for Farm Subsidies
By Devinder Sharma
At the inaugural of the World
Food and Farming Congress 2002, held recently in London, I found myself
sandwiched at a dinner between the two poles - a former US Ambassador
for Agriculture to WTO and Zimbabwe's Permanent Representative. Since
this was the closest I had ever got to the trade negotiators, I picked
up the courage to ask the former US Ambassador: "Tell me, how do
you arm-twist developing countries into submission?"
The former US Ambassador,
and obviously one of the toughest trade masters, was taken aback. "Who
gave you this idea that we arm-twist developing countries?" he
asked, adding "This is a propaganda, a figment of imagination,
of the international NGO community." Sensing the sensitivity of
the question, I corrected myself: "You don't have to feel embarrassed.
I am aware of how you have brought down India to its knees but tell
me how do you do it to the other two giants --China and Brazil?"
And without flinching an eyelid, the ex-diplomat replied: "Actually,
China and Brazil are not the problem. The real problem is India."
A few days later, the US
Secretary of Agriculture, Ann Veneman, who had earlier served on the
board of Calgene -- the first company to market genetically engineered
foods to stores, was speaking at the International Food Policy Research
Institute (IFPRI) in Washington D.C., "Some developing countries
argue that they shouldn't have to open up markets until the developed
countries first make domestic support reductions. This is a formula
for failure." Echoing the same brand of hypocrisy, the World Bank
Chief Economist Nicholas Stern, while traveling through India, denounced
subsidies paid by rich countries to their farmers as "sin ...on
a very big scale" but warned India against any attempts to resist
opening its markets. "Developing countries must remove their trade
barriers regardless of what is happening in the developed countries."
These words of 'economic'
wisdom were strongly contested when India's Agriculture Minister, Ajit
Singh, categorically said: "There is no way we can reduce tariffs
on agricultural products unless the rich nations cut their domestic
support and subsidies as well as export subsidies." He was speaking
to journalists at the end of his four-day visit to Geneva in the month
of January, a little ahead of the Doha deadline of agreeing on modalities
of the agricultural negotiations by March 31, 2003. Agriculture negotiations
under the Doha round are taking place in the Special Sessions of the
Agriculture Committee. He met the WTO Director-General Supachai Panitchpakdi
and his chef de cabinet and chairman of the Special Sessions of the
Committee on Agriculture Stuart Harbinson, and other protagonists -
the U.S., the EC, members of the Cairns Group and some of the African
group countries - and said he had put forward India's position and stand,
an outcome of countrywide deliberations and discussions.
Not only India, many other
developing countries have time and again stood up against the hegemony
of the so-called free trade regime. But tactical arm-twisting by the
US, EU, Australia and Japan has always thwarted the rise of the collective
power. In the process, what remain significant at the ongoing negotiations
is not what the developing countries (in the absence of a collective
stand) say but how does the EU react to the American proposals. Rest
everything is reduced to insignificance. Even India, China and Brazil
have had a history of giving up in the final stages of negotiations.
The final outcome of the ongoing agricultural negotiations, despite
its serious implications for several hundred million small-holder farmers,
is not going to be any different.
It is therefore time to understand
what is at stake. The introduction of the Farm Bill 2002 in the United
States, for instance, providing an additional support of US $ 180 billion
in the next ten years to its miniscule population of farmers, is an
indication of how serious the industrialized countries are towards meeting
the obligations of the Agreement on Agriculture. This also includes
US $ 15 million to be spent every year on promoting genetically modified
foods. With the OECD countries already providing a support of US $ 311
billion a year to its agriculture, the addition of US $ 180 billion
raises the total budgetary support to agriculture in the rich countries
to US $ 491 billion.
