Free trade is not a Panacea

Rob Jenkins, Guardian News Service, London

Oxfam has launched a campaign to publicize the plight of coffee farmers in poor countries. It was right to do so. Giant international retailing firms are banking huge profits while small-scale growers face economic ruin.

Oxfam's Coffee Rescue Plan proposes that the big coffee companies finance the destruction of excess coffee stocks (to increase prices), and that they fund programs to help farmers diversify into new livelihoods. These and other proposals are well worth investigating.

What is most notable about Oxfam's diagnosis of the coffee crisis, however, is what it doesn't mention: Free trade. Many would not expect it to. Even The Economist recently referred to Oxfam as an opponent of free trade.

Oxfam is in fact a vocal advocate of liberalizing agricultural trade. It agrees with IMF chief Horst Kohler that "protectionism in industrial countries is the core problem in the fight against poverty". Oxfam reiterated its position the week after launching its coffee campaign, publishing a report on the adverse effects of US export subsidies on African cotton farmers.

It is indisputable that trade barriers imposed by rich-country governments, including the lavish subsidies paid to their farmers, exclude the vast majority of developing country exports from these markets. This is a glaring example of rich-country hypocrisy -- demanding that poor countries open their markets, while clamping shut their own. But, ironically, in their zeal to expose this double-standard, critics of western protectionism have embraced a rather extreme faith in the power of free markets to cure the ills of poor farmers in Asia, Africa and Latin America.

Oxfam admits that coffee farmers in the developing world face neither western trade barriers nor producer subsidies. What it won't admit is the logical implication of this fact. The lesson Oxfam should be drawing from the coffee crisis is that even when rich-country markets are not closed, third-world farmers suffer anyway. Coffee farmers are, as Oxfam points out, highly vulnerable to fluctuations in global output, as well as to price manipulation by international conglomerates. They are also easy prey for local middlemen and corrupt officials.

The question we must ask is this: If the relatively barrier- free trading environment for coffee has not been quite the boon for small farmers that neo-liberal economics predicts, then why is it that opening rich-country markets for other agricultural products will allow farmers of those crops not only to escape the same disastrous effects, but actually to free themselves from poverty?

One plausible answer is that coffee is a special commodity, in which the price-setting power of international firms is particularly awesome. Maybe. But even so it would be naive not to expect many of the same powerful forces to bear down on farmers of non-coffee crops once these sectors are liberalized.

Another seemingly plausible reason why non-coffee farmers will avoid the dismal fate of coffee farmers, once the trade barriers erected against them are dismantled, is that coffee farmers face the extra burden of being unable to switch to the production of other crops. Why? Because western markets are closed to these crops.

Once all commodities are freed from trade restrictions farmers will be able to shift into the most profitable crops, liberating them from the clutches of predatory traders and officials. This sounds like a neat squaring of the circle until we realize that it is Oxfam being more catholic than the pope. Even in the high church of neo-liberalism -- the World Bank -- there is growing recognition of the enormous obstacles preventing poor farmers from shifting cropping patterns. This is in addition to the risk that price-depressing gluts will ensue when exporting countries switch enmasse into trendy crops.

Oxfam is right to seek a fairer deal for poor farmers by promoting non-market based solutions, which is what its Coffee Rescue Plan amounts to. But it should go further by abandoning its support for the currently fashionable orthodoxy -- shared by almost every mainstream development organization, official or non-governmental -- that poor farmers will trade their way out of poverty if protectionist barriers are removed.

It is understandable that Oxfam is enjoying its newfound standing with the Washington institutions that its embrace of market orthodoxy has brought it. Throw into the bargain the chance to continue berating the US and the EU for their undoubted hypocrisy on agricultural trade, and it is all just too alluring for a brand-conscious NGO to resist.

But the time has come for Oxfam to wake up and smell the coffee on free trade: Its ability to contribute to sustainable poverty reduction has been grotesquely oversold.

The writer is professor of political science at Birkbeck College, University of London. He is directing a research project on the World Trade Organization and poverty, funded by Britain's Department for International Development. The views expressed are his own.