In Ghana,
the average growth rate was considerably higher than the average 2.9% growth rate of
other sub-Saharan African countries during the same period, and the reduction in
poverty contrasted sharply with the rise in poverty elsewhere in the region. The most
important success, and indeed the key to economic development, was the deepening of
the democratic process. With two relatively orderly elections in 1992 and 1996,
democracy in Ghana became increasingly stable and more widely accepted, as
exemplified by the peaceful transition of the presidency to the candidate of the
opposition party after the election of December 2000.
Ghana emerged during the 1990s as a model for free-market innovation in Africa,
and now, at the onset of the 21st century, it embarks on a strategy of accelerated growth
and a further reduction of poverty. This strategy, known as Vision 2020, specifies the
growth path of the main economic sectors and the benchmarks for attaining the goal of
becoming a middle-income country by the year 2020. Prior to the structural
adjustments of the late 1980s, the government was heavily involved in economic
activity, and much criticism was leveled at the tight state controls over the economy.
The subsequent policy reforms moved to liberalize the economy, deregulate and cut
the size of the public sector, and privatize many public enterprises through divestiture
and other institutional renewal mechanisms.
The agricultural sector was a very important component of all economic reforms in
Ghana and continues to feature prominently in “Vision 2020”, largely because of the
concentration of the poor in the rural areas. Agricultural research had an important role
in the sectoral reforms, resulting in a relatively higher allocation of resources for this
1. During these years, the infant mortality rate fell from 85 to 57 per 1000 live births, and life expectancy
rose from 55 to 58 years.
* Cletus K. Dordunoo, Godwin Y. Dogbey: Ghana Institute of Management and Public Administration
123
124 Chapter 4
5
4
3
2
1
0
1994 1995 1996 1997 1998 1999 2000 2001
(est.) (proj)
purpose than for other public scientific research institutions. In recent years, however,
the resources allocated to public research have dwindled, and the NARS had its
physical and human resources seriously cut. The current trend to commercialize many
hitherto public activities and institutions, and the pressures of trade liberalization, has
forced the NARS to reorient its research strategies and resource allocations to new
areas of research and to collaborate and share information with other public and private
research organizations.
and a restructuring of state-owned enterprises that in the mid-1980s accounted for 60%
of the value added and 55% of employment in the industrial sector. Another part of the
reforms, implemented under pressure from international organizations, was a
reduction of government involvement in the economy. This was achieved by
large-scale privatization and an accelerated divestiture program that included a
number of important state assets, such as the Social Security Bank. In addition, the
government shares in large state-owned banks were sold. and, in 1998, the government
launched the privatization of the remaining state-owned banks.
In the second half of the 1990s, the economic reforms in Ghana included
accelerated deregulation, trade liberalization, considerable reduction of the
government’s direct involvement in the economy, large-scale privatization, and stable
macroeconomic management through prudent fiscal and monetary policies. To further
reduce the size of the public sector and its involvement in the economy, the
government privatized many additional state enterprises through divestiture. Under
the National Institutional Renewal Program (NIRP), the government gradually
reduced subsidies to most public institutions. Trade liberalization proceeded to
gradually eliminate the incentive system in order to comply with the WTO rules and
regulations, improve the competitiveness of local producers, and remove the extensive
quantitative restrictions and domestic price controls. The tariff regime was
progressively lowered to the rate of 20% by 2001 and was greatly simplified, and the
majority of import and price controls were relaxed.
Nevertheless, these reforms were subject to extensive criticism, primarily because
they were introduced rather abruptly and, as a result, were damaging to many local
infant industries, which were unable to withstand external competition (Hussain and
Faruquee 1994). Export promotion was, however, an essential component of the
liberalization plan, and domestic producers, primarily agricultural producers of export
crops, benefited from the removal of many export duties. Fiscal policy was growth
oriented and the national budget served as an instrument for mobilizing resources in
support of investment and other public expenditures to provide priority services. The
initial goals of the fiscal policy were to correct the massive fiscal imbalances that
existed in earlier years, to reform the tax system, to widen and deepen revenue
collection, to enhance economic incentives, and to improve the economic and social
infrastructure (Amuzu 1998). Monetary policy was also aimed at curbing inflation
through tight controls over money supply by means of improved monetary
instruments, as well as more indirect and market-based instruments. As a result,
inflation continued its downward trend, dropping below 10% in the second half of
1999 (Wampah 1998; Dordunoo and Donkor 1998). The government reform program
was also criticized as regionally biased and having a strong focus on Accra. Indeed, the
poverty rate in Accra fell from 23.1% in 1991–92 to 3.8% in 1998–99, whereas the
poverty rate in the Savannah remained essentially unchanged and declined only
marginally in the coastal areas.2
2. In the urban coastal areas, the poverty rate declined from 28.3% to 24.2% and in the rural coastal areas
from 52.5% to 45.2%.
126 Chapter 4
Despite these far reaching reforms, the fiscal and monetary targets were not
reached until recently. Inflation and interest rates remained quite high and there was a
general macroeconomic imbalance. After several successive years of a moderate
government budget surplus of around 1.5% of GDP from 1986 through 1991, there
was a budget deficit of over 5% of GDP in 1992, due to a sharp increase in government
expenditure—largely associated with the election of that year—and represented a
clear break in the government’s economic discipline. Inflation accelerated from 34%
in 1994 to over 70% in 1995, compared with the target of 18%. This was due to several
factors: (1) rapid growth in the money supply by over 37%, compared with a
programmed target of 8%, (2) fiscal expansion that ran into deficit when divestiture
proceeds were excluded, (3) depreciation of the Cedi, (4) cost-push effect of petroleum
price increases, and (5) the poorly implemented and problem-laden value-added tax
(VAT).
The introduction of VAT in early 1995 to replace the manufacturers’ sales tax was
aimed at improving the tax administration and broadening the tax base in order to meet
the growing expenditures and to finance the chronic deficit. This deficit was further
augmented in 1996 with the surge in government expenditure in anticipation of the
election in that year. The cascading effect of VAT on prices, the political pressures of
parliament, and the weaknesses in administering VAT doomed this tax and led to its
withdrawal two months later. VAT was reintroduced in early 1999 at the lower rate of
10%—compared with 17.5% in the initial attempt—and in that year VAT seemed to
operate well.
Since 1999, Ghana has suffered a trade shock, resulting from the sharp drop in the
international price of its two main export products (gold and cocoa) and the price rise
of petroleum imports. This shock has led to a deterioration of the country’s
macroeconomic performance—primarily a depreciation of the exchange rate and a rise
in inflation—and the accumulation of large external arrears. Sharp rises in petroleum
prices had often been used as a means of revenue generation with very negative
consequences. In 1996, for example, petroleum prices (ex-pump) rose by over 25%,
resulting in an increase in direct transport costs of about 30%. The high petroleum
prices and the introduction of new taxes affected production costs, primarily of
agricultural produce, and led to high transport costs that constituted close to 70% of
marketing margins, thus driving a wide wedge between farm-gate prices and the final
prices paid by consumers in the urban areas. This large difference reduced the
profitability of cash crops, including cocoa, and drove many farmers to the production
of food for self-consumption. In the aftermath of the sharp rise in petroleum import
prices in 1999, the government also raised the prices in the domestic market very
significantly to reduce the operating losses of the state-owned refinery, and it raised
the tariffs on water and electricity. Mineral production and exports, including gold,
bauxite, diamonds and manganese, had also been adversely affected by the
unfavorable changes in the exchange rate prior to the reforms and by the ineffective
state ownership. The combination of exchange rate reforms, privatization, and realistic
royalty rates made a significant contribution to the recovery of the mineral sector until
the recent decline in the world prices.
Globalization and Economic Reforms in Ghana 127
Since the mid-1990s, the government has increased the reserve ratio steadily to an
all-time high of 57% in an attempt to control the money supply. A sharp rise in the
discount rate drove up the lending rates on personal (and investment) loans from 45%
to over 50% (Dordunoo 1996). After 1997, the economy started to show signs of relief
and inflation gradually declined (Figure 4.2). The rapid inflation had a direct impact on
the competitiveness of the Ghanaian exporters until recent years. After a rapid
depreciation of the Cedi from 1991 through 1994, the effective exchange rate,
calculated on the basis of consumer prices, began to appreciate in 1995. The jump in
inflation to over 70% in 1995 prompted the authorities to intervene in the foreign
exchange market to slow down the Cedi depreciation. As a result, the unit labor costs in
Ghana increased compared to those of its trading partners, even though wage costs
were generally contained. Consequently, Ghana lost much of its competitiveness in the
international markets. Moreover, after Ghana had accepted the demand of
international organizations to remove all restrictions on foreign exchange payments
and transfers, the only way to affect the foreign exchange rate was through direct
intervention in the foreign exchange market. Indeed, in recent years, the central bank
of Ghana frequently intervened in the foreign exchange market to prevent a rapid
depreciation of the Cedi and to moderate the inflationary impact of the resulting rise in
import prices.
A critical area of the reform was the transformation of the state-owned enterprises.
By 1987, more than half of the value added and employment in the industrial sector
(including mining) was in state-owned enterprises. Their share in the agricultural and
service sectors, including banking, was equally high. It was widely acknowledged that
the only solution was divestiture, but the reform program proceeded initially very
slowly. A Divestiture Secretariat was set up in 1987, but actual sales started only in
1990. The process quickened somewhat after the election of 1992. The divestitures,
however, yielded only modest revenues to the government due to the large outstanding
liabilities that many enterprises had. The divestiture of the state-owned banks was
stalled in many cases due to their poor quality. Since the IMF frequently criticized the
slow pace of the divestitures, the government indicated its commitment to the process
in its Letter of Intent to the IMF in 1999, in which it stated its intent to divest all the
70
60
50
40
30
20
10
0
1994 1995 1996 1997 1998 1999 2000 2001
(est.) (proj)
Privatization featured prominently under the MTP so as to reduce the drain on the
government budget arising from unprofitable public-sector production activities and to
concentrate resources on policy planning and the provision of public goods.
Privatization was to be pursued through the participation of local corporate entities,
formal beneficiary groups and cooperatives, and local-foreign joint ventures. Indeed,
another important objective of privatization was to give enhanced opportunity to these
private sector organizations to participate fully in the marketing of agricultural inputs
and products. To support and encourage these organizations the strategy included the
following measures:
< technical assistance to cooperatives in order to enable them to assume a greater
role in the privatized agricultural market;
Globalization and Economic Reforms in Ghana 129
< a greater role for communities in the cocoa growing areas in order to enable them
to become cocoa-buying agents and distributors of input supplies;
< training for women’s groups involved in grain marketing and agroprocessing.
Vision 2020 gives agriculture in Ghana a more prominent role in the future. Along
with practically all other low-income developing countries, Ghana is grossly
underinvesting in agricultural research compared with the industrialized countries,
even though agriculture accounts for a much larger share of employment and income
in developing countries. Typically, public-sector expenditures on agricultural research
have been less than 0.5% of the gross agricultural GDP, compared with at least 1% in
the higher-income developing countries, and 2–5% in the industrialized countries
(IFPRI 1995). The NARIs obtained some funding in their collaboration with other
national and international research institutes, and of other institutions in the NARS in
Ghana, primarily the universities.
Sector policies of the government of Ghana have been reoriented in recent years
under the Vision 2020 strategy. Under this strategy, the growth rate of real GDP will
gradually rise from 4% in 1999 to 6% in 2003. The growth rate of the agricultural
sector will rise from the current rate of 2–3% to over 4% in later years. These changes
will be accompanied by significant structural changes, and the share of the agricultural
sector in the GDP will gradually decline from around half in the mid-1990s to less than
one-third in 2020. The share of the industrial and services sectors will grow from 16%
and 35% respectively in the mid-1990s, to 18% and 49% respectively by 2020.
Agricultural policies must derive their general and specific thrusts from this planning
framework.
Agriculture is still the main economic sector in Ghana. During the first half of the
1990s, agriculture contributed on average 45% to GDP, while industry and services
contributed 17% and 38% respectively (Table 4.1). In 1996, agriculture employed
about 70% of the labor force and accounted for over 53% of foreign exchange
earnings. In rural areas, agriculture is the main source of employment and income;
rural households that depend on agriculture for living constitute about 72% of the
population of Ghana (Dordunoo 1994 and 1997). It is also the major source of food for
the nonagricultural urban population and of the bulk of raw materials for agrobased
industries (Seini 1998).
The principal aim of the agricultural sector policies is to ensure food security and
adequate nutrition for the entire population in Ghana, to supply raw materials and other
inputs to the other sectors of the economy, to contribute to improving the balance of
payment, and to raise the income of the rural population and thus contribute to
reducing poverty. In 1998–99, 83% of the poor in Ghana were in the rural areas, and
most of them were food crop farmers (Figure 4.3). Significant reductions in poverty
can therefore be achieved only by significant improvements in the agricultural sector.
These improvements require the diversification of agricultural production, the
introduction of export crops, stronger linkages with the other sectors of the economy,
and an increase in private investment, improved infrastructure and targeted research.
At present, however, the agricultural sector is highly concentrated and is made up
of five main subsectors: cocoa (14% of agricultural GDP), crops other than cocoa
(61%), livestock (7%), fisheries (5%), and forestry (11%). The noncocoa crops include
food crops (primarily cassava, yam, plantain, and maize), industrial crops, and some
horticultural crops. Food crops command domestic importance since they constitute
the basic staples for subsistence and have a strong impact on domestic inflation.
Livestock is constrained by the presence of the tsetse fly in the forest zone, the low
nutritional value of the local grass, and the lack of adequate water supplies in the
savanna zone. As a result, Ghana has to import about two-thirds of its beef and almost
all milk and dairy products.
Cocoa has long been Ghana’s principal export product, providing a significant
source of foreign exchange and government revenue, and the main source of income
for farmers in many parts of the country. An effective reform in this sector is therefore
pivotal. The strategy in the early years of the reforms focused on raising producer
prices in order to reverse the decline in production and sales for exports. The exchange
rate reform was also an important component that contributed to raising the foreign
exchange earnings of the Cocoa Marketing Board (CMB) and permitted the Board to
triple the real producer prices within five years. However, the rapid decline of cocoa
prices in the world markets in the mid-1980s, and even more in the early 1990s (to 40%
of its level in 1987–88), made it difficult, for the CMB to maintain the real producer
prices, and the recovery in export volume that had started in 1983 stalled by 1990. In
70
60
50
40 Incidence of Poverty 1991/2
30 Incidence of Poverty 1998/99
20
10
0
Rural Urban Total
the first half of the 1990s, the share of cocoa in the total export receipts fell to just over
20%, down from around 50% in the mid-1980s.
A major expected outcome of the reform program was that the private sector would
vigorously respond to the substantially improved enabling environment, taking over
those functions that had previously been carried out by the government and parastatal
enterprises. In cases of domestic cocoa marketing and farm input marketing, the
outcome to date has fallen short of expectations. By the late 1990s, about 40% of the
internal cocoa marketing was expected to be handled by the private sector, whereas
actually only about 25% of the cocoa crop is purchased by the private sector and 75% is
still marketed by the publicly owned Produce Buying Company. This unexpectedly
slow growth of the private sector in cocoa marketing can be explained partly by the
fairly significant up-front investments required to enter into this business. In addition,
the capacity and facilities of most Local Buying Companies are still limited by the lack
of trained staff, trucks, storage facilities, scales, bags and the high cost of capital as
well as cumbersome credit procedures. Yet another hampering factor was the very
tight marketing margins allowed for Local Buying Companies in the initial years of
liberalization. These margins have proved to be inadequate in the face of high inflation
and undue delays in having cocoa deliveries unloaded and paid for by the CMB.
It was also expected that once the input trade was liberalized and the undue
advantages of the CMB and the Farmers’ Services Companies (FSCs) were
eliminated, the private trade would eagerly take up the opportunity to engage in input
wholesaling and retailing. This, however, did not take place. In fact, the government
faced considerable difficulties in its attempt to dispose of the FSCs, even after writing
off all their debts to the government. It appears that potentially interested traders
lacked the capital to take over FSC stocks and facilities and were not prepared to take
the high business risks associated with the prevailing bank lending rates of about
30–40% per annum and the pronounced seasonality of the trade. Furthermore, existing
trading houses were and still are reluctant to invest in the establishment of distribution
networks out of concern that international aid projects might again provide free or
subsidized inputs, thus undermining the price structure and making advance planning
of imports and up-country distribution close to impossible.
Although the monopsony of the public enterprise over the purchase of cocoa beans
from producers was gradually reduced, private-sector agents handle only about 25% of
the annual crop. The anticipated growth in the private marketing of inputs has not yet
fully materialized, due to factors such as the lack of capital and facilities, regulatory
constraints on fertilizer marketing, the slow growth of effective demand, and poor
rural transport infrastructure in most parts of the country. Hence, the objective of
increasing competition and therefore efficiency in marketing has not been fully
achieved. In addition, the implicit tax on cocoa producers that is still ranging between
40% and 51% of the export price has a strong contractionary impact on the cocoa
output. In 1999, the government approved a new cocoa strategy designed to improve
the incentive for producers, promote competition in the domestic market, and end the
public monopoly in cocoa exports. The governmental Produce Buying Company was
finally offered for sale and its shares were to be floated in the Ghanaian stock
exchange. The Cocoa Sector Development Strategy also envisions a doubling of cocoa
132 Chapter 4
Agricultural research in Ghana was historically mainly in the public domain. Priority
setting for research continues to be strongly influenced by the government, the
extension services, and the NARIs. The Council for Scientific and Industrial Research
(CSIR) is the main public institute in Ghana. It is responsible for all scientific research,
including agricultural research, and the NARIs are the main public institutes that
undertake agricultural research. The NARIs were strongly affected by the
government’s fiscal discipline that led to an effective freeze on employment in most
public-sector institutions, and during 1990–96, the average number of researchers
increased by only 25%, largely due to external funding. Most prominently, the
mid-term review by a joint World Bank/Government of Ghana panel in 1995
recommended specific research projects for 17 commodity/factor research programs,
including the collection and characterization of germplasm, hybrid development,
varietal trials of locally screened material for its resistance to pest, disease and weed,
increased yield, and suitability for end use.
The experience thus far with the agricultural sector reforms suggest a number of
lessons:
1. The intensive collaboration between the government and international
organizations in formulating a medium-term sectoral development strategy
resulted in a wide consensus on the necessary sectoral policy and institutional
reforms, thus ensuring that the reforms were implemented effectively and with a
high degree of commitment.
2. Programs that involve divestiture of parastatals and market liberalization need to
be accompanied from the beginning by measures that actively support
private-sector entry. Otherwise, a void may be created and the government may
Globalization and Economic Reforms in Ghana 133
come under pressure to step back in and satisfy unmet demands for marketing
services.
3. When the sale of government assets to the private sector is a condition, clear
guidelines for these sales have to be established.
Conclusion
Ghana’s great economic potential has all too often been marred by turbulent and
inconsistent economic policies. Even the economic reform program that was designed
and monitored jointly with the World Bank and the IMF progressed very slowly and
had to overcome many pitfalls. The past reform programs stopped the slide of the
economy and were the main reason for the continuous recovery since the mid-1980s.
That recovery was, however, very modest, and the level of per capita GDP in Ghana by
the end of the 1990s was more or less the same as in the early 1950s and was still
significantly lower than in the early 1970s. The slow pace of recovery was due in large
measure to the low rates of net investment in the economy, particularly in the late
1970s and the 1980s, but also in the 1990s. Private domestic investments were
particularly low, hampered largely by the lack of proper credit facilities.
Another reason for the slow pace of the recovery was the bias of the government
trade policies against the traditional sectors in which Ghana has a comparative
advantage. These sectors suffered over the years not only from an overvaluation of the
currency, but also from other policy measures that systematically discriminated
against them. One example is the cocoa export tax that had a very negative impact on
production and exports. The heavy involvement of the state in the various stages of
cocoa marketing further reduced the profit margins of producers and their incentive to
increase production. The positive effects that were expected from the comprehensive
Development Strategy of the cocoa sector launched in 1999 were compromised,
however, by the steep drop in cocoa prices in the world markets, falling in the late
1990s to half their value in real terms compared with their level in the mid-1980s.
Nevertheless, the success, albeit partial, of past reforms made it possible to design
a bold strategy in Vision 2020 to guide the Ghanaian economic policy in the coming
years. This strategy outlines the specific sectoral performances required and the
benchmarks for the total attainment of the goal of becoming a middle-income country
by the year 2020. The fundamental principles of this strategy are liberalization of the
economy, deregulation and downsizing of the public sector, privatization through
divestiture, and other institutional renewal mechanisms. It envisions more precipitated
growth and less turbulent and much lower inflation. However, with the growing
importance of the global market for the Ghanaian economy, the ups and downs in the
world market are bound to have a strong effect on its domestic market, and the success
of Vision 2020 will depend of the steady hand of the government in guiding the
economy.
134 Chapter 4
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Dordunoo C.K. 1996. The 1996 Budget Review. Ghana Economic Outlook, Vol.1 No1. Policy
Analysis and Strategic Studies Division (PASSD), GIMP.
Huq, M.M. 1989. The Economy of Ghana—The First 25 Years since Independence. London:
MacMillan Press.
Kapur I., M.T. Hajimichael, P. Hilbers, J. Schiff and P. Szymczak. 1991. Ghana Adjustment and
Growth, 1983-91. Washington, DC: International Monetary Fund.
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and Economic Research (ISSER) of the University of Ghana.
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and Recommended Action. Washington, DC: IFPRI.
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Development Strategy in Support of Ghana Vision 2020. Unpublished Policy and Strategy
Paper.
Seini, A.W. 1998. Agriculture and Food Security under the Structural Adjustment Programme.
Paper presented at the first national forum on the Structural Adjustment Participatory
Review Initiative (SAPRI) at the International Conference Center, Accra, August, 19-21.
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Vol.3 No.1.
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Washington, DC: World Bank.
World Bank. 1981. Agricultural Research: Sector Policy Paper. Washington, DC: World Bank.
Chapter 5
The Impact of Recent Policy Changes on
the Agricultural Sector and Public
Agricultural Research in Kenya
Hezron O. Nyangito and Joseph T. Karugia*
Introduction
The objective of this chapter is to analyze how recent changes in Kenya’s agricultural
policies, which were spurred by the globalization process, have impacted on the
agricultural sector and, in particular, on the agricultural research system. On the basis
of secondary data and information available in various documents and research reports
prepared in recent years on the impact of the reforms on the agricultural sector, and on
the basis of primary data collected through questionnaires that were completed by the
managers of the Kenya Agricultural Research Institute (KARI), three specific issues
will be examined:
1. the policy changes in the past 4–5 years that have had an impact on the agricultural
sector;
2. the changes in Kenya’s agricultural research system during these years;
3. the future changes in the Kenyan NARS in view of the globalization of trade and
research and of the domestic policy reforms.
135
136 Chapter 5
markets have already been deregulated, and although the government has not yet
deregulated the marketing of export crops completely, it has substantially reduced
price controls and liberalized the trade in coffee and tea. Institutional reforms were
aimed at reducing the government’s involvement in the marketing of agricultural
commodities and allowing its marketing institutions to operate like commercial
entities and compete with the private sector. These reforms have been implemented by
restructuring the grains, sugar, cotton, dairy, and coffee marketing boards to encourage
private competition. The restructuring of the Ministry of Agriculture was aimed at
reorienting its roles to strategic functions that emphasize research and the provision of
extension and other essential services to farmers. Reforms in macroeconomic policies
have also been introduced, including the removal of restrictions on the exchange rate,
foreign exchange retention and remittances, and the liberalization of interest rates.
Government spending has been reduced through retrenchments in the civil service, and
this, coupled with reduced government borrowing, was expected to reduce the
inflationary pressures in the economy.
Between 1993 and 1998, several specific policy measures with implications for
agricultural development were proposed, and many of them have already been
implemented. Table 5.1 presents the major policy reforms during these years, and
Table 5.2 provides a summary of these reforms for the main agricultural outputs and
inputs in Kenya. Table 5.2a lists the reforms for the seven commodities that are central
to Kenya’s agriculture: coffee, tea, maize, wheat, milk, beef, cotton, and horticulture
(Nyangito 1998), and Table 5.2b lists the policy actions that affected the major
agricultural inputs, i.e., fertilizers, seed, agrochemicals, veterinary services,
machinery, and credit.
As Tables 5.1 and 5.2 illustrate, the reforms freed the domestic market and prices
were fully deregulated. Trade in cereals and milk, which was previously under the
control of the NCPB and the Kenya National Trading Company, was liberalized.
Imports are now controlled by means of variable import duties rather than by various
restrictions and administrative barriers. Substantial deregulation of the trade in coffee
and tea and complete deregulation of the trade in cotton were effected and exporters
were allowed to retain most of the foreign exchange proceeds.
Other reforms included the rationalization of staffing and budgets in the Ministry
of Agriculture to reorient the ministry’s roles to strategic functions with an emphasis
on research, extension, market information, infrastructure, and other essential services
to farmers. The government has not been keen to implement some of the more
controversial reforms, such as the restructuring of the NCPB to make it an autonomous
commercial entity. The NCPB continues to be engaged in the buying and selling of
grain, often in complete disregard of market forces.
It has been recognized that improvements in the efficiency of the product markets
must be accompanied by the development of an efficient seed production and
distribution system. Accordingly, the seed subsector was liberalized in May 1996, and
the monopoly of the Kenya Seed Company (KSC) in the multiplication, distribution,
and pricing of seeds was removed, so that KSC is no longer the sole grantee of
breeders’ seed from KARI. Under the new policy regime, KARI and other publicly
funded research institutions such as the Tea Research Foundation, the Coffee Research
138 Chapter 5
Trade policy < Abolish specific duties on cereal imports Dec. 1996 Done
< Present to Parliament an anti-dumping legislation Dec. 1996 Done in June
consistent with WTO rules and impose anti-dumping 1997
duties on cereal imports in accordance with the law
< Aim to reduce tariffs towards the lowest prevailing in 1997 Ongoing
COMESA
< Initiate discussions to reduce nontariff barriers to 1997 Ongoing
trade and harmonize investment regulations under
the auspices of EAC
< Work with EAC partners towards a goal of a 1997 Ongoing
subregional common external tariff with maximum
rate of no more than 25% and one other non-zero
rate
< Maximum tariff to be lowered to 30% and no more July 1997 Done
than 3 non-zero rates and lower trade-weighted
average tariff
Source: Ng’eno, N.K. 1997. Comparative Analysis of Economic Reforms in Eastern Africa.
Coffee < Auctioning done with < Auctioning using foreign Nov. 1992 Done
local currency only currency allowed
< No retention of foreign < Retention of 50% of 1992 Done
currency proceeds foreign exchange
proceeds by exporters
Tea < Auctioning done with < Auctioning using foreign Nov. 1992 Done
local currency only currency allowed
< No retention of foreign < Retention of 50% of 1992 Done
currency proceeds foreign exchange
proceeds by exporters
Beef < Marketing and prices < Marketing and prices 1987 Done
controlled decontrolled
Cotton < Domestic marketing, < Complete deregulation 1992 Done
trade, and prices of domestic marketing,
controlled trade, and prices
Sugar < Producer prices < Minimum Prices 1994 Done
controlled established
< Controlled imports < Variable duty introduced 1994 Done
to protect local
producers
140 Chapter 5
Maize < NCPB only importer < Private sector can 1992 Done
import but variable duty
will be imposed
< Producer prices < Minimum (floor) prices 1994 Not done
controlled based on long-term
import parity prices
< Consumer prices < Controls abolished 1994 Done
controlled
< Movement permits < Movement permits not 1994 Done
required required
< NCPB maintained < Foreign exchange 1994 Not done
strategic reserves reserve of $60 million
established
< Only 8% of public < Funding to be increased Ongoing Ongoing
research funds to reflect importance of
allocated to maize the crop. Private
funding to be sourced
through user charges
Wheat < Producer prices < Minimum (floor) prices 1994 Done
controlled based on long-term
import parity prices
< NCPB only importer < Private sector can 1994 Ongoing
import but variable duty
will be imposed
< Public research funding < Public and private 1994 Ongoing
research funding
Milk < Prices controlled < Prices decontrolled 1992 Done
< KCC monopoly in < Private sector allowed 1992 Done
processing and to participate in
marketing processing and
marketing
< Kenya Dairy Board a < Monopoly of Kenya 1992 Done
monopoly Dairy Board removed
< Imports of powder milk 1992 Done
allowed but variable
duty will be imposed
The Impact of Recent Policy Changes in Kenya 141
Fertilizer < Prices controlled and < Prices decontrolled and 1991 Done
restrictions on importation restrictions on
imposed importation removed
< Duty imposed on imports < Duty on imports 1992 Done
< Value Added Tax charged removed 1992 Done
on imports < Value Added Tax on
< Controlled imports imports abolished 1994 Done
< No subsidy < Decontrolled 1993–96 Done
< 5% subsidy introduced
Machinery < Subsidy on Tractor Hire < Subsidy removed and 1994 Done
Services commercial rates
< Duty imposed on imports charged 1994 Done
< Duty on selected imports
< Value Added Tax charged removed 1994 Done
on imports < Value Added Tax on
selected imports
abolished
Agro- < Duty imposed on imports < Duty on imports 1994 Done
chemicals < Value Added Tax charged removed 1994 Done
on imports < Value Added Tax on
imports abolished
Veterinary < No subsidy on drugs < 5% subsidy on drugs 1993–96 Done
drugs introduced
& services < Duty imposed on imports < Duty on selected imports 1994 Done
removed
< Value Added Tax charged < Value Added Tax on 1994 Done
on imports selected imports
abolished
Seed < Controlled by Kenya Seed < Plant Breeders Rights 1994 Done
Company gazetted
< Sector liberalized and 1996 Done
prices decontrolled
< Establishment of a 1996 Ongoing
self-financing breeders
and foundation seed
units at KARI research
centers
Semen, < Duty imposed on imports < Duty on imports 1992 Done
embryos removed
142 Chapter 5
Foundation, and the Pyrethrum Board provide breeders’ seeds and other planting
materials to registered seed companies without discrimination. Prior to the reforms,
there were 16 private seed development companies, which confined their operations
only to horticultural crops, whereas the KSC had the sole rights to multiply and
distribute seed material for the major staples.
