Rice Dumping in Haiti and the Development Box Proposal

Oxfam International

Study prepared by Celine Charveriat and Penny Fowler for the Friends of the development box. March 2002.

The proposal to incorporate a Development Box in the WTO Agreement on Agriculture (AoA) aims to ensure that there is sufficient flexibility in world agricultural trade rules for developing countries to address their food security concerns and to preserve and improve rural livelihoods.

The case of agricultural trade liberalisation in Haiti demonstrates the devastating impact that overly rapid market opening to imports of a food security crop, in this case rice, can have on the livelihoods of large numbers of rural people who have few alternative livelihood opportunities. It also shows the enormous costs of pushing for agricultural import liberalisation in developing countries, while developed countries, in this particular case the United States, are allowed under the AoA to subsidise and dump agricultural products on the world market.

This note aims to frame the experience of Haiti in relation to the issues that the Development Box aims to address, and the instruments that the Development Box may include. As the WTO negotiations on agriculture proceed and developing countries are pushed to reduce their bound tariffs, a key concern is to allow poor countries, such as Haiti, to protect small Low Resource/Income Poor farmers against the effects of continuing agricultural dumping by developed countries and pursue policies aimed at improving food security and reducing rural poverty, including through the use of targeted subsidies and border measures.

I- Background

Rice is a key food security crop in Haiti, and is grown primarily by small farmers
Haiti is the poorest country in the Western Hemisphere

Its income per capita - $556 - is slightly above the average for sub-Saharan Africa (SSA) but well under the average for Latin America and the Caribbean (LAC)
Life expectancy is 57 years compared with LAC average of 69 years
Nearly half of Haitian household members consume less than 75 percent of the recommended intake of food energy. Rice is a major component of Haitians’ diet.
Two thirds of the population (4.8 million people) live in rural areas and 80% of them are poor

Rice production provides livelihoods for around 20% of the population

Approximately 93,000 families obtain a living from local rice production, processing or trade
Rice is mainly cultivated by small farmers: 85% of the estimated 52,000 farmers involved in rice production have less than 1 hectare of land. Most of them are share-croppers and tenant farmers.
In addition to farmers, many other groups are involved in the rice sector including:

agricultural workers that hire out their labour (these are thought to number approximately 22,000).
local traders (approximately 8,000), often the farmers' wives who buy paddy, dry it and then mill it. They sell on the processed rice to other traders (the urban 'Sarahs') in the local wholesale purchasing markets.
Millers (approximately 400) who carry out the processing of paddy to produce white rice.
the urban 'Sarahs' (an estimated 300 in number) who are the link between the growing areas and the major urban markets, where they sell the white rice to retail traders. These latter are mostly women, selling both local rice and imported rice to the final consumer.

II- Impact of trade liberalisation on the rice sector in Haiti

Haiti has undergone a rapid trade liberalisation process and is now one of the most open economies in the world: this has resulted in a huge increase in rice imports and a reduction in domestic rice production.
Tariffs on rice imports were cut from 35% to 3% in a single stroke in 1995 with devastating effects on producer prices, domestic production and the livelihoods of small farmers

The decrease in rice tariffs occurred in two phases:

1986-87: Duvallier decreases tariff and non-tariff protection on rice, which provokes the first massive import surge. A farmer of the Artibonite valley interviewed by Oxfam about the event said that he stopped producing rice altogether that year because prices had slumped.
1994/95: A general decrease in tariffs was one of the conditions set by the international community (especially the IMF and the US) for the return of Aristide to Haiti. The tariff on rice was cut from 35% to 3%, causing a second wave of cheap imports.
By comparison, the Common External Tariff in the CARICOM zone for rice is 20%.
Rice imports in Haiti have increased thirty-fold between 1985 and 1999. The majority of these imports are of subsidised US rice.
Food aid has increased by 50% since 1981, reaching 160,000 tonnes in 1999. 80% of the food aid is basic grains. Food aid in rice started in 1995 and amounted to 16,000 tonnes in 1999.

Local rice production decreased from more than 110,000 tonnes in 1985 to around 80,000 tonnes in 1995 with negative impacts on small producers

The reduction in domestic production was due to competition from cheap imports as well as the absence of appropriate sectoral policies to promote production (see issue 3 below)
As a result of the first wave of cheap imports, rice producers reported that the price they received declined by 50% between 1986-87. According to members of the cooperative of Petite Rivière, the decrease of prices was of a similar magnitude at the end of the embargo in 1994-1995.
Import surges have resulted in severe hardship for small farmers as well as emigration out of rice producing areas to Port au Prince and the Dominican Republic. In Segur, a small village where livelihoods depend on the production of rice, 15 families have left over the last two years.

Benefits to poor consumers of cheap rice imports, which have been substantial at the start of trade liberalisation, are now rapidly decreasing, especially among the poorest of the poor, who live in rural areas.

Although consumers initially benefited from lower rice prices as a result of cheap imports, the prices of local and imported rice are now converging due to the cartel activities of rice importers as well as the rapid depreciation of national currency.

