Impact of Globalization on Small-Scale Farmers In Africa: case of importation of Agricultural produces

James O. Akibon

Term paper for Special Topic in International Development

Graduate School of International Studies Korea University Fall 2011

Table of Contents
Word did not find any entries for your table of contents. In your document, select the words to include in the table of contents, and then in the Formatting Palette under Styles, click a heading style. Repeat for each heading that you want to include, and then insert the table of contents in your document. You can also create a table of contents by clicking the Create with Manual Formatting option and then type the entries manually.

1. Abstract
The primary aim of bringing Globalization into Africa is to broadening and deepening and probably integrate African economic into global market. The promoters envision, an Africa where business will be conducted without any barriers to trade with the rest of the world. Many world biggest Economy and agencies has put up many programs in assisting African farmer to be able to integrate into world systems but it has not had much impact on smallscale farming communities due to several barriers. These include transparency in implementations of those policies and method of carrying out those reforms programs. These barriers has only led to a situation where many of these small-scale community lost their livelihood as a result of importation of cheaper agricultural produces from EU and United State. There are many factors that are responsible for or contributed to the increasing in importation into many African countries. After independence many of these countries are faced with civil war, economic mismanagement, limited access to capital for infrastructures, unfavorable weather and lack of good government. But beside these limitation there are other external factors that have hinder the development of many African countries, they are subsidies, food Aid, Changes in policies of state trading enterprises (STE), Depreciation, devaluation of the currency and so on for example, the subsidies given by many developed countries, will lead to lower international prices of that commodity, make import attractive and often time lead to increase in importation in developing countries. In addition, the unfair trading by developed countries like EU and US have contributed to the challenges facing by many African countries to compete in the world stage. And again, for many of these countries to be qualified for international Aid, they were forced to follow unfavorable economic policy by World Bank, IMF and regional development agencies, which have impacted negatively on their economy.

The aims and objectives of this paper is to identify the various internal and external factors that has contributed to the emergence of agricultural import surges in Africa countries, the paper would use Ghana, West and Central African countries, Swaziland and Mozambique as a case studies. The objective will be to look at how small-scale farmers fear well inline with the external and the internal factors affecting agricultural sectors in their countries. And after that, I would make a conclusion and recommendation for future consideration. The information and cases presented in this paper were derived from FAO, Third World Network, academics, and articles in newspapers.

2. Introduction
The promoters of Globalization in Africa aims at bringing the world closer to Africa people in general and equally liberalize African market. Where business will be conducted without any barriers to trade with the rest of the world. Another reason given for Globalizing of African market is that, it will increase the volume of international trade and create or encourage Foreign Direct investment into the continent, as it will also encourage specialization of production, and there will be an increase in the volume of goods and services exchange between these nations but unfortunately, many powerful states continue to dominate international trade, though developed countries has help through programs and Aids in assisting African farmer to be able to integrate into world systems but it has not had much impact on small-scale farming communities due to several barriers. These include transparency in implementations of those policies and method of carrying out those reforms programs Africas agricultural sector is quite unique to each country as its economic contribution is important to the development and eradication of poverty in the region. The sector contribution to GDP is between 50% and above depending on the country. In some countries, agricultural sector employs more than 70% of the work force and generate more than 30% of their GDP. Many African countries are still facing many economics challenges which include rising food price and even energy price, but then a high numbers of these countries are also facing armed conflict and now the financial crisis both in EU countries and US who are the major trade partners, this together will have an impact in both food security and sustainable rural development. Over the last decades, few were able to 3

diversify their market like South Africa and few other are endowed with natural resources like Nigeria but many were not able to diversify and depend on mainly agricultural produce. But subsidies from developing countries are making things more impossible for these countries. Many European Countries, US and even China continue to heavily subsidies their cotton sectors, which has lead to overproduction. This practices by these countries, tends to lower global commodities price, leading to substantial market losses for developing countries. This practice is making many small farm owners to loose their livelihood and have affected the agricultural export of these countries. Since the introduction of Doha round in 2001, In a reaction to this subsidies issue, Brazil in 2002, appealed to World Trade Organization (WTO) on subsidies by developed countries to their farmers and in 2003, the countries submitted a set of proposal through African Group of WTO negotiators to WTO. They are urging the international community to take specific steps toward full liberalization of cotton market and removal of domestic and export subsidies. WTO responded by ordered US and other countries to remove their subsidies as its violating international trade agreement its then form cotton Sub-Committee which would address issues related to international cotton market. The World Bank estimates that the full removal of cotton subsidies and tariffs would raise the price of cotton in international markets by an average of 12.9 percent. According to ActionAid, farm subsidies in the European Union and United state are increasing the gap between rich and poor, they have undermined the lively hood of poor and small-scale farmers, encourage overproduction, distorted trade and depressed price, made US and EU farm goods artificially more competitive on world markets and resulted in dumping of cheap subsidies in poor countries. The international community has recognized some of these difficulties and has made some effort to assist these countries to overcome them. Much remains to be done by these countries themselves, however, to take advantage of the opportunities offered by globalization and to ameliorate the negative impacts of the process.

