Copenhagen, August 24th 2005

1. Trade policies to address vulnerability of
the poor and opportunities for
complementary actions
Joachim von Braun
Director General
International Food Policy Research Institute
Copenhagen, August 24th 2005

2. Overview of the presentation
 Conceptual background of the impacts of
agricultural trade policy reform on the
agriculture and food sector
 Emerging results from recent empirical
studies
 Suggested policy actions to mitigate
vulnerability to trade shocks

3. Conceptual background
TRADE REFORM
LEVEL OF PRICES PRICE VOLATILITY TAX REVENUE
Access to
Domestic Taxes and
Markets Regulations
CONSUMER AND
PRODUCER PRICES

4. Conceptual background (Ctd.)
 Vulnerable households: those “likely to be
pushed below (or deeper below) a pre-
defined welfare threshold”
 Rural poor are vulnerable to agricultural trade
reform due to:
 Dependence on the agricultural sector for income
 High share of income spent on food
 Lack of physical assets, skills and access to credit and
insurance

5. Conceptual background (Ctd.)
 Different types of poor households (Orden et.
al 2004):
 Most marginalized farmers engaging in
subsistence farming
 Farmers producing for local and national markets
 Globally competitive, market-oriented producers
of cash crops

6. Conceptual background (ctd.)
Source: Orden, Torero and Gulati (2004)

7. Conceptual background (ctd).
Bifurcations of world agriculture
Agricultural Domains Dominant Marginal
Farms Large Small
Agro-ecologies Sustainable Non-sustainable
Using advanced
Technologies Little connected to science
science
Markets Integrated Fragmented
Agro-industry Competitive Noncompetitive
Consumers Rich Poor
People directly affected Few Many
Source: von Braun 2004

8. Overview of the presentation
 Conceptual background of the impacts of
agricultural trade policy reform on the
agriculture and food sector
 Emerging results from recent empirical
studies
 Suggested policy actions to mitigate
vulnerability to trade shocks

9. Emerging results from recent empirical
studies
 Current knowledge of agricultural trade reform
impacts at the household level is rather limited
 Relatively new issue
 Requires analysis of complex linkages
 Lack of consensus on measurement of “trade openness”
and “poverty”
 Lack of comparability between different studies
 High variability of approaches based on
 Characteristics of particular countries studied
 Analytical interests of authors

10. Emerging results (ctd.)
Percentage change in poverty head-count in Brazil and Chile
(by income stratum)
Non-
Agriculture Labor Transfers Diversified Total
agriculture
Brazil -14.8 2.6 1.6 0.2 -2.5 -0.6
Chile -31.2 5.0 4 1.2 -1.9 -1.7
Hertel, Preckel, Cranfield and Ivanic 2003

11. Emerging results (Ctd.)
Rural poverty indices in a full liberalization scenario
(% change from base)
Poverty
headcount Poverty gap Poverty severity
index
Indirect Income Indirect Income Indirect Income
tax tax tax tax tax tax
Low education
0.30 0.83 1.01 1.56 1.27 1.96
salaried
High education
1.02 1.55 0.29 0.86 0.35 0.99
salaried
Civil servants -0.81 0.00 -0.24 0.40 -0.28 0.49
Low-education,
O.20 0.61 0.36 1.07 0.46 1.37
self/unemployed
High education,
0.00 0.73 0.05 1.03 0.08 1.36
self/unemployed
Family business 0.00 0.00 0.45 1.45 0.50 1.64
Total 0.20 0.63 0.47 1.17 0.58 1.47
Source: Cororaton, Cockburn and Corong 2005

12. Emerging results (ctd)
 All authors agree that
(1) agricultural trade reform will provide the most
significant gain in terms of welfare benefits
(2) Some households will gain from agricultural trade
reform, but others will loose
NEED FOR
COMPLEMENTARY ACTIONS

13. Overview of the presentation
 Conceptual background of the impacts of
agricultural trade policy reform on the
agriculture and food sector
 Emerging results from recent empirical
studies
 Suggested policy actions to mitigate
vulnerability to trade shocks

14. Suggested policy actions
 Better anticipation of trade policy reform
impacts on the most vulnerable
 Social risk analyses
 stakeholder and institutional analyses
 Importance of sequencing policies
 Need for macroeconomic adjustments before
trade reforms are undertaken
 Need for micro-level policies before and during
trade reform to support vulnerable populations

15. Suggested policy actions (Ctd.)
 Macro-level adjustments
 Strengthening of domestic markets
 Insure competitive market structures-
 Invest in infrastructure and transportation to enhance
price transmission
 Fiscal policy
 Improve tax administration and collection
 Tax replacement- need to be progressive

16. Suggested policy actions (ctd.)
 Micro-level interventions
 Enhancing the abilities of vulnerable households
to take advantage of the new opportunities
 Improve access to new technologies
 Improve access to markets
 Assist households to diversify their income portfolios
(i.e. enhance labor mobility through access to
educational opportunities)
 Improve infrastructure and transportation for better
access to markets, new technologies and to enhance
labor mobility

17. Suggested policy actions (ctd.)
 Micro-level interventions (ctd.)
 Preventing short-run disruptions in income and
consumption
 Provide social protection
 Labor market interventions
 Direct income transfers
 Price and tax subsidies
 Provision of financial services to improve access to
credit and insurance mechanisms