"The fact that the government are engaging with us in this way is a real sign that our message is getting noticed in the corridors of power."

Former International Development Secretary Clare Short has written to Christian Aid in response to adverts and case studies that highlight the plight of tomato farmers in Ghana.

One of a series illustrating how trade rules are biased against poor communities, the story of Ghanaian tomatoes reveals the unfair competition which poor farmers are subjected to every day in world trade. Christian Aid has responded to Ms Short and the dialogue continues.

Letter to Christian Aid from Clare Short, (former) International Development Secretary

Dear Daleep,

I have looked with interest at the case studies which Christian Aid has put together for your current campaign for trade justice. DFID does not of course support sudden trade liberalisation which does not take account of the effects on poor people; and does not support subsidies for agricultural exports from rich countries.

But your advocacy of protectionism to help developing countries would not help reduce poverty as experience has so clearly shown.

Your Ghana case study contends that protection should be used to defend rural livelihoods.

The idea is superficially attractive but it does not stand up to the objections that it increases protectionist pressure throughout the trading system, and that all too often it leads to support for production which is a drain on a country's resources.

The UK is backing proposals in the WTO to improve the existing system of special and differential treatment so that it takes more account of the specific development needs of poor countries. But greater protectionism is not the answer.

This will limit the opportunities for poor countries to trade with each other and with developed countries, excluding them further from the benefits of international trade.

The Ghana case study illustrates the complexity of the issues. Competition from subsidised foreign producers is one of the many factors which affect tomato production in Ghana, but it is not the only one (another, smaller scale, is competition from Burkina Faso).

The case study is based on a tomato cannery closed down "due to the ongoing structural adjustment of Ghana's economy".

The first phase of liberalisation, in the 1980s, not only opened up agriculture/agro-processing to international competition, but also exposed inefficiencies in the agro-processing industry that made it unsustainable (irrespective of whether or not the economy was protected).

Ghana's tomato canning industry was developed with equipment and training from Eastern Europe. By the 1980s most of the machinery was obsolete, and no spare parts could be bought. Canning factories operated under-capacity for a number of reasons:

• Agreements between the factory and tomato farmers broke down because the price offered for fresh tomatoes was frequently below market price and farmers sold their tomatoes elsewhere;

• There were difficulties in managing the high costs involved in sourcing fresh tomatoes from a large number of smallholders.

• Local tomatoes often had too high a water content for paste production.

• Productivity levels were low because workforce morale was low - a case study carried out on the Wenchi canning factory in 1990 revealed that they had not been paid for three years.

In those circumstances no Government would be advised to apply preferential tariffs to protect a domestic industry.

The Government of Ghana has highlighted agriculture and agro-processing as a key sector for growth in its poverty reduction strategy and attempts are being made to revive the processing industry, help growers grow better varieties and ensure equitable contracts are encouraged between farmers and processors. In response a number of donors, including DFID, are working with Government to address the many problems hindering effective growth of the sector.

This includes the creation of a level playing field in trade and the development of Ghana's capacity to co-ordinate support directed specifically at smallholders.

While those who were employed in the canning industry understandably want their jobs back, the much more often voiced demand is for better roads to get both fresh produce and processed goods to markets on time. Good feeder roads, to which we are contributing, will increase competition among buyers and reduce the costs of getting goods to market.

Despite the difficulties of previous ventures and the penetration of Italian tomato products in the Ghanaian market, the processing industry is by no means dead. Pwalugu tomato cannery, the plant highlighted in the case study, was indeed closed in 1989, but we understand that it was sold in 2002 under an agreement that it will be used for its original purpose.

And there are other new investments proposed. Ghana, like a number of other developing countries, is trying to adapt and move on.

Increased economic growth in all developing countries stimulated by a development focused trade round offers the best opportunity for millions of people in developing countries to escape from poverty. Halving protectionist measures by both developed and developing countries could result in developing country gains of $150 billion a year, three times all current aid flows.

There is tremendous potential for translating that increased income into poverty reduction with the right strategy and leadership in developing countries.

I am afraid I think the claims in your campaign on Ghana and tomatoes are misleading (I have not looked in to your other examples).