The sheer scale of 'green
box' subsidies in the developed countries ensures that they distort
trade because the money spent keeps producers afloat. For example, the
US had spent $1.3 billion on income support for rice farmers in the
1999-2000 when its total rice production was worth $1.2 billion. Japan's
subsidies to its farmers, on the other hand, are greater than the entire
contribution made by agriculture to the nation's economy. The total
transfers to agriculture amounted to 1.4 percent of gross domestic product
in 2000, compared to the sector's 1.1 percent share of GDP. Like America
and the European Union, Japan too defends its heavy use of agricultural
subsidies, claiming it needs to protect its industry to ensure a degree
of security if imports were disrupted for any reason. The country only
produces 40 percent of what it needs and is the world's largest importer
The US justifies the additional
federal support saying that it remains committed to reducing the 'trade
distorting' subsidies by five per cent a year. The European Union, which
is not far behind in subsidizing agriculture, has used 'multi-functionality'
of agriculture to justify its support, much of it by way of direct payme
nts. 'Multi-functionality' is a camouflage for agriculture subsidies
under the garb of protecting rural landscape and lifestyle, as well
as the welfare of livestock, even if they are not efficient. EU has
been desperately seeking India's backing for its
Roberto Bissio of Uruguay,
the global coordinator of Social Watch, which monitors the social policies
of countries around the world, terms this is a hoax: ''With European
Union subsidies it would be possible to send every European cow around
the world on a business class ticket.'' In any case, the amount of subsidy
a cow in Europe and America receives day -- US $ 2.7 per cow -- is more
than twice the average daily income of a small and marginal farmer in
the Third World. Such are the glaring disparities that while each of
the one million cows in the OECD countries are fed exactly according
to its body needs, over 800 million people go to bed empty stomach in
the majority world, a third of them in India alone. And yet the dairy
subsidies are justified as it helps mitigate nutritional deficiencies
in the developing world.
All subsidies are not explicit.
These are woven so intricately into the system, called cross-subsidisation,
that it would need a careful scrutiny, like the United Nation's inspectors
did in Iraq for the weapons of mass destruction. A recent decision of
the WTO Appellate Body, for instance, has found the Canadian government's
supply management system for the domestic market subsidized production
of export milk as a trade-distorting export subsidy. This verdict reverses
an earlier decision, clearly demonstrating that quite a significant
amount of subsidies still remain hidden. Following this decision, Canada's
dairy exports however are expected to substantially decline from the
current level of Canadian $ 415 million. On the other hand, India --
the world's biggest producer of milk - is unable to export as it cannot
reduce the prices meeting the prevailing low international milk prices
due to its inability to subsidise its dairy industry. India has no subsidies
on dairy and as per the WTO norms is now prohibited to provide any government
Not only subsidies, refunds
have also been raised several times in Europe and America as a result
of which world market prices get depressed thereby hitting domestic
producers. Butter export subsidy paid by the European Union, for instance,
is currently at a five-year high and butter export refunds have risen
to an equivalent of 60 per cent of the EU market price. Consequently,
butter oil import into India has grown at an average rate of 7.7 per
cent annually. This trend has already had a dampening effect on prices
of ghee in the domestic market.
Such is the cross-subsidisation
that American wheat is available at Chennai in south India at a landing
price much lower than that of the home grown golden grain. Food processing
units in south India therefore find it economical to import wheat than
to transport it from northern parts of the country. The result is that
while the wheat surplus in the northwestern parts of the country (wheat
cannot be grown in south India) rots in the open, traders and food processing
industry relies on imports. Wheat growers in north of the country suffer,
and many of them have gone bankrupt. The government too is reluctant
to purchase any more wheat harvest thereby creating an unprecedented
crisis for the farming community.
Food dumping has now become
a global phenomenon. Take, for instance, the British way of dumping
cheaper wheat onto the global market. In 2000, the world price of wheat
were quoted at £ 73 a tonne, the production cost of UK wheat was
£ 113 a tonne, and the UK wheat price was £ 70 a tonne.