Beside the subsidies issues, the internal reforms carried out by these countries have mostly benefited the importers who see importation as more lucrative. And the exporters see the lowering of tariff barriers by consuming countries as opportunities to export their goods 4

into developing countries. The exposure of agricultural production to foreign competition has forced some producers to become more efficient. The dismantling of governmentcontrolled marketing boards has stimulated the evolution of the private sector trading networks needed in a modern economy. It is likely that, in the long-term, these changes will encourage inward investment to improve the agricultural infrastructure and to increase production of added value goods. At present, however, most developing countries have yet to see any tangible evidence of improvement.

However, In order to benefit from globalization, many countries in Africa are signatories to General Agreement of World Bank and IMF to be able to have access to international Loans and other financial opportunities but joining has lead many developing nation to debt and poverty partly due to IMF and World Bank institutional policies. Over the year their program has been highly criticized for resulting poverty and has increased dependency of African nation on richer nation. For many of this nation to be qualified for a loan or debt reduction, they have to follow stiff rules required by this international institution even though they know it might affect their domestic economic.

3.Potential Causes of Importation in Africa

In order to suggest any meaningful recommendation for implementation, one must understand why importation is increasing in the last 3 decades in Africa. This section will investigate both external and internal factors that would impact or contributes to the increase in importation in many Africa countries. 3.1. External Causes of Importation External factors are those things that can lead to increase in importation outside the border of the domestic market. Some of the external factors that can lead to increase in import for a country are; Export subsidies, food Aid, Changes in policies of state trading enterprises (STE), Depreciation, devaluation of the currency and many other more but this paper will concentrate mainly on the subsidies issue. The create an artificially competitive on world markets and resulted in dumping of cheap subsidies in poor countries, as it lower the price, make import more attractive and at the end lead to more importation. Many of these developed countries involve in this unfair trading practice because they want to keep the 5

market price low as low as possible and again protect their domestic agricultural sector from competition. Unfortunately, many of these countries cannot protect their small-scale farmers either because they are unable or because of the policies set by international financial institutions that restrict from doing such a thing.

Agricultural or farm subsidies and other domestic support given to farmer by EU and other developed countries amounted to more than $300 billion a year (FAO). This practice has made the program of poverty eradication unattainable in the next few years to come unless these countries remove and eliminate any barrier to trade in those countries. Recent evidence suggests that the elimination of trade barriers in the United States (US), the European Union (EU), Japan, and Canada would result in a 14 percent increase in non-oil exports and a 1.2 percent increase in welfare in sub-Saharan Africa (SSA). It also suggests that although the removal of these barriers would yield significant benefits to Sub-Sahara Africa (SSA), the costs to the developed countries would be insignificant because of Africans low share of international trade. (ECA report). There are some cases that have shown that agricultural subsidies in developed countries hurt small-scale farmers in developing countries let take a look at the following cases:

Case 1. The impact of US Subsidies on Cotton in West and Central African Countries

The WAC small-scale Cotton farmers, apart from the fact that they are among the lowest cost producers in the world, cotton play major roles in their economic growth and poverty reduction. The 24 countries of this region has a population of 333 millions of which more than 60% of the population leave in rural area. And again among these countries 13 of them are at the bottom of the Human Development Index. Which means, majority of the population is living under a dollar a day and most of this region depends on Agriculture for their day-to-day leaving. The World Bank estimated that about 2 millions farmers in the region produce cotton and another 10 to 16 are also estimated to be involve in cotton subsectors. According to data from the United Nations Food and Agriculture Organization (FAO), cotton production accounts for 5% to 10% of the gross domestic product (GDP) in Benin, Burkina Faso, Chad, and Mali. Cotton accounts for around 30% of total export earnings of WCA counties and more than 60% of earnings from agricultural exports The World Bank reports that over 2 million farmers in the region produce cotton.

