Making Trade Work for Hungry and Poor People

By Michele Learner

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In the Ashanti region of Ghana, in West Africa, cocoa is the main crop. Now that the local Kuapa Kokoo cocoa cooperative is working with trade partners in developed countries, it is able to pay its 35,000 members a fair, guaranteed minimum price for their cocoa. Under the agreement, an additional sum is invested in community development projects.

"We rely on the money we get from cocoa for everything: for food, clothes, medicines,” cocoa farmer Lucy Mansa said. “When we didn't get paid, we went without. Kuapa Kokoo pays all its farmers a fair price for their crop, in cash and on time. I am very happy. Since I joined Fair Trade, I can afford to send my children to school."

Mansa's village also has new wells, built with fair trade community development funds. Women and children can now collect clean water nearby, rather than walking miles to fetch water from rivers and waterholes that are shared by animals.

Realizing that fairer trade can make such a difference, some organizations in the United States and Europe have established fair trade initiatives that work directly with farmers in developing countries. It is becoming increasingly clear that establishing fair trade rules is important to hungry and poor people.

Trade, Hunger and Poverty

To achieve our goal of ending hunger in God's world, Bread for the World focuses on the root causes of the problem. Working faithfully since 1974, Bread for the World members continue to win significant improvements in public policies that affect hungry and poor people around the world – increasing development assistance, targeting funds to poverty reduction, and securing debt relief so that poor countries can spend more of their money on nutrition and health care.

International trade is another key component of the fight against hunger, as the example from Ghana demonstrates. Trade policies have a powerful impact on whether many of the world's poor people are able to support their families. Bread for the World Institute's 2003 Hunger Report, Agriculture in the Global Economy, explored the connections between the global agricultural trade system and hunger, finding that many current trade rules are stacked against developing countries. International trade issues can be both complex and controversial, but Bread for the World is focused on a specific goal: making trade a more effective tool for reducing poverty.

In recent years, governments and citizen groups have begun to pay more attention to the relationship between trade, development and poverty reduction. For the first time, developing countries are at the forefront of the current round of trade negotiations being conducted by the World Trade Organization (WTO).

Making the Rules Fair

From the perspective of poor people in developing countries, two much-needed improvements in the international trade system are:

• Ending trade-distorting agricultural subsidies; and
• Removing barriers to the markets of industrialized countries.

It is crucial to have fair global agricultural trade rules. Nearly three-fourths of all people living on less than $1 per day live in the rural areas of developing countries and work primarily in farming. Ultimately, poverty reduction depends on increasing the amount that these small-scale farmers can grow and improving their opportunities to sell products at a fair price.

Industrialized countries, however, subsidize their own production of agricultural commodities (such as cotton, corn and wheat) in ways that distort international trade. This harms farmers in developing countries whose livelihoods depend on these crops. Producers who receive significant government subsidies do not have to depend solely on the income from selling their goods. They can afford to sell them at artificially low prices, forcing world prices down. Between 1997 and 2001, for example, world cotton prices fell by 39 percent and wheat prices by 20 percent, largely as a result of subsidies paid to large farms in the United States, Canada and Europe.

Even with lower production costs, small-scale farmers in Africa cannot beat these prices. Trade-distorting subsidized commodities can prevent farmers from selling their goods locally and nationally at a price that covers their expenses -- or at all. In 2004, industrialized countries spent $279 billion to subsidize their agricultural products, although not all of these subsidies distorted international trade. This was six times as much as the $50 billion devoted to development assistance that year.

A second major step toward fair international trade rules is to give developing countries greater access to markets in industrialized countries. One of the goals of trade negotiations is to lower barriers to these markets. Agriculture is the major – sometimes the only – source of export earnings for many poor countries. These countries want to sell their goods in the United States and European markets.