Yours sincerely
Clare Short

Reply from Christian Aid

Dear Clare,

Thank you for your letter. I very much value your comments on our campaign for trade justice - a campaign which has at its heart our experience of how trade affects the lives of poor people throughout the world. Your letter concerns two issues - the first, whether protection has any role as part of a development strategy, and the second concerning the specific example of Ghana.

Protectionism
Christian Aid does not, as you suggest "advocate" protectionism in all cases. Rather, we advocate that developing countries are able to use the trade policies that will contribute to their development.

However, our assessment of what those policies might be is rather different from yours. It is clear to us that far from being, as you say, unhelpful, protectionism has played a key part in almost every successful example of poverty reduction.

This is not to say that protectionism will be appropriate in all cases. However, evidence from successful developers of the past shows that it must remain an option for developing countries.

The historical evidence on the East Asian experience is well-worn (but nonetheless compelling), so there is perhaps no need to revisit those examples here. However, more recent examples testify that the issues are still highly relevant today.

By any standards, Mauritius has been successful in terms of both growth and poverty reduction. Growth per head averaged 4.2 per cent between 1975 and 1999, by which time per capita GDP was US$ 9,107. Productivity has also increased. Income inequality has fallen during this period, and life expectancy has increased by ten years. Mauritius now ranks 63rd in the UNDP's Human Development Index.

Protection was part of the story of Mauritius's success. The IMF ranked Mauritius as one of the most protected economies in the world in the 1990s. Local producers are treated preferentially to foreign producers, a strategy that has contributed to the development of domestic capital to the extent that it formed the basis for export growth.

Around 50 per cent of the equity of firms producing for exports is nationally owned. As well as using protectionism to aid the development of domestic firms, it has also been used to protect farmers from some of the negative effects of trade liberalisation.

While part of Mauritius' success is due to preferential access to EU and US markets, unlike other countries with the same market access arrangements it has employed the economic policy instruments to ensure that the country benefited from improved market access over the long term.

Mauritius is not an isolated case. Vietnam, one of the much touted economic success stories of the 1990s, remains highly restrictive in its trade regime, despite some liberalisation during the 1980s and 90s. Both China and India, which saw the largest reductions in poverty in the twentieth century, did so with restrictive trade regimes.

A recent UNCTAD report, using data from the IMF, found no correlation at all between trade liberalisation and poverty reduction, and some evidence that more open economies did worse in terms of poverty reduction than more restrictive economies.

Evidence from our partners bears this out - we hear over and over again from the organisations that we work with that trade liberalisation simply isn't working for poor people, and that what trade policy makers might consider to be "transitional costs" are pushing families into poverty from which it will take them generations to escape. It is this, above all else, which makes us sceptical of the benefits of trade liberalisation.

Ghana
On the specific example of Ghana, I would agree with you that the issues are complex. There are, unfortunately, few issues in development that lend themselves to simple answers. The key issue for us is what should be done to support industries that are, as you say, facing a number of problems, ranging from inappropriate technology to low workforce morale.

We could all agree that the situation before Ghana embarked on trade policy reforms was not optimal - but we would add that for the tomato farmers of Ghana, and many other poor Ghanaians, trade liberalisation has not led to any great improvement in their situation - and has, in fact, led to adverse effects for many of the most vulnerable.

Clearly government support is only appropriate if industries are viable in the long term. We do not advocate that every industry is protected, and certainly would not want to see an unviable plant continue to be a drain on domestic resources that could be better employed elsewhere.

However, I do not agree with you that the problems with Ghana's tomato canning industry were such that protection would have been a completely misguided policy. This is borne out by the new investment in tomato canning in Ghana, to which you refer. To take your specific points in turn:

• You cite a number of problems with the contractual relationship between company and farmers - I am sure you are aware of the vast literature on the subject of contract farming in Africa, and the many instances in which relationships between farmers and company have been managed successfully.

Difficulties in this relationship do not seem to us a basis for writing off an entire industry.

• Similarly, we would not argue that the need for technological upgrading implies any particular direction of trade policy - one could argue, again on the basis of the historical evidence, that technological upgrading has more often been associated with restrictive trade policies than with trade liberalisation (again the experience of East Asia and Mauritius are instructive in this regard).

• Our understanding, from sources in Ghana, is that far from being inappropriate for paste production, the variety of tomatoes introduced into Northern Ghana were specifically developed for canning, and it is this which has caused additional problems for farmers attempting to adjust to the closure of the Pwalugu plant.