The selling price of UK wheat was therefore £ 43 below the production
cost. Former GATT Ambassador BL Das has in an analysis explained the
process that enabled the UK farmer sell below the production cost. Accordingly,
it is because of huge subsidies paid by the government in the form of
direct payments [to compensate for reducing the previous system of price
support, wheat farmers were paid £ 226 per hectare in 2001] and
subsidy for "set-aside" (another £ 226 per hectare).
In 2000, £ 458 million was paid for 2 million hectares of wheat
and another £ 127 million for set-aside for 550,000 hectares.
Producer subsidies are also
being converted into processor subsidies so as to meet the obligations
of the WTO subsidy reduction commitments, at least on paper. According
to an estimate, in 1995-96, EU had provided US$ 48 billion under 'amber-box'
subsidies and another US $ 40 billion under 'blue' and 'green box' subsidies.
In 2002, it shifted and juggled the figures to provide US $34 billion
in 'amber' box and US $ 52 billion as 'blue' and 'green box' subsidies.
The net subsidy level however did not show any significant shift, and
in fact remained almost at the same levels: US $88 billion moving to
$86 billion. For the farmers in the developing countries, such permutation
and combinations do not bring any reduction in their misery and suffering
consequent to their being dependent upon the market forces.
The talk of providing market
access to the developed country markets has remained as elusive as other
commitments. As result, export from developed countries has increased
compared to the exports from the developing to the industrialized countries.
Exports from the developing countries have been blocked with higher
tariffs and or stiff sanitary and phytosanitary measures. Such is the
level of sensitivity to imports from the developing countries that even
minor horticultural produce is blocked. Argentina faced the music when
its honey exports to the United States were greeted with tariffs of
up to 66 per cent, effectively shutting it out of the market. The American
decision, which came in November 2002, dealt a serious blow to an industry
that provides a livelihood to thousands of farmers. Earlier, orange
exports from Argentina had met the same fate. And a few years back,
cut flower exports from India to Europe attracted a hefty import duty
thereby exerting a big blow to the nascent domestic flower industry.
And yet, there seems to be
no respite. Developing countries crying foul and moans have fallen on
deaf ears. As the President of Nigeria, Olusegun Obasanjo, recently
told an international gathering at Rome: ''Hopes for fairer markets
have been dashed by the strategic protection given by the developed
countries to their agriculture through export subsidies, tariffs, quotas
and other restrictions on commodity imports from developing countries.''
With the political leadership of the majority world clearly divided
or too weak to stand up, the European Union, United States and the Cairns
group of countries continue to play the macabre dance of free markets
acerbating marginalisation of the farming communities in the south.
Regardless of the impact
on south, the big boys go on merrily strengthening the inequalities
further. They come out with their own rules of the games, and the developing
countries are expected to appreciate and clap. The US
favours the 'Swiss formula' to lower trade-distorting domestic support
to an amount equal to 5 percent of the value of a country's total agricultural
production. This would lead to greater reductions in domestic subsidies
countries that currently have the highest levels of trade-distorting
support, and would have the effect of reducing the European Union's
limit on such subsidies from $62 billion to $12 billion and the U.S.
limit from $19 billion to $10 billion. All on paper only, knowing that
the shifting of subsidies to more suitable 'boxes' is already going
European Union's proposal
(which is still to be endorsed by each of the member countries) is to
reduce direct payments to farmers by 3 percent a year up to a total
reduction of 20 percent, leading to an estimated savings
of between 500 and 600 million euros in 2005. The proposal also aims
to cap direct payments to an individual farm at 300,000 euros. Many
will say that the EU proposal is a step ahead. While the phase out is
developing countries should open up. Not realizing that the direct payment
that the EU proposes as the upper limit, is more than the annual earning
of more than 1,000 farming families in some parts of India's hinterland.
Even in the better-endowed regions of Punjab, this will equal average
annual returns for some 100-200 small farmers.
Cairns group has called for
tighter definitions of eligible 'green box; programs. These food exporting
countries have been fighting for elimination of farm subsidies and unconditional
opening of the markets. But some food exporting countries like Indonesia,
also part of the Cairns group, has serious reservations about reducing
its tariffs that could lead to rising imports putting its domestic producers
out of business. Such a move will prevent it from providing enough rice
through domestic production for its population of over 200 million.