With the onset of the reforms, four multinational seed companies, including
Cargill and Pioneer, entered the Kenyan seed market and developed seed materials for
basic cereals, especially maize (Nyoro 1996). Before the reforms, seed testing,
inspection, and certification was undertaken by KARI’s National Seed Quality and
Control Board, and this role involved a potential conflict of interest. These services are
now under the ambit of the independent Kenya Plant Health Inspection Service
(KEPHIS), and this could improve the reliability of seed inspection and certification.
The official recognition and enforcement of the international Plant Breeders’ Rights
Convention is expected to further increase private trading in new seed technology.
The wave of policy reforms since 1993 followed a period of on-and-off removal of
controls that was highly detrimental to the performance of the agricultural sector in the
early 1990s. Between 1983 and 1990, agricultural production grew at an average
annual rate of 3.5%, followed by a decline by an annual rate of 0.4% in 1990–91, and a
very steep decline at an annual rate of 4.1% in 1992–93. With the implementation of
the reforms beginning in 1993, combined with good weather conditions, there was an
increase in agricultural production at the rate of 2.8% in 1993–94, and an annual rate of
around 4.5% in 1994–95 and 1995–96. The growth rate, however, declined to less than
1.5% per annum from 1996 to 1997–98.
The agricultural policy changes also affected producer prices, marketed output,
private-sector participation, trade, and consumer prices. Following the liberalization
of the food subsector in 1993, there was a dramatic increase in producer prices for all
food commodities, except the price of rice that was still under the control of the
National Irrigation Board (NIB). The poor response in food production to the price
increases is explained by the wide fluctuations in the real producer prices and the
worsening terms of trade between the outputs and inputs (Nyangito 1998). The policy
reforms also led to fluctuations in the marketed output through the formal market
channels for the main food commodities (maize, wheat, sugar, rice, and milk), as less
and less food commodities are being channeled through the formal markets.
The liberalization of trade in these commodities has resulted in a steep increase in
the import of foodstuffs, and the imports of rice, wheat, and sugar have been on the
increase in recent years. The policy reforms have also increased the participation of
private firms and individuals in the trade in food products. For example, the number of
private firms involved in the processing and marketing of milk rapidly increased, and
the private sector accounted for about 30% of the market by 1995. The number of
private firms involved in the domestic distribution of rice, sugar, wheat, and maize has
also increased. However, the liberalization led to the total collapse of the cotton
industry, due to the importation of cheap textiles that outcompeted local products.
After increasing dramatically in 1991 and 1992, consumer prices of food
commodities began to decline in 1993, probably as a result of the government’s
demonstrated commitment to policy changes as well as the reduction in inflation.
The Impact of Recent Policy Changes in Kenya 143
Foreign exchange liberalization generally increased producer prices for cash crops,
and domestic producer prices are now more aligned with world market prices. The
upward trend in producer prices started already in 1992 and continued thereafter for
coffee, sisal, and cotton, whereas tea producer prices began to decline in 1994 due to
the decline in world market prices. Despite the reforms, domestic taxation combined
with delays in the payments to farmers contributed to depress producer prices to well
below world market prices, with the result that the nominal protection coefficients
were less than unity for coffee, tea, and sisal between 1993 and 1996 (Nyangito, 1998).
Input prices dramatically rose following the reforms and this trend has continued.
The sharp increase was attributed partly to inflation and partly to the weakening
exchange rate, since input prices are very sensitive to exchange rate policies because
most inputs are imported or have a large import component. The level of input use has
remained more or less unchanged since the mid-1980s, with fertilizer use fluctuating
within a narrow range of 174,000 and 285,00 metric tons—well below the potential
level of use estimated at 600,000 metric tones.
Although the record of implementing policy reforms has improved since 1993, a
wide gap continues to exist between the policy pronouncements in government policy
papers and development plans and their actual implementation. Several characteristics
of these reforms should be noted:
< Policies that required simple policy pronouncements such as price decontrol were
implemented at a much higher rate than policies that required structural changes
and budgetary commitments.
< Although the policy reforms had the objective of placing markets at the center of
the economy, little has been achieved in empowering the private sector to play the
important role envisaged in these reforms.
< Government policies have often been inconsistent and unpredictable, and
throughout the reform period there has been uncertain political commitment to
carry out the necessary changes.
< Stakeholders have not always been involved in the design and implementation of
the policy changes, which means that policies with potentially significant long-run
economic benefits have met with resistance due to their negative short-run
impacts.
< The negative effects of the reforms have been exacerbated by the extreme poverty
in Kenya, since the poor are less capable to withstand the necessary adjustments
during the transition period and endure any disruption in their economic and social
status quo. The temporary hardships brought about by the reforms raised
considerable unrest and had negative effects on the political system.
< The implementation of the reforms has also suffered due to the lack of capacity in
key areas including the capacity to analyze their effects.
complementary policy components and proper sequencing. The government has the
important role of providing the infrastructure (e.g., roads, information), the
institutional framework for the efficient operation of markets, and a system of law and
order as well as rights and obligations that hold the economic system and the society at
large together. It seems that the government equated liberalization and privatization
with an abdication of any responsibility for economic development. After a long
period in which government production and marketing monopolies dominated the
Kenyan economy, private traders lacked the managerial skills, the financial capacities,
and/or the physical infrastructure to take over production and marketing functions.
This was clearly demonstrated when some parts of the country faced food shortages
while maize surpluses in the Rift Valley pushed prices to very low levels (Daily
Nation, January 7, 1999).
The core of the reforms is to leave to the private sector those economic activities
that it can do better than the state, and to leave to the government the provision of
goods and services with public good characteristics such as agricultural research,
infrastructure, and the establishment of the institutional and legal framework.
Available evidence suggests, however, that the government is only partly committed
to assume this role. Policy inconsistencies and the resulting uncertainties discourage
the private sector from investing in agriculture.
Local NGOs 5
Government 35
Regional/subregional 5
Multilateral and bilateral (World Bank, EU, USAID, etc.) 55
Source: KARI
Selected case studies: Four research projects were selected to illustrate the impact
of the recent policy changes on agricultural research in Kenya:
1. Adaptive groundnut research: variety and agronomic testing and adapting to
farmer conditions.
2. Land and water: soil management for improved tillage and drainage methods.
3. Maize research: breeding and agronomy.
4. Dairy adaptive research: feed resources and utilization, animal health, breeding
and genetic improvement, and socioeconomics.
The initiators of these research programs are shown in Table 5.5. The major initiators
are the research teams within KARI, whose share is 40–50%. Initiation by farmers
(20–30%) and the extension and Ministry of Agriculture follow, except for the
adaptive groundnut program, where multinational donors played a bigger role (20%).
It is important to note that local NGOs played a limited role in initiating research
programs; they were involved only in the land and water research program. This
analysis indicates that the institute’s researchers dominate the process of setting the
research agenda and priorities.
The funding sources for the research projects varied, but the multinational donors,
primarily the World Bank, the CGIAR (primarily ILRI, CIMMYT, and ICRISAT) and
USAID were the main ones, followed by the government (Table 5.6). Regional
funding was provided by ASARECA.
Each of the research projects had specific objectives, and some of them had a
geographical focus as well. The maize project was focused on the development of
improved hybrid seed varieties that have early maturing, high yield, and disease and
pest resistance. The groundnut project was also aimed at increasing the use of
improved seed. The land water project had the objective of developing improved
tillage tools and conservation methods in the country’s dry areas. The dairy project had
the objective of improving production technologies and dairy breeds. The project
leaders stated that the two main goals of these projects were to raise farmers’ income
and increase farmers’ food self-sufficiency and security.
In the past, the products of KARI’s research were given free of charge to other
public institutions for multiplication and distribution. For example, improved maize
and wheat varieties were given to KSC, a semipublic organization for multiplication
and distribution. With the liberalization of the seed industry, new private companies
have entered the industry and are involved in the multiplication and distribution of
seeds. The sources of most of these seeds are private companies outside the country,
primarily the multinationals. This has created competition to KARI’s products that are
still monopolized by KSC. However, KARI’s emerging strategy is to reorient its
policy and make its products available to whoever is willing to buy them for
multiplication and distribution on a commercial basis. KARI hopes to undertake
collaborative work with the private sector in the development of new technologies
either through contracts or charging royalties for its innovations. This strategy is in
part aimed at obtaining new funds for research and compensate for the decline in
public funding.
proper basic seeds and the inspection of the multiplication process. With liberalization,
new private firms such as the multinationals Cargill and Pioneer and the local Oil Seed
Development company are now involved in the development, multiplication, and
distribution of improved seed, particularly for cereals. Some of the new varieties are
developed outside the country, and KARI does not have control over the NPTs to offer
recommendations regarding the suitability of these seeds and the needed management
practices in different ecological regions. Instead, this mandate has been given to the
Kenya Plant Health Inspectorate Services. KARI material is accessible to KSC and the
other firms for multiplication, but KSC continues to dominate the multiplication of
KARI material, while the new private companies focus more on the multiplication and
distribution of their own material.
The trade liberalization and deregulation process has not much changed the
research priorities of KARI with respect to the development of new varieties. But
KARI has reduced its activities in overseeing the performance of the new varieties in
the NPTs and is now providing recommendations on the suitability of new varieties
and on management practices for all crops grown in the country. This has made it
easier for private firms to use their materials and thereby compete with KARI’s
materials. The new practices have reduced the national performance trials that
recommend suitable varieties for various regions and suitable management practices
to the extent that they may impact negatively on food security in the short run. Some of
the new crop varieties developed by private firms may not be well suited to certain
regions and may have much lower yields in these regions. KARI scientists complain
that the new entrants to the seed market do not undertake adaptive research through
NPTs to ensure that the new varieties are suitable to the areas where they are grown.
This, they argue, is the reason for the low quality of the seeds that are currently
available in the market.
Over the years, KARI has collaborated with private firms in the development of
new varieties, particularly for horticulture. With liberalization, KARI is expanding its
linkages with private firms in undertaking collaborative research, and is in some cases
undertaking contract work for private firms. KARI also proceeds to commercialize
some of its activities in order to compete with private firms by charging royalty
payments for use of some of its products (innovations), by undertaking contract
research work for the private sector and for other public organizations, and by
conducting the multiplication of basic seeds for sale to private firms and individuals. In
addition, KARI will have to focus in the future on a number of specific research areas,
either because private enterprises do not operate in these areas, or because the new
rules that govern global research will force KARI to make the following adjustments:
Ecological sustainability
KARI’s research programs incorporate the following environmental sustainability
issues:
1. crop protection and evaluation of pesticides for persistence, residual effects and
toxicity before recommendations are made;
2. fertilizer use trials for analyzing residual effects of fertilizer use, both in the
research centers and on farms;
3. soil and water conservation programs that focus on adaptive research;
4. fresh water resource-conservation programs, mostly in collaboration with
multilateral and bilateral donors.
KARI strikes a balance between conservation issues and efforts to raise productivity
by means of cost-benefit analyses to determine the trade-offs of the various production
practices recommended for increasing agricultural productivity and the associated
environmental effects. The issue of ecological sustainability is of concern to
policymakers, and there is a dialogue between KARI and the institutes and ministries
in charge of formulating policies in this area. The government has taken a keen interest
in environmental issues and has published a policy paper on guidelines for
environmental protection legislation.
IPR
Kenya formally accepted the international Plant Breeders’ Rights Convention Act on
IPR in May 1999. Plant breeders are now given exclusive property rights for breeding
new varieties. This allows KARI to register and have exclusive property rights on all
its registered products and in return reward plant breeders (innovators) with a fraction
of the royalties received for the new varieties (innovations). These rules also allow
producers to access, on a commercial basis, the best materials developed and patented
The Impact of Recent Policy Changes in Kenya 151
among convention member countries. Access to IPR will encourage KARI and its
scientists to invest more efforts in the development of new varieties (innovations), but
scientists may also scramble to take control over the potential innovative areas that
have commercial potential, to the detriment of research in areas that have the aspects of
public goods. Most of the materials used in KARI have been obtained from the
international agricultural research centers of the CGIAR, where payment of royalties
was not required. In cases where materials were sought from the private sector (e.g.,
flowers), payment of royalties for the use of the material was made to facilitate the
adoption of the new crops. KARI will continue to have a leading role in the
development of new technologies as public goods and in basic research that has a long
gestation period before any commercial benefits can be realized. Toward that end,
KARI has conducted systematic strategic planning and priority setting exercises in the
past few years and has developed mechanisms to screen research activities for both
relevance and scientific merit.
Conclusion
Kenya, along with many other sub-Saharan African countries, embarked on ambitious
economic policy reforms in the early 1980s within the framework of a structural
adjustment program, at the urge of multilateral aid agencies. The review of the recent
policies that were implemented in the second half of the 1990s indicates that as a result
of globalization, the country’s economy has largely been transformed from one where
the government dominated agricultural production, marketing, and investment
activities, to one where the private sector is becoming increasingly more important in
performing these activities.
The reform process during this decade proceeded slowly until 1993, when the pace
gradually increased. Since then, a wide range of reforms have been implemented,
affecting the production and marketing of many agricultural commodities that were
152 Chapter 5
included in the liberalization program: commodity prices have been deregulated, the
distribution of many inputs has been privatized, and the government no longer sets
prices for inputs and outputs, nor does it provide lavish subsidies to local producers.
However, a number of policy reforms that require budgetary provisions or counter
well-entrenched interests have met with less success.
The goal of the liberalization and deregulation policies was to let the private sector
conduct those economic activities that it can do better than the public sector, and give
to the government the responsibility to provide goods and services with public good
characteristics. Available evidence suggests, however, that the government of Kenya
has so far been less than fully committed to this goal. Inconsistencies in the direction of
many policies and the uncertainties thus created discourage the private sector from
investing in agriculture. There is therefore a real challenge of nurturing the very fragile
private sector to undertake activities previously undertaken by the state. The
consequences of the policy reforms have so far been mixed, with a general decline in
agricultural production. Nevertheless, the full impact of the policy changes on the
agricultural sector in Kenya is yet to be evaluated.
In the last four years, KARI has undergone considerable changes as a result of
trade liberalization, deregulation, and privatization policies. There have been
significant changes in the orientation of its research programs and a shift from an
emphasis on upstream strategic research thrusts in both commodity and factor
programs to adaptive programs, social sciences, and biotechnology. The underlying
force behind these changes has been the goal of reaching small-scale farmers, having
an impact at the grassroots level, and responding to their needs. The large price shifts
resulting from liberalization forced KARI to shift its research to socioeconomic
studies to better evaluate the policy issues and their impact on research and the small
farmers who are the main clients of this research. The liberalization of the inputs
market has led to increased prices particularly for fertilizers, and this has resulted in
low levels of use of the inputs. This has also put pressure on KARI to develop
integrated soil and water management technologies to mitigate the decline in the use of
fertilizers by farmers.
The policy changes had a negative effect on the capacity of KARI to provide
research and extension services. Adjustments in the government’s fiscal policy have
meant that less funding was available to KARI to finance its research programs. The
higher costs of agricultural inputs resulting from the elimination of subsidies have
resulted in calls for the development of more efficient production technologies. Trade
liberalization and deregulation have resulted in the wider participation of the private
sector in research and distribution of inputs, particularly food crops, and this more
prominent role has required adjustments in the role and mode of operation of the
relevant public institutions, particularly KARI.
In the new environment and under the new policies, KARI has to assume a new
role and secure alternative sources of funding in the face of dwindling public and donor
funding in order to meet the new demands for public research. KARI is gradually
changing its research program to a more client-oriented one, but whenever possible,
charges its clients for the services rendered. The crucial challenge is the balance
between the development of technologies for the small or resource-poor farmers and
The Impact of Recent Policy Changes in Kenya 153
technologies for the more resource-endowed farmers who are able to pay for the new
technologies.
References
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Chapter 6
The Impact of Trade Liberalization and
Domestic Policy Reforms on the
Agricultural Sector in Cameroon
Aloysius Ajab Amin, Emmanuel Douya, and Alexander Mbeaoh*
Introduction
Until the mid-1980s, Cameroon—like many other African countries—experienced
relatively rapid economic growth behind the walls of high tariff barriers and quota
restrictions. From the second half of the 1970s, petroleum production was an added
enhancement to the rapid expansion in agricultural production and exports. As a result,
Cameroon recorded growth rates of over 7% from the mid-1970s through the
mid-1980s. The rapid economic growth was supported by a strict exchange rate policy
in Cameroon and in several neighboring countries that pegged the CFA Franc to the
French Franc, and by high tariff barriers and quantitative restrictions that were part of a
trade policy that also included import and export controls and export price
adjustments. This protectionist policy was combined with state intervention in all
spheres of the economy and strict price controls that effectively prohibited the
development of a viable market system. These policies encouraged the development of
a relatively large industrial sector that was mainly focused on the local market. The
agricultural sector remained, however, the main economic sector, providing more than
one-third of the country’s GDP, and the main source of foreign exchange earnings. The
high import tariffs also figured prominently in the country’s fiscal budget, and there
were some 20 different taxes that were applicable selectively to import and export
products at rates that sometimes exceeded 150% of the CIF value. The oil boom in
1982 accelerated the country’s growth but led to a relative stagnation of the
agricultural and industrial sectors (the so-called Dutch Disease), with the oil sector
providing more than two-thirds of the country’s GDP.
The budget year 1985–86 marked the end of the era of rapid growth and the onset
of a deep economic crisis that still plagues Cameroon. Export revenues from both
petroleum and other commodities declined dramatically, and the government revenues
diminished as a result. The marked appreciation of the CFA Franc against the US
Dollar, the general deterioration of the terms of trade, and the growing negative impact
of numerous internal distortions that were enacted by political decrees in total oblivion
to their economic costs were the main causes of the crisis (Blandford et al. 1999;
Tybout et al. 1996; Amin 1996). What triggered the decline was the fall in the world
prices of Cameroon’s main exports, namely oil, coffee, and cocoa, and the
155
156 Chapter 6
depreciation of the US Dollar, the country’s main export payment currency, by nearly
40%. As a result, the balance of payments went from a surplus of 4.4% of GDP in
1984–85 to a deficit of 8.8% in 1986–87. Growth rates turned negative between 1985
and 1988, and in the second half of the 1980s, the GDP fell by 4.5%; even in the first
part of the 1990s, the average annual growth rate was only 0.5% compared with 3.4%
in the first part of the 1980s. The industrial sector was most negatively affected by the
misalignment of the CFA-Franc exchange rate. After a precipitated growth in the
1980s at an annual rate of 5.9%, industrial outputs declined during the 1990s at an
average annual rate of 3.3%—a total decline during this decade of around 30%.
Investments, particularly in the industrial sector, also suffered from the crisis and they
declined at an annual rate of 1.6% during the 1990s. The agricultural sector was less
affected by the exchange-rate misalignment and by the other domestic distortions that
were the result of the highly protectionist policies: after growing at an average annual
rate of 2.1% during the 1980s, it continued to grow at an even more rapid rate of 5% per
annum during the 1990s.
Starting in 1988, the government of Cameroon was assisted by the Bretton Woods
institutions and several donor countries to put in place a sequence of macroeconomic
and sectoral reforms aimed at addressing the ongoing economic crisis, gradually
removing trade barriers and reestablishing the necessary conditions for the resumption
of economic growth. However, trade barrier reductions were very modest initially.
Only in 1994, most of the quantitative restrictions were removed and new economic
policies with more substantial reforms of the country’s trade policies and a
fundamental adjustment of the exchange rate were implemented. Given the high
dependence of the fiscal budget on revenues from export and import tariffs, the more
open trade policy and the reduction in these tariffs imposed strict restrictions on the
fiscal budget also. However, due to the significance of the budget in the stimulation of
productive activities in the country, the overall impact of the combination of a more
liberal trade policy and a more conservative fiscal policy contributed to prolonging the
economic crisis.
Added to these internal reforms was the growing impact of the globalization process as
the economy opened up after the devaluation of the CFA-F and underwent
considerable internal adjustments. This process was precipitated by the Lomé
Convention (and its preferred accords), which link African, Pacific, and Caribbean
(APC) countries to the EU, and by the conditions of the WTO.
The Impact of Trade Liberalization and Domestic Policy Reforms in Cameroon 157
the cocoa and 70% of the coffee exported from Cameroon were of poor quality and
therefore lost the “good” label (Douya 1995). As an effect of these pricing practices,
the National Office of Cocoa and Coffee failed to perform its duties as a quality control
agent.
After the dissolution of NPMB, an information system (SIMARC) was created for
Arabica and Robusta coffee. Its main task was to inform producers about the trends of
these products in world market prices. In practice, however, this valuable information
only provided guidelines for the intermediaries to carry out their domestic trade before
the commodities reached the world market, without taking farmers into consideration
and also ignoring other factors such as transport costs. In 1995, these practices pushed
producers to demand higher prices. In Moungo Basin, for example, factory owners
bought Robusta coffee at the price of 1500 Francs/kg, i.e., 150% of the world market
price. The difference was not enough to cover transportation and other costs and leave
any profit for the intermediaries. Some intermediaries were therefore forced to resell
their products at a loss while others attempted fraudulent sales and the purchase of
poor-quality products. This system thus created more problems, and the liberalization
of the traditional export-crops sector failed to initially put in place the necessary
structures and regulations.
Trade liberalization in the agricultural sector also included the removal of
subsidies on agricultural inputs and the privatization or dissolution of state
corporations. Indeed, one of the major goals of the agricultural sector reforms was the
privatization or liquidation of most public enterprises that were operating in the
agricultural sector. Besides closing down the National Produce Marketing Board, the
government also closed down the Mission de Développement des Cultures Vivrières et
Marâichères, whose main task was to provide foodstuffs to the urban population. Its
closure brought about a rapid revival of private trade and raised profit margins for
producers. Other public enterprises were privatized or are currently undergoing
privatization and this process has resulted in an increase in production. Cameroon’s
banana production, to take one example, increased from less than 100,000 tons before
the privatization drive to more than 280,000 tons in 1997 (DSCN 1998). However,
some public enterprises still face numerous problems that were not completely
resolved when they were privatized.
Removal of subsidies
Before the reforms, government subsidies to agricultural inputs amounted to 80% of
their price. The subsidies on inputs such as insecticides, pesticides, and fertilizers were
removed altogether. This was accompanied by a fall in producers’ prices and led to a
considerable decline in farmers’ earnings, to the extent that many producers nearly
ceased their production and many others significantly changed their production
methods. In the cocoa-producing zones, phytosanitary products that are indispensable
to cocoa production are no longer being used because of their high price. These
reforms led many farmers to shift from the production of cash crops to the production
of food crops that became more profitable. Table 6.1 describes the typical changes in
the composition of farmers’ revenues as an effect of the removal of these subsidies.
The Impact of Trade Liberalization and Domestic Policy Reforms in Cameroon 159
Cocoa 45 26
Coffee – 18
Food crops 20 39
Nonagricultural activities 35 17
Total 100 100
*Source: Ndembou, 1994.
In the coffee producing regions, especially the Moungo Basin, the quantity of
fertilizer used per unit of cultivated land, as well as the number of producing farms has
been declining continuously. Similar developments took place in the cocoa-producing
areas due to the general decline in the incentive to produce coffee. The advantages of
devaluation affected these crops only marginally with the exception of the cotton
subsector, which is still under the control of the state enterprise and enjoys relatively
higher growth.
Prior to the Sectoral Adjustment Program for Agriculture, and contrary to trade
liberalization objectives of the export tax reduction, the Cameroon government
instituted, after the devaluation of the CFA-F in January 1994, an export tax on the
main agricultural products (coffee, coca, cotton, banana, rubber, etc.). This tax
rendered exports more expensive internationally and reduced the quantity supplied.
Other consequences of this tax were illegal exports to Nigeria bypass the export tax
and to sell in that market at a higher producer price. As a result of the Adjustment
Program, however, resources are generally more efficiently utilized in the agricultural
sector for greater agricultural performance.
Financial Reforms
Before the 1992 financial sector reforms, a number of special institutions were created,
mainly to serve the rural areas with a focus on financing agricultural activities. All
these institutions were liquidated, however, by 1996. Partly as a result of the reforms in
the formal banking sector, there are now many semi-formal and informal financial
institutions that provide financial services to the economy at large and to the
agricultural sector in particular. These reforms included the creation of a decentralized
financial system and a currency devaluation.
savings and the extension of credit. As a result, there has been a large increase in the
formation of associations, unions, and common initiative groups, and in the
mobilization of financial resources in the agricultural sector.
The devaluation
Although the CFA-F had a fixed parity with the French Franc (FF) for many decades,
in the 1970s and 1980s the CFA-F was over-valued by more than 40% (Amin 1996). In
an attempt to restore the exchange rate and improve the country’s competitiveness, the
CFA-F was devalued on January 12, 1994. In the following year, there was a
significant impact on both agriculture and some key subsectors, as discussed below.
Since the devaluation was followed by US-Dollar fluctuations, there could have
been a need for another devaluation, but nothing was done until the introduction of the
Euro in 1999 and its sharp depreciation in 2000. In 1994, the CFA-F was devalued by
50% against the French Franc and thus also against the US dollar. Before the
devaluation, the exchange rate between the US dollar and the CFA-F was $1 = 250
CFA-F; after the 1994 devaluation, it was around $1 = 500 CFA-F. With the coming of
the Euro and the linking of the CFA-F to the Euro, the CFA-F was again indirectly
devalued against the US dollar, and its current exchange rate against the US dollar is
about $1 = 700 CFA-F. This should facilitate exports from the CFA-F countries, but at
the same time, the world price of commodities such as cocoa, coffee, and cotton is
declining, thus offsetting the devaluation of the CFA-F. The price per kg of Robusta
coffee, for example, declined from 600 CFA-F in 1994 to 240 CFA-F in 2000. To stop
this downward trend in price, it was decided in a ministerial meeting in July 2000 by
the group of the four main cocoa producers (Cote d’Ivoire, Ghana, Nigeria and
Cameroon) to destroy part of this year’s cocoa production; however, the modalities of
this agreement must still be worked out.
The devaluation of the CFA-F coincided with a sharp decline in the world price of
many primary products. Nevertheless, the 50% devaluation of the CFA-F against the
French Franc in 1994, mainly aimed at improving the country’s competitiveness,
seems to have had a favorable impact on relative prices and on the allocation of
resources in favor of the sectors producing tradable goods and on their profitability. As
a result of these reforms and the devaluation, Cameroon enjoyed an uninterrupted
period of positive growth rates in GDP and per capita income (Figure 6.1). During the
period 1997–2000, the annual growth rate was 4.7%, but given the high population
growth at an annual rate of 2.9%, the improvement in the standard of living was very
slow and poverty rates remained high. The 1996 Income and Expenditure survey
indicates that more than 50% of the population in Cameroon lived below the poverty
line.
2000
1800
1600
1400
1200
Value
1000
800
600
400
200
0
1993 1994 1995 1996 1997 1998 1999
Year
Figure 6.1. GDP Trend in Cameroon in the 1990s
higher-price produce and lower-price inputs, and the impact of the import substitution
on the local producers of products such as cassava, which has been in greatly increased
demand after the devaluation. As a result, the consumer price index of cassava in
Yaounde rose by 56.4% during 1994 (DSCN 1995). Not only has this commodity been
transformed into different forms such as “bibolo,” but it has also replaced bread in
many households. Cassava is one of the products being tested, in combination with
wheat flour, in bread manufacturing so as to reduce bread production costs. Likewise,
sorghum is being tested by the brewery industry to explore its potential to substitute
malt. Sorghum, however, constitutes a basic foodstuff for the northern part of the
country and, at present, only about 10% of the total production is sold. Therefore, there
are concerns about the overall effect of this substitution. If successful, then more
sorghum is likely to be produced to meet the increasing demand of beer producers, but
the rise in price will have a negative impact on the food security of low-income
consumers in the area. The evolution of the consumer price index indicates that the rise
in the price of domestically produced products, especially foodstuffs, was slightly less
than the rise in the price of imported products. As a result, during 1994, the rise in the
price index of foodstuff in Yaounde rose by 47.9%, while the general price index rose
by 48.4% (DSCN 1995). This rise in price also had an effect on the intercountry trade
in the CFA-F zone, particularly between Gabon and Cameroon. The devaluation of the
CFA-F greatly increased the prices of imported goods coming from Gabon, and the
demand for products from Cameroon by consumers in Gabon sharply increased. This
additional demand resulted in price increases for some domestic food products in
Cameroon such as plantains, cassava, cocoa, and yam.
The impact of the devaluation on the production and profitability of traditional
export products like coffee, cocoa, and cotton was substantial. The devaluation has
The Impact of Trade Liberalization and Domestic Policy Reforms in Cameroon 163
increased the incentive to produce these crops: during the first year after devaluation,
cotton production rose from 126,000 to 165,000 tons, and in 1997, cotton production
rose to 218,000 tons (DSCN 1998). Several studies also highlighted the potential
comparative advantage of Cameroon in the production of cocoa and coffee (Douya
1998; Bamou 1999). More recently, however, these crops have suffered from the sharp
decline in commodity prices.
Agricultural inputs are no longer subsidized after liberalization. As a result, their
market price has risen sharply. In the Arabica zone, for example, a 50-kg bag of
fertilizer is now sold at 10,000 Francs instead of 4,500 Francs, an increase of 110%.
Production costs have therefore risen sharply, largely offsetting the rise in commodity
prices in CFA-F resulting from devaluation. In the Moungo region, to take another
example, the price of a 50-kg bag of fertilizer rose by nearly 90% as an effect of
devaluation. For the coffee producers in Moungo, the devaluation probably increased
the overall cost of production by 35%. Nevertheless, during the three to four years that
followed the devaluation and until the more recent decline in commodity prices, the
profitability of intensive Robusta coffee cultivation significantly improved. Also the
cocoa producers must now buy their inputs in the open market at nonsubsidized prices,
and that measure itself contributed to rising input prices. Even before the devaluation,
input prices practically doubled with the elimination of state subsidies. The cocoa
producers’ price rose from 200 CFA-F/kg before the devaluation to an average of 350
CAF-F/kg after the devaluation, and the profitability of cocoa production was on the
rise until the decline in world commodity prices. Therefore, it seems warranted to
conclude that, in general, the devaluation had a positive effect on both the production
level and profitability, and was beneficial to the producers of cocoa and coffee.
Nevertheless, the increase in the production of cocoa and coffee has not been very
substantial, initially due to the difficulties in making adjustments to free market prices,
and later on due to the decline in commodity prices.