In recent years most Africa countries is growing at the rate of 5% or more but the WAC region is still facing many economics challenges which include rising food price and even energy price, but then a high numbers of these countries are also facing armed conflict though is getting better this days compare to the past and now the fallout of the financial crisis both in EU countries and US this together will have an impact in both food security and sustainable rural development. With all these problems in mind, one would have thought, establishing a workable ways in which to add to increase incomes from cottons and increase poverty reduction through cotton and other agricultural production would have been options but the fall in world price of cotton in the last few years due to subsidies from the west has made it difficult for this countries.

Many European Countries, US and even China continue to heavily subsidies their cotton sectors, which has lead to overproduction. This practices by these countries, tends to lower global cotton price, leading to substantial market losses for developing countries especially WAC countries as they cannot protect their farmers through subsidies, this resulted in a situation where a number of WAC farmers are driven out of business because cotton production is no longer profitable for many of them without government help. In a reaction to this subsidies issue, Brazil in 2002, appealed to World Trade Organization (WTO) on subsidies by developed countries to their farmers and in 2003, WAC countries submitted a set of proposal through African Group of WTO negotiators to WTO. They are urging the international community to take specific steps toward full liberalization of cotton market and removal of domestic and export subsidies. WTO responded by ordered US and other countries to remove their subsidies as its violating international trade agreement its then form cotton Sub-Committee which would address issues related to international cotton market. The World Bank estimates that the full removal of cotton subsidies and tariffs would raise the price of cotton in international markets by an average of 12.9 percent.

In the last two decades, going by the FOA figures, WAC is the third largest exporter of cotton fiber after United State and Uzbekistan. The increase in production was attributed to the liberalization of agricultural sectors, as most of these countries has implemented Structural adjustment policies as recommended by IMF and World Bank, many of these economics reforms have not made much impact on price, as producers price in developing countries, especially WAC stayed on average compared to the world. 7

A good example would be a village in Burkina Faso called Logokourani, like any rural area in WAC countries; cotton is their source of livelihood, and according to FOA, cotton is the major source of income for many inhabitants, its help build their school and help keep children at schools. Due to large percentage fall in world cotton price, the villagers are moving to other part of the countries as cotton production is becoming less lucrative.

Case 2. Subsidized Italian Tomato into Ghana Market

Like any other Sub-Sahara Africa countries, Agricultural sector remains source of revenue for Ghanaian government and according to TWN report, Agricultural accounts for over 40% of GDP and employs most of the labor workforce, the sector employing more than half of the working population either formal or informal basis and equally accounted for more than half of the export earning, the country produces a variety of agricultural crops which includes, yams, grains, cocoa, oil palms, kola nuts and timber forming major source of income for the government. Following up with the recommendation of the IMF, and the World Bank, the government began economic reforms in 1983, the reforms that saw removal of government price control, raised price of cocoa and the removal of subsidies from fertilizers and other inputs. According to Khor M, 2006 the removal of subsidies from fertilizers and other inputs has resulted in dramatic decline, particularly fertilizer use with this development many farmers are faced with fewer incentives to produce as well as with general lack of good infrastructure and services.

In the 1960s, in order to develop the Upper Ester region of Ghana, the poorest region, the government assisted farmers by building a tomato cannery, which is a tomato processing plant, establishment of Dams and irrigation for projects that facilitated water supply to tomato subsectors and other agricultural sectors, this idea was met to generate more demand for surplus tomato of the farmers and equally make tomato cultivation more attractive. According to TWN report, the Ghanaian government found itself in a dilemma as its has to complied with the IMF conditionalitys in order to be qualified for the HIPC programme for debt reduction. So during 1980s and 1990s, the government embarked on serious privatization, deregulation and liberalization, selling the government owned three tomato-canning factories and then reduce tariff on importation of tomato,

The market liberalization by the government resulted into surge in importation of processed tomato from European Union, Ghana importation from EU increase by 628% between 1993 and 2003 Khor M, 2006. The major reason for increase in importation was mainly due to subsidized processed tomato from Europe, which guarantee exporter cheapest price and according to TMN, processed tomato in EU receive approximately c.300 millions per year in direct subsidies and several million more indirectly. These increase in importation greatly affected the livelihood of common farmers, traders and industry employee in the region. As the domestic processing plant collapse, there was a drastically reduction in tomato production in the region

In an effort to save the local tomato sector, in 2005, the government embarked on several measures to curb the surge of importation and to be able to help the farmers to get back on their feet but with no avail, all effort by the government didnt yield any tangible result. In another effort, the government promised to facilitate farmer access to loan for seed and fertilizer and to be able to rent extra land for production, many farmer applied for loans and when production started they soon found out that the lack of electricity, good roads was going to hurt local production. failure to secure market for their farm produce by many farmers lead to frustration and attempt on suicide through self-poisoning Francisco J. Mari Roeline K, 2007.

