Sowing Free Trade in Cancun


Economic News

22 Jul 2010
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The latest and, according to many observers, most important meeting in the ongoing Doha Round of global trade talks opened in Cancun, Mexico on September 10th. As trade ministers from the World Trade Organisation’s member states arrived for what promised to be a tough week of discussion and debate, agricultural subsidies - that most stubborn of free-trade barriers - was on everyone’s mind. Almost two years after it was opened in the Qatari capital, the Doha Round has accomplished little. Farmers have proven a most resilient bunch and their sway in many of the world’s leading industrial countries threatens to undermine the wider aims of global free traders.

The meetings tackle a range of issues, but negotiations leading up to the Cancun talks, not to mention previous disagreements about how to overcome the last and highest hurdles to free trade, focused attention on agricultural subsidies. Rather than duties or import quotas, it is the wide-spread habit of domestic subsidies and price support mechanisms that undermine the ideal of a truly competitive global agricultural market.

Failure to make meaningful progress at Cancun would undermine not just the aims laid out in Doha, but could set back the free trade agenda for years and inadvertently champion the anti-globalist lament that international trade, as it is practised today, is anything but free and fair, benefiting the world’s rich countries at the expense of the poor.

For Turkey, which lies somewhere in the middle of that spectrum, a more open global agricultural market offers plenty of promise, but still requires considerable reform. Turkish agricultural exports generally range between USD 6bn and 8bn per year, often twice as large as its imports.

The Doha Round is supposed to be about helping the world’s poor and the large majority of Turkey’s poor live in rural areas and rely on agriculture to make ends meet. Ankara has also set exporting its agricultural products as a central element in its anti-poverty policies.

Turkey is far from a model free-trader, using subsidies, tax credits, guarantees, and more to promote its farmers. Many of these long-standing policies and programmes, however, have been scaled back in recent years and Ankara has planned further steps along these lines.

Turkey is in many ways ahead of the game. Reforms required by the World Bank and the IMF have not only brought Ankara in line with the EU’s Common Agricultural Policy (CAP), but have made Turkey an example for protectionist Europe.

According to a 2003 study published by the OECD, the average monetary value of gross transfers from consumers and taxpayers to agricultural producers as a share of gross farm receipts was 35% in the EU. That figure is only 25% in Turkey, while Japan, meanwhile, one of the world’s most egregious violators of the tenets of free trade, has a rate of 60%.

While the government has yet to abolish all forms of support, it is making progress. Take sugar and tobacco, for instance - challenging sectors to say the least in a country where tea is drunk by the gallons and smoking is a national past time.

Despite their best efforts, Turks cannot consume all of the tobacco their farmers produce. The past few years have seen the country’s supply outpace both domestic and international demand by as much as 100 000 tonnes per year. TEKEL, the state-owned cigarette producer, buys approximately 70% of the total amount produced, despite requiring only about 50%. Meanwhile, the state is sitting on tobacco stocks large enough to satisfy domestic demand for the next five years. In 2000 alone, the government spent USD 2.5bn supporting tobacco prices.

In an attempt to end such improvidence, the government has begun withdrawing some of its support. Sure enough, the amount of tobacco grown has started to fall. Plans to introduce a more competitive bidding system are also underway and beginning in 2004 TEKEL will have to enter the market like any entity looking to buy Turkish tobacco.

Reforms in the sugar industry have been even more ambitious. Until recently, the Treasury had provided sugar cooperatives with loans that were then used to buy sugar beet from Turkish farmers at prices often 3 times the world market average. In response, many local companies began importing sugar from abroad. In the face of falling revenue, the cooperatives defaulted on the loans, leaving the Treasury to cover the loss, as high as USD 600m in 2000-2001.

In response, the government will no longer set price floors or support prices through purchases as of next year. Sugar beet prices will be determined by agreement between producers and/or representatives of cooperatives and sugar factories, many of which are in the process of being privatised. The hope is that the removal of price controls will help spur further factory privatisation.

Ankara has also introduced the “Alternative Product Support” programme, which aims to transfer the excess supply of products such as tobacco, hazelnut and wheat to products suffering from a domestic supply deficit by offering farmers financial support to make the switch.

A June 2000 law seeks to make agriculture sales cooperatives and unions more independent, while limiting their ability of cooperatives to set prices. These cooperatives are also being decoupled from government agencies. This has not proven easy, however, as cooperatives occupy a crucial position within the sector. Because Turkey’s agricultural sector consists mainly of small and fragmented farms, farmers see the cooperatives as an indispensable means of protection against lower prices, as well helping determine prices and assuring relatively homogenous quality standards. Not surprisingly, the law is being eased in over a four-year period.

Finally, Turkey’s Ziraat Bankasý (Agricultural Bank) is also being down-sized and is slated for eventual privatisation.

But the process remains painful. In addition to the instability caused by the needed reforms, volatile exchange rates, persistent production inefficiencies and insufficient infrastructure for bringing goods to market, Turkish farmers have been hurt by recurring financial crises over the past few years.

Well aware of the potential impact increased agriculture trade could have on poverty, Turkey is likely to push the protectionist in Cancun. In fact, the success of Turkey’s most ambitious, and expensive, anti-poverty venture - the $32bn South-eastern Anatolia Project (GAP) - might very well depend on the success of the Doha Round. Based on a series of dams, hydroelectric power plants and irrigation projects, the GAP seeks transform the country’s poorest region through an integrated development scheme based, in large part, on expanded agricultural production and related agro-industries, such as textiles, vegetable canning and roping.

According to the GAP Regional Development Administration (RDA), the project should generate an additional USD 3bn of agricultural benefits once all its irrigation projects are complete. But Turkey has already reached agricultural self-sufficiency. Any benefits offered by the GAP rest on the government’s ability to export the fruits of its labour. An international airport with the largest cargo-carrying capacity in Turkey is currently under construction in Þanliurfa, which officials hope will promote the city as a portal to markets in both Europe and the Middle East.

With 17% of GDP, 20% of exports and 40% of the labour force accounted for by agriculture and Ankara’s export-oriented strategy for the future, real progress in Cancun would be a boon to the Turkish economy. But truly free trade, with all its rational legitimacy, is a tough thing to sell to farmers back home. Recent reforms have edged Turkey closer to fulfilling that ideal, but the toughest challenges remain ahead. And as only one of 146 countries in attendance, the future of Turkey’s agricultural sector is less in the hands of others as much as its own.

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