Agricultural subsidies in the western world appears to be the (un)democratic right of the developed nations. The so-called 'democratic' World Trade Organisation (WTO), as The Economist prefers to address the wrong trade organisation as, sees nothing wrong in subsidising the rich and the powerful. After all, The Economist's economic survival too depends upon the advertisement revenues garnered from the corrupt -- knowing well the exposed reality of the American corporate world following the stock market scandal.
At a time when the global media continues to protect the corrupt, and when the WTO has digressed into a protectionist measure for the western agriculture, service industry and finance, it is the subsistence farmers in the majority world and their numbers swells into several billion, who have to pay the price. Many reports that we carried earlier have pointed to the direct connection between western subsidies and the mounting poverty, hunger and loss of livelihoods in the developing world. But the WTO refuses to correct itself, in fact it refuses to even accept that such huge subsidies are trade distorting in the first place!
ActionAid UK is one such charity that has relentlessly campaigned against the trade distortions. We bring you below a report from the Financial Times based on an ActionAid study. The second articles looks at the impact on Indian and developing country agriculture.
Contents:
"Rich countries are paying more than $300bn a year in subsidies to their agricultural sectors, six times more than the total amount of aid to developing countries."
Government subsidies to farmers in Western countries are damaging the livelihoods of farmers in developing countries, according to a report by ActionAid. The report "Farmgate: The developmental impact of agricultural subsidies", says the subsidies have led to overproduction and dumping -- exporting at prices below the cost of production -- which is throwing small farmers in developing countries out of business.
Rich countries are paying more than $300bn a year in subsidies to their agricultural sectors, six times more than the total amount of aid to developing countries. "In a massive breach of faith, rather than complying with the spirit of [World Trade Organisation] agreements, and reducing levels of agricultural subsidies, rich countries have actually increased them," says the report.
At the same time, rich countries have put pressure on developing countries to reduce or eliminate subsidies. Rich countries are practising double standards, says the report - "protection for the rich and the free play of market forces for the poor". The farm subsidies of the EU and the US have encouraged overproduction, distorted trade and depressed prices; and made EU and US farm goods artificially cheap on world markets, resulting in the dumping of cheap, subsidised produce in poor countries.
But the subsidies have failed to prevent small UK farmers going out of business. The richest 20 per cent of UK farm holdings receive 80 per cent of the subsidies. Each tonne of UK [and EU] wheat sold on international markets is sold at 41 per cent below the cost of production, against 33 per cent in 1997.
The EU has historically ensured that returns to its wheat farmers are artificially high by using a combination of market price support - including through intervention buying and export subsidies - and direct payments. The report includes studies from Bangladesh, Indonesia, Kenya, Nigeria, Pakistan and Swaziland to show the effect of subsidies.
In 2000 there was a sudden and dramatic increase in the volume of cheap, duty-free wheat flour imported by Kenya from Egypt, undercutting local prices by up to 50 per cent and threatening the livelihoods of about 500,000 Kenyan people dependent on wheat for their income.
In 2000-01, the US and EU together supplied Egypt with almost 4m tonnes of the grain. Significant quantities of this were dumped. "There are strong suspicions," says the report, "that subsidised US and possibly EU wheat has been used to manufacture the flour in Egypt that has been sold to Kenya at cheap prices."
Cheap wheat imports to Nigeria from the US have nearly doubled since 2000 and are having a detrimental impact on the country's production of staple foods.
Subsidised wheat coming into Bangladesh as food aid is also having a negative effect on local farmers. The Washington-based International Food Policy Research Institute says the food aid helped undercut prices for local wheat producers, acting as a disincentive for them to be more self-reliant and grow their own crops.
EU subsidies to the sugar sector are also causing problems, eradicating the competitive advantage of sugar-producing developing countries. Swaziland, for example, produces sugar at less than half the cost of EU countries, and yet is unable to compete with the EU imports that increasingly dominate its market. Subsidised EU sugar exports to Swaziland have led to the loss of about 16,000 jobs in the Swazi sugar industry and 20,000 jobs indirectly linked to the industry.