Case 3. The effect of EU Subsidies on Swaziland Sugar Industries

For many developing countries like Swaziland, Sugar is an important crop for their key export earning, sugar is one of the agricultural sector where they have a unique cost advantage over European Union. In Swaziland, Sugar accounted for 59% of agricultural output, 35% of agricultural wage employment, contributes 18% to the countrys GDP, 58% of Swaziland to EU and created about 100,000 jobs but due to EU subsidies that limit the significant export potential of Swaziland sugar producers, the aim of this subsidies is to price out potential competitors and to protect EU market. And again, most European countries produce more than their primary market so they are dumping the rest at a cheaper price to African market. The Swaziland was further damage with EU introduction of new trade rules by placing high tariff on sugar produce outside Europe. This show that, the rules and policies of the WTO, the IMF, the world Bank and other regional development banks has only encourage developing countries to open up their market, eliminate subsidies to 9

their agricultural sectors but support developed countries to close their agricultural market and subsidies it.

Since the inception of the EU as a union, ACP and EU countries have unique trade relationship with each other. The EU has been allowing ACP countries to supply a fixed quantity of sugar to the EU at the price which match those European producers, but as many may know the price of African is three and half higher than those of EU producers, which put them into unfair disadvantage. As an 18 countries of ACP countries enjoying the preferential treatment under EU, Swaziland has an annual import quota into the EU of approximately 117,000 tonnes and relatively little EU sugar is exported to the country (FAO)

The subsidized sugar from EU flooding Africa and Swaziland Neighboring countries has contributed to Swaziland export of sugar to EU and other countries declining as EU and British companies are capturing those markets. The effect is that Domestic companies are forced to unplanned liquidation and loss of jobs

3.2. Internal Causes of Importation

As narrated above, increase in Agricultural produces in developing countries are usually attributed to external factors, especially export subsidies and highly concessional export credits from high income countries, disruptive surplus disposal in the form of food aid shipments, However, many evidence has shown that, in some instances, the underlying causes of increase in importation are found within the countries themselves. Some of the internal factors are: Production shortfalls are one of the most likely causes of short-term import surges, Measures taken by government to liberalize the domestic market may also lead to import surge, Reductions in tariff and non-tariff barriers to trade, particularly following the launch of the Uruguay Round Agreements, may have increased the frequency of import surges especially in developing countries and so on. As conditionality for Loan assistance, the World Bank often require these government to liberalize their market so that they can enjoy the benefit of free market but manner and method in which this policies or reforms are carry out often lead to more hardship rather than benefits. Some of the requirements to be able to get IMF and World Bank loans are; liberalization of the

10

economy, which entails export, oriented open market and privatization of the domestic industries to minimize state roles and to be attractive to foreign investors various regulation and standard are required to remove or reduce. And when these governments embark on these reforms, without full knowledge of implementation, the result is not always favorable. Let take a look at the following case;

Case 4. Mozambique and the Cashew Nut Sector

For Mozambique, Cashew has always been the major cash crop, though they equally have timber, copra, cotton and so on. The potential is very high as agriculture employs more than 80% of the workforce and provide livelihood to the vast majority of Mozambique population. Agriculture sector contributed 31.5% of the GDP in 2009. Cashew production has been really important to Mozambique throughout much of the twentieth century (McMillan, 02), the country at the time became the first African country to process cashew on the large scale. During the colonial period the Portuguese promoted cashew cultivation and Mozambique established itself as the world leader in cashew production but after independence, cashew production went into long decline, which was partly due to government policies, civil war that affected both production and processing

According to McMillan, 02, even during Mozambique most successful years, the cashew industries has been highly regulated as Portuguese established a producers prices and marketing margin throughout the cashew marketing chain and after the independence the government continue to regulate cashew industry. In the 80s government started what they called Economic Rehabilitation Program (ERP), it was a structural adjustment program with the World Bank, the aimed of the program was to decrease overall government control of the cashew industry along with other products, in relation to the Portuguese during the colonial era, the government established producer price and minimum producer price system which started implementation in early 1990s. As a conditionality for Loan assistance, the World Bank required the government to further liberalize cashew marketing and exporting, while World Bank and government agreed that liberalization and privatization were appropriate, but both didnt agreed on the time and extent of the reforms, The Bank favored an immediate and complete elimination of the tax, while the industry favored a gradual and partial reduction. (McMillan, 02). Even though government recognized the impact of privatization and liberalization on the industry they ignored 11

domestic opposition and followed World Bank requirement as its depend on continue support from the institution. As one of the poorest countries in the world, international Aid accounted for 60% of its GDP; in addition, they complied with World Bank liberalization policy to be qualified for HIPC debt relief.