The impact of the devaluation on cotton producers was significantly more
pronounced: initially, cotton producers’ prices rose from 90 CFA-F/kg to
135 CFA-F/kg, and cotton production increased sharply. However, the decision of the
monetary authority to prohibit the convertibility of the CFA-F outside the Franc zone
affected the border trade between Nigeria and Cameroon very negatively, because
Nigerian traders were unable to convert their earnings in CFA-F to their domestic
currency and were forced to buy Cameroon products, particularly cotton, at a price
ranging from 200 CFA-F/kg to 250 CFA-F/kg, compared with a price of
135 CFA-F/kg that was offered by SODECOTON. Despite the exclusive dealing
contract between cotton producers in Cameroon and SODECOTON, these producers
were still able to export large quantities of cotton to Nigeria illegally, boosting their
profitability. To buy fertilizers, peasants have a choice of either paying the cheaper
market price in cash, or buying on credit from SODECONTON. Despite the increase
in input costs, the increase in producers’ selling price and in the volume of production
more than compensated for the cost increase, leading to a significant improvement in
profitability in the cotton subsector.
The devaluation also had important effects on the production and consumption of
other goods, particularly those with high domestic consumption. In the maize
164 Chapter 6
subsector, for example, the high level of demand raises concerns about the impact on
food security, since farmers may be slow to adjust their production to the higher
producer prices, and they may be tempted to sell their maize reserves, thus exposing
themselves to the risks of supply shortfalls. Producers of palm oil, to take another
example, benefited from a rise in world market price, and the pressure to increase the
quantities exported was so high that palm oil exports were sometimes restricted so that
domestic demand could be met.
After the devaluation of the CFA-F in 1994, both the domestic price and the output
of major agricultural export products rose sharply. The increase in production of the
main export crops, primarily cocoa, coffee, and cotton, contributed to increasing
farmers’ income and the overall food security. The drop in commodity prices in the
latter part of the 1990s considerably reduced this profitability and farmers suffered
heavy losses despite the depreciation of the CFA-F, together with the Euro, against the
US dollar by an additional 25%.
tariffs reach 350%. Other obstacles are created by the agreement on food safety
standards of agricultural produce and on other trade barriers on these commodities
under the WTO agreements. Agricultural producers and processors in Cameroon still
find it difficult to meet many of these conditions, and this has resulted in a considerable
decline in the exports of several agricultural products. Moreover, many shipments of
these products were retained in the Douala seaport because they failed to meet the
applicable standards.
Conclusions
More than half of the population in Cameroon lives below the poverty line, and the
majority of the poor, some 57% of the poor households, live in the rural areas. The
severe economic crisis of the 1980s and early 1990s was particularly detrimental for
the poor, and the adjustment measures implemented by the government—even those
not targeted on them directly—had serious repercussions on the rural population in
general and on the poor in particular. The far-reaching economic reforms that were
implemented to avert the crisis were aimed at making a transition from state-controlled
production and commercial activities to more market-oriented policies that give a
much greater role to the private sector. The goal of these reforms was to promote more
rapid growth, primarily in agricultural production and productivity, to remove state
controls, and to give a greater role to the market. But there is still a need for state
intervention in certain key areas in order to secure the viability of institutions and the
rule of law that are necessary for the effectiveness of the market system and for a
private sector that is not to be strangled by monopolies. One of these areas is the
provision of financial services, particularly to the agricultural sector and rural
households. At present, private-sector financial institutions are still too weak and they
need to be strengthened in order to make the rural credit system function more
efficiently. Above all, the forces of globalization and the membership in the WTO
present many new challenges that the Cameroon economy will have to cope with in the
coming years.
References
Amin, A.A. 1995. The Effects of Structural Adjustment Programme on Cameroon’s Major
Exports: Cocoa, Coffee and Cotton”. Les Cahiers D’OCISCA. Yaounde.
Amin, A.A. 1996. The Effects of Exchange Rate policy on Cameroon’s Agricultural
Competitiveness. Research Paper 42. Kenya.
Amin, A.A. 1999. An Examination of the sources of Economic Growth in Cameroon’s
Economy. Revised Final Report. Kenya: AERC.
Blandford, S., D. Friedman, S. Lynch, N. Mukherjee and D.E. Sahn. 1995. Oil Boom and Bust:
The Harsh Realities of Ajustment in Cameroon”. In Adjusting to Policy Failure in African
Economies, edited by D.E. Sahn. Cornell University Press.
Defo, T. 1997. L’impact des circuits financiers informels et semi-formels dans la mobilisation
de l’eparge et le financement du développement: Cas de l’Afrique Francophone. Africa
Development Review, June 1997, pp.234-270.
The Impact of Trade Liberalization and Domestic Policy Reforms in Cameroon 167
A little more than 500 years ago, Christopher Columbus sailed west from Spain to find
a new way to the orient. His goal was not to discover a new continent. It was not to
prove the world was round. Although his voyage was financed by the state, its goal was
thoroughly economic: It was to find a new way to break the Arab monopoly on the
spice trade.
Columbus’s voyage marks the beginnings of a truly global trade in foodstuffs.
Even though he did not find his way to the spice islands, he did discover a world
unknown to Europeans, and he returned to Europe with a shipload of exotic fruits,
vegetables, and grains. One hundred years later a thriving trade existed—supported in
part by slavery—between Europe, Africa, and the Americas, shipping sugar and rice,
among other commodities.
Today, globalization is once again all the rage. But the globalization that we are
experiencing today is not merely a linear projection of Columbus’s experience. First,
Columbus’s voyage was financed by the state, whereas the globalization of today is a
mix of state and private-sector activities. Second, globalization today involves the
incorporation of virtually everyone on the planet into a global economy. Third,
globalization today means the not-so-gradual elimination of centuries of tariff barriers,
closed markets, incompatible standards, and protectionist regimes. Finally,
globalization has modified the longstanding relationships among nation-states and
private corporate actors.
The proponents of globalization today tell us that this will lead to a world in which
all will benefit from free trade and free markets. Each nation will be able to maximize
its comparative advantage in the new global marketplace. Investors will be able to
invest wherever the greatest return on investment is to be found. Producers will be able
to sell their goods in all the new markets opened as a result of free trade. Consumers
everywhere will benefit from lower prices and a wider range of goods from which to
choose. All will benefit from a future of newfound and permanent prosperity.
Irrespective of the truth of these claims, the new global economy is changing the
relationships among nation-states, firms, farmers, and agricultural research
institutions. This means that each of these actors is faced with both new challenges and
new opportunities. Two interrelated changes are essential to understanding the impact
of this new wave of globalization on agricultural research: the creation of the WTO and
the rise of private, corporate standards.
* Lawrence Busch: Institute for Food and Agricultural Standards, Michigan State University, USA
171
172 Chapter 7
On the one hand, the context for agricultural research is changing markedly as a
result of the formation of the WTO. Two agreements signed as part of the Uruguay
round of GATT are essential here. First, the Sanitary and Phytosanitary (SPS)
agreement required that signatories provide clear, scientific evidence for food safety
standards as well as standards for animal and plant health. Such standards had
frequently been used as nontariff trade barriers in the past; the designers of the
agreement hoped that requiring scientific justification would reduce or eliminate those
trade barriers. Countries could continue to have their own standards, but only if they
could demonstrate that they were equivalent to international standards. Second, the
agreement on Technical Barriers to Trade (TBT) included many other barriers to trade
in food and agricultural products not covered by the SPS agreement. Neither
agreement directly involves the WTO in standards setting or enforcement.
Nevertheless, by virtue of the agreements, the WTO is empowered to use conformity
or equivalence to recognized international standards in settling disputes among
nations. Therefore, while it has no a de jure authority, the WTO has become a de facto
international standards enforcement agency able to impose its views on nations.1
On the other hand, the liberalization of trade has been accompanied by a rapid
growth in the size of multinational agrifood corporations (Reardon et al. 2001). These
corporations are now in a position to set their own standards on the products they
buy—standards that are often more rigorous than those set by public agencies.
Moreover, since these standards are private, they do not come under the purview of
international standards setting bodies. Furthermore, these corporations have an
incentive to create more rigorous standards: Their very size makes maintaining a
reputation for providing safe, high-quality products essential as a means of drawing
and keeping retail customers. It also makes them more vulnerable to the actions of
citizens’ groups promoting both environmental quality and fair labor standards.
One obvious implication of these changes is that standards are likely to play a far
greater role in international trade in agrifood products than they have played in the
past. NAROs will need to become active players in standards development, resolving
technical problems associated with both public (those enforced by WTO) and private
(those set by the multinationals) standards, and helping all actors involved in agrifood
exports to respond to the new challenges and opportunities.
In this chapter, I will focus on just one of the many issues raised by the
liberalization of international trade: the consequences of global standards for trade in
agrifood products for public agricultural research. First, I examine the many roles that
standards play in the rapidly changing agri-food system. Then, I describe the different
kinds of organizations that develop, modify, and enforce standards. Next, I focus on
the impact of international standards on agrifood systems and on developing nations.
Finally, I make specific recommendations for research managers in light of the
changing role of agrifood standards. But why have standards anyway?
1. An irony is that the only enforcement mechanism available to the WTO is to impose sanctions—a
policy that reduces international trade.
The Implications of Global Standards for National Agricultural Research 173
developing countries. For example, a buyer of rice may be faced with a bewildering
array of lots, each of which is somewhat different from other lots. One might be
cleaner, another less damaged, while a third lot might be of a longer or shorter grain. In
this situation, price comparisons are difficult if not impossible. In contrast, since
adherence to standards requires that sellers standardize their products, buyers are able
to make direct comparisons among sellers. Thus all rice of grade 1 would be identical
for marketing purposes, making it relatively easy for buyers to determine which seller
has the best price. At the same time, competition among sellers would increase.
But even as standards may be used to increase competition, so they can be used to
exclude some actors from the marketplace. For example, better capitalized processors
might encourage the adoption of stricter food safety standards. Stricter standards might
require greater capital investment, thereby excluding the less capitalized competitors
from the market. Indeed, there is clear evidence that this is precisely what happened in
the USA a century ago when the first food safety legislation was enacted (Levenstein
1988).
Competition may also be excluded by requiring that expensive equipment be used
to measure conformity to the standards. For example, pH may be measured by a very
simple and inexpensive test or by a highly automated machine that processes
thousands of tests per hour. Larger companies with vast throughput will probably
welcome the highly automated equipment. But, if the use of the machine is required,
smaller firms will find conformity to the standard impossible. The International
Organization for Standardization (ISO) has recognized this problem and formed a
special committee, DEVCO, to address it. It is unclear whether other international
standards bodies are equally aware of and responsive to this issue.
“The decisions made by Codex Alimentarius Commission and its committees are
anything but symbolic in their importance. They have a direct effect upon the profit
levels of major corporations. The trade relations created by Codex standards are
likely to benefit some countries, and some interest groups more than others.”
On occasion, standards may conflict, posing dilemmas for all concerned. For example,
in order to meet a phytosanitary standard in an importing nation, exporters may feel
forced to use large quantities of pesticides that endanger farm workers and/or the
The Implications of Global Standards for National Agricultural Research 175
2. Grindley (1995) has shown how IBM has effectively used this strategy in the personal computer
market.
176 Chapter 7
appelations d’origine controllée are widely used on French products for this purpose.
In addition, today, 10% of French food products contain the label produits de qualité
specifique (Sylvander 1995). Similar labeling is now frequently used to differentiate
coffee by national origin. This practice allows product differentiation based on real or
perceived characteristics of a product. Such labels have been used in some places as
effective protection against invasion by larger firms. Also relevant here are labels that
guarantee that certain religious rituals have been correctly performed in the
preparation of the product in question (e.g., Kosher foods). However, it should be
noted that such products need not be traditional or artisanal in any sense for labeling to
be effective (Boisard 1991).
International standards
International standards are set by intergovernmental bodies. The members of these
bodies are usually nations, although industry and consumer representatives often
participate in the standards setting committees. Primary among the international
standards bodies in agriculture is the Codex Alimentarius Commission. Administered
jointly by FAO and WHO, the Codex seeks to promote food safety and international
trade in food and agricultural products by establishing voluntary standards to which
nations may choose to adhere. The OECD sets quality standards for (mainly
temperate) fresh fruits and vegetables for its member nations and for any other nation
wishing to conform to the standards (OECD 1983). The International Plant Protection
Convention (IPPC) sets phytosanitary standards for the handling and quarantine of
plants transported across national boundaries. Similarly, the Office International des
Epizooties (OIE) sets standards for animal health. The ISO3 sets standards for tests
used in the measurement of various characteristics described in food and agricultural
standards. Still other standards are established by the United Nations Economic
Commission for Europe (UNECE) and the EU.4
In general, with respect to international standards, NAROs are standards takers
rather than standards makers. That is to say, they rarely if ever sit on the myriad
committees that design standards, nor do they have much to say about whether their
nation agrees to employ the international standards domestically. Most developing
nations do not send persons to participate in international standards formation as it is a
costly process (Avery, Drake, and Land 1993). Thus, although NAROs need to know
these standards in order to assist producers to meet these standards, they are not likely
to influence their formation.
National standards
In addition to (or instead of) international standards, most industrialized nations and
many developing nations have their own standards. These standards may be virtually
identical to the standards set by international bodies or they may be substantially
different. The national standards may be either voluntary or mandatory. However, with
the advent of the WTO, considerable pressure has been exerted to adjust national
standards such that they are either identical to international standards or, if they differ
from international standards, are equivalent based on scientific evidence. As might be
3. Unlike other international standards bodies, ISO is an NGO. However, its members are the standards
agencies of some 130 nations.
4. Each of the key organizations implicated in standards setting and enforcement have websites as
follows:
FAO: www.fao.org/WAICENT/FAOINFO/ECONOMIC/ESN/codex/default.htm
IPPC: www.fao.org/WAICENT/FaoInfo/Agricult/AGP/AGPP/PQ
ISO: www.iso.ch
OECD: www.oecd.org
OIE: www.oie.int
WHO: www.who.int
WTO: www.wto.org
178 Chapter 7
Industry standards
Often industry associations also set voluntary quality standards, both nationally and
internationally. Such standards are generally designed to serve the industry’s needs.
For example, processors of domestic oils may set certain characteristics for the clarity
of the processed product. In addition, in some cases, associations have been
established that serve more than one industry or an industry and a public interest group.
Such associations are often concerned about environmental standards.
As with international standards, industry standards are rarely set with the
participation of NAROs. Nor are companies in developing nations often parties to
industry standard setting. Thus, here, too, NAROs are standards takers.
Corporate standards
Finally, large agribusiness corporations may set standards for their suppliers. These
standards are essentially mandatory in that failure to meet the standard usually is
tantamount to having the contract with the corporation cancelled. Such standards may
encompass not only quality and food safety, but also labor protection and
environmental quality. Corporate standards are already commonplace for some
commodities that are subject to further processing (e.g., coffee, cocoa), but they are
now found more frequently for fresh fruits and vegetables as well.
These standards pose considerable challenges for public agricultural research. In
some circumstances, NAROs may be able to influence company standards, especially
with respect to developing cheaper, equivalent tests. However, doing so may involve
considerable diplomacy in negotiating with large corporations that may see only their
suppliers as legitimate contacts. Conversely, such corporations may well look to
NAROs to engage in research that is more appropriately undertaken by the corporation
itself.
In sum, standards setting occurs in multiple venues, each of which has its own rules. As
the process of globalization continues, NAROs will need to be cognizant of how
standards of particular concern to them are set. They will need to determine whether
and in what ways they might participate in standards setting for commodities of
interest. Doubtless, in some cases, NAROs will decide that the costs are such that
participation is impossible. In other cases, NAROs will find that strategic participation
provides significant advantages to their nations. At the same time, NAROs will need to
become more cognizant of existing standards and incorporate knowledge of them into
their research strategies. For example, there is little value in helping farmers to
The Implications of Global Standards for National Agricultural Research 179
likely to have private-sector research capacity. For example, many developing nations
produce and export tropical fruits as specialty products. However, with few
exceptions, such fruits are not the subject of significant research by either public- or
private-sector research organizations. New phytosanitary standards may block exports
unless NAROs engage in research to determine how those standards might be met.
implications does the standard have for the society at large in terms of food safety,
relations of production in the workplace, and the environment?
Conclusions
In sum, the current changes in the world economy pose both new challenges and new
opportunities. If managed successfully, the rapid increase in world trade offers new
avenues for both economic development and poverty alleviation. Developing market
niches for specialty crops and improving quality in existing markets offer new, higher
income opportunities for farmers. Similarly, developing locally based processing of
these products offers the potential for increased nonfarm employment. In addition, the
enhancement of food quality and food safety standards holds the potential to reduce
food-borne diseases in developing nations, while offering new means to escape from
poverty.
Developing new markets and improving quality in established ones will require
greater attention to standards by NAROs as well as other stakeholders. While there is
nothing inevitable about the current trend toward global standards, it is likely that such
standards will be more commonplace in the near future. NAROs need to understand
that standards are both the rules of the game and the strategies by which markets can be
built or destroyed. By acting strategically with respect to standards, NAROs may be
able to open new markets and expand old ones, thereby increasing incomes in their
respective nations. On the other hand, failing to respond strategically to the advent of
international and corporate standards may lead to the collapse of established markets
and to economic decline of certain significant subsectors.
The results of all these changes and the emerging new challenges will require
significant changes in the mode of operation and the priorities in research and
extension of the NAROs. These changes will require access to wide information and
the accumulation of high expertise as well as large investments. They will also require
significant changes in the legal system and the establishment of effective enforcing
agencies to ensure that producers comply with the standards. At the present, however,
a relatively small number of NAROs took adequate measures to adjust their operations
in order to meet this challenge. Agricultural producers in these countries may fail to
diversify their production and make the adjustments required by the emerging trading
system and thus find themselves at a growing disadvantage as their countries liberalize
their trade.
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Cheese of France. Food and Foodways 4:173-207.
184 Chapter 7
Busch, L. 2000. The Moral Economy of Grades and Standards. Journal of Rural Studies
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and E. Valceschini. Pp. 139-154. Paris: INRA and Economica.
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York: Oxford University Press.
Manchester, A.C. 1994. The Coming of Market Regulation and Public Marketing Services. In
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the Application of International Standards for Fruit and Vegetables. Paris: OECD.
Thomas R., J.-M. Codron, L. Busch, J. Bingen, and C. Harris. 2001. Global Change in Agrifood
Grades and Standards: Agribusiness Strategic Responses in Developing Countries.
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Sylvander, B. 1995. Conventions de Qualité, Marchés et Institutions: Le Cas des Produits de
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Chapter 8
Intellectual Property Rights and the
Commercialization of Public Agricultural
Research in Developing Countries
David Bigman*
Introduction
New areas of agricultural research, particularly biotechnology, with their promise of
lucrative technological innovations, have opened the gates to an intensely competitive
treasure hunt. Private multinational corporations lead the race, but public agricultural
research organizations and universities have also joined in. The hectic activities are
driven not only by the great potential of biotechnology and the enormous commercial
prospects of the innovations that can result from this research, but also by the prospects
to appropriate high returns for investments in the research as a result of the worldwide
protection of IPR that is given by the rules and regulations of the WTO.
Public and semipublic agricultural research organizations have joined this race for
several reasons. First, private research companies increasingly dominate the research
in these areas due to the astronomic investments that are required, and the public
research organizations can hope to share or have access to their research only if they
accept the rules on the protection of IPR. Second, the high costs of biotechnology
research and the growing need to use costly proprietary technology raise the costs of
research at a time when many public research organizations are facing growing
financial difficulties due to severe cuts in public funding. Public research
organizations are therefore obliged to search for alternative sources of income to cover
their costs, and, by adapting their mode of operation to comply with IPR protection,
they can collaborate with private companies and benefit from their substantial
financial resources and advanced research capacities.
During the past decade, the legislation on the protection of technological
innovations with a global agreement on IPR was expanded very rapidly, both in scope
and in geographical coverage. The 1994, the Uruguay Round agreement on TRIPS
opened a new chapter in the protection and enforcement of IPR, and this agreement is
now binding all 140 members of the WTO. Quite a few developing countries are still
exempted until January, 2005, and even then it may take some time before IPR
protection is strengthened in all the developing countries to the extent that spillovers of
important technical information to unauthorized users can be effectively blocked.1
1. Mansfield (1994) noted that IPR is protected at different levels in different countries and that the
differences in the strength of IPR protection are particularly large among developing countries.
185
186 Chapter 8
2. Countries have also become aware of the value of their genetic resources, especially after the adoption
of the Convention on Biological Diversity (CBD).
188 Chapter 8
knowledge, most of whom reside in industrial countries” (p. 35). Strong IPR regimes
in the developed countries may also slow down the process of sharing and exchanging
information, thus restricting the capacity of developing countries to adopt advanced
technologies from the developed countries and reducing their prospects to “catch up”
and close the gap. A study conducted in the mid-1990s in three Latin American
countries concluded that “[t]he budget pressures, which oblige the [public] institutes to
market new plant varieties in a more profitable way, enhance the strategic importance
of their germplasm and reduce its availability” (Jaffe and Van Wijk 1995).
Private companies in developing countries have little commercial incentive to
apply for a patent since they have neither a good market for their invention in these
countries nor effective means—primarily a functioning legal system—to enforce the
patent. Instead, the main motivation to apply for a patent under these circumstances is
to prevent other private companies that operate in their countries from using the
technology or making products that infringe on their rights. However, only the large
multinational corporations are likely to pursue this option, since it involves an
elaborate, slow, and often very expensive process of licensing the patent and enforcing
it through the country’s legal system. Nevertheless, patenting is clearly one of the main
reasons for the breakdown of the traditional mode of free access and benefit sharing in
agricultural research that existed during the 1970s and the 1980s, when the developing
countries provided free access to their genetic resources and received the benefits of
the research in developed countries for free. This mode has now been replaced by a
highly asymmetric system in which access to genetic resources is still essentially free,
while the benefits of the research are not. Developed countries gain access to valuable
genetic resources in developing countries, but the scientific returns for the developing
countries are minimal.
The UNDP Human Development Report of 1999 underscored this asymmetry by
noting that the developed countries now hold 97% of all patents worldwide, and over
80% of the patents granted in developing countries are owned by residents of the
developed countries. In 1998, the total number of patents filed by residents in the USA,
Germany, and Japan was nearly 540,000, compared with less than 18,000 patents filed
by residents of India and China combined, and less than 500 patents filed by residents
of Brazil (Persaud 2001). The temporary monopoly power given to companies by the
patents therefore contributes to widening the income gap between the developed and
the developing countries, while the much weaker protection of IPR in the less-
developed countries reduces the incentives of local enterprises to invest in R&D.
Large investments in R&D give the top five biotechnology companies control over
95% of the gene transfer patents and a large portion of the patenting of genetic material
from developing countries. On these grounds, critics argue that the current IPR regime
effectively appropriates the resources of the developing countries, while failing to
acknowledge the contribution that their farmers made to the world’s genetic resources.
Today, agroindustries and traders prefer standardized products, and they exert
commercial pressures to homogenize crop varieties, which may have negative
implications for the stability and sustainability of the entire agroecosystem. By
effectively forcing farmers to adopt the homogeneous and genetically narrow base of
modern agriculture, private seed companies displace the wide diversity of traditional
Intellectual Property Rights in Developing Countries 189
local varieties with a handful of hybrids of the homogeneous modern varieties that
generate much greater uniformity. At the same time, the incentives given by the IPR
regime to private seed companies that develop the new seed varieties is to maximize
their profits by concentrating their research on varieties that have already been widely
adopted.
Patent owners can, however, enforce their rights only in countries where
protection has already been granted. An inventor in country A who fails to obtain a
patent in country B cannot enforce his/her rights in that country, even if country B is a
member of the WTO. Since the IPR regime in developing countries is much weaker so
far than in developed countries, it is difficult for research companies from a developed
country to protect their inventions in many developing countries. In recent years, steps
have been taken to increase the harmonization of national IPR legislation and its
enforcement in all countries. A key element in these efforts is the TRIPS agreement
that is binding all WTO members by setting certain minimum standards for the
implementation of IPR at the national level.
During the 1990s, the main engine of change in public agricultural research was
the process of trade liberalization and the globalization of trade and research. The
structural changes that took place as an effect of these processes, the more active role
of the private sector and the flood of innovations, primarily in biotechnology, that
came from developed countries, forced the public research organizations in
developing countries to reform their mode of operation. Initially, adopting the TRIPS
agreement was only a formality and a by-product of the act of joining the WTO.
Opponents of the WTO argue, however, that the TRIPS agreement was promoted by
the developed countries in order to globalize patent laws and that the agreement is
highly biased in favor of the developed countries and the private sector. They also
argue that, since most developing countries have now joined the WTO, the agreement
is contributing to exacerbating inequities. Even if farmers in developing countries are
initially only marginally affected by the financial costs of patents, they claim that, by
consolidating the seed industry, the agreement may create much higher risks by
inadvertently reducing plant diversity.
The enactment of IPR legislation in developing countries gradually strengthens the
role of the private sector in agricultural research, in plant breeding, and in many other
activities in the agricultural sector. However, the NAROs’ tight budgets and the rapid
decline in the financial support of their governments, donor countries, and
international organizations puts increasing pressure on these organizations to search
for alternative sources of funding to supplement their income and maintain their
research program. One promising source of income is the royalties on their
innovations, and this motivates many public research institutes to actively search for
ways to patent and commercialize at least part of their innovations and/or license their
technologies to private enterprises.
These trends are reflected in the survey conducted by ISNAR, which shows that
many public research organizations in developing countries have already established
IPR units, and many others are seeking legal advice on means and measures to protect
their innovations. As Jaffe and Van Wijk noted in their study on the Latin American
countries: “Budgetary pressures are forcing the [public] institutes to take advantage of
190 Chapter 8
PBR protection as a means of developing new sources of revenue,” but Tripp and
Byerlee warned in this context that “[s]elling public varieties to the private seed
industry can divert attention from the needs of farmers with few resources.” Others
underscored the negative impact of the IPR regime on the quality of agricultural
research in developing countries, due to the drop in the flow of knowledge and material
between potential research partners, the pressure to abandon research projects because
of insufficient “freedom to operate” as a result of patents held by competitors, and the
restrictions on sharing research results and experience between research institutes.
Barton (2000) indicated that the current patent laws also complicate and deter useful
follow-up research.
Many NARO managers believe that stronger IPR legislation and commercial-
ization of part of their research is the only way to recover some of their expenses. In
practice, however, only a small number of the NAROs’ research projects can lead to
patentable innovations, and only a small number of patents in agricultural research can
be commercialized. The financial prospects of IPR protection are, therefore, highly
uncertain. Nevertheless, public research institutes increasingly apply cost recovery
criteria in selecting research projects and try to commercialize their plant breeding
products to collect royalties on plant varieties that they developed in the past, on their
current sales to private seed companies, and on their direct sales of seeds to farmers.
The risk is that this commercialization may divert their limited resources away from
research that focuses on the needs of poor farmers or farmers in marginal areas, since
this research has very limited commercial potential.
This has given rise to concern, as expressed by Byerlee and Alex (1998):
“If the public sector is motivated by financial rewards, will its research be diverted
to serve better-off regions and farmers at the expense of small-scale farmers and
more marginal areas that might be the primary target of national policy for public
research organizations?”
public research organizations: On the one hand, the commercial prospects of the
research products may well be the main incentive for the public research organizations
to initiate or participate in this research program (see also their response to ISNAR’s
survey discussed later on); on the other hand, these commercial prospects may be the
very reason to exclude the public research organizations from this research program.
Another option is to transfer some public research programs to private companies on a
cost-plus basis.
Collaboration with private research companies offers significant advantages to
public research organizations by giving them access to advanced technologies
developed by the private sector and to additional financial resources. Access to the
advanced technologies of private companies becomes increasingly essential to the
public research organizations because these technologies are protected by patents and
their use becomes increasingly expensive. A survey among the CGIAR centers
conducted by Cohen et al. (1998) shows that centers often use proprietary technologies
without getting formal authorization. Binenbaum et al. (2000) argue that in developing
countries, concerns about access to essential intellectual property are exaggerated,
because most modern technologies are not protected by IPR in these countries. Still,
advanced research in newer areas such as biotechnology encounters mounting
difficulties due to the higher costs and greater complexity of the technologies, and the
higher costs of many essential inputs. These costs can limit the capacity of the NAROs
in the developing countries to conduct research in these areas, and therefore threaten to
widen the technology and knowledge gap between the developed and the developing
countries.3
The commercialization of the NAROs’ research and the possible effects of the IPR
regime on their research priorities raise a number of additional concerns:
< Can these developments disadvantage small-scale and marginal farmers, who may
not be able to pay higher prices for inputs that have been produced with patented
technologies?
< Will the NAROs cease to be public research organizations in the traditional sense
by no longer developing technologies that are freely available to all as public
goods? (Lindner 1999).
< How free will the NAROs be in selecting their future research programs if they are
not in line with the research priorities of private companies?
< Will the NAROs be driven to focus their research on high-value crops, primarily
for exports, and be diverted from research on low-value crops for
self-consumption that have limited commercial prospects?
< Will the NAROs have incentives to conduct research in new areas and on
nontraditional crops at the early stages of development, even though commercial
value is still highly uncertain?
< Will the IPR regime reduce the collaboration among public and semipublic
research institutes? This can be particularly detrimental to the formation of
3. Tripp and Byerlee (2000) suggest that “appeals to a corporate sense of duty to support public efforts to
address food security and poverty alleviation” may help to gain access to biotechnology. In the real
world, the corporate CEOs are more likely to pay lip service than hard cash.
192 Chapter 8
The arguments for and against the commercialization of agricultural research do not
apply with equal force to all the developing countries. In several Latin American
countries, the private sector is strong and its investments in the agricultural sector in
general, and in agricultural research in particular, are quite substantial. In these
countries, the change in the mode of operation of the NAROs will be less problematic.
In large countries like India or Brazil, the pool of qualified scientists and the size of the
market are sufficiently large to encourage the expansion of private agricultural
research once the private companies are assured that the technologies that come out of
this research are protected. In contrast, in most countries in sub-Saharan Africa and in
4. Tripp and Byerlee (2000) noted that “[a]s the possibility for taking advantage of plant variety
protection (PVP) increases, there is a growing temptation for the national programs to close their
doors, to charge collaborators for what used to be freely exchanged, or to deny national or regional
partners access to material for fear that they will gain a commercial advantage.”
Intellectual Property Rights in Developing Countries 193
many countries in South Asia, the private sector is still too unorganized to take up a
significant part of the research that the NAROs currently conduct, and the size of their
markets are too small to support viable private research companies. In these countries,
the NAROs will continue to have a very wide mandate, and the potential for the
privatization of their research is very limited. Nevertheless, even in many of these
countries ISNAR’s survey indicates that the NAROs are actively exploring the options
of commercializing some of their research activities.
