Trade liberalisation, agriculture and land degradation in Fiji: implications for sustainable development policies

ADP/2002/047: Trade liberalisation, agriculture and land degradation in Fiji: implications for sustainable development policies

Fiji

University of Queensland, Australia

Dr John Asafu-Adjaye
Phone: 07 33656539
Fax: 07 33657299
Email: j.asafu-adjaye@economics.uq.edu.au

• University of the South Pacific, Fiji
• Ministry of Finance and National Planning, Fiji
• Australian Bureau for Agricultural and Resource Economics, Australia

$394,677

01/10/2003 - 30/09/2006

01/10/2006 - 31/12/2007

Dr Simon Hearn

Export-oriented growth is a key to the sustainable long-term development of the Fijian economy. In the medium-term much of this growth is expected to come from agriculture, a sector where Fiji has comparative trade advantages. Agriculture has contributed the bulk of total exports and almost a fifth of GDP, but both these contributions are in decline.
Trade liberalisation is driving some agricultural growth and could become an important driver of sustainable development. But there is a danger that the impacts of increased production could harm Fiji's fragile ecosystem. Land degradation resulting from cultivation on steep slopes and marginal lands, combined with deforestation on these and other lands, are already causing problems. The availability and quality of freshwater is being affected and biodiversity is being lost. Land and sea-based pollution are also rising.
These areas of concern for the Government must be balanced against the potential for trade liberalisation to drive development. Policies are needed to strike this balance, ensuring benefits are gained from trade liberalisation while maintaining effective environmental resource conservation measures. But the key institutions in Fiji responsible for developing and implementing these policies have little experience in these areas.

This project sought to empirically assess the economic and environmental impacts of agricultural trade liberalisation in Fiji, as well as the agricultural production and trade effects of environmental changes, and to propose measures to mitigate any adverse impacts. The specific objectives were to:
assess the impact of trade liberalisation policies on agricultural production, the economy and the environment, with particular emphasis on land degradation, biodiversity etc.
critically review the institutional framework required to make trade, environment and agricultural policies more effective as drivers of sustainable development
collaborate with and build USP and National Planning Office (NPO) staff capacity in economics research, with particular reference to trade policy analysis and environment-economy modelling;
communicate the findings to the stakeholders and the academic community through technical and non-technical publications
model the effects of climate change on agricultural output and the economy.

The research was conducted in three phases: the first involved development of an environmental module to estimate the economic impacts of land degradation, while Phase 2 updated and modified the Fiji Input-Output table using 1999 as the base year. The update included macroeconomic and national income statistics for 1999. In this phase, appropriate modifications of the computable general equilibrium model were made to receive inputs from the environmental module.
The third phase involved applications of the model and consisted of: simulation experiments involving the macroeconomic and environmental effects of trade policies; analysis of the macroeconomic and environmental effects and the response of government, firms and consumers; policy evaluation and recommendations. Phase 3 also involved consultation and discussion of policy recommendations with stakeholders, concluding with a policy workshop to discuss issues relating to the integration of environmental concerns into economic activities at the farm and national levels.

A computable general equilibrium (CGE) approach, supplemented with a series of partial equilibrium (econometric) studies, was adopted to investigate the impacts of agricultural trade liberalisation. The investigation of environmental effects in this study was limited to land degradation, in particular soil erosion. The main findings are as follows:
Land degradation A first attempt was made to quantify the economic cost of soil degradation to cane farmers and the sugar industry. The team estimated the cost of soil erosion to farmers at about US$8 million per annum, while the industry losses in sugar sales per annum were gauged at about US$12 million.
Despite the high economic cost of land degradation to farmers and the significant external costs it imposes on society in general, soil conservation rated very low on the government's policy agenda. At the institutional level, there is weakness in implementing and enforcing environmental legislation, while at the farm level there is lack of government support for education and extension services.
Sugar production is not the only area where land degradation is a problem; for example, soil erosion is also high in the cultivation of ginger. Therefore, there is a need to take a comprehensive look at the issue of land degradation and to institute policies to address the problem.
Trade liberalisation The project team analysed and compared various trade liberalisation scenarios beginning with unilateral trade liberalisation by Fiji and including different types of regional trade agreements (RTAs), global trade liberalisation, as well as various options for structural reform of the Fiji economy.
While various RTAs could yield some overall benefits, the best outcome for Fiji is global trade liberalisation involving removal of tariff and non-tariff barriers between the developed and developing countries. To successfully meet the impending challenges brought on by trade liberalisation, Fiji would need to restructure its agriculture sector (especially the sugar sector) and expand its export base. Targeting a particular sector for growth is likely to have adverse impacts on other sectors. Therefore, broad diversification of the economy would deliver the best outcomes for the economy. For this to be possible there is a need to address the institutional and structural constraints that inhibit producers' ability to react to favourable market conditions.
Key recommendations The project team advocates increased government expenditure to improve public education and awareness about land degradation. As well, there appears to be lack of awareness in the general community about the effects of trade liberalisation. Information put out in the local media by anti-trade organisations depicts trade liberalisation as having adverse effects on the economy. However, the project research indicated that the net benefits can be positive. There is therefore a need for more public education on this issue.
There is a need for the Government to harness both internal and external resources to address structural and institutional constraints such as poorly developed transport and telecommunications infrastructure, inadequate ports and handling facilities, tedious customs procedures, lack of marketing networks, lack of knowledge about standards, lack of microfinance programs, and poor functioning of markets for leasehold land. The Government also needs to invest in human capital development, with specific emphasis on low- and middle-level skills training.
Based on feedback received from workshop participants and on the team's own observations, the ability of government agencies to conduct policy analysis is vital to effective decision-making. However, this is one area where capacity is grossly lacking, even in a country like Fiji where educational levels are relatively high compared to other Pacific Island Countries. Therefore, there is a need for more initiatives such as this one to build capacity within government agencies.
The modelling approach used in this study could be extended to investigate the links between the economy, the environment and poverty, further enhancing understanding of these complex relationships and helping to propose more effective poverty alleviation programs.