At the end of the 1990s, the liberalization has resulted into many factory been closed down and more than 10,000 jobs been lost, in a small town of Angoche, the three factories that employed more than 3000 workers was closed and with privatization, worker lost their social service, such as health care and child-care for workers.

4. Conclusions and Recommendation

This paper has shown that experience of African countries toward Globalization has not been favorable. The concept has become more of a threat to the poor than an opportunity for global action to eradicate poverty. the initial promise that Globalization will bring the world closer to people of the region especially small- scale farmers who thought liberalization of the market by government would increase their international market share but later found out that their livelihood has been lost in the process. We have seen cases where farmers made an attempt on suicides as a result of failure on the part of government to shield them from cheap importation from the international market. Arguably, Globalization has many benefits of its own but its create few winners and many losers as many countries is now witness a surge in poverty level within their countries.

As mentioned above, there are many factors that are responsible for or contributed to the increasing in importation into many African countries. There issues of external factors such as subsidies for example, the subsidies given by many developed countries, which has resulted into lower international price of that particular commodity and then make import more attractive and often times lead to increase in importation in developing countries. In addition, the unfair trading by developed countries like EU and US have contributed to the challenges facing by many African countries to compete in the world stage. And again, there are some internal factors also that have contributed to the reasons why African nations end up importing rather than exporting, some of these internal factors are; Production shortfalls in those countries, Measures taken by government to liberalize the

12

domestic market has led to more import and reductions in tariff and non-tariff barriers to trade.

So the question is whether if trade barriers, protectionism, agricultural subsidies and dumping went away, would Africa be the one to benefit? The answer would still be No, as many African countries would still be producing few primary commodities, and have problems with processing, market information, and lack of infrastructures. In other words, it would lack capacity to trade. So the international community needs to continue special arrangements for the poorest countries while they develop the capacity to trade.

If international community really cares about African development as they claimed, they must get rid of all the problems they are causing by reducing barriers and protectionism, subsidies and dumping. Removing or reducing subsidies and barriers would increase export for these countries, which would improve their GDP. So that the local factories that are currently short down due to high import competitions can be revive.

It is easy to blame international community by African government for Africa woe and problems, African governments needs to invest heavily in designing its own trade strategies, ensure that its capacity needs are included in any international negotiation in order to attain greater benefit for its people. They must analyze for itself the antipoverty benefits of trade increases, and reform when necessary.

Many other research has shown that, African countries trade with each other is very low compare with trade with EU, US and other countries so they need to open their market for each other so that they can increase trade with one another. Since most African has similarity in most issues, trading with each other more will solve most of their problems. Since they understand each other more than outsiders.

13

References;

Alvin Powell - http://news.harvard.edu/gazette/2003/03.06/01-cashews.html

Farmgate: the developmental impact of agricultural subsidies, ActionAid

FAO (2003). - Some Trade Policy Issues Relating to Trends in Agricultural Imports in the Context of Food Security. Committee on Commodity Problems: Sixty-fourth Session. Rome, 18-21March, 2003.

FAO; WTO Agreement on Agriculture: The Implementation Experience - Developing Country Case Studies, Rome, 2003

Francisco J. Mari R, Knottnerus, The struggle of tomato farmers in Northern Ghana

Importance of the Sugar sector to Swaziland economy

http://www.ssa.co.sz/index.php?option=com_content&task=view&id=110&Itemid=84

Kevin M C, and Graeme D W, (1995) Agriculture Poverty and Policy Reform in SubSaharan Africa World Bank discussion papers Africa Technical Department Series 280 World Bank Washington, D.C.

Khor M, (2006) The impact of Globalization and Liberalization on Agriculture and Small Farmers in Developing Countries; the Experience of Ghana, Third World Network (TWN) McMillan et al (2003): When economic reform goes wrong: cashews in Mozambique, Brookings Trade Forum, pp. 97-151

14

The Doha Round and African Development ECA Position Paper Series, September 2003

The reform of EU sugar sector; implementation for ACP countries and EPA negotiations: SOUTH CENTRE

Mohamed A. Chemingui, Mohamed H. Bchir, Hakim B Hammouda: Multilateral Agricultural liberalization: Whats in it for Africa?

15