Table 8.1. Type of Research and Collaboration with Other Research Institutes
pessimistic views: Hardin (1998) noted that, unlike the “tragedy of the commons”,
where having too many owners can result in an overuse of resources, the proliferation
of patents in research may lead to the tragedy of the “anti-commons,” where owners
have the right to exclude others and the resource may thus become underused, because
research is stifled rather than stimulated by the large number of patents. Patenting may
also hinder the exchange of knowledge and genetic material between private
enterprises and induce biotechnology companies to abandon promising lines of
research if they lack sufficient “freedom to operate” because they must use patented
technologies of their competitors. Moreover, since scientists working on something
that may be patented tend to share less knowledge with their colleagues, IPR may even
restrict the flow of germplasm between the private and the public sectors, which was
one of the characteristics of the Green Revolution.
Table 8.2 shows the distribution of the research projects in main research
categories: 57% of the projects focused on specific commodities and 14% were
research projects on pest or disease control that were part of specific commodity
programs. In total, 305 projects (71%) were part of specific commodity programs.
Nearly one-third of the commodity research projects (22% of the total) focused on
genetic improvement. A relatively small number of the research projects were on the
environment (11%) or on policy or economy related issues (6%).
Table 8.3 shows the project managers’ assessment of the chances of obtaining a
patent or seeking IP protection on the innovation that did, or was expected to, result
from their research. In over 25% of the projects, the answer was negative or the
question was not deemed relevant (e.g., in an economic research project). In nearly
30% of the projects, the project managers estimated that the products of their research
were not likely to generate any patent. In 175 projects (41%), the project managers
thought that IPRs were either quite likely (27%) or very likely (14%).
However, the answers also indicate that the project managers have very limited
and largely inaccurate information on IPR legislation and on the process of obtaining
and securing a patent, possibly because IPR legislation in these countries is not yet
fully incorporated into the legal system.
Table 8.4 reports on the use of proprietary technologies and materials. The survey
indicates that, for the time being, the use of proprietary technologies or inputs is very
limited (5% of the total). This is most likely a reflection of the small number of
proprietary technologies and materials that are used in developing countries—in part
because they use technologies and materials that have been developed by the CGIAR
centers and are freely available,5 and, in part, because the TRIPS agreement is not yet
fully implemented in most developing countries. Several developments of the recent
years may increase the use of proprietary technologies and inputs in the future. One is
the growing worldwide significance of IPR and of the TRIPS agreement, the second is
the increasing importance of biotechnology in NARI research, and the third is the more
prominent position of the private sector in the global trading system and in research.
5. According to a declaration of 1997, “The CGIAR stands for free flows of germplasm and it has no
profit motive. However, it may have to think of defensive patenting in order to stake out a claim and
ensure access.”
Intellectual Property Rights in Developing Countries 195
Expecting IPR? Not likely/ Very likely Quite likely N/A Total
not relevant
Another survey conducted by ISNAR in 1997 among seven CGIAR centers shows
that most centers used proprietary technologies for biotechnology research (Cohen et
al. 1998). Some proprietary materials were used only for their research, while others
became part of germplasm or other products for dissemination to the NARIs, to NGOs
in developing countries, and to other international agricultural research centers. That
survey also showed that more than 35% of these applications were used without any
written agreement, and the centers were unclear about their legal responsibilities. At
the same time, the survey revealed that the centers sought only very limited IPR
protection, in large measure due to the lack of familiarity with IPR issues.
The research managers were also asked about policy changes in their countries that
may have affected the trade with and distribution of inputs that were the subject of their
research. Their replies indicate that only 181 projects (60%) were on commodities or
technologies that were affected by policy changes. Out of these projects, 65 projects
concerned commodities in which foreign companies are not allowed to trade, and 38
projects were on commodities in which even domestic private companies are not
allowed to trade (Figure 8.5). Their replies also indicate that more than half of the
196 Chapter 8
Table 8.5. Policy Measures Relevant to the Inputs Generated in these Research
Projects
Measures All commodity research Of which: genetic improvement
commodities that were the subject of these projects were distributed by the public
distribution systems, but, in many countries this system was either reduced or totally
dismantled; 37 of these commodities still receive public subsidies.
Centers will not assert intellectual property control over derivatives except in cases
when this is needed to facilitate technology transfer or otherwise protect the interests
of developing nations. As a principle, however, the Centers do not see the protection of
intellectual property as a mechanism for securing financial returns for their germplasm
research activities, and will not view potential returns as a source of operating funds.
Despite these guidelines, policymakers and agricultural researchers in many
developing countries expressed concerns about the declared intentions of the CGIAR
Centers to collaborate with the private sector, particularly in biotechnology, and forge
partnerships with commercial enterprises. Many were concerned that the profit
objectives of the collaborating commercial enterprises and the incentives provided by
the IPR regime to commercialize their own research would negatively impact the goal
of the CGIAR to promote food security by providing new technologies for the
production of basic foods and making these technologies freely available to all. On
these grounds, participants in discussions on the future of public research recommend
that the CGIAR Centers as well as all public agricultural research organizations should
adopt only a defensive IPR policy and seek to maintain, to the extent possible, their
research output in the public domain. Others, however, favor the opposite approach
and recommend that the public agricultural research organizations manage their
research with the objective of generating revenues or improving their position to
bargain for access to proprietary technologies of others.
The changes in the global agricultural R&D system and in the role and mode of
operations of the NARS in the developing countries require the CGIAR to reevaluate
its own research strategy as well as its current guidelines on IPR. These guidelines
stress that the “[g]enetic resources of the CGIAR Centers are common property of all
mankind, and the research results from public institutions would remain freely
available in the public domain.” The changing global conditions for agricultural
research make it essential to reevaluate these guidelines in light of the following
questions:
< Will the protection of IPR by the CGIAR Centers contribute to or hinder the
development of genetic material and production technologies that can benefit the
poor?
< What are the wider implications of protecting IPR by the CGIAR with respect to
the access of public agricultural research organizations in developing countries to
the Centers’ genetic material, and what should the Centers’ policy be?
< Under what conditions and in which countries can the collaboration with private
companies or the protection of IPRs by the CGIAR ultimately assist the
development of technologies and materials for the poor, despite the possible
restrictions that this may impose on their distribution, by providing access to
proprietary technologies?
< What will be the effect of and benefits from defensive patenting?
< What will be the effect of the protection of IPRs on collaborative research with
other CGIAR centers or with the NAROs?
For the time being, there is very limited system-wide planning, and the CGIAR
Centers continue to develop their own individual strategies, establish their own
198 Chapter 8
individual IPR units, and explore the potential for and the means of protecting their
intellectual properties.6
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Inter-American Institute for Cooperation on Agriculture.
Lesser, W. Assessing the Implications of Intellectual Property Rights on Plants and Animal
Agriculture. American Journal of Agricultural Economics, 79: 1584-91, 1997.
Lindner, B. 1999. Prospects for Public Plant Breading in a Small Country. Paper presented at
the meeting of the International Consortium on Agricultural Biotechnology Research,
Rome, June.
Mansfiled, E. Intellectual Property Protection, Foreign Direct Investment and Technology
Transfer. IFC Discussion Paper No. 19. Washington, DC: World Bank.
Moschini G. and H. Lapan. 1997. IPR and the Welfare Effects on Agricultural R&D. American
Journal of Agricultural Economics, 79 (November).
Persaud, A. The Knowledge Gap. Foreign Affairs, 80 (2001), 107-117.
Study Committee on Biotechnology and IPR. 1991. The Impact of Intellectual Property
Protection in Biotechnology and Plant Breeding on Developing Countries. The
Netherlands: Ministry of Foreign Affairs.
Tansey, G. 1999. Trade, Intellectual Property, Food and Biodiversity. Discussion paper.
London: Quaker Peace & Service.
6. Recently, ISNAR started a research project aimed at evaluating the choices available to the CGIAR
given the changes in the global conditions for agricultural research, and the role of IP management in
the CGIAR system, with the objective of developing criteria for a system-wide IP management.
Intellectual Property Rights in Developing Countries 199
Tripp, R. and D. Byerlee. 2000. Public Plant Breeding in an Era of Privatization. Natural
Resource Perspectives No. 57. ODI.
World Bank. 1999. World Development Report 1998–99. Washington, DC: World Bank.
Chapter 9
The Development of the Seed Industry
Under Globalization
Michael L. Morris*
Introduction
Globalization and internal policy reforms—including deregulation, domestic market
reform, trade liberalization, privatization, and, at the international level, the
implementation of WTO agreements and IPR—are having pronounced effects on the
agricultural sectors of many developing countries. While attention to date has focused
mainly on documenting the impacts of globalization on the production and trade of
agricultural outputs, the potential impacts of globalization are also significant for
many agricultural inputs, including seed of improved crop varieties.
In most developing countries, responsibility for crop varietal research, seed
production, and seed distribution was traditionally assigned to public organizations.
Government participation in the seed industry was frequently justified on political
grounds (national food security being deemed too important to be entrusted to the
private sector), or defended for economic reasons (subsistence farmers being
considered unsuitable customers for private firms). Although public breeding
programs continue to operate in most countries, in recent years policy reforms
designed to scale back the role of the state have resulted in the withdrawal of public
organizations from many seed production and distribution activities. At the same time,
the relaxation of restrictions on entry into the seed industry and the lifting of controls
on international germplasm flows have opened the door to increased private-sector
participation in the seed industry (Morris 1998a).
These reforms associated with globalization are having a marked impact. One
striking development has been a rapid increase in many countries in the number of
private seed companies, both national and multinational. On a positive note, many of
these companies have demonstrated an impressive capacity to identify farmers’
germplasm needs, develop improved cultivars in response to those needs, produce
adequate quantities of high-quality seed, and deliver that seed to the farmers in a timely
fashion. At the same time, it is becoming increasingly evident that not everybody has
benefited from these changes. Private seed companies exist to earn profits for
shareholders, so not surprisingly they have chosen to concentrate on markets in which
they think they can make money—which usually means concentrating on large-scale
commercial farmers located in favorable production environments. Meanwhile, they
have often ignored small-scale, subsistence-oriented farmers located in remote areas
201
202 Chapter 9
poorly served by the transportation infrastructure, since these farmers are not likely to
purchase commercial seed on a regular basis.
The changes currently underway in the organization of national seed industries
warrant attention from policymakers. In most developing countries, agriculture still
serves as the backbone of the rural economy, and crop production activities provide
human food, animal feed, cash income, and employment opportunities for hundreds of
millions of poor households. For many of these households, improved seed represents
the delivery vehicle for productivity-enhancing technological change, so any
development that disrupts the flow of improved seed threatens to undermine food
security and aggravate rural poverty. This chapter examines the likely impacts of
globalization on national seed industries, with particular reference to maize. Maize is
one of the three cereals that dominate the world grain economy, the others being wheat
and rice. In industrialized countries, maize ranks second only to wheat in terms of
planted area and production. In the developing countries, where most of the world’s
rice production is concentrated, maize ranks third behind rice and wheat. Maize makes
a particularly appropriate subject for this inquiry, because with maize the diffusion of
improved germplasm is critically dependant on the availability of commercial seeds
(for reasons that are explained below). Changes in the organization of national seed
industries brought about by the globalization process will thus have a greater impact on
maize than on any other crop.
Table 9.1. Area Planted to Improve Maize and Wheat varieties, LDCs (%)
1. Throughout this paper, the term modern varieties is meant to denote varieties and hybrids developed
since 1960 by scientific breeding programs.
204 Chapter 9
through farmer-to-farmer seed exchanges, with relatively little involvement on the part
of any type of formal seed industry.
Maize represents a different case, however. Because it is a naturally
cross-pollinating crop, when maize reproduces, much depends on whether the pollen
used to fertilize a given kernel comes from the same plant or from a different one.
Unlike wheat, when maize plants self-fertilize, the resulting progeny are often
characterized by undesirable traits, such as reduced plant size and low yields. But
when maize plants cross-fertilize, some of the resulting progeny tend to demonstrate
desirable traits, such as increased plant size or high yields. Commonly referred to as
“hybrid vigor,” this phenomenon is attributable to the complementary action of
favorable genes and is frequently exploited by plant breeders in their efforts to develop
commercial materials. Unfortunately, the benefits of hybrid vigor do not persevere
across generations. When seed harvested from cross-pollinated maize plants is
replanted, performance in the resulting progeny decreases because of the inbreeding
phenomenon referred to earlier.
These two characteristics of maize—its tendency to deteriorate through inbreeding
and its ability to demonstrate hybrid vigor—affect the degree of control exercised by
farmers over the technology embodied in seed. Because of the marked decrease in
performance between first-generation hybrid plants and subsequent-generation plants,
farmers who choose to grow maize hybrids in effect forfeit the option of saving a
portion of their harvest to use as seed in the following cropping cycle. Farmers who
choose to grow open-pollinated varieties (OPVs) can save a portion of their harvest to
use as seed in subsequent cropping cycles, but they must be careful to maintain the
genetic purity of successive crops grown from re-planted seed (for example, by
physically isolating plots and by staggering planting dates to prevent cross-pollination
between varieties).
With on-farm seed production either technically difficult (in the case of hybrids) or
inconvenient and costly (in the case of varieties), maize farmers must acquire fresh
seed for each planting if they want to be certain of maintaining a high level of genetic
purity in their crops. Consequently, if farmers are to grow maize hybrids, they must
have access to a reliable supply of affordable, high-quality seed.
The realization that diffusion of improved maize germplasm depends critically on
farmers’ access to adequate seeds motivated CIMMYT to launch a research initiative
designed to clarify the role played by national seed industries in encouraging or
discouraging the dissemination of improved maize cultivars. The following section
summarizes the key findings of this research initiative, which was carried out during
the mid-1990s.
country, the government agencies that once monopolized maize seed production and
distribution have drastically scaled back their activities in the face of stiff competition
from private seed companies (the only significant exception is China, where the state
remains active in seed production). By the late 1990s, the proportion of commercial
maize seed produced by public seed agencies had fallen to less than 10% in Latin
America, sub-Saharan Africa, and Asia (Figure 9.1).
The increasing privatization of national maize seed industries has been
accompanied by a change in the types of cultivars available in the market. Whereas
many of the old government-subsidized public seed agencies offered a range of
germplasm types, including both improved OPVs and hybrids, the private seed
companies that now dominate the market concentrate almost exclusively on selling
hybrids.
The shift in the types of cultivars available in the market has been accompanied by
changes in seed pricing strategies. Intercountry comparisons of maize seed prices are
best made using seed-to-grain price ratios, which express the price of 1 kg of
commercial maize seed as a multiple of the price of 1 kg of ordinary maize grain (this
method eliminates potential distortions due to exchange rate effects). In many
developing countries, seed-to-grain price ratios for popular maize hybrids have
increased significantly in recent years (Figure 9.2). Possible explanations for the
increase in seed prices include the following: (1) the decline of government seed
agencies has been accompanied by a withdrawal of subsidies to seed, (2) the research
costs involved in developing modern hybrids have increased, forcing seed companies
to charge higher prices to recover their investment costs, and/or (3) increasing
concentration of the seed industry is allowing seed companies to exert market power
and charge oligopolistic/ monopolistic prices.
One of the main reasons for privatizing national seed industries is to displace the
old government seed monopolies, in the hope that this will foster increased
competition throughout the seed industry. Although privatization has often been
accompanied by a proliferation in the number of seed companies, the power of the
industry leaders has not necessarily been diluted. In many countries, the three largest
companies continue to control over two-thirds of the national maize seed market
(Figure 9.3). In a few countries, the industry concentration level is much higher, with a
single dominant seed company controlling over 75% of the entire market.
agencies
Proportion of total
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990 1991 1992 1993 1994 1995 1996 1997
agencies
Proportion of total
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990 1991 1992 1993 1994 1995 1996 1997
(a) Mexico
(b) Zimbabwe
Seed-to-grain price ratio
20
15
10
0
1962 1967 1972 1977 1982 1987 1992 1997
(c) India
Seed-to-grain price ratio
14
12
10
0
70
74
78
82
86
90
94
98
19
19
19
19
19
19
19
19
100
100
National market share (%)
90
80
70
60
50
40
30
20
10
0
Kenya South Africa Zimbabwe
100
National market share (%)
90
80
70
60
50
40
30
20
10
0
India Philippines Thailand
The conceptual framework used for the seed industry case studies was drawn from
the industrial organization theory. According to this framework, national seed
industries engage in three basic types of activity: (1) varietal improvement research,
(2) seed production (including seed multiplication, seed conditioning, and seed
storage), and (3) seed distribution (including marketing and promotion). While these
three types of activity remain the same from one country to the next, the manner in
which they are organized and carried out can vary tremendously. The institutional
actors, coordination mechanisms, and degrees of horizontal and vertical integration
can all differ.
The results of the CIMMYT case studies make clear that regardless of any
apparent similarities, no two national maize seed industries are exactly alike. In any
given country, the precise configuration of organizations and institutions involved in
plant breeding research, seed production, and seed distribution reflects unique
circumstances of history, environment, and culture. Generalizing across the country
case studies, however, recurring patterns are discernible in the way national seed
industries grow and evolve. The fact that these patterns appear over and over suggests
that despite having unique features, every maize seed industry develops in predictable
ways. The patterns provide important clues about the forces that drive the process of
change and indicate the likely consequences of policy interventions designed to
influence future performance.
Stage 1: Pre-industrial
Subsistence farming systems typically find themselves in the pre-industrial stage of
seed industry development. During the pre-industrial stage, none of the organizations
and institutions associated with a formal seed industry are evident. Germplasm
improvement occurs at the farm level as farmers carefully select superior ears from
their own production to use as seed stock in the following planting season. Only OPVs
are grown; hybrid technology is unknown. Most farmers use seed saved from their
own harvest, although some may also exchange small quantities with relatives or
neighbors. Farmers are the dominant actors because seed production technology is
readily accessible to them and because few incentives exist for commercial seed
production.
210 Chapter 9
Table 9.2. Characteristics Associated with the Stages of Maize Seed Industry
Development
Stage 1: Stage 2: Stage 3: Stage 4:
pre-industrial emergence expansion consolidation
Stage 2: Emergence
The emergence stage of seed industry development often coincides with a shift from
subsistence farming to semicommercial agriculture. During the emergence stage, the
realization that specialized knowledge and skills are needed to carry out germplasm
improvement work leads to the formation of specialized research organizations. But
because most farmers still grow OPVs, private firms lack economic incentives to
invest in plant breeding research or commercial seed production, and therefore these
activities must be carried out by public organizations.
During the emergence stage, the state tends to be the dominant actor in the seed
industry. In the absence of profit opportunities, private firms are unwilling to invest in
research and seed production; these activities consequently end up being performed by
government research institutes and seed agencies, which can justify their involvement
for reasons other than profit making. The profitability of these organizations is
adversely affected by the fact that until farmers learn to appreciate the benefits of high-
quality seed, they are generally unwilling to pay cost-recovery prices, so seed prices
often must be subsidized.
The Development of the Seed Industry Under Globalization 211
Only after a significant number of farmers appreciate the value of using quality
seed do private firms begin to spring up to compete with the state seed agencies.
Initially, demand for commercial seed is quite limited, and it is not worthwhile for
private companies to establish their own breeding programs; instead, they concentrate
on multiplying and distributing seed of varieties and hybrids released by the
government research stations. The speed with which this process occurs is quite
variable. In some countries, private seed companies have been relatively slow to
appear; in others, the rise of the private seed industry has been sudden and dramatic.
Stage 3: Expansion
The rise of commercial agriculture usually coincides with the expansion stage of seed
industry development. During the expansion stage, maize production becomes
increasingly commercialized, and the dominant seed type changes to hybrids. As
farmers increase the adoption of improved seed, agricultural productivity rises,
resources become available for buying seed, fertilizer, and other scientific inputs,
farmers increase their demand for proprietary hybrids, and the industry is driven into a
phase of rapid growth.
During the expansion stage, private firms assume an increasingly important role in
carrying out plant breeding work, conducting varietal evaluation trials, producing
foundation seed, multiplying, conditioning, and testing commercial seed, and
distributing it to farmers. Legal codes of conduct are enacted to guide research, enforce
seed certification procedures, and regulate the seed trade. Trade secret laws evolve to
provide protection for private sector investment in the seed industry.
As private seed companies increase their level of investment, they voluntarily
ensure that seed quality standards are maintained and use a combination of
government certification and brand names to develop a reputation for product quality.
Market competition helps assure seed quality, because farmers do not make repeat
purchases from companies that market inferior products. Although government
agencies continue to enforce seed quality control and phytosanitary standards for
international trade in seed, responsibility for seed certification and laboratory testing is
transferred to the private sector.
Stage 4: Consolidation
The appearance of large-scale agribusiness generally signals the onset of the
consolidation stage of seed industry development. During the consolidation stage,
private firms dominate the varietal development, multiplication, conditioning, and
testing of the commercial seed and seed marketing and distribution activities. As the
competition for market share intensifies, the private seed industry consolidates
through mergers, acquisitions, and strategic alliances among seed companies and
agrochemical firms. Ever greater investment in research coincides with the enactment
of IPR laws such as Plant Breeders’ Rights and plant patents, stimulating additional
investment in seed enhancement processes, biotechnology, and information
technology. Private firms use a mix of brand names, logos, trademarks, advertising,
field demonstration, and personal selling to inform farmers about the characteristics of
212 Chapter 9
their products. Seed companies develop global research, seed multiplication, and
distribution networks coordinated from headquarters located in industrialized
countries. Meanwhile, nonremunerative activities are left to the State, such as the
collection, evaluation, and conservation of genetic resources, and the management of
varietal evaluation trials.
The evolutionary growth path described by the life cycle theory is not
deterministic, but the model is useful because it clarifies the conditions needed for the
seed industry development, suggests how the roles of participants are likely to change
through time, and signals areas of potential concern for policymakers. In addition, the
life cycle theory provides a useful framework for analyzing the seed industry
organization and performance by focusing attention on the changing incentives faced
by different actors as the industry evolves.
Concentration
As the national seed industry becomes more concentrated, the individual organizations
that make up the industry grow in size. By growing in size, the organizations are able to
exploit potential economies of scale and scope. The opportunities to capture
economies of scale and scope are particularly evident in research. The economic
criteria of research are changing rapidly, and increasingly there are advantages to
being big and diversified. In conventional breeding programs, economies of scale and
scope relate not so much to the physical processes of screening germplasm, making
selections, combining materials, and evaluating progeny since these are labor-
intensive activities that are best carried out on a fairly small scale. As competition in
the industry intensifies, however, success in plant breeding depends increasingly on
having access to a wide range of superior germplasm and on being able to test
experimental materials in many different locations. These are things that small
organizations generally have difficulty managing for themselves. The large
transnational seed companies all have established international networks of research
stations and testing facilities that allow experimental materials to be moved around the
world and evaluated in many different locations. Companies that are able to build and
operate these global networks enjoy a distinct advantage over national programs and
local seed companies whose spheres of operation are limited. This explains why the
number of organizations engaged in maize breeding research is declining and why the
size of surviving breeding programs is increasing.
The trend toward concentration in maize research has accelerated with the rise of
biotechnology. Although the basic ingredients of research have not changed (trained
staff, well-equipped facilities, superior germplasm), the cost of equipping laboratories
and training scientists to carry out biotechnology research has increased greatly. This
has put many cutting-edge technologies out of the reach of all but the biggest
organizations that are able to mobilize large amounts of investment capital. The
prospect of reaping enormous profits from sales of genetically engineered hybrid
maize seed, as well as from the complementary chemical inputs which the new hybrids
will require, has fueled numerous mergers, acquisitions, and joint licensing
agreements throughout the global biotechnology industry as the leading players seek
access to key technologies.
Less widely recognized is the fact that opportunities to capture economies of scale
and scope also exist in seed distribution. Large organizations, particularly diversified
corporations that derive income from a range of products and services, are in a stronger
position than small organizations to undertake advertising and promotional activities.
Their large size increases the expected revenues from seed sales and permits a larger
214 Chapter 9
Vertical integration
Concentration in the maize seed industry is advantageous when it allows organizations
to capture economies of scale and scope in production. But concentration can be a
mixed blessing, because it involves an increase in the average size of seed
organizations, and increased size generally means increased risks. Maize seed
organizations, like other organizations, respond to increased risk by seeking out
mechanisms designed to improve coordination between successive stages of economic
activity. One such mechanism is vertical integration, which occurs when successive
stages of economic activity carried out by separate firms are combined within the same
firm. Vertical integration allows seed organizations to reduce transaction costs by
eliminating the uncertainty that arises when research, seed production, and seed
distribution activities must be coordinated through market exchange mechanisms.
Opportunities to reduce transaction costs through vertical integration can be found
throughout the research-seed production-seed distribution continuum. As the cost of
research rises, research organizations face increasing losses if they are unable to
recoup their research investment through sales of germplasm products; this creates
strong incentives for them to integrate downward into seed production and
distribution. Similarly, as establishing a market presence and developing brand name
recognition become increasingly costly, distributors face increasing losses if they are
unable to maintain access to a continuing stream of high-quality products; this creates
strong incentives for them to integrate upward into seed production and research.
In the private sector, vertical integration is by now a fact of life. In today’s
competitive market, most private seed companies carry out research, produce seed,
and distribute seed. The fact that all three activities are carried out by each company
has a number of advantages. First and most importantly, vertical integration allows the
risks associated with individual activities to be greatly reduced. Thus, the research
division is ensured an outlet for its products, the seed production division is ensured a
steady supply of high-quality hybrids, as well as a reliable outlet for the commercial
seed it produces, and the marketing and sales division is ensured an adequate supply of
quality products. Second, because research, seed production, and seed distribution
activities are carried out within the same corporate entity, profits and losses can be
distributed in a way that maximizes the objectives of the firm, even if this means
cross-subsidizing certain inherently unprofitable activities. Third, vertical integration
The Development of the Seed Industry Under Globalization 215
Conclusion
These are turbulent times for the global maize seed industry. Following a long period
of relative stagnation, many national maize seed industries are undergoing pronounced
structural changes, particularly in developing countries. Almost overnight, private
216 Chapter 9
global maize seed industry could eventually become concentrated in the hands of a
small number of extremely large firms, at least some of which would have the ability to
exert oligopolistic or monopolistic power (e.g., by restricting the choices offered to
farmers, by charging excessively high prices for seed). If and when this happens,
governments may be forced to take steps to regulate the behavior of these large firms to
ensure that the performance of the industry is consistent with society’s needs and
expectations.
References
Aquino, P. 1998. Mexico. In M.L. Morris (ed.) 1998a. Op. cit.
Byerlee, D. and P. Moya. 1994. Impacts of international wheat breeding research in the
developing world: 1966-90. Mexico, DF: CIMMYT.
Garcia, J.C. 1998.“Brazil. In M.L. Morris (ed.) 1998a. Op. cit.
Lopez-Pereira, M.A. and M.L. Morris. 1994. Impacts of international maize breeding research
in the developing world, 1966-90. Mexico, D.F.: CIMMYT.
Morris, M.L. and M.A. Lopez-Pereira. 1999. Impacts of maize breeding research in Latin
America, 1966-97. Mexico, DF: CIMMYT.
Morris, M.L. (ed.). 1998a. Maize seed industries in developing countries. Boulder, CO: Lynne
Rienner and CIMMYT.
Morris, M.L. 1998b. Thailand. In M.L. Morris (ed.) 1998a. Op. cit.
Morris, M.L., R.P. Singh, and S. Pal. 1998. India’s maize seed industry in transition: Changing
roles for the public and private sectors. Food Policy 23(1).
Morris, M.L. and M. Smale. 1997. Organization and Performance of National Maize Seed
Industries: A New Institutionalist Perspective.” CIMMYT Economics Program Working
Paper 97/05. Mexico, DF: CIMMYT.
Pal, S., R.P. Singh, and M.L. Morris. 1998. India. In M.L. Morris (ed.) 1998. Op. cit.
Pray, C. 1998. Turkey. In M.L. Morris (ed.) 1998a. Op. cit.
Pray, C., S. Rozelle, and J. Huang. 1998. China. In M.L. Morris (ed.) 1998. Op. cit.
Rusike, J. 1998. Zimbabwe. In M.L. Morris (ed.) 1998a. Op. cit.
Rusike, J. and M. Smale. 1998. Malawi. In M.L. Morris (ed.) 1998a. Op. cit.
Tripp, R. 1997. New Seeds and Old Laws: Regulatory Reform and the Diversification of
National Seed Systems. London: Overseas Development Institute.
Chapter 10
Managing Intellectual Property and
Proprietary Technology in Agricultural
Research
Joel I. Cohen, Cesar Falconi, Victoria Henson-Apollonio,
John Komen, and Silvia Salazar*
Introduction
Several significant developments that have taken place in the past decade on the
scientific front and in international law affect the use and exchange of genetic
resources and the management of intellectual property.1 The Convention on Biological
Diversity (CBD) of 1993 and TRIPS agreement of 1994 are the two main international
agreements that are important in this context. While the concept of intellectual
property protection itself is by no means new, in the past it used to be implemented by
specialists and was of interest primarily to inventors and authors. However, with the
internationalization of the economy and the advent of free market agreements, the
subject of IPR has become a critical aspect of all international trade agreements.
Most developing countries fundamentally opposed during the 1960s the notion of
a patent system, and they therefore did not seek patent rights on innovations in
strategic areas such as living organisms (plants and animals) or the biological
processes that produce them, thereby excluding many biotechnological inventions
from the agreements. Many new pharmaceutical and nutritional products as well as
agrochemical products such as fertilizers, fungicides, herbicides, and insecticides were
also excluded from protection under these agreements. The TRIPS agreement made it
obligatory, however, to patent the inventions of products and processes in all fields of
technology for a minimum period of 20 years. While there are some exceptions for
plants and animals and the essentially biological processes that produce them,
practically all other products, such as agrochemicals, are subject, according to this
agreement, to patent protection. Biotechnological innovations arising from
microorganisms and microbiological processes are also eligible to patent protection
1. “Intellectual property” is a broad term for the various rights that the law gives for the protection of
economic investment in creative effort. The principal categories of intellectual property relevant to
agricultural research are patents, plant variety rights, trade secrets, and trademarks.