Indonesia had recently faced a glut of imports of cheap rice from Vietnam
while its own producers waited endlessly for buyers. India too is under
tremendous pressure to be a part of the Cairns group, not realizing
what the country requires is a food management system that focuses on
utilizing the abundant manpower and natural resources for building a
self-reliant food economy.
Already the phase out and
removal of tariffs has brought in a flood of cheaper imports in 14 countries,
an increase of 30 per cent in Senegal to 168 per cent in India (between
1990-94 and 1995-98). Food import bill has doubled for the two giants
-- India and Brazil, and increased by 50 to 100 per cent for Pakistan,
Peru, Thailand, Morocco and Bangladesh. Irate farmers in the Philippines
threw rotten vegetables in Quezon City (in November 2002) protesting
against the import of cheaper produce. Highly subsidized imports had
pushed farmgate prices to their lowest levels in the past three years,
with garlic suffering a steep decline from P98/kg in 1999 to P47/kg
in 2001, onions from P40/kg to P25/kg and cabbage from P10/kg to P6/kg.
In compliance with WTO rules
of removing trade barriers and gradually decreasing tariffs, the Philippines
government had reduced tariffs on agricultural products to an average
of 12 per cent in 2002 and plans to
further reduce it to 9 per cent by 2004. Philippines tariffs on imported
potato had already dropped to as low as 10 per cent, and those of cabbage
to 30 per cent by 2000. Considering that importing food is like importing
unemployment, the more the imports the more is destruction of the agriculture-based
economies. Food imports have a strong negative co-relation with the
multitude of small and marginal livelihoods in south, a fact that is
widely acknowledged but suitably ignored.
The benevolence of the 'Swiss
formula', the EU proposal and the Cairns group 's 'level playing field'
strategy therefore is not aimed at helping the farming communities in
the developing countries. To be repeatedly told that
an average cut in export subsidies by 45 percent, a cut of 55 percent
of domestic trade-distorting subsidies and an average tariff cut of
36 percent - like in the EU proposal -- is merely a mirage. These are
measures that come with only one underlying aim - how to protect the
food industry and the family farms in the rich and industrialized countries.
What happens in the process to the very survival of millions of small
and marginal farming communities in the south is not even a remote concern.
Developing countries cannot
afford to be a silent spectator. Globalisation has to be on equal terms.
It is based on the principles of equity and justice and not on economic
superiority. If the rich industrialized countries can protect their
agriculture, developing countries should not feel shy in doing the same.
Instead of succumbing to pressure tactics that comes along with a proposed
package of creating a 'development box' that helps in minimizing food
security damages while at the same time protecting the agriculture subsidies
in the west, a collective stand based on the following two planks appear
to be the only way forward to protect agriculture, the mainstay of the
on agricultural subsidies: Developing countries should make it categorically
clear that the negotiations will move ahead only when the subsidies
(under all 'boxes') are removed. The Agreement on Agriculture should
wait till the subsidies in the west are grounded. Any agreement without
the subsidies being removed will play havoc with developing country
agriculture. In fact, the removal of subsidies should be linked with
the removal of quantitative restrictions. That alone will provide the
necessary safeguard for developing country's agriculture and food security.
shield" for developing countries: Following Mexico's announcement
of an "agriculture shield" program aimed at ensuring that
the country's farmers are not harmed by unfair competition from the
United States, developing countries need to unilaterally adopt the shield
programme. The agricultural shield program includes compensatory tariffs
on some food products that would enter Mexico duty free as of January
1 under the North American Free Trade Agreement. Such tariff complies
with World Trade Organization policies allowing nations to take protective
action when the viability of agricultural sectors is threatened by foreign
(Devinder Sharma is a food
and trade policy analyst. He also chairs the New Delhi-based Forum for
Biotechnology & Food Security. www.dsharma.org