ActionAid is calling for the level of agricultural support in the developed world to be reduced substantially and for a phasing out of subsidies that distort production and trade, and which lead to dumping. Negotiators are meeting at the WTO in Geneva this week to discuss how to reduce agricultural subsidies. Commonwealth finance ministers, meeting in London this week, are also likely to discuss the impact of these subsidies.
American farmers are escaping insolvency because the US Government pumps in billions of dollars through subsidies, says Devinder Sharma.
If you are wondering as to how much subsidy an American or an European farmer receives, just hold your breath: last year, the average net income for a commercial soyabean grower in the United States was US $ 47,000 a hectare. Of which, the payment from the federal government was US $ 37,000. In England, I know of farmers who get a subsidy of one million pounds a year for not growing anything!
Against such massive government support in the rich and industrial countries, the resource-poor, lean and toiling image of an Indian farmer looks rather pale. It certainly is a depressing tale considering that more than 550 million farmers in India receive an annual subsidy of US $ 1billion, and all of it is indirect in the form of subsidised seed, fertiliser, credit, water and electricity. The amount of subsidy a western farmer gets on a cow is more than the average income of a farming family in India!
With the agricultural subsidies increasing in the two biggest farm blocks - the US and the EU - the resulting damage to the resource-poor farmers in India and, for that matter, in the other developing countries is going to be catastrophic. More so, when the Indian government continues to swear by the WTO's Agreement on Agriculture, which promises drastic reduction in agricultural subsidies being doled out in the western countries. These subsidies are, in reality, increasing.
Early this year, with the strong backing of the White House, Congress added $5.5 billion to next year's budget blueprint to cover potential emergencies. This is in addition to the US $ 22 billion plus that has already been doled out to its farming community in the past two years by the former President, Bill Clinton. In another few months, before the end of the year, the fourth instalment of federal subsidies is expected to be announced.
Interestingly, the US farm bill that George Bush often refers to, promises to end agricultural subsidies by the year 2002 - a promise that is sure to remain unfulfilled. Large farmers around the country continue to complain to Congress that Freedom to Farm is not working because their crops are selling at the same low prices their grandfathers' crops fetched 40 years ago. When lawmakers passed the act in 1996, they approved generous subsidies for the first two years in order to give farmers a cushion to prepare for their independence. But when the world market pushed prices down, farmers asked for emergency payments. And the cycle that provides more subsidies continues unabated.
As if this is not enough, George Bush promises to aggressively push to dismantle foreign trade barriers and eliminate other countries' agricultural export subsidies. And here lies the catch. True to the American character, George Bush has promised to force open the other countries' markets while protecting his own. Still, we are being told that the world is beginning to dismantle its subsidy support and that we need to open our trade barriers to make Indian agriculture competitive. And if you think that it is the American rhetoric (and not its actual actions) that is swaying popular economic thinking in India for opening up the country to US farm exports, you are mistaken. There is a strong vested Indian interest for food imports, and for obvious reasons.
And if you are wondering as to how these subsidies, for instance, impact the American farmers, let me explain. Chicago Tribune recently reported a study conducted by Farm Credit Systems, a company dealing in farm loans. According to the study, subsidies are, in a weak climate like the one that prevails today, the only barrier to insolvency. "Without federal assistance over the last three years, we would have seen large numbers of farm bankruptcies," said Doug Yoder, director of marketing for the Illinois Farm Bureau, adding that one in seven of the state's 79,000 farms is losing money this year, while many others are barely breaking even.
Take the case of Lanny Bezner, a successful family farmer in Texas. Sticking rigorously to the principle that economy of scale as the only way to survive in modern farming, he thinks that the bigger the farm, the better likelihood of turning a profit. So, he has been buying adjacent fields to expand his cropland from 700 acres to more than 8,000. In five years he has doubled his grazing land by leasing 90,000 acres of pasture. He owns a fleet of tractors and heavy farm equipment; he fills their tanks with fuel from his own gas pumps. He dries and stores his harvest in his own imposing grain elevators, which hold more than a million bushels of corn.