Table 1: Comparison of local and imported rice prices (gourdes per pound)

	1995	1996	1997	1998	1999
Gougousse	5.8	8.4	7.2	6.2	6.7
Imported	3.7	5.4	5	5.6	~

Source: IMF, 2001 ‘Haiti: Selected issues’.

In rural areas, where most of the poor live and where poverty is more extreme than in urban areas (e.g. worse nutritional status), the benefit to consumers has been minimal due to transportation and marketing costs.
In at least two areas (Artibonite and North), the price of the imported rice is now higher than the locally produced rice, In the Artibonite, imported rice is sold at 36g/marmite, while local rice is sold at 25g/marmite during the main harvest and 34g/marmite during the rest of the year.
Rural households’ food expenditures account for 67% of total income. This percentage is of course higher for landless peasants, who are also the poorest.
Because of the reduction in production, most households, even in rural areas, are becoming increasingly dependent on purchases of imported rice for their home consumption.
Local rice is no longer available during some months of the years in Haiti and many small rice producers do not even produce enough to meet their own consumption needs (for instance, riz lagon producers in the North).
According to the FAO, overall malnourishment has increased since the start of trade liberalisation, affecting 48% in 1979-1981 and 62%in 1996-1998.

Food dependence in Haiti is reaching an unsustainable level: almost half of Haiti’s food needs are met through imports and food represents 43% of all imports.

In the near future, Haiti could fall into a vicious circle of macroeconomic imbalance, food and aid dependency.

With the depreciation of the gourde, Haiti needs to earn more foreign exchange in order to finance its growing food import bill.
80% of Haiti exports are light manufacturing to the US. Given the recession in the US, Haiti could have difficulties to finance its food imports, especially if remittances from the US decline together with the on-going world economic recession.

There has been a lack of public support for and investment in the Haitian rice sector over time. This has affected the ability of small rice producers to improve their productivity and increase domestic production
In addition to US rice dumping, the rice sector in Haiti faces a number of constraints to increasing production including the following issues mentioned by farmers interviewed by Oxfam:

Lack of irrigation systems to make water available during periods of drought
Lack of adequate drainage to prevent flooding during the rainy season
Irregular availability of inputs at affordable prices
Limited training provision for farmers
Lack of affordable finance available to small and medium-sized farmers
Antiquated processing facilities, so that locally-produced rice appears to be of inferior quality compared with imported rice and processing losses are higher
Little or no government support or protection for domestic rice production

III- Relevance of the Development Box Proposal

The development box specifically aims at providing developing countries with enough flexibility to protect the production of food security crops and of livelihoods Low Resource/Income Poor farmers in developing countries. This perfectly fits the case of the Haitian rice sector.

It is clear that, to date, developing countries have come under more pressure to implement rapid agricultural trade liberalisation from WB/IMF programmes than from the WTO AoA. Haiti was required to liberalise its rice tariffs under an IMF structural adjustment programme rather than because of its WTO commitments. Its current applied tariff is 3%, and its bound tariff 50%.

While Haiti could in theory increase its tariff to its bound level, its dependence on IMF/WB financing would make it difficult for them to reverse their policy, unless WTO rules clearly reaffirmed the rights of poor countries to use trade instruments to pursue food security and rural poverty reduction objectives.

However, it is important that the forthcoming WTO negotiations do not lock in Haiti’s tariffs at the current applied rates and leave the Haitian government flexibility to raise rice tariffs in the future if they choose, on the grounds that Haiti’s domestic support is below the de minimis level and the need to protect large numbers of small producers of a food security crop from unfair competition from subsidised US rice imports.

If Haiti faces difficulty in sourcing sufficient quantities of affordable rice from the world market due to foreign exchange constraints, it may decide to pursue a different strategy of protecting and promoting domestic production. Haitian rice producers have requested that tariffs be raised at harvest time to provide them with a degree of protection from cheap imports. Some donors have recommended that the government should raise tariffs to 20-25% in order to secure higher producer prices, but the IMF and World Bank continue to push for a low tariff policy.

Finally, it is crucial that Haiti retains flexibility to use targeted subsidies to assist Low Income/Resource Poor farmers in terms of productivity, transportation and marketing. Even if the current flexibility has not been used by the government due to lack of budgetary funds, this situation could change in the future thanks to increased availability of donor funds.

The DB would provide Haiti with a guaranteed option under world trade rules to adopt an alternative strategy of protecting domestic rice production in the future as a means of securing higher producer prices and promoting rural livelihoods. Moreover, a clear reaffirmation of the validity of such policies by WTO rules would enhance the negotiating position of Haiti when faced with the pressure of IFIs.

Sources

Jean Marie Robert Chery. Study of the Impact of Trade Liberalisation in the Rice Sector. May 2001. Research commissioned by OXFAM.

Field research done by OXFAM in March 2001 in the Artibonite Valley.

OXFAM. 1999. Impact des mesures de libéralisation sur la sécurité alimentaire, l’environnement et la vie des petits producteurs ruraux.

IMF. January 2001. Haiti: selected issues. IMF Staff Country Report no.01/04. Washington D.C.

FAO. 2001. The State of Food and Agriculture. Rome.

RESAL. December 1998.Food Security diagnosis.

Grassroots International. Feeding Dependency, Starving Democracy. USAID policies in Haiti. May 1996