219
220 Chapter 10
under the TRIPS agreement; plant varieties are eligible for either patent protection or
an effective sui generis system or any combination of the two. As a consequence, an
increasing number of developing countries are revising or setting up their own systems
to protect intellectual property rights, and the WTO also requires its members to
introduce international standards for the protection of IPR.
The NAROs of developing countries, the international agricultural research
centers of the CGIAR, and many other public or semipublic agricultural research
institutes are affected by these changes in proprietary rights. The impact on these
institutes is particularly strong because of two related developments. The first is the
increasing importance of biotechnology in agricultural and related fields of research;
the second is the growing share and importance of private research institutes in
research in these fields. An increasing number of new inputs that have been derived
from basic research in biotechnology are finding wide use in applied agricultural
research, and IPR protects most of these inputs, since most have been developed by
private research institutes. However, not only the private sector is now seeking
intellectual property protection; increasingly, national and international agricultural
research organizations, along with other public and semipublic institutions (primarily
universities), including those working for and with developing countries, are seeking
this protection. All agricultural research institutes, including the centers of the CGIAR
and the developing-country NAROs, are therefore greatly affected by the growing
impact of IPR protection.
A recent study by ISNAR documents the complex dilemma that public research
institutes face regarding the use and dissemination of products resulting from the use
of proprietary technologies or materials that are owned, managed, or protected through
some sort of IPR agreement or a specific contract2. Such technologies and materials
usually have restrictions placed on their use both during the research stage and later on
(for a limited time), when products derived from the protected materials are ready for
wide dissemination. The main goal of ISNAR’s study was to collect and analyze
information to evaluate the options now available for public agricultural research and
to examine the implications of international agreements and national policy
regulations regarding IPR on their future work; the second goal was to assess the
possible effects of IPR on the dissemination of products and technologies to farmers
and other end-users.
The study’s specific objectives were as follows:
1. assess the use of internally-generated and third-party proprietary applications of
biotechnology (technologies and materials) in national and international research
centers;
2. evaluate the potential legal implications of the use of proprietary technologies and
materials;
3. synthesize the main findings and recommendations in order to set the agenda for
future discussions.
2. Contracts that are associated with the transfers of materials and other types of IP usually take the form
of licensing agreements or material transfer agreements (MTAs).
Managing Intellectual Property and Proprietary Technology 221
3. The majority of materials currently held in Center genebanks have been designated under agreement
with FAO signed in October 1994, as part of the International Network of Ex Situ Collections. The
agreement and guidelines are under periodic review.
4. Materials held in the in-trust collections are distributed with an MTA.
222 Chapter 10
The guiding principles reaffirm that the resources maintained in the gene banks at
the centers should be freely available, and that the centers should not seek legal
protection for their innovations unless it is absolutely necessary to ensure that
developing countries have access to new technologies (defensive patenting). The
centers should not seek intellectual property protection for income-generating
purposes and will not view potential returns from intellectual property protection as a
source of operating funds. The 1996 document also states that any IPR acquired by a
center should be exercised without compromising in any manner the fundamental
position of the CGIAR regarding free access by developing countries to knowledge,
technology, materials, and genetic resources.
the important role that proprietary technologies and materials have assumed in
research in the CGIAR, as is true for advanced research centers globally.
50
45
40
N.K.
35 Other
Number of applications =>
30 Patent
25
20
15
10
0
Genetic markers
Promoters
Transformation
Diagnostic
Others
Selectable
resistance
resistance
markers
Disease
probes
Insect
systems
regard to its “field of use.” A case in point is illustrated by the complexity of issues
associated with the use of tissue transformation systems. These techniques are quite
popular in the CGIAR centers surveyed. However, the data presented in Figure 10.1
indicate that only 40% of the applications of transformation tools were reported to be
protected. A cursory look at the patents in the field of the most widely used
transformation tools—Agrobacterium-mediated, polyethylene glycol (PEG)
protoplast transformation, and biolistic (microprojectile-mediated)5—indicates the
complexity of the situation. The appropriate background patents associated with each
of these techniques are in force in the USA, Canada, Japan, and the EU. They are not in
force in the countries and geographical regions where CGIAR Center outputs are
distributed. However, a large number of improvements have been made; directly (e.g.,
those that flow from the original patents) and indirectly (those that are independent of
the original patents). Some of these improvements may be protected more widely, so
that establishing “freedom to operate” can become a very time consuming and
complex project.
However, research into which particular background patents are protected and
where this protection is in force is very important to know whether a license is
necessary. This type of research can also help an individual scientist determine
whether material that is covered by a license or MTA that carries strict provisions
regarding dissemination could just be duplicated from starting materials rather than
obtained under a license or MTA.
Without exact knowledge of the nature and intended use of the biological material
involved, and conditions for use, it is difficult to assess the extent to which existing IPR
would curtail dissemination or the extent to which MTAs are even necessary. A risk
associated with the widespread use of material transfer agreements (and also license
agreements) is that such legal instruments place the IPR of a proprietary technology in
the context of contract law, which is quite a different realm from strict intellectual
property (IP) law. IP regulations are enforceable only in states where an official patent
has been issued, whereas contract law can be more far-reaching. The enforcement of
contract law is often in a more advanced state, even in developing nations, while the
implementation and enforcement of IP regimes in many developing countries is still in
the very early stages.
5. US Patent numbers 4,459,355, 4684611, and 4,945,050 are examples of early, background patents in
the transformation area.
Managing Intellectual Property and Proprietary Technology 225
developed with proprietary technologies may encounter problems in their use and
dissemination, depending on the specific conditions included in patent claims,
licensing contract, or MTA. Most centers have started considering the implications of
legal agreements for disseminating research outputs, with some respondents
foreseeing potential limitations. For example, a contractual arrangement between a
CGIAR Center and a private multinational as owner of the input technology specifies
that outputs can be distributed only in certain countries. In this case, there is a priori
understanding of the restrictions and limitations for dissemination that should be
studied further by the CGIAR. Such studies have already begun on a center-by-center,
case-by-case basis.
The CGIAR developed terms of reference for such IP reviews under the leadership of
CIMMYT (CGIAR 1999). Accordingly, IP reviews consists of three main steps: (1)
conducting a comprehensive “IP audit”, (2) identifying a strategy for regularizing a
third-party IP6 currently in use, and (3) developing long-term IP management
guidelines.
The first activity (conducting an IP audit) is a critical first step in managing IP and
includes three components: First, Centers compile an inventory of all third-party IP
being used. Then they compile an inventory of all new IP developed at the centers.
Finally, they identify all contracts, licenses, collaboration agreements and other legal
agreements that may affect centers’ ability to access, use, or distribute their own IP
and/or third-party IP.
Based on the information of the first activity, the objective of the second activity is
to identify steps needed to ensure that third-party IP currently used by the centers’
researchers is being utilized under appropriate agreements. For the third activity,
centers are to prepare guidelines for IP management at each center to assure the
optimum and appropriate use, access and protection of existing and future IP. All
CGIAR centers have started their audits. Most are implemented in two phases: An
inventory of resources, and a management audit.
Central Advisory Service: In 1998, the CGIAR Expert Panel on Proprietary Science
and Technology recommended establishing a central unit to deal with technology
transfer, IP, and alternative rights regimes (TAC 1998), following the conclusions and
suggestions from ISNAR’s study on proprietary technology. In 1999, the CGIAR
Committee of Center Directors established a CGIAR Central Advisory Service on
Intellectual Property (CAS). CAS supports the CGIAR Centers by providing and
facilitating expert advice and enhancing knowledge exchange on IP issues. CAS’
objectives are to
< consult with centers regarding R&D activities with implications for managing
proprietary technology, followed by preparation of expert reports;
< serve as a liaison for CGIAR Ccenters with expert organizations and legal
expertise regarding proprietary technology and the management of IPR;
< establish mechanisms for documentation, communication and exchange of
experience among the CGIAR Centers and the global agricultural research
community.
6. Intellectual property owned and protected by parties other than the Centers.
Managing Intellectual Property and Proprietary Technology 227
In its first full year of operation (2000), CAS has established contacts at every
CGIAR Center and is currently in the process of producing Center-specific IP reports,
based on visits and discussions at several Centers. Following such visits, CAS has
responded to a number of requests for assistance in the area of licensing and
technology transfer. Furthermore, standardized IP management tools are being
developed, such as nondisclosure agreements and invention disclosure forms.
Means of protection and permission for use: Figures 10.2 and 10.3 show what
means of protection have been given to the technologies and materials analyzed in the
survey and how permission for use was obtained. Again, while not all proprietary
inputs pose difficulties regarding IP or for the dissemination and use of resulting
products, this study has helped research organizations explore areas where potential
difficulties may occur.
As indicated in Figure 10.2, in more than 30% of the applications of proprietary
technology NARO respondents indicated that they lack clear knowledge or
information on the type of means of protection provided for a particular proprietary
tool. These cases need to be further examined to avoid potential infringement of legal
conditions on the use of these proprietary technologies and materials.
Figure 10.3 indicates that material transfer agreements are the most common
means for acquiring technologies, as they are in CGIAR Centers. The study’s findings
also highlight the importance of international collaboration as a mechanism for the
acquisition of technologies, and that some of the NAROs purchase proprietary
technologies for their own use. The use of licenses as a tool for technology transfer is
very limited.
NARO patents: The results show that the Latin American NAROs have high
expectations to obtain intellectual property protection for their new products. They
expect that 74% of the 50 products that are expected from the application of
proprietary technologies will be protected either by patents or by plant variety
protection (see Table 10.4).
Protection anticipated 11 9 0 0 17 37
No protection anticipated 0 3 6 0 0 9
Not yet decided 0 0 2 2 0 4
Total 11 12 8 2 17 50
Source: Salazar et al. (2000)
160
140
100
80
60 20
19 13
91
40
46 42
20 40 9 3 14
15 12 5 13
0
Transformation
Promoters
marmers
Others
Diagnostic
Selectable
resistance
resistance
Genetic
markers
Disease
probes
Insect
systems
0 10 20 30 40 50 60 70 80 90 100
MTA 95
international
68
collaboration
Permission for use =>
purchased 67
licensed 21
not known 54
In order to complement the work of the committee and to help disseminate the
policy, smaller IP committees were created in 1997 in each of Embrapa’s 39 research
centers. The diverse nature of Embrapa’s research program makes it very difficult to
train staff with the expertise that is needed to respond to the complex issues involved in
the implementation of the policy at each research center. Based on the experiences
gained during 1997–98, Embrapa created a centralized unit, the Intellectual Property
Secretariat, in December 1998. Located at Embrapa’s headquarters in Brasilia, the
secretariat has a direct link with Embrapa’s president.
The secretariat now coordinates the technology acquisition and technology
transfer associated with processes and products that have Embrapa- or
third-party-owned IP. In addition, the secretariat serves as the policy-making body that
adapts, adjusts, and updates Embrapa’s IPR policy and its implementation in
accordance with global developments.
Enforcement of obligations
As licenses and MTAs impose legal obligations, the receiving institute must be in a
position to honor its obligations under the agreement. For example, if proprietary
technologies involve a trade secret or impose confidentiality obligations, the institute
must be able to police the handling of the material supplied. This may require the
establishment of a secure system of operation and placing researchers and visitors
under confidentiality obligations. If public research institutes anticipate any
constraints being placed on dissemination due to relevant legal arrangements or trade
Managing Intellectual Property and Proprietary Technology 233
restrictions, then these increasing legal complexities reinforce the need for centralized
IP management units or a secretariat that contains expertise to ensure compliance with
MTAs and with the terms of IP licenses.
References
Barton, J.H.1998. The impact of contemporary patent law on plant biotechnology research. In
Global Genetic Resources: Access and Property Rights. CSSA Special Publication.
Madison: Crop Science Society of America.
Blakeney, M. 1999. Agricultural Research and the Management of Intellectual Property. In
Managing Agricultural Biotechnology: Addressing Research Program Needs and Policy
Implications, edited by J.I. Cohen. Biotechnology in Agriculture Series, No. 23.
Wallingford: CABI Publishing.
CGIAR. 1999. The Third System Review: From Proposals to Practice. Progress Report on IPR
Matters and Proposal for Review of Plant Breeding. Washington, DC: CGIAR.
Cohen, J.I., C. Falconi, J. Komen, and M. Blakeney. 1998. Proprietary biotechnology inputs
and international agricultural research. Briefing Paper 39. The Hague: ISNAR.
Salazar, S., C. Falconi, J. Komen, and J.I. Cohen. 2000. The use of proprietary biotechnology
research inputs at selected Latin American NAROs. Briefing Paper 44. The Hague: ISNAR.
234 Chapter 10
Sampaio, M.J.A. and E.A.B. Brito da Cunha. 1999. Managing Intellectual Property in
Embrapa: A Question of Policy and Change of Heart. In Managing Agricultural
Biotechnology: Addressing Research Program Needs and Policy Implications, edited by J.I.
Cohen. Biotechnology in Agriculture Series, No. 23. Wallingford: CABI Publishing.
TAC. 1998. Report of the CGIAR Panel on Proprietary Science and Technology.
SDR/TAC:IAR/98/7.1. Rome: Technical Advisory Committee of the CGIAR.
Chapter 11
Diversifying Agricultural Production and
Exports in Africa
The Role of Public Agricultural Research
David Bigman*
Introduction
In the mid-1980s, a FAO study entitled African Agriculture: The Next 25 Years (1986)
evaluated the prospects of the agricultural sector in sub-Saharan Africa. It concluded
that the sub-Saharan African countries could increase their agricultural production and
become self-reliant if their potential was properly utilized. New and better production
and resource management technologies were deemed essential to improve the use of
land and the continent’s other natural resources. Three principal sources of increasing
crop production were identified: Epansion of arable land can contribute to increase
production by 27%, higher yields can contribute to increase production by 51%, and
greater cropping intensity can contribute to increasing production by 23%. The key to
increasing agricultural production in sub-Saharan Africa, according to this report, is
therefore an increase in yields, and this can be achieved first and foremost by
intensifying agricultural research.
With the advent of globalization and the sweeping measures of trade liberalization
and other policy reforms implemented by many sub-Saharan African countries under
their structural adjustment programs, the strategies of production, growth, and
research adopted in the 1980s had to undergo very significant changes. Agricultural
R&D still holds the key to an increase in agricultural production, but the
supply-oriented strategies of the 1980s, based on the production of traditional export
crops and staple foods, were no longer effective. Instead, a new approach had to be
taken to enable the agricultural sector to realize its growth potential by increasing
production for international trade and by promoting greater specialization. This new
strategy would have to be demand-oriented, built on a broader and more diversified
production base, geared to the demands in the domestic and global markets, and
designed to meet the food safety and quality standards required in the markets of the
developed countries. The agricultural sector must therefore undergo a significant
transition and agricultural research must assume a key role in assisting the transition,
helping farmers to diversify their farming system and disseminate new production
methods and new crops.
A significant element of this strategy should be the introduction and dissemination
of nontraditional crops for export and the development of agroindustries in order to
237
238 Chapter 11
increase the domestic value added of the country’s food exports. The comprehensive
changes in the global market conditions and the sharp reduction in the prices of
practically all agricultural inputs and outputs, in large measure a result of the policy
reforms themselves, underscore the need for a development strategy aimed at
diversifying agricultural production in line with the country’s comparative advantage
and with the changes required by the constraints and opportunities presented by the
emerging global trading conditions. In most developing countries, agricultural
research, and, in particular, the NAROs, have an essential role in guiding and
facilitating the transition process by helping farmers adopt new and mostly
nontraditional crops and adapt production technologies suitable to their needs and to
the agroclimatic and socioeconomic conditions in their area. So far, however, most
NAROs in sub-Saharan Africa have made relatively few adjustments to reorient their
research strategies in order to meet these needs, and the lion’s share of the NAROs’
research is still focused on staple food crops and traditional export commodities.
The objective of this chapter is to evaluate the measures that African countries
must implement in order to diversify their production base and to increase the
competitiveness of their agricultural exports. It begins with providing an overview of
the trade reforms implemented in African countries during the 1990s against the
backdrop of changes in the global trading system and the impact of these changes on
their production, competitiveness and exports. It then surveys the main reforms that
have taken place so far in sub-Saharan Africa and outlines the policy measures that
must still be implemented in order to expand their production base, gain
competitiveness, and diversify their exports. Next, it examines the role and potential
contribution of agricultural research in assisting that transition. It then summarizes the
main findings of a survey conducted among 105 NAROs in 33 developing countries to
evaluate the adjustments these institutes made in their research priorities in order to
accomplish this role. Finally, it offers some concluding remarks.
the Americas. This has given the regional agreements a significant role in liberalizing
agricultural trade and moving toward freer trade.
Sub-Saharan Africa was no exception. Until the early 1990s, Africa’s imports and
exports were subject to severe restrictions: most commodity trading, particularly in
agriculture, was under state ownership or control. The high walls of tariffs and export
taxes that restricted international trade were also a main source of government
revenue. These walls included not only explicit export taxes, but also implicit taxes
through over-valued exchange rates and wide margins for marketing parastatals.
Internal trade was also subject to price and quantity controls that were aimed primarily
at reducing food prices for urban consumers. All these restrictions were highly
detrimental to agricultural growth and the standard of living of the rural population; the
gradual reduction and removal of these restrictions has therefore been a major goal of
successive structural adjustment programs since the mid-1980s.
In practice, however, the implementation of these adjustment programs turned out
to be very slow and unsteady. After relatively little progress during the 1980s and the
early 1990s,1 the process gained momentum in the second half of the 1990s, and
reforms were implemented much more rigorously, largely as a result of the
commitments made under the GATT and WTO agreements. By the end 2000, 41 of the
55 independent countries in Africa were members of the WTO, and four additional
countries were in the process of joining. The new “international order” under the WTO
rules and regulations is therefore bound to have a significant impact on the region. In
addition to the multilateral trade agreements under the WTO, regional trade
agreements have also proliferated. In Africa, there are 13 different regional and
subregional trade agreements that seek to achieve customs union or even create a
complete economic community with free movement of goods. Notable examples are
the West Africa Economic and Monetary Union (WAEMU), the East African
Community, and the Regional Integration Forum. Presently, however, the importance
of the African regional trade agreements is rather limited, since intraregional trade is
less than 10% of the total trade in the region.
Originally it was planned to implement the WTO agreements on agriculture for the
developing countries in 2004. Although this process was delayed due to the Seattle
debacle, it still continues. Key elements of the agreements on agriculture had already
been negotiated in the Uruguay Round Agreement on Agriculture that became
effective on January 1, 1995, the most important one being the replacement of
nontariff trade restrictions by bound tariffs. Starting in 1995, these tariffs on all
agricultural products were to be lowered by an average of 36% for developed
countries, and 24% for developing countries over six and 10 years respectively. The
Agreement also included a reduction in export subsidies, an increase in minimum
import access and limits on trade-distorting domestic support. The “millennium
round” of agricultural trade negotiations that the meeting in Seattle was meant to
launch, was aimed at speeding up this process. At the close of the 1990s, however,
trade reforms in sub-Saharan Africa are still considerably less advanced than those in
1. As a result, in three-quarters of the World Bank adjustment loans the installment tranche releases had
to be delayed because the policy conditions had not been implemented.
240 Chapter 11
other regions. Estimates of the “trade openness rating” of the African countries (based
on the IMF methodology with “0” representing most openness and “10” least
openness) show that the average rating of sub-Saharan Africa was 6.0 in 1998, while
the rating of the rest of the world was 4.4.2
The early reforms concentrated on lowering export taxes and import tariffs,
dismantling marketing boards, removing administrative restrictions on exports, and
relaxing and gradually removing quantitative restrictions on imports (Valdez 1998).
The impact of these reforms varied widely between countries, but, in general, the
desired results were not achieved. One obstacle was the failure of most African
governments to complement the economic reforms with wider and deeper social and
political reforms to strengthen weak institutions and their systems of government.
Another obstacle was their continued heavy reliance on exports of a small number of
primary commodities that comprise 90% of Africa’s exports. The prices of these
commodities have been very unstable, with most prices declining sharply in real terms
since the late 1980s. Producers of many traditional export commodities such as coffee,
cocoa, sugar, and bananas suffered heavy income losses as a result of the sharp drop in
prices, and many farmers were forced to go back to the production of staple foods for
self-consumption. In addition, the narrow concentration in volume and the wide price
gyrations of their main export commodities exposed African countries to even larger
business risks that inhibited domestic and foreign investments and destabilized their
foreign exchange earnings. Another dimension of the reforms was the privatization or
dismantling of public enterprises that had effectively controlled the entire distribution
of most agricultural inputs and outputs before the onset of the structural adjustments
program. In many cases, however, the privatization reforms had only limited success,
as illustrated in the following case of privatizing the fertilizers trade in Ethiopia (see
Box 11.1).
Since the 1960s, sub-Saharan Africa has been increasingly marginalized in the
global trading system. Its share in the total world trade of commodities and services
has continued to decline in the 1980s and, even more so, in the 1990s, and the continent
remained highly dependent on the production and exports of primary commodities.
Most African countries have managed to diversify their production and exports only to
a very limited degree, and they still have very limited capacity to cope with the
competitive pressures of the global trading system and the downward pressures on the
prices of many primary products. By the mid-1990s, the total value of exports from the
continent fell to less than $100 billion (roughly equal to the exports of South Korea),
mostly of primary products, while the share of manufactured goods was only around
10%—two-thirds of which originated from North African countries; the 30
sub-Saharan African countries exported hardly any manufactured goods. This rather
dismal performance occurred despite favorable conditions due to active discrimination
measures that favored products from sub-Saharan Africa. The share of Africa in global
merchandise exports declined from 3.1% in 1990 to 2% in 1999, due to the heavy
reliance on exports of primary commodities that lost much of their value during that
2. The rating has improved, however, from an average of 8.3 in 1993–95. See N. Gorjestani (September
2000).
Diversifying Agricultural Production and Exports in Africa 241
D. Mulat and T.S. Jayne. 1997. Promoting Fertilizer Use in Ethiopia. Grain Market Research Project, Addis
Ababa.
decade and to their limited flexibility in adapting to the evolving international trading
system (see Table 11.1 and Figure 11.1). As a result, the competitiveness of most
African countries eroded during the decade and they lost a considerable share of their
traditional markets to Asian countries. The failure of the African countries to
restructure their economies and jump-start a new process of development that could
expand their production base was largely a result of the narrow base of their internal
market, their protectionist trade policies, and an acute shortage of skilled manpower.3
During these years, globalization has led to significant reductions in production
costs, due to economies of scale in production, the sharp fall in transport,
communication and other transaction costs, the introduction of new technologies, and
the speedy delivery through trade networks. Globalization of production and trade also
brought about a rapid expansion of intraindustry trade and international outsourcing,
primarily between the industrial and the newly industrialized countries, as an effect of
the efforts made by multinational companies to identify cheaper ways to produce and
deliver their products. The lack of suitable physical infrastructures, effective
institutions and organizational capabilities were, however, highly detrimental to the
3. The lack of qualified personnel with technical knowledge of the WTO rules and agreements also
prevented African countries from participating in trade negotiations and using these rules to better
effect.
242 Chapter 11
Exports Imports
Exports
3
Imports
0
89 90 91 92 93 94 95 96 97 98 99
efforts of most African countries to be integrated into the global trading system. Even
in textile and clothing, which involves a high degree of international outsourcing,
sub-Saharan Africa remained a marginal source in the global network due to the lack of
information and communication infrastructure, a skilled labor force, and managerial
capacity. These constraints have also inhibited the flow of foreign direct investments
to these countries, and that, in turn, further diminished their competitive advantage and
their capacity to expand exports. Clearly, low labor costs are no longer a sufficient
incentive for the development of labor-intensive industries, and the lack of other
important components that are essential for production and trade, primarily road and
communication infrastructure, considerably reduce the capacity of most African
countries to compete in the global market.
The slow progress in the multinational trade agreements, especially after the
failure to reach an agreement in Seattle, gave a strong incentive to the proliferation of
regional trade agreements that strengthened trade relations within Europe, the two
American subcontinents and Asia, thus contributing to further marginalize the African
continent. The growing weight of the multinational corporations in global trading
further deepened the regional division due to the competitive advantage given to
corporations within a region over those outside their block by the trade barriers
established by the regional trade agreements. Thus, for example, the NAFTA
agreement and the agreement to enlarge the EU give companies within these blocks an
advantage over companies outside their block that contributed to diverting trade away
from companies in sub-Saharan Africa. The regional trade agreements within the
African continent contributed, however, only marginally to expanding trade among
the African countries, both because many of these companies have very similar lines of
production in agricultural and in industrial goods, and because the poor road
infrastructure hinders intraregional trade.
Another factor that contributes to the loss in competitiveness of many African
countries is the pressure to gradually phase out most preferential agreements that apply
to a large share of their trade—the most important of which are the Generalized System
of Preferences, the agreement between the ACP and the EU under the Lomé
Convention, and the agreement between the USA and several sub-Saharan African
countries under the Africa Trade and Opportunity Act. Some of these agreements have
already been modified in line with the general rules of the WTO and the new Lomé
Convention.4 These agreements focused on the African countries’ traditional crops
and gave them tax and tariff advantages over the imports of these crops from other
countries.5 The loss of trade preferences that many African countries enjoyed under the
Lomé Convention may dry up the traditional export markets for plantation crops such
as sugar, banana, and coconut erode the competitiveness of many other exports crops.6
4. The new Africa Trade and Opportunity Act will apply to a smaller number of countries.
5. Under the current Lomé Convention, for example, African countries enjoy preferential margins of
100% for coffee, coffee extracts and cocoa, more than 20% for tobacco, etc.
6. These export commodities remain also an important source of revenues for the governments in many
SSA countries and the loss in competitiveness and in export revenues will reduce also the revenues of
the government.
244 Chapter 11
Policy reforms
At present, the majority of the African countries derive more than 90% of their export
earnings from two to three commodities (raw materials and traditional agricultural
goods) (Table 11.2). Most of these export products are primary commodities, whereas
the share of industrial products in exports is very small. The share of most of these
primary commodities in world trade has declined since the mid-1980s, and the decline
is expected to continue in the coming years. The drop in the volume of trade was
7. An OECD study (1997) found that the annual growth rate of imports of processed agricultural products
to the OECD countries was more than double the annual growth rate of the imports of basic agricultural
products.
8. Presently, the terms of trade of many crops are still affected by the heavy direct and indirect subsidies
that agricultural producers in the EU and the US receive. In the US, for example, the Freedom to Farm
Act of 1996 freed farmers who produce corn, wheat, soybeans, rice and cotton from all government
production controls, but the subsidies nearly tripled to $22 billion by the year 2000 – instead of the
gradual phasing out of the subsidies that the original bill stipulated.
Diversifying Agricultural Production and Exports in Africa 245
Table 11.2. The Share of Commodities in the Total Export Earnings of the African
Countries (%)
Country Single commodity Two commodities Three commodities
Benin 35 63 84
Botswana 78 87 95
Burkina Faso 48 63 75
Burundi 87 91 92
Cameroon 38 61 81
Cape Verde 65 81 97
Central African Republic 33 64 87
Chad 29 87 96
Comoros 56 86 87
Congo 91 96 99
Côte d’Ivoire 35 58 69
Equatorial Guinea 54 95 100
Ethiopia 66 88 96
Gabon 82 88 96
Ghana 59 83 91
Guinea - 91 99
Guinea Bissau 29 53 66
Kenya 30 54 75
Liberia 64 81 88
Madagascar 39 56 69
Malawi 55 75 84
Mali 57 96 98
Mauritius 65 67 70
Mauritania 45 87 98
Mozambique 27 43 52
Niger 85 97 98
Nigeria 96 99 99
Senegal 32 52 62
Seychelles 69 80 86
Sierra Leone 32 49 62
Somalia 76 86 96
Sudan 42 56 68
Swaziland 39 52 54
Tanzania 40 53 61
Togo 47 60 72
Uganda 95 97 98
Zambia 98 99 99
Zimbabwe 20 27 31
Sources: Africa’s Commodity Problems: Towards a Solution. 1990. United Nations; and Commodity Yearbook. 1995.
UNCTAD.
246 Chapter 11
crop varieties and methods of production that are suitable for the country’s agro-
climatic conditions, the inputs available to local farmers, and their technical skills. The
country’s extension services will have to disseminate the new crops and production
methods, and translate the scientific information into specific instructions for growers,
processors, and traders across the country. To increase the competitiveness of local
producers, these services may also have to provide assistance in increasing the value
added of the products by improving post-harvest treatment, packaging, and
processing. The marketing of these crops, especially for exports, will require
strengthening all the components of the supply chain, including procurement, trade,
packaging, storage, and marketing at the wholesale and retail levels.
The transition to a more diversified production and trade will also require the
NAROs to pay special attention to the needs of small farmers who, at the early stages
of the process, will not be able to make this transition, due to a lack of resources, and
who thus may be exposed to more food insecurity rather than less. The competitive
pressures of cheap imports of field crops from the developed countries may bankrupt
many of these farmers or force them to produce for their own consumption. Farmers in
remote areas are particularly vulnerable, since they may not be able to grow
nontraditional crops at competitive prices due to poor infrastructure, the distance to
urban centers, and the reluctance of traders to reach these areas.
At present, however, most NARS in Africa do not play a very active role in
supporting the diversification of agricultural production, due, in part, to a chronic
shortage of funds, and in part due to the low priority presently given to research on
nontraditional crops. The main focus of the NAROs in most developing countries is on
research aimed at increasing output and yields, whereas research on the profitability
and marketing potential of current or prospective crops at home and abroad, and thus
also on the income of farmers, is highly inadequate. The public research system also
provides a very limited contribution to activities of the other components along the
supply chain; and not much research is conducted on the adjustments needed in
production, transport, and storage to ensure that these products can meet the food
safety and quality standards in the export markets.
considerable leverage over the sources of supply, and often they establish their own
food safety and quality standards.9
In sub-Saharan Africa, trade and exports of traditional agricultural products such
as coffee, bananas, and cocoa are still conducted primarily by marketing boards, large
wholesalers, and multinational companies. Production and exports of nontraditional
crops are still minor, and the expansion of their share in the local farming systems
depends primarily on the possibility to increase their niche in the global market. That,
however, requires the simultaneous development of all segments of the supply chain
for these crops in order to establish the connection between local producers and traders
and wholesalers, primarily multinationals, in the foreign markets to secure their
marketing.
