Root cause /Looking ahead/Recommendation 18

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Trade liberalisation in Haiti was both misconceived and mismanaged.

It has devastated the
livelihoods of poor families, who can never be adequately compensated.

However, the bigger
question for Haiti is: `What now?' While the World Bank does sometimes talk about why some
countries might not benefit from trade liberalisation, there is still no serious discussion about
what to do after the damage is done, nor any support or alternative strategies.

This is a
pressing debate for Haiti (and other countries) which needs some serious thought.

What is the
way forward for a developing country's agriculture sector?

Can it ever recover in an open
market without various measures of targeted state subsidies, support and/or protection?

The international financial institutions are currently re-engaging with Haiti through the
development of the Interim Cooperation Framework and, with a poverty reduction strategy
paper (PRSP) process anticipated in the country, this is an appropriate time to be having this
debate.

As close to four-fifths of Haiti's extremely poor still live in rural areas,
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it is essential
to look at rural poverty and agricultural development.

While some trade liberalisation
advocates in Haiti feel that agriculture is a doomed sector, it is clearly one that cannot be
ignored.

Instead of a real debate on the position of the small farmer, the standard mantra of supporting
agribusiness and creating low-wage manufacturing jobs has generally been repeated.

It has
been proposed that Haiti should focus on low-wage, low-skill manufacturing in free trade
zones.

However, the number of jobs in this sector has been declining since liberalisation: the
Ministry of Economy and Finance's last industry survey found that the number of jobs
provided by the sector in 1999 was 18,927 ­ hardly an impressive total.

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The ministry also
describes it as the sector with the least value added and the lowest annual wage, compared
with other industries in the country.

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Current discussions by the major donors involved in the Interim Cooperation Framework do
not give agriculture the attention it deserves, prioritising instead tourism and free trade zones.

Given their lacklustre performance, low value added and low wages, it is already clear that
free trade zones are not going to provide Haiti with the answer to its problems.

In addition,
Haiti's deficient infrastructure means that any strategy to address tourism will need huge
capital investment and is unlikely to be pro-poor in any significant way. It will instead have
much more in common with the industry in the free trade zones, relying on significant amounts
of foreign investment to provide a small number of poorly paid, low-skilled jobs. At the same
time profits will be transferred out of the country and the sector will rely to a large extent on
imported inputs (luxury foods, interior fittings and equipment, construction machinery etc), with
few links to the local economy.

It is right to be extremely sceptical of a strategy which highlights free trade zones and tourism
over agriculture, the domain of the majority of Haiti's poor. It ignores the fundamentals of
poverty in Haiti and means that a real commitment to much-needed agricultural development
will be side-stepped once again.

Serious investment in agriculture is needed to right the
wrongs of the past, raise the productivity of small farmers and reduce the alarmingly high
levels of poverty in the country.

Ideas abound in Haiti on how the agricultural sector could be effectively supported.

The
following is a summary of Christian Aid's recommendations which have been informed by
interviews with a range of public, private and non governmental actors:

1. Serious investment is needed to implement a coherent agricultural development policy.

Donors involved in the Interim Cooperation Framework and any subsequent PRSP must
give agriculture a much higher priority.

It is regrettable that Haiti, like many other
developing countries, suffers the same diversion of aid resources away from productive
programmes, towards activities such as auditing public enterprises to prepare them for
privatization or making the country more attractive to foreign investors to invest in free
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trade zones.

If poverty reduction were a real priority, raising the productivity and incomes
of small farmers would be much higher on the donor agenda.

2. A coherent agricultural development policy should address problems related to credit
provision, technical assistance to small farmers, investment in infrastructure and transport,
support for marketing and the provision of necessary inputs, including irrigation systems.

Many of these needs could be addressed through public infrastructure projects, without
even entering into the subsidy debate.

However, it is also worth noting that Haiti has
considerable space to manoeuvre under WTO rules.

Like all developing countries it can
provide up to 10 per cent of the total value of its agricultural production in agricultural
subsidies.

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Therefore, Haiti could increase domestic support for small farmers without
breaking any international commitments.

As with many developing countries, the problem
comes down to limited resources and the choices which are made in resource allocation.

Donors and the Haitian government would have to make a real commitment to revitalising
the agriculture sector ­ something which has not been seriously discussed to date.

3. Restructuring Haitian agriculture should include the development of regional
specialisations in areas where Haiti has natural advantages of climate, terrain and soil
(eg organic products), and can access particular niche markets.

This will often imply
accessing export markets, but may also include creating pockets of competitiveness
where farmers supply the local market.

(In many such cases, and generally depending on
the altitude, import competition may not be a problem for these farmers).

There are
currently various donor programmes which are looking at such niche sectors ­ for example
the USAID Hillside Agricultural Programme is looking at yam, malanga, pumpkin, peppers
and the creation of export supply chains;
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the IDB is looking at vegetables, fruits and
coffee.

Needless to say, to ensure the pro-poor focus is maintained, one of the key
criteria for the development of regional specialisations should be that small farmers benefit
directly.

The development of agro-businesses should complement such strategies, not
replace them.

4. Given Haiti's increasing trade deficit and the fact that over 80 per cent of export earnings
are used to import food, it is highly advisable, purely from a balance of payments
perspective, that the Haitian government pursue an explicit strategy to reduce food
imports and replace them with national production.

Currently the balance of payments is
supported by remittances and aid flows, so it does not appear to be a serious problem.

However, the problem is more subtle: Haiti's current viable balance of payments is only
consistent with miserable incomes.

A strategy to increase incomes will lead to a rise in
imports and will worsen the balance of payments, making the situation unsustainable.

Addressing this issue will become necessary at some point: it would therefore be
advisable to implement a long-term strategy to reduce the trade deficit by replacing food
imports with national production.

5. With regard to regional specialisations, some work is already underway, with the potential
to be successful within the current macroeconomic structure.

But there are, of course, also
geographic areas where the potential for production is more limited.

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It is therefore
unavoidably the case that in some areas of Haiti farmers will have to produce crops for the
local market which will inevitably compete with imports.

It is indispensable that such poor
producers are not penalised by the fact that they have few production choices and have
to compete with imports.

Alternative development strategies are needed for these
producers, and the Haitian government needs to be able to apply more flexible policy
options.

Haiti has room for manoeuvre within its commitments to the WTO, as its
agricultural bound tariffs are much higher than the tariff levels which are current applied ­
up to 50 per cent on certain products.

While Haiti has some leeway to change its
agricultural tariffs in theory, such action would in fact contravene the simplified tariff
headings agreed under IMF mandated reforms.

It is unclear what response this would
provoke from the IMF.
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However, the flexibility to use tariffs as a part of its agricultural
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development policy is a necessity, with regard to certain products where rural livelihoods
are at stake.

Lionne, April 24 2008, 7:39 PM

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