Talking to The New York Times, Bezner says the key to his family's prosperity is federal farm subsidies. Although he hesitates to discuss the size of those subsidies (and refused to divulge how much he makes without federal help, or what his expenses are), government documents show that in the last four years of the 1990's, he received $1.38 million in direct federal payments.
How do the American farmers' view the federal subsidies? "It's a welfare check," the Chicago Tribune report quoted Robert Johnson, 57, who farms 500 acres of corn and soybeans. "I don't like welfare and I know other people don't either--but you have to take it to survive." He said prices for his crops are too low for him to make a living. He drives a truck at night and his wife drives a school bus to make ends meet. Perhaps what Johnson does not know, and no one cared to tell him, is that when the subsidised farm commodities are exported to countries like India, it drives out farmers from agriculture leading to further marginalisation of the farming communities.
In Illinois alone, the average income of a farmer this year averaged at US $37,000 of which, US $16,000 comes from government farm subsidies. These subsidies reportedly help farmers meet their current debt liabilities. In the past two years, direct government payments to farmers in America rose 86 percent to reach US $22.7 billion, and are expected to go even higher this year. George Bush has already promised still higher federal support by way of direct payments. Incidentally, direct payments to farmers are excluded from WTO's subsidy reduction commitments.
The US Department of Agriculture expects farm income to drop this year. "Crop receipts are forecast to fall by $2 billion in 2000, reaching their lowest level since 1994," the USDA said in a report earlier this year. "Net farm income is forecast to be US $40.4 billion in 2000, a decline of $7.7 billion from the preliminary estimate of $48.1 billion for 1999." But interestingly, what the USDA refuses to acknowledge is that farm incomes are also falling in the developing countries (including India) whose trade barriers are being forced open.
Now, where will all this lead to? With the subsidy to America's miniscule farm community multiplying, and with the other industrialised countries also relentlessly jacking up financial support for agriculture, there is practically no hope for India to find a foothold in the global food market. In turn, with India phasing out or completely doing with the quantitative restrictions (QRs), the country is sure to be inundated with cheap and highly subsidised farm imports.
It has happened in the past in Zimbabwe, Burkina Faso, Mexico, Brazil, and the Philippines. It is now the turn of India to be faced with a flood of subsidised agricultural imports, some of which have already started pouring in. Unless India refuses to open up its agricultural market till such time that all farm subsidies in the developed countries are brought to zero, a disaster awaits to strike.
Devinder Sharma is a food and trade policy analyst. Email: dsharma@ndf.vsnl.net.in
France and six other European Union countries are insisting that the common agricultural policy, which consumes half of the EU budget, must be kept at levels agreed three years ago.
Signalling a looming battle over farm subsidies which will be critical in talks on the eastward expansion of the union, Hervé Gaymard, the French agriculture minister, and colleagues from Ireland, Spain, Portugal, Belgium, Austria and Luxembourg, insist in a letter to the Guardian that the CAP is unjustly pilloried.
Rejecting "false accusations", they defend a "European model of agriculture", and predict tough arguments ahead.
France, which receives the biggest farming subsidies, understandably champions the policy, which is the legacy of a deal between French farmers and German industry when the EEC was founded in 1957.
Britain, Germany, Sweden and the Netherlands - the "Northern Alliance" - want urgent reform of a policy which costs ?49bn (£31bn). They say the CAP cannot continue in its current form in a union of 25 or more members.
The 15 member states must quickly agree on the level of farm payments to be made to the 10 candidate states likely to be invited to join at December's Copenhagen summit.
Poland, the largest applicant, has 10 million farmers, but there is already anger over the double standards implied by proposals to pay them just a quarter of the subsidies enjoyed by current EU members.
CAP critics blame the policy for wasteful over-production, environmental damage, crises such as BSE, and contributing to hunger in the developing world. The ministers reject this and offer a robust defence of the special needs of farmers.
"Society needs sufficient numbers of contented producers with confidence in the future to ensure... economic balance and to maintain the diversity of our landscapes, which epitomise Europe.
"For us, agricultural products are more than marketable goods; they are the fruit of a love of an occupation and of the land... developed over many generations."
Last summer, the European commission proposed deep CAP subsidy cuts and higher environmental and health standards. The reformists say it does not go far enough.
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