There are a host of barriers, however, that often prevent this from happening, including tariffs – essentially a tax added at the border when goods come into a country. Tariffs are generally placed on goods to protect a country’s own producers by making imports more expensive. A common criticism of tariffs is that their cost falls disproportionately on poor people. The highest tariffs in the United States are on food and textiles. These are the things most often exported by developing countries and the things that make up a large percentage of the expenditures of low-income people. As such, they are doubly harmful to poor people.

Tariffs often increase each time an imported product includes an additional level of processing. For example, U.S. tariffs on imported shelled almonds are more than three times as high as those on unshelled almonds. Such policies create steep barriers that can trap poor countries in the role of basic commodities suppliers.

Trade and the Rural United States

Some people in the United States worry that changing our agricultural trade policies will threaten the survival of family farms and damage the economies of our country's rural areas. Yet many also recognize that trade-distorting agricultural subsidies and high tariff barriers on basic commodities harm farmers in poor countries who are struggling to support their families.

In Bread for the World's view, current U.S. farm policy is not the best way to help rural America. The vast majority of people in the rural United States do not live or work on farms. Agriculture now employs less than 8 percent of all rural workers. Thus, many major problems in rural areas cannot be solved by agricultural policies alone, whether they focus on small farms or large ones. Instead, problems such as population loss, poor access to health services, and lack of employment opportunities must be addressed with strategic, creative investments in rural economic and social development.

Farm subsidies reach only about one-third of all U.S. farmers. Seventy percent of the subsidies go to 10 percent of the largest growers. Few producers of fruits, vegetables, poultry or livestock receive any direct government support. Sixty percent of our families receive no subsidies at all. See the chart at (left/right) for details on where the bulk of U.S. government-funded agricultural subsidies are going: the largest farms get most of the support.

Our 2005 Hunger Report, Strengthening Rural Communities, identifies some strategies that have proven effective. Current U.S. agricultural policies are not doing the job needed to help struggling families and communities in rural areas. The system needs to be changed. Farm payments need to be redirected to provide credit, small business opportunities, and better services to help our struggling families and communities in rural areas of this country.

“America’s rural communities and rural people around the world have one thing in common: They are more likely to be hungry and poor than other people in their country,” said David Beckmann, president of Bread for the World. “People in rural areas are cut off from opportunity. Governments regard them as a low priority.”

Our government must provide resources to help people in transition, because overall, both rural communities in the United States and small farmers in poor countries stand to gain from reform of U.S. farm and trade policy. It need not be an “us against them” scenario. Instead, it could be a "win-win” situation, with new markets and increased economic opportunities both here and overseas.

Moving Forward on Trade

The current round of WTO trade negotiations began in Doha, Qatar, in late 2001. It has been called the Doha Development round because it spotlights how to make trade an instrument of development. For the first time, trade negotiations have attempted to focus on helping low-income countries benefit from trade and lift themselves out of poverty.

Just prior to the most recent Doha talks in Hong Kong in December 2005, Bread for the World organized a meeting of 13 Christian (Catholic and Protestant), Jewish and Muslim religious leaders with Secretary of State Condoleezza Rice. The religious leaders expressed support for the reduction of trade-distorting subsidies to agriculture – the first time such an expansive group has spoken out on trade’s impact on poor countries.

The Hong Kong meeting made only modest progress. The 160 nations involved have agreed to meet again before April 30, 2006. It is important that significant progress be made in 2006 on trade. If the negotiations do not achieve a breakthrough this year, substantial changes in trade policies will probably be delayed until after the United States’ 2008 presidential elections.

Fairer trade rules must go hand in hand with increases in poverty-focused development assistance. Both are essential to reducing hunger and meeting the other Millennium Development Goals. Bread for the World's 2006 Offering of Letters, One Spirit. One Will. Zero Poverty., seeks a significant increase in poverty-focused development assistance. This will remain the primary focus of BFW activists throughout the year. With more development assistance and new trade opportunities, countries like Ghana and farmers like Lucy Mansa have a much better chance of fighting poverty in their communities and for their families.

To learn more about trade and poverty, read Bread for the World Institute's new newsletter, Trade Matters.