Figure 11.2 provides a flowchart diagram of the general structure of the supply
chain for agricultural commodities in a developing country. The diagram highlights
the fact that farmers can market their crops only if a trading system is in place to
procure the crops and transport them either directly to the domestic and foreign
markets or to storage/packaging/ processing centers. The introduction of new crops
that are destined for marketing rather than for self-consumption requires therefore that
the entire supply chain is in place to procure the crops from the farmers, transport them
to storage centers, and deliver them to the market. In most African countries these
supply chains are very rudimentary and inadequate, and, initially, public or semipublic
organizations will have to perform these tasks. At a later stage, the private sector may
be strong enough to take over. Another gap that public and semipublic organizations
may have to fill is the provision of information to local producers and traders on market
conditions, prices, trade services, etc.
In many African countries, the NARO is one of the better organized public
institutions to that can provide many of these services. This, however, will require the
NARO to expand its activities beyond its traditional scope:
< The introduction of nontraditional crops into the local farming system will require
the NARO to develop crop varieties and production technologies that are suitable
for the country’s agroclimatic and human-resource conditions.
< The introduction of export crops also requires the development of production
methods so that the export commodities will meet the food safety and quality
standards in the importing countries.
< The country’s extension system will have to translate this technical information
into specific instructions for growers, processors, and traders, and disseminate this
information in the rural areas.
< The NARO, in collaboration with other relevant government agencies, may have
to go beyond its current mandate of research, development. and extension, to
include such activities as the collection of information on standards, and rules and
regulations for trade and IPR.
9. The following examples of the growing concentration are indicative: most of the world’s major seed
companies are now subsidiaries of a few large agrochemical companies; a handful of companies
control the world grain trade; and meatpacking is now a global industry dominated by a small number
of large producers.
Diversifying Agricultural Production and Exports in Africa 251
PRODUCERS
Producer’s
Market Household
SEEDS CONSUMPTION
PROCESSING
PACKAGING
STORAGE
Domestic Exports
Market
WHOLESALERS MULTI-NATIONALS
Export
RETAILERS Markets
PROCESSING
PACKAGING
STORAGE
RETAILERS
< The NARO may also have to expand its research to include the development of
suitable technologies for processing and packaging.
< The NARO and other branches of government may also have to take charge of
providing information on market conditions, trading options, and standards to
wholesalers and exporters until private traders can set up effective services.
252 Chapter 11
10. The latter is based on information reported in the survey but not included in the table.
Diversifying Agricultural Production and Exports in Africa 253
1. Including research on specific pest/disease controls conducted within the framework of commodity programs.
Project managers also indicated that the institute’s own resources covered nearly a
third of the total research costs. In Africa, the institute’s share was nearly a quarter, and
in the other regions it was around 40% (Table 11.6). There was a considerable
difference between the institutes in Africa and those in the other regions concerning
the share of multinational organizations and donor countries in their research budget.
In Africa, their share was 21%, whereas in the other regions it was only 8%. In Africa,
the three principal sources of funding were the ministry of agriculture, multinational
organizations, and donor countries, and the institutes themselves. In the other regions,
the share of the institutes was much larger than that of multinational organizations and
donor countries.
Question 5 inquired about another organizational aspect, namely whether the
research was conducted in collaboration with other research institutes. Table 11.7
indicates that a relatively large number of the research projects in sub-Saharan Africa
were conducted in collaboration with other research institutes, whereas the numbers in
other regions were, relatively, much smaller: In Africa, 62% of the research projects
were conducted in collaboration with other research institutes, compared with 47% in
Asia.
Question 6 inquired about the involvement of farmers’ organizations in any stage
of the research work. Project managers in Africa indicated that in nearly three-quarters
of their projects, there was some involvement of farmers’ organizations in at least one
stage of the research; in Asian research institutes, farmers’ organizations were
involved in about half of the projects (Table 11.8).
Finally, question 7 asked about the involvement of extension workers in the
research work. Project managers in Africa indicated that there was at least some
involvement of the extension workers in over 60% of their projects, whereas those in
Asia indicated that the extension workers were involved in only 44% of their projects
(Table 11.9).
The survey suggests that changes in the research priorities of public agricultural
research institutes in Africa, as well as in the other regions, have been relatively minor.
Most research projects still focused on the traditional crops, and the share of new
research areas, such as NRM/environment and nontraditional crops such as
horticulture, remained relatively small. This may have been, in part, due to the fact that
the researchers who initiated over half of the research projects did not have enough
incentive to open up new research areas. Demands of farmers’ organizations for new
types of research were still very modest and the funding given by governments and the
donor countries for agriculture concentrated primarily on traditional crops because of
their perceived impact on poverty.
Table 11.7. Was the Project Conducted in Collaboration with Other Research
Institutes?
Concluding Remarks
The need for an agricultural strategy in developing countries that takes into account the
varying global conditions and the changing rules of agricultural trade will require
comprehensive reforms that will include not only policies, but also the mode of
operation of public institutions. One public institution that can have a very important
role in facilitating the transitions of the agricultural sector is the NARO. Traditionally,
the NAROs (and the CGIAR) focused their research on staple foods and the traditional
export crops of the developing countries, and their main goal was to increase the yields
and the country’s total production of these crops to secure availability of sufficient
food in the country and the capacity of farmers to be self-sufficient. The new strategy
will have to be much more market oriented and its goal will be to increase farmers’
income and make them self-reliant.
To achieve this goal, the public research organizations will have to devote more
resources and efforts to research on nontraditional crops and on a wide range of other
subjects in addition to crop research. They will have to assist farmers in selecting the
right crops and the right technologies and in producing these crops in compliance with
the food safety and quality standards under the WTO agreements to ensure their
marketability. The required reforms present a daunting challenge to the NAROs as
well as to other public institutions that will participate in this process. The NAROs’
strategy will have to pay particular attention to the transition of the agricultural sector
from a mode of operation which is supply-driven—with an emphasis on yields and
based on traditional crops and staple foods for own consumption—to one which is
demand-driven—with an emphasis on value-added, nontraditional crops, and the
development of market niches. To accomplish this task, the NAROs will have to
establish alliances with other governmental organizations, NGOs, and private
enterprises, as well as with the NAROs and other research institutes in neighboring
countries and with regional research organizations. This strategy will also require the
NAROs link their research to the demands of a more diverse clientele, which may
include information and inspection agencies, food processors, exporters, and
wholesalers.
The starting point for the design of the new strategy is to change the process of
setting research priorities and of assessing their impact. Today, most of the weight in
the process of setting research priorities is given to an evaluation of the prospective
impact of individual research projects, and the selection of the projects is made by each
NARI. This is the reason why nearly 60% of the research projects are selected by the
individual researchers, as the survey shows, whereas the NARO or even the ministry of
agriculture had a minimal say in this process. In the future, an impact assessment of the
NARO’s strategy will have to start from an assessment of the impact of the entire
organization, and priorities will have to be set first between the NAROs. This will
require the organization to start this process by defining its principal goals, and to
allocate its resources between the NAROs so that these goals can be met. Only in the
second stage can priorities be established between projects/programs within the
NAROs. Thus, for example, the first stage will require the NARO to decide what
portion of its resources—if any—to allocate to research on maize or wheat, and what
Diversifying Agricultural Production and Exports in Africa 257
References
E. Diaz-Bonilla, M. Thomas, and S. Robinson. 2000. Food Security and Trade Negotiations in
the WTO: A Cluster Analysis of Country Groups. Discussion Paper No. 59. Washington,
DC: IFPRI.
Gorjestani, N. 2000. Cross-Border Initiative in Eastern and Southern Africa. FINDINGS.
September. Washington, DC: World Bank.
Koning P. and H. Meilink. 1998. Regional Economic Integration in Sub-Saharan Africa. In
Regionalization and Globalization in the Modern World Economy, edited by A. Jilberto and
A. Mommen. Routledge Studies in the Development of Economics.
OECD. 1997. The Uruguay Round Agreement on Agriculture and Processed Agricultural
Products. Paris: OECD.
Oyejide T. A. et. al. 1996. Regional Integration and Trade Liberalization in Sub-Saharan Africa.
An AERC Collaborative Research Project.
Rudrik D. 1999. The New Global Economy and Developing Countries: Making Openness
Work. ODC Policy Essay No. 24.
Shafaeddin, S.M. Risks of Future Marginalization of SSA in International Trade. Journal of
Development Societies, 1966, 254-74.
Chapter 12
The Opportunities and Challenges of
Globalization for Agricultural Research in
the Caucasus
Larry Zuidema*
Introduction
The three countries of the Caucasus—Armenia, Azerbaijan, and Georgia—are going
through multiple transitions. The first is a political transition from being republics in
the Soviet Union to becoming independent nations. The second is an economic
transition from being part of a command economy with state enterprises to becoming
market economies with emerging private sectors. The third is a social transition from
being closed societies to becoming part of the world community. These three
transitions are important background considerations for looking at opportunities and
challenges of globalization for these countries in general, and specifically with respect
to the agricultural sector and agricultural research.
Globalization may be defined as a dynamic set of processes that increases the
linkages and interdependencies of national economies. Some of the currently
observable effects of globalization on the agricultural sectors of many countries
include:
< gradual shifts of economic power from the state to the individual;
< greater opportunities for innovation in the agricultural sector;
< changes in the mix of commodities produced;
< changes in the mix and use of natural and purchased resources;
< a greater role of the private sector in agriculture.
259
260 Chapter 12
< Scientific cooperation and technology transfer. Science and technology policy
and regulations influence the amount and quality of technology spillover and
acquisition.
Being part of the Soviet Union until 1991, the three countries of the Caucasus had
closed economies and were partly insulated from global impacts. When they were
established as nation states, they were suddenly thrust into a new environment and
gradually opened their doors to the possibilities of external influence. They did not
and, in many instances, still do not have the legal, institutional, organizational, and
political frameworks and capacities to deal with the complex impacts of globalization.
Furthermore, many of the leaders of these countries remain heavily influenced by their
former closed association with the former Soviet Union and have not yet developed a
mindset that is conducive to effective interaction with the world community. The
development of free markets and information flows will take time.
Even today, economic power in these three countries remains concentrated within
the state, which, in many cases, appears to be more concerned about losing control than
opening the economy. Despite moves toward privatization of major sectors of their
economies, government, quasi-government, and private monopolies in several
industries severely diminish possibilities of increased economic growth and
production efficiency. Several large agricultural firms fall in this category. In the small
republics of the Caucasus, this has been particularly devastating as production of many
crops ceased, due to the inefficiency of these processing firms in terms of world
markets, despite exceedingly low commodity prices at home. Reduced access to
previous markets in the former Soviet Union was also a factor. Consequently, the
agricultural sectors of the republics of the Caucasus have mostly declined since
independence.
This chapter first reviews the current situation in the Caucasus with respect to their
economies, agricultural sectors and agricultural research. It then examines the
potential impacts of globalization, looking at both opportunities and challenges.
Implications of globalization for agricultural research in these countries are the focus
of the subsequent section. The conclusion discusses strategies that might enable these
countries to capture the benefits of globalization.
35000
30000
25000
Armenia
millions
20000
Azerbaijan
15000
Georgia
10000
5000
0
85
87
89
91
93
95
97
19
19
19
19
19
19
19
Figure 12.1. GNP, PPP (current international US$)
Source: World Bank, World Development Indicators CD-ROM, 1999
Yet, there is great concern about the rising level of external debt, particularly in
Armenia and Georgia, where debt is high relative to GNP (38% and 27% respectively).
Both imports and exports rose sharply (total and as a percentage of GNP) in the early
period of transition, but declined since then. Exports have now dropped to about 20%
of GNP in Armenia and Azerbaijan, while imports remain high relative to GNP,
particularly in Armenia; in Georgia, imports and exports are about half that of the other
countries (as a percentage of GNP). One difficulty is that the main export markets of
the Caucasus are themselves ex-centrally planned economies that are also in economic
crisis.
The agricultural sector rose in importance (relative to GDP) from 1989 to about
1994 in Armenia and Georgia, primarily due to the near collapse of the industrial
sector and a small service sector (Figure 12.2). Agriculture in GDP in Georgia has now
returned to the share prevailing before 1989, but remains high at 41% in Armenia.
Only in Azerbaijan has the agricultural sector remained fairly stable relative to GDP at
about 22%.
70
60
50
% of GDP
Armenia
40
Azerbaijan
30
20 Georgia
10
0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
years
Land use
Natural resource endowments will delimit the future possibilities for the growth and
development of the agricultural sector as well as the scope and nature of agricultural
research programs in each of the countries. Total land in the Caucasus (averaging
1.09 ha per person) and arable land (at 0.17 ha per person) are relatively low compared
to other agriculturally oriented countries in the world. Within the region, Georgia has
the most land per person at 1.28 ha, while Azerbaijan has the most arable land at
0.22 ha per person. Given the high variability of topography, climate and soils in all
three countries, they are each able to produce a variety of commodities for local and
export consumption. For all three countries, however, much of this production requires
expensive irrigation water.
As a policy issue, each country will need to analyze economic returns, market
opportunities, processing possibilities, comparative advantage, and other factors in
order to determine the best use of the limited amount and variable natural resources
that can be devoted to agriculture without negative long-term environmental
consequences. Eventually, as the market economy develops, farmers themselves will
seek the best possible use of their natural resources to maximize their returns on their
land.
One of the implications of the limited amount of arable land is that these countries
will most likely continue to import substantial amounts of food and feed grains. As a
result of the heavy dependency on irrigation systems, it is likely that production will
shift to higher value products for export markets in order for farmers to cover the real
cost of water delivery that must be assessed in the near future. The major implication of
these land and water constraints is that there are likely to be major changes in the use of
natural resources in these countries. More importantly, the agricultural research
systems in these countries will need to be flexible and capable of responding to these
changes.
Crops
Azerbaijan’s crop production declined during the 1990s and by the end of the decade it
is was 42% lower than in 1992. This decline has been attributed to a variety of factors,
including lack of funds for imported and domestic agricultural inputs, the loss of
traditional export markets based on the command economy of the former Soviet
Union, the decline of irrigation and other agriculturally related infrastructure, and the
closing of uneconomical and outmoded processing facilities.
About 40% of arable land in the Caucasus was harvested for cereals in 1999,
representing no change since 1992. The total area harvested for cereals increased most
significantly in Georgia, was stable in Armenia, but showed a slight decline in
Azerbaijan. Yields were variable over the period (mostly weather related) with a
Opportunities and Challenges of Globalization in the Caucasus 263
downward trend in Azerbaijan and not much overall change in the other two countries.
As a consequence, total production of cereals declined substantially in Azerbaijan,
increased significantly in Georgia and remained level in Armenia. Figure 12.3 shows
average cereal yields from 1992 to 1997 for the three Caucasus countries (each now at
about 1,700 kg/ha) with comparisons to the Czech Republic (at 4,100 kg/ha) and
Austria (at 5,900 kg/ha). As the economies and agriculture sectors in the Caucasus
countries improve, it is apparent that cereal yields could rise substantially. New
varieties, renovated irrigation systems, better soil and water management, and
improved fertilization and crop protection will help increase yields. Focused
agricultural research will be needed to realize this potential.
Wheat has been the most important cereal in the region, with Azerbaijan having
two-thirds of hectares harvested for wheat in the region. The area harvested for wheat
has increased in all countries, but yields have not shown much improvement. As a
result, overall production of wheat in the Caucasus increased only 3% from 1992 to
1999. The region imported in 1998 about half of the wheat and flour (wheat
equivalents) consumed. In Georgia, maize passed wheat in importance in 1993 and
remains the dominant grain crop. Most of Georgia’s two-and-a-half-fold increase in
maize production is related to a dramatic increase in area planted, as yields have
remained fairly flat. Maize is a relatively unimportant crop in Armenia and Azerbaijan.
Barley area and production declined five fold in Azerbaijan, the major producer in the
region, and is now half of 1992 levels in Armenia and Georgia.
Fruits and vegetables are historically important crops in all three countries (from
about 500,000 metric tons in Armenia and Georgia to about 700,000 in Azerbaijan).
Vegetable production has generally increased in Georgia but has been fairly constant
in the other two countries. Fruit production, however, has declined sharply in
Azerbaijan, is trending downward in Georgia, and is fairly stable in Armenia. Apple
production is now less than half that of 1992 for the region. Grape production for the
region is now only 44% of what it was in 1992. Azerbaijan, which in 1992 produced
56% of the grapes of the region, produced only 29% in 1999, thus accounting for most
of the decline in production. Wine production, however, declined only 9% from 1992
to 1999, with Georgia remaining the regional leader with 69% of the total production.
Azerbaijan remains the clear leader in exportation of wine with a total of 38,760 metric
tons in 1997, representing 91% of the regional total.
8000
Armenia
6000
Kg/ha
Azerbaijan
4000
Georgia
2000
Czech Rep.
0 Austria
1992 1993 1994 1995 1996 1997
Figure 12.3. Cereal yields, 1992–97
Source: World Bank, World Development Indicators CD-ROM, 1999
264 Chapter 12
The area harvested for potatoes increased sharply in Azerbaijan and Georgia, and
remained the same in Armenia during the past seven years. Yields have increased
somewhat in each country, resulting in an overall potato production increase in the
region of 73% from 1992 to 1999. Potatoes have played an important role as a survival
crop during these past difficult years of economic decline. Sunflower seed production
has recently grown very rapidly in Armenia and Georgia, where it is a new crop.
Cotton, grown only in Azerbaijan, has declined substantially and is now at one-third
the level of production in 1992.
Livestock
Cattle numbers in the region declined very little compared to the 1992 level.
Azerbaijan has the highest numbers of cattle followed by Georgia and Armenia. Sheep
and goat numbers have dropped dramatically in Armenia and Georgia. Regional sheep
and goat numbers are now at 85% of the 1992 level, primarily because Azerbaijan
currently has 83% of the sheep and goats in the region and its numbers are above the
1992 level. While not important in the region, pig numbers have declined dramatically
and now stand at only 41% of 1992 levels. Predictably, the highest percentage decline
occurred in Azerbaijan, while Georgia, which now produces 82% of the numbers of
pigs in the region, is now at 50% of its 1992 level.
Since 1992, milk production has increased in all three countries; the region as a
whole showed a 22% increase by 1999, while Georgia had a 44% increase. Meat
production, on the other hand, declined by 16% with each country showing a
downward trend. Egg production dropped overall with a decrease of 31% in
Azerbaijan, while Armenian production remained about the same and Georgia
increased by 31%. Wool production dropped dramatically in Armenia and Georgia and
increased slightly in Azerbaijan, corresponding to sheep numbers in these countries.
Substantial numbers of livestock are currently in the hands of small farmers under
entirely different livestock management systems than those that prevailed before
independence. For example, very large farm structures for livestock have declined
substantially. This means that the research agenda must change to deal with animal
husbandry issues that previously were not addressed.
Agricultural research
In the past, the mandate for research in the Caucasus was primarily vested in the
Trans-Caucasus Branch of the Soviet Academy of Agricultural Sciences
(VASKHNIL), located in Georgia. A primary objective was to meet production quotas
assigned by Moscow in view of the overall needs of the Soviet Union. Some
agricultural research institutes in these countries were affiliated with their ministry of
agriculture. Agricultural universities were primarily teaching institutions with quotas
for training the required technical staff. Advanced degrees in agriculture were
organized by academic committees affiliated with the institutes of the Academy of
Agricultural Sciences.
Upon independence, much confusion arose concerning the organization and
mandates of the agricultural institutions in each of the countries, which were then to be
Opportunities and Challenges of Globalization in the Caucasus 265
formed into national systems. Some of the mandate issues involved in each of the
countries were and, in some cases, still are: (1) who is responsible for what mandate,
(2) what is the role of the agricultural universities, and (3) what type of research should
different institutions conduct?
In Armenia, the Ministry of Agriculture (MOA) currently has the responsibility for
agricultural research, and institutes are coordinated there under the MOA Department
of Science and Education. In Azerbaijan, most of the agricultural research institutes
were placed with the Ministry of Agriculture under a Central Board for Science,
Education and Extension. In Georgia, most agricultural research institutes were
consolidated under a newly established Georgian Academy of Agricultural Sciences,
which was based on the former Trans-Caucasus Branch of VASKHNIL.
From their past assignments within the Soviet system, each country continues to
have considerable human and physical resources for agricultural research.
Adjustments are needed to bring these resources in line with anticipated national
needs. Financial resources for agricultural research have been extremely low over the
past 10 years, with little prospect for improvement in the near future. Due to this poor
financial situation, very little research is being undertaken, which is particularly true
for field experiments in relation to the changing structure of agriculture and internal
and external markets. There has also been virtually no funding for maintenance and
repair of buildings and equipment, research supplies, and scientific literature. This has
caused a serious deterioration of physical resources for research.
Agricultural research programs were traditionally prepared as a part of five-year
agricultural sector plans in support of the “agroindustrial complex.” Vestiges of this
practice remain within the agricultural research organizations in the region today. In
the past, research was conducted based on “orders” and support from the ministries of
agriculture and from VASKHNIL institutes, the branch unit, or headquarters. These
orders were focused on the achievement of production goals assigned to the republics.
Today the “the agroindustrial complex” has collapsed, remaining state and
collective farms are in serious financial difficulty, and an increasing amount of land is
being privatized into large numbers of small “farms.” Neither the ministries nor state
and cooperative farms are giving research orders as they have little money or incentive
to do so. Small farmers are not well organized to place demands on the system and, as
is often said, have no money to “pay” for agricultural research. With little effective
demand for research, the choice of research programs and projects is essentially left to
researchers and research institutes using traditional review methods. Since all staff
must be paid, it has been observed that the research programs of these national systems
have changed very little since independence.
manage the process of change. As these barriers are lifted or modified, opportunities
for the growth and development of the agricultural sector may increase significantly,
but challenges and difficulties will have to be overcome before the benefits can be
captured.
such as processed temperate and subtropical fruits and nuts. To do this, it will be
necessary to find niche markets in Europe, the US, and elsewhere along with the
maintenance of traditional markets in the region. Cooperative ventures with foreign
businesses may be necessary to gain access to these niche markets. The development
of these markets may serve to reduce the political emphasis on food security as a
policy, since increased income from these products may be used for the importation of
basic grains.
Foreign investment. Due to the unstable political and economic situation in the
region, foreign investment has been limited. At the present time, the greatest amount of
foreign investment in the region is attracted by the oil industry in Azerbaijan, which
has risen dramatically since 1994 to a current level of over 1 billion US$. Given the
weakness of the Caucasian economies and the lack of local capital, foreign direct
investment will be essential for the growth and development of the agricultural sector,
for both domestic and export production and processing.
The entry of foreign firms (private sector) into these countries allows for the
acquisition of technology without the high costs of research and development.
Cooperative ventures with local firms may improve the chances of attracting such
firms and of their being responsive to local needs. Some foreign investment in the
agricultural sector is already being made in these countries. An Italian wine company
has invested in Armenia, a Canadian tobacco company has revitalized a collapsed
tobacco industry giving technology to small farmers to encourage production, and
while a Dutch company did not succeed in purchasing the Georgian wine research
institute with its extensive vineyards, it is quite likely that foreign investment and local
privatization will be its destiny.
While globalization offers opportunities for increased foreign private investment
in the agricultural sector, such investment will be primarily based on good business
opportunities in a secure business environment where contracts can be made and
enforced. A positive and enticing environment for foreign investment is only now
being put in place in these countries. Policies and procedures are still needed to ensure
that investments are secure. As these countries make progress in their political,
economic and social transitions, the overall environment for foreign firms will likely
improve and investments increase.
Challenges of globalization
Globalization does not only offer opportunities to these three Caucasian countries, but
will also bring major and unsettling changes and require sometimes painful
adjustments. The expansion of agricultural exports from the Caucasus countries will
require greater market integration within a highly competitive world community. This
represents a sharp contrast to their experiences with the command economy of the
former Soviet Union. The required market integration means that they must produce
agricultural commodities and processed goods at competitive prices, under
competitive quality standards, and in quantities and a timeframe set by buyers. At the
present time, these conditions can often not be met despite the relatively low cost of
production of commodities thanks to low labor costs. But when these conditions are
Opportunities and Challenges of Globalization in the Caucasus 269
eventually met, exports will increase, and there will also be an impact on the domestic
agricultural markets, including commodity shifts and price changes.
With greater international market integration, traditional commodities may no
longer be produced due to the effects of international competition. This is already the
case with the collapse of silk production (and research support) in all three countries,
due to cheaper silk from Asia. The tobacco industries of Georgia have also largely
collapsed, and the production of vast quantities of canned tomatoes in Armenia has just
become a memory from the days of the Soviet Union. While these changes may
negatively affect only a few agricultural producers and regions, they serve to illustrate
how international competitiveness can influence both domestic and export marketing
possibilities. A more important aspect is the fact that the political objective of food
security may be jeopardized by new market conditions. In such a case, subsidies may
be needed to ensure the continued production of wheat or similarly essential crops.
Once agricultural commodities enter international markets in significant amounts,
they are subject to the law of supply and demand and, therefore, to fluctuations in
international prices. For a small country with an important export commodity, the
shock of these fluctuations can be severe, particularly for producers. Government
strategies, policies and procedures will be needed to insulate local farmers from these
shocks and to provide assistance in making appropriate adjustments. Maintaining the
current diversity of commodities is one important strategy to limit the impact of
international market shocks.
It is clear that not all actors in the agricultural sector will benefit from
globalization, and a few may benefit much more than others. This will be particularly
true if government, quasi-government, and legalized private monopolies in these three
countries are allowed to persist. This has already had a devastating effect on domestic
markets as well as on the export of wine and cognac from some of these countries.
Open competition for new products will help improve efficiency of processing firms
and improve the chances that their products will be competitive on world markets. It
will also give producers more opportunities to obtain inputs and market their goods at
fair prices.
The key issue is that all countries have already created a class of small farmers
who, under current conditions, neither are nor can be viable economic units.
Adjustments are and will continue to be made as land registration progresses and
ownership is well established. This process requires free and open markets with
competitive sales opportunities. The stranglehold of current monopolies, particularly
those tied to export markets, can only delay the process and cause suffering among
small farm families seeking to survive.
Exports of raw commodities that require processing for domestic consumption can
cause a collapse of local processing capacity, since a large volume is necessary to
justify the investment in processing equipment and facilities. This has already been the
case with some vegetables and fruits that are directly exported from the region. As a
result, raw products are sold at relatively low prices, the opportunity for adding value is
reduced, and the cost of processed products for domestic consumption is increased due
to the necessity of importing them. Government strategies and policies need to be put
in place to encourage private-sector processing for both domestic and export markets,
270 Chapter 12
thus retaining (or creating) a viable local processing capacity, as well as retaining (or
creating) employment opportunities. The presence of an efficient local processing
capacity can also stimulate increased commodity production if a competitive
environment is encouraged.
Governments in the region have all listed food security as a prime objective for the
agricultural sectors of their countries due to the relative political instability in the
region. For these governments, staying in power means near self-sufficiency in basic
grains. However, increased market integration and the possibility of market-driven
shifts in the commodity mix in favor of international markets may reduce the ability of
the agricultural sector to address the range of national priorities. Where food security
remains an important element of the political agenda, policies may need to be
established to encourage and stimulate basic grain production.
As the political environment changes within the region, the emphasis on food
security may diminish in importance. In this case, income generation and import
substitution may become more important objectives. The principle of economic
comparative advantage can then overtake food security as agricultural sector policy.
For example, a high-value commodity for export may produce more economic benefit
and more government revenues through taxation, thus making the importation of
needed basic grains more economical. Azerbaijan, with new income from oil, may
now alter its agricultural policy since it can use oil revenues to purchase basic grains.
While still a major producer, Azerbaijan is currently importing a third of its wheat and
flour (based on wheat equivalents).
Conclusions
The extent to which the three countries of the Caucasus are able to make political,
economic and social transitions will be influenced by the globalization process and,
more importantly, by the ability of these countries to capture the benefits of
globalization. The globalization process, as it seeps into the fabric of the societies and
economies of these three Caucasus countries, can be partially managed and nurtured as
a force for growth and development within their agricultural sectors. Strategies for
capturing the benefits, while recognizing and mitigating possible negative
consequences, need to be developed and translated into policies, procedures and
regulations. If agricultural research is to make a significant contribution to agricultural
development in these countries, some specific actions will be necessary.
Opportunities and Challenges of Globalization in the Caucasus 273
References
Bonte-Friedheim, C., S. Tabor, and H. Tolini. 1997.; Agriculture and Globalization: The
Evolving Role of Agricultural Research. In The Globalization of Science: The Place of
Agricultural Research, edited by C. Bonte-Friedheim and K. Sheridan. 1997. New
expanded edition. The Hague: ISNAR.
Food and Agricultural Organization (FAO). 2000. FAOSTAT Statistics Database.
World Bank. 1999. World Development Indicators CD-ROM.
Zuidema, L. 2001. The Legacy of the Soviet Agricultural Research System for the Republics of
Central Asia and the Caucasus. Research Report 20. The Hague: ISNAR.
Chapter 13
Globalization, Internal Policy Reforms, and
Public Agricultural Research in Nigeria
Foluso Okunmadewa and Joseph K. Olayemi*
Introduction
The major policy changes in Nigeria and the measures taken to promote greater
integration into the global economy have been taken within the framework of the
structural adjustment program launched in the late 1980s. The emphasis of this
program was on gradual deregulation, cautious economic liberalization, and a
gradually increasing role for free market forces in the economy. This chapter reviews
Nigeria’s major policy changes of the recent years and evaluates their impact on the
agricultural sector and on the role and effectiveness of agricultural R&D. Greater
integration into the global and regional economies is bound to influence the future
development of the economy as a whole and of the agricultural sector in particular, and
these developments will therefore also influence the research priorities of the public
agricultural research institutes in Nigeria. Changes can be expected in the following
directions:
< more intensive agricultural extension service and stronger linkage between
agricultural research and extension;
< increased coordination of agricultural research at the national level;
< greater involvement of stakeholders in identifying agricultural research problems
and priorities;
< encouragement of interdisciplinary research;
< upgrading of the quality of agricultural research infrastructure, research personnel,
and research equipment.
In addition, issues relating to effective partnerships between the private and public
sector operators for the utilization of research outputs need to be given more emphasis.
This chapter provides a review of the recent policy changes in Nigeria that have
had an impact on the agricultural sector. It then evaluates the changes in the research
activities of three agricultural research institutes in recent years, based on information
obtained through questionnaires completed by the three institutes. Finally, it assesses
briefly future changes in Nigeria’s NARS in view of globalization and the emerging
trends in world economy.