• Low morale is undoubtedly a function of the other problems confronting the industry, and as such would also have been resolved had the industry been given the opportunity and the support to address the problems we would all agree it faced.

What is beyond doubt is that the combination of factory closure and trade liberalisation has been disastrous for tomato farmers in Northern Ghana. Christian Aid staff have spoken directly to many tomato farmers in Ghana, and our partners in Northern Ghana are constantly engaged in programme and policy work in the area.

All state clearly that the decline of processing, and the increase in processed tomato imports, is a key factor in the precarious situation in which they find themselves. While better roads will, as you say, make a big difference to farmers in all parts of Africa, if there is no market there is still no market.

The sequence on BBC's Panorama programme, shown on Sunday 9 March, illustrated vividly the consequences for small farmers of uncertain markets characterised by oversupply - very low prices and no bargaining power at all. Farmers testify that the tomato factory provided a much needed market - evidenced by the fact that the Pwalugu factory also bought raw tomatoes from Burkina Faso, when Ghanaian supplies were insufficient.

We recognise the efforts of the Ghanaian government to revive the domestic processing industry. However, our view is that, it would be preferable to look for ways to support developing industries through trade policy as well as other measures, rather than expecting them to cope with increased competition at the very moment when other problems are being resolved.

There is a key issue here of how trade policy should be sequenced with other policies - again, to draw examples from East Asia, trade liberalisation there has followed industrial development rather than preceding it.

While we agree that eliminating subsidies for producers - including tomato producers - in Europe and the US will improve the situation for poor producers in Africa, this is not a sufficient answer to the problems they face, and will not eliminate the need for activist trade policies in developing countries.

The market domination that has been built up, with the help of subsidies, over many years, will not be wiped out at a stroke. New Zealand largely abandoned its agricultural subsidies over three years in the mid-1980s, but its share of world agricultural trade has remained roughly constant (according to the FAO, its share of world agricultural trade in 2001 was slightly higher than in 1984, before reforms were introduced).

While it is difficult to predict the price effects of ending subsidies, it is clear that agribusiness in the EU and USA will still dominate world markets, and that ending subsidies will not end the problems for small farmers in Africa.

Finally, it is worth adding that we are rather sceptical of figures for projected gains to developing countries from reduced trade barriers. While there clearly would be gains, estimates of the value of those gains done by reputable institutions using rigorous models vary by a factor of more than 15. It is therefore difficult to be confident in asserting a specific figure.

It is also worth noting that the key difference behind the varying figures lies in assumptions about what happens to the supply side - which of course brings us back to the debate about the relationship between trade policy and the development of local enterprises. It is harder still to assert with any confidence that any gains will accrue to poor people - the World Bank, for example, has estimated that net gains from the Doha Round in sub-Saharan Africa and South Asia are likely to be minimal - and lower in both cases than the aggregate losses resulting from displacement due to trade liberalisation (World Bank, Global Economic Prospects and the Developing Countries, 2002).

It is our firm belief that it is only through an honest assessment of the evidence, and policy based on that evidence, that developing countries can reap the undoubted benefits from trade. We feel that the evidence on Ghana and tomatoes is robust, and adds weight to our argument that developing countries require greater flexibility in their trade policies, and that they should be encouraged to use that flexibility to foster the development of the national private sector.

As part of our campaign, we are strongly advocating that the current round of trade talks in the WTO agree to a new approach to Special and Differential Treatment (SDT) that will allow developing countries more flexibility to use trade policy to defend vulnerable groups and create incentives for domestic industrial development. We urge the UK government to rethink its stance on SDT, in the light of available evidence on the relationship between trade policy and development. As a starting point, we hope that the UK government will give serious consideration to the proposals put forward by developing countries in the WTO to reform SDT.

Our Trade Campaign is closely related to Trade Justice Movement (TJM) in which Christian Aid is a member with many church bodies, aid agencies and others. Our overall approach is in the context and demands agreed by TJM - the right of poor countries to intervene in trade policy to support and protect, if necessary, their vulnerable people and traders.

With you we are passionately committed to the Millennium Development Goals around poverty eradication and believe building a movement for justice in trade will contribute to what we all want - a better world for millions who today are excluded and poor.

With every good wish,
Daleep Mukarji
Director

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