275
276 Chapter 13
Fiscal policies
The objectives of fiscal policies, which focused on budgetary and tax policies, were to
enhance efficiency and to reduce inflation through fiscal discipline and reducing the
budgetary deficit. The key instruments of this policy during the 1990s were the
following:
1. a tight fiscal policy characterized by the reduction in extra-budgetary expenditures
and in budgetary deficit;
2. the introduction of a value-added tax (VAT) in 1993 at the rate of 5% for 10
categories of goods (excluding basic food items) and 23 services; the base and
coverage of VAT were since then broadened and the revenues from this tax
increased from about 7.2 billion Naira in 1994 to about 34.0 billion Naira in 1998;
3. reduction in personal income tax rates in 1993 from 10–45% to 10–35%, and a
further reduction in 1995 to 5–10%.
Initially, the budgetary deficit of the Federal Government increased from 7.2 to 7.7%
of GDP, but in 1995, there was a modest surplus of 0.1% of GDP, and this surplus rose
to 1.6% in 1996. In subsequent years, however, new deficits emerged and they are
likely to increase in the near future, in part due to the evolving global economic
recession that reduces the government revenues from the sale of petroleum. The
budget share going to the agricultural sector declined from 2.4% in 1992 to less than
2% in 1995, but rose again to 2.45% in 1996, 3% in 1997, and 3.3% in 1998.
After annual growth rates of around 80% of the broad money supply (M2) in 1991–94, the
relatively restrictive policy from 1995 to 1998 kept the growth rate below 30% per annum.
Aggregate credit supply rose by 45% in 1991, 70% in 1992, and over 90% in 1993, but
the annual rate of growth dropped to below 30% in the years 1994–98. Credit to the
agricultural sector increased by an average of 14% per annum between 1991 and 1995,
and by about 22% per annum in 1996 and 1997. Other “preferred” sectors received
credit under the law that required mandatory bank credit allocation to preferred
sectors. In 1996, this law was repealed, however. Measures designed to stabilize and
sanitize the financial sector include a continued enforcement of the Failed Banks
Decree of 1994 that dealt with defaults and distress in the financial system, transfer of
all retail banking functions from the Central Bank to commercial and merchant banks,
and a reduction of the subsidy to development finance institutions.
Trade policies
Trade policies in Nigeria remained highly interventionist despite the market reforms.
Import policies were designed to discourage the importation of nonessential raw
materials, as well as inputs and finished goods that have local substitutes in order to
give incentives to domestic producers. Between 1986 and 1988, the main thrust of
import policies was on tariff reduction, lifting of import bans and prohibitions on a
number of essential commodities, and the abolition of import duties on some others.
But between 1989 and 1991, tariffs were raised again on a number of imported
products, including some food commodities, transport equipment and chemicals, and
outright prohibition was imposed on many food staples. The prohibition of rice
importation was lifted in 1992, while the other prohibitions remained until 1995. Since
then, the government has started to de-emphasize the use of import prohibitions, in
large measure to avoid retaliatory measures from Nigeria’s trading partners and to
comply with the country’s commitments under the WTO agreements; hence the
replacement of the prohibition by import duties in 1996. Initially, the import duties
were high, but they were reduced after 1999. During these years, the value of food
imports as a share of total imports increased from 8% in 1992 to over 10% in 1994–97.
Export policies
Export policies were designed to promote the exports of non-oil commodities in order
to diversify the country’s export trade and revenue base. The key instrument for export
promotion was the Export Incentives Decree of 1986, which stipulated the
introduction of several export incentive schemes that were based on payments of cash
incentives to exporters. These funds were in operation until January 1999, when they
were replaced by noncash incentives and merged into a new scheme under which
payments of cash incentives to exporters were replaced with noncash Negotiable Duty
Credit Certificates that are more compatible with the WTO agreement. Previously,
export prohibition had been the major instrument for enhancing the supply of locally
produced food, raw materials, and other products to domestic consumers and
industries. In January 1999, many food staples were removed from the export
prohibition list.
Macroprice policies
Macroprice policies are those that relate to the prices of capital (credit), foreign
exchange and labor, i.e., exchange rates, interest rates, and wage rates.
Foreign exchange policies. A major objective of the foreign exchange policies was to
free foreign exchange transactions from administrative controls and allow free market
forces to determine exchange rates. This policy was pursued with some consistency
under the structural adjustment between 1986 and 1993. During these years, the Naira
was devalued from 1 Naira per US Dollar in 1985 to over 90 Naira per Dollar in 1995.
The massive devaluation of the Naira during these years pushed up the rate of inflation
very markedly. There was a major reversal of policy in 1994, when administrative
controls were again instituted, the allocation of foreign exchange was centralized, the
official exchange rate was fixed, and the autonomous market for foreign exchange was
abolished. The following year there was another policy reversal when the Autonomous
Foreign Exchange Market was reestablished to allow exchange rates to be determined
by market forces while a fixed official exchange rate of 22 Naira per US Dollar was
retained for some official transactions. This dual exchange rate regime remained in
operation until January 1999, when the official exchange rate was abolished.
Interest rate policy. Despite the various monetary and credit policies, real interest
rates remained negative for most of the period from 1990 to 1996, due to the high rates
of inflation, but positive rates prevailed from 1997. Interest rates were determined
primarily by market forces between 1990 and 1994. From 1995, however, a policy of
“controlled deregulation” was formulated, whereby a cap was put on interest rates,
with a maximum spread of 7.5% between deposit and lending rates, and a maximum
lending rate of 21%. In the 1999 budget, all administrative controls on interest rates
were removed; instead, market-determined interest rates would only be influenced
through a Minimum Rediscount Rate and by making investment in treasury securities
more attractive to the public. The 1999 budget stated that the government would take
measures to reduce the financial instability arising from external sources through a
Globalization, Internal Policy Reforms, and Public Agricultural Research in Nigeria 279
Wage policies. Wage rates were partly determined by the income and wage policies of
the government. Although from 1990 to mid-1998 there was no explicit income and
wage policy in operation, the implicit government policy was to keep the nominal
wages of the public-sector workers stagnant, thereby eroding their real wages, as an
anti-inflation measure. In the second half of 1998 there was a decision to increase
public-sector wages to partly restore their eroded real purchasing power, but the
implementation of this measure has so far been inconsistent.
Agricultural policies
The sectoral policies for agricultural development include those on agricultural
research, extension and technology transfer, input pricing and subsidies, water
resources and irrigation, and land development.
Agricultural input supply and pricing. A major thrust of the agricultural input
supply and pricing policy in recent years has been the withdrawal of the government
from agricultural input procurement, distribution, and pricing activities, including
fertilizer, petroleum products, seed and agrochemicals, after a process of deregulation
and commercialization that gradually gave a greater role to market forces in
determining market prices. Most input price subsidies have also been withdrawn, but
government still retains its ownership of local petroleum refineries and fertilizer
plants. These plants have been badly managed, however, as recent investigations by
the government have revealed. Nigeria’s past price subsidy policies have been highly
ineffective in reaching the intended beneficiaries, and highly unstable, with frequent
changes or reversals under the various military regimes that often seemed arbitrary.
This arbitrariness is best illustrated by the sudden decision in 1996 to reduce the
factory price of the fertilizer produced in Nigeria to 10,000 Naira per ton while, in fact,
the production cost was about 20,000 Naira per ton. As a result, the country’s fertilizer
plants at Kaduna and Onne had to be closed down after making large losses, whereas
cheaper imported fertilizers further rendered the local plants idle and redundant.
Employment policy. As part of its employment policy, the government has recently
established a new agricultural program for youth employment to complement the
Globalization, Internal Policy Reforms, and Public Agricultural Research in Nigeria 281
Real GDP growth rate (%) 3.0 2.7 1.3 2.2 3.3 3.8 2.4
Real GDP per capita* 1066 1069 1060 1063 1046 1056 1052
Rate of inflation (%) 44.5 54.2 57.0 72.3 29.3 8.5 9.8
Growth rates of:
agricultural production 8.1 4.8 3.9 3.1 3.3 4.2 -
staple crops 2.0 -5.5 -0.1 2.6 5.5 5.3 -
other crops -0.9 1.4 1.5 4.2 2.9 2.5 -
livestock 0.0 -25.4 6.7 10.3 20.8 11.3 -
* Niara.
Source: Central Bank of Nigeria. Annual Report and Statement of Accounts (various issues).
to 1997 and dropped again in 1998. It has also been estimated that capacity utilization
in the manufacturing sector has declined from 31.8% in 1997 to 29.5% in 1998, and
that employment in this sector has declined by over 29% in 1998. Real GDP per capita
declined continuously during the entire period.
Other indicators also show that, generally, the standard of living of the average
Nigerian has deteriorated sharply in the period under review. The incidence of poverty
in the country declined from 46.3% in 1985 to 42.8% in 1992, but rose sharply to
65.6% by 1996 (FOS 1999). The proportion of the core poor increased from 12.1% in
1985 to 13.9% in 1992 and to 29.3% by 1996. The incidence of poverty among the
rural population was higher than that of the urban population: it declined from 53.5%
in 1985 to 47.9% in 1992, but then rose sharply to 71% in 1996.
Many constraints impeded the effectiveness of government policies in Nigeria:
1. With the current technologies in agriculture and the low rates of adoption of new
technologies, many domestic agricultural products cannot compete effectively
with their imported substitutes. Unless import policies are consistent with policies
aimed at encouraging domestic agricultural production, Nigerian farmers may not
be able to reap the full benefits of agricultural research and technology
development.
2. Instability and inconsistency in agricultural commodity import policies have
weakened the potential impact of agricultural research. For example, when the
importation of wheat, grains, and malt was first banned in the 1980s under the
structural adjustment program, elaborate research programs were designed to
develop technologies for the domestic production of proper substitutes. But before
these new technologies could become available, the ban on imports was lifted and
an influx of relatively cheap imported commodities discouraged the adoption of
the local technologies and decreased domestic production.
3. Research conducted in an effort to find solutions to the persisting scarcity and high
unofficial prices of inorganic fertilizers was aimed at developing alternatives to the
use of inorganic fertilizers by breeding cereal crop varieties that are tolerant of low
nitrogen and can utilize soil nutrients more efficiently, as well as developing
Globalization, Internal Policy Reforms, and Public Agricultural Research in Nigeria 283
legumes which fix nitrogen naturally, introducing appropriate crop rotation and
intercropping systems, and promoting the use of organic manures. However,
progress in research and the adoption of new technologies in these areas were
hampered by the instability of government’s fertilizer price subsidy policy that
went through alternating regimes of subsidy imposition and removal, thereby
creating uncertainty and weakening farmers’ incentive to adopt the technologies
(Voh 1999).
4. The physical infrastructure and utilities deteriorated. One consequence was the
severe and persistent energy crisis, which virtually paralyzed the economy in
recent years, sharply increased the cost of producing and distributing consumer
goods and fuelled cost-push inflation.
5. Governance was poor, partly manifested in high political uncertainty, corruption,
and gross inefficiency in the management of national resources.
6. There was a serious external debt burden or debt overhang. Nigeria became one of
the highly indebted countries in the world, and servicing this debt is a major burden
on the national economy.
7. Nigeria’s strong dependence on crude oil exports has accentuated the effect of the
vagaries of the global market on its economy.
To address these constraints and to improve the impact of government policies, several
short- and long-term measures are required:
1. allocation of resources to improve the physical infrastructure;
2. accelerated privatization and market competition, including policies to take
advantage of the opportunities in the global market;
3. promoting investments in agricultural and manufacturing with a special emphasis
on the diversification of the country’s exports;
4. good governance, accountability, and efficiency in the management of the
country’s resources;
5. consistent planning of the nation’s priorities and the policies to achieve these goals;
6. policy stability and consistency.
In recent years, Nigeria’s agricultural research system has been undergoing rapid
changes. NARP, established in 1991, is part of a long-term strategy to revitalize the
national agricultural research management system. In 1996, in line with the new
National Agricultural Research Strategic Plan, new research structures based on the
mandates of the NARIs were put in place. These new structures resulted in the
establishment of 24 Nationally Coordinated Research Programs (Voh 1999).
To evaluate the changes that took place in the NARS in recent years, three research
institutes were selected for an in-depth case study. These institutes are the Cocoa
Research Institute of Nigeria (CRIN) (see Box 13.1), the Forestry Research Institute
(FRIN), and the Institute for Agricultural Research (IAR). The following findings are
noteworthy:
< The communication systems and facilities in the agricultural research institutes are
entirely inadequate. One of the three research institutes was not even connected to
the Internet, and none of its staff members were directly connected to e-mail. The
institute did not even have a working telephone. The other two institutes surveyed
were connected to the Internet, but only 4% of the research staff in one of them
were directly linked to e-mail.
< Exchange of visits between researchers in these institutes and researchers in other
organizations outside Nigeria was very infrequent. In 1998, for example, only five
researchers from each of the three institutes visited other research institutes outside
the country. Journal subscriptions were also uncommon and most researchers
seemed to be isolated from their colleagues in other countries.
< All three institutes had inadequate and declining resources, especially research
funds and research staff. Idachaba (1998) has underscored the problem of
instability in the funding of NARIs by showing that the coefficients of variation in
the actual disbursement of funds are very high (Table 13.2). For example, the
coefficient of variation in the actual disbursement of capital budget to CRIN and
IAR between 1984 and 1994 was 73% and 93% respectively. The delay in the
release of budgets to the research institutes during 1991–96 was also shown to be
very high.
< There is also a general shortage of professional research staff in the NARIs. At the
time of the survey, the researchers in the three institutes constituted less than 10%
of the total number of permanent employees. There is also a high rate of turnover in
research staff. Idachaba (1998) indicates a turnover in research staff of 43% for
CRIN, 55% for FRIN, and 100% for IAR. Many reasons have been given for this
high turnover, including poor remuneration and inadequate research infrastructure
and facilities.
< As a result of these constraints, the research institutes were limited in their capacity
to change their research orientation, and by and large, they remained within their
traditional thematic research areas. Conventional crop improvement research is
still the most important thematic focus, and they have not ventured into new
research areas such as genetically modified crop breeding.
< Government measures to precipitate privatization and deregulation were not
consistent or well focused. For example, the subsidy on fertilizer was restored in
early 2000 after it had been removed a few years earlier.
Globalization, Internal Policy Reforms, and Public Agricultural Research in Nigeria 285
In recent years, there has been a shift in the orientation of research activities in the
institute as a result of the need to seize new research opportunities created by the
Structural Adjustment Program. For example, the scarcity of agrochemicals and
their high cost have led to new research on new crop varieties that require less use of
chemical pesticides. New research areas include (1) socioeconomic studies,
including technology adoption and impact assessment studies, (2) biotechnology
research for genetic improvement, (3) integrated pest management research for
cocoa, kola, and coffee, and (4) the “adopted village” concept for coffee.
Potential new research areas, as identified by the institute, include (1) new
biotechnology research (e.g., plant tissue culture), (2) ethnobotanical research, and
(3) breeding research on cocoa for resistance to harsh weather. The relevant
organizations that influence priority setting for agricultural R&D in CRIN are, in
order of importance, government ministries (Ministries of Agriculture and Science
and Technology), donor countries or agencies (World Bank, CGIAR), farmers’
organizations (e.g., Cocoa Association of Nigeria, Coffee/Tea Association of
Nigeria), and extension services.
The Federal government was the main source of financial support for research in
the institute in the last two years, providing 90% percent of research funds. In terms
of US Dollars, the overall financial support to CRIN declined by 75% in 1997–98,
compared with the level in 1996–97. One of the recent policy changes that affected
the institute’s research orientation relates to the removal of price subsidies on
agrochemicals used for the control of pest and diseases in cocoa and other crops.
The removal of this subsidy caused the prices of agrochemicals to increase very
sharply. In response, the institute refocused its research on integrated pest
management techniques that would rely less on the use of agrochemicals for the
production of industrial crops like cocoa. Trade liberalization, import substitution,
and export promotion policies have also given impetus to research on the processing
and utilization of industrial crops and their by-products.
One of the institute’s main research programs is the cocoa research program.
The program focuses on improving cocoa yield with both hybrid and self-
pollinating seedlings, and the processing and utilization of cocoa products and
by-products. The program has basic, applied, and adaptive research components.
The main socioeconomic goals of the research program are, in order of relative
significance, increased output, increased farm and export income, and protection of
the environment. The program has a specific geographical focus in terms of specific
soil and agroclimatic requirements. It requires fertile top soil with clay subsoil in the
humid zones of the country. The major outcome expected from the research is the
development and production of improved cocoa seedlings for distribution through
both public and private distribution systems to farmers. This will involve the
Agricultural Development Programs that have already commercialized their input
supply units, with bulk input purchasing facilities and dropping points to serve
farmers. Farmers will get no significant subsidy since subsidy on seedlings has been
withdrawn.
Globalization, Internal Policy Reforms, and Public Agricultural Research in Nigeria 287
promoting agricultural growth through the increased production of food and industrial
materials. The main components of the ADP are intensive extension service, adaptive
research, input delivery system, and rural infrastructure development (mainly rural
feeder roads and water supply). The organizational structure of the ADP extension
system is along zones, blocks, and cell (or circle) tiers for field-level operations. This is
to ensure intensive and effective coverage and supervision. All ADPs in Nigeria
operate the training and visit (T&V) extension services system. The system was
introduced on a pilot scale in four ADPs in 1986 but was extended to all ADPs in 1988.
The system was modified in 1990 to become the Unified Agricultural Extension
Service system (UAES), whereby one Village Extension Agent passes all technical
information and advice to all the farmers in his/her area, covering all the subsectors of
agricultural crops, livestock, fishery, and agroforestry. The T&V system has the
following core components:
the inputs used in this experiment. Strong monitoring and evaluation outfits back the
extension system. They collect and analyze data on extension activities, and provide
the linkage to research to ensure the availability of sound technical information to the
farmers and adequate feedback from the farmers.
In 1982, the National Farming Systems Research Network was established by the
Federal Ministry of Science and Technology to coordinate and strengthen all aspects
of the farming research system in the country with a mandate to develop
location-specific technologies for solving identified farmers’ problems. This led to the
development of close collaboration between the NARIs and the ADPs through the
OFAR program and a stronger research-extension linkage through which the ADPs
influenced the research agenda of the NARIs. However, the procedure for
implementing this linkage went through many stages, the latest being the Research
Extension-Farmer-Input-Linkage System (REFILS). This was an organization of
research, extension, input agencies, and farmers who participated in the initiatives to
increase agricultural production and improve productivity. The concept of REFILS is
meant to encompass all contributors to agricultural production.
REFILS is the amalgam of the T&V system of managing the extension system and
the farming systems research approach to agricultural development. REFILS was
initiated in 1986 as a calculated attempt to minimize or eliminate identified constraints
to effective research-extension-farmer linkage in the two systems (i.e., T&V and
FSR), and to smooth the functioning of agricultural research and extension service
delivery under the T&V system. The main components of REFILS are
1. diagnostic surveys;
2. on-station adaptive research (OSAR);
3. on-farm adaptive research (OFAR);
4. small-plot adoption technology (SPAT);
5. quarterly technology review meeting (QTRM);
6. fortnightly training (FNT).
< Zonal Technical Coordinating Committee: the policy-making body for each of the
agroecological zones with membership comprising the directors of agricultural
research institutes in the zone, deans of faculties of agriculture in the zone, the
representative of NARP, ADP program managers in the zone, and the Regional
Head of the Federal Agricultural Coordinating Unit.
< Coordinating research institutes: comprising specific national research institutes
in each zone.
< Collaborating research institutes and universities: aimed at providing research
and extension leadership and at supplying scientists with diagnostic surveys,
technology review meetings, and on-farm adaptive research. All universities with
faculties of agriculture as well as the National Agricultural Research and
Extension Liaison Services and some other national research institutes are among
the collaborating institutions.
< National Farming System Research Network: with several other program leaders
(for adaptive research, extension, etc.), members of the National Steering
Committee.
< NARP: gives financial and material support to REFILS.
< ADPs: responsible for adaptive research and extension.
< The Federal Agricultural Coordinating Unit: among other functions, responsible
for coordinating the activities of the ADPs, the research institutes, universities and
other institutions involved in OFAR.
< The farmers who are involved in OFAR.
< National Agricultural Extension and Research Liaison Services: has the mandate
to disseminate agricultural research findings throughout the country.
< Agricultural input supply agencies, including the commercial services units or
companies of the ADPs: ensure that farmers obtain high-quality inputs on time and
at affordable prices.
There is a clear trend towards interdisciplinary research in recent years. This was
first manifested in the plan of farming systems research but was later extended to
incorporate crop processing and utilization research, socioeconomic research, and
technology adoption research components into most agricultural research programs in
the NARIs.
The final component of the T&V system is research infrastructure and manpower
development. The establishment of NARP in the 1990s gave some impetus to the
effort to rehabilitate moribund and long-neglected facilities in the NARIs, procure new
and modern research equipment, upgrade the quality of research personnel through
in-service training, workshops, seminars, etc., and sponsor research projects.
market will also call for research on methods and techniques of reducing commodity
cost and improving commodity quality to meet international standards. Scientifically
processed and packaged agricultural products, such as cocoa products, vegetable oils,
cassava products, fruits and vegetables, livestock products, wood, and other forest
products, will be able to compete effectively in the international market to earn foreign
exchange for Nigeria or serve as effective import substitutes to conserve foreign
exchange.
Among the problems that will have to be addressed is the present lack of formal
IPR for the products of agricultural research in Nigeria. All three research institutes
covered in the survey denied any knowledge of existing IPR covering the materials and
inputs used in their research or the products of their research. The examples of
prototype small-farm machinery and improved breeder seeds developed through
research, but supplied almost free to private and public institutions, were cited to
support this. It was, however, suggested that appropriate charges be imposed on new
technologies developed by the NARIs as IPR, in order to enhance the financial
sustainability of the agricultural research system and provide incentive to researchers.
The globalization process will present additional challenges to the NARS in many
new research areas, but particularly in the following:
< commodity processing and utilization, including research to diversify the
utilization of many crop, livestock, fishery and forest products;
< development of new harvest and post-harvest technologies, including commercial
food preparation technologies;
< identification and improvement of alternative agricultural inputs, fuels and energy;
< identification and development of indigenous and wild species of crops and
livestock for food and industrial uses.
References
Central Bank of Nigeria. Annual Report and Statement of Accounts (various issues).
Federal Government of Nigeria. 1999. Budget Speech and Briefing. An Analysis of the 1999
Budget by the Federal Minister of Finance.
Idachaba, F.S. 1998. Instability of National Agricultural Research Systems. Research Report
No. 13. The Hague: ISNAR.
Manufacturers Association of Nigeria. 1999. The State of the Economy, 1998. The Guardian,
May 18.
National Agricultural Research Project. 1997. An Appraisal Study of Agricultural Extension
System in Nigeria. Unpublished report.
Olayemi, J.K. 1995. Agricultural Policies for Sustainable Development: Nigeria’s Experience.
In Sustainable Agriculture and Economic Development in Nigeria. Proceedings of a
Workshop by the African Rural Social Sciences Research Networks of Winrock
International, edited by A.E. Ikpi and J.K. Olayemi.
Olayemi, J.K. 1998. Food Security in Nigeria. Research Report No. 2. Ibadan, Nigeria:
Development Policy Centre.
Olomola, A, A.C. Nwosu, and F. Okunmadewa. 1996. Market Liberalization and its Effects on
Nigerian Agriculture. Working Paper No. 16. NISER/SSCN National Research Network on
Liberalization Policies in Nigeria.
Globalization, Internal Policy Reforms, and Public Agricultural Research in Nigeria 293
Shaib, B., N.O. Adedipe, O.A. Odegbaro, and A. Aliyu. 1994. Towards Strengthening the
Nigerian Agricultural Research System. Proceedings of NARP Conference on National
Agricultural Research Strategy Plan for Nigeria.
Voh, J.P. 1999. Recent and Prospective Changes in National Research Systems in Nigeria as an
Effect of Globalization. Paper prepared for a Globalization Workshop organized by ISNAR,
The Hague, The Netherlands.
Chapter 14
The Reorganization of Public Agricultural
Research in the Caribbean under the
Pressures of Globalization and
Privatization
Compton L. Paul*
Introduction
Globalization is having a significant impact on Caribbean agriculture. As traditional
secured markets for plantation crops such as sugar, banana, rice, cocoa, coffee, and
coconut dry up under global competition and the WTO rules, the large agricultural
producers in the region are forced to downsize and become more efficient in order to
remain competitive. Small landholders, the majority of whom farm mainly hilly land,
will not be able to meet the pressures of competition, and they must diversify their
production. A good alternative in the Caribbean is nontraditional crops such as exotic
tropical fruits, vegetables, roots, and cut flowers, in which the islands have a
comparative advantage for the domestic market and especially for niche markets in
North America and Europe. Agricultural R&D has an essential role to ensure the
selection of the most suitable crops and to adapt them to the local agroclimatic
conditions, food safety standards, and the quality demanded by importers. Extension
services will be necessary to introduce the new crops and to assist the small-scale
farmers in adopting them.
This chapter reviews changes in the conditions of the region’s agriculture as an
effect of the pressures of globalization and attendant policy reforms, and it evaluates
the necessary changes in the role of public agricultural research and national
agricultural research institutes in order to support the transition of the agricultural
sector and the diversification efforts of small-scale farmers.
Background
The early economic development of the Caribbean countries was based on
export-oriented agriculture with large plantations of tobacco, sugar, cocoa, and
coconuts, using (until 1837) slave labor in the large farms, while small farmers
cultivated marginal hilly areas. Peasant farming continued to expand on marginal
hillsides due to population pressure, but in the mid-1960s, after independence, many
* Compton L. Paul: Executive Secretary of the Caribbean Agricultural Science and Technology
Networking System (PROCICARIBE), Acting Executive Director of the Caribbean Agricultural
Research and Development Institute (CARDI)
295
296 Chapter 14
large plantations were broken up and divided into small farms. In the 1970s,
smallholdings of less than two hectares occupied over 80% of the farms but less than
20% of the arable land. In recent years, an influx of cheaper imported agricultural
products—in part as an effect of the WTO rules—has increased the pressure on
farmers, particularly small farmers, to diversify their agricultural production away
from the traditional export crops. By 1993, the region’s agricultural exports had fallen
to less than half of its 1987–89 level and the region had become a net agricultural
importer with an agricultural trade deficit of US$ 2.6 billion, compared with a surplus
in 1987–89 of $2.6 billion (Valenzuela 1999).1 In addition, most of the terrestrial and
marine ecosystems that support agriculture and food production were under stress
from population pressure, rapid urbanization, expanding tourism, and pollution. High
rates of deforestation and poor soil and water management practices of many farmers
contributed to rapid degradation of the environment.
At the present, the Caribbean agricultural sector comprises the following groups of
farming systems:
< a large number of small traditional subsistence farmers practicing mixed cropping
on marginal hilly lands in small family units;
< a small number of commercially oriented small farmers that focus mainly on
domestic markets but sometimes join the export market especially at the regional
level;
< a small number of larger commercial farmers that dominate the export market; and
< a small number of large farms that are idle because of owner-absenteeism.
1. The main reason for the decline was the sharp fall in Cuba’s exports to the former Soviet Union.
The Reorganization of Public Agricultural Research in the Caribbean 297
< Market information is very limited and practically unavailable for small farmers.
Regional trading is highly disorganized and lacks reliable transport, storage,
packing, and distribution facilities. Marketing agencies handle primarily the trade
in traditional crops.
< Limited human and financial resources are devoted to agricultural research;
extension services are weak or absent. Public funding for agricultural R&D is very
limited and has been declining sharply in recent years.
< Increasing volume of food imports as an effect of trade liberalization reforms and
demand pressures for the population (including tourism) also increases the
pressures on small farmers and erodes their incomes.
Despite these negative factors, the agricultural sector remains the backbone of the
economy in a number of Caribbean states and the main source of livelihood for many
small subsistence farmers in rural areas. In addition, a sizeable portion of the region’s
work force is employed in the agricultural sector, and agricultural exports are an
important source of foreign exchange earnings. In the larger countries, the share of
agriculture in GDP ranges from over 50% in Haiti to only 3% in Trinidad and Tobago.
Sugarcane represents 27% of the total crop output in the region (with Cuba producing
69% of the total). Bananas dominate the agricultural production in some islands and
are a main source of foreign exchange earnings. In some countries (e.g., Guyana and
Suriname) rice is the main export product.
productivity and the low quality of their produce. The competitiveness of local
producers has also eroded due to environmental degradation and soil erosion, causing
them to lose valuable export earnings.
These pressures are motivating an increasing number of farmers to diversify their
production and introduce nontraditional crops in which Caribbean countries have a
comparative advantage thanks to their climatic conditions. In addition, the changing
patterns of agricultural production and trade are forcing small farmers to form farmers’
organizations in order to trade collectively, particularly in the nontraditional crops that
they are adopting. To be able to trade, these farmers need access to information on food
safety standards, market conditions and prices, etc. In the more developed countries,
the private sector provides this information, but in the Caribbean, the private sector
will not be able to provide this information because it lacks the necessary resources to
make such investments, so the public sector will have to step in and provide support.
The slow pace of the transition and adjustment to new global conditions is forcing
many farmers to cease farming and seek other employment opportunities elsewhere,
even though alternative employment is not easily found, especially in the rural areas.
So far, the Caribbean countries have not used the provisions of the Uruguay Round
Agreement of the General Agreement on Tariffs and Trade to develop safety nets,
insurance, or risk management tools for their agricultural exports, thus increasing the
negative impact of trade liberalization and the concomitant policy reforms and
adjustments on the small landholders. In addition, domestic producers have difficulty
dealing with the nontariff barriers, such as food safety standards and various technical
barriers that have in recent years become the main reason for the exclusion of
Caribbean agricultural produce from global markets. A study on the preparedness of
Caribbean countries to comply with food safety standards indicates that many
countries face significant difficulties. Whereas the international regulations governing
food safety raised the production costs of food exports, the lax application of safety
regulations for food imports has left many domestic consumers exposed to the risks of
food-borne diseases. External pressures also force the Caribbean countries to
collaborate in establishing trade partnership agreements and regional Free Trade
Agreements, and in pressing for antidumping measures that will prevent or restrict
exporters from the USA and the EU from dumping their surplus food.
determine the regional research priorities and the research agenda of the NAROs. The
World Bank report also recommended a reduction in the number of R&D
organizations and the establishment of strong research networks between the
remaining organizations.
With the advent of the globalization process, the reduction in trade barriers for
goods and technologies is bound to reduce the demand for domestic R&D and increase
the dependence on the global one. However, the research of the private sector, either at
home or abroad, is driven primarily by market opportunities and prospects and by the
potential to reap the benefits from IPR. Public-sector supervision over the private
sector research is still needed, therefore, to adapt the new technologies to local
conditions, and government supervision and controls are necessary to prevent market
segmentation by the private sector that aims at enhancing its monopoly power and
discriminating against certain producer groups or geographical areas. Public
investments will also be required to develop infrastructure and provide up-to-date
market information.
In 1996, the Caribbean Agricultural Research and Development Institute (CARDI)
was mandated by the Caribbean heads of government to develop an agricultural
science and technology system for the region. Now termed PROCICARIBE, the
Caribbean Agricultural Science and Technology Networking System is designed as a
mechanism to generate new technologies and promote the transfer of technologies
from developed countries under the Regional Transformation Program.
PROCICARIBE provides the institutional framework within which Caribbean
governments, R&D institutions, the private sector, NGOs, farmers’ groups, and other
stakeholders design and implement strategies for the integration and co-ordination of
agricultural research and development at the national and regional levels. The key to
the design of these strategies is an agreement on research priorities and the strategy for
conducting research based on these priorities. The networks employ the commodity
systems approach in the implementation of their programs (Figure 14.1).
PROCICARIBE’s core mission is to improve food security, alleviate poverty,
improve the standard of living of the general population, and coordinate public and
private research.
To achieve these goals, it will be necessary to promote the following:
< a competitive and sustainable agricultural sector, demand-driven agricultural
R&D, competitive business systems and enterprises, and the use of modern
information technologies;
< laws and policies that protect the region’s natural resources and enhance inter- and
extra-regional trade;
< regional collaboration in agricultural R&D.
To meet the challenge of globalization, the staff of local public research institutes must
be better informed in areas such as marketing and business management, and be au fait
with TRIPS, genetically modified organisms, international trade policies, food safety,
quality environmental protection, and policy formulation. They must be able to
evaluate the improvement of agricultural commodities for niche markets, the
development of higher value-added products through PHT (agroprocessing), and to
The Reorganization of Public Agricultural Research in the Caribbean 301
Strategic Alliances
Technical Assistance
concentrate in rural areas, and many of the rural poor depend on agriculture for the
larger share of their income. Many of the poor rural households are farming marginal
hillside lands, and farming in these areas often has negative environmental effects, due
to severe soil erosion, deforestation and overgrazing. More than 20% of the labor force
in the Caribbean countries is employed in agriculture; in some countries this share is
considerably higher and therefore, agriculture provides effective means to reduce
poverty and enhance food security. To realize this potential, Caribbean governments
will have to put in place appropriate policies, provide the necessary infrastructure, and
allocate enough resources to public research in order to promote the production of
nontraditional crops and facilitate the trade in these crops in the rural areas where poor
farmers concentrate. At the same time, appropriate assistance must be given to small
farmers who may be forced out of farming as a result of trade liberalization.
Facing a growing competition of food imports from the developed countries,
primarily of staple foods like wheat, rice, and maize in which these countries have a
comparative advantage thanks to the large scale and efficiency of production, the main
alternative of the agricultural producers in the Caribbean is to diversify their
production and include nontraditional crops for the domestic market and for exports.
The main challenge of the Caribbean NARS is, therefore, to secure a successful
selection and adaptation of nontraditional crops in which the countries in the area have
a comparative advantage as a result of their climatic conditions and to assist local
producers in diversifying their farming system and adopting these crops. This requires
the NAROs to devote more human and financial resources to assist in the selection,
transfer, and adaptation of nontraditional crops and suitable new technologies by the
local farmers. In this selection, the focus must be on increasing the income of the
small-scale farmers by giving them the option to grow more profitable cash crops for
the local market and to export rather than rely on staple foods for self-consumption.
The diversification of on-farm activities can also include post-harvest treatment and
processing to increase the value added of their trade. Niche markets in North America
and Europe can be an important target for the region’s exports of crops, such as spices,
selected fruits and vegetables, in large measure because these crops are particularly
suitable for small farmers.
Other elements of reform in the coming years should include sound environmental
management land tenure systems to ensure proper land use, education to end users, and
incentive schemes so as to reduce improper land husbandry practices that erode the
Caribbean natural resources. Appropriate land reform policies would be needed to deal
with the accelerating deforestation as well as with waste disposal, water quality, and
integrated pest management, with the objective of developing an agricultural system
that is more friendly to the environment. New research in biotechnology has the
potential to increase crop productivity, and irrigation will gain importance in intensive
high-input farming systems that specialize in high value crops such as tropical fruits,
vegetables, roots, and cut flowers.
These reforms will have to be implemented against the background of gradual
liberalization of global trading in agricultural produce and the abolition of the
preferential tariffs and quotas that were given in the past to several of the Caribbean
traditional agricultural exports in the EU under the Lomé Convention. The Cotonou
The Reorganization of Public Agricultural Research in the Caribbean 303
agreement that was signed in June 2000 replaces the 1975 Lomé Convention and
brings the agreement in line with WTO rules by extending the preferential access for
goods from most Caribbean countries to the EU market only until 2005. The strict food
safety rules under the WTO agreement and the more demanding standards imposed by
many developed countries may, therefore, create barriers and restrict some of their
agricultural exports. Overcoming these barriers would require technical and legal
assistance to the Caribbean countries, and the NARS has an important role in assisting
the local producers to comply with the standards and avoid having their products
blocked by these barriers.
Meeting all these challenges requires the support of an efficient, dynamic, and
flexible agricultural R&D system operating in an enabling policy environment in an
integrated, collaborative manner with linkages to regional and international R&D
institutions. Supply-oriented research must give way to demand-oriented research that
is driven by the marketplace and the needs of the farming community. The public
sector must create a supporting environment and establish an appropriate regulatory
framework for public and private research by ensuring IPR and encouraging private-
sector investment in agricultural research. The following key areas for R&D have been
identified from priority-setting exercises that were conducted in the region during the
past five years (Paul 2000):
< agroprocessing to increase the value added of the marketed commodities;
< agroforestry integrated into crop/livestock systems to help rehabilitate the
degraded watersheds;
< integrated land and water resource management;
< ensuring quality standards of the commodities traded in regional or exported to
extra-regional markets;
< integrated pest management to reduce pesticide levels and residues and provide
control of the major pests and diseases;
< diversification of the agricultural system away from traditional commodities into
vegetables, small ruminants, fruits, root crops, cereals, grain legumes, cut flowers,
including aquaculture and greenhouse/shade-house technologies.
The drive for trade liberalization under the pressures of globalization and the WTO
agreements, and the abolition of preferential tariffs in the EU will force domestic
agricultural producers in the Caribbean to compete in cost and in product quality both
within the region and in the international marketplace by adjusting their production
practices and their allocations of land, labor and capital. This competition is likely to
favor, however, the larger farmers that can increase the use of mechanization,
irrigation, agroprocessing ,and agrochemicals, while many small farmers are forced to
continue farming in marginal mountain areas and in fragmented holdings. To balance
the disadvantage of the small landholders and combat the rise of poverty in the rural
areas, the NARS will have to devote a greater portion of their research and their
extension services to the specific needs of the small farmers to improve their
productivity, assist them in diversifying their farming system and help them take part
in the trading system in agricultural produce.
304 Chapter 14
References
Antoine, P. 2000. Positioning David to Face Goliath: Issues and Considerations for Caribbean
Agricultural Negotiations (unpublished). Paper presented at OIC Conference, Ottawa,
Canada, April 2000. IICA
Antoine, P.A. and E.A. Simms. 1994. Assessing the Impact of Agricultural Policies on
Producers and Consumers in Selected OECS countries. IICA, T&T.
Blades, H. 1998. Background to PROCICARIBE. Presentation to the 1 Meeting of the Board of
st
IICA. 1998. Performance and Prospects for Caribbean Agriculture. Trinidad, West Indies:
IICA.
IICA. 1999. Food, Safety, Trade and Public Health, edited by D. Francis and J.A. Francis. In a
Nutshell #4. IICA-CARC.
IICA. 2000. Caribbean Agriculture and the WTO Agreements. In a nutshell. Trinidad: IICA.
IICA. 2000. Emerging Issues in Agriculture Health and Food Safety – Directorate of
Agriculture Health and Food Safety. Technical Consortium. Costa Rica: IICA.
Jolly, C.M. and C. Ligeon. 1999. The environmental and social impact of trade and economic
liberalization for the environment in the OECS. In Trade and Economic Liberalization:
Implications for Agriculture and the Environment in the Caribbean and Latin America,
edited by L. Rankine.
McDavid, C.R. and S. Maximay. 2000. Mechanisms/Processes for achieving vision and for
making universities and agricultural colleges centres of excellence and their alumni more
competitive. Presentation at the IICA Sponsored Week of Agriculture. 4-7 October 2000,
Jamaica.
Messina, W.A. Jr. 1999. Cuban Agriculture: Adopting new policies and new realities in a world
of liberalizing trade.
The Reorganization of Public Agricultural Research in the Caribbean 305
307
308 Chapter 15
In recent years, enormous changes took place also in the area of international
financial operations. Since World War II, “financial bubbles” grew very alarmingly—
three to four times faster than the growth in production and in investment in real assets
worldwide. Several LAC countries, including Brazil, Argentina, and Mexico, suffered
massive speculative attacks in the past with significant and very devastating effects on
their economies. To dampen these financial bubbles, many LAC countries introduced
fundamental changes in their exchange rate regimes, and came up with strong
disciplinary measures as an integral part of the exchange rate and monetary policies.
In the area of information and communications technology (ICT), there has been
speedy progress worldwide but only in few countries in the LAC region. While the
number of Internet users worldwide increased by 100% in the last two years, LAC as a
whole is still well behind in terms of Internet access and coverage. Many researchers in
the region do not yet have access to the Internet, and some (mainly those working in
remote areas and distant experimental centers) do not even have a computer to use in
their work. There are many research stations in which only one computer is available
for 10–15 researchers. One exception is INIA1 in Venezuela, where a project is under
way to develop a technological platform that includes the installation of some 400
computers and the development of local and telecommunication networks, to be
utilized mainly by researchers all over the country. EMBRAPA2 in Brazil, INTA3 in
Argentina, and INIFAP4 in Mexico, among others, are also carrying out ambitious
projects to connect their researchers to the Internet and develop their
telecommunication facilities with research stations in remote areas. The large
inequalities of access within and between the LAC countries are, however, a cause for
concern, since most of the national research systems are still lagging behind and will
have to make large investments and provide extensive training in order to close that
gap. A number of specialized networks and cooperative research programs in the
region try to take advantage of the new possibilities offered by ICT to close this gap.5
Serbin noted that in the LAC countries, globalization also has a socio-political
dimension in that it gives rise to political homogenization by promoting the western
democratic model, the exchange of values and information, and the international-
ization of civil society. One important consequence is the strengthening of the political
and economic integration in the region, which has led, in turn, to the deregulation and
liberalization of the economy and has given rise to a profound transformation of the
production structure within countries and the production and trade relations between
1. INIA: Instituto Nacional de Investigaciones Agrícolas (National Institute for Agricultural Research).
2. EMBRAPA: Empresa Brasileira de Pesquisa Agropecuária (Brazilian Institute for Agricultural
Research)
3. INTA: Instituto Nacional de Tecnología Agropecuaria (National Institute for Agricultural
Technology)
4. INIFAP: Instituto Nacional de Investigaciones Forestales y Agropecuarias (National Institute for
Forestry, Agricultural, and Livestock Research)
5. Some of the specialized networks operating in the region are: REDCAHOR (vegetables); REMERFI
(plant genetic resources, C.A.); FLAR (rice); REDARFIT (genetic resources in the Andean countries).
There are also cooperative research programs in all the subregions, e.g., PROCIANDINO (Andean
Countries), PROCITROPICOS (Amazon Basin); PROCINORTE (USA, Canada, and Mexico).
The Impact of Globalization on in Latin America and the Caribbean 309
countries. Globalization has therefore been a great stimulus for change in the region.
Beginning with the debt crisis of the 1980s, the LAC countries embarked on a gradual
process of abandoning the import substitution strategy, adopting instead an outward-
looking growth strategy and stronger links to the global market. While under the
previous strategy priority was given to increasing industrial production for the
domestic market, under the new strategy the focus of economic policies was on
commercial opening. The results were profound changes in the economic structure and
a much greater and more strategic role for technological innovation and productive
specialization.
These developments also made it necessary to reconsider the role and the mode of
operation of the public sector. The public sector had to focus more on promotion and
support rather than the direct execution of actions, to allow greater participation of the
private sector, and to substantially reduce the size of public enterprises and
institutions, especially those that were created to support the previous development
strategy. This strategic change had a very strong impact on the public agricultural
research institutes in most countries, due to significant reductions in their budgets and
human resources and deep changes in the production structure in LAC as a result of
economic opening and interaction with countries that were technologically advanced
and more competitive. These changes made it necessary to redesign production,
regional specialization, and market penetration strategies.
Trade liberalization and the drastic reduction in the level of protection for
agricultural products brought in cheap imports of food products from developed
countries and forced many farmers in LAC out of the production of a number of
traditional staple foods. These farmers now had to compete with foreign producers
who were more efficient, used mechanized and highly advanced technologies, and had
access to highly developed physical infrastructure (transportation, seaports, and
airports), which enabled them to compete internationally. These developments
contributed to an increase in the import of a considerable number of food products,
such as rice, beans, some vegetables, wheat, and maize in many LAC countries. At the
same time, however, the production and exports of many nontraditional agricultural
products grew consistently in recent years, revealing important comparative and
competitive advantages of the LAC countries that led to an increase in their share in the
international market for these goods. During the past decade, 86% of the changes in the
net value of agricultural exports in the LAC countries were in fruits, vegetables,
soybeans, and meat.
Over the past 20 years, the “agricultural frontier,” i.e., the land used for agricultural
production (excluding pasture land), was extended by an additional 16.4 million
hectares, an increase of 17%. For five products alone (soybeans, corn, tropical fruits,
sunflowers, and sugar cane), the area under cultivation increased by 21.2 million
hectares. At the same time, there was a drastic reduction of some 6.9 million hectares
in the land used for growing cotton (in Brazil especially), rice, wheat, and cassava. The
area under cultivation remained relatively stable for other crops such as starches,
cereals, and annual pulse crops (Table 15.1).
310 Chapter 15
Table 15.1. Area under Cultivation by Main Crops in LAC (’000 hectares).
Let us now examine what these changes mean from the perspective of four
fundamental variables that must be considered in order to determine the potential for
increasing agricultural production in LAC. These variables include the trend in
agricultural production vis-à-vis population growth, the evolution of productivity,
changes in the area under irrigation, and the capacity for research.
50
45
40
35
30
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
SOURCE: Calculated by IICA from FAOSTAT data. Years
Evolution of productivity
Raising productivity is the most important factor in overcoming limitations in
production, attracting private investment, and enabling agriculture to make a positive
contribution to economic growth. From this perspective, the situation in LAC is both
promising and paradoxical: For most products with a large increase in yields, the total
production is growing at a slower rate than that of the population, whereas for products
that have higher rates of growth in per capita production and exports, the changes in
yields are minimal. For example, consider the developments in two groups of
products: staple grains and tubers, and fruits. In the first group, which includes rice,
corn, beans, wheat, potatoes, and cassava, the changes in production are mainly due to
312 Chapter 15
higher yields. In the second group, which includes citrus, avocado, bananas, melon,
papaya, pineapple, and mango (all tropical, with the exception of melon), the changes
in production are due primarily to the increase in the area under cultivation. Also, in
many of these fruits, yields have remained unchanged in many countries. One possible
explanation for these differences can be the gap in the productivity and
competitiveness in basic foods between the countries that are leading in their terms of
trade and production worldwide and the LAC countries (Table 15.2). While a lot of
agricultural R&D has been devoted in the region to these products in the past decades
in order to increase their yields, other countries in the world manage to achieve higher
technological and economic performance. With the opening of the economy to trade,
the domestic production of basic foods for internal consumption must be able to
compete with that of other countries; otherwise, the market solution will be to import
these products at lower prices. It may well be the case that the effort and resources
invested in R&D on these products in LAC were insufficient in the past; another
possibility is that other countries already had a significant comparative advantage in
their production, and this advantage could not be erased by the investments in R&D in
LAC. Nevertheless, the increases in the production of basic foods in LAC represent
savings of some 20.5 million hectares in the area under cultivation. In other words, the
expansion of the agricultural frontier would have been much greater (almost double)
had this change not been effected.
Another possible explanation is that many tropical countries in LAC earmarked,
several decades ago, a large part of their resources for research on products in which
they do not have a comparative advantage, such as wheat, barley, fresh or processed
corn for human consumption, and broadleaf fruit trees, while fewer resources were
allocated for research on tropical products in which these countries may have a
comparative advantage in the international market, such as tropical vegetables, fruit
trees, palm trees, or fruits of the tropical highlands. According to IICA6, only 10–15%
of the budgets of the NARIs of the region is earmarked for tropical fruits and
vegetables. In part, this is because the priorities and the allocation of resources for
research in the past decades were greatly influenced by the import substitution strategy
of the 1960s. This was the case with wheat and barley, where the goals were to produce
cheaper foods for national consumption and to support the process of industrialization.
6. IICA. Area II: Science, Technology and Natural Resources. Basic information for member countries.
314 Chapter 15
the optimum for the level of economic development in the region. There are already
some countries (Brazil, Uruguay, and Mexico) in which the share of total expenditures
on research exceeds 1% of the agricultural GDP, while the average share in the region
is merely 0.4% of the agricultural GDP. Therefore, today it is no longer possible to
evaluate the funding for research in the traditional way, i.e. by relying only on
public-sector investments, or by focusing solely on research related to production.
Clearly, public investment in research has declined quite sharply and is likely to
continue to fall in LAC. This puts the region at odds with other regions, where growing
private-sector investment in agricultural R&D has no effect on public investments and
where public investment is considered to be a prerequisite for private investment.
It can be expected that investment at the regional level will increase, since this is
the most efficient way of conducting agricultural research. Several studies carried out
in the region reveal internal rates of return on investment in regional programs that are
considerably higher than those in programs conducted at the national level. One likely
explanation for the low level of investment in research at the regional level in recent
years, despite the higher rates of return, is the inertia of the earlier economic strategy in
which the focus was on the “national” agenda, the possibility of investment in
cooperative programs among countries was excluded, and technological spillovers in
and outside the region were restricted or prohibited.
Lastly, the resources for agricultural research contributed by the CGIAR,
especially through CIMMYT, CIP, and CIAT, also play an important role. The results
of such research are available to the countries of the region at no cost, and they have
had a major impact on the productivity of basic foods. However, there are many LAC
countries that believe that the CGIAR should have an even greater presence in the
region and a greater impact on the regional agricultural sector. It is well known that the
international centers of the CGIAR attach low priority to LAC. However, there are
several reasons why these priorities should be reconsidered:
1. In basic foods, more research can be pivotal to meet the challenges of achieving
competitive production and increasing the domestic supply, especially in the
countries located between the tropics of Cancer and Capricorn.
2. In fruits and vegetables—crops in which the region has a competitive advantage—
more research is necessary to maintain this advantage in the future, since these
products are both important to secure the countries’ export earnings, and pivotal in
the struggle against rural poverty. Many poor farmers in LAC are beginning to
produce these crops as the best option to achieve substantive improvements in their
income levels and, thereby, in the well-being of their families.
3. In natural resources there are two main issues: the need to conduct more research
on how to use natural resources more efficiently, especially soil and water, and how
to tap and use the region’s biodiversity more effectively. In these fields, much of the
research is considered a public good, in that it involves the search for technologies
for which there are no markets and therefore no possibility to recover costs on the
basis of the market value of the research results. Natural resources are unequally
distributed in the LAC countries, and in many of them, their degradation and/or
depletion is a major contributing factor to rising urban and rural poverty.
The Impact of Globalization on in Latin America and the Caribbean 315
The problems raised by the scarcity of suitable human resources for research are
similar to those raised by the scarcity of funds. On the one hand, the capacity to
conduct research varies widely between subregions and countries in LAC, as can be
observed in Table 15.3. On the other hand, the average age of the researchers in a
considerable number of research organizations, especially in the public sector, is over
50, and in most cases these researchers cannot be replaced for administrative reasons.
The capacity of public research institutions in LAC to conduct quality research is
likely, therefore, to decline considerably during the next 5–10 years, when most of the
currently employed researchers are retiring. The refusal to increase the personnel
rosters of the NARIs also reflects a clear trend in the region to sharply reduce
public-sector agricultural research by reducing funding as well as the number of
researchers, even though the private sector in many countries still does not invest
enough in this research.
The problems associated with the scarcity of human resources are even more acute,
because there is clearly a strong upsurge in the demand for research in the new fields
arising from the change in production structure and from new market opportunities. In
these new fields of research, which are necessary to support the introduction of new
crops, the public sector must assume initial responsibility, as it should for any infant
industry, because the results are uncertain and the initial investment can be high and
may not be recovered for a long time. To respond to the new demands, research
priorities must be adjusted, especially in the public sector. Some research
organizations made progress in this area, developing new strategies that will enable
them to make a more accurate evaluation of the needs of producers and to provide
technologies that have been adapted to the specific agroclimatic and soil conditions in
the country. This is the strategy of INTA in Argentina, a pioneer in the implementation
of joint ventures with the private sector to develop technologies that can be
appropriated, i.e., technologies that can provide economic benefits for the innovators
and thus securing more resources for research. Other countries that have come up with
innovative schemes are Brazil and Colombia, where Embrapa and CORPOICA,
respectively, are developing strong alliances with the private sector to define priorities
more accurately and develop the technologies that are needed by the producers and by
the agents of the different agrifood chains.
Other important innovative schemes that have been designed in the LAC region to
secure the necessary resources for research are the accumulation of para-fiscal funds
with the participation of the private sector, the introduction of competitive schemes to
direct research to specific subjects, and the increased participation of producers and
operators of agroindustries in the definition of priorities for, and the allocation of,
resources to research. These innovations will be analyzed in greater detail below.
Over the last two decades, even though the number of programs aimed at transforming
research organizations in LAC has increased, the changes they have managed to
introduce have been rather timid and marginal and have not led to substantial changes
in priorities or strategies for the allocation of resources to meet the new needs and
demands of producers.
The Impact of Globalization on in Latin America and the Caribbean 317
By and large, the institutional arrangements developed over the past three decades
have been similar in all the LAC countries. In recent years, however, significant
differences between the solutions of different countries have emerged, and they
suggest new trends in the institutional transformation process and the determination of
the basic characteristics of the new institutional developments in the region. In broad
terms, these can be grouped into the following five categories (Ardila 1999):
7. INIAs are the national institutions of agricultural research in LAC, all public.
318 Chapter 15
the region and mostly involving the private sector. In this area, a major process of
deregulation is currently under way, especially in the public sector, making it possible
to do “technological business” more easily. This means that more and more INIAs are
working with private enterprises and foreign consulting firms in the transfer of
technologies related to agroindustrial and product transformation processes, which, in
many cases, cannot be used without special contracts and licenses. The programs that
prove to be the most successful in the transfer of technologies from other regions into
LAC are the cooperative agricultural research programs supported by the LAC
countries and by IICA. However, so far these programs account for only 0.02% of the
annual research expenditure of the countries in the region, a figure that is far too low
considering the potential benefits.8
At the national level, there is a growing trend of forming research and/or
technology transfer initiatives with multinational companies and with the research
centers of developed countries. In addition, there are “technology radar” programs,
under which a country or a regional organization establishes formal links with research
centers in developed countries. The most ambitious and advanced example of this
program is the cooperative program established by EMBRAPA in Brazil with research
centers and Universities in the United States and France, and there are plans for other
programs. The basic purpose of this program is to capitalize on scientific
developments that may be of interest to Brazil and to establish research agreements
and other types of scientific cooperation with developed countries. Almost all the
funding for these programs comes from the participating countries. The advent of
FONTAGRO is also a plus for the region as far as the appropriation of available
technologies is concerned, since experience is acquired in preparing research
proposals that can involve the technology inventories of several countries.
and salaries at the national organizations will have to match those paid in the
international, or at least the subregional research institutes.
Conclusions
There is no doubt that the policy changes and market adjustments associated with the
globalization process have had a major impact on the agricultural sector in the LAC
region, both directly on its structure and performance, and indirectly on the national
and regional research and development systems. Some of the main conclusions that
can be drawn are as follows:
< Under the new, more open system of trade, the region’s agricultural sector has
made a very important contribution to economic growth in recent years, and this
contribution is likely to increase in the future, especially to the region’s
international trade. However, the above analysis shows clearly that there is a need
to make the production of staple foods more competitive and to raise productivity
levels for nontraditional crops, as a means of maintaining and even enhancing
competitiveness in the future, thereby contributing further to the goal of food
security.
< Although the region has a fairly well-developed institutional research system at the
national, regional, and subregional levels, the communication and exchange of
knowledge, information, and technologies between institutions is still quite
limited. Existing mechanisms and strategies, therefore, need to be redesigned in
322 Chapter 15
References
Ardila, J. 1999. Diagnostico y perspectivas tecnológicas de la agricultura Latinoamericana.
IICA.
Ardila, V. 1999. Jorge: Problemas institucionales en la investigación agropecuaria en ALC.
Campinas.
The Impact of Globalization on in Latin America and the Caribbean 323
325
326
327
328
Note: Abbreviations and Acronyms are also listed separately on pages 325 and 326
329
330 Index
intellectual property issues 196–198, The East Asian Miracle (1993), World Bank
221–222, 225, 226–227 55–56, 58
LAC countries 314, 317 eco-labeling 176
proprietary technology 222–225 ecology, Kenya 150
Convention on Biological Diversity (CBD) Economic Community of West African
219 States (ECOWAS) 277
corporate governance 35 economic growth
Cotonou Partnership agreement 165, Caucasus 260–261
302–303 GDP per capita 38, 40–42
Council for Scientific and Industrial global variation 1–2, 4
Research (CSIR), Ghana 132 globalization effects 31–45
credit systems 160, 276–277 LAC countries 307
Cuba 297 Nigeria 281–282
poverty reduction relationship 29
dairy adaptive research, Kenya 147–148 economic reforms
defensive patenting 222 Cameroon 161–164
demographics 37, 92 Ghana 124–128
developed countries Kenya 136, 137, 139
agricultural subsidies 63, 66 economic research, Kenya 146
GDP per capita trends 40–42 economic stability 49, 58–62, 70–74
global income inequality 42, 43 ECOWAS see Economic Community of
tariff bias 4–5 West African States
trade barriers 4–5, 244 education and training 47, 181, 301
developing countries employment 31–32, 36, 63–64, 280–281
global standards consequences 179–180 Empresa Brasileira de Pesquisa
globalization debate 27–79 Agropecuária (Embrapa) 229, 231–232,
intellectual property rights 185–199 308, 313, 315
national agricultural research systems environmental protection
197 Caribbean 302
supply chains 250, 251 competitive disadvantage 50
development strategies India 104, 114, 120
agricultural sector 62–68 Kenya 150
Asia model 58–62 standards role 174–175
debates 31–36 threats 104, 296, 298, 314
outward/inward-oriented 51–58 Ethiopia 240, 241
social/political aspects 70–74 European Union, trade agreements 67–68,
diversification see nontraditional crops 164–165
divestiture, Ghana 125, 127–128 exports
Dominica 301–302 Africa 244–246
Cameroon fraud 157
East African Communities (EAC) 139 Caucasus 266, 268–269
East Asia Ghana 125
1997-98 crisis 58–59, 61–62 income reduction 4
‘Asian Model’ 58–62 LAC countries 309
China 83–102 Nigeria 278, 281
GDP per capita trends 40–42 promotion 51–58, 125, 295, 309
global income inequality 42, 43 extension services 250, 254, 255, 279,
globalization benefits 3, 4, 28 287–291
industrialization 37
institutions 58–62
poverty reduction 32–33, 37
331
political stability 49, 58–62, 70–74 protected markets 179, 299, 302–303
population growth 31–32, 310–311 see also Lomé Agreement
‘post-Washington consensus’ 29, 70–72 public sector R&D
poverty see also research and development
see also “Globalization and Poverty” African priorities 252–255
online debate agricultural research role 235
Caribbean 301–302 commercialization 185–199
definitions 35 India 114–117, 120
global area trends 44, 45 intellectual property rights 220
globalization influences 1 LAC countries 309, 315, 319–321
Nigeria 282 public services, privatization 69, 72–73
safety nets 117–118, 120 purchasing power parity (PPP) trends 40
poverty reduction
East Asia 32–33, 37 quality
economic growth relationship 29 export products 157–158
Ghana 123, 125, 130 food production 296, 297
priorities 35 seeds 146, 149
Poverty Reduction Handbook (1993), World
Bank 33 redistribution development strategies 32,
prices 38–39
African export commodities 246 Regional Economic Partnership Agreements
international 93, 107, 269 (REPAs), ACP/EU 165
maize seed 205, 207 regional trade agreements, Africa 239, 243
Nigerian policy 280 reproductive biology, seeds 203–204
petroleum 126 research and development (R&D)
trade reform effects 4 Africa 237–257
primary commodities, African production Caribbean 298–301
and export 240, 244–246 Caucasus 264–265, 270–274
primary product sector, development China 92, 99, 100
disadvantages 65 genetic patents 188
private sector R&D Ghana 123–134, 129, 132–133
see also research and development global standards, implications 171–184
Caribbean 299, 300 globalization 5
Indian 111, 113–114, 115–117 India 108–117
intellectual property rights 190–191 institutions 264–265, 316–321
Kenya 144, 152 intellectual property management
LAC countries 309, 313–314, 318–319 219–234
private seed companies 201–202 intellectual property rights 108–109, 188,
privatization 220
Cameroon 157–158 investments 68–69
Ethiopian fertilizers 240, 241 Kenya 144–151
Ghana 125, 128, 131–133 LAC countries 312–322
Kenya 144 Nigeria 279, 283–291
marketing boards 72–73 standards issues 180–182
Nigeria 280, 284 surveys 6–7, 193–196, 252–255
seed industry 204–205, 206 Research Extension-Farmer-Input-Linkage
product authentication 175–176 System (REFILS) 289–290
production, African diversification 237–257 rural associations 160–161
production efficiency 49–51, 241, 243 rural credit system, Cameroon 160
productivity 99, 297, 311–313 rural development 62–66
proprietary technology 194, 